<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
BAREFOOT INC.
(NAME OF SUBJECT COMPANY)
SERVICEMASTER LIMITED PARTNERSHIP
(BIDDER)
COMMON STOCK, $.01 PAR VALUE 067512 10 3
(Title of Class of Securities) (CUSIP Number of Class of Securities)
VERNON T. SQUIRES
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
ONE SERVICEMASTER WAY
DOWNERS GROVE, ILLINOIS 60515-9869
TELEPHONE: (630) 271-1300
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
Copies to:
ROBERT H. KINDERMAN
KIRKLAND & ELLIS
200 E. RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
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CALCULATION OF FILING FEE
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<TABLE>
<CAPTION>
TRANSACTION AMOUNT OF
VALUATION* FILING FEE
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<S> <C>
$232,000,000 $46,400
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</TABLE>
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* Estimated solely for the purposes of determining the filing fee only. The
amount assumes the purchase of 14,519,760 Barefoot Shares (as defined
herein) at $16.00 per share. The amount of the filing fee is calculated in
accordance with Rule 0-11(d) under the Securities Exchange Act of 1934.
[X]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
$46,400
Amount Previously Paid: _________________________________
S-4 REGISTRATION STATEMENT (FILE NO.
333-17759)
Form or Registration No.: _______________________________
SERVICEMASTER LIMITED PARTNERSHIP
Filing Party: ___________________________________________
DECEMBER 12, 1996 AND JANUARY 16, 1997
(AMENDMENT NO. 1)
Date Filed: _____________________________________________
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<PAGE>
CUSIP No. 067512103 14D-1
NAME OF REPORTING PERSON
1
ServiceMaster Limited Partnership
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 36-3497008
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a)
(b)
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3 SEC USE ONLY
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SOURCE OF FUNDS*
4
BK, WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
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7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
289,000
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES*
8
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9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
2.0%
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10
TYPE OF REPORTING PERSON*
PN
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
(a) The name of the subject company is Barefoot Inc., a Delaware corporation
("Barefoot"), and the address of its principal executive offices is 450 West
Wilson Bridge Road, Worthington, Ohio 43085.
(b) This Statement relates to the offer by ServiceMaster Limited Partnership
(the "Offer"), a Delaware limited partnership ("ServiceMaster"), to acquire
all of the 14,519,760 outstanding shares of common stock, par value $.01
("Barefoot Shares"), of Barefoot, together with the associated Series A Junior
Participating Preferred Stock Purchase Rights (the "Stock Purchase Rights"),
not already owned by ServiceMaster, for, at the election of the holder,
either: (i) $16.00 in cash, without any interest thereon (the "Cash
Consideration"); or (ii) a fraction (the "Conversion Fraction") of a validly
issued, fully paid and nonassessable share ("ServiceMaster Share") of limited
partnership interest in ServiceMaster, determined by dividing $16.00 by the
greater of (x) $23.00 or (y) the average (without rounding) of the closing
price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the
New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for
the 15 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date (as defined in the Offering
Circular/Prospectus) and rounding the result to the nearest one one-hundred
thousandth of a share (the "Share Consideration" and collectively with the
Cash Consideration, the "Offer Consideration"). Pursuant to the Offer,
Barefoot stockholders may elect to receive all cash or all ServiceMaster
Shares or any combination thereof. There is no limit on the percentage of the
Offer Consideration which may be received as cash or as ServiceMaster Shares.
The Offer is made on the terms and subject to the conditions set forth in the
Offering Circular/Prospectus and in the related Letter of Transmittal/Form of
Election, copies of which are attached hereto as Exhibits (a)(1) and (a)(2).
The information set forth in the sections of the Offering Circular/Prospectus
entitled "SUMMARY--The Offer", "SUMMARY--Barefoot" and "THE OFFER" is
incorporated herein by reference.
(c) The information set forth in the section of the Offering
Circular/Prospectus entitled "SUMMARY--Market Price Data And Distributions" is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(d) and (g) This Statement is filed by ServiceMaster. The information
set forth in the sections of the Offering Circular/Prospectus entitled
"SUMMARY--ServiceMaster" and Schedule I is incorporated herein by reference.
(e)-(f) Neither ServiceMaster, nor, to the best knowledge of ServiceMaster,
any of the persons listed in Schedule I of the Offering Circular/Prospectus,
has during the last five years (i) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY
(a)-(b) The information set forth in the sections of the Offering
Circular/Prospectus entitled "THE OFFER--History of the Negotiations" and
"CERTAIN RELATIONSHIPS" is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) The information set forth in the section of the Offering
Circular/Prospectus entitled "THE OFFER--Source and Amount of Funds" is
incorporated herein by reference.
(b)-(c) ServiceMaster intends to use cash on hand and, to the extent
necessary, borrowings under its existing revolving credit agreement to pay the
Cash Consideration. ServiceMaster's revolving credit agreement is Exhibit (b)
to this Schedule 14D-1, and is incorporated herein by reference.
3
<PAGE>
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER
(a)-(e) The Offer is being made by ServiceMaster pursuant to an Acquisition
Agreement (the "Acquisition Agreement") dated as of December 5, 1996, among
ServiceMaster, ServiceMaster Acquisition Corporation ("Merger Sub"), a
Delaware corporation and wholly owned subsidiary of ServiceMaster, and
Barefoot. To complete its acquisition of Barefoot, ServiceMaster has agreed to
effect as promptly as possible after consummation of the Offer a cash-out
merger (the "Merger") of Merger Sub with and into Barefoot for $16.00 in cash
per Share without interest thereon (the "Merger Consideration") and upon the
terms and subject to the conditions set forth in a Plan and Agreement of
Merger executed simultaneously with the Acquisition Agreement (the "Merger
Agreement"). The information set forth in the sections of the Offering
Circular/Prospectus entitled "SUMMARY--The Offer"; "SUMMARY--The Merger,"
"DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT," "SUMMARY--Post-
Acquisition Operations," ANNEX A-I and ANNEX A-II is incorporated herein by
reference.
(f)-(g) Upon consummation of the Merger, ServiceMaster intends to
discontinue the quotation of the Barefoot Shares on the Nasdaq National Market
and to terminate registration of Barefoot Shares with the Securities and
Exchange Commission pursuant to Section 12(g)(4) of the Securities Exchange
Act of 1934. The information set forth in the sections of the Offering
Circular/Prospectus entitled "DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER
AGREEMENT" and "THE OFFER--Certain Effects of the Offer Pending Consummation
of the Merger" is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
(a)-(b) The information set forth in the section of the Offering
Circular/Prospectus entitled "CERTAIN RELATIONSHIPS" is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES
The information set forth in the section of Offering Circular/Prospectus
entitled "DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT" is hereby
incorporated by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information set forth in the sections of the Offering
Circular/Prospectus entitled "THE OFFER--Fees and Expenses" and "THE OFFER--
Miscellaneous" is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS
The information set forth in the sections of the Offering
Circular/Prospectus entitled "SUMMARY--SELECTED HISTORICAL FINANCIAL
INFORMATION; Selected Historical Financial Information of ServiceMaster,"
"INCORPORATION OF DOCUMENTS BY REFERENCE," "SUMMARY--SELECTED PRO FORMA
FINANCIAL INFORMATION," "SUMMARY--UNAUDITED COMPARATIVE PER SHARE DATA" and
"UNAUDITED PRO FORMA FINANCIAL INFORMATION," is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION
(a) None.
(b) The information set forth in the section of the Offering
Circular/Prospectus entitled "SUMMARY--The Offer; Regulatory Approvals" and
"THE OFFER--Certain Legal Matters; Regulatory Approvals" is incorporated
herein by reference.
4
<PAGE>
(c) The information set forth in the section of the Offering
Circular/Prospectus entitled "SUMMARY--The Offer; Regulatory Approvals" and
"THE OFFER--Certain Legal Matters; Regulatory Approvals" is incorporated herein
by reference
(d) The information set forth in the sections of the Offering
Circular/Prospectus entitled "SUMMARY--The Offer; Effects of the Offer" and
"THE OFFER--Certain Effects of the Offer Pending Consummation of the Merger" is
incorporated herein by reference.
(e) None.
(f) The information set forth in the Offering Circular/Prospectus and the
Letter of Transmittal/Form of Election is incorporated herein by reference in
its entirety.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<C> <S>
(a)(1) Offering Circular/Prospectus dated January 17, 1997.
(a)(2) Letter of Transmittal/Form of Election.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(7) Text of press releases issued by ServiceMaster and Barefoot
dated December 5, 1996 and January 17, 1997.
(a)(8) Form of summary advertisement dated January 17, 1997.
(b) Revolving Credit Agreement between ServiceMaster and certain
Lenders.
(c) The Acquisition Agreement and the Merger Agreement are set forth
as Annex A-I and Annex A-II, respectively, to the Offering
Circular/Prospectus. See Exhibit (a)(1).
(d)(1) Opinion of Kirkland & Ellis set forth as Annex C-II to the
Offering Circular/Prospectus. See Exhibit (a)(1).
(d)(2) Opinion of Vorys, Sater, Seymour and Pease set forth as Annex C-
I to the Offering Circular/ Prospectus. See Exhibit (a)(1).
(e) See Exhibit (a)(1).
</TABLE>
5
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
DATED: January 17, 1997 Servicemaster Limited Partnership
Vernon T. Squires
By: _________________________________
Name: Vernon T. Squires
Title:
Senior Vice President and
General Counsel
6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
(a)(1) Offering Circular/Prospectus dated January 17, 1997.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form
W-9.
(a)(7) Text of press releases issued by ServiceMaster dated December 5, 1996 and January
17, 1997.
(a)(8) Form of summary advertisement dated January 17, 1997.
(b) Revolving Credit Agreement between ServiceMaster and certain Lenders.
(c) The Acquisition Agreement and the Merger Agreement are set forth as Annex A-I and
Annex A-II, respectively, to the Offering Circular/Prospectus. See Exhibit (a)(1).
(d)(1) Opinion of Kirkland & Ellis set forth as Annex C-II to the Offering
Circular/Prospectus. See Exhibit (a)(1).
(d)(2) Opinion of Vorys, Sater, Seymour & Pease set forth as Annex C-I to the Offering
Circular/ Prospectus. See Exhibit (a)(1).
(e) See Exhibit (a)(1).
</TABLE>
7
<PAGE>
FILED PURSUANT TO RULE 424(b)(4)
REG. NO. 333-17759
OFFERING CIRCULAR/PROSPECTUS LOGO
OFFER BY
SERVICEMASTER LIMITED PARTNERSHIP
TO ACQUIRE EACH OUTSTANDING SHARE OF COMMON STOCK OF
BAREFOOT INC.
FOR, AT THE ELECTION OF THE HOLDER, (I) $16.00 IN CASH, OR
(II) A FRACTION OF A SHARE OF SERVICEMASTER LIMITED PARTNERSHIP
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997 UNLESS EXTENDED.
ServiceMaster Limited Partnership ("ServiceMaster"), a Delaware limited
partnership, hereby offers, upon the terms and subject to the conditions set
forth in this Offering Circular/Prospectus and the accompanying Letter of
Transmittal/Form of Election (the "Letter of Transmittal," together with the
Offering Circular/Prospectus, as they may be amended or supplemented from time
to time, the "Offer"), to acquire each outstanding share ("Share" or "Barefoot
Share") of common stock, par value $0.01 per share, of Barefoot Inc.
("Barefoot" or the "Company"), a Delaware corporation, together with the
associated Series A Junior Participating Preferred Stock Purchase Rights (the
"Stock Purchase Rights") not already owned by ServiceMaster, for, at the
election of the holder, either: (i) $16.00 in cash, without any interest
thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion
Fraction") of a share ("ServiceMaster Share") of limited partnership interest
in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00
or (y) the average (without rounding) of the closing price (the "Average
ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock
Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15
consecutive NYSE trading days ending on the fifth NYSE trading day immediately
preceding the Expiration Date (as defined) and rounding the result to the
nearest one one-hundred thousandth of a share (the "Share Consideration" and
collectively with the Cash Consideration, the "Offer Consideration"). Pursuant
to the Offer, Barefoot stockholders may elect to receive all cash or all
ServiceMaster Shares or any combination thereof. There is no limit on the
percentage of the Offer Consideration which may be received as cash or as
ServiceMaster Shares.
The Offer is conditioned on a minimum number (the "Minimum Number") of the
outstanding Barefoot Shares being tendered for either cash or ServiceMaster
Shares pursuant to the Offer such that, when added to all Barefoot Shares
owned by ServiceMaster prior to consummation of the Offer, ServiceMaster will
own at least 75.0% of the Barefoot Shares which shall be outstanding at the
Closing Time (as defined). ServiceMaster, as of the date of this Offering
Circular/Prospectus, beneficially owns 289,000 Barefoot Shares or
approximately 2.0% of the outstanding Barefoot Shares. The Offer is also
subject to certain other conditions, any or all of which may be waived by
ServiceMaster. See "The Offer--Conditions to the Offer."
The Offer is being made by ServiceMaster pursuant to an Acquisition
Agreement (the "Acquisition Agreement") dated as of December 5, 1996, among
ServiceMaster, ServiceMaster Acquisition Corporation ("Merger Sub"), a
Delaware corporation and wholly-owned subsidiary of ServiceMaster, and
Barefoot. To complete its acquisition of Barefoot, ServiceMaster has agreed to
effect as promptly as possible after consummation of the Offer a cash-out
merger (the "Merger" and collectively with the Offer, the "Transaction") of
Merger Sub with and into the Company for $16.00 in cash per Barefoot Share
without interest thereon (the "Merger Consideration") and upon the terms and
subject to the conditions set forth in a Plan and Agreement of Merger executed
simultaneously with the Acquisition Agreement (the "Merger Agreement"). See
"The Offer" and "Description of Acquisition Agreement and Merger Agreement."
(Continued on next page)
---------------
THE SERVICEMASTER SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING
CIRCULAR/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO.
---------------
The date of this Offering Circular/Prospectus is January 17, 1997.
<PAGE>
(Cover page continued)
ServiceMaster and the Company believe that, for United States federal income
tax purposes: (i) the Cash Consideration received by any holder of Barefoot
Shares tendered and accepted by ServiceMaster pursuant to the Offer will be
treated as the receipt of cash in a taxable sale of the Shares, and (ii) for
United States persons who hold Barefoot Shares as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221
of the Internal Revenue Code ("Code"), the exchange of Barefoot Shares for
ServiceMaster Shares pursuant to the Offer as provided for herein will qualify
as a tax free contribution of property to ServiceMaster within the meaning of
Section 721 of the Code. The foregoing is based upon the laws, regulations,
rulings and decisions currently in effect, all of which are subject to change.
Barefoot stockholders should consult their own tax advisors to determine the
federal, state, local and other tax consequences of participating in the Offer
or the Merger. Stockholders should note that no rulings have been or will be
sought from the Internal Revenue Service (the "IRS") with respect to the
federal income tax consequences of the Offer or the Merger, and no assurance
can be given that the IRS will not take contrary positions. See "Certain
Federal Income Tax Consequences."
Upon the terms and subject to the conditions of the Offer, ServiceMaster
will accept pursuant to the Offer any and all Shares validly tendered and not
withdrawn prior to 12:00 midnight, New York City time, on Friday, February 21,
1997, unless extended by ServiceMaster (such date, or such later date to which
the Offer may be extended, the "Expiration Date"), on the next business day
following the Expiration Date. Tenders of Shares may be withdrawn pursuant to
the procedures for withdrawal set forth herein. See "The Offer--Withdrawal
Rights." The Cash Consideration will be paid and the ServiceMaster Shares will
be delivered as promptly as practicable after acceptance of the Shares by
ServiceMaster. See "The Offer--Acceptance of Shares; Delivery of the Offer
Consideration." Any Shares not accepted pursuant to the Offer for any reason
will be returned without expense to the tendering holders thereof as promptly
as practicable after the expiration or termination of the Offer.
Any holder desiring to tender Barefoot Shares should either (i) complete and
sign the Letter of Transmittal in accordance with the instructions in the
Letter of Transmittal and deliver it with such certificates representing
Shares and all other required documents to the Exchange Agent or (ii) request
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such holder. A holder of Shares having
Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such person if such holder desires to
tender such Shares. Any holder who desires to tender Shares and cannot deliver
such Shares and all other required documents to the Exchange Agent by 12:00
midnight, New York City time, on the Expiration Date must tender such Shares
pursuant to the guaranteed delivery procedures set forth under "The Offer--
Procedure for Tendering Shares."
The Acquisition Agreement provides that ServiceMaster shall cause
ServiceMaster Shares issued pursuant to the Offer to be approved for listing
on the NYSE prior to the Closing (as defined).
BAREFOOT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE CASH CONSIDERATION
AVAILABLE IN THE OFFER AND THE MERGER CONSIDERATION ARE FAIR TO THE BAREFOOT
STOCKHOLDERS AND IN THEIR BEST INTERESTS. THE BAREFOOT BOARD HAS ALSO
DETERMINED THAT THE SHARE CONSIDERATION WHICH THE STOCKHOLDERS HAVE THE RIGHT
TO CHOOSE AS AN ALTERNATIVE TO RECEIVING $16.00 PER SHARE IN CASH IS FAIR TO
STOCKHOLDERS AND IN THEIR BEST INTERESTS, PROVIDED THAT THE BAREFOOT BOARD
EXPRESSES NO OPINION AS TO THE FAIRNESS OF THE SHARE CONSIDERATION IF THE
AVERAGE SERVICEMASTER SHARE PRICE (AS DEFINED IN THE FIRST PARAGRAPH OF THE
COVER PAGE TO THIS OFFERING CIRCULAR/ PROSPECTUS) TURNS OUT TO BE LESS THAN
$23.00. SUBJECT TO THIS PROVISO, THE BAREFOOT BOARD HAS CONCLUDED THAT THE
OFFER AND THE MERGER ARE IN THE BEST INTERESTS OF BAREFOOT AND ITS
STOCKHOLDERS AND THAT SUCH TRANSACTIONS ARE FAIR TO THE STOCKHOLDERS OF
BAREFOOT, AND IT RECOMMENDS THAT BAREFOOT STOCKHOLDERS ACCEPT THE OFFER,
TENDER THEIR SHARES PURSUANT TO THE OFFER AND, IF REQUIRED BY APPLICABLE LAW,
APPROVE AND ADOPT THE MERGER AGREEMENT. SEE "THE OFFER--RECOMMENDATION OF THE
BAREFOOT DIRECTORS."
ii
<PAGE>
(Cover page continued)
Because the market price for ServiceMaster Shares will fluctuate, the market
price for the fraction of a ServiceMaster Share issuable in exchange for each
Share at any time on or after the Closing Date is likely to be higher or lower
than $16.00. Each Barefoot stockholder has the right to decide whether to
receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot
stockholder may wish to consider in connection with such decision include: the
value to the Barefoot stockholder of the ability to defer recognition of any
capital gain for federal income tax purposes by electing to receive
ServiceMaster Shares; the inclination of such stockholder to continue to hold
the ServiceMaster Shares received in the Offer (since a capital gain tax may
be imposed when the ServiceMaster Shares are sold); the stockholder's
willingness to assume the risk inherent in holding ServiceMaster equity
securities with a view to possibly realizing future gains (as to which no
assurance can be given); and the stockholder's evaluation of the
attractiveness of alternative investments which the stockholder would be able
to make with the net after tax proceeds which the stockholder would receive if
the stockholder elected to receive the Cash Consideration. A stockholder who
would be subject to little or no tax upon the disposition of Shares will
likely give little or no weight to the tax related factors identified above
and may accordingly evaluate the relative attractiveness of the Share
Consideration and Cash Consideration differently from a stockholder who is in
a taxable situation. The foregoing does not purport to be a complete list of
all of the factors which may be relevant to a stockholder's decision to
receive cash or ServiceMaster Shares. See "Certain Federal Income Tax
Consequences."
In addition, if, and to the extent, the Average ServiceMaster Share Price
(determined as described in the first paragraph on the cover of this Offering
Circular/Prospectus) should turn out to be below $23.00, the risk that the
market value on the Closing Date of the Share Consideration will be less than
the $16.00 Cash Consideration available to Barefoot stockholders would
increase. ServiceMaster will issue a press release and file an amendment to
its Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share
Price is determined disclosing the amount of that price. In addition, on or
after the fourth NYSE trading day immediately preceding the Expiration Date,
each Barefoot stockholder can call the Information Agent at (800) 848-3410 to
obtain the Average ServiceMaster Share Price. Since Barefoot stockholders have
the ability to switch their elections between Share Consideration and Cash
Consideration until midnight on the Expiration Date of the Offer, Barefoot
stockholders should review this ServiceMaster announcement so that their final
election can take into account the Average ServiceMaster Share Price as well
as the market price for ServiceMaster Shares on or near the Expiration Date.
Patrick J. Norton (Barefoot's Chief Executive Officer) has advised
ServiceMaster that it is his present intention to tender all of his Barefoot
Shares (which represent approximately 9.5% of all outstanding Barefoot Shares)
and to elect the Share Consideration for substantially all of such Tendered
Shares. Mr. Norton's action is not intended to constitute advice or a
recommendation as to whether or not any other Barefoot stockholder should
tender or how any other Barefoot stockholder should choose between the Cash
Consideration and Share Consideration alternatives.
NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER
STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE
CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR
OWN DECISION WITH RESPECT TO SUCH ELECTION.
On December 4, 1996, the last full trading day prior to the announcement by
ServiceMaster and Barefoot that they had entered into the Acquisition
Agreement, the closing price of ServiceMaster Shares as reported by the NYSE
Composite Tape, was $24.625 per ServiceMaster Share and the closing price of
the Barefoot Shares, as reported on the Nasdaq National Market, was $12.75 per
Barefoot Share. The closing prices of ServiceMaster Shares and the Barefoot
Shares on January 15, 1997, the most recent date prior to the printing of this
Offering Circular/Prospectus, as reported by the NYSE Composite Tape and the
Nasdaq National Market, respectively, were $26.125 per ServiceMaster Share and
$15.75 per Barefoot Share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS.
iii
<PAGE>
(Cover page continued)
THIS OFFERING CIRCULAR/PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY
DECISION IS MADE WITH RESPECT TO THE OFFER.
Questions and requests for assistance or additional copies of this Offering
Circular/Prospectus and the Letter of Transmittal may be directed to the
Exchange Agent or the Information Agent at their respective addresses and
telephone numbers set forth on the back cover of this Offering
Circular/Prospectus.
This Offering Circular/Prospectus, together with the Letter of Transmittal,
is being sent to holders of Shares on or about January 17, 1997.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS OFFERING CIRCULAR/PROSPECTUS IN
CONNECTION WITH THE OFFER, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
SERVICEMASTER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SERVICEMASTER SHARES TO WHICH IT RELATES OR AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION MAY NOT BE LEGALLY MADE. THE DELIVERY OF THIS OFFERING
CIRCULAR/PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
NO ACTION HAS BEEN OR WILL BE TAKEN BY SERVICEMASTER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE SERVICEMASTER SHARES OR THE CIRCULATION OR DISTRIBUTION
OF THIS OFFERING CIRCULAR/PROSPECTUS OR ANY OFFERING MATERIAL IN RELATION TO
SERVICEMASTER OR THE SERVICEMASTER SHARES IN ANY COUNTRY OR JURISDICTION OTHER
THAN THE UNITED STATES WHERE ACTION FOR THAT PURPOSE IS REQUIRED.
IN ACCORDANCE WITH VARIOUS STATE SECURITIES LAWS APPLICABLE TO THE OFFER
WHICH REQUIRE THE OFFER TO BE MADE TO THE PUBLIC BY A LICENSED BROKER OR
DEALER, THE OFFER IS HEREBY MADE TO HOLDERS OF SHARES RESIDING IN EACH SUCH
STATE BY GOLDMAN, SACHS & CO. ON BEHALF OF SERVICEMASTER.
iv
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TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................................... 3
INCORPORATION OF DOCUMENTS BY REFERENCE..................................... 3
SUMMARY..................................................................... 5
THE OFFER................................................................... 20
DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT................... 44
CERTAIN RELATIONSHIPS....................................................... 53
DESCRIPTION OF SERVICEMASTER SHARES......................................... 53
DESCRIPTION OF THE BAREFOOT SHARES.......................................... 54
COMPARISON OF SERVICEMASTER SHARES AND THE SHARES........................... 56
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................... 57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................... 64
VALIDITY OF THE SERVICEMASTER SHARES........................................ 65
EXPERTS..................................................................... 66
ANNEX A-I--THE ACQUISITION AGREEMENT
ANNEX A-II--THE MERGER AGREEMENT
ANNEX B--OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
ANNEX C-I--OPINION OF VORYS, SATER, SEYMOUR AND PEASE
ANNEX C-II--OPINION OF KIRKLAND & ELLIS
ANNEX D--CERTAIN PORTIONS OF SERVICEMASTER'S 1995 FORM 10-K
SCHEDULE I--DIRECTORS AND EXECUTIVE OFFICERS OF SERVICEMASTER
</TABLE>
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AVAILABLE INFORMATION
ServiceMaster has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-4 (the
"Registration Statement") (which term shall encompass all amendments, exhibits
and schedules thereto) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities being offered hereby. This
Offering Circular/Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, and to which reference is
hereby made. Such additional information can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661; and 75 Park Place, New York, New
York 1007. Copies of such material can be obtained by mail from the public
reference section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a
WEB site that contains reports, proxy information statements and other
information regarding registrants that file electronically with the
Commission. The address of such WEB site is http://www.sec.gov. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete but are complete in all
material respects for the purposes made herein. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
ServiceMaster is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files periodic reports and other information with the Commission.
Such reports and other information filed with the Commission, as well as the
Registration Statement, can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 75 Park
Place, New York, New York 10007. Copies of such material can also be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates or by accessing the
Commission's WEB site. Such reports and other information with respect to
ServiceMaster are available for inspection at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by
ServiceMaster (File No. 1-9378) pursuant to the Exchange Act are specifically
incorporated herein by reference:
1. ServiceMaster's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 ("ServiceMaster 1995 10-K");
2. ServiceMaster's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1996, June 30, 1996 and September 30, 1996; and
3. ServiceMaster's Current Report on Form 8-K dated January 15, 1996.
The following documents previously filed with the Commission by Barefoot
(File No. 1-9602) pursuant to the Exchange Act are specifically incorporated
herein by reference:
1. Barefoot's Transition Report on Form 10-K for the nine month period
ended December 31, 1995 ("Barefoot 1995 10-K");
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2. Barefoot's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996; and
3. Barefoot's Current Report on Form 8-K dated December 11, 1996.
All documents filed by ServiceMaster or Barefoot with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination or completion of
the Offer shall be deemed to be incorporated by reference in this Offering
Circular/Prospectus and to be part of this Offering Circular/Prospectus from
the date of the filing of such document. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Offering
Circular/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Offering
Circular/Prospectus.
ServiceMaster and Barefoot each hereby undertake to provide without charge
to each person, including a beneficial owner, to whom a copy of this Offering
Circular/Prospectus has been delivered, upon the written or oral request of
such person, a copy of any or all of the information filed by it that has been
incorporated by reference in this Offering Circular/Prospectus (not including
exhibits to the information that is incorporated by reference herein unless
such exhibits are specifically incorporated by reference in such information).
Requests for such information should be directed to ServiceMaster at One
ServiceMaster Way, Downers Grove, Illinois 60515-9969, Attention: Investor
Relations (telephone number: (630) 271-1300) and to Barefoot at 450 West
Wilson Bridge Road, Worthington, Ohio 43085, Attention: Investor Relations
(telephone number: (614) 846-1800).
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) contained
elsewhere (including the Annexes and Schedules), or incorporated by reference
in, this Offering Circular/Prospectus. Certain capitalized terms used in this
summary are defined elsewhere in this Offering Circular/Prospectus. Unless the
context otherwise requires, references to "ServiceMaster" mean ServiceMaster
Limited Partnership, a Delaware limited partnership, and its subsidiaries.
Unless the context otherwise requires, references to "Barefoot" or the
"Company" mean Barefoot Inc., a Delaware corporation and its subsidiaries.
Prospective investors are urged to read this Offering Circular/Prospectus
(including the Annexes and Schedule I) in its entirety.
SERVICEMASTER
BUSINESS
ServiceMaster, and its subsidiary, The ServiceMaster Company Limited
Partnership ("SMCLP"), were formed in December 1986 as limited partnerships to
succeed to the business and assets of ServiceMaster Industries Inc., which
began its operation in 1947. ServiceMaster is a holding company whose limited
partnership shares are listed on the New York Stock Exchange and whose
principal asset consists of all of the common limited partner interest of
SMCLP.
ServiceMaster, through its subsidiaries, provides a range of services to
individual consumers, businesses and institutions in the United States and 30
other countries throughout the world. ServiceMaster is divided into four
operating groups: Consumer Services, Management Services, Diversified Health
Services and International. Consumer Services and Management Services are the
principal operating groups.
ServiceMaster Consumer Services L.P. provides services to over 6,000,000
residential and commercial customers through seven market leading companies:
TruGreen L.P., which provides lawn care, tree and shrub services and indoor
plant maintenance under the "TruGreen", "ChemLawn" and "TruGreen-ChemLawn"
service marks; The Terminix International Company L.P., which provides termite,
pest control and radon testing services under the "Terminix" service mark;
ServiceMaster Residential/Commercial Services L.P., which provides residential
and commercial cleaning and disaster restoration services under the
"ServiceMaster" service mark; Merry Maids L.P., which provides domestic
housekeeping services under the "Merry Maids" service mark; American Home
Shield Corporation, which provides home system and appliance warranty contracts
and home inspection services under the "American Home Shield" and "AmeriSpec"
service marks; and Furniture Medic L.P., which provides in-home furniture
repair and restoration services under the "Furniture Medic" service mark. These
services are part of the "ServiceMaster Quality Network" and may be accessed by
calling a single toll-free telephone number: 1-800-WE SERVE.
ServiceMaster Management Services L.P. is organized into three discrete
operating units: ServiceMaster Healthcare Management Services, Education
Management Services and Business and Industry Management Services. Each of
these three units provides to their respective customers a variety of
supportive management services, including the management of housekeeping, plant
operations and maintenance, clinical equipment maintenance, laundry and linen,
grounds and landscaping, energy management services and food service.
The business of ServiceMaster and its organizational structure are discussed
in further detail in the ServiceMaster 1995 10-K. Such portions of the
ServiceMaster 1995 10-K are set forth in Annex D and are specifically
incorporated by reference in this Offering Circular/Prospectus. See
"Incorporation of Documents by Reference."
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THE 1992 REORGANIZATION; THE REINCORPORATING MERGER
ServiceMaster, as a publicly traded limited partnership, is currently treated
as a partnership for tax purposes. This means that ServiceMaster is not
directly subject to Federal and most state income taxes; instead, its taxable
income is allocated to its partners. However, the Internal Revenue Code
provides that after December 31, 1997, publicly traded partnerships such as
ServiceMaster will be taxed as if they were corporations. As a result,
ServiceMaster can expect that after the year 1997, its taxable income will be
subject to the corporate tax rate and that its dividends will be taxed to its
stockholders.
Recognizing that the tax benefits of the partnership form of organization
were likely to expire at the end of 1997, on January 13, 1992 the shareholders
of ServiceMaster approved a "Reorganization Package" consisting of a
comprehensive amendment and restatement of ServiceMaster's partnership
agreement and a merger by which ServiceMaster can convert to corporate form.
Such conversion is planned to occur at the end of December 1997; however,
pursuant to the Reorganization Package, the Board of Directors of ServiceMaster
Management Corporation (the "ServiceMaster Board"), ServiceMaster's general
partner (the "Corporate General Partner"), has the authority to accelerate the
conversion date to a date prior to December 31, 1997. The best interests of the
holders of a majority of ServiceMaster's Shares will be the determinative
consideration in whether or not to accelerate the conversion date. No such
acceleration is currently anticipated.
The merger agreement which was approved as part of the Reorganization Package
provides for the merger by which ServiceMaster expects to return to corporate
form (the "Reincorporating Merger"). ServiceMaster Incorporated of Delaware has
been organized to become the successor entity through which the public will
invest in ServiceMaster after the Reincorporating Merger. UPON CONSUMMATION OF
THE REINCORPORATING MERGER, ALL OF THE SERVICEMASTER SHARES, INCLUDING THE
SERVICEMASTER SHARES ISSUED PURSUANT TO THE OFFER, WILL BE CONVERTED ON A NON-
TAXABLE ONE-FOR-ONE BASIS INTO NEW SHARES OF COMMON STOCK OF SERVICEMASTER
INCORPORATED. As a result of these conversions, ServiceMaster Incorporated will
be entirely owned by the persons who, collectively, owned all of the limited
partner shares of ServiceMaster immediately prior to the Reincorporating
Merger. The Reincorporating Merger is not expected to cause any change in
ServiceMaster's dividend payment policy which, for the past 26 years, has been
to increase the dividend each year.
For further information concerning the changes effected by the 1992
Reorganization, see the discussion captioned "Description of the Structure of
the ServiceMaster Enterprise" beginning on page 11 of the ServiceMaster 1995
10-K, which is specifically incorporated by reference in this Offering
Circular/Prospectus and set forth in Annex D hereof. See "Incorporation of
Documents by Reference" and "Description of ServiceMaster Shares."
MISCELLANEOUS
As of December 31, 1996, (i) approximately 142,400,000 ServiceMaster Shares
were issued and outstanding, (ii) not more than 11,000,000 ServiceMaster Shares
were reserved for option and employee benefit plans of ServiceMaster, and (iii)
the number of additional shares which ServiceMaster may be required to issue as
a result of convertible debt and other outstanding rights (in addition to the
rights cited in clause (ii)) did not exceed 3,000,000 shares.
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of ServiceMaster are set forth in Schedule I hereto.
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ServiceMaster's principal executive offices are located at One ServiceMaster
Way, Downers Grove, Illinois 60515-9969. Its telephone number at that address
is (630) 271-1300.
BAREFOOT
Barefoot, operating through its subsidiaries, is the second largest
professional residential lawn care service company in the United States. The
Company provides periodic applications of fertilizer and as-needed applications
of weed and insect controls for residential and commercial customers.
Barefoot's standard lawn care program consists of five to eight applications
per year depending on the climate of the service area. The Company exclusively
uses dry granular fertilizer, which it believes enables it to more readily
tailor its lawn care treatments to the specific needs of customers' lawns. The
Company also provides its lawn care customers with additional service options,
such as tree and shrub care, lawn aeration, liming and seeding.
The Company's services are provided to customers in 103 metropolitan markets,
primarily in the central and eastern United States. Of these markets, 53 are
served by Company-owned branches, 47 are served by franchises and three are
served by "branchises", which are franchises managed by the Company under
management agreements, with the Company retaining a purchase option at a
specified price.
The business of Barefoot is discussed in further detail in the Barefoot 1995
10-K, which is specifically incorporated by reference in this Offering
Circular/Prospectus. See "Incorporation of Documents by Reference."
The authorized capital stock of Barefoot consists of 40,000,000 Shares and
5,000,000 shares of Preferred Stock, $0.01 par value (the "Preferred Stock").
As of the date hereof, 14,519,760 Shares are issued and outstanding and
2,277,000 Shares are held in the treasury of Barefoot. As of the date hereof,
ServiceMaster beneficially owns 289,000 Shares or approximately 2.0% of the
outstanding Shares. As of the date hereof, no shares of Preferred Stock are
issued and outstanding and 400,000 shares of Preferred Stock have been
designated as Series A Junior Participating Preferred Stock issuable upon
exercise of the Stock Purchase Rights. As of the date hereof, options to
acquire an aggregate of 412,550 Shares have been issued pursuant to stock
options. See "Description of the Barefoot Shares," and "Comparison of
ServiceMaster Shares and the Shares."
Barefoot's principal executive offices are located at 450 West Wilson Bridge
Road, Worthington, Ohio 43085. Its telephone number at that address is (614)
846-1800.
MERGER SUB
Merger Sub is a Delaware corporation organized in December 1996. Merger Sub
has no operations and has not engaged in any significant activities other than
in connection with the Acquisition Agreement, the Merger Agreement and the
transactions contemplated thereby. Merger Sub's principal executive offices are
located at One ServiceMaster Way, Downers Grove, Illinois 60515-9969. Its
telephone number at that address is (630) 271-1300.
POST-ACQUISITION OPERATIONS
Upon completion of the Transaction, ServiceMaster expects to combine the
operations of Barefoot with the operations of ServiceMaster's TruGreen-ChemLawn
subsidiary ("TruGreen-ChemLawn"). The objective in combining the operations of
the two companies is to expand market opportunities, enhance economies of scale
and achieve productivity improvements. Because the branch networks of Barefoot
overlap substantially with the branch networks of TruGreen-ChemLawn,
ServiceMaster expects to consolidate a number of locations, increase route
density and reduce overheads.
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ServiceMaster also expects to add Barefoot's over 500,000 customers to
ServiceMaster's over 6,000,000 Consumer Services customers. ServiceMaster will
be able, through its Consumer Services subsidiaries, to offer these Barefoot
customers the full array of high quality consumer services which are available
through ServiceMaster's Quality Service Network.
Upon the completion of the Transaction, Barefoot will exist as a wholly owned
subsidiary of ServiceMaster. ServiceMaster may transfer the business and assets
of such subsidiary to ServiceMaster's TruGreen Limited Partnership or another
limited partnership subsidiary in exchange for a partnership interest in such
transferee, or ServiceMaster may decide to retain the business and assets of
Barefoot within the separate Barefoot structure. In either case, ServiceMaster
expects that changes will be made in Barefoot's business and in the composition
of its management and personnel.
THE OFFER
HISTORY OF THE NEGOTIATIONS
For a complete description of the events leading up to the approval of the
Acquisition Agreement and the Merger Agreement by the Board of Directors of
Barefoot (the "Barefoot Board"), see "The Offer--History of the Negotiations."
RECOMMENDATION OF THE BAREFOOT BOARD
BAREFOOT'S BOARD HAS DETERMINED THAT THE CASH CONSIDERATION AVAILABLE IN THE
OFFER AND THE MERGER CONSIDERATION ARE FAIR TO THE BAREFOOT STOCKHOLDERS AND IN
THEIR BEST INTERESTS. THE BAREFOOT BOARD HAS ALSO DETERMINED THAT THE SHARE
CONSIDERATION WHICH THE STOCKHOLDERS HAVE THE RIGHT TO CHOOSE AS AN ALTERNATIVE
TO RECEIVING $16.00 PER SHARE IN CASH IS FAIR TO STOCKHOLDERS AND IN THEIR BEST
INTERESTS, PROVIDED THAT THE BAREFOOT BOARD EXPRESSES NO OPINION AS TO THE
FAIRNESS OF THE SHARE CONSIDERATION IF THE AVERAGE SERVICEMASTER SHARE PRICE
TURNS OUT TO BE LESS THAN $23.00. SUBJECT TO THIS PROVISO, THE BAREFOOT BOARD
HAS CONCLUDED THAT THE OFFER AND THE MERGER ARE IN THE BEST INTERESTS OF
BAREFOOT AND ITS STOCKHOLDERS AND THAT SUCH TRANSACTIONS ARE FAIR TO THE
STOCKHOLDERS OF BAREFOOT, AND IT RECOMMENDS THAT THE BAREFOOT STOCKHOLDERS
ACCEPT THE OFFER, TENDER THEIR SHARES PURSUANT TO THE OFFER AND IF REQUIRED BY
APPLICABLE LAW, APPROVE AND ADOPT THE MERGER AGREEMENT. SEE "THE OFFER--
RECOMMENDATION OF THE BAREFOOT DIRECTORS."
In determining to recommend that the stockholders of Barefoot accept the
Offer and approve the Merger, the Board considered a number of factors,
including among others:
. the current and historical market prices of the Shares and that the
Offer Consideration and the Merger Consideration (collectively, the
"Consideration") represent a premium over recent market prices;
. the opinion of its financial advisor regarding the fairness of the
Consideration from a financial point of view; and
. the terms and conditions of the Acquisition Agreement.
See "The Offer--Recommendation of the Barefoot Board," and "--Reasons for the
Transaction" and "--Opinion of Barefoot Financial Advisor."
OPINION OF BAREFOOT FINANCIAL ADVISOR
The Company has retained Robert W. Baird & Co. Incorporated ("Baird") as its
financial advisor. On December 4, 1996, Baird rendered its opinion to the
Barefoot Board to the effect that, as of such
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date the Cash Consideration and the Merger Consideration are fair, from a
financial point of view, to the Barefoot stockholders. Baird has also rendered
its opinion to the Barefoot Board to the effect that, as of December 4, 1996
the Share Consideration is fair, from a financial point of view, to the
Barefoot stockholders subject to the proviso that because the Barefoot
stockholders can elect to receive cash pursuant to the Offer at any time prior
to the expiration of the Offer, Baird expresses no opinion as to the fairness
of the Share Consideration if the Average ServiceMaster Share Price (calculated
as described in the first paragraph on the cover of this Offering
Circular/Prospectus) is less than $23.00. See "The Offer--Opinion of Barefoot
Financial Advisor."
TERMS OF THE OFFER; OFFER CONSIDERATION
ServiceMaster is offering to acquire each outstanding Barefoot Share,
together with the associated Series A Junior Participating Preferred Stock
Purchase Rights, not already owned by ServiceMaster, for, at the election of
the holder, either (i) $16.00 in cash, without any interest thereon or (ii) a
fraction of a ServiceMaster Share determined by dividing $16.00 by the greater
of (x) $23.00 or (y) the average (without rounding) of the closing price of
ServiceMaster Shares on the NYSE as reported on the NYSE Composite Tape for the
15 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date and rounding the result to the
nearest one one-hundred thousandth of a share. To be eligible to receive cash
or ServiceMaster Shares pursuant to the Offer, a holder of Barefoot Shares must
validly tender and not withdraw Shares on or prior to the Expiration Date.
Pursuant to the Offer, Barefoot stockholders may elect to receive all cash or
all ServiceMaster Shares or any combination thereof. There is no limit on the
percentage of the Offer Consideration which may be received as cash or as
ServiceMaster Shares. Barefoot stockholders that validly tender Shares but do
not make an election will receive the Cash Consideration. See "The Offer--Terms
of the Offer" and "--Offer Consideration."
Because the market price for ServiceMaster Shares will fluctuate, the market
price for the fraction of a ServiceMaster Share issuable in exchange for each
Share at any time on or after the Closing Date is likely to be higher or lower
than $16.00. Each Barefoot stockholder has the right to decide whether to
receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot
stockholder may wish to consider in connection with such decision include: the
value to the Barefoot stockholder of the ability to defer recognition of any
capital gain for federal income tax purposes by electing to receive
ServiceMaster Shares; the inclination of such stockholder to continue to hold
the ServiceMaster Shares received in the Offer (since a capital gain tax may be
imposed when the ServiceMaster Shares are sold); the stockholder's willingness
to assume the risk inherent in holding ServiceMaster equity securities with a
view to possibly realizing future gains (as to which no assurance can be
given); and the stockholder's evaluation of the attractiveness of alternative
investments which the stockholder would be able to make with the net after tax
proceeds which the stockholder would receive if the stockholder elected to
receive the Cash Consideration. A stockholder who would be subject to little or
no tax upon the disposition of Shares will likely give little or no weight to
the tax related factors identified above and may accordingly evaluate the
relative attractiveness of the Share Consideration and Cash Consideration
differently from a stockholder who is in a taxable situation. The foregoing
does not purport to be a complete list of all of the factors which may be
relevant to a stockholder's decision to receive cash or ServiceMaster Shares.
See "Certain Federal Income Tax Consequences."
In addition, if, and to the extent, the Average ServiceMaster Share Price
(determined as described in the first paragraph on the cover of this Offering
Circular/Prospectus) should turn out to be below $23.00, the risk that the
market value on the Closing Date of the Share Consideration will be less than
the $16.00 Cash Consideration available to Barefoot stockholders would
increase. ServiceMaster will issue a press release and file an amendment to its
Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share
Price is determined disclosing the amount of that price. In addition, on or
after the fourth NYSE trading day immediately preceding the Expiration Date,
each Barefoot
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stockholder can call the Information Agent at (800) 848-3410 to obtain the
Average ServiceMaster Share Price. Since Barefoot stockholders have the ability
to switch their elections between Share Consideration and Cash Consideration
until midnight on the Expiration Date of the Offer, Barefoot stockholders
should review this ServiceMaster announcement so that their final election can
take into account the Average ServiceMaster Share Price as well as the market
price for ServiceMaster Shares on or near the Expiration Date.
Patrick J. Norton (Barefoot's Chief Executive Officer) has advised
ServiceMaster that it is his present intention to tender all of his Barefoot
Shares (which represent approximately 9.5% of all outstanding Barefoot Shares)
and to elect the Share Consideration for substantially all of such Tendered
Shares. Mr. Norton's action is not intended to constitute advice or a
recommendation as to whether or not any other Barefoot stockholder should
tender or how any other Barefoot stockholder should choose between the Cash
Consideration and Share Consideration alternatives.
NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER
STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE
CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR
OWN DECISION WITH RESPECT TO SUCH ELECTION.
On December 4, 1996, the last full trading day prior to the announcement by
ServiceMaster and Barefoot that they had entered into the Acquisition
Agreement, the closing price of ServiceMaster Shares as reported by the NYSE
Composite Tape, was $24.625 per share and the closing price of the Shares, as
reported on the Nasdaq National Market, was $12.75 per share. The closing
prices of ServiceMaster Shares and the Shares on January 15, 1997, the most
recent date prior to the printing of this Offering Circular/Prospectus, as
reported by the NYSE Composite Tape and the Nasdaq National Market,
respectively, were $26.125 per share and $15.75 per share, respectively.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
THE EXPIRATION DATE
12:00 midnight, New York City time, on Friday, February 21, 1997, unless
ServiceMaster in its sole discretion extends the Offer, in which case the term
"Expiration Date" shall refer to the latest time and date at which the Offer,
as extended by ServiceMaster, shall expire. See "The Offer--Terms of the
Offer."
CONDITIONS OF THE OFFER
The Offer is conditioned on a minimum number (the "Minimum Number") of the
outstanding Shares being tendered for either cash or ServiceMaster Shares
pursuant to the Offer such that, when added to all Shares owned by
ServiceMaster prior to consummation of the Offer, ServiceMaster will own at
least 75.0% of the Shares which shall be outstanding at the Closing Time.
ServiceMaster, as of the date of this Offering Circular/Prospectus,
beneficially owns 289,000 Shares or approximately 2.0% of the outstanding
Shares. The Offer is also subject to certain other conditions, and all such
conditions may be waived in the sole discretion of ServiceMaster. See "The
Offer--Conditions to the Offer."
ELECTION PROCEDURES
Each holder of Shares which have been properly tendered and not withdrawn
pursuant to the Offer by 12:00 midnight New York City time on the Expiration
Date ("Tendered Shares"), shall have the right, subject to the limitations set
forth under the caption "The Offer--Election Procedures," to specify the number
of Tendered Shares that such holder desires to have exchanged into the Share
Consideration pursuant to the Offer and the number of Tendered Shares that such
holder desires to have exchanged for the Cash Consideration pursuant to the
Offer (an "Election"). Any Election shall
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have been made properly only if the Exchange Agent shall have received, by
12:00 midnight New York City time on the Expiration Date, a Letter of
Transmittal, or a Notice of Guaranteed Delivery if the guaranteed delivery
procedure is followed, in either case, properly completed and signed. Any
Company stockholder may at any time prior to 12:00 midnight New York City time
on the Expiration Date, change his or her Election only by written notice,
signed and dated by the stockholder, to the Exchange Agent. Such written notice
must identify the name of the holder of record of the Barefoot Shares subject
to such notice and the certificate number shown on the Certificate(s)
representing such Barefoot Shares. The written notice must be received by the
Exchange Agent prior to 12:00 midnight New York City time on the Expiration
Date. Each Tendered Share for which a Cash Election has been received and each
Tendered Share as to which an Election is not in effect at 12:00 midnight New
York City time on the Expiration Date, (a "Non-Electing Share") shall be, at
the Closing, exchanged for the Cash Consideration in the Offer. See "The Offer-
Election Procedures."
PROCEDURE FOR TENDERING
Holders of Shares desiring to accept the Offer must complete and sign the
Letter of Transmittal, with any required signature guarantees and any other
required documents, and forward or hand deliver it to the Exchange Agent,
accompanied or preceded by certificates for the Shares to which such Letter of
Transmittal relates (or by compliance with the specified procedures for
guaranteed delivery of such certificates). Certain financial institutions may
also effect tenders by book-entry delivery. Holders of Shares having such
Shares registered in the name of a broker, dealer, commercial bank, trust
company or nominee are urged to contact such person promptly if they wish to
tender any Shares pursuant to the Offer. See "The Offer--Procedures for
Tendering Shares."
WITHDRAWAL RIGHTS
Subject to the conditions set forth herein, tenders of Shares may be
withdrawn at any time on or prior to the Expiration Date, and, unless accepted
for exchange, after March 17, 1997. See "The Offer--Withdrawal Rights."
NO FRACTIONAL SHARES
No fractional ServiceMaster Shares will be distributed. Holders of Shares who
would otherwise be entitled to receive a fractional ServiceMaster Share will be
paid cash in lieu of such fraction. See "The Offer--Election Procedures."
DELIVERY OF CASH OR SERVICEMASTER SHARES
ServiceMaster will deliver cash or ServiceMaster Shares in accordance with
the Election made by each holder of Tendered Shares, or cash if no Election is
made, as soon as practicable after acceptance of such Tendered Shares. See "The
Offer--Offer Consideration," "The Offer--Election Procedures" and "The Offer--
Acceptance of Shares; Delivery of the Offer Consideration."
EXCHANGE AGENT
The Exchange Agent for the Offer is Harris Trust Company of New York.
11
<PAGE>
DEALER MANAGER
The Dealer Managers for the Offer are Goldman, Sachs & Co.
INFORMATION AGENT
The Information Agent for the Offer is D. F. King & Co., Inc.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
ServiceMaster and the Company believe that, for United States federal income
tax purposes: (i) the Cash Consideration received pursuant to the Offer will be
treated as the receipt of cash in a taxable sale of the Barefoot Shares, and
(ii) for United States persons who hold Barefoot Shares as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the Code, the exchange of Barefoot Shares for ServiceMaster Shares pursuant to
the Offer as provided for herein will qualify as a tax free contribution of
property to ServiceMaster within the meaning of Section 721 of the Code. The
foregoing is based upon the laws, regulations, rulings and decisions currently
in effect, all of which are subject to change. Barefoot stockholders should
consult their own tax advisors to determine the federal, state, local and other
tax consequences of participating in the Offer or the Merger. Barefoot
stockholders should note that no rulings have been or will be sought from the
IRS with respect to the federal income tax consequences of the Offer or the
Merger, and no assurance can be given that the IRS will not take contrary
positions. See "Certain Federal Income Tax Consequences." The discussion
contained in "Certain Federal Income Tax Consequences--The Offer" constitutes
the opinions of Vorys, Sater, Seymour and Pease and Kirkland & Ellis, subject
to the qualifications stated therein. Copies of such opinions have been
included as Annex C-I and Annex C-II, respectively, to this Offering
Circular/Prospectus. Such opinions, however, have no binding effect on the IRS
or the courts.
REGULATORY APPROVALS
In addition to required compliance with federal and state securities laws and
state corporate laws, the Offer is subject to Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), which provides that
certain acquisition transactions may not be consummated unless certain required
information is filed with the Antitrust Division of the Department of Justice
and the Federal Trade Commission, and certain waiting period requirements have
been satisfied. The waiting period requirements under the HSR Act expired on
January 5, 1997 without a request for additional information. See "The Offer--
Certain Legal Matters; Regulatory Approvals."
EFFECTS OF THE OFFER
The purchase of Barefoot Shares pursuant to the Offer will reduce the number
of Barefoot Shares that might otherwise trade publicly and the number of
holders of Barefoot Shares, which could adversely affect the liquidity and
market value of the remaining Barefoot Shares held by the public pending
completion of the Merger. The Barefoot Shares are currently traded on the
Nasdaq National Market, and depending on the number of Barefoot Shares acquired
pursuant to the Offer, the Barefoot Shares may no longer meet the requirements
for listing on the Nasdaq National Market, and the Barefoot Shares may no
longer constitute "margin securities" for purposes of the Federal Reserve Board
and therefore could no longer be used as collateral for loans made by brokers.
If the Barefoot Shares are no longer listed on a national securities exchange
and there are fewer than 300 record holders of the Barefoot Shares,
registration of the Barefoot Shares under the Exchange Act may be terminated,
which would reduce the amount of publicly available information about Barefoot
and would make certain provisions of the Exchange Act inapplicable to Barefoot.
See "The Offer--Certain Effects of the Offer Pending Consummation of the
Merger."
12
<PAGE>
THE MERGER
The Acquisition Agreement and the Merger Agreement provide that, following
the completion of the Offer, the approval and adoption of the Merger Agreement
by the holders of Barefoot Shares, if required by applicable law, and the
satisfaction or waiver of certain other conditions, Merger Sub will be merged
with and into Barefoot with Barefoot as the surviving corporation, and the
separate existence of Merger Sub shall cease. As a result of the Merger,
Barefoot will become a wholly owned subsidiary of ServiceMaster. Pursuant to
the Merger, each outstanding Barefoot Share (other than Barefoot Shares held by
ServiceMaster or any subsidiary of ServiceMaster and any Barefoot stockholders
who perfect their appraisal rights under Delaware law) will be converted into
the right to receive the Merger Consideration ($16.00 per Barefoot Share in
cash without interest thereon). See "The Offer--The Merger."
13
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL INFORMATION OF SERVICEMASTER
The summary of selected historical financial information set forth below as
of and for each of the years in the five year period ended December 31, 1995
has been derived from the consolidated financial statements of ServiceMaster
and its subsidiaries, which statements have been audited by Arthur Andersen
LLP, independent public accountants for ServiceMaster. The historical data as
of and for the nine months ended September 30, 1995 and 1996 are derived from
unaudited financial statements which, in the opinion of ServiceMaster
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such dates and for such periods. Historical results
for the interim periods ended September 30 are not necessarily indicative of
the results for the full year.
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)(1)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenue............. $2,110 $2,489 $2,759 $2,985 $3,203 $2,415 $2,584
Cost of services rendered and
products sold................ 1,763 2,030 2,193 2,350 2,486 1,881 2,002
Selling and administrative
expenses..................... 226 326 393 421 465 347 367
Restructuring charges......... -- 70 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (2).......... 121 63 173 214 252 187 215
Non-operating expense......... 40 37 55 71 74 56 29
Realized gain on issuance of
subsidiary shares............ (6) (105) (30) -- -- -- --
Provision for income taxes.... 1 1 2 3 6 4 5
Cumulative effect of change in
accounting for postretirement
medical benefits............. -- 8 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (2)................ $ 86 $ 122 $ 146 $ 140 $ 172 $ 127 $ 181
====== ====== ====== ====== ====== ====== ======
Net income per share (2)...... $ 0.79 $ 1.08 $ 1.27 $ 1.20 $ 1.45 $ 1.07 $ 1.25
Cash distributions per share
to shareholders.............. $ 0.57 $ 0.58 $ 0.59 $ 0.61 $ 0.63 $ 0.47 $ 0.49
FINANCIAL POSITION AT PERIOD
END
Current assets................ $ 218 $ 258 $ 291 $ 331 $ 393 $ 424 $ 493
Current liabilities........... 158 207 244 304 373 346 402
Working capital............... 60 51 47 27 20 78 91
Total assets.................. 844 1,006 1,122 1,231 1,650 1,424 1,828
Non-current liabilities....... 377 511 471 484 518 544 624
Minority interest............. 78 78 118 135 13 134 15
Deferred gain................. 109 -- -- -- -- -- --
Shareholders' equity.......... 122 210 289 307 747 400 787
Book value per share.......... $ 1.12 $ 1.85 $ 2.51 $ 2.65 $ 6.28 $ 3.36 $ 5.44
- --------
(1) All per share data reflect the three-for-two share splits in 1992, 1993 and
1996.
(2) Operating results on a basis which excludes restructuring and unusual
charges, gains on issuance of subsidiary shares and the change in accounting
for postretirement benefits in prior years are as follows (there were no
such unusual items in 1994, 1995 or 1996):
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income............ $ 121 $ 141 $ 173 $ 214 $ 252 $ 187 $ 215
Net income.................. 80 94 116 140 172 127 181
Net income per share........ $ 0.73 $ 0.83 $ 1.01 $ 1.20 $ 1.45 $ 1.07 $ 1.25
</TABLE>
14
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF BAREFOOT
In 1995, Barefoot elected to change its fiscal year end to December 31 from
March 31. The following table presents selected consolidated financial
information of Barefoot for each of the four fiscal years ended March 31, 1995,
the nine month period ended December 31, 1995, and for each of the nine month
periods ended September 30, 1995 and 1996. (In light of the change in the
fiscal year end, the financial information as of and for the nine months ended
September 30, 1995 was prepared by Barefoot to provide comparative data in the
September 30, 1996 Form 10-Q). The results of operations for the nine months
ended December 31, 1995 are not necessarily indicative of the results for the
full year. The selected information for each of the periods in the four fiscal
years ended March 31, 1995 and the period ended December 31, 1995 have been
derived from financial statements which have been audited by Arthur Andersen
LLP, independent public accountants of Barefoot. The information for the nine
month periods ended September 30, 1995 and 1996 is unaudited but, in the
opinion of Barefoot management, reflects all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of such data.
The results of operations for any interim period are not necessarily indicative
of the results of operations for the full year.
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)(1)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED MARCH 31, NINE MONTHS ENDED
(2) ENDED SEPTEMBER 30,
------------------------ DECEMBER 31, -------------
1992 1993 1994 1995 1995 1995 1996
----- ----- ----- ----- ------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total revenue............. $ 41 $ 51 $ 74 $ 95 $ 93 $ 82 $ 83
Income before interest,
income taxes and
extraordinary item....... 11 13 19 23 21 21 19
Interest expense (income),
net...................... 3 1 -- -- -- -- --
Income taxes.............. 3 5 7 9 8 8 7
Extraordinary item........ 1 -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ------
Net income................ $ 4 $ 7 $ 12 $ 14 $ 13 $ 13 $ 12
===== ===== ===== ===== ===== ====== ======
Per share:
Income before
extraordinary item...... $0.38 $0.47 $0.69 $0.82 $0.84 $ 0.79 $ 0.83
Extraordinary item....... (0.05) -- -- -- -- -- --
----- ----- ----- ----- ----- ------ ------
Net income............... $0.33 $0.47 $0.69 $0.82 $0.84 $ 0.79 $ 0.83
===== ===== ===== ===== ===== ====== ======
Cash dividends per share
to stockholders.......... $ -- $ -- $ -- $0.10 $0.12 $ 0.11 $ 0.15
FINANCIAL POSITION AT
PERIOD END
Working capital........... $ (2) $ 2 $ 8 $ 12 $ 6 $ 15 $ 6
Total assets.............. 35 49 65 93 66 79 81
Non-current obligations... 14 6 7 11 8 9 10
Stockholders' equity...... 5 24 38 51 39 46 45
Book value per share...... $0.37 $1.56 $2.28 $3.02 $2.55 $ 2.89 $ 3.09
</TABLE>
- --------
(1) All per share data reflect the two-for-one share split in July 1994.
(2) In 1995, Barefoot elected to change its fiscal year end to December 31 from
March 31.
15
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma financial information set forth below has
been prepared based upon the historical consolidated financial statements of
ServiceMaster and its subsidiaries and of Barefoot and its subsidiaries,
adjusted for transactions described in the Notes to the pro forma financial
information of ServiceMaster included under "Unaudited Pro Forma Financial
Information--Selected Pro Forma Financial Data of ServiceMaster." For purposes
of the unaudited selected pro forma financial information set forth below,
ServiceMaster has assumed that holders of 30% of the Shares will elect to
receive the Share Consideration. If all the Barefoot stockholders were to elect
to receive the Cash Consideration, pro forma net income per share for the nine
months ended September 30, 1996 and year ended December 31, 1995 would total
$1.29 and $1.40, respectively, and pro forma non-current liabilities at
September 30, 1996 would total $867 million. If all the Barefoot stockholders
were to elect to receive the Share Consideration, pro forma net income per
share for the nine months ended September 30, 1996 and year ended December 31,
1995 would total $1.26 and $1.39, respectively, and pro forma non-current
liabilities at September 30, 1996 would total $635 million.
THE PRO FORMA FINANCIAL INFORMATION DOES NOT PURPORT TO REPRESENT WHAT
SERVICEMASTER'S FINANCIAL POSITION AS OF SEPTEMBER 30, 1996 OR RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 OR THE YEAR ENDED
DECEMBER 31, 1995 WOULD ACTUALLY HAVE BEEN HAD THE MERGER IN FACT OCCURRED ON
THAT DATE OR AT THE BEGINNING OF THE PERIODS INDICATED OR TO PROJECT
SERVICEMASTER'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE
OR PERIOD.
(IN MILLIONS, EXCEPT FOR PER SHARE DATA) (1)
<TABLE>
<CAPTION>
PRO FORMA
FINANCIAL INFORMATION
-----------------------------------------
YEAR NINE MONTHS
ENDED ENDED
HISTORICAL SERVICEMASTER DECEMBER 31, SEPTEMBER 30,
FINANCIAL INFORMATION 1995 1996
-------------------------- --------------------------- -------------
NINE
YEAR MONTHS (UNAUDITED) (UNAUDITED)
ENDED ENDED WMX BAREFOOT
DECEMBER 31, SEPTEMBER 30, TRANSACTION & WMX BAREFOOT
1995 1996 ONLY (2) TRANSACTION (2) TRANSACTION
------------ ------------- ----------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenue....... $3,203 $2,584 $3,203 $3,306 $2,668
Cost of services
rendered and products
sold................... 2,486 2,002 2,486 2,527 2,034
Selling and
administrative
expenses............... 465 367 471 510 395
------ ------ ------ ------ ------
Operating income........ 252 215 246 269 239
Non-operating expense... 74 29 37 50 39
Provision for income
taxes.................. 6 5 6 11 11
------ ------ ------ ------ ------
Net income.............. $ 172 $ 181 $ 203 $ 208 $ 189
====== ====== ====== ====== ======
Net income per share.... $ 1.45 $ 1.25 $ 1.39 $ 1.40 $ 1.28
Cash distributions per
share to shareholders.. $ 0.63 $ 0.49 $ 0.63 $ 0.63 $ 0.49
FINANCIAL POSITION AT
PERIOD END
Current assets.......... $ 393 $ 493 $ 524
Current liabilities..... 373 402 446
Working capital......... 20 91 78
Total assets............ 1,650 1,828 2,115
Non-current liabilities. 518 624 797
Minority interest....... 13 15 15
Shareholders' equity.... 747 787 856
Book value per share.... $ 6.28 $ 5.44 $ 5.82
</TABLE>
- --------
(1) All per share data reflect the three-for-two share split in June 1996.
(2) On December 31, 1995, ServiceMaster acquired WMX Technologies, Inc.'s
27.76% minority ownership interest in ServiceMaster Consumer Services L.P.
(the "WMX Transaction"). The pro forma information above presents the pro
forma impact of the WMX Transaction only, as well as the combined pro forma
effects of both the Barefoot and WMX transactions. Since the WMX
Transaction occurred on December 31, 1995, its impact is already included
in the historical results for the nine months ended September 30, 1996. See
"Unaudited Pro Forma Financial Information--Transaction with WMX
Technologies, Inc." for a discussion of the WMX Transaction and the impact
of restrictions designed to help ensure that any disposition of WMX's
ServiceMaster Shares would occur in an orderly manner.
16
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for Barefoot and ServiceMaster certain
historical and pro forma equivalent per share data at and for the nine months
ended September 30, 1996 and at and for the year ended December 31, 1995. All
per share data reflect ServiceMaster's three-for-two share split in June 1996.
The information presented herein should be read in conjunction with the
selected historical financial information and the unaudited pro forma financial
information appearing elsewhere in this Offering Circular/Prospectus. See
"Incorporation of Documents by Reference," "Selected Historical Financial
Information" and "Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995 (1)
------------------ ---------------------
<S> <C> <C>
SERVICEMASTER
Income from continuing operations per
share:
Historical.......................... $1.25 $1.45
Pro forma combined (2).............. 1.28 1.40 (3)
Book value per share:
Historical.......................... 5.44 6.28
Pro forma combined (2).............. 5.82 --
Cash dividends per share:
Historical.......................... 0.49 0.63
Pro forma combined.................. 0.49 0.63
BAREFOOT
Income from continuing operations per
share:
Historical.......................... $0.83 $0.66
Pro forma equivalent for the
fraction of a ServiceMaster Share
available in exchange for any
Barefoot Share (4)................. 0.78 0.86
Book value per share:
Historical.......................... 3.09 2.55
Pro forma equivalent for the
fraction of a ServiceMaster Share
available in exchange for any
Barefoot Share (4)................. 3.56 --
Cash dividends per share:
Historical.......................... 0.15 0.15
Pro forma equivalent for the
fraction of a ServiceMaster Share
available in exchange for any
Barefoot Share (4)................. 0.30 0.39
</TABLE>
- --------
(1) In 1995, Barefoot elected to change its fiscal year end to December 31 from
March 31. Barefoot's historical income and book value per share were
computed using the unaudited financial information for the year ended
December 31, 1995 presented in Barefoot 1995 10-K. The cash dividends per
share data for the year end December 31, 1995 were derived by summing the
data for the quarter ended March 31, 1995 and the dividends per share for
the nine months ended December 31, 1995.
(2) The pro forma combined income per share and book value per share amounts
have been computed under the assumption that holders of 30% of the Barefoot
Shares will elect to receive the Share Consideration. If all the Barefoot
stockholders were to elect to receive the Cash Consideration, pro forma net
income per share for the nine months ended September 30, 1996 and year
ended December 31, 1995 would total $1.29 and $1.40, respectively. If all
the Barefoot stockholders were to elect to receive the Share Consideration,
pro forma net income per share for the nine months ended September 30, 1996
and year ended December 31, 1995 would total $1.26 and $1.39, respectively.
(3) ServiceMaster's pro forma information for the year ended December 31, 1995
includes the pro forma impact of the December 31, 1995 WMX Transaction. The
pro forma adjustments related to the WMX Transaction resulted in a pro
forma decrease in earnings per share of $.06. The Transaction results in a
pro forma increase in earnings per share of $.01, after giving effect to
the WMX Transaction. See "Unaudited Pro Forma Financial Information--
Transaction with WMX Technologies, Inc." for a description of the WMX
Transaction and the impact of restrictions designed to help ensure that any
disposition of WMX's ServiceMaster Shares would occur in an orderly manner.
(4) The pro forma equivalent share data is calculated by multiplying 0.6124,
which is an assumed exchange ratio for the conversion of Shares into
ServiceMaster Shares (determined by dividing $16.00 by $26.125, which was
the closing ServiceMaster Share price on January 15, 1997), by
ServiceMaster's pro forma income per share, book value per share and cash
distributions per share, which have been prepared using adjustments
included in the Unaudited Pro Forma Financial Information contained
elsewhere in this Offering Circular/Prospectus. The actual number of
ServiceMaster Shares to be received with respect to each Share by
stockholders of Barefoot who elect Share Consideration will be determined
by dividing $16.00 by the greater of the Average ServiceMaster Share Price
or $23.00. The Average ServiceMaster Share Price is defined as the 15-day
average closing price as reported on the NYSE Composite Tape for the
period ending five NYSE trading days prior to the expiration of the Offer.
17
<PAGE>
MARKET PRICE DATA AND DISTRIBUTIONS
ServiceMaster Shares are listed and traded on the NYSE under the symbol
"SVM." The Shares are listed and traded on the Nasdaq National Market under the
symbol "BARE." The table below sets forth, for the quarters indicated, (i) the
high and low prices of ServiceMaster Shares as reported by the NYSE Composite
Tape, (ii) the high and low prices of Shares, as reported on the Nasdaq
National Market, (iii) the quarterly per share cash distributions paid to
holders of ServiceMaster Shares, and (iv) the quarterly per share cash
dividends paid to the holders of Shares. In 1995, Barefoot elected to change
its fiscal year end to December 31 from March 31. All per share data reflect
ServiceMaster's three-for-two share split in June 1996 and Barefoot's two-for-
one share split in July 1994.
<TABLE>
<CAPTION>
PRICE OF DISTRIBUTIONS
SERVICEMASTER SHARES DECLARED PER
--------------------- SERVICE-
HIGH LOW MASTER SHARE
---------- ---------- -------------
<S> <C> <C> <C>
SERVICEMASTER
Year ended December 31, 1994:
First Quarter............................. $ 18.92 $ 14.67 $0.15
Second Quarter............................ 17.59 15.09 0.15
Third Quarter............................. 17.67 16.00 0.15
Fourth Quarter............................ 16.92 14.33 0.15
Year ended December 31, 1995:
First Quarter............................. 16.67 14.33 0.15
Second Quarter............................ 18.17 15.75 0.16
Third Quarter............................. 19.25 17.67 0.16
Fourth Quarter............................ 20.25 18.42 0.16
Year ended December 31, 1996:
First Quarter............................. 22.33 19.42 0.16
Second Quarter............................ 23.50 20.63 0.16
Third Quarter............................. 24.75 21.50 0.17
Fourth Quarter............................ 26.63 23.75 0.17
</TABLE>
<TABLE>
<CAPTION>
PRICE OF
BAREFOOT DIVIDENDS
SHARES DECLARED PER
-------------- BAREFOOT
HIGH LOW SHARE
------- ------ ------------
<S> <C> <C> <C>
BAREFOOT
Year ended March 31, 1995:
First Quarter..................................... $18.88 $16.38 $0.02
Second Quarter.................................... 18.25 14.63 0.02
Third Quarter..................................... 16.00 12.25 0.03
Fourth Quarter.................................... 16.50 9.00 0.03
Nine months ended December 31, 1995:
Quarter Ended June 30, 1995....................... 13.88 9.75 0.04
Quarter Ended September 30, 1995.................. 15.00 12.50 0.04
Quarter Ended December 31, 1995................... 13.00 10.13 0.04
Year ended December 31, 1996:
First Quarter..................................... 12.13 10.13 0.05
Second Quarter.................................... 12.63 10.50 0.05
Third Quarter..................................... 10.94 9.13 0.05
Fourth Quarter.................................... 15.875 10.00 0.05
</TABLE>
18
<PAGE>
On December 4, 1996, the last full trading day prior to the announcement by
ServiceMaster and Barefoot that they had entered into the Acquisition
Agreement, the closing price of ServiceMaster Shares, as reported by the NYSE
Composite Tape, was $24.625 per share and the closing price of the Shares, as
reported on the Nasdaq National Market, was $12.75 per share. The closing
prices of the ServiceMaster Shares and the Barefoot Shares on January 15, 1997,
the most recent date prior to the printing of this Offering
Circular/Prospectus, as reported by the NYSE Composite Tape and the Nasdaq
National Market, respectively, were $26.125 per share and $15.75 per share,
respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
As of December 31, 1996, there were approximately 22,500 holders of record of
ServiceMaster Shares and approximately 170 holders of record of Barefoot
Shares.
In December 1995, ServiceMaster's Board of Directors authorized a share
repurchase program in the amount of $150,000,000 under which ServiceMaster has
been repurchasing ServiceMaster Shares. ServiceMaster's financial officers have
discretion as to the price and volume under which such repurchases are made,
subject to an overall average repurchase price, provided that repurchases under
the program are conducted within the limitations of SEC Rules 10b-6 and 10b-18.
The volume of ServiceMaster Shares repurchased under the program during 1996
amounted to 1,281,586 ServiceMaster Shares during the first quarter, 875,744
ServiceMaster Shares during the second quarter, 639,427 ServiceMaster Shares
during the third quarter and 679,635 ServiceMaster Shares during the fourth
quarter. ServiceMaster intends to continue to make repurchases under this
program up to the beginning of the 15 NYSE trading days during which the
Average ServiceMaster Share Price will be determined for purposes of the Offer
but will not make purchases during such 15 NYSE trading days.
19
<PAGE>
THE OFFER
HISTORY OF THE NEGOTIATIONS
On October 9, 1996, the President of ServiceMaster telephoned the President
of Barefoot and requested an opportunity to meet to discuss maximizing
stockholder value of their respective companies. The Presidents of Barefoot
and ServiceMaster met on October 16, 1996, at which time the President of
ServiceMaster expressed ServiceMaster's interest in combining the lawn care
operations of the two companies. The President of ServiceMaster presented a
proposal in which the stockholders of Barefoot would have the opportunity to
obtain cash or ServiceMaster Shares in exchange for their Shares, and that on
a preliminary basis and without conducting any due diligence, ServiceMaster
believed that it could pay a price for the outstanding Shares within a range
of $13.00 to $15.00 per share. The President of ServiceMaster also stated that
the proposal for the acquisition of Barefoot had not been approved by the
ServiceMaster Board and that it should be considered as a preliminary
expression of interest on the part of ServiceMaster. The closing price of the
Barefoot Shares on October 16, 1996, as reported on the Nasdaq National Market
was $10.75 per share.
The Barefoot Board met on October 23, 1996 to review the ServiceMaster
proposal. At that meeting, the directors discussed whether or not Barefoot
should continue its discussions with ServiceMaster with respect to a possible
acquisition by ServiceMaster. The directors also discussed with Barefoot's
investment bankers the reasonableness of the range of prices for Barefoot
proposed by ServiceMaster. The directors concluded that it was in the best
interest of the Barefoot stockholders to continue discussions with
representatives of ServiceMaster with regard to a possible business
combination. The directors concluded, however, that Barefoot should seek a
price above the proposed price range of $13.00 to $15.00 per Share.
ServiceMaster advised Barefoot that it could not submit a more formal
acquisition proposal unless it first conducted preliminary due diligence with
respect to Barefoot. On November 11, 1996, Barefoot and ServiceMaster entered
into a Confidentiality Agreement (the "Confidentiality Agreement"). Barefoot
agreed that for a period ending on December 12, 1996, it would not solicit any
prospective purchasers of all or substantially all of the assets of Barefoot
or of equity interests in Barefoot. ServiceMaster agreed that for a period of
two years from the date of the Confidentiality Agreement it would not, without
the prior consent of Barefoot, acquire, directly or indirectly, any additional
Barefoot Shares or take certain other actions in regard to Barefoot. Following
the execution of the Confidentiality Agreement, ServiceMaster conducted a
preliminary due diligence investigation.
The President of Barefoot continued to discuss a possible acquisition with
representatives of ServiceMaster and members of the Barefoot Board following
the October 23, 1996 meeting of the Barefoot Board. On November 15, 1996, the
President of Barefoot and representatives of Baird met with ServiceMaster
financial executives in Downers Grove, Illinois and presented arguments and
analyses in support of their position that the value per Share to
ServiceMaster was in excess of $15.00. They were advised that ServiceMaster
considered $15.00 per Share to be the maximum amount that ServiceMaster was
willing to pay. Both the President of Barefoot and the ServiceMaster
representatives agreed that, if discussions were to continue, the discussions
would have to progress quickly because of the seasonal nature of the lawn care
business.
On November 22, 1996, ServiceMaster submitted to Barefoot a letter from the
President of ServiceMaster in which he stated that he was prepared to
recommend to the ServiceMaster Board an acquisition by ServiceMaster of all of
the outstanding Shares at a price of $15.00 per Share. The ServiceMaster
proposal stated that each Barefoot stockholder would have the right to take
cash or ServiceMaster Shares in exchange for such stockholder's Barefoot
Shares. The ServiceMaster proposal also addressed severance payments and
employment continuation bonuses to Barefoot employees and issues relating to
Barefoot's franchisees.
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The Barefoot Board held a telephonic meeting later that day to discuss the
proposal from ServiceMaster. The directors discussed the proposed price and
reviewed possible structures for accomplishing the acquisition. The directors
discussed the potential benefit to the Barefoot stockholders of a transaction
in which such stockholders could elect to receive cash or ServiceMaster
Shares. The Barefoot Board concluded that it could not fully evaluate the
ServiceMaster proposal until it had an opportunity to review in detail the
terms of the proposed transaction. The Barefoot Board requested that the
President of Barefoot obtain from ServiceMaster a more detailed explanation of
the acquisition proposal or a draft of an acquisition agreement. The Barefoot
Board also instructed the President of Barefoot to continue to seek an
increase in the proposed purchase price.
On November 26, 1996, Barefoot received from ServiceMaster an initial draft
of an acquisition agreement. The President of Barefoot discussed the principal
terms of the proposed transaction as set forth in the draft of the acquisition
agreement with a majority of the members of the Barefoot Board. The directors
with whom the Barefoot President spoke recommended that the President continue
to seek an increase in the proposed purchase price and concessions on other
terms of the acquisition agreement.
On November 27, 1996, the President of Barefoot advised the President of
ServiceMaster by telephone that the Barefoot Board could not accept a price of
$15.00 per Share. The President of ServiceMaster responded that he was not
prepared to recommend to the ServiceMaster Board a price in excess of $15.00
per Share. However, the President of ServiceMaster suggested that he might be
willing to consider a price greater than $15.00 per Share if Barefoot were
willing to consider committing to pay a termination fee if ServiceMaster's
Offer failed to attract enough Shares to give ServiceMaster ownership of at
least 75.0% of the outstanding Shares. The President of Barefoot agreed to
take that idea under consideration and, on that basis, the two officers agreed
to keep in touch with each other over the forthcoming holiday. Later that day,
the President of Barefoot discussed the proposal with the members of the
Barefoot Board and received their oral authorization to proceed with further
discussions.
On November 28, 1996 (Thanksgiving Day), the President of ServiceMaster
called the President of Barefoot and indicated that he might be able to
support a price greater than $15.00 per Share if Barefoot agreed to pay a
termination fee in the event that the requisite 75.0% Share ownership were not
obtained as a result of the Offer and that he would state his position to the
President of Barefoot during the next day.
On November 29, 1996, the President of ServiceMaster advised the President
of Barefoot in a telephone call that he (the President of ServiceMaster) would
support an increase in the acquisition price from $15.00 per Share to $16.00
per Share if the key terms and conditions set forth in the initial draft of
the acquisition agreement were satisfactory to Barefoot and if such terms and
conditions were expanded to include the payment of a termination fee in the
event that the requisite 75.0% Share ownership by ServiceMaster was not
attained as a result of the Offer and provided, as to all of the foregoing,
that the transaction was approved by the ServiceMaster Board. Following this
telephone conversation, the President of Barefoot communicated with the
directors of Barefoot and they authorized him to proceed with the negotiation
of the final terms of the acquisition agreement and to authorize Baird to
consider whether the proposed acquisition was fair to the stockholders of
Barefoot from a financial point of view.
From November 30, 1996 through December 4, 1996, Barefoot and ServiceMaster
conducted extensive negotiations of the terms and conditions of the
acquisition agreement. The principal points at issue were the duration of the
Offer, the circumstances in which the termination fee would be payable and the
amount of the termination fee. With respect to the tender offer, ServiceMaster
considered that, because of the seasonality of the lawn care business and the
resulting need to commence combined operations as soon as possible, the Offer
should remain open no longer than the time legally required, i.e., 20 business
days. Barefoot, on the other hand, insisted on a longer
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period. On December 4, 1996, the two sides agreed on a period of 25 business
days. With respect to the termination fee, ServiceMaster considered that a fee
of approximately $9,300,000 was appropriate in all circumstances in which a
fee was payable. Barefoot sought a lower fee. On December 4, 1996, the two
sides agreed on a two-tier termination fee: $9,300,000 if the Barefoot Board
ceased to support ServiceMaster's Offer and $7,000,000 if, as a result of the
Offer, with Barefoot's support, ServiceMaster failed to attain the requisite
75.0% Share ownership.
On December 3, 1996, the directors of Barefoot met to review the status of
the negotiations between Barefoot and ServiceMaster and to review and discuss
in detail the terms and conditions of the proposed transactions contemplated
by the Acquisition Agreement. The directors also discussed with Baird the
procedures being taken to evaluate the fairness, from a financial point of
view, of the transactions provided for in the Acquisition Agreement.
In a telephonic meeting on December 4, 1996, the Barefoot Board unanimously
approved the terms and conditions of the Acquisition Agreement and the related
Merger Agreement. During such meeting, the directors reviewed in detail the
Acquisition Agreement and received the opinion of Baird to the effect that as
of such date the Cash Consideration and the Merger Consideration are fair,
from a financial point of view, to Barefoot stockholders. Baird has also
rendered its opinion to the Barefoot Board to the effect that, as of December
4, 1996, the Share Consideration is fair, from a financial point of view, to
the Barefoot stockholders subject to the proviso that, because the Barefoot
stockholders can elect to receive cash pursuant to the Offer at any time prior
to the expiration of the Offer, Baird expresses no opinion as to the fairness
of the Share Consideration if the Average ServiceMaster Share Price
(calculated as described in the first paragraph on the cover of this Offering
Circular/Prospectus) is less than $23.00. In a telephonic meeting on December
4, 1996, the ServiceMaster Board, by a vote of 16-0 with one abstention and
one absence, and the Board of Directors of Merger Sub by a unanimous written
consent, approved the terms and provisions of the Acquisition Agreement and
the Merger Agreement on December 4, 1996.
After the foregoing actions by the Board of Directors of Barefoot, the
ServiceMaster Board and the Board of Directors of Merger Sub, Barefoot,
ServiceMaster and Merger Sub executed the Acquisition Agreement and the Merger
Agreement and publicly announced the transaction before the United States
trading markets opened on December 5, 1996.
RECOMMENDATION OF THE BAREFOOT BOARD
Barefoot's Board has determined that the Cash Consideration available in the
Offer and the Merger Consideration are fair to the Barefoot stockholders and
in their best interests. The Barefoot Board has also determined that the Share
Consideration which the stockholders have the right to choose as an
alternative to receiving $16.00 per Share in cash is also fair to stockholders
and in their best interests, provided that the Barefoot Board expresses no
opinion as to the fairness of the Share Consideration if the Average
ServiceMaster Share Price (as defined in the first paragraph of the cover page
to this Offering Circular/Prospectus) turns out to be less than $23.00.
Subject to this proviso, the Barefoot Board has concluded that the Offer and
the Merger are in the best interests of Barefoot and its stockholders and that
such transactions are fair to the stockholders of Barefoot, and it recommends
that Barefoot stockholders accept the Offer, tender their Shares pursuant to
the Offer and, if required by applicable law, approve and adopt the Merger
Agreement.
REASONS FOR THE TRANSACTION
The Barefoot Board determined to approve the Acquisition Agreement, the
Merger Agreement and the transactions contemplated thereby for a number of
reasons, including:
. (a) the results of operations of the Company, (b) the businesses and
prospects of the Company, with emphasis upon the uncertainties inherent in
the seasonal nature of such businesses, and (c) the dependence of
management's business strategy upon successfully completing acquisitions;
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. the Barefoot Board's belief that the market price of the Barefoot Shares
would not reach $16.00 in the reasonably foreseeable future;
. $16.00 per Barefoot Share represents a 25.5% premium over the $12.75 per
Barefoot Share closing price on the Nasdaq National Market on December 4,
1996, the last full trading day prior to the public announcement of the
execution of the Acquisition Agreement, and a 48.8% premium over the
$10.75 per Barefoot Share closing price on the Nasdaq National Market on
October 23, 1996, the date on which the Barefoot Board first met to
consider the ServiceMaster acquisition proposal;
. the Shares had not traded at a price higher than $13.00 during the
preceding twelve months;
. the opinion of Baird regarding the fairness of the Consideration to be
provided in the Offer and the Merger from a financial point of view;
. the Acquisition Agreement is structured to accommodate certain unsolicited
third-party proposals to acquire Barefoot and specifically permits
Barefoot to provide information to and negotiate or discuss such proposals
if the Barefoot Board concludes, after having received the advice of
Barefoot's financial advisor and legal counsel, that such proposals are
reasonably likely to result in consideration per Share in excess of the
Consideration and that the failure of the Board to provide such
information or to engage in such negotiations or discussions or to accept
such proposals are reasonably likely to result in a breach of the Barefoot
Board's fiduciary duties under applicable law (although Barefoot's ability
to accept competing proposals is subject, in certain cases, to the
obligation to pay a termination fee of $9,300,000 to ServiceMaster). See
"Description of Acquisition Agreement and Merger Agreement--No
Solicitation" and "--Termination Fees";
. the time period between the public announcement of the Transaction and the
expiration of the Offer is expected to be in excess of 60 days, which
could allow for third party offers to be made;
. the other terms and conditions of the Acquisition Agreement, including
specifically the right of Barefoot stockholders to elect to receive cash
on a taxable basis in exchange for their Shares in the Offer or to receive
ServiceMaster Shares on a tax-free basis;
. the representation and warranty of ServiceMaster to Barefoot in the
Acquisition Agreement that ServiceMaster has sufficient financial
resources to enable it to make all cash payments for the Shares in the
Offer and the Merger and ServiceMaster's willingness not to impose any
limitation on the proportion of Barefoot Shares which could be converted
into cash or ServiceMaster Shares;
. the presentations by Baird with respect to other potential acquirers of
Barefoot and the range of prices that such acquirers would likely be
willing to pay, and the likelihood that a strategic buyer such as
ServiceMaster is in a position to pay a higher price than a financial
buyer due among other things to cost savings resulting from consolidation
of the businesses;
. the Offer gives the Barefoot stockholders who elect to receive
ServiceMaster Shares the opportunity to participate in a more diversified
company which is expected to have a greater potential for growth than
Barefoot would have alone, and there are a number of benefits that could
reasonably be expected to be realized by former stockholders of Barefoot
from their continuing interest in the combined company, including but not
limited to (a) the future stock value and earnings per share prospects of
the combined company, (b) the potential for growth in the business of the
combined company as the result of the possibility of cross-marketing of
services, (d) the opportunity to diversify earnings, and (e) the business
synergies that might be realized, with consequent cost savings;
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. ServiceMaster had agreed that Barefoot would implement a severance and
employee continuation bonus plan for Barefoot employees and would
accelerate vesting of all outstanding employee stock options; and
. ServiceMaster had agreed that, as soon as practicable after the Closing
Time, ServiceMaster would make every effort to provide to each Barefoot
franchisee the option to do any of the following: (i) to sell such
franchise to Barefoot on terms and conditions as the franchisee and
ServiceMaster may agree; (ii) to continue to operate its Barefoot
franchise in accordance with existing agreements between the franchisee
and Barefoot; or (iii) to terminate the existing agreement between the
franchisee and Barefoot and to operate its business independently without
use of Barefoot trade names, service marks or similar rights.
OPINION OF BAREFOOT FINANCIAL ADVISOR
The Barefoot Board retained Baird on October 16, 1996 as financial advisor
and in that connection Baird agreed, upon request, to render its opinion as to
whether or not the $16.00 per Share proposed to be paid by ServiceMaster in
the Offer and the Merger is fair, from a financial point of view, to the
holders of Barefoot Shares. Each holder of Barefoot Shares may elect to
receive the Cash Consideration or the Share Consideration. On December 4,
1996, Baird rendered its opinion to the Barefoot Board to the effect that, as
of such date, the Cash Consideration and the Merger Consideration are fair,
from a financial point of view, to Barefoot stockholders. Baird has also
rendered its opinion to the Barefoot Board to the effect that, as of December
4, 1996, the Share Consideration is fair, from a financial point of view, to
Barefoot stockholders subject to the proviso that, because the Barefoot
stockholders can elect to receive cash pursuant to the Offer at any time prior
to the expiration of the Offer, Baird expresses no opinion as to the fairness
of the Share Consideration if the Average ServiceMaster Share Price
(calculated as described in the first paragraph on the cover of this Offering
Circular/Prospectus) is less than $23.00.
THE FULL TEXT OF BAIRD'S OPINION, DATED DECEMBER 4, 1996, WHICH SETS FORTH
THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS
OPINION, IS ATTACHED AS ANNEX B TO THIS OFFERING CIRCULAR/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. BAIRD'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS, AS OF DECEMBER 4, 1996 AND FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO THE HOLDERS OF SHARES AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY BAREFOOT STOCKHOLDER AS TO (I) WHETHER ANY SUCH
STOCKHOLDER SHOULD TENDER SHARES PURSUANT TO THE OFFER, (II) WHETHER ANY SUCH
STOCKHOLDER ELECTING TO TENDER SHARES SHOULD ELECT TO RECEIVE THE CASH
CONSIDERATION OR THE SHARE CONSIDERATION, OR (III) HOW ANY SUCH STOCKHOLDER
SHOULD VOTE WITH RESPECT TO THE MERGER. BAIRD DID NOT RECOMMEND TO BAREFOOT
THE AMOUNT OF CONSIDERATION TO BE PAID TO BAREFOOT'S STOCKHOLDERS. THE SUMMARY
OF BAIRD'S OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION ATTACHED AS ANNEX B. STOCKHOLDERS ARE URGED
TO READ THE OPINION CAREFULLY IN ITS ENTIRETY.
In conducting its investigation and analysis and in arriving at its opinion
attached as Annex B, Baird reviewed such information and took into account
such financial and economic factors as it deemed relevant under the
circumstances. In that connection, Baird among other things (i) reviewed
certain internal information, primarily financial in nature, including
projections, concerning the business and operations of Barefoot and
ServiceMaster furnished to Baird for purposes of its analysis, as well as
publicly available information including but not limited to, Barefoot's and
ServiceMaster's recent filings with the SEC, and equity analyst research
reports prepared by various investment banking firms including, in the case of
Barefoot, Baird; (ii) reviewed the Acquisition Agreement in the form presented
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to the Barefoot Board; (iii) compared the historical market prices and trading
activity of the Shares and ServiceMaster Shares with those of certain other
publicly traded companies Baird deemed relevant; (iv) compared the financial
position and operating results of Barefoot and ServiceMaster with those of
other publicly traded companies Baird deemed relevant; and (v) compared the
proposed financial terms of the Offer and Merger (together, the "Transaction")
with the financial terms of certain other business combinations Baird deemed
relevant. Baird held discussions with members of Barefoot's and
ServiceMaster's respective senior management concerning Barefoot's and
ServiceMaster's historical and current financial condition and operating
results as well as the future prospects of Barefoot and ServiceMaster,
respectively. Baird also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which
it deemed relevant for the preparation of its opinion. The Consideration was
determined by Barefoot and ServiceMaster in arms-length negotiations. Barefoot
did not place any limitation upon Baird with respect to the procedures
followed or factors considered by Baird in rendering its opinion.
In arriving at its opinion, Baird assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to it by
or on behalf of Barefoot and ServiceMaster, or publicly available, and assumed
no responsibility to verify any such information. Baird also assumed, with
Barefoot's consent, that (i) the Merger will be accounted for under the
purchase method; (ii) there has been no material change in the assets or
liabilities of Barefoot or ServiceMaster from those set forth in the most
recent consolidated financial statements of Barefoot or ServiceMaster,
respectively; and (iii) the Transaction would be consummated in accordance
with the terms of the Acquisition Agreement in the form presented to
Barefoot's Board. The senior management of Barefoot and ServiceMaster have
represented to Baird, and Baird assumed, that the financial forecasts examined
by it had been reasonably prepared on bases reflecting the best available
estimates and good faith judgments of Barefoot's and ServiceMaster's senior
management as to the future performance of their respective companies. In
conducting its review, Baird did not undertake nor obtain an independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Barefoot or ServiceMaster, nor did Baird make a physical
inspection of the properties or facilities of Barefoot or ServiceMaster.
Baird's opinion was based upon economic, monetary and market conditions as
they existed on and to the extent that they could be evaluated as of the date
of such opinion and did not predict or take into account any changes which may
occur thereafter or information which may become available thereafter. Baird's
opinion does not imply any conclusion as to the likely trading range for
ServiceMaster Shares following the consummation of the Merger, which may vary
depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. Baird's opinion does not address
Barefoot's underlying business decision to effect the Transaction. Baird was
not asked to, and did not, solicit third party indications of interest in
acquiring all or any part of Barefoot.
In connection with preparing its opinion dated December 4, 1996, Baird
conducted a variety of financial analyses summarized below with respect to
Barefoot and ServiceMaster.
Analysis of Barefoot Valuation Multiples. Baird calculated multiples of the
"Equity Value" of Barefoot represented by the Consideration (i.e., $234.9
million, obtained by multiplying the Consideration by the total number of
fully diluted Shares, including Shares from the assumed exercise of options,
less net proceeds from such stock options) to Barefoot's latest twelve months
("LTM") net income without giving effect to non-recurring items and its
projected net income for calendar years 1996 and 1997 (based on Barefoot's
senior management estimates), and multiples of Barefoot's "Enterprise Value"
(defined as the Equity Value plus forecasted debt less forecasted cash and
cash equivalents as of December 31, 1996 as Barefoot's senior management's
best approximation of average annual net debt) to its LTM revenue, its LTM
operating income before depreciation and amortization, interest and taxes and
without giving effect to non-recurring items ("EBITDA") and its LTM operating
income before interest and taxes without giving effect to non-recurring items
("EBIT").
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For this purpose, LTM represents the twelve month period ended September 30,
1996. The calculations resulted in ratios of the Equity Value to net income
("P/E Ratios") of 20.6x based on LTM results; 18.1x based on projected 1996
results; and 15.5x based on projected 1997 results. The ratio of Enterprise
Value to LTM revenue was 2.3x, the ratio of Enterprise Value to LTM EBITDA was
9.8x and the ratio of Enterprise Value to LTM EBIT was 13.2x.
Analysis of Selected Publicly Traded Barefoot Comparable Companies. Baird
reviewed certain publicly available financial information as of the most
recently reported period and stock market information as of November 29, 1996
for certain selected publicly traded companies which Baird
deemed relevant. Such comparable companies consisted of: LESCO, Inc., Rollins,
Inc., The Scotts Company, ServiceMaster and The Toro Company. For each
comparable company, Baird calculated multiples as of November 29, 1996 of
enterprise value to LTM revenue, LTM EBITDA and LTM EBIT. An analysis of the
multiples of Barefoot's Enterprise Value to LTM revenue, LTM EBITDA and LTM
EBIT yielded 2.3x, 9.8x and 13.2x, respectively, for Barefoot compared to
medians of 0.9x, 11.1x and 15.0x, respectively, for the Barefoot comparable
companies. For each comparable company, Baird calculated p/e ratios as of
November 29, 1996 based on market stock prices as of such date and LTM
earnings per share and estimated earnings per share (derived from information
provided by First Call and ServiceMaster senior management which included an
assumed normalized corporate tax rate with respect to the ServiceMaster
information) for calendar years 1996 and 1997. An analysis of these ratios
based on earnings per share for LTM, 1996 and 1997 yielded P/E Ratios of
20.6x, 18.1x and 15.5x, respectively, for Barefoot, compared to median p/e
ratios of 21.8x, 21.8x and 14.9x, respectively, for the Barefoot comparable
companies. In rendering its opinion, Baird noted, among other items, the fact
that the Barefoot multiples were generally similar to corresponding multiples
of the comparable companies.
Analysis of Selected Publicly Traded ServiceMaster Comparable Companies. In
order to assess the relative public market valuation of the ServiceMaster
Shares which the holders of Shares may elect to receive in the Offer, Baird
reviewed certain publicly available financial information as of the most
recently reported period and stock market information as of November 29, 1996
for certain selected publicly traded companies which Baird deemed relevant.
Such comparable companies consisted of: Cintas Corporation, Marriott
International, Inc., Ogden Corporation, Rollins, Inc. and Service Corporation
International. For each comparable company, Baird calculated multiples as of
November 29, 1996 of enterprise value to LTM revenue, LTM EBITDA and LTM EBIT.
An analysis of the multiples of ServiceMaster's enterprise value to LTM
revenue, LTM EBITDA and LTM EBIT yielded 1.3x, 11.9x and 15.1x, respectively,
for ServiceMaster compared to medians of 1.3x, 12.9x and 18.5x, respectively,
for the ServiceMaster comparable companies. For ServiceMaster and each
comparable company, Baird also calculated p/e ratios as of November 29, 1996
based on market stock prices as of such date and LTM earnings per share and
estimated earnings per share (derived from information provided by First Call
and ServiceMaster senior management which included an assumed normalized
corporate tax rate with respect to the ServiceMaster information) for calendar
years 1996 and 1997. An analysis of the p/e ratios based on earnings per share
for LTM, 1996 and 1997 yielded 25.4x, 24.8x and 20.8x, respectively, for
ServiceMaster compared to medians of 27.6x, 27.8x and 23.3x, respectively, for
the ServiceMaster comparable companies. In rendering its opinion, Baird noted,
among other items, the fact that the ServiceMaster multiples were generally
modestly lower than or similar to the corresponding multiples of the
comparable companies.
Analysis of Selected Comparable Acquisition Transactions. Baird reviewed
selected acquisition transactions which it deemed relevant based on a review
of acquired companies which possessed general business, operating and
financial characteristics representative of companies in the industry in which
Barefoot operates. Baird noted that none of the selected transactions were
identical to the Transaction and that, accordingly, the analysis of comparable
transactions necessarily involves complex considerations and judgments
concerning differences in financial and operating
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characteristics of Barefoot and other factors that would affect the
acquisition value of comparable transactions. For each comparable transaction,
Baird calculated multiples of enterprise value to LTM revenue, LTM EBITDA and
LTM EBIT; calculated p/e ratios based on LTM earnings per share; and
calculated the premium paid for the equity in these transactions over the
public market value of the equity at various times prior to the announcement
of such transaction. Baird then compared those multiples and premiums to the
relevant Barefoot multiples and premiums based on the Consideration. These
calculations yielded multiples of Enterprise Value to LTM revenue, LTM EBITDA
and LTM EBIT of 2.3x, 9.8x and 13.2x, respectively, for Barefoot compared to
median enterprise value multiples of 1.2x, 9.0x and 12.1x, respectively, and
means of 1.2x, 9.0x and 12.0x, respectively, for the comparable acquisition
transactions selected. An analysis of the p/e ratios based on LTM earnings per
share yielded a 20.6x P/E Ratio for Barefoot compared to a median p/e ratio of
19.3x and a mean p/e ratio of 18.0x for the comparable transactions. An
analysis of the Consideration to the market value of Shares as of 1 day, 30
days and 90 days prior to December 2, 1996, compared to the prices paid for
the equity in such comparable acquisition transactions relative to the market
value of equity 1 day, 30 days and 90 days prior to the announcement date of
such transactions, yielded premiums of 25.5%, 47.1% and 60.0% respectively,
for Barefoot, compared to median premiums of 45.9%, 46.3% and 55.3%
respectively, and means of 36.7%, 43.1% and 50.7%, respectively, for the
comparable acquisition transactions. Baird noted, among other items, the fact
that the Barefoot multiples were modestly higher and price premiums generally
similar to the corresponding premiums of the comparable acquisition
transactions.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
methodology, Baird valued each of Barefoot and ServiceMaster by estimating the
present value of future free cash flows available to their respective equity
holders if each of Barefoot and ServiceMaster were to continue on a stand-
alone basis (without giving effect to the Transaction or possible related
savings). Baird valued Barefoot and ServiceMaster in accordance with the
respective forecasts of Barefoot and ServiceMaster senior management. In such
analysis, Baird assumed terminal value multiples ranging from 7.0x to 9.0x for
Barefoot and 9.0x to 11.0x for ServiceMaster applied to each entity's EBIT for
the final year of the forecast period. As part of the DCF analysis, Baird used
discount rates reflecting each entity's specific financial characteristics,
ranging from 12.0% to 14.0% and 11.0% to 13.0% for Barefoot and ServiceMaster,
respectively. This DCF analysis resulted in values ranging from $14.31 to
$19.10 per Share and $23.52 to $30.79 per ServiceMaster Share.
Contribution Analysis. Baird analyzed Barefoot's and ServiceMaster's
relative contribution to the combined company resulting from the Transaction
with respect to revenue, EBITDA, EBIT and net income. As a result of the
Transaction and assuming (i) Barefoot stockholders elect to receive 100% of
the Offer Consideration in the form of ServiceMaster Shares and (ii) a
Conversion Fraction of 0.621 based on the NYSE closing price of ServiceMaster
Shares on November 29, 1996, Barefoot stockholders would own approximately
5.8% of the outstanding ServiceMaster Shares, which compares to Barefoot's
contribution (based on Barefoot's and ServiceMaster's LTM and estimated
results for fiscal years 1996 and 1997 as provided by Barefoot's and
ServiceMaster's respective senior management) of approximately 3.0% of
revenue, 6.4% to 6.9% of EBITDA, 6.1% to 6.6% of EBIT and 7.5% to 7.9% of net
income.
Pro Forma Merger Analysis. Based on the management forecasts for Barefoot
and ServiceMaster, excluding any potential cost savings related to the
combined company and assuming (i) Barefoot stockholders elect to receive the
Offer Consideration in various combinations of cash and ServiceMaster Shares
and (ii) the closing price of ServiceMaster Shares on November 29, 1996, Baird
examined the pro forma impact of the Transaction on ServiceMaster earnings per
share in 1996, 1997 and 1998.
Historical Trading Ratio Analysis. Baird reviewed the history of trading
prices for the Barefoot Shares and the ServiceMaster Shares in relation to
each other over various time periods. From
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November 29, 1995 to November 29, 1996, this review showed the average
closing, trading high and trading low prices of the Barefoot Shares to be
$10.86, $13.00 and $8.75, respectively, per Barefoot Share. Baird noted that
the price of Shares exhibited greater volatility over the period than the
price of ServiceMaster Shares. Baird performed an analysis of the historical
trading ratio between the Shares and the ServiceMaster Shares based on the
closing market price per Share relative to the closing market price per
ServiceMaster Share for each trading day during the period from November 29,
1994 through November 29, 1996. This analysis yielded a historical trading
ratio during the two-year period averaging 0.609x and averaging 0.445x over
the past six months.
The foregoing summary does not purport to be a complete description of the
analyses performed by Baird or of its presentations to the Barefoot Board. The
preparation of financial analyses and a fairness opinion is a complex process
and is not necessarily susceptible to partial analyses or summary description.
Baird believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Baird, without considering all of such analyses and
factors, could create an incomplete view of the processes underlying the
analyses conducted by Baird and its opinion. Baird did not attempt to assign
specific weights to particular analyses. Any estimates contained in Baird's
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, Baird does not assume responsibility for
their accuracy.
Baird, as part of its investment banking business, is continually engaged in
the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. In the ordinary course of
business, Baird may from time to time trade the securities of Barefoot or
ServiceMaster for its own account and for accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Compensation. Pursuant to an engagement letter agreement dated October 16,
1996 between Barefoot and Baird, Barefoot agreed to pay Baird a retainer fee
of $50,000 (such fee to be creditable against the transaction fee described
below), a fee of $150,000, payable upon delivery of its opinion, regardless of
the conclusions reached by Baird in such opinion (such fee to be creditable
against the transaction fee described below), and a transaction fee, payable
upon consummation of the Transaction, equal to 0.625 percent of the aggregate
consideration paid or payable in connection with the Transaction. Barefoot has
also agreed to reimburse Baird for its reasonable out-of-pocket expenses,
including fees and disbursements of counsel. Barefoot has also agreed to
indemnify Baird, its affiliates and their respective directors, officers,
employees and agents and controlling persons against certain liabilities
relating to or arising out of its engagement, including liabilities under the
federal securities laws. In the past, Baird has provided investment banking
services to Barefoot, for which it received agreed upon compensation.
TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), ServiceMaster will accept for payment and pay for all Shares which
are validly tendered prior to the Expiration Date and not withdrawn in
accordance with the procedures for withdrawal set forth under the caption
"Withdrawal Rights." The term "Expiration Date" means 12:00 midnight, New York
City time, on Friday, February 21, 1997, unless and until ServiceMaster, in
its sole discretion (but subject to the terms of the Acquisition Agreement),
shall have extended the period of time during which the Offer is open, in
which event the term "Expiration Date" shall refer to the latest time and date
at which the Offer, as so extended by ServiceMaster, shall expire.
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The Offer is conditioned on a minimum number (the "Minimum Number") of the
outstanding Shares being tendered for either cash or ServiceMaster Shares
pursuant to the Offer such that, when added to all Barefoot Shares owned by
ServiceMaster prior to consummation of the Offer, will provide ServiceMaster
with ownership of at least 75.0% of the Shares which are outstanding at the
Closing Time. ServiceMaster, as of the date of this Offering
Circular/Prospectus, beneficially owns 289,000 Shares or approximately 2.0% of
the outstanding Shares. The Offer is also subject to certain other conditions.
See "--Conditions to the Offer." If any condition to ServiceMaster's
obligation to purchase Shares under the Offer is not satisfied prior to the
Expiration Date, ServiceMaster reserves the right (but shall not be obligated)
to (i) decline to purchase any of the Shares tendered and terminate the Offer,
(ii) waive such unsatisfied condition, subject to the Acquisition Agreement
and to complying with applicable rules and regulations of the Commission,
purchase all Shares validly tendered, (iii) extend the Offer and, subject to
the right of stockholders to withdraw Shares until the Expiration Date, retain
the Shares which have been tendered during the period or periods for which the
Offer is extended, or (iv) subject to the terms of the Acquisition Agreement,
amend the Offer.
ServiceMaster expressly reserves the right, in its sole discretion, at any
time or from time to time, subject to the terms of the Acquisition Agreement
and regardless of whether or not any of the events set forth under "--
Conditions to the Offer" shall have occurred or shall have been reasonably
determined by ServiceMaster to have occurred, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of,
and the payment for, any Shares, by giving oral or written notice of such
extension to the Exchange Agent and (ii) to amend the Offer in any respect by
giving oral or written notice of such amendment to the Exchange Agent. The
rights so reserved by ServiceMaster are in addition to ServiceMaster's rights
to terminate the Offer described under "--Conditions to the Offer." Any
extension, amendment or termination will be followed as promptly as
practicable by public announcement thereof, the announcement in the case of an
extension to be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date in accordance
with the public announcement requirements of Rule 14d-4(c) under the Exchange
Act. Without limiting the obligation of ServiceMaster under such Rule or the
manner in which ServiceMaster may choose to make any public announcement,
ServiceMaster currently intends to make announcements by issuing a release to
the Dow Jones News Service.
If ServiceMaster extends the Offer, or if ServiceMaster (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for
any reason, then, without prejudice to ServiceMaster's rights under the Offer,
the Exchange Agent may retain tendered Shares on behalf of ServiceMaster, and
such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to withdrawal rights as described under "Withdrawal Rights."
However, the ability of ServiceMaster to delay the payment for Shares which
ServiceMaster has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of the Offer.
If ServiceMaster makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including that the Minimum Number of all outstanding Shares are validly
tendered and not withdrawn prior to 12:00 midnight, New York City Time on the
Expiration Date), subject to the Acquisition Agreement, ServiceMaster will
disseminate additional tender offer materials and extend the Offer to the
extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The
minimum period during which the Offer must remain open following material
changes in the terms of the Offer or information concerning the Offer, other
than a change in price or a change in percentage of securities sought, will
depend upon the facts and circumstances, including the relative materiality of
the terms or information. With respect to a change in price or a change in
percentage of securities sought, a minimum ten business day period is required
to allow for adequate dissemination to stockholders and investor response. If
prior to the Expiration Date,
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ServiceMaster should decide to increase the Offer Consideration, such increase
will be applicable to all stockholders whose Shares are accepted for payment
pursuant to the Offer. As used in this Offering Circular/Prospectus, "business
day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
The Company has provided to ServiceMaster its list of stockholders and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offering Circular/Prospectus and the related Letter of
Transmittal and other relevant materials will be mailed to record holders of
Shares and furnished to brokers, dealers, commercial banks, trust companies
and similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
OFFER CONSIDERATION
ServiceMaster hereby pursuant to the Offer, offers, upon the terms and
subject to the conditions set forth in this Offering Circular/Prospectus and
the accompanying Letter of Transmittal, to acquire each outstanding Share,
together with the associated Stock Purchase Rights, not already owned by
ServiceMaster, for, at the election of the holder, either:
(i) $16.00 in cash, without any interest thereon; or
(ii) a fraction (the "Conversion Fraction") of a validly issued, fully
paid and nonassessable ServiceMaster Share, determined by dividing $16.00
by the greater of (x) $23.00 or (y) the average (without rounding) of the
closing price (the "Average ServiceMaster Share Price") of ServiceMaster
Shares on the NYSE as reported on the NYSE Composite Tape for the 15
consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date and rounding the result to the
nearest one one-hundred thousandth of a share.
Pursuant to the Offer, Barefoot stockholders may elect to receive all cash
or all ServiceMaster Shares or any combination thereof. There is no limit on
the percentage of the Offer Consideration which may be received as cash or as
ServiceMaster Shares.
Because the market price for ServiceMaster Shares will fluctuate, the market
price for the fraction of a ServiceMaster Share issuable in exchange for each
Share at any time on or after the Closing Date is likely to be higher or lower
than $16.00. Each Barefoot stockholder has the right to decide whether to
receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot
stockholder may wish to consider in connection with such decision include: the
value to the Barefoot stockholder of the ability to defer recognition of any
capital gain for federal income tax purposes by electing to receive
ServiceMaster Shares; the inclination of such stockholder to continue to hold
the ServiceMaster Shares received in the Offer (since a capital gain tax may
be imposed when the ServiceMaster Shares are sold); the stockholder's
willingness to assume the risk inherent in holding ServiceMaster equity
securities with a view to possibly realizing realizing future gains (as to
which no assurance can be given); and the stockholder's evaluation of the
attractiveness of alternative investments which the stockholder would be able
to make with the net after tax proceeds which the stockholder would receive if
the stockholder elected to receive the Cash Consideration. A stockholder who
would be subject to little or no tax upon the disposition of Shares will
likely give little or no weight to the tax related factors identified above
and may accordingly evaluate the relative attractiveness of the Share
Consideration and Cash Consideration differently from a stockholder who is in
a taxable situation. The foregoing does not purport to be a complete list of
all of the factors which may be relevant to a stockholder's decision to
receive cash or ServiceMaster Shares. See "Certain Federal Income Tax
Consequences."
In addition, if, and to the extent, the Average ServiceMaster Share Price
(determined as described in the first paragraph on the cover of this Offering
Circular/Prospectus) should turn out to be below $23.00, the risk that the
market value on the Closing Date of the Share Consideration will be less than
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the $16.00 Cash Consideration available to Barefoot stockholders would
increase. ServiceMaster will issue a press release and file an amendment to
its Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share
Price is determined disclosing the amount of that price. In addition, on or
after the fourth NYSE trading day immediately preceding the Expiration Date,
each Barefoot stockholder can call the Information Agent at (800) 848-3410 to
obtain the Average ServiceMaster Share Price. Since Barefoot stockholders have
the ability to switch their elections between Share Consideration and Cash
Consideration until midnight on the Expiration Date of the Offer, Barefoot
stockholders should review this ServiceMaster announcement so that their final
election can take into account the Average ServiceMaster Share Price as well
as the market price for ServiceMaster Shares on or near the Expiration Date.
Patrick J. Norton (Barefoot's Chief Executive Officer) has advised
ServiceMaster that it is his present intention to tender all of his Barefoot
Shares (which represent approximately 9.5% of all outstanding Barefoot Shares)
and to elect the Share Consideration for substantially all of such Tendered
Shares. Mr. Norton's action is not intended to constitute advice or a
recommendation as to whether or not any other Barefoot stockholder should
tender or how any other Barefoot stockholder should choose between the Cash
Consideration and Share Consideration alternatives.
NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER
STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE
CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR
OWN DECISION WITH RESPECT TO SUCH ELECTION.
On December 4, 1996, the last full trading day prior to the announcement by
ServiceMaster and Barefoot that they had entered into the Acquisition
Agreement, the closing price of ServiceMaster Shares, as reported by the NYSE
Composite Tape, was $24.625 per share and the closing price of the Barefoot
Shares, as reported on the Nasdaq National Market, was $12.75 per share. The
closing price of ServiceMaster Shares and the Barefoot Shares on January 15,
1997, the most recent date prior to the printing of this Offering
Circular/Prospectus, as reported by the NYSE Composite Tape and the Nasdaq
National Market, respectively, were $26.125 per share and $15.75 per share,
respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
ELECTION PROCEDURES
Each holder of Barefoot Shares which have been properly tendered and not
withdrawn pursuant to the Offer by 12:00 midnight New York City time on the
Expiration Date ("Tendered Shares"), shall have the right, subject to the
limitations set forth below, to specify the number of Tendered Shares that
such holder desires to have exchanged into the Share Consideration pursuant to
the Offer and the number of Tendered Shares that such holder desires to have
exchanged for the Cash Consideration pursuant to the Offer in accordance with
the following procedures:
Each holder of Tendered Shares may specify in a Letter of Transmittal (or in
a Notice of Guaranteed Delivery if the guaranteed delivery procedure is
followed), (an "Election") (i) the number of Tendered Shares owned by such
holder that such holder desires to exchange for the Share Consideration
pursuant to the Offer (a "Share Election") and (ii) the number of Shares owned
by such holder that such holder desires to have exchanged for the Cash
Consideration pursuant to the Offer (a "Cash Election").
Any Election shall have been made properly only if the Exchange Agent shall
have received, by 12:00 midnight New York City time on the Expiration Date, a
Letter of Transmittal (or in a Notice of Guaranteed Delivery if the guaranteed
delivery procedure is followed), properly completed and signed. A copy of each
of the Letter of Transmittal and the Notice of Guaranteed Delivery is being
mailed simultaneously with this Offering Circular/Prospectus. See "--
Procedures for Tendering Shares."
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Any holder of Shares may at any time prior to 12:00 midnight New York City
time on the Expiration Date, change his or her Election only by written
notice, signed and dated by such Stockholder, to the Exchange Agent. Such
written notice must identify the name of the holder of record of the Barefoot
Shares subject to such notice and the certificate number shown on the
certificate(s) representing such Barefoot Shares. The written notice must be
received by the Exchange Agent prior to 12:00 midnight New York City time on
the Expiration Date.
Each Tendered Share for which a Share Election has been received shall be,
at the Closing Time, exchanged for the Share Consideration in the Offer;
provided, however, no certificates or scrip representing fractional
ServiceMaster Shares shall be issued upon the exchange for such Tendered
Shares. In lieu of any such fractional ServiceMaster Share, ServiceMaster
shall pay to each such Barefoot stockholder who otherwise would be entitled to
receive a fractional ServiceMaster Share an amount in cash determined by
multiplying (i) the greater of $23.00 or the Average ServiceMaster Share Price
by (ii) the fractional interest in a ServiceMaster Share to which such holder
would otherwise be entitled.
Each Tendered Share for which a Cash Election has been received and each
Tendered Share as to which an Election is not in effect at 12:00 midnight New
York City time on the Expiration Date, (a "Non-Electing Share") shall be, at
the Closing, exchanged for the Cash Consideration in the Offer.
All Cash Elections and Share Elections must be made on the Letter of
Transmittal (or, a Notice of Guaranteed Delivery if the guaranteed delivery
procedure is followed) and must be received and accepted by 12:00 midnight New
York City time on the Expiration Date. Additional copies of the Letter of
Transmittal will be available upon request from the Exchange Agent or the
Information Agent at their respective addresses and telephone numbers set
forth on the back cover of this Offering Circular/Prospectus. If ServiceMaster
shall determine that any Election is not properly made with respect to any
Tendered Shares, such Election shall be deemed to be not in effect, and the
Tendered Shares covered by such Election shall, for purposes of the Offer, be
deemed to be Non-Electing Shares.
In the event that, between the date of this Agreement and the Closing Time,
the issued and outstanding ServiceMaster Shares shall have been affected or
changed into a different number of shares or a different class of shares as a
result of a share split, reverse share split, share distribution, spin-off,
extraordinary distribution, recapitalization, reclassification or other
similar transaction with a record date within such period, the Conversion
Fraction shall be equitably adjusted by ServiceMaster in a manner reasonably
satisfactory to the Company.
ServiceMaster has the right to make rules, not inconsistent with the terms
of the Acquisition Agreement and reasonably acceptable to the Company,
governing the validity of any Letter of Transmittal, the manner and extent to
which Elections are to be taken into account in making the determinations
required by the Acquisition Agreement, the issuance and delivery of
certificates for ServiceMaster Shares exchanged for Shares pursuant to the
Offer and the payment of cash for Shares exchanged for the Cash Consideration
pursuant to the Offer.
ACCEPTANCE OF SHARES; DELIVERY OF THE OFFER CONSIDERATION
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), at the earliest time permitted under the Exchange Act and the
earliest time as of which: (i) the Minimum Number of Shares shall have been
properly tendered and not withdrawn and shall be available for purchase under
the terms of the Offer and applicable law and (ii) all conditions to
ServiceMaster's obligation to consummate the
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Offer shall have been satisfied or waived by ServiceMaster, ServiceMaster will
acquire, by accepting pursuant to the Offer and will pay the Cash
Consideration or issue the Share Consideration for all Shares validly tendered
prior to the Expiration Date promptly after the Expiration Date; provided,
that ServiceMaster may allow the Offer to remain open for an additional period
of time but no later than 20 business days after the Minimum Number of Shares
shall have been properly tendered (the "Closing"). The "Closing Time" shall be
the time at which ServiceMaster shall acquire Shares by means of the Offer.
ServiceMaster expressly reserves the right to delay acceptance of, or, subject
to Rule 14e-1(c) under the Exchange Act, payment for, Shares in order to
comply, in whole or in part, with any applicable law. See "--Regulatory
Approvals." For purposes of the Offer, ServiceMaster will be deemed to have
accepted (and thereby acquired pursuant to the Offer) Tendered Shares, if, as
and when ServiceMaster gives oral or written notice to the Exchange Agent of
ServiceMaster's acceptance of such Shares for payment pursuant to the Offer.
At the Closing, ServiceMaster shall deliver, in trust, to the Exchange
Agent, for the benefit of the holders of Shares, certificates representing an
aggregate number of ServiceMaster Shares as nearly as practicable equal to the
product of the Conversion Fraction and the number of Tendered Shares to be
converted into ServiceMaster Shares. As soon as practicable after the Closing
Time, each holder of Tendered Shares exchanged for ServiceMaster Shares
pursuant to the Offer, shall, only after timely receipt by the Exchange Agent
of (i) certificates for such Shares, or timely confirmation of a book-entry
transfer (a "Book Entry Confirmation") of such Shares into the Exchange
Agent's account at The Depository Trust Company or the Philadelphia Depository
Trust Company (each, a "Book-Entry Transfer Facility") pursuant to the
procedures set forth under "--Procedures for Tendering Shares," (ii) a
properly completed and duly executed Letter of Transmittal (or, in the case of
a book-entry transfer, an Agent's Message) and (iii) any other documents
required by the Letter of Transmittal, receive certificates representing the
number of ServiceMaster Shares for which such Tendered Shares shall have been
exchanged as determined in accordance with the terms of the Offer (or, in the
case of Shares tendered by book-entry transfer into the Exchange Agent's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
under "--Procedures for Tendering Shares", such Shares will be credited to an
account maintained at such Book-Entry Transfer Facility). If any certificate
for such ServiceMaster Shares is to be issued in a name other than that in
which the certificate for Tendered Shares surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of issuance of certificates for such ServiceMaster
Shares in a name other than the registered holder of the certificate
surrendered, or shall establish to the reasonable satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
At the Closing, ServiceMaster shall deposit in trust with the Exchange
Agent, for the benefit of the holders of Tendered Shares, cash in an amount
equal to the Cash Consideration multiplied by the number of Tendered Shares to
be exchanged for the Cash Consideration. As soon as practicable after the
Closing Time, the Exchange Agent shall distribute to such holders of Tendered
Shares, only after timely receipt by the Exchange Agent of (i) certificates
for such Shares, or timely confirmation of a book-entry transfer (a "Book
Entry Confirmation") of such Shares into the Exchange Agent's account at a
Book-Entry Transfer Facility pursuant to the procedures set forth under "--
Procedures for Tendering Shares," (ii) a properly completed and duly executed
Letter of Transmittal (or, in the case of a book-entry transfer, an Agent's
Message) and (iii) any other documents required by the Letter of Transmittal,
the Cash Consideration in the form of a bank check for an amount equal to the
Cash Consideration times the number of Tendered Shares so exchanged. In no
event shall the holder of any such surrendered certificates be entitled to
receive interest on any of the Cash Consideration to be received in the Offer.
If such check is to be issued in the name of a person other than the person in
whose name the certificates for the Tendered Shares surrendered for exchange
therefor are registered, it shall be a condition of the exchange that the
person requesting such exchange shall pay
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<PAGE>
to the Exchange Agent any transfer or other taxes required by reason of
issuance of such check to a person other than the registered holder of the
certificates surrendered, or shall establish to the reasonable satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
If any Tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates submitted represent more Shares than are tendered,
certificates for such Shares not accepted or tendered will be returned,
without expense to the tendering stockholder (or, in the case of Shares
tendered by book-entry transfer into the Exchange Agent's account at a Book-
Entry Transfer Facility pursuant to the procedures set forth under "--
Procedures for Tendering Shares", such Shares will be credited to an account
maintained at such Book-Entry Transfer Facility), promptly after the
expiration or termination of the Offer.
PROCEDURES FOR TENDERING SHARES.
Valid Tender. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and any other required documents, must be received by the Exchange
Agent at one of its addresses set forth on the back cover of this Offering
Circular/Prospectus prior to the Expiration Date. In addition, either (i) the
certificates for Shares must be received by the Exchange Agent along with the
Letter of Transmittal or Shares must be tendered pursuant to the procedures
for book-entry transfer described below and a Book-Entry Confirmation must be
received by the Exchange Agent, in each case prior to the Expiration Date, or
(ii) the tendering stockholder must comply with the guaranteed delivery
procedures described below.
Book Entry Transfer. The Exchange Agent will establish an account with
respect to the Shares at each Book-Entry Transfer Facility for purposes of the
Offer within two business days after the date of this Offering
Circular/Prospectus. Any financial institution that is a participant in any of
the Book-Entry Transfer Facilities' systems may make book-entry delivery of
Shares by causing a Book-Entry Transfer Facility to transfer such Shares into
the Exchange Agent's account at a Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. ("NASD") or a
commercial bank or trust company having an office or correspondent in the
United States (each of the foregoing being referred to as an "Eligible
Institution"), unless the Shares tendered thereby are tendered (i) by a
registered holder of Shares who has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal, or (ii) for the account of an
Eligible Institution. See Instructions H-3 and H-4 of the Letter of
Transmittal. If the certificates are registered in the name of a person other
than the signer of the Letter of Transmittal or if payment is to be made or
certificates for ServiceMaster Shares or certificates for Shares not accepted
for payment or not tendered are to be issued or returned to a person other
than the registered holder, then the tendered certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates,
with the signatures on the certificates or stock powers guaranteed as
described above. See Instructions H-2, H-3 and H-4 of the Letter of
Transmittal.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or time will not permit all required
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documents to reach the Exchange Agent on or prior to the Expiration Date, or
the procedure for book-entry transfer cannot be completed on a timely basis,
such Shares may nevertheless be tendered if all the following conditions are
satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by ServiceMaster herewith, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date as provided below; and
(iii) the certificates for all Tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation), together with a Letter of
Transmittal, properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and any other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three Nasdaq National Market ("NNM")
trading days after the date of execution of the Notice of Guaranteed
Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE SENT BY HAND DELIVERY, FACSIMILE
TRANSMISSION, OVERNIGHT COURIER OR MAIL TO THE EXCHANGE AGENT AND MUST INCLUDE
A GUARANTEE BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN THE NOTICE OF
GUARANTEED DELIVERY.
THE ELECTION MADE IN ANY NOTICE OF GUARANTEED DELIVERY MAY NOT BE CHANGED
AFTER 12:00 MIDNIGHT ON THE EXPIRATION DATE INCLUDING BY A LETTER OF
TRANSMITTAL RECEIVED BY THE EXCHANGE AGENT AFTER SUCH TIME.
Notwithstanding any other provision hereof, consideration for Shares
acquired pursuant to the Offer will in all cases be made only after timely
receipt by the Exchange Agent of certificates for the Shares or a Book-Entry
Confirmation of the delivery of such Shares, and a Letter of Transmittal,
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message) and any other
documents required by the Letter of Transmittal.
Backup Federal Income Tax Withholding. TO PREVENT BACKUP FEDERAL INCOME TAX
WITHHOLDING WITH RESPECT TO PAYMENT OF THE CASH CONSIDERATION FOR SHARES
PURCHASED PURSUANT TO THE OFFER, A TENDERING STOCKHOLDER MUST PROVIDE THE
EXCHANGE AGENT WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER
AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX
WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF
TRANSMITTAL.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
Tendered Shares pursuant to any of the procedures described above will be
determined by ServiceMaster, in its sole discretion, whose determination shall
be final and binding. ServiceMaster reserves the absolute right to reject any
or all tenders of any Shares determined by it not to be in proper form or if
the acceptance for payment of, or payment for, such Shares may, in the opinion
of ServiceMaster's counsel, be unlawful. ServiceMaster also reserves the
absolute right, in its sole discretion, subject to the Acquisition Agreement,
to waive any of the conditions of the Offer or any defect or irregularity in
any tender with respect to Shares of any particular stockholder, whether or
not similar defects or irregularities are waived in the case of other
stockholders. ServiceMaster's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal and the Instructions thereto)
will be final and binding. None of ServiceMaster, the Company, the Exchange
Agent, the Information Agent, the Dealer Managers or any other person will be
under any duty to give notification of any defects or irregularities in
tenders or the Election or will incur any liability for failure to give any
such notification.
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<PAGE>
Other Requirements. By executing a Letter of Transmittal as set forth above,
a tendering stockholder irrevocably appoints designees of ServiceMaster as the
stockholder's attorneys-in-fact and proxy, in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full
extent of the stockholder's rights with respect to the Shares tendered by the
stockholder and accepted for payment by ServiceMaster (and any and all other
Shares or other securities issued or issuable in respect of such Tendered
Shares on or after the date of the Acquisition Agreement). All such proxies
shall be considered coupled with an interest in the Tendered Shares. This
appointment will be effective when, and only to the extent that, ServiceMaster
accepts Shares for payment. Upon acceptance for payment, all prior proxies
given by the stockholder with respect to the Shares or other securities will,
without further action, be revoked, and no subsequent proxies may be given nor
any subsequent written consent executed by such stockholder (and, if given or
executed, will not be deemed to be effective) with respect thereto. The
designees of ServiceMaster will, with respect to the Shares and other
securities, be empowered to exercise all voting and other rights of such
stockholder as they in their sole discretion may deem proper at any annual,
special or adjourned meeting of the Company's stockholders, by written consent
or otherwise. ServiceMaster reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon ServiceMaster's
acceptance for payment of such Shares, ServiceMaster must be able to exercise
full voting and other rights of a record and beneficial holder, including
rights in respect of acting by written consent, with respect to such Shares.
A TENDER OF SHARES PURSUANT TO ANY ONE OF THE PROCEDURES DESCRIBED ABOVE
WILL CONSTITUTE THE TENDERING STOCKHOLDER'S ACCEPTANCE OF THE TERMS AND
CONDITIONS OF THE OFFER. SERVICEMASTER'S ACCEPTANCE FOR PAYMENT OF SHARES
TENDERED PURSUANT TO THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN THE
TENDERING STOCKHOLDER AND SERVICEMASTER UPON THE TERMS AND SUBJECT TO THE
CONDITIONS OF THE OFFER.
WITHDRAWAL RIGHTS
Except as otherwise provided below, tenders of Shares made pursuant to the
Offer are irrevocable, provided that Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment by ServiceMaster pursuant to the Offer, may also be
withdrawn at any time after March 17, 1997.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange
Agent at one of its addresses set forth on the back cover of this Offering
Circular/Prospectus. Any such notice of withdrawal must specify the name of
the person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn and the name of the registered holder, if different from that of the
person who tendered such Shares. If certificates for Shares have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the serial numbers of the particular
certificates evidencing the Shares to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution, except in
the case of Shares tendered for the account of an Eligible Institution, must
also be furnished to the Exchange Agent as described above. If Shares have
been tendered pursuant to the procedures for book-entry transfer, any notice
of withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by ServiceMaster, in its sole
discretion, whose determination will be final and binding. None of
ServiceMaster, the Company, the Dealer Managers, the Exchange Agent, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification.
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ANY SHARES PROPERLY WITHDRAWN WILL BE DEEMED TO BE NOT VALIDLY TENDERED FOR
PURPOSES OF THE OFFER. However, withdrawn Shares may be retendered by again
following one of the procedures described under "Procedures for Tendering" at
any time prior to the Expiration Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
ServiceMaster and the Company believe that, for United States federal income
tax purposes: (i) the Cash Consideration received by any holder of Shares
tendered and accepted by ServiceMaster pursuant to the Offer will be treated
as the receipt of cash in a taxable sale of the Shares, and (ii) for United
States persons who hold Shares as a "capital asset" (generally, property held
for investment) within the meaning of Section 1221 of the Code, the exchange
of Shares for ServiceMaster Shares pursuant to the Offer as provided for
herein will qualify as a tax free contribution of property to ServiceMaster
within the meaning of Section 721 of the Code. The foregoing is based upon the
laws, regulations, rulings and decisions currently in effect, all of which are
subject to change. Holders of Shares should consult their own tax advisors to
determine the federal, state, local and other tax consequences of
participating in the Offer or the Merger. Holders of Shares should note that
no rulings have been or will be sought from the IRS with respect to the
federal income tax consequences of the Offer or the Merger, and no assurance
can be given that the IRS will not take contrary positions. See "Certain
Federal Income Tax Consequences." The discussion contained in "Certain Federal
Income Tax Consequences--The Offer" constitutes the opinions of Vorys, Sater,
Seymour and Pease and Kirkland & Ellis, each subject to the qualifications
stated therein. A copy of the opinion of Vorys, Sater, Seymour and Pease has
been included as Annex C-I to this Offering Circular/Prospectus. A copy of the
opinion of Kirkland & Ellis has been included as Annex C-II to this Offering
Circular/Prospectus. Such opinions, however, have no binding effect on the IRS
or the courts.
CERTAIN EFFECTS OF THE OFFER PENDING CONSUMMATION OF THE MERGER.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public pending consummation of the Merger.
Depending upon the aggregate market value and per share price of any Shares
not purchased pursuant to the Offer, the Shares may no longer meet the
standards for continued inclusion in the Nasdaq National Market, which require
that an issuer have at least 200,000 publicly held shares with a market value
of $1,000,000 million. If these standards were not met, quotations might
continue to be published in the over-the-counter "additional list" or in one
of the "local lists," but if the number of holders of Shares falls below 300,
or if the number of publicly held Shares falls below 100,000, or there are not
at least two market makers for the Shares, NASD rules provide that the
securities would no longer be "authorized" for reporting on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") and
Nasdaq would cease to provide any quotations. Shares held directly or
indirectly by an officer or director of the Company, or by any beneficial
owner of more than 10% of the Shares, ordinarily will not be considered as
being publicly held for this purpose. In the event the Shares were no longer
eligible for Nasdaq quotation, quotations might still be available from other
sources. The extent of the public market for the Shares and availability of
such quotations would, however, depend upon the number of holders of Shares
remaining at such time, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration under
the Exchange Act, as described below, and other factors.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. Depending upon factors similar
to
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those described above regarding listing and market quotations, following the
Offer it is possible that the Shares would no longer constitute "margin
securities" for the purposes of the margin regulations of the Federal Reserve
Board and therefore could no longer be used as collateral for loans made by
brokers.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are not listed on a national
securities exchange and there are fewer than 300 record holders of the Shares.
Termination of registration of the Shares under the Exchange Act would reduce
substantially the information required to be furnished by the Company to its
stockholders and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
stockholders' meetings pursuant to Section 14(a) and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions no
longer applicable to the Company. Furthermore, if ServiceMaster acquires a
substantial number of Shares or the registration of the Shares under the
Exchange Act were to be terminated, the ability of "affiliates" of the Company
and persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 under the Securities Act of 1933 may be
impaired or eliminated. If registration of the Shares under the Exchange Act
were terminated prior to the consummation of the Merger, the Shares would no
longer be "margin securities" or be eligible for Nasdaq reporting.
SOURCE AND AMOUNT OF FUNDS
Assuming all Shares were tendered pursuant to the Offer and the Cash
Consideration was elected for all of the Shares, the total amount of funds
required by ServiceMaster to acquire all of the Shares pursuant to the Offer
and to pay related fees and expenses is estimated to be approximately
$239,000,000. ServiceMaster has sufficient financial resources (including
available cash on hand and, to the extent necessary, borrowing capacity
available under its existing credit facilities) to enable ServiceMaster to
make all cash payments for the Shares in the Offer and the Merger and to pay
related fees and expenses.
DIVIDENDS AND DISTRIBUTIONS
If, on or after the date of the Acquisition Agreement, the Company should
(i) split, combine or otherwise change the Shares or its capitalization, (ii)
issue or sell any additional securities of the Company or otherwise cause an
increase in the number of outstanding securities of the Company (except for
Shares issuable upon the exercise of stock options outstanding on the date of
the Acquisition Agreement) or (iii) acquire currently outstanding Shares or
otherwise cause a reduction in the number of outstanding Shares, then, without
prejudice to ServiceMaster's rights described under "--Terms of the Offer" and
"--Conditions to the Offer," ServiceMaster may in a manner reasonably
satisfactory to the Company make such adjustments as it deems appropriate in
the Offer Consideration and other terms of the Offer and the Merger,
including, without limitation, the amount and type of securities offered to be
purchased.
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Acquisition Agreement or the
Offer, and except as expressly limited below, ServiceMaster shall not be
required to purchase any Shares tendered, if, prior to or on the Expiration
Date, any of the following events (each, an "Event") shall have occurred,
(each of paragraphs (a) through (n) providing a separate and independent
condition to ServiceMaster's
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obligations pursuant to the Acquisition Agreement and the Offer) which in the
reasonable judgment of ServiceMaster, in any such case and regardless of the
circumstances (including any action or inaction by ServiceMaster or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with the Offer or with such acceptance for payment or payment for the Shares:
(a) fewer than the Minimum Number of all outstanding Shares are validly
tendered and not withdrawn prior to 12:00 midnight, New York City Time on
the Expiration Date;
(b) except as contemplated by the provisions of the Acquisition
Agreement, the Company or any subsidiary of the Company shall have
authorized or recommended, or shall have announced an intention to
authorize or recommend, or shall have entered into an agreement in
principle with respect to, any merger, consolidation or business
combination, any acquisition of a material amount of assets or securities,
any disposition of a material amount of assets or securities or any
material change in its capitalization or any release or relinquishment of
any material contract rights not in the ordinary course of business;
(c) an injunction or other order shall have been entered and remain in
effect in any action or proceeding before any court or governmental agency
or other regulatory or administrative agency or commission, domestic or
foreign, based upon any provision of the Offer (i) making the acceptance
for payment of, or purchase or payment for, the Shares pursuant to the
Offer or the Merger illegal, or resulting in a material delay in the
ability of ServiceMaster to accept for payment or pay for some or all of
the Shares, (ii) imposing material limitations on the ability of
ServiceMaster effectively to acquire or hold or to exercise full rights of
ownership of the Shares acquired by it, including, but not limited to, the
right to vote the Shares purchased by it on all matters properly presented
to the stockholders of the Company, (iii) imposing material limitations on
the ability of either ServiceMaster (so long as such injunction or other
order is related to the Offer or the Merger) or the Company to continue
effectively all or any material portion of its respective business as
heretofore conducted or to continue to own or operate effectively all or
any material portion of its respective assets as heretofore owned or
operated or (iv) to the effect that the Offer or the Merger is violative of
any applicable law;
(d) there shall have been any law, statute, rule or regulation, domestic
or foreign, promulgated or proposed after the date of the Acquisition
Agreement that, directly or indirectly, results or may be reasonably
anticipated to result in any of the consequences referred to in paragraph
(c) above (other than any state law, statute, rule or regulation whose
applicability can be avoided by not extending the Offer to residents of
such state provided that in the aggregate not more than 2% of the
outstanding Shares on the date of the Closing shall be owned of record by
residents of any such state);
(e) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE or in the over-
the-counter market, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii) the
commencement of war involving the United States, or (iv) any limitation not
in existence as of the date of the Acquisition Agreement by any
governmental authority, or any other event not in existence as of the date
of the Acquisition Agreement, which will materially limit the extension of
credit by banks or other lending institutions in the United States;
(f) the representations and warranties of the Company contained in the
Acquisition Agreement shall not be true and correct at and as of the time
of each purchase under the Offer as if made at and as of such time except
for matters which, individually or in the aggregate, do not and will not
have a material adverse effect on the business, operation or financial
condition of the Company and its subsidiaries taken as a whole and the
ability of the Company to perform its obligations under the Merger
Agreement;
(g) all material terms, agreements and conditions of the Acquisition
Agreement and the Merger Agreement to be complied with or performed or
fulfilled by the Company at or prior to any
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purchase pursuant to the Offer shall not have been complied with, performed
and fulfilled in all material respects;
(h) the Company's Board of Directors shall have modified or amended in
any respect its recommendation of the Offer and the Merger to the
stockholders of the Company in any manner not approved by ServiceMaster or
shall have resolved to do so by formal action;
(i) the Company and ServiceMaster shall have reached an agreement that
the Offer shall be terminated;
(j) any waiting period (and any extension thereof) applicable to the
consummation of the Offer under the HSR Act shall not have expired or been
terminated;
(k) the rights under the Rights Agreement shall not have been redeemed or
made inapplicable to the Offer, the separation of outstanding Stock
Purchase Rights from the Shares shall have occurred, or the Stock Purchase
Rights shall have become exercisable;
(l) any director of the Company or its Subsidiaries (as requested by
ServiceMaster) shall have failed to resign effective as of the consummation
of the Offer; or
(m) the conditions precedent specified in Section 1.6 or 1.8 of the
Acquisition Agreement shall not be satisfied; or
(n) a stop order suspending effectiveness of the Registration Statement
shall have been issued or a proceeding for that purpose shall have been
initiated or threatened by the SEC;
The foregoing conditions are for the benefit of ServiceMaster and may be
asserted by ServiceMaster regardless of the circumstances giving rise to any
such condition and, subject to the terms and conditions of the Acquisition
Agreement, may be waived by ServiceMaster, in whole or in part, at any time
and from time to time, in the sole discretion of ServiceMaster. The failure by
ServiceMaster at any time to exercise any of the foregoing rights will not be
deemed a waiver of any other right and each right will be deemed an ongoing
right which may be asserted at any time and from time to time. Notwithstanding
the fact that ServiceMaster reserves the right to assert the occurrence of a
condition following acceptance for payment but prior to payment in order to
delay or cancel its obligation to pay for properly tendered Shares,
ServiceMaster will either promptly pay for such Shares or promptly return such
Shares.
CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
Except as described below, based on a review of publicly available filings
by the Company with the Commission and other publicly available information
concerning the Company, ServiceMaster is not aware of any license or
regulatory permit that appears to be material to the business of the Company
and its subsidiaries, taken as a whole, that might be adversely affected by
the acquisition of Shares by ServiceMaster pursuant to the Offer and the
Merger or, except as set forth below, of any approval or other action by any
governmental, administrative or regulatory agency or authority, domestic or
foreign, that would be required prior to the acquisition of Shares by
ServiceMaster pursuant to the Offer or the Merger. Should any such approval or
other action be required, ServiceMaster currently contemplates that it will be
sought. While ServiceMaster does not currently intend to delay the acceptance
for payment of Shares tendered pursuant to the Offer pending the outcome of
any such matter, there can be no assurance that any such approval or other
action, if needed, would be obtained or would be obtained without substantial
conditions or that adverse consequences might not result to the Company's
business or that certain parts of the Company's business might not have to be
disposed of in the event that such approvals were not obtained or any other
actions were not taken. ServiceMaster's obligation under the Offer to accept
for payment and pay for Shares is subject to certain conditions, including
conditions relating to the legal matters discussed herein. See "--Conditions
to the Offer."
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State Takeover Statutes. A number of states have adopted "takeover" statutes
that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of
business in such states.
In Edgar v. MITE Corporation, the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Act,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. However, in CTS Corp. v. Dynamics
Corp. of America, the Supreme Court held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of
a target corporation without prior approval of the remaining stockholders,
provided that such laws were applicable under certain conditions, in
particular, that the corporation has a substantial number of stockholders in
the state and is incorporated there.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted "takeover"
statutes. ServiceMaster does not know whether any of these statutes will, by
their terms, apply to the Offer or the Merger, and has not complied with any
such statutes except with respect to the Ohio Take-Over Act as discussed
below. To the extent that certain provisions of these statutes purport to
apply to the Offer, ServiceMaster believes that there are reasonable bases for
contesting such statutes. If any person should seek to apply any state
takeover statute, ServiceMaster would take such action as then appears
desirable, which action may include challenging the validity or applicability
of any such statute in appropriate court proceedings. If it is asserted that
one or more takeover statutes apply to the Offer, and it is not determined by
an appropriate court that such statute or statutes do not apply or are invalid
as applied to the Offer, ServiceMaster might be required to file certain
information with, or receive approvals from, the relevant state authorities,
and ServiceMaster might be unable to purchase or pay for Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer.
In such case, ServiceMaster may not be obligated to accept the Shares tendered
pursuant to the Offer. See "--Conditions to the Offer."
Section 203 of the Delaware General Corporation Law. Section 203 of the
Delaware General Corporation Law (the "DGCL") contains certain provisions that
may make more difficult the acquisition of control of the Company by means of
a tender offer, open market purchase, proxy fight or otherwise. The Restated
Certificate of Incorporation of the Company provides that Section 203 of DGCL
does not apply to the Company.
Ohio Take-Over Act. Sections 1707.041, 1707.042, 1707.23 and 1707.26 of the
Ohio Revised Code (collectively, the "Ohio Take-Over Act") regulate tender
offers. The Ohio Take-Over Act applies to the purchase of or offer to purchase
any equity security of a subject company from a resident of Ohio if, after the
purchase, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of issued and outstanding equity securities of the
company (a "Control Bid"). A subject company includes an issuer, such as the
Company, that either has its principal place of business or principal
executive offices located in Ohio or owns or controls assets located in Ohio
that have a fair market value of at least one million dollars, and that has
more than one thousand beneficial or record equity security holders who reside
in Ohio. A subject company, however, need not be incorporated in Ohio.
Notwithstanding the definition of subject company contained in the Ohio Take-
Over Act, the Ohio Division of Securities (the "Ohio Division"), by rule or an
adjudicatory proceeding, may make a determination that an issuer does not
constitute a subject company if appropriate review of Control Bids involving
the issuer is to be made by any regulatory authority of another jurisdiction.
The Ohio Division has not adopted any rules under this provision.
The Ohio Take-Over Act prohibits an offeror from making a Control Bid for
securities of a subject company pursuant to a tender offer until the offeror
has filed specified information with the Ohio
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Division. In addition, the offeror is required to deliver a copy of such
information to the subject company not later than the offeror's filing with
the Ohio Division and to send or deliver such information and the material
terms of this proposed offer to all offerees in Ohio as soon as practicable
after the offeror's filing with the Ohio Division.
Within three calendar days of such filing, the Ohio Division may by order
summarily suspend the continuation of the Control Bid if it determines that
the offeror has not provided all of the specified information or that the
Control Bid materials provided to offerees do not provide full disclosure of
all material information concerning the Control Bid. If the Ohio Division
summarily suspends a Control Bid, it must schedule and hold a hearing within
ten calendar days of the date on which the suspension is imposed and must make
its determination within three calendar days after the hearing has been
completed but no later than sixteen calendar days after the date on which the
suspension is imposed. The Ohio Division may maintain its suspension of the
continuation of the Control Bid if, based upon the hearing, it determines that
all of the information required to be provided by the Ohio Take-Over Act has
not been provided by the offeror, that the Control Bid materials provided to
offerees do not provide full disclosure of all material information concerning
the Control Bid, or that the Control Bid is in material violation of any
provision of the Ohio securities laws. If, after the hearing, the Ohio
Division maintains the suspension, the offeror has the right to correct the
disclosure and other deficiencies identified by the Ohio Division and to
reinstitute the Control Bid by filing new or amended information pursuant to
the Ohio Take-Over Act.
ServiceMaster believes that the Company is a subject company pursuant to the
Ohio Take-Over Act and that the Offer constitutes a Control Bid for securities
of the Company pursuant to a tender offer. On January 16, 1997, ServiceMaster
filed the specified information with the Ohio Division and intends to
otherwise comply with the Ohio Take-Over Act.
Antitrust. The Offer and the Merger are subject to the HSR Act, which
provides that certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission ("FTC") and certain waiting period requirements have been
satisfied. On December 6, 1996, ServiceMaster filed a Notification and Report
Form with respect to the Offer and the Merger. The waiting period requirements
under the HSR Act expired on January 5, 1997 without a request for additional
information.
FEES AND EXPENSES
Goldman, Sachs & Co. have been engaged by ServiceMaster to perform financial
advisory services in connection with the Offer and the acquisition of the
Company and to act as Dealer Managers in connection with the Offer. In
connection therewith, ServiceMaster has agreed to pay $100,000 to Goldman,
Sachs & Co. and, if the Offer is consummated, has agreed to pay Goldman, Sachs
& Co. an additional fee to be mutually agreed, but in no event shall such
additional fee be less than $1,150,000 or greater than $1,650,000. In
addition, in the event the Offer is terminated or otherwise not consummated
ServiceMaster has agreed to pay to Goldman, Sachs & Co. an additional fee of
$700,000 if ServiceMaster is paid a termination fee by Barefoot pursuant to
the Acquisition Agreement. In addition, ServiceMaster has agreed to reimburse
Goldman, Sachs & Co. for their reasonable out-of-pocket expenses, including
reasonable fees and expenses of their counsel. ServiceMaster also has agreed
to indemnify Goldman, Sachs & Co. and certain related persons against certain
liabilities and expenses in connection with their services, including certain
liabilities under the federal securities laws. Goldman, Sachs & Co. have from
time to time, and are expected to continue to, render various investment
banking services to ServiceMaster, for which they are paid customary fees.
ServiceMaster has retained D.F. King & Co., Inc. to act as the Information
Agent and Harris Trust Company of New York to act as the Exchange Agent in
connection with the Offer. The Information
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Agent may contact holders of Shares by mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers, commercial banks, trust
companies and other nominees to forward the Offer material to beneficial
owners. The Information Agent and the Exchange Agent each will receive
reasonable and customary compensation for their services, will be reimbursed
for certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith, including certain
liabilities under the federal securities laws. Neither the Information Agent
nor the Exchange Agent has been retained to make solicitations or
recommendations in connection with the Offer.
ServiceMaster will not pay any fees or commissions to any broker or dealer
or other person for soliciting tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
ServiceMaster for reasonable expenses incurred by them in forwarding material
to their customers.
MISCELLANEOUS
ServiceMaster is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If ServiceMaster becomes aware
of any jurisdiction in which the making of the Offer would not be in
compliance with applicable law, ServiceMaster will make a good faith effort to
comply with any such law. If, after such good faith effort, ServiceMaster
cannot comply with any such law, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares residing in
such jurisdiction. In those jurisdictions whose securities or blue sky laws
require the Offer to be made by a licensed broker or dealer, the Offer is
being made on behalf of ServiceMaster by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of ServiceMaster not contained in this Offering
Circular/Prospectus or in the Letter of Transmittal and, if given or made,
such information or representation must not be relied upon as having been
authorized.
ServiceMaster has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-1
and any amendments thereto, including exhibits, may be inspected and copies
may be obtained at the same places and in the same manner as set forth under
"Available Information" (except that they will not be available at the
regional offices of the Commission).
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DESCRIPTION OF THE ACQUISITION AGREEMENT AND THE MERGER AGREEMENT
The following is a summary of the material provisions of the Acquisition
Agreement and the Merger Agreement not summarized elsewhere in this Offering
Circular / Prospectus. This summary does not purport to be complete and is
qualified in its entirely by reference to the Acquisition Agreement and the
Merger Agreement, a copy of each is attached hereto as Annex A-I and Annex A-
II, and each incorporated herein by reference. Capitalized terms used in the
following summary shall have the meanings set forth in the Acquisition
Agreement.
GENERAL
The Acquisition Agreement provides that ServiceMaster shall consummate the
Offer and acquire all Shares properly tendered and not withdrawn (the
"Closing") at the earliest time permitted under the Exchange Act and the
earliest time as of which: (i) the Minimum Number of Shares (as defined below)
shall have been properly tendered and not withdrawn and shall be available for
purchase under the terms of the Offer and applicable law and (ii) all
conditions to ServiceMaster's obligation to consummate the Offer contained in
Annex 1 to the Acquisition Agreement shall have been satisfied or waived by
ServiceMaster; provided, that ServiceMaster may allow the Offer to remain open
for an additional period of time but no later than 20 business days after the
Minimum Number of Shares shall have been properly tendered. The "Closing Time"
shall be the time at which ServiceMaster shall acquire Shares by means of the
Offer. The Minimum Number shall be such number that when added to all Shares
owned by ServiceMaster and its affiliates prior to consummation of the Offer
will provide ServiceMaster and its affiliates with ownership of 75% of the
Shares which shall be outstanding at the Closing Time.
TREATMENT OF STOCK OPTIONS
The Acquisition Agreement provides that at the Closing, Barefoot shall pay
to each Barefoot employee or director who holds any option to acquire Shares
("Barefoot Stock Option"), an amount of cash equal to the number of shares
subject to that option at the Closing (whether or not then vested) times the
remainder derived by subtracting the exercise price per share from $16.
Barefoot shall obtain an agreement in a form reasonably satisfactory to
ServiceMaster from each holder of every Barefoot Stock Option to accept such
payment in exchange for a surrender of all rights of such holder under or by
reason of such Barefoot Stock Option including but not limited to the
termination of the holder's rights to purchase any shares with such Barefoot
Stock Option after the Closing. The obtaining of such an agreement from each
holder of a Barefoot Stock Option is a condition to ServiceMaster's obligation
to consummate the Closing.
REPRESENTATIONS AND WARRANTIES
In the Acquisition Agreement, Barefoot has made certain representations and
warranties to ServiceMaster and Merger Sub with respect to, among other
things, its organization, capitalization, corporate power and authority,
corporate actions, validity of the Acquisition Agreement and the Merger
Agreement, consents and approvals, absence of violations, filings with the
Commission, financial statements, absence of certain changes, absence of
undisclosed liabilities, employee benefit plans, litigation, compliance with
laws, absence of defaults, tax matters, contracts, absence of agreements not
to compete, transactions with affiliates, receipt of an opinion from
Barefoot's financial advisor, and the absence of brokers who are entitled to
fees in connection with the Offer or the Merger other than as disclosed
therein. In the Acquisition Agreement, each of ServiceMaster and Merger Sub
have made certain representations and warranties to Barefoot with respect to,
among other things, its organization, capitalization, partnership and
corporate power and authority, partnership and corporate actions, validity of
the Acquisition Agreement and the Merger Agreement, consents and approvals,
absence of violations, filings with the Commission, financial statements,
absence of certain changes, absence of
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undisclosed liabilities, litigation, compliance with laws, absence of
defaults, availability of sufficient financing to fund the maximum Cash
Consideration that could be paid in the Offer and the Merger, and receipt of
an opinion from ServiceMaster's financial advisor.
INTERIM OPERATIONS OF THE COMPANY
In the Acquisition Agreement, Barefoot has agreed that, except (i) as
expressly provided in the Acquisition Agreement or the Merger Agreement, (ii)
with the prior written consent of ServiceMaster or (iii) as set forth on
Section 5.1 of the Disclosure Schedule to the Acquisition Agreement, after the
date of the Acquisition Agreement and prior to the Closing Time:
(i) the business of Barefoot and its subsidiaries, including, without
limitation, investment practices and policies, shall be conducted only in
the ordinary course of business consistent with past practice and, each of
Barefoot and its subsidiaries shall use all reasonable efforts to preserve
its business organization intact and maintain its existing relations with
material customers, suppliers, franchisees, employees, creditors and
business partners;
(ii) Barefoot will not, directly or indirectly, split, combine or
reclassify the outstanding Shares, or any outstanding capital stock of any
of the subsidiaries of Barefoot;
(iii) neither Barefoot nor any of its subsidiaries shall: (a) amend its
certificate of incorporation or by-laws or similar organizational
documents; (b) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock other
than dividends paid by Barefoot's wholly-owned subsidiaries to Barefoot or
its wholly-owned subsidiaries and other than ordinary quarterly cash
dividends by Barefoot not to exceed $0.05 per share per quarter and other
than an expenditure of not more than an additional $.01 per share to redeem
outstanding stock purchase rights; (c) issue, sell, transfer, pledge,
dispose of or encumber any additional shares of, or securities convertible
into or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of capital stock of any class of
Barefoot or its subsidiaries, other than issuances pursuant to exercise of
stock-based awards outstanding on the date hereof as disclosed in Section
1.6 of the Acquisition Agreement; (d) transfer, lease, license, sell,
mortgage, pledge, dispose of, or encumber any assets that are in the
aggregate material to Barefoot and its subsidiaries taken as a whole other
than sales of investment assets in the ordinary course of business
consistent with past practice; or (e) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock;
(iv) neither Barefoot nor any of its subsidiaries shall: (a) grant any
increase in the compensation payable or to become payable by Barefoot or
any of its subsidiaries to any officer or employee other than scheduled
annual increases in the ordinary course of business consistent with past
practice; (b) adopt any new, or amend or otherwise increase, or accelerate
the payment or vesting of the amounts payable or to become payable under
any existing, bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock purchase, insurance,
pension, retirement or other employee benefit plan agreement or
arrangement; (c) enter into any, or amend any existing, employment,
consulting or severance agreement with or, except in accordance with the
existing written policies of Barefoot, grant any severance or termination
pay to any officer, director or employee of Barefoot or any of its
subsidiaries; (d) make any additional contributions to any grantor trust
created by Barefoot to provide funding for non-tax-qualified employee
benefits or compensation; or (e) provide any severance program to any
subsidiary which does not have a severance program as of the date of the
Acquisition Agreement;
(v) neither Barefoot nor any of its subsidiaries shall modify, amend or
terminate any of the material Barefoot Agreements or waive, release or
assign any material rights or claims, except in the ordinary course of
business consistent with past practice;
(vi) neither Barefoot nor any of its subsidiaries shall permit any
material insurance policy naming it as a beneficiary or a loss payable
payee to be canceled or terminated, except in the ordinary course of
business consistent with past practice;
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(vii) neither Barefoot nor any of its subsidiaries shall: (a) incur or
assume any debt except for borrowings under existing credit facilities and
except for vehicle financing in each case in the ordinary course of
business and in amounts consistent with past practice; (b) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
person, except in the ordinary course of business consistent with past
practice; (c) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly owned subsidiaries
of Barefoot or customary loans or advances to employees in accordance with
past practice and other than as to such matters related to Barefoot's or
any of its subsidiaries' investment portfolios in the ordinary course of
business consistent with past practice); or (d) enter into any material
commitment (including, but not limited to, any capital expenditure or
purchase of assets) other than in the ordinary course of business
consistent with past practice;
(viii) neither Barefoot nor any of its subsidiaries shall change any of
the accounting principles used by it unless required by GAAP;
(ix) neither Barefoot nor any of its subsidiaries shall pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of any such claims, liabilities or obligations,
(a) reflected or reserved against in, or contemplated by, the consolidated
financial statements (or the notes thereto) of Barefoot and its
consolidated subsidiaries, (b) incurred in the ordinary course of business
consistent with past practice or (c) which are legally required to be paid,
discharged or satisfied;
(x) subject to the rights of Barefoot to terminate the Acquisition
Agreement pursuant to Section 6.1(c)(i) thereof and the obligation of
Barefoot to pay ServiceMaster the fees and expenses required by Section
7.1(b) thereof, neither Barefoot nor any of its subsidiaries will adopt a
plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other material
reorganization of Barefoot or any of its subsidiaries or any agreement
relating to a Takeover Proposal (other than the Offer or the Merger) other
than confidentiality agreements as provided in Section 5.5(a) of the
Acquisition Agreement;
(xi) neither Barefoot nor any of its subsidiaries will engage in any
transaction with, or enter into any agreement, arrangement, or
understanding with, directly or indirectly, any of Barefoot's affiliates,
including, without limitation, any transactions, agreements, arrangements
or understandings with any affiliate or other Person covered under Item 404
of Regulation S-K under the Securities Act that would be required to be
disclosed under such Item 404 other than such transactions of the same
general nature, scope and magnitude as are disclosed in Barefoot SEC
Documents;
(xii) except upon the prior written consent of ServiceMaster, Barefoot
shall not make any Tax election; and
(xiii) neither Barefoot nor any of its subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or to authorize, recommend, propose or announce an intention to do any of
the foregoing.
SEVERANCE AND STAY PROTECTION PLAN
The Acquisition Agreement provides that, at or before the Closing Time,
Barefoot shall adopt a severance and stay protection plan, the substantive
terms of which are set forth on Annex 2 of the Acquisition Agreement. From and
after the Closing Time, ServiceMaster and Merger Sub shall honor such plan in
accordance with the terms thereof. Except to the extent otherwise permitted by
Barefoot's chief executive officer or chief financial officer, ServiceMaster
shall not communicate with any employees of Barefoot or any Barefoot
subsidiary about future employment relationships or terms prior to the
Closing.
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NO SOLICITATION
The Acquisition Agreement provides that Barefoot (and its subsidiaries and
affiliates) shall not, and Barefoot (and its subsidiaries and affiliates) will
use their best efforts to ensure that their respective officers, directors,
employees, investment bankers, attorneys, accountants and other agents do not,
directly or indirectly: (i) initiate, solicit or encourage, or (except to the
extent permitted by clause (ii) below) take any action to facilitate the
making of, any offer or proposal which constitutes or is reasonably likely to
lead to any Takeover Proposal of Barefoot or any subsidiary or an inquiry with
respect thereto, or, (ii) in the event of an unsolicited bona fide Takeover
Proposal for Barefoot or any subsidiary of Barefoot, engage in negotiations or
discussions with, or provide any information or data to, any corporation,
partnership, person or other entity or group (other than ServiceMaster or any
of its affiliates or representatives) ("Person") relating to any Takeover
Proposal; except in the case of clause (ii) above, to the extent that
Barefoot's Board of Directors reasonably concludes, after having received the
advice of outside legal counsel to Barefoot and the advice of Barefoot's
financial advisor, and after having had the opportunity to discuss the
Takeover Proposal with such person making the Takeover Proposal (which
discussions shall not be deemed to be a violation of the Acquisition
Agreement) that such Takeover Proposal is reasonably likely to result in
consideration per Share in excess of the Offer Consideration and the failure
to engage in such negotiations or discussions or provide such information is
reasonably likely to result in a breach of the Board of Directors' fiduciary
duties under applicable law; provided, however, that notwithstanding the
foregoing, Barefoot's Board of Directors may take, and disclose to Barefoot's
stockholders a position contemplated by Rules for 14d-9 and 14e-2 promulgated
under the Exchange Act with respect to any tender offer for shares of capital
stock of Barefoot. Prior to furnishing any information to any such Person
making a Takeover Proposal, Barefoot shall have obtained a confidentiality
agreement from such Person containing confidentiality provisions substantially
similar to the confidentiality provisions in the Confidentiality Agreement
between ServiceMaster and the Company. Barefoot shall notify ServiceMaster of
any such offers, proposals, inquiries or Takeover Proposals (including,
without limitation, the material terms and conditions thereof and the identity
of the Person making it), within 24 hours of the receipt thereof, and shall
provide ServiceMaster with a copy of any written Takeover Proposal or
amendments or supplements thereto, and shall thereafter inform ServiceMaster
on a reasonable basis of the status of any discussions or negotiations with
such a third party, and any material changes to the terms and conditions of
such Takeover Proposal, and shall promptly give ServiceMaster a copy of any
information delivered to such Person which has not previously been reviewed by
ServiceMaster.
In the Acquisition Agreement Barefoot represented and warranted to
ServiceMaster that Barefoot, its subsidiaries and affiliates, and their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents, were not as of the date of the Acquisition
Agreement, and have not since November 1, 1996, engaged in or participated in
any discussions or negotiations whatsoever with any person, entity or "group"
(as that term is defined in Section 13(d)(3) of the Exchange Act) with respect
to any Takeover Proposal relating to Barefoot.
As used in the Acquisition Agreement, "Takeover Proposal" means any tender
or exchange offer involving the capital stock of Barefoot, any proposal for a
merger, consolidation or other business combination involving Barefoot, any
proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the business or assets of, Barefoot or any
subsidiary of Barefoot, any proposal or offer with respect to any
recapitalization or restructuring with respect to Barefoot or any subsidiary
of Barefoot or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to Barefoot or any subsidiary of
Barefoot other than pursuant to the transactions to be effected pursuant to
the Acquisition Agreement.
BAREFOOT FRANCHISES
The Acquisition Agreement provides that as soon as practicable after the
Closing Time ServiceMaster shall make every effort to provide to each Barefoot
franchisee the option to do any of
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the following: (i) to sell such franchise to Barefoot on terms and conditions
as the franchisee and ServiceMaster may agree; (ii) to continue to operate its
Barefoot franchise in accordance with existing agreements between the
franchisee and Barefoot (very likely to be in competition with other
affiliates of ServiceMaster engaged in the lawn care business); or (iii) to
terminate the existing agreement between the franchisee and Barefoot and to
operate its business independently without use of Barefoot trade names,
service marks or similar rights.
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION
The Acquisition Agreement provides that, at all times after the Closing
Time, ServiceMaster shall indemnify (and advance expenses to) each person who
is now, or has been at any time prior to the date of the Acquisition
Agreement, a director or officer of Barefoot or of any of Barefoot's
subsidiaries (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), to the same extent and in the same manner as is now
provided in the respective charters or by-laws of Barefoot and such
subsidiaries or otherwise in effect on the date of the Acquisition Agreement,
with respect to any claim, liability, loss, damage, cost or expense (whenever
asserted or claimed) ("Indemnified Liability") based in whole or in part on,
or arising in whole or in part out of, any matter existing or occurring at or
prior to the Closing Time. ServiceMaster shall, or shall cause Barefoot to,
maintain in effect for not less than six (6) years after the Closing the
current policies of directors' and officers' liability insurance maintained by
Barefoot and its subsidiaries on the date of the Acquisition Agreement with
respect to matters existing or occurring at or prior to the Closing Time
(provided that ServiceMaster may substitute therefor policies having at least
the same coverage and containing terms and conditions which are no less
advantageous to the persons currently covered by such policies and with
carriers reasonably comparable to Barefoot's existing carriers in terms of
creditworthiness). The insurance required by the preceding sentence shall be
in an amount at any particular time equal to the greater of (i) the amount of
coverage provided by Barefoot's insurance on the date hereof or (ii) the
amount of coverage provided to ServiceMaster's own directors at the particular
time. Promptly after receipt by an Indemnified Party of notice of the
assertion (an "Assertion") of any claim or the commencement of any action
against him or her in respect to which indemnity or reimbursement may be
sought against ServiceMaster, Barefoot, the Surviving Corporation or a
subsidiary of Barefoot or the Surviving Corporation ("Indemnitors") hereunder,
such Indemnified Party shall notify any Indemnitor in writing of the
Assertion, but the failure to so notify any Indemnitor shall not relieve any
Indemnitor of any liability it may have to such Indemnified Party hereunder
except where such failure shall have materially prejudiced Indemnitor in
defending against such Assertion. No Indemnified Party shall settle any
Assertion without the prior written consent of ServiceMaster. The foregoing
provisions are intended for the benefit of, and shall be enforceable by, the
respective Indemnified Parties.
EXISTING STOCKHOLDER AGREEMENTS AND REGISTRATION RIGHTS AGREEMENTS
The Acquisition Agreement provides that Barefoot will use it best efforts to
terminate or cause to be terminated, prior to the Closing Time, any
stockholder agreements or registration rights agreements with or among any of
its security holders. Barefoot will suspend all sales under any shelf
registration statement at least two business days prior to the Expiration Date
and will cause any registration rights agreement not to have any application
to any securities of ServiceMaster or its subsidiaries following the Closing
Time.
NYSE LISTING
The Acquisition Agreement provides that ServiceMaster shall cause
ServiceMaster Shares issued pursuant to the Offer to be approved for listing
on the NYSE prior to the Closing.
BAREFOOT STOCK PURCHASE RIGHTS
As of the date of the Acquisition Agreement there were outstanding a number
of Stock Purchase Rights equal to the aggregate number of Shares issued and
outstanding, which rights are exercisable
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for shares of the Company's Series A Junior Participating Preferred Stock
pursuant to the terms of the Rights Agreement dated as of April 11, 1995
between the Company and National City Bank (the "Rights Agreement"). The Stock
Purchase Rights generally become exercisable upon authorization by the Board
of Directors if any person acquires control of 15% or more of the Shares. The
Company has represented and agreed in the Acquisition Agreement that the Board
of Directors of the Company has taken such action and will take such
additional action as is required to prevent the Stock Purchase Rights from
becoming exercisable by reason of the Offer or the Merger.
TERMINATION
The Acquisition Agreement may be terminated and the Merger abandoned at any
time prior to the Closing Time:
(i) by the mutual consent of the Board of Directors of ServiceMaster and
the Board of Directors of Barefoot;
(ii) by either of the Board of Directors of Barefoot or the Board of
Directors of ServiceMaster; (a) if the Offer shall not have been commenced
by February 15, 1997; provided, however, that the right to terminate the
Acquisition Agreement under this clause (ii)(a) shall not be available to
any party whose failure to fulfill any obligation under the Acquisition
Agreement has been the primary and but-for cause of the failure of the
Offer to have been commenced by February 15, 1997; or (b) if any
Governmental Entity shall have issued an order, decree or ruling or taken
any other action (which order, decree, ruling or other action the parties
hereto shall use their diligent efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the Offer or the Merger or
any material aspect of the Offer or the Merger and such order, decree,
ruling or other action shall have become final and non-appealable;
(iii) by the Board of Directors of Barefoot:
(a) if the Board of Directors of Barefoot shall have (I) withdrawn,
or modified or changed in a manner adverse to ServiceMaster its
approval or recommendation of the Acquisition Agreement, the Offer or
the Merger as a result of a Takeover Proposal (other than the Offer or
the Merger), in order to approve a Takeover Proposal (other than the
Offer or the Merger), or to permit Barefoot to execute a definitive
agreement relating to a Takeover Proposal, and (II) determined, after
having received the advice of outside legal counsel to Barefoot and the
advice of Barefoot's financial advisor, that such Takeover Proposal is
for consideration per Share in excess of the Offer Consideration and
the failure to take such action as set forth in the preceding clause
(II) would result in a breach of the Board of Directors' fiduciary
duties under applicable law; provided, however, that Barefoot shall
have given ServiceMaster forty-eight (48) hours advance notice of any
termination pursuant to this clause (a) and that Barefoot shall have
paid ServiceMaster the fees and expenses required by Section 7.1(b) of
the Acquisition Agreement;
(b) if ServiceMaster or Merger Sub breaches or fails in any material
respect to perform or comply with any of its material covenants and
agreements contained in the Acquisition Agreement; provided, however,
that if any such breach is curable by the breaching party through the
exercise of the breaching party's diligent efforts and for so long as
the breaching party shall be so using diligent efforts to cure such
breach, Barefoot may not terminate the Acquisition Agreement pursuant
to this clause (iii)(b); or
(c) if ServiceMaster breaches any of its representations or
warranties in the Acquisition Agreement and such breach (I) is
reasonably likely to have a material adverse effect upon ServiceMaster
and its subsidiaries taken as a whole and (II) has not been
incorporated into this Offering Circular / Prospectus.
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(iv) by the Board of Directors of ServiceMaster:
(a) if Barefoot (I) breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained in the Acquisition Agreement or (II) breaches its
representations and warranties in any material respect and such breach
would have or would be reasonably likely to have a material adverse
effect on Barefoot and its subsidiaries or create a situation in which
any of the conditions set forth in Annex 1 to the Acquisition Agreement
would not reasonably be expected to be satisfied prior to Closing;
provided, however, that if any such breach is curable by Barefoot
through the exercise of Barefoot's diligent efforts and for so long as
Barefoot shall be so using diligent efforts to cure such breach,
ServiceMaster may not terminate the Acquisition Agreement pursuant to
this clause (iv)(a); or
(b) if the Board of Directors of Barefoot shall have withdrawn, or
modified or changed in a manner adverse to ServiceMaster its approval
or recommendation of the Acquisition Agreement, the Offer or the Merger
or shall have recommended a Takeover Proposal or other business
combination, or Barefoot shall have entered into an agreement in
principle (or similar agreement) or definitive agreement providing for
a Takeover Proposal or other business combination with a person or
entity other than ServiceMaster, Merger Sub or their subsidiaries (or
the Board of Directors of Barefoot resolves to do any of the foregoing
by formal action); or
(c) by ServiceMaster if the Offer shall have expired or been
terminated without any Shares being purchased thereunder as a result of
the occurrence of any event that would result in the failure to satisfy
any of the conditions set forth in Annex 1 to the Acquisition
Agreement; or
(d) as provided in Annex 3 to the Acquisition Agreement.
If the Acquisition Agreement is validly terminated by Barefoot or
ServiceMaster as set forth above, the Acquisition Agreement and the Merger
Agreement will forthwith become null and void and there will be no liability
or obligation on the part of either Barefoot, ServiceMaster or Merger Sub (or
any of their respective representatives or affiliates) in respect of the
Acquisition Agreement or the Merger Agreement, except that the provisions of
this paragraph and Section 7.1 of the Acquisition Agreement which, among other
things, provides for a termination fee, shall continue to apply after such
termination. Without limiting by implication the generality of the preceding
sentence, ServiceMaster shall not be obligated to continue the Offer after any
termination of the Acquisition Agreement. No termination of the Acquisition
Agreement or the Merger Agreement shall impair or terminate the rights or
obligations of ServiceMaster or Barefoot under the Confidentiality Agreement
(as hereinafter defined) to which they are parties.
TERMINATION FEE
The Acquisition Agreement provides that in the event the Board of Directors
of Barefoot shall terminate the Acquisition Agreement pursuant to clause
(iii)(a) under "--Termination", or the Board of Directors of ServiceMaster
shall terminate the Acquisition Agreement pursuant to clause (iv)(b) under "--
Termination", then Barefoot shall pay $9,300,000 in cash to ServiceMaster.
The Acquisition Agreement also provides that in the event ServiceMaster
shall not consummate the Offer and shall be entitled to take such action
because of the failure of any of the conditions specified in clause (a), (b),
(h), (k), or (l) in Annex 1 to the Acquisition Agreement or because rights to
purchase Shares representing more than 1% of Barefoot's outstanding common
stock would remain outstanding after the Closing, then Barefoot shall pay
$7,000,000 in cash to ServiceMaster.
Payment of the termination fee would become due on the date (the "due date")
upon which Barefoot received written request from ServiceMaster for such
payment after the occurrence of the
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event entitling ServiceMaster to the fee. If Barefoot should for any reason
fail to make such termination payment on its due date, then Barefoot would be
obligated to pay ServiceMaster on demand interest at 300 basis points in
excess of the prime rate (as reported in the Wall Street Journal) on the
amount remaining unpaid from that due date until such payment is received by
ServiceMaster and would also be required to reimburse ServiceMaster for all
attorney's fees and other expenses which ServiceMaster reasonably incurred to
enforce its rights to such payment.
THE MERGER
The Acquisition Agreement and the Merger Agreement provide that following
the completion of the Offer, the approval and adoption of the Merger Agreement
by the stockholders of the Company, if required by applicable law, and the
satisfaction or waiver of certain other conditions, the Merger Sub will be
merged with and into the Company with the Company as the surviving corporation
(the "Surviving Corporation"), and the separate existence of the Merger Sub
shall cease. As a result of the Merger, the Company will become a wholly owned
subsidiary of ServiceMaster. Pursuant to the Merger, each outstanding Share
(other than Shares held by ServiceMaster or any subsidiary of ServiceMaster
and other than Shares held by stockholders who perfect their appraisal rights
under Delaware law) will be converted into the right to receive the Merger
Consideration ($16.00 in cash per Barefoot Share without interest thereon).
The obligations of the parties to effect the Merger are subject to the
satisfaction or waiver of the following conditions: (i) if ServiceMaster and
its affiliates shall own less than 90% of all Shares outstanding at the
conclusion of the Offer, the Merger and the Merger Agreement shall have been
approved and adopted by the requisite vote or consent of stockholders of the
Company in accordance with the Company's Restated Certificate of Incorporation
and By-Laws and applicable Delaware law, (ii) the Offer shall have been
consummated pursuant to the terms of the Acquisition Agreement and (iii) no
injunction or other order, degree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission nor any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority shall be in effect, which would make the
acquisition or holding by ServiceMaster or any of its subsidiaries or
affiliates of the Shares or shares of common stock of the Surviving
Corporation illegal or otherwise prevent consummation of the Merger.
If necessary, following the expiration of the Offer, the Company shall take
all action necessary in accordance with applicable law, its Restated
Certificate of Incorporation and its By-Laws to (i) distribute a proxy
statement and convene a meeting of its stockholders as promptly as practicable
to consider and vote upon the approval of the Merger and the Merger Agreement
or (ii) submit the Merger and the Merger Agreement for approval by written
consent in lieu of a meeting of stockholders. The Acquisition Agreement also
provides that the Company's Board of Directors will recommend that
stockholders of the Company approve the Merger and the Merger Agreement, and
that the Company will use its best efforts to solicit such approval. At any
such meeting, or in response to any solicitation of proxies or consents,
ServiceMaster and its affiliates shall vote all Shares held by them in favor
of the Merger and the Merger Agreement, and the Company shall vote all Shares
with respect to which proxies in the form distributed by the Company shall
have been given in favor of the Merger and the Merger Agreement.
Under the Company's Restated Certificate of Incorporation, the affirmative
vote of 75% of all votes represented by all issued and outstanding voting
securities of the Company is required to approve the Merger. If ServiceMaster
purchases the Minimum Number of Shares pursuant to the Offer, it would have
sufficient voting power to effect the Merger without the vote of any other
stockholder of the Company. The DGCL also provides that if a company owns at
least 90% of each class of stock of a subsidiary, the company can effect a
merger with the subsidiary without the authorization of the other stockholders
of the subsidiary. Accordingly, if, as a result of the Offer or otherwise,
ServiceMaster
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acquires at least 90% of the outstanding Shares, ServiceMaster could, and
intends to, effect the Merger without approval of any other stockholder of the
Company.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders of the Company may have certain rights
under the DGCL to dissent and demand appraisal of, and payment in cash of the
fair value of, their Shares. Such rights, if the statutory procedures are
complied with, could lead to a judicial determination of the fair value
(excluding any element of value arising from the accomplishment or expectation
of the Merger) required to be paid in cash to such dissenting holders for
their Shares. Any such judicial determination of the fair value of Shares
could be based upon considerations other than or in addition to the price paid
in the Offer and the market value of the Shares, including asset values and
the investment value of the Shares. The value so determined could be more or
less than the Cash Consideration pursuant to the Offer or the Merger
Consideration.
In addition, several decisions by Delaware courts have held that, in certain
instances, a controlling stockholder of a corporation involved in a merger has
a fiduciary duty to the other stockholders that requires the merger to be fair
to such other stockholders. In determining whether a merger is fair to
minority stockholders, the Delaware courts have considered, among other
things, the type and amount of consideration to be received by the
stockholders and whether there were fair dealings among the parties. The
Delaware Supreme Court has indicated in recent decisions that in most cases
the remedy available in a merger that is found not to be "fair" to minority
stockholders is the right to appraisal described above or a damages remedy
based on essentially the same principles.
Section 203 of the DGCL prohibits business combination transactions
involving a Delaware corporation and an "interested stockholder" (defined
generally as any person that directly or indirectly beneficially owns 15
percent or more of the outstanding voting stock of the subject corporation)
for three years following the date such person became an "interested
stockholder," unless certain exceptions apply, including that prior to such
date the Board of Directors of the Company approved either the business
combination or the transaction which resulted in such person being an
interested stockholder. The Restated Certificate of Incorporation of the
Company provides that Section 203 of the DGCL does not apply to the Company.
The Merger is also subject to compliance with any applicable federal law
operative at the time. Rule 13e-3 under the Exchange Act is applicable to
certain "going private" transactions. ServiceMaster does not believe that Rule
13e-3 will be applicable to the Merger. Rule 13e-3 requires, among other
things, that certain financial information concerning the Company, and certain
information relating to the fairness of the proposed transaction and the
consideration offered to minority stockholders in such transaction, be filed
with the Commission and disclosed to minority stockholders prior to
consummation of the transaction.
MISCELLANEOUS
ServiceMaster, or an affiliate of ServiceMaster, may following the
consummation of the Offer, seek to acquire additional Shares through open
market purchases, privately negotiated transactions, a tender offer or
exchange offer or otherwise, upon such terms and at such prices as it shall
determine, which may be more or less than the price to be paid pursuant to the
Offer. ServiceMaster and its affiliates also reserve the right to dispose of
any or all Shares acquired by them.
The Company and ServiceMaster have entered into a Confidentiality Agreement
dated November 11, 1996 (the "Confidentiality Agreement"). The Confidentiality
Agreement provides that ServiceMaster will keep confidential any confidential
information furnished to it by the Company and restricts ServiceMaster's right
to, among other things, acquire Shares, enter into an acquisition agreement
with the Company or propose either of the foregoing, for a period of two
years. The foregoing description
52
<PAGE>
of the terms of the Confidentiality Agreement is qualified in its entirety by
reference to the text of such agreement, which has been filed as an exhibit to
the S-4 Registration Statement of which this Offering Circular/Prospectus is a
part.
CERTAIN RELATIONSHIPS
Except as set forth in this Offering Circular/Prospectus, neither
ServiceMaster nor any of its subsidiaries or, to the best knowledge of
ServiceMaster, any of the persons listed on Schedule I, has any contract,
arrangement, understanding or relationship with any other person with respect
to any securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the
voting of any securities of the Company, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss or
the giving or withholding of proxies. Except as set forth in this Offering
Circular/Prospectus, neither ServiceMaster nor any of its subsidiaries, or, to
the best knowledge of ServiceMaster, any of the persons listed on Schedule I,
has had, since January 1, 1993, any material business relationships or
transactions with the Company or any of its executive officers, directors or
affiliates that would require reporting under the rules of the Commission.
Except as set forth in this Offering Circular/Prospectus, since January 1,
1993, there have been no contacts, negotiations or transactions between
ServiceMaster or its subsidiaries or, to the best knowledge of ServiceMaster,
any of the persons listed on Schedule I, and the Company or its affiliates,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, election of directors or a sale or other transfer
of a material amount of assets. Neither ServiceMaster nor any of its
subsidiaries or, to the best knowledge of ServiceMaster, any of the persons
listed on Schedule I, beneficially owns any Shares or has effected any
transactions in the Shares in the past 60 days, except, as of the date hereof,
ServiceMaster beneficially owns 289,000 Shares or approximately 2.0% of the
outstanding Shares and certain directors and officers of ServiceMaster listed
on Schedule I, in the aggregate, beneficially own 17,000 Shares.
DESCRIPTION OF SERVICEMASTER SHARES
SERVICEMASTER SHARES
As of December 31, 1996, (i) approximately 142,400,000 ServiceMaster Shares
were issued and outstanding, (ii) not more than 11,000,000 ServiceMaster
Shares were reserved for option and employee benefit plans of ServiceMaster,
and (iii) the number of additional ServiceMaster Shares which ServiceMaster
may be required to issue as a result of convertible debt and other outstanding
rights (in addition to the rights cited in clause (ii)) does not exceed
3,000,000 ServiceMaster Shares.
The ServiceMaster Board is authorized to cause ServiceMaster to issue
additional ServiceMaster Shares. The ServiceMaster Board has the sole and
complete discretion in considering the consideration and terms and conditions
with respect to any future issuance of ServiceMaster Shares. The ServiceMaster
Board has sole and complete discretion to cause ServiceMaster to issue shares
in one or more classes, or one or more series of such classes, with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties senior
to existing classes and series of outstanding ServiceMaster Shares.
ServiceMaster Shares are listed on the NYSE under the symbol "SVM." Harris
Trust Company of New York is the registrar and transfer agent for
ServiceMaster Shares.
Pursuant to the Reincorporating Merger, the ServiceMaster Shares will be
converted to SMI Shares and will have the characteristics of traditional
corporate shares. For further information concerning the changes effected by
the 1992 Reorganization and the Reincorporating Merger, see the discussion
captioned "Description of the Structure of the ServiceMaster Enterprise"
beginning on page 11 of the
53
<PAGE>
ServiceMaster 1995 10-K, which is specifically incorporated by reference in
this Offering Circular/Prospectus and set forth in Annex D hereof. See
"Summary--The 1992 Reorganization; The Reincorporating Merger" and
"Incorporation of Documents by Reference."
The following summary description does not purport to be complete and is
qualified in its entirety by reference to the ServiceMaster Limited
Partnership Agreement of Limited Partnership.
DISTRIBUTIONS
The ServiceMaster Board has sole and complete discretion to cause
ServiceMaster to distribute cash, ServiceMaster Shares and/or property to
General and Limited Partners in accordance with their percentage interests in
ServiceMaster. Distributions for the year ending December 31, 1995 were $0.95
per ServiceMaster Share ($0.63 per ServiceMaster Share on a post June 1996
split basis).
LIMITED VOTING
Holders of outstanding ServiceMaster Shares have limited voting rights on
certain matters affecting ServiceMaster, but are not entitled to vote in the
election of members of the ServiceMaster Board. The Corporate General Partner
may be removed by the affirmative vote of two-thirds of those ServiceMaster
Shares which are not held by a Dominant Owner (as defined in The ServiceMaster
Limited Partnership Agreement). (After the Reincorporating Merger, holders of
the outstanding stock of ServiceMaster Incorporated will have customary
corporate voting rights.)
MISCELLANEOUS
Upon liquidation of ServiceMaster, the holders of ServiceMaster Shares are
entitled to share pro rata in any assets distributable in liquidation after
payment of the creditors of ServiceMaster and repayments to partners of their
capital contributions. The ServiceMaster Shares are not generally subject to
mandatory redemption and are not subject to any sinking funds provisions.
The ServiceMaster Shares to be issued in connection with the Offer will be
fully paid and non-assessable, and will be issued together with rights as
described above.
DESCRIPTION OF THE BAREFOOT SHARES
The authorized capital stock of Barefoot consists of 45,000,000 shares
consisting of 40,000,000 Shares and 5,000,000 shares of Preferred Stock, $0.01
par value (the "Preferred Stock"). As of the date hereof, 14,519,760 Shares
are issued and outstanding and 2,277,000 Shares are held in the treasury of
Barefoot. As of the date hereof, no shares of Preferred Stock are issued and
outstanding and 400,000 shares of Preferred Stock have been designated as
Series A Junior Participating Preferred Stock issuable upon exercise of the
Stock Purchase Rights. As of the date hereof, options to acquire an aggregate
of 412,550 Shares have been issued pursuant to stock options. See "Comparison
of ServiceMaster Shares and the Shares."
The Barefoot Board may issue Preferred Stock from time to time, in one or
more series and fix, by resolution, the number of shares in each series and
the designations, powers, preferences and rights, and the qualifications,
limitations and restrictions, of such series, to the fullest extent now or
hereafter permitted by Delaware law.
Of the Preferred Stock, 400,000 shares have been designated Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock") and all of such
shares are reserved for issuance pursuant to the Rights Agreement described
below.
54
<PAGE>
The Shares are listed on Nasdaq National Market under the symbol "BARE".
National City Bank is the registrar and transfer agent for the Shares.
The following summary description does not purport to be complete and is
qualified in its entirety by reference to the Restated Certificate of
Incorporation ("Certificate") and Bylaws of the Company.
DIVIDEND RIGHTS
The Barefoot Board may declare and pay dividends on the Shares out of funds
legally available therefor. The rights of holders of the Shares are subject to
such preferential rights as may be fixed by the Barefoot Board in connection
with future issuances of Preferred Stock. See "Summary--Market Price Data and
Distributions."
VOTING RIGHTS
Each holder of Shares 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, including the election of directors. Holders of Shares have no
cumulative voting rights.
MISCELLANEOUS
Upon liquidation of the Company, the holders of Shares are entitled to share
pro rata in any distribution of the Company's assets after payment or
provision for payment of liabilities and the liquidation preference of any
shares of Preferred Stock which may be outstanding. There are no preemptive
rights to purchase or subscribe for any stock or other securities, and there
are no conversion rights or redemption or sinking fund provisions with respect
to the Shares. All outstanding Shares are fully paid and nonassessable.
In April, 1995, pursuant to the Rights Agreement, the Company declared a
dividend of one preferred share purchase right (the "Rights") on each
outstanding Share. Under certain conditions, each Right may be exercised to
purchase 1/100 of a share of Series A Preferred Stock at a price of $55.00,
subject to adjustment in certain circumstances. The Rights may not be
exercised until the earlier of 10 business days after a public announcement
that a person or group has acquired, without the consent of the Company's
directors, 15% or more of the Shares ("Share Acquisition Date"), or 10
business days (unless extended by the directors) after the commencement of (or
a public commencement of an intention to commence) a tender offer or exchange
offer that would result in a person or group owning 30% or more of the Shares.
If at any time following the Share Acquisition Date, the Company is acquired
in a merger or other business combination or 50% or more of the Company's
assets or earnings power is sold or transferred, each holder of a Right will
be entitled to buy the number of shares of stock of the acquiring company
which, at the time of such transaction, will have a market value of two times
the exercise price of the Right. If a person or group acquires 15% or more of
the Shares under certain circumstances, then each holder of a Right will be
entitled to buy Shares having a market value equal to two times the exercise
price of the Right. The Rights will expire on April 24, 2005, and may be
redeemed by the Company at a price of $0.01 per Right under certain
circumstances. The Company has agreed in the Acquisition Agreement to cause
the Rights not to separate or become exercisable and to redeem the Rights
prior to the Closing Time.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND
BY-LAWS
In addition to the Rights, certain provisions of the Certificate and Bylaws
of the Company may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the Shares.
55
<PAGE>
Supermajority Voting Provisions. The Certificate requires a vote of the
holders of not less than 75% of the total voting power of the Company to
approve or authorize (a) any merger, consolidation or share exchange of the
Company or any subsidiary into or with any person in which the Company is not
the continuing or surviving corporation or pursuant to which shares of the
Company's voting stock would be converted into cash, securities or other
property, other than a transaction in which the holders of the Company's
voting stock have the same proportionate ownership of voting securities of the
surviving corporation immediately after such transaction; (b) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all of the assets of the Company, and (c) any agreement
providing for any of the foregoing transactions.
In addition, the affirmative vote of the holders of at least 85% of the
total voting power of the Company and a majority of the voting power of the
Company held by stockholders other than an interested stockholder (generally,
an entity which owns or controls 20% of the voting power of the Company) is
required for the approval or authorization of certain business combinations
(e.g. merger or consolidation, sale or other disposition of assets having a
fair market value in excess of 10% of the Company's total assets, dissolution
of the Company, etc.) involving such "interested stockholder" unless the
"business combination" has been approved by a majority of the "disinterested
directors" or the "business combination" satisfies certain "fair price"
requirements.
Anti-Greenmail. The acquisition by the Company of voting stock from any
interested security holder (generally, an entity which owns or controls 5% of
the voting power of the Company) which has beneficially owned such securities
for less than two years requires the affirmative vote of the holders of at
least a majority of the voting power of the Company, excluding Shares
beneficially owned by such "interested security holder."
Advance Notice Requirements for Director Nominations. The Bylaws provide
that stockholders seeking to nominate candidates for election as directors at
an annual or special meeting of stockholders must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Company not
less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received no later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper
written form. This provision may preclude some stockholders from making
nominations for directors at an annual or special meeting.
Anti-Takeover Effects of Delaware Law. Section 203 of the DGCL contains
certain provisions that may make more difficult the acquisition of control of
the Company by means of a tender offer, open market purchase, proxy fight or
otherwise. The Certificate provides that Section 203 of the DGCL does not
apply to the Company.
COMPARISON OF SERVICEMASTER SHARES AND THE SHARES
DIVIDENDS AND DISTRIBUTIONS
Both holders of ServiceMaster Shares and holders of the Shares receive
dividends and distributions at the discretion of their respective Board of
Directors. See "Summary--Market Price Data and Distributions."
VOTING RIGHTS
Holders of ServiceMaster Shares are only entitled to vote on limited matters
affecting ServiceMaster, and are not entitled to vote in the election of
directors. Holders of Shares are entitled
56
<PAGE>
to one vote per share on all matters presented to a vote of stockholders,
including the election of directors.
MISCELLANEOUS
ServiceMaster Shares represent an interest in the ServiceMaster Limited
Partnership, while the Shares are traditional corporate shares. Thus, the
earnings of ServiceMaster are taxed only once, at the shareholder level, while
the earnings of Barefoot are taxed at the corporate level and dividends are
taxed at the stockholder level.
The Barefoot Board currently has the authority to issue up to a total of
40,000,000 Shares and 5,000,000 shares of Preferred Stock whereas
ServiceMaster may issue as many shares, with whatever rights, the
ServiceMaster Board may deem appropriate.
Barefoot has adopted the Rights Plan discussed above, while ServiceMaster
does not have a stockholder rights plan. ServiceMaster has announced that it
intends to adopt a shareholder rights plan prior to the consummation of the
Reincorporating Merger.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
SELECTED PRO FORMA FINANCIAL DATA OF SERVICEMASTER
The following tables set forth ServiceMaster's pro forma consolidated
summaries of operations for the nine months ended September 30, 1996 and the
year ended December 31, 1995 and the pro forma condensed consolidated balance
sheet as of September 30, 1996. "Pro Forma Merger Adjustments" reflected in
the tables give effect to the Merger and the related purchase accounting
adjustments as if the Merger had occurred at September 30, 1996 for purposes
of the Pro Forma Condensed Consolidated Balance Sheet, and on January 1, 1995
and 1996, respectively for purposes of the Pro Forma Consolidated Summaries of
Operations.
THE PRO FORMA FINANCIAL DATA DOES NOT PURPORT TO REPRESENT WHAT
SERVICEMASTER'S FINANCIAL POSITION AS OF SEPTEMBER 30, 1996 OR RESULTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 OR THE YEAR ENDED
DECEMBER 31, 1995 WOULD ACTUALLY HAVE BEEN HAD THE MERGER IN FACT OCCURRED ON
THAT DATE OR AT THE BEGINNING OF THE PERIODS INDICATED OR TO PROJECT
SERVICEMASTER'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE
DATE OR PERIOD.
The unaudited selected pro forma financial information set forth below has
been prepared under the assumption that holders of 30% of the Barefoot Shares
will elect to receive the Share Consideration. If all the Barefoot
stockholders were to elect to receive the Cash Consideration, pro forma net
income per share for the nine months ended September 30, 1996 and the year
ended December 31, 1995, would total $1.29 and $1.40, respectively, and pro
forma non-current liabilities at September 30, 1996 would total $867 million.
If all the Barefoot stockholders were to elect to receive the Share
Consideration, pro forma net income per share for the nine months ended
September 30, 1996 and the year ended December 31, 1995 would total $1.26 and
$1.39, respectively, and pro forma non-current liabilities at September 30,
1996 would total $635 million.
The Merger will be accounted for under the "purchase" method of accounting,
whereby the purchase price will be allocated based upon the fair value of the
assets acquired and the liabilities assumed. The pro forma merger adjustments
are based upon currently available information and certain assumptions which
ServiceMaster believes are reasonable in the circumstances. These adjustments
include additional interest cost, amortization expense and estimated cost
savings. The actual acquisition adjustments are subject to the completion of
due diligence and will be based upon more precise appraisals, evaluations and
estimates of fair value, which are not currently available, and
57
<PAGE>
may differ substantially from the pro forma merger adjustments. Financial
effects of potential operating synergies attainable upon the combination of
Barefoot and ServiceMaster are not reflected. The tables and accompanying
notes should be read in conjunction with ServiceMaster's and Barefoot's
historical financial statements and the related notes thereto.
TRANSACTION WITH WMX TECHNOLOGIES, INC.
The following pro forma summary of operations for the year ended December
31, 1995 includes pro forma adjustments (the "Pro Forma WMX Adjustments")
related to a transaction with WMX Technologies, Inc. ("WMX"). On December 31,
1995, ServiceMaster issued 27,160,715 (adjusted for the three-for-two share
split in June 1996) unregistered and restricted ServiceMaster Shares,
representing approximately 19% of the adjusted total number of ServiceMaster
Shares outstanding, in exchange for WMX's 27.76% minority ownership interest
in ServiceMaster Consumer Services L.P. The unregistered ServiceMaster Shares
also include a number of voting and trading restrictions, including
significant limitations on both the timing and magnitude of open market sales
and underwritten offerings, with ServiceMaster retaining a right of first
refusal with respect to any proposed sales thereof.
The Pro Forma WMX Adjustments reflected in the following Pro Forma
Consolidated Summary Of Operations for the year ended December 31, 1995 give
effect to the transaction with WMX and the related purchase accounting
adjustments as if the transaction had occurred on January 1, 1995. Since the
transaction occurred on December 31, 1995, the historical results of
operations for the nine months ended September 30, 1996 already include the
impacts of this transaction, and hence no pro forma adjustments are necessary
for this period. For further information related to this transaction, see
ServiceMaster's Report on Form 8-K dated January 15, 1996. See "Incorporation
of Documents by Reference, and pages 2-3 of Annex D."
Over the past year, WMX has publicly articulated broad operating strategies
which include divesting "non core" assets and increasing returns on
investment. WMX has not advised ServiceMaster that WMX intends to sell or
otherwise dispose of their ServiceMaster Shares which, as stated above, are
subject to a number of significant voting and trading restrictions. However,
the parties have from time to time discussed the feasibility of various
alternative disposition mechanisms which take these restrictions into account.
No specific disposition mechanism has been agreed to, and no conversations
between the companies on these matters are currently taking place.
ServiceMaster believes that these restrictions help ensure that any
disposition of WMX's ServiceMaster Shares would occur in an orderly manner.
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<PAGE>
SERVICEMASTER LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
SERVICEMASTER BAREFOOT MERGER SERVICEMASTER
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUE....... $2,584,457 $83,427 $ $2,667,884
Operating Costs and
Expenses:
Cost of services
rendered and products
sold................. 2,001,709 32,109 2,033,818
Selling and
administrative
expenses............. 367,470 31,934 (4,671)(A),(B) 394,733
---------- ------- ------- ----------
Total operating costs
and expenses........... 2,369,179 64,043 (4,671) 2,428,551
---------- ------- ------- ----------
OPERATING INCOME........ 215,278 19,384 4,671 239,333
Non-operating Expense
(Income):
Interest expense...... 28,658 826 9,361 (C) 38,845
Interest and
investment income.... (7,465) (274) (7,739)
Minority interest..... 8,221 -- 164 (F) 8,385
---------- ------- ------- ----------
INCOME BEFORE INCOME
TAXES.................. 185,864 18,832 (4,854) 199,842
Provision for (benefit
of) income taxes....... 5,287 6,636 (726)(D) 11,197
---------- ------- ------- ----------
Net Income.............. $ 180,577 $12,196 $(4,128) $ 188,645
========== ======= ======= ==========
ServiceMaster Shares
outstanding............ 144,529 2,668 (E) 147,197
Net Income Per Share.... $ 1.25 $ 1.28
========== ==========
</TABLE>
59
<PAGE>
SERVICEMASTER LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
BAREFOOT
THREE BAREFOOT
MONTHS NINE
PRO FORMA ENDED MONTHS PRO FORMA
WMX SERVICEMASTER 3/31/95 ENDED MERGER SERVICEMASTER
SERVICEMASTER ADJUSTMENTS PRO FORMA HISTORICAL 12/31/95 ADJUSTMENTS PRO FORMA
HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED)
------------- ----------- ------------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE....... $3,202,504 $ $3,202,504 $ 9,585 $93,431 $ $3,305,520
Operating Costs and
Expenses:
Cost of services
rendered and products
sold.................. 2,486,292 2,486,292 6,288 33,877 2,526,457
Selling and
administrative
expenses.............. 464,345 5,875 (1) 470,220 7,705 38,222 (6,281)(A),(B) 509,866
---------- ------- ---------- ------- ------- ------- ----------
Total operating costs
and expenses........... 2,950,637 5,875 2,956,512 13,993 72,099 (6,281) 3,036,323
---------- ------- ---------- ------- ------- ------- ----------
OPERATING INCOME........ 251,867 (5,875) 245,992 (4,408) 21,332 6,281 269,197
Non-operating Expense
(Income):
Interest expense....... 35,855 205 (2) 36,060 261 778 12,563 (C) 49,662
Interest and investment
income................ (7,310) (7,310) (277) (543) (8,130)
Minority interest...... 45,715 (37,099)(3) 8,616 -- -- 97 (F) 8,713
---------- ------- ---------- ------- ------- ------- ----------
INCOME BEFORE INCOME
TAXES.................. 177,607 31,019 208,626 (4,392) 21,097 (6,379) 218,952
Provision for (benefit
of) income taxes....... 5,588 5,588 (1,688) 8,216 (1,000)(D) 11,116
---------- ------- ---------- ------- ------- ------- ----------
Net Income.............. $ 172,019 $31,019 $ 203,038 $(2,704) $12,881 $(5,379) $ 207,836
========== ======= ========== ======= ======= ======= ==========
ServiceMaster Shares
outstanding............ 118,970 27,161 (4) 146,131 2,668 (E) 148,799
Net Income Per Share.... $ 1.45 $ 1.39 $ 1.40
========== ========== ==========
</TABLE>
ServiceMaster's per share data reflect the three-for-two share split in June
1996.
60
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED SUMMARIES OF OPERATIONS
PERIODS ENDED SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
Pro forma merger adjustments reflect the assumed impact of the consummation
of the Offer and the Merger upon ServiceMaster's existing operations for the
periods presented. Pro forma adjustments consist of:
(A) The reduction of salary and overhead expenses that is expected to result
from the closing of certain of Barefoot's branch, regional and corporate
administrative facilities.
(B) Amortization of intangible assets are increased based upon the preliminary
allocation of purchase price as shown in note (M) to the ServiceMaster
Limited Partnership Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996. The allocation is preliminary and subject to change
during 1997 as due diligence is completed and additional information is
obtained. The pro forma merger adjustment represents the incremental
amortization in excess of amounts previously recognized by Barefoot.
Acquisition Intangible Assets, which are expected to consist primarily of
tradenames and goodwill, are amortized over 40 years.
(C) The acquisition debt bears interest at an estimated long term annual rate
of 7 1/4%. The pro forma Merger adjustment includes interest on the
acquisition debt as well as interest on cash flows from the merger
adjustments. These cash flows consist of the costs discussed in note (L)
and the increased interest and dividend payments partially offset by the
expected cost savings.
(D) Federal and state income taxes are reduced due to the tax deductibility of
interest expense related to financing the Merger, which is significantly
offset by increased taxes due on the expected annual cost savings
discussed in note (A).
(E) Represents the number of ServiceMaster Shares estimated to be issued in
the Merger. See note (K) regarding the number of ServiceMaster Shares
estimated to be issued.
(F) Reflects additional general partners' minority interest expense that is
expected to result from the Merger and resulting pro forma adjustments.
PRO FORMA ADJUSTMENTS RELATED TO THE WMX TECHNOLOGIES TRANSACTION
The following are the pro forma adjustments related to the WMX transaction
described in "Selected Pro Forma Financial Data of ServiceMaster--Transaction
With WMX Technologies, Inc." As this transaction occurred on December 31,
1995, its related pro forma adjustments impact only results of operations for
the year ended December 31, 1995. The historical results of operations for the
nine months ended September 30, 1996 already include the impact of this
transaction.
(1) The ServiceMaster Shares issued in the WMX transaction, which are
unregistered and restricted, were valued based upon the average market
price of the registered and freely transferable ServiceMaster Shares at
the time the transaction was agreed to and announced, adjusted to reflect
the significant voting and trading restrictions on the ServiceMaster
Shares and other considerations. The valuation of the unregistered and
restricted ServiceMaster Shares issued to WMX was determined in part based
on a review performed by an international investment banking firm. The
transaction resulted in approximately $235,000,000 of intangible assets,
primarily tradenames and goodwill, which are being amortized on a
straight-line basis over forty years.
(2) Interest expense consists of the interest cost related to the dividends
that would have been paid on the ServiceMaster Shares issued in the
transaction. This expense is partially offset by the fact that other
distributions that would have been made to WMX had it retained its
minority interest in Consumer Services are no longer required. Interest
expense is computed at an average short term borrowing rate of 6.2%.
(3) Reflects the elimination of minority interest expense associated with
WMX's prior status as a 27.76% minority partner in Consumer Services.
(4) Reflects the 27,160,715 unregistered and restricted ServiceMaster Shares
issued to WMX in exchange for its minority ownership interest in Consumer
Services.
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SERVICEMASTER LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
SERVICEMASTER BAREFOOT MERGER SERVICEMASTER
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
ASSETS (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and marketable
securities............ $ 85,980 $ 6,799 $ $ 92,779
Accounts and notes
receivable, net....... 283,508 16,587 300,095
Inventories and other
current assets........ 123,386 7,349 130,735
---------- ------- -------- ----------
Total current assets. 492,874 30,735 -- 523,609
---------- ------- -------- ----------
Intangible assets,
primarily trade names
and goodwill, net....... 1,070,839 31,909 (31,909)(J) 1,308,636
237,797 (M)
Property and equipment,
net..................... 151,948 13,164 165,112
Notes receivable, long-
term securities, and
other assets............ 112,775 4,813 117,588
---------- ------- -------- ----------
Total assets......... $1,828,436 $80,621 $205,888 $2,114,945
========== ======= ======== ==========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C> <C>
Current liabilities...... $ 402,249 $25,052 $ 18,800 (L) $ 446,101
Long-term debt........... 501,140 1,737 162,622 (K) 665,499
Other long-term
obligations............. 123,300 8,603 131,903
Minority and general
partners' interest...... 15,226 -- 15,226
Limited partners' equity. 786,521 69,695 (K) 856,216
Common stock............. 168 (168)(J) --
Additional paid-in
capital................. 50,040 (50,040)(J) --
Treasury stock, at cost.. (26,868) 26,868 (J) --
Excess purchase price.... (5,286) 5,286 (J) --
Retained earnings........ 27,175 (27,175)(J) --
---------- ------- -------- ----------
Shareholders' equity..... 786,521 45,229 24,466 856,216
---------- ------- -------- ----------
Total liabilities and
shareholders'
equity.............. $1,828,436 $80,621 $205,888 $2,114,945
========== ======= ======== ==========
</TABLE>
62
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Pro forma merger adjustments to the consolidated balance sheet reflect the
acquisition of all the Shares at the time the Merger is consummated in
exchange for cash and shares of ServiceMaster; payment of legal and investment
banking fees, lease termination fees and severance costs related to the
anticipated closing of certain Barefoot branch and administrative locations
and other fees associated with the Merger. Specific descriptions of the pro
forma transaction adjustments follow:
(J) The existing stockholders' equity and intangible asset balance of Barefoot
are eliminated as a result of the Merger.
(K) For purposes of the unaudited selected proforma financial information,
ServiceMaster has assumed that holders of 30% of the Barefoot Shares will
elect to receive the Share Consideration pursuant to the Offer. The value
of the ServiceMaster Shares issued is based on the closing price of
ServiceMaster Shares ($26.125) on January 15, 1997. For purposes hereof,
the following is the assumed value of the Share Consideration and the Cash
Consideration to be received upon consummation of the Offer:
<TABLE>
<S> <C>
Cash Consideration............................................... $162,622
Share Consideration.............................................. 69,695
--------
$232,317
========
</TABLE>
(L) Represents estimated legal, investment banking fees and other costs
related to the transaction, the anticipated costs associated with the
planned closing of certain Barefoot branch, regional and corporate
administrative facilities, the estimated severance costs to be paid to
Barefoot employees not retained by ServiceMaster, and the estimated cost
of refurbishing certain operating equipment.
(M) The Merger will be accounted for as a purchase; therefore, an allocation
of the purchase price to the assets and liabilities of Barefoot is
required to reflect fair values. The pro forma adjustments to reflect a
preliminary allocation of purchase price is summarized below. The
preliminary allocation is subject to change as due diligence is completed
and additional information is obtained.
<TABLE>
<S> <C>
Purchase price................................................... $232,317
Transaction costs--see Note (L).................................. 5,000
Lease termination, severance and other--see Note (L)............. 13,800
--------
Purchase price to be allocated................................... 251,117
Net tangible assets acquired..................................... 13,320
--------
Acquired intangible assets, primarily trademarks and goodwill.... $237,797
========
</TABLE>
63
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated federal income tax
consequences of the Offer and the Merger to the holders of Shares. This
summary is based upon the laws, regulations, rulings and decisions currently
in effect, all of which are subject to change. The discussion below addresses
the material federal income tax consequences of participating in either the
Offer or the Merger generally applicable to a holder of Shares. This summary
is generally limited to United States persons who hold Shares as a "capital
asset" (generally, property held for investment) within the meaning of Section
1221 of the Code. However, this discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to the holders of
Shares in light of their personal investment circumstances nor to certain
types of holders subject to special treatment under the federal income tax
laws (e.g., financial institutions, broker-dealers, life insurance companies
and tax-exempt organizations). No information is provided below with respect
to foreign, state or local laws or estate and gift tax considerations. Holders
of Shares should consult their own tax advisors to determine the federal,
state, local and other tax consequences of participating in the Offer or the
Merger. Holders of Shares should note that no rulings have been or will be
sought from the IRS with respect to the federal income tax consequences of the
Offer or the Merger as discussed below, and no assurance can be given that the
IRS will not take contrary positions.
THE OFFER
The following discussion of certain federal income tax consequences relevant
to the Offer constitutes the opinions of Kirkland & Ellis and of Vorys, Sater,
Seymour and Pease, subject to the qualifications stated herein. Such opinions
are set forth in Annex C-I and C-II hereof. Such opinions, however, have no
binding effect on the IRS or the courts.
Exchange of Shares Solely for ServiceMaster Shares. The exchange of Shares
solely for ServiceMaster Shares will be a tax-free exchange. In such event,
(i) no income, gain or loss will be recognized by holders of Shares upon the
receipt of ServiceMaster Shares for their Shares, (ii) the tax basis of the
ServiceMaster Shares received by the holders of Shares will be equal to their
basis in their Shares surrendered in exchange therefor, (iii) the holding
period of the ServiceMaster Shares received by a holder of Shares will include
the period for which each holder of Shares has held the Shares surrendered in
exchange therefor, and (iv) no income, gain or loss will be recognized by
ServiceMaster or the Company.
To the extent that holders of Shares receive cash in lieu of fractional
ServiceMaster Shares, such holders will be treated as if they had received
fractional ServiceMaster Shares and then sold those fractional shares for
cash. In such event, (i) holders of fractional ServiceMaster Shares will
recognize capital gain or loss equal to the difference between the amount of
cash received and the basis of their fractional ServiceMaster Shares, (ii)
such capital gain or loss will be long-term with respect to fractional
ServiceMaster Shares sold that the holder has held for more than one year
(including the time the holder held the Shares which were exchanged for the
fractional ServiceMaster Shares) and otherwise will be short-term, (iii) long-
term capital gains are taxable at a maximum federal rate of 28% and short-term
capital gains rates are taxable at a maximum federal rate of 39.6%, (iv)
capital losses generally may be used by a corporate taxpayer only to offset
capital gains and may be used by an individual taxpayer only to offset capital
gains plus $3,000 of other income, and (v) no income, gain or loss will be
recognized by ServiceMaster or Company.
Exchange of Shares Solely for Cash. The exchange of Shares solely for cash
will be a taxable sale. In such event, (i) holders of Shares who exchange
Shares solely for cash will recognize capital gain or loss equal to the
difference between the amount of cash received and the basis of their Shares,
(ii) such capital gain or loss will be long-term with respect to Shares sold
that the holder has held for
64
<PAGE>
more than one year and otherwise will be short-term, (iii) long-term capital
gains are taxable at a maximum federal rate of 28% and short-term capital
gains rates are taxable at a maximum federal rate of 39.6%, (iv) capital
losses generally may be used by a corporate taxpayer only to offset capital
gains and may be used by an individual taxpayer only to offset capital gains
plus $3,000 of other income, and (v) no income, gain or loss will be
recognized by ServiceMaster or Company.
Exchange of Shares for a Combination of ServiceMaster Shares and Cash. The
exchange of Shares for a combination of ServiceMaster Shares and cash will be
treated, in effect, as two separate exchanges. One exchange will be an
exchange of Shares for solely ServiceMaster Shares and will be treated in the
manner described above in Exchange of Shares Solely for ServiceMaster Shares.
The other exchange will be an exchange of Shares for solely cash and will be
treated in the manner described above in Exchange of Shares Solely for Cash.
Holders of Shares may be able to specifically designate the particular Shares
sold for cash or exchanged for ServiceMaster Shares, which, in the case of
holders who have a different tax basis or holding period in different Shares,
could affect the amount or character of gain or loss recognized as a result of
the Offer. Holders of Shares should consult their tax advisor regarding the
possibility of making such a specific designation of Shares.
THE MERGER
If the Offer is consummated, ServiceMaster has agreed to merge Merger Sub
into Barefoot in order to obtain the remaining Shares. Those holders of Shares
participating in the Merger will receive the Merger Consideration in exchange
for their Shares. The transitory existence of Merger Sub will be disregarded
for federal income tax purposes, and the Merger will be treated as a taxable
sale of the Shares for cash. This taxable sale will be treated in the manner
described above in Exchange of Shares Solely for Cash.
TAX CONSEQUENCES OF OWNING AN INTEREST IN SERVICEMASTER
Certain of the federal income tax consequences of owning an interest in
ServiceMaster, a partnership for federal income tax purposes, are described in
the ServiceMaster 1995 10-K under the caption "Federal Income Tax
Considerations," which is set forth in Annex D and specifically incorporated
by reference in this Offering Circular/Prospectus. See "Incorporation of
Documents by Reference." ServiceMaster is treated as a partnership for federal
income tax purposes because of the grandfather provisions in the publicly-
traded partnership rules. Because these grandfather provisions are due to
expire in 1997, ServiceMaster expects to convert to corporate status in 1997.
This conversion will be tax-free to the shareholders of ServiceMaster.
BACKUP WITHHOLDING
Certain holders of Shares may be subject to backup withholding at a rate of
31% on payments of cash made to them upon the sale of their Shares. In order
to avoid such backup withholding, each holder of Shares must provide the
Exchange Agent with such holder's correct taxpayer identification number and
certify that such holder is not subject to backup withholding by completing
the Substitute Form W-9 included in the Letter of Transmittal. Special backup
withholding rules may apply when a payment is made through one or more
financial institutions or by a custodian, nominee, broker or other agent of
the beneficial owner of the Shares.
VALIDITY OF SERVICEMASTER SHARES
The validity of the issuance of the ServiceMaster Shares to be issued
pursuant to the Offer will be passed upon for ServiceMaster by Kirkland &
Ellis, Chicago, IL.
65
<PAGE>
EXPERTS
The consolidated balance sheets of ServiceMaster as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995, incorporated by reference from the ServiceMaster 1995 10-K into this
Offering Circular/Prospectus and Registration Statement, which are referred to
and made a part hereof, have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report thereon in the ServiceMaster
1995 10-K and incorporated herein. Such consolidated financial statements are
included herein in reliance upon such report given upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The audited consolidated balance sheets of Barefoot Inc. and subsidiaries as
of December 31, 1995 and March 31, 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for the nine months
ended December 31, 1995 and for the years ended March 31, 1995 and 1994,
incorporated by reference from the Barefoot 1995 10-K into this Offering
Circular/Prospectus and Registration Statement, which are referred to and made
a part hereof, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon in the Barefoot 1995 10-K
and incorporated herein. Such consolidated financial statements are included
herein in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing in giving said report.
66
<PAGE>
ANNEX A-I--THE ACQUISITION AGREEMENT
ACQUISITION AGREEMENT
BY AND AMONG
SERVICEMASTER LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP)
SERVICEMASTER ACQUISITION CORPORATION (A DELAWARE CORPORATION)
AND
BAREFOOT INC. (A DELAWARE CORPORATION)
DECEMBER 5, 1996
<PAGE>
ACQUISITION AGREEMENT
This ACQUISITION AGREEMENT, dated December 5, 1996, is entered into by and
among ServiceMaster Limited Partnership ("ServiceMaster"), a Delaware limited
partnership, ServiceMaster Acquisition Corporation (the "MergerSub"), a
Delaware corporation and wholly-owned subsidiary of ServiceMaster and Barefoot
Inc. ("Barefoot"), a Delaware corporation.
WHEREAS: ServiceMaster desires to make a tender offer to acquire all of the
outstanding shares of common stock, par value $0.01 per share, of Barefoot
(the "Barefoot Common Stock") together with the associated Series A Junior
Participating Preferred Stock Purchase Rights (the "Stock Purchase Rights"),
in accordance with the terms and subject to the conditions provided for
herein. The term "Share" whenever it is used in this Agreement means a share
of Barefoot Common Stock issued or issuable by Barefoot. Unless the context
otherwise requires, all references in this Agreement to Barefoot Common Stock
or the Shares shall include the associated Stock Purchase Rights.
WHEREAS: The parties intend that, for United States federal income tax
purposes, the exchange of Shares for ServiceMaster Shares pursuant to the
Offer as provided for herein will qualify as a tax free contribution to
ServiceMaster within the meaning of Section 721 of the Internal Revenue Code
("Code").
WHEREAS: To complete its acquisition of Barefoot, ServiceMaster desires to
effect as promptly as possible after consummation of the Offer a cash-out
merger of MergerSub with and into Barefoot upon the terms and subject to the
conditions set forth in a Merger Agreement executed simultaneously with this
Agreement (the "Merger Agreement").
WHEREAS: The Board of Directors of Barefoot, has, in light of and subject to
the terms and conditions set forth herein, (i) determined that each of the
Offer and the Merger (as defined in Section 2.1) is fair to the stockholders
of Barefoot and in the best interests of such stockholders and (ii) approved
and adopted this Agreement and the Merger Agreement and the transactions
contemplated hereby and thereby and resolved to recommend acceptance of the
Offer and approval and adoption by the stockholders of Barefoot of the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Barefoot, ServiceMaster and MergerSub hereby agree as follows:
ARTICLE 1.0
THE OFFER
1.1 Commitment to Make the Offer.
(a) All Shares Offer. Subject to the terms and conditions set forth in this
Agreement, ServiceMaster shall make a tender offer (herein called the
"Offer") to acquire all of the outstanding Shares on the terms
specified in this Article 1, subject to the conditions prescribed in
Annex 1 to this Agreement and on such other terms as shall be approved
by ServiceMaster and Barefoot. Subject to the terms and conditions of
the Offer, at the Closing Time (as defined in Section 1.7)
ServiceMaster shall accept all Shares which have been properly tendered
and not withdrawn pursuant to the Offer by 12:00 midnight New York City
time on the Expiration Date (as defined in subsection 1.1(b)). The
Offer shall be conducted in accordance with all applicable requirements
of the Securities Act of 1933 (the "Securities Act"), the Securities
Exchange Act of 1934 (the "Exchange Act") and all other applicable
legal and regulatory requirements.
Annex A-I-1
<PAGE>
(b) Consideration for Shares. Upon the terms and subject to the conditions
of the Offer, the Offer shall commit ServiceMaster to acquire each
Share for, at the election of the holder as provided in and subject to
the limitations set forth in this Article 1, either:
(i) a fraction (the "Conversion Fraction") of a validly issued, fully
paid and nonassessable share ("ServiceMaster Share") of limited
partnership interest in ServiceMaster, determined by dividing $16
by the greater of (x) $23.00 or (y) the average (without rounding)
of the closing price (the "Average ServiceMaster Share Price") of
ServiceMaster Shares on the New York Stock Exchange ("NYSE") as
reported on the NYSE Composite Tape for the 15 consecutive NYSE
trading days ending on the fifth NYSE trading day immediately
preceding the date that the Offer expires (the "Expiration Date")
and rounding the result to the nearest one one-hundred thousandth
of a share (the "Share Consideration"); or
(ii) $16 in cash, without any interest thereon (the "Cash
Consideration" and collectively with the Share Consideration, the
"Offer Consideration").
(c) Commencement Date. ServiceMaster shall commence the Offer not later
than the fifth business day after the Registration Statement (as
defined in Section 1.4(a) hereof) is declared effective pursuant to the
Securities Act by the Securities and Exchange Commission (the "SEC").
ServiceMaster shall not be obligated to commence the Offer if any state
of facts shall exist which would entitle ServiceMaster not to acquire
the Shares tendered in response to the Offer under the conditions
expressly set forth in paragraphs (b), (c), (d), (e), (f), (g), (h),
(i) and (n) of Annex 1, provided that the condition in clause (f) shall
be applied as of the date on which ServiceMaster would otherwise be
obligated to commence the Offer and that the condition in (g) shall
apply only with respect to the terms, agreements and conditions which
this Agreement contemplates would be satisfied or performed prior to
the time the Offer commences.
(d) 25 Business Day Minimum Duration. If ServiceMaster shall commence the
Offer, then (except as otherwise provided in Section 1.7 or Section
6.2) ServiceMaster shall keep the Offer open for at least 25 business
days after the Commencement Date.
(e) Tax-Free Contributions of Shares. The parties intend that, for United
States federal income tax purposes, the exchange of Shares for
ServiceMaster Shares pursuant to the Offer as provided for herein will
qualify as a tax free contribution to ServiceMaster within the meaning
of Section 721 of the Code.
1.2 Election Procedure. Each holder of Shares which have been properly
tendered and not withdrawn pursuant to the Offer by 12:00 midnight New York
City time on the Expiration Date ("Tendered Shares"), shall have the right,
subject to the limitations set forth in this Article 1, to submit a request
specifying the number of Tendered Shares that such holder desires to have
exchanged into the Share Consideration pursuant to the Offer and the number of
Tendered Shares that such holder desires to have exchanged for the Cash
Consideration pursuant to the Offer in accordance with the following
procedures:
(a) Each holder of Tendered Shares may specify in a request made in
accordance with the provisions of this Section 1.2 (herein called an
"Election") (i) the number of Tendered Shares owned by such holder that
such holder desires to exchange for the Share Consideration in the
Offer (a "Share Election") and (ii) the number of Shares owned by such
holder that such holder desires to have exchanged for the Cash
Consideration in the Offer (a "Cash Election").
Annex A-I-2
<PAGE>
(b) ServiceMaster shall prepare a form reasonably acceptable to Barefoot
(the "Form of Election") which shall upon commencement of the Offer be
mailed to Barefoot's stockholders as part of the Offer Documents (as
defined in Section 1.4(b)) so as to permit Barefoot's stockholders to
exercise their right to make an Election on or prior to the Expiration
Date.
(c) Any Election shall have been made properly only if the person
authorized to receive Elections and to act as exchange agent pursuant
to the Offer, which person shall be designated by ServiceMaster and
shall be reasonably satisfactory to Barefoot (the "Exchange Agent"),
shall have received, by 12:00 midnight New York City time on the
Expiration Date, a Form of Election properly completed and signed and
accompanied or preceded by certificates for the Shares to which such
Form of Election relates (or by an appropriate guarantee of delivery of
such certificates, as set forth in the notice of guaranteed delivery,
from a member of any registered national securities exchange or of the
National Association of Securities Dealers, Inc. or a commercial bank
or trust company in the United States provided such certificates are in
fact delivered to the Exchange Agent by the time required in such
guarantee of delivery).
(d) Any Barefoot stockholder may at any time prior to 12:00 midnight New
York City time on the Expiration Date, change his or her Election by
written notice received by the Exchange Agent prior to 12:00 midnight
New York City time on the Expiration Date, accompanied by a properly
completed and signed, revised Form of Election. A revised Form of
Election shall be deemed to invalidate any previously submitted Form of
Election.
(e) Any Barefoot stockholder may, at any time prior to 12:00 midnight New
York City time on the Expiration Date, revoke such stockholder's
Election by written notice received by the Exchange Agent prior to
12:00 midnight New York City time on the Expiration Date, or by
withdrawal prior to 12:00 midnight New York City time on the Expiration
Date of such stockholder's certificates for Shares, or of the guarantee
of delivery of such certificates, previously deposited with the
Exchange Agent pursuant to the procedures for withdrawal set forth in
the Offer Documents.
(f) ServiceMaster shall have the right to make rules (which shall be not
inconsistent with the terms of this Agreement and shall be reasonably
acceptable to Barefoot) governing the validity of the Forms of
Election, the manner and extent to which Elections are to be taken into
account in making the determinations prescribed by Sections 1.2 and
1.3, the issuance and delivery of certificates for ServiceMaster Shares
into which Tendered Shares are to be exchanged pursuant to the Offer
and the payment of Cash Consideration pursuant to the Offer.
1.3 Issuance of ServiceMaster Shares and Payment of Cash Consideration at
the Closing Time. The manner in which each Tendered Share shall be exchanged
for either the Share Consideration or the Cash Consideration pursuant to the
Offer shall be as set forth in this Section 1.3.
(a) Each Tendered Share for which a Share Election has been received shall
be, at the Closing (as defined in Section 1.7), exchanged for the Share
Consideration in the Offer; provided, however, no certificates or scrip
representing fractional ServiceMaster Shares shall be issued upon the
exchange for such Tendered Shares. In lieu of any such fractional
ServiceMaster Share, ServiceMaster shall pay to each such stockholder
of Barefoot who otherwise would be entitled to receive a fractional
ServiceMaster Share an amount in cash determined by multiplying (i) the
greater of $23.00 or the Average ServiceMaster Share Price by (ii) the
fractional interest in a ServiceMaster Share to which such holder would
otherwise be entitled.
Annex A-I-3
<PAGE>
(b) Each Tendered Share for which a Cash Election has been received and
each Tendered Share as to which an Election is not in effect at 12:00
midnight New York City time on the Expiration Date, (a "Non-Electing
Share") shall be, at the Closing, exchanged for the Cash Consideration
in the Offer.
(c) If ServiceMaster shall determine that any Election is not properly made
with respect to any Tendered Shares, such Election shall be deemed to
be not in effect, and the Tendered Shares covered by such Election
shall, for purposes hereof and the Offer, be deemed to be Non-Electing
Shares.
(d) In the event that, between the date of this Agreement and the Closing
Time, the issued and outstanding ServiceMaster Shares shall have been
affected or changed into a different number of shares or a different
class of shares as a result of a share split, reverse share split,
share distribution, spin-off, extraordinary distribution,
recapitalization, reclassification or other similar transaction with a
record date within such period, the Conversion Fraction shall be
equitably adjusted by ServiceMaster in a manner reasonably satisfactory
to Barefoot.
1.4 ServiceMaster Action.
(a) In connection with the registration pursuant to the Securities Act of
ServiceMaster Shares to be issued by ServiceMaster as the Share
Consideration pursuant to the Offer, ServiceMaster shall as soon as
practicable after execution of this Agreement file with the SEC a
Registration Statement on Form S-4 (together with all amendments,
schedules, and exhibits thereto, the "Registration Statement").
ServiceMaster shall use reasonable efforts to have the Registration
Statement declared effective by the SEC at the earliest practicable
date. Barefoot shall reasonably assist and cooperate with ServiceMaster
in the preparation of the Registration Statement and shall use
reasonable efforts to assist ServiceMaster to have the Registration
Statement declared effective by the SEC at the earliest practicable
date.
(b) Subject to Section 1.1(c), as soon as practicable after the
Registration Statement is declared effective by the SEC, ServiceMaster
shall commence the Offer. As soon as practicable on the date of
commencement of the Offer, ServiceMaster shall file with the SEC a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer
which will contain the offer to purchase and form of the related letter
of transmittal (together with any supplements or amendments thereto,
collectively the "Offer Documents"). The Offer Documents shall comply
with the provisions of the applicable securities laws.
1.5 Barefoot Actions.
(a) Approvals. Barefoot hereby approves of and consents to the Offer and
represents and warrants that Barefoot's Board of Directors (the
"Board"), at a meeting duly called and held took all of the following
actions in the manner and to the extent indicated in Annex 4: (i)
determined that this Agreement and the Merger Agreement and the
transactions contemplated hereby, including the Offer and the Merger,
are fair to, and in the best interests of, the stockholders of
Barefoot, (ii) approved this Agreement and the Merger Agreement and the
transactions contemplated hereby and thereby, including the Offer and
the Merger, in all respects and determined that such approval
constitutes approval of the Offer, this Agreement, the Merger Agreement
and the Merger for purposes of Section 251(b) of the Delaware General
Corporation Law (the "DGCL") and (iii) resolved to recommend that the
stockholders of Barefoot accept the Offer, tender their Shares
thereunder to ServiceMaster (subject to the reservation with respect to
the Share Election contained in Annex 4) and to recommend that the
stockholders of Barefoot approve and adopt the Merger Agreement and the
Merger. Barefoot consents to the inclusion of such recommendation and
approval in the Offer
Annex A-I-4
<PAGE>
Documents. Barefoot warrants to ServiceMaster that a complete an
accurate copy of the resolution by its Board taking the actions
specified in the preceding sentence is attached to this Agreement as
Annex 4. Barefoot's Board shall not withdraw, modify or amend its
recommendation specified in Annex 4 unless and until either
(i) prior to the consummation of the Offer another offer to acquire
Barefoot shall be made and the Board of Directors of Barefoot
determines, after having received the advice of outside legal
counsel to Barefoot and the advice of Barefoot's financial advisor,
that such offer is for consideration per Share in excess of the
Offer Consideration and the Board is required in the exercise of its
fiduciary duties under applicable law to withdraw, modify or amend
its recommendation specified in Annex 4 and (ii) all conditions
specified in Section 6.1(c)(1) of this Agreement as requisite to
Barefoot's termination of this Agreement have been satisfied, or
(ii) this Agreement shall have been terminated in accordance with
the terms specified in Section 6.1 and any amount due from Barefoot
under Section 7.1 shall have been paid to ServiceMaster.
(b) 14D-9 SEC Filing. Contemporaneously with the commencement of the Offer,
Barefoot shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9"), which shall reflect
the recommendation of the Offer and of the Merger by Barefoot's Board
of Directors, provided that if Barefoot shall become entitled to
withdraw its recommendation of the Offer or the Merger under the
provisions of Section 1.5(a), then neither such withdrawal nor the
modification of the Schedule 14D-9 to reflect such withdrawal and any
position taken by the Board subsequent to such withdrawal shall
constitute a breach by Barefoot of this Agreement. The Schedule 14D-9
shall contain the information required by Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder with respect to
ServiceMaster's designees for election to Barefoot's Board of Directors
pursuant to Section 1.7(e) hereof. ServiceMaster shall supply any
information with respect to itself or its designees which may be
required for inclusion therein. The Schedule 14D-9, together with any
supplements or amendments thereto, shall comply with the provisions of
the applicable federal securities laws.
(c) Stockholder Lists. In connection with the Offer, Barefoot shall within
two business days after a request from ServiceMaster furnish
ServiceMaster with mailing labels, security position listings and any
available listing or computer file containing the names and addresses
of the record holders of the Shares as of the latest practicable date
and shall furnish ServiceMaster with such additional information and
assistance (including, without limitation, updated lists of
stockholders, mailing labels and lists of securities positions) as
ServiceMaster or its agents may reasonably request in communicating the
Offer to the record and beneficial holders of Shares. Subject to the
requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents
necessary to consummate the Merger, ServiceMaster and its affiliates
and associates shall use the information contained in any such labels,
listings and files only in connection with and for the purpose of the
Offer and the Merger, and if this Agreement shall be terminated
ServiceMaster will deliver to Barefoot or destroy all copies of such
information then in the possession of ServiceMaster or any of
ServiceMaster's affiliates or associates.
1.6 Treatment of Barefoot Stock Options. Barefoot warrants to ServiceMaster
that Section 1.6 of the Disclosure Schedule accurately shows the number of
shares subject to issuance under each outstanding option granted under
Barefoot's stock option program for officers and other employees (and all
options outstanding under such programs are herein called "Barefoot Stock
Options") and the exercise price per share of each such option. At the
Closing, Barefoot shall pay to each person who
Annex A-I-5
<PAGE>
holds any Barefoot Stock Option an amount of cash equal to the number of
shares subject to that Option at the Closing (whether or not then vested)
times the remainder derived by subtracting the exercise price per share from
$16. Barefoot shall obtain an agreement in a form reasonably satisfactory to
ServiceMaster from each holder of every Barefoot Stock Option to accept such
payment in exchange for a surrender of all rights of such holder under or by
reason of such Option including but not limited to the termination of the
holder's rights to purchase any shares with such Option after the Closing. The
obtaining of such an agreement from each Option holder shall be a condition to
ServiceMaster's obligation to consummate the Closing. ServiceMaster consents
to Barefoot's actions prescribed by this Section 1.6.
1.7 The Closing; Minimum Number of Shares. ServiceMaster shall consummate
the Offer and acquire all Shares properly tendered and not withdrawn (the
"Closing") at the earliest time permitted under the Exchange Act and the
earliest time as of which: (i) the Minimum Number of Shares shall have been
properly tendered and not withdrawn and shall be available for purchase under
the terms of the Offer and applicable law and (ii) all conditions to
ServiceMaster's obligation to consummate the Offer contained in Annex 1 shall
have been satisfied or waived by ServiceMaster; provided, that ServiceMaster
may allow the Offer to remain open for an additional period of time but no
later than 20 business days after the Minimum Number of Shares shall have been
properly tendered. For purposes of this Agreement, the "Closing Time" shall be
the time at which ServiceMaster shall acquire Shares by means of the Offer.
The Minimum Number shall be such number that when added to all Shares owned by
ServiceMaster and its affiliates prior to consummation of the Offer will
provide ServiceMaster and its affiliates with ownership of 75% of the Shares
which shall be outstanding at the Closing Time. The Closing shall take place
in the offices of Kirkland & Ellis in Chicago, Illinois at the Closing Time.
At the Closing:
(a) ServiceMaster shall deliver, in trust, to the Exchange Agent, for the
benefit of the holders of Shares, certificates representing an
aggregate number of ServiceMaster Shares as nearly as practicable equal
to the product of the Conversion Fraction and the number of Tendered
Shares to be converted into ServiceMaster Shares as determined in
subsections 1.1(b)(i) and 1.3(a). As soon as practicable after the
Closing Time, each holder of Tendered Shares exchanged into
ServiceMaster Shares pursuant to the Offer, shall be, upon such
holder's compliance with the Offer Documents regarding the delivery of
certificates representing Tendered Shares not previously delivered),
entitled to receive certificates representing the number of
ServiceMaster Shares for which such Tendered Shares shall have been
exchanged as determined in subsections 1.1(b)(i) and 1.3(a). If any
certificate for such ServiceMaster Shares is to be issued in a name
other than that in which the certificate for Tendered Shares
surrendered in exchange therefor is registered, it shall be a condition
of such exchange that the person requesting such exchange shall pay to
the Exchange Agent any transfer or other taxes required by reason of
issuance of certificates for such ServiceMaster Shares in a name other
than the registered holder of the certificate surrendered, or shall
establish to the reasonable satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
(b) ServiceMaster shall deposit in trust with the Exchange Agent, for the
benefit of the holders of Tendered Shares, an amount in cash equal to
the Cash Consideration multiplied by the number of Tendered Shares to
be exchanged for the Cash Consideration as determined in subsections
1.1(b)(ii) and 1.3(b). As soon as practicable after the Closing Time,
the Exchange Agent shall distribute to such holders of Tendered Shares,
upon such holder's compliance with the Offer Documents regarding the
delivery of certificates representing Tendered Shares not previously
delivered), the Cash Consideration in the form of a bank check for an
amount equal to the Cash Consideration times the number of Tendered
Shares so exchanged. In no event shall the holder of any such
surrendered certificates be entitled to receive interest on
Annex A-I-6
<PAGE>
any of the Cash Consideration to be received in the Offer. If such check
is to be issued in the name of a person other than the person in whose
name the certificates for the Tendered Shares surrendered for exchange
therefor are registered, it shall be a condition of the exchange that
the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of issuance of such check to
a person other than the registered holder of the certificates
surrendered, or shall establish to the reasonable satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
(c) The Exchange Agent shall deliver to ServiceMaster such stock
certificates representing Tendered Shares as the Exchange Agent shall
have received by the Closing Time against receipt of the Offer
Consideration therefor. The Exchange Agent shall promptly deliver to
ServiceMaster stock certificates representing Tendered Shares not
previously delivered as the Exchange Agent shall receive after the
Closing Time.
(d) Barefoot shall deliver to ServiceMaster the agreement from the holder
of every Barefoot Stock Option required by Section 1.6.
(e) The incumbent directors of Barefoot shall appoint designees of
ServiceMaster to the Board of Directors of Barefoot and all incumbent
directors of Barefoot shall resign.
1.8 It shall be a condition to ServiceMaster's obligation to consummate the
Closing that Barefoot shall deliver, or caused to be delivered, to
ServiceMaster all of the following:
(i) a certificate executed on its behalf by its Chief Executive Officer
and its Chief Financial Officer in their corporate capacity to the effect
that: (A) the representations and warranties of Barefoot set forth in this
Agreement are true and accurate as of the Closing Time as if made at and as
of such time (except for those representations and warranties that address
matters only as of a particular date or only with respect to a specific
period of time which need only be true and accurate as of such date or with
respect to such period), except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein), would not have, and is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on Barefoot and
its subsidiaries taken as a whole; (B) Barefoot shall have performed in all
material respects its obligations hereunder required to be performed by it
at or prior to the Closing Time; and (C) since September 30, 1996, there
shall not have occurred any event, change or effect having, or which would
be reasonably likely to have, in the aggregate, a material adverse effect
on Barefoot and its subsidiaries, taken as a whole;
(ii) a certificate of good standing from the Secretary of State of each
state in which Barefoot and its subsidiaries are incorporated or qualified
to do business stating that each is a validly existing corporation in good
standing;
(iii) duly adopted resolutions of the Board of Directors of Barefoot
approving the execution, delivery and performance of this Agreement and the
instruments contemplated hereby, certified by the Secretary of Barefoot;
(iv) a true and complete copy of the Restated Certificate of
Incorporation, as amended, of Barefoot and each of Barefoot's subsidiaries
certified by the Delaware Secretary of State, and a true and complete copy
of the Bylaws, as amended, of Barefoot and each of Barefoot's subsidiaries
certified by the Secretary thereof;
(v) the duly executed Director and Officer Actions (as defined in Section
5.13); and
(vi) such other documents and instruments as ServiceMaster reasonably may
request.
Annex A-I-7
<PAGE>
ARTICLE 2.0
THE MERGER
2.1 The Merger. As soon as practicable after the purchase of Shares pursuant
to the Offer and receipt of requisite approval by the holders of not less than
75% of the outstanding Shares, ServiceMaster, MergerSub and Barefoot shall
engage in a merger (herein called the "Merger") pursuant to which (i)
MergerSub shall be merged with and into Barefoot, (ii) the separate existence
of MergerSub (except as may be continued by operation of law) shall cease,
(iii) Barefoot shall continue as the surviving corporation, (iv) each Share
outstanding immediately prior to the Merger (other than Shares owned by
ServiceMaster and its affiliates) shall be converted into cash in an amount
per share equal to the Cash Consideration, and (v) Barefoot shall become a
wholly owned subsidiary of ServiceMaster. Contemporaneously with the execution
of this Agreement, ServiceMaster, MergerSub and Barefoot shall enter into a
Plan and Agreement of Merger (the "Merger Agreement"), providing for the
Merger in accordance with this Agreement, the Merger Agreement, and the DGCL.
Barefoot, in its capacity as the corporation surviving the Merger, sometimes
is referred to as the "Surviving Corporation."
2.2 Proxy Statement. As soon as practicable after execution of this
Agreement, Barefoot shall file with the SEC under the Exchange Act, and all
parties hereto shall use all reasonable efforts to have cleared by the SEC by
the Closing Time, a proxy statement or information statement, as Barefoot
shall designate (the "Proxy Statement"), with respect to the approval by
Barefoot's stockholders of the Merger Agreement and the Merger. The Proxy
Statement shall be in form and substance reasonably satisfactory to Barefoot
and ServiceMaster. The information provided and to be provided by
ServiceMaster, MergerSub and Barefoot, respectively, for use in the Proxy
Statement shall be true and correct in all material respects and shall not
omit to state any material fact necessary in order to make such information
and the Proxy Statement not misleading as of the date of mailing of the Proxy
Statement. The Proxy Statement shall comply in all material respects with the
Exchange Act and the rules and regulations thereunder. The Proxy Statement
shall contain the recommendation of the Board of Directors of Barefoot that
stockholders approve the Merger.
2.3 Short Form Merger. In the event that after consummation of the Offer,
ServiceMaster and its affiliates shall own at least 90% of the outstanding
Shares, then as soon as practicable after the Closing Time, MergerSub and
appropriate officers of MergerSub shall execute a certificate of ownership and
merger and shall cause such certificate to be filed with the Delaware
Secretary of State. Barefoot and MergerSub shall also take any other actions
which shall be necessary to cause the Merger to occur in accordance with
Section 253 of the Delaware Law and shall provide all notices to stockholders
and take such other actions as shall be required by the Delaware Law or other
applicable governmental requirements by reason of the consummation of the
Merger.
2.4 Stockholder Approval. In the event that ServiceMaster and its affiliates
after consummation of the Offer, do not own at least 90% of all Shares
outstanding at that time, then as soon as practicable after the Closing Time,
Barefoot shall take all action necessary in accordance with the Delaware Law
and other applicable governmental requirements and its Restated Certificate of
Incorporation and By-Laws either (at Barefoot's election) to (a) distribute
the Proxy Statement and convene a meeting of its stockholders as promptly as
possible after the Closing Time to consider and vote upon the Merger Agreement
and the Merger or (b) submit the Merger Agreement and the Merger for approval
by written consent in lieu of a meeting of stockholders. If a stockholders'
meeting is convened or consents are to be solicited, the Board of Directors of
Barefoot shall recommend that the stockholders of Barefoot vote to adopt and
approve the Merger Agreement and the Merger. Barefoot shall use its best
efforts to solicit from stockholders of Barefoot proxies or consents in favor
of such adoption and approval to the extent such consents or approvals are
required and shall take all other action necessary or helpful to secure a vote
or consent of stockholders in favor of the Merger. At any such meeting
ServiceMaster
Annex A-I-8
<PAGE>
and its affiliates shall vote all Shares held by them in favor of the Merger,
and Barefoot shall vote all Shares with respect to which proxies in the form
distributed by Barefoot shall have been given in favor of the Merger. In
connection with any such vote or consent, ServiceMaster and its affiliates
shall vote in favor of or consent to the Merger Agreement and the Merger with
respect to all Shares any of them have the power to vote and Barefoot shall
give any such consents which it is authorized to give by stockholder consent.
As soon as is practicable after the satisfaction or waiver of the conditions
set forth in Section 2.5 below, and in no event later than five business days
after such satisfaction or waiver, MergerSub will cause a Certificate of
Merger to be filed with the Secretary of State of the State of Delaware.
Notwithstanding the foregoing, in lieu of holding a stockholders' meeting or
seeking consents for approval of the Merger Agreement and the Merger, the
Merger Agreement and the Merger may be approved by ServiceMaster and its
affiliates if they shall own at least 75% of all outstanding Shares upon
consummation of the Offer, in which event proxies need not be solicited from
other stockholders but all required statements and information shall be
furnished to such stockholders in accordance with all applicable laws and
regulations.
2.5 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver of each of the conditions set forth below:
(a) If ServiceMaster and its affiliates shall own less than 90% of all
Shares outstanding at the conclusion of the Offer, the Merger and the
Merger Agreement shall have been approved and adopted by the requisite
vote or consent of stockholders of Barefoot in accordance with
Barefoot's Restated Certificate of Incorporation and By-laws and the
Delaware Law;
(b) The Offer shall have been consummated pursuant to the terms of this
Agreement; and
(c) No injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule, regulation
or executive order promulgated or enacted by any governmental authority
shall be in effect, which would make the acquisition or holding by
ServiceMaster or its subsidiaries of the Shares or shares of common
stock of the Surviving Corporation illegal or otherwise prevent the
consummation of the Merger.
2.6 Dissenters' Rights. Barefoot shall not settle or compromise any claim
for dissenters' rights without the prior written consent of ServiceMaster.
ARTICLE 3.0
REPRESENTATIONS AND WARRANTIES OF BAREFOOT
Barefoot represents and warrants to ServiceMaster and MergerSub as follows:
3.1 Organization. Each of Barefoot and its subsidiaries (as defined below)
is a corporation, partnership or other entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
or organization, and has all requisite corporate or other power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and governmental approvals would not have a material adverse
effect (as defined below) on Barefoot and its subsidiaries taken as a whole.
Each of Barefoot and its subsidiaries is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to
be so duly
Annex A-I-9
<PAGE>
qualified or licensed and in good standing would not, in the aggregate, have a
material adverse effect on Barefoot and its subsidiaries taken as a whole. As
used in this Agreement, the word "subsidiary" means, with respect to any
party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other subsidiary of such party
is a general partner (excluding such partnerships where such party or any
subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board
of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries. As used in this Agreement, any
reference to any event, change or effect having a material adverse effect on
or with respect to any entity (or group of entities taken as a whole) means
such event, change or effect, in the aggregate with such other events,
changes, or effects, which is materially adverse to the financial condition,
results of operations or business of such entity. Section 3.1 of the
Disclosure Schedule delivered by Barefoot to ServiceMaster on or prior to the
date hereof (the "Disclosure Schedule") sets forth a complete list of
Barefoot's subsidiaries.
3.2 Capitalization.
(a) The authorized capital stock of Barefoot consists of 45,000,000 shares
consisting of 40,000,000 shares of Barefoot Common Stock and 5,000,000
shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). As
of the date hereof, 14,519,760 shares of Barefoot Common Stock are
issued and outstanding and 2,277,000 shares of Barefoot Common Stock
are held in the treasury of Barefoot. As of the date hereof, no shares
of Preferred Stock are issued and outstanding and 400,000 shares of
Preferred Stock has been designated as Series A Junior Participating
Preferred Stock issuable upon exercise of the Stock Purchase Rights. As
of the date hereof, options to acquire an aggregate of 412,550 shares
of Barefoot Common Stock have been issued pursuant to Barefoot Stock
Options. All the outstanding shares of Barefoot's capital stock are
duly authorized, validly issued, fully paid and non-assessable.
(b) There are no bonds, debentures, notes or other indebtedness having
voting rights (or convertible into securities having such rights)
("Voting Debt") of Barefoot or any of its subsidiaries issued and
outstanding. Except as set forth above and for the transactions
contemplated by this Agreement which will result in issuance of shares
to ServiceMaster, (i) there are no shares of capital stock of Barefoot
authorized, issued or outstanding and (ii) there are no existing
options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible securities, agreements, arrangements or commitments
of any character, relating to the issued or unissued capital stock of
Barefoot or any of its subsidiaries, obligating Barefoot or any of its
subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt of, or
other equity interest in, Barefoot or any of its subsidiaries or
securities convertible into or exchangeable for such shares or equity
interests or obligations of Barefoot or any of its subsidiaries to
grant, extend or enter into any such option, warrant, call,
subscription or other right, convertible security, agreement,
arrangement or commitment.
(c) There are no outstanding contractual obligations of Barefoot or any of
its subsidiaries to repurchase, redeem or otherwise acquire any Shares
or the capital stock of Barefoot or any subsidiary or affiliate of
Barefoot or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any subsidiary or any other
entity. None of Barefoot or its subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of Barefoot, or
any of its subsidiaries, respectively, as a result of the transactions
contemplated by this Agreement.
Annex A-I-10
<PAGE>
(d) All of the outstanding shares of capital stock of each of the
subsidiaries are beneficially owned by Barefoot, directly or
indirectly, and all such shares have been validly issued and are fully
paid and nonassessable and are owned by either Barefoot or one of its
subsidiaries free and clear of all liens, charges, security interests,
options, claims or encumbrances of any nature whatsoever.
(e) There are no voting trusts or other agreements or understandings to
which Barefoot or any of its subsidiaries is a party with respect to
the voting of the capital stock of Barefoot or any of the subsidiaries.
(f) At the Closing Time, the number of shares of Barefoot Common Stock
outstanding shall not exceed 14,982,310. At and after the Closing Time,
neither Barefoot nor any of its subsidiaries will have any obligation
to issue, transfer or sell any shares of its capital stock to anyone
other than ServiceMaster.
3.3 Corporate Authorization; Validity of Agreement; Barefoot Action.
(a) Barefoot has full corporate power and authority to execute and deliver
this Agreement and, subject to obtaining any necessary approval of its
stockholders as contemplated by Section 2.2 hereof with respect to the
Merger, to consummate the transactions contemplated hereby. The
execution, delivery and performance by Barefoot of this Agreement, and
the consummation by it of the transactions contemplated hereby, have
been duly and validly authorized by its Board of Directors and, except
for obtaining the approval of its stockholders as contemplated by
Section 2.2 hereof with respect to the Merger, no other corporate
action or proceedings on the part of Barefoot is necessary to authorize
the execution and delivery by Barefoot of this Agreement, and the
consummation by it of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Barefoot and,
assuming this Agreement constitutes a valid and binding obligation of
ServiceMaster and MergerSub, constitutes a valid and binding obligation
of Barefoot enforceable against Barefoot in accordance with its terms,
except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) The Board of Directors of Barefoot has duly and validly approved and
taken all corporate action required to be taken by the Board of
Directors for the consummation of the transactions contemplated by this
Agreement. The affirmative vote of the holders of 75% of the Shares is
the only vote of the holders of any class or series of Barefoot capital
stock necessary to approve the Merger.
(c) A complete and accurate copy of the resolutions adopted by Barefoot's
Board of Directors with respect to the Offer and the Merger is attached
to this Agreement as Annex 5.
3.4 Consents and Approvals; No Violations. Except as set forth in Section
3.4 of the Disclosure Schedule and for all filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the Exchange Act (as defined herein), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the state
securities or "blue sky" laws, state takeover laws, and for the approval of
the Merger by Barefoot's stockholders and the filing and recordation of the
Certificate of Merger as required by the DGCL, neither the execution, delivery
or performance of this Agreement nor the consummation by Barefoot of the
transactions contemplated hereby nor compliance by Barefoot with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or by-laws or similar
organizational
Annex A-I-11
<PAGE>
documents of Barefoot or of any of its subsidiaries, (ii) require any filing
with, or permit, authorization, consent or approval of, any court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority, commission or agency (a "Governmental Entity"), except
where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings would not have a material adverse effect on
Barefoot and its subsidiaries taken as a whole and would not, or would not be
reasonably likely to, materially impair the ability of Barefoot, ServiceMaster
or MergerSub to consummate the Offer, the Merger or the other transactions
contemplated hereby, (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, guarantee, other evidence of indebtedness (collectively, the "Debt
Instruments"), lease, license, contract, agreement or other instrument or
obligation to which Barefoot or any of its subsidiaries is a party or by which
any of them or any of their properties or assets may be bound (a "Barefoot
Agreement") or (iv) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Barefoot, any of its subsidiaries or any of their
properties or assets, except in the case of clauses (iii) and (iv) for
violations, breaches or defaults which would not have a material adverse
effect on Barefoot and its subsidiaries taken as a whole.
3.5 SEC Reports and Financial Statements. Barefoot has filed with the SEC
and has heretofore made available to ServiceMaster true and complete copies
of, all forms, reports, schedules, statements and other documents required to
be filed by it and its subsidiaries since January 1, 1994 under the Exchange
Act and the Securities Act (as such documents have been amended since the time
of their filing, collectively, the "Barefoot SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment,
Barefoot SEC Documents, including, without limitation, any financial
statements or schedules included therein (i) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. Each of the consolidated
financial statements included in Barefoot SEC Documents have been prepared
from, and are in accordance with, the books and records of Barefoot and/or its
consolidated subsidiaries, comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the consolidated
financial position and the consolidated results of operations and cash flows
(and changes in financial position, if any) of Barefoot and its consolidated
subsidiaries as at the dates thereof or for the periods presented therein
(subject, in the case of unaudited interim financial statements, to normal
year end adjustments and lack of footnote disclosures).
3.6 Absence of Certain Changes. Except as disclosed in Barefoot SEC
Documents filed with the SEC prior to the date hereof, since January 1, 1996,
Barefoot and its subsidiaries have conducted their respective businesses and
operations in the ordinary course of business consistent with past practice.
Since September 30, 1996, there has not occurred (i) any events, changes, or
effects (including the incurrence of any liabilities of any nature, whether or
not accrued, contingent or otherwise) having or, which would be reasonably
likely to have, in the aggregate, a material adverse effect on Barefoot and
its subsidiaries taken as a whole; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the equity interests of Barefoot or of any of its
subsidiaries, other than regular quarterly cash dividends or dividends paid by
wholly owned subsidiaries; or (iii) any change by Barefoot or any of its
subsidiaries in accounting principles or methods.
Annex A-I-12
<PAGE>
3.7 No Undisclosed Liabilities. Except (a) as disclosed in Section 3.7 of
the Disclosure Schedule, (b) to the extent disclosed in Barefoot SEC Documents
filed prior to the date of this Agreement and (c) for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, since January 1, 1996, neither Barefoot nor any of its subsidiaries
has incurred any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that have, or would be reasonably likely to
have, a material adverse effect on Barefoot and its subsidiaries. Section 3.7
of the Disclosure Schedule sets forth each instrument evidencing indebtedness
of Barefoot and its subsidiaries which will accelerate or become due or
payable, or result in a right of redemption or repurchase on the part of the
holder of such indebtedness, or with respect to which any other payment or
amount will become due or payable, in any such case with or without due notice
or lapse of time, as a result of this Agreement, the Offer, the Merger or the
other transactions contemplated hereby.
3.8 Employee Benefit Plans; ERISA. As of the date of this Agreement and as
of the Closing Time:
(a) There are no material employee or director benefit plans, arrangements,
practices, contracts or agreements (including, without limitation,
employment agreements, change of control employment agreements and
severance agreements, incentive compensation, bonus, stock option,
stock appreciation rights and stock purchase plans) of any type
(including but not limited to plans described in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
maintained by Barefoot, any of its subsidiaries or any trade or
business, whether or not incorporated (an "ERISA Affiliate"), that
together with Barefoot would be deemed a "controlled group" within the
meaning of Section 4001(a)(14) of ERISA, or with respect to which
Barefoot or any of its subsidiaries has or may have a liability, other
than those listed on Section 3.8(a) of the Disclosure Schedule (the
"Benefit Plans"). Except as disclosed in Section 3.8(a) of the
Disclosure Schedule (or as otherwise permitted by this Agreement)
neither Barefoot nor any ERISA Affiliate has any formal plan or
commitment, whether legally binding or not, to create any additional
Benefit Plan or modify or change any existing Benefit Plan that would
affect any employee or terminated employee of Barefoot or any ERISA
Affiliate.
(b) With respect to any Benefit Plan, there are no material amounts accrued
but unpaid as of the most recent balance sheet date that are not
reflected on that balance sheet prepared in accordance with GAAP.
(c) With respect to each Benefit Plan: (i) if intended to qualify under
Section 401(a), 401(k) or 403(a) of the Code, such plan has received,
or an application is pending for, a determination letter from the
Service that the Plan so qualifies, and its trust is exempt from
taxation under Section 501(a) of the Code and Barefoot knows of no
event that would prevent such qualification; (ii) such plan has been
administered in all material respects in accordance with its terms and
applicable law; (iii) no breaches of fiduciary duty have occurred; (iv)
no material disputes are pending, or, to the knowledge of Barefoot,
threatened; (v) no prohibited transaction (within the meaning of
Section 406 of ERISA) has occurred; (vi) all contributions and premiums
due (including any extensions for such contributions and premiums) have
been made in full; (vii) no such Plan has incurred or will incur any
"accumulated funding deficiency," as such term is defined in Section
412 of the Code, whether or not waived; (viii) no such Plan provides
medical or death benefits with respect to current or former employees
of Barefoot or any of its subsidiaries beyond their termination of
employment, other than on an employee-pay-all basis; and (ix) no Plan
is a "multiemployer plan," as such term is defined in Section 3(37) of
ERISA, or is covered by Section 4063 or 4064 of ERISA.
(d) Neither Barefoot nor any ERISA Affiliate has incurred any material
liability under Title IV of ERISA since the effective date of ERISA
that has not been satisfied in full (including sections
Annex A-I-13
<PAGE>
4063-4064 and 4069 of ERISA) and, to the knowledge of Barefoot, no basis
for any such liability exists. Neither Barefoot nor any ERISA Affiliate
maintains (or contributes to), or has maintained (or has contributed to)
within the last six years, any employee benefit plan that is subject to
Title IV of ERISA (other than a Benefit Plan).
(e) Except as set forth in Section 3.8(e) of the Disclosure Schedule or to
the extent disclosed in Barefoot SEC Documents, the consummation of the
transactions contemplated by this Agreement will not entitle any
individual to severance pay or accelerate the time of payment or
vesting, or increase the amount, of compensation or benefits due to any
individual with respect to any Benefit Plan. As a result of the
transactions described herein, either alone or together with another
event such as termination of employment, except as set forth in Section
3.8(e) of the Disclosure Schedule, no party will be required to make a
"parachute payment" to a "disqualified individual" within the meaning
of Section 280G of the Code.
(f) Barefoot has delivered or made available to ServiceMaster accurate and
complete copies of all plan texts, summary plan descriptions, trust
agreements and other related agreements including all amendments to the
foregoing; the two most recent annual reports; the most recent annual
and periodic accounting of plan assets; the most recent determination
letter received from the United States Internal Revenue Service (the
"Service"); and the two most recent actuarial reports, to the extent
any of the foregoing may be applicable to a particular Benefit Plan.
3.9 Litigation; Compliance with Law.
(a) Except to the extent disclosed in Barefoot SEC Documents filed prior to
the date of this Agreement, there is no suit, claim, action,
proceeding, review or investigation pending or, to the knowledge of
Barefoot, threatened against or affecting, Barefoot or any of its
subsidiaries which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on Barefoot and its
subsidiaries taken as a whole, or would, or would be reasonably likely
to, materially impair the ability of ServiceMaster to consummate the
Offer or Barefoot and MergerSub to consummate the Merger or the other
transactions contemplated hereby.
(b) Barefoot and its subsidiaries have complied with all laws, statutes,
regulations, rules, ordinances, and judgments, decrees, orders, writs
and injunctions, of any court or Governmental Entity relating to any of
the property owned, leased or used by them, or applicable to their
business, including, but not limited to, equal employment opportunity,
discrimination, occupational safety and health, environmental,
insurance regulatory, antitrust laws, ERISA and laws relating to Taxes
(as defined in Section 3.11) except to the extent that any such non-
compliance would not have a material adverse effect on Barefoot and its
subsidiaries taken as a whole.
3.10 No Default. Except as disclosed in Barefoot SEC Documents, the business
of Barefoot and each of its subsidiaries is not being conducted in default or
violation of any term, condition or provision of (a) its respective certificate
of incorporation or by-laws or similar organizational documents, or (b) any
Barefoot Agreement, excluding from the foregoing clause (b), defaults or
violations that would not have a material adverse effect on Barefoot and its
subsidiaries taken as a whole or would not, or would not be reasonably likely
to, materially impair the ability of Barefoot or ServiceMaster to consummate
the Offer, the Merger or the other transactions contemplated hereby.
3.11 Taxes.
(a) Tax Filings and Payments.
(1) All Returns required to be filed on or before the date hereof and
the date of the Closing by or on behalf of Barefoot have been duly
filed on a timely basis and such Returns are,
Annex A-I-14
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to Barefoot's knowledge, true, correct and complete in all respects
except that such returns may contain inadvertent errors and omissions
which are not material.
(2) Barefoot will timely file all of its Returns for the year ending
March 31, 1996 no later than December 15, 1996. Barefoot's final
federal income tax return for the taxable year ended March 31, 1996
will be essentially consistent with the proforma return which was
furnished to ServiceMaster prior to the date hereof.
(3) Barefoot has timely paid all Taxes that have been shown as due and
payable on the Returns that have been filed in all respects, and, to
Barefoot's knowledge, no other Taxes are payable by Barefoot with
respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns).
(4) Barefoot has made or will make adequate provision for all Taxes
payable for any periods that end on or before the Closing for which
no Returns have yet been filed and for any periods that begin before
the Closing and end after the Closing to the extent such Taxes are
attributable to the portion of any such period ending at the
Closing.
(5) The charges, accruals and reserves for current Taxes (excluding
reserves for deferred Taxes) reflected on the books of Barefoot are
not materially less than the Tax liabilities accruing or payable by
Barefoot in respect of periods prior to the date hereof and such
charges, accruals and reserves are reflected on Barefoot's most
recent financial statements.
(6) Barefoot is not delinquent in the payment of any Taxes or has
requested any extension of time within which to file or send any
Return, which Return has not since been filed or sent and which
Taxes have not been paid.
(7) No deficiencies exist for any Taxes or any penalties, interest or
assessments nor have any been proposed, asserted, or assessed
against Barefoot that are not adequately reserved for.
(8) There is no dispute or claim concerning any Tax liability of
Barefoot either (A) claimed or raised by any authority in writing or
(B) as to which Barefoot has knowledge based upon personal contact
with any agent of such authority.
(9) There is no pending audit, examination, or, to Barefoot's knowledge,
any investigation of any Return by any authority nor has Barefoot
received any notice of such audit, examination, or investigation.
(10) Except as identified in Section 3.11 (a)(10) of the Disclosure
Schedule, Barefoot has not waived any statute of limitations in
respect of Taxes or granted any extension of the limitations period
applicable to any claim of Taxes.
(11) Barefoot is not subject to liability for Taxes of any person (other
than Barefoot or any other member of the affiliated group of
corporations that files a consolidated federal income tax return,
of which Barefoot is the common parent), including, without
limitation, liability arising from the application of U.S. Treasury
Regulation section 1.1502-6 or any analogous provision of state,
local or foreign law
(12) Barefoot is not nor has it ever been a party to any tax sharing
agreement with any entity.
(13) To Barefoot's knowledge, no claim has ever been made by an
authority in a jurisdiction where Barefoot does not file Returns
that it is or may be subject to taxation by that jurisdiction.
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(14) There are no liens on any of the assets of Barefoot that arose in
connection with any failure (or alleged failure) to pay any Taxes.
(15) Barefoot has withheld and paid over and complied with all material
information reporting and backup withholding requirements,
including, without limitation, maintenance of required records
with respect thereto, in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or
other third party.
(16) Barefoot does not expect any authority to assess any additional
Taxes for any period for which Returns have been filed except to
an extent consistent with Barefoot's past experience as reflected
in its publicly released financial statements.
(17) Barefoot has delivered to ServiceMaster correct and complete
copies of all Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Barefoot.
(18) Barefoot is not a party to any safe harbor lease within the
meaning of Section 168(f)(8) of the Code, as in effect prior to
the amendment by the Tax Equity and Fiscal Responsibility Act of
1982.
(19) All material net operating losses, credits and other tax
attributes utilized by Barefoot during any taxable year ending on
or prior to the Closing were fully and properly available to
Barefoot under all applicable tax laws, regulations and
administrative interpretations thereof.
(b) Tax Characteristics of Barefoot.
(1) To Barefoot's knowledge, no stockholder of Barefoot who owns (A)
more than 5% of any class of Barefoot's stock that is regularly
traded on an established securities market, within the meaning of
Section 897(c)(3) of the Code, or (B) any amount of any other class
of Barefoot's stock is a "foreign person" (as that term is defined
in Section 1445(f)(3) of the Code).
(2) Barefoot is not a "consenting corporation" under Section 341(f) of
the Code.
(3) Barefoot has not entered into any compensatory agreement with
respect to the performance of services which payment thereunder
would result in a nondeductible expense to Barefoot pursuant to
Sections 162(m) or 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code.
(4) Barefoot has not agreed, nor is it required to make, any adjustment
under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(5) To Barefoot's knowledge, Barefoot will not be required as a result
of any "closing agreement" described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign income
Tax law), to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing.
(6) Barefoot will not be required as a result of any deferred
intercompany gain described in Treasury Regulation Section 1.1502-
13 or any excess loss account described in Treasury Regulation
Section 1.1502-19 (or any corresponding or similar provision or
administrative rule of federal, state, local or foreign income tax
law), to include any item of income in taxable income for any
period (or portion thereof) ending after the Closing Date.
Annex A-I-16
<PAGE>
(7) Section 3.11(b)(7) of the Disclosure Schedule sets forth the
following information with respect to Barefoot as of March 31,
1996; (A) the amount of any net operating loss, net capital loss,
unused credits, unused foreign tax, or excess charitable
contribution; and (B) the amount of any deferred gain or loss
arising out of any deferred intercompany transaction.
(c) Definitions. For purposes of all of Section 3.11:
(1) The term "Barefoot" includes Barefoot and each subsidiary of
Barefoot.
(2) The term "Tax" means any federal, state, local or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise,
natural resources, severance, stamp, occupation, premium, windfall
profit, environmental, customs, duties, real property, personal
property, capital stock, social security, unemployment, disability,
payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions
to tax or additional amounts in respect of the foregoing.
(3) The term "Return" means any returns, declarations, reports, claims
for refund, amended returns, information returns or other documents
(including any related or supporting schedules, statements or
information) filed or required to be filed in connection with the
determination, assessment or collection of any Tax, or the
administration of any laws, regulations or administrative
requirements relating to any Tax.
3.12 Contracts. Each material Barefoot Agreement is valid, binding and
enforceable and in full force and effect, except where failure to be valid,
binding and enforceable and in full force and effect would not have a material
adverse effect on Barefoot and its subsidiaries taken as a whole, and there
are no defaults thereunder, except those defaults that would not have a
material adverse effect on Barefoot and its subsidiaries taken as a whole.
Neither Barefoot nor any subsidiary is a party to any agreement that expressly
and materially limits the ability of Barefoot or any subsidiary to compete in
or conduct any line of business or compete with any person or in any
geographic area or during any period of time except that Barefoot is subject
to the agreement restricting its ability to compete with Tru-Green in the
Louisville Kentucky area identified in Section 3.12 of the Disclosure
Schedule.
3.13 Transactions with Affiliates. Except to the extent disclosed in
Barefoot SEC Documents filed prior to the date of this Agreement, since
January 1, 1994 there have been no material transactions, agreements,
arrangements or understandings between Barefoot or its subsidiaries, on the
one hand, and Barefoot's affiliates (other than wholly-owned subsidiaries of
Barefoot) or other Persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
3.14 Environmental Matters. Except as set forth in the Barefoot SEC
Documents:
(a) Barefoot and its subsidiaries are in compliance with all applicable
Environmental Laws (as defined below), except for any noncompliance
that would not, in the aggregate, have a material adverse effect on
Barefoot and its subsidiaries taken as a whole. Except as set forth in
Barefoot SEC Documents or as previously disclosed to ServiceMaster,
neither Barefoot nor any of its subsidiaries has received any
communication (written or oral), whether from a governmental authority,
citizens group, employee or otherwise, that alleges that Barefoot or
any of its subsidiaries is not in such compliance and, to Barefoot's
best knowledge, there are no circumstances that would prevent or
interfere with such compliance in the future and which would, in the
aggregate, have a material adverse effect on Barefoot and its
subsidiaries taken as a whole.
Annex A-I-17
<PAGE>
(b) Except as set forth in Barefoot SEC Documents, there is no
Environmental Claim (as defined below) pending or, to the best
knowledge of Barefoot, threatened against Barefoot or any of its
subsidiaries or, to Barefoot's best knowledge, against any person or
entity whose liability for any Environmental Claim Barefoot or any of
its subsidiaries has or may have retained or assumed either
contractually or by operation of law, except for any Environmental
Claim or Claims that would not, in the aggregate, have a material
adverse effect on Barefoot and its subsidiaries taken as a whole.
(c) Except as set forth in Barefoot SEC Documents, there are no past or
present actions, activities, circumstances conditions, events or
incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental
Concern (as defined below), that would form the basis of any
Environmental Claim against Barefoot or any of its subsidiaries or, to
Barefoot's best knowledge, against any person or entity whose liability
for any Environmental Claim Barefoot or any of its subsidiaries has or
may have retained or assumed either contractually or by operation of
law, except for any Environmental Claim or Claims that would not, in
the aggregate, have a material adverse effect on Barefoot and its
subsidiaries taken as a whole.
(d) For purposes of this Agreement, "Environmental Claim" means any claim,
action, or cause of action, of any person or entity alleging potential
liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (a) the presence,
or release into the environment, of any Material of Environmental
Concern at any location, whether or not owned or operated by Barefoot
or any of its subsidiaries or (b) any violation or alleged violation of
any Environmental Law.
(e) For purposes of this Agreement, "Environmental Laws" means all federal,
state, local and foreign laws and regulations relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strats), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern.
(f) For purposes of this Agreement, "Materials of Environmental Concern"
means chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products.
3.15 Year End Cash. Based on information known to Barefoot's management on
the date hereof, it is the expectation of Barefoot's management on the date
hereof that Barefoot will have at least $8 million in cash at December 31,
1996 and that this $8 million cash balance will be achieved without any
special actions (such as borrowings or extension of payables) outside of the
normal course or which would not have been taken other than to produce such
result, provided that Barefoot makes no representation or warranty that such
expectation will be achieved.
3.16 Opinion of Financial Advisor. Barefoot has received an opinion from
Robert W. Baird & Co. ("Baird") with respect to the fairness to the
stockholders of Barefoot of the consideration to be received pursuant to the
Offer and the Merger.
3.17 Finders and Investment Bankers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission, or to the
reimbursement of any of its expenses, in connection with the Offer, or the
Merger or any similar transaction based upon arrangements made by or on behalf
of Barefoot, except for the arrangements between Barefoot and Baird, the terms
and provisions of which have been disclosed in writing to ServiceMaster by
Barefoot on or prior to the date hereof.
Annex A-I-18
<PAGE>
ARTICLE 4.0
REPRESENTATIONS AND WARRANTIES OF SERVICEMASTER AND MERGERSUB
ServiceMaster and MergerSub represent and warrant to Barefoot as follows:
4.1 Organization. ServiceMaster is a limited partnership duly organized,
validly existing and in good standing under the laws of Delaware. MergerSub is
a corporation duly organized, validly existing and in good standing under the
laws of Delaware. Each of ServiceMaster and its subsidiaries has all requisite
partnership, corporate or other power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry
on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not have a material adverse effect on
ServiceMaster and its subsidiaries taken as a whole. ServiceMaster and each of
its subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a material adverse effect on
ServiceMaster and its subsidiaries taken as a whole. MergerSub has not
heretofore conducted any business other than in connection with this Agreement
and the transactions contemplated hereby.
4.2 Capitalization. As of November 30, 1996, (i) approximately 144 million
ServiceMaster Shares are issued and outstanding, (ii) not more than 11 million
ServiceMaster Shares are reserved for option and employee benefit plans of
ServiceMaster, and (iii) the number of additional shares which ServiceMaster
may be required to issue as a result of convertible debt and other outstanding
rights (in addition to the rights cited in clause (ii)) does not exceed three
million shares. All of the outstanding ServiceMaster Shares are duly
authorized, validly issued, fully paid and non-assessable.
4.3 Partnership/Corporate Authorization; Validity of Agreement; Necessary
Action. Service-Master has full partnership power and authority and MergerSub
has full corporate power and authority, to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery and performance by ServiceMaster and MergerSub of this Agreement and
the consummation by ServiceMaster and MergerSub of the transactions
contemplated hereby have been duly and validly authorized by their respective
Boards of Directors and no other partnership or corporate action or
proceedings on the part of ServiceMaster and MergerSub are necessary to
authorize the execution and delivery by ServiceMaster and MergerSub of this
Agreement, and the consummation by ServiceMaster and MergerSub of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by ServiceMaster and MergerSub, and, assuming this Agreement
constitutes a valid and binding obligation of Barefoot, constitutes a valid
and binding obligation of each of ServiceMaster and MergerSub, enforceable
against each of them in accordance with their terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought. ServiceMaster Shares to be issued pursuant to the Offer will be duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. No vote of the holders of ServiceMaster Shares is necessary
for ServiceMaster to consummate the Offer or for MergerSub to consummate the
Merger.
4.4 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the Securities Act, the DGCL,
the HSR Act, state blue sky laws and any applicable state takeover laws,
neither the execution, delivery or performance of this Agreement by
ServiceMaster and MergerSub nor
Annex A-I-19
<PAGE>
the consummation by ServiceMaster and MergerSub of the transactions
contemplated hereby nor compliance by ServiceMaster and MergerSub with any of
the provisions hereof will (i) conflict with or result in any breach of any
provision of the Partnership Agreement of ServiceMaster or the Certificate of
Incorporation or by-laws of MergerSub or any other subsidiary, (ii) require
any filing with, or permit, authorization, consent or approval of, any
Governmental Entity (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not have a
material adverse effect on ServiceMaster and its subsidiaries taken as a whole
or would not, or would not be reasonably likely to, materially impair the
ability of ServiceMaster and MergerSub to consummate the Offer or the Merger
or the other transactions contemplated hereby), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
lease, license, contract, agreement or other instrument or obligation to which
ServiceMaster or any of its subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
ServiceMaster, any of its subsidiaries or any of their properties or assets,
except in the case of clauses (iii) and (iv) for violations, breaches or
defaults which would not have a material adverse effect on ServiceMaster and
its subsidiaries taken as a whole.
4.5 Opinion of Financial Advisor. ServiceMaster has received an opinion from
Goldman, Sachs & Co. ("Goldman, Sachs") dated the date of this Agreement to
the effect that, as of such date, the consideration to be paid by
ServiceMaster in the Offer and the Merger is fair to ServiceMaster from a
financial point of view.
4.6 Financial Resources. ServiceMaster has sufficient financial resources to
enable ServiceMaster to make all cash payments for the Shares in the Offer and
the Merger.
4.7 SEC Reports and Financial Statements. ServiceMaster has filed with the
SEC and has heretofore made available to Barefoot true and complete copies of,
all forms, reports, schedules, statements and other documents required to be
filed by ServiceMaster since January 1, 1994 under the Exchange Act and the
Securities Act (as such documents have been amended since the time of their
filing, collectively, the "ServiceMaster SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment,
the ServiceMaster SEC Documents, including, without limitation, any financial
statements or schedules included therein (i) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. Each of the consolidated
financial statements included in the ServiceMaster SEC Documents comply in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if
any) of ServiceMaster and its consolidated subsidiaries as at the dates
thereof or for the periods presented therein (subject, in the case of
unaudited interim financial statements, to normal year end adjustments and
lack of footnote disclosures).
4.8 Absence of Certain Changes. Except as disclosed in the ServiceMaster SEC
Documents, since January 1, 1996, ServiceMaster and its subsidiaries have
conducted their respective businesses and operations in the ordinary course of
business consistent with past practice. Since September 30, 1996, there has
not occurred (i) any events, changes, or effects (including the incurrence of
any
Annex A-I-20
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liabilities of any nature, whether or not accrued, contingent or otherwise)
having or, which would be reasonably likely to have, in the aggregate, a
material adverse effect on ServiceMaster and its subsidiaries taken as a
whole; (ii) any declaration, setting aside or payment of any distribution
(whether in cash, shares or property) with respect to the equity interests of
ServiceMaster other than regular quarterly cash distributions paid by
ServiceMaster; or (iii) any change by ServiceMaster or any of its subsidiaries
in accounting principles or methods. Since January 1, 1996 ServiceMaster and
its subsidiaries have conducted their respective businesses in the ordinary
course consistent with past practice.
4.9 No Undisclosed Liabilities. Except to the extent disclosed in the
ServiceMaster SEC Documents filed prior to the date of this Agreement and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice, since January 1, 1996, neither
ServiceMaster nor any of its subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that have, or would be reasonably likely to have, a material adverse effect on
ServiceMaster and its subsidiaries.
4.10 Litigation; Compliance with Law.
(a) Except to the extent disclosed in the ServiceMaster SEC Documents filed
prior to the date of this Agreement, there is no suit, claim, action,
proceeding, review or investigation pending or, to the knowledge of
ServiceMaster, threatened against or affecting, ServiceMaster or any of
its subsidiaries which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on ServiceMaster and its
subsidiaries taken as a whole, or would, or would be reasonably likely
to, materially impair the ability of ServiceMaster to consummate the
Offer or ServiceMaster and MergerSub to consummate the Merger or the
other transactions contemplated hereby.
(b) ServiceMaster and its subsidiaries have complied with all laws,
statutes, regulations, rules, ordinances, and judgments, decrees,
orders, writs and injunctions, of any court or Governmental Entity
relating to any of the property owned, leased or used by them, or
applicable to their business, including, but not limited to, equal
employment opportunity, discrimination, occupational safety and health,
environmental, insurance, regulatory, antitrust laws, ERISA and laws
relating to Taxes (as defined in Section 3.11) except to the extent
that any such non-compliance would not have a material adverse effect
on ServiceMaster and its subsidiaries taken as a whole.
4.11 No Default. Except as disclosed in the ServiceMaster SEC Documents, the
business of ServiceMaster and each of its subsidiaries is not being conducted
in default or violation of any term, condition or provision of (a) its
respective partnership agreement, certificate of incorporation or by-laws or
similar organizational documents, or (b) agreements to which ServiceMaster and
its subsidiaries are parties, excluding from the foregoing clause (b),
defaults or violations that would not have a material adverse effect on
ServiceMaster and its subsidiaries taken as a whole or would not, or would not
be reasonably likely to, materially impair the ability of ServiceMaster or
Barefoot to consummate the Offer, the Merger or the other transactions
contemplated hereby.
ARTICLE 5.0
COVENANTS
5.1 Interim Operations of Barefoot. Barefoot covenants and agrees that,
except (i) as expressly provided in this Agreement or the Merger Agreement,
(ii) with the prior written consent of ServiceMaster or (iii) as set forth on
Section 5.1 of the Disclosure Schedule, after the date hereof and prior to the
Closing Time:
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(a) the business of Barefoot and its subsidiaries, including, without
limitation, investment practices and policies, shall be conducted only
in the ordinary course of business consistent with past practice and,
each of Barefoot and its subsidiaries shall use all reasonable efforts
to preserve its business organization intact and maintain its existing
relations with material customers, suppliers, franchisees, employees,
creditors and business partners;
(b) Barefoot will not, directly or indirectly, split, combine or reclassify
the outstanding Barefoot Common Stock, or any outstanding capital stock
of any of the subsidiaries of Barefoot;
(c) neither Barefoot nor any of its subsidiaries shall: (i) amend its
certificate of incorporation or by-laws or similar organizational
documents; (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its
capital stock other than dividends paid by Barefoot's wholly-owned
subsidiaries to Barefoot or its wholly-owned subsidiaries and other
than ordinary quarterly cash dividends by Barefoot not to exceed $0.05
per share per quarter and other than an expenditure of not more than an
additional $.01 per share to redeem outstanding stock purchase rights;
(iii) issue, sell, transfer, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to
acquire, any shares of capital stock of any class of Barefoot or its
subsidiaries, other than issuances pursuant to exercise of Barefoot
Stock Options outstanding on the date hereof as disclosed in Section
1.6 hereof; (iv) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any assets that are in the aggregate material
to Barefoot and its subsidiaries taken as a whole other than sales of
investment assets in the ordinary course of business consistent with
past practice; or (v) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
(d) neither Barefoot nor any of its subsidiaries shall: (i) grant any
increase in the compensation payable or to become payable by Barefoot
or any of its subsidiaries to any officer or employee other than
scheduled annual increases in the ordinary course of business
consistent with past practice; (ii) adopt any new, or amend or
otherwise increase, or accelerate the payment or vesting of the amounts
payable or to become payable under any existing, bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other
employee benefit plan agreement or arrangement; (iii) enter into any,
or amend any existing, employment, consulting or severance agreement
with or, except in accordance with the existing written policies of
Barefoot, grant any severance or termination pay to any officer,
director or employee of Barefoot or any of its subsidiaries; (iv) make
any additional contributions to any grantor trust created by Barefoot
to provide funding for non-tax-qualified employee benefits or
compensation; or (v) provide any severance program to any subsidiary
which does not have a severance program as of the date of this
Agreement;
(e) neither Barefoot nor any of its subsidiaries shall modify, amend or
terminate any of the material Barefoot Agreements or waive, release or
assign any material rights or claims, except in the ordinary course of
business consistent with past practice;
(f) neither Barefoot nor any of its subsidiaries shall permit any material
insurance policy naming it as a beneficiary or a loss payable payee to
be canceled or terminated, except in the ordinary course of business
consistent with past practice;
(g) neither Barefoot nor any of its subsidiaries shall: (i) incur or assume
any debt except for borrowings under existing credit facilities and
except for vehicle financing in each case in the ordinary course of
business and in amounts consistent with past practice; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
person, except in the ordinary course of business
Annex A-I-22
<PAGE>
consistent with past practice; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to
wholly owned subsidiaries of Barefoot or customary loans or advances to
employees in accordance with past practice and other than as to such
matters related to Barefoot's or any of its subsidiaries' investment
portfolios in the ordinary course of business consistent with past
practice); or (iv) enter into any material commitment (including, but
not limited to, any capital expenditure or purchase of assets) other
than in the ordinary course of business consistent with past practice;
(h) neither Barefoot nor any of its subsidiaries shall change any of the
accounting principles used by it unless required by GAAP;
(i) neither Barefoot nor any of its subsidiaries shall pay, discharge or
satisfy any material claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities
or obligations, (x) reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto) of
Barefoot and its consolidated subsidiaries, (y) incurred in the
ordinary course of business consistent with past practice or (z) which
are legally required to be paid, discharged or satisfied;
(j) subject to the rights of Barefoot to terminate this Agreement pursuant
to Section 6.1(c)(1) and the obligation of Barefoot to pay
ServiceMaster the fees and expenses required by Section 7.1(b) hereof,
neither Barefoot nor any of its subsidiaries will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other material reorganization of
Barefoot or any of its subsidiaries or any agreement relating to a
Takeover Proposal (as defined in Section 5.5(c)) (other than the Offer
or the Merger) other than confidentiality agreements as provided in
Section 5.5(a);
(k) neither Barefoot nor any of its subsidiaries will engage in any
transaction with, or enter into any agreement, arrangement, or
understanding with, directly or indirectly, any of Barefoot's
affiliates, including, without limitation, any transactions,
agreements, arrangements or understandings with any affiliate or other
Person covered under Item 404 of Regulation S-K under the Securities
Act that would be required to be disclosed under such Item 404 other
than such transactions of the same general nature, scope and magnitude
as are disclosed in Barefoot SEC Documents;
(l) except upon the prior written consent of ServiceMaster, Barefoot shall
not make any Tax election; and
(m) neither Barefoot nor any of its subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention
to do any of the foregoing.
5.2 Access to Information.
(a) Barefoot shall (and shall cause each of its subsidiaries to) afford to
the officers, employees, accountants, counsel, financing sources and
other representatives of ServiceMaster, reasonable access during the
period prior to the Closing Time, to all of its and its subsidiaries'
properties, books, contracts, commitments and records (including any
Tax Returns or other Tax related information pertaining to Barefoot and
its subsidiaries) and, during such period, Barefoot shall (and shall
cause each of its subsidiaries to) furnish promptly to ServiceMaster
(a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the
requirements of the federal securities laws and (b) all other
information concerning its business, properties and personnel as
Annex A-I-23
<PAGE>
ServiceMaster may reasonably request (including any Tax Returns or other
Tax related information pertaining to Barefoot and its subsidiaries).
ServiceMaster shall access such information in a manner reasonably
calculated not to cause any unnecessary disruption in the Company's
business. ServiceMaster will use such information only for purposes of
the Offer and the Merger and shall disclose such information only to the
extent ServiceMaster reasonably concludes such disclosure should be made
in connection with such purposes or for such other purposes as are
permitted by the Confidentiality Agreement dated November 11, 1996
between ServiceMaster and Barefoot.
(b) ServiceMaster shall afford Barefoot and its advisors such access to
information about ServiceMaster as Barefoot and its advisors reasonably
deem necessary for purposes of due diligence investigations relating to
the transactions contemplated by this Agreement and for disclosures to
Barefoot's stockholders relating to such transactions. Barefoot shall
not use or disclose any nonpublic information obtained from
ServiceMaster except for the purposes indicated in the preceding
sentence.
5.3 Consents and Approvals. Each of Barefoot, ServiceMaster and MergerSub
will take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby which actions shall include, without
limitation, furnishing all information in connection with approvals of or
filings with any Governmental Entity, including, without limitation, any
schedule, or reports required to be filed with the SEC, and will promptly
cooperate with and furnish information to each other in connection with any
such requirements imposed upon any of them or any of their subsidiaries in
connection with this Agreement and the transactions contemplated hereby. Each
of Barefoot, ServiceMaster and MergerSub will, and will cause its subsidiaries
to, take all reasonable actions necessary to obtain any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third party, required to be obtained or made
by ServiceMaster, MergerSub, Barefoot or any of their subsidiaries in
connection with the Offer or the Merger or the taking of any action
contemplated thereby or by this Agreement.
5.4 Severance and Stay Protection Plan. At or before the Closing Time,
Barefoot shall adopt a severance and stay protection plan, the substantive
terms of which are set forth on Annex 2 hereof. From and after the Closing
Time, ServiceMaster and MergerSub shall honor such plan in accordance the
terms thereof. Except to the extent otherwise permitted by Barefoot's chief
executive officer or chief financial officer, ServiceMaster shall not
communicate with any employees of Barefoot or any Barefoot subsidiary about
future employment relationships or terms prior to the Closing.
5.5 No Solicitation.
(a) Barefoot (and its subsidiaries and affiliates) shall not, and Barefoot
(and its subsidiaries and affiliates) will use their best efforts to
ensure that their respective officers, directors, employees, investment
bankers, attorneys, accountants and other agents do not, directly or
indirectly: (i) initiate, solicit or encourage, or (except to the
extent permitted by clause (ii) below) take any action to facilitate
the making of, any offer or proposal which constitutes or is reasonably
likely to lead to any Takeover Proposal (as defined below) of Barefoot
or any subsidiary or an inquiry with respect thereto, or, (ii) in the
event of an unsolicited bona fide Takeover Proposal for Barefoot or any
subsidiary of Barefoot, engage in negotiations or discussions with, or
provide any information or data to, any corporation, partnership,
person or other entity or group (other than ServiceMaster or any of its
affiliates or representatives) ("Person") relating to any Takeover
Proposal; except in the case of clause (ii) above, to the extent that
Barefoot's Board of Directors reasonably concludes, after having
received the advice of outside legal counsel to Barefoot and the advice
of Barefoot's financial advisor, and after having had the opportunity
to discuss the Takeover Proposal with such person making
Annex A-I-24
<PAGE>
the Takeover Proposal (which discussions shall not be deemed to be a
violation of this Agreement) that such Takeover Proposal is reasonably
likely to result in consideration per Share in excess of the Offer
Consideration and the failure to engage in such negotiations or
discussions or provide such information is reasonably likely to result
in a breach of the Board of Directors' fiduciary duties under applicable
law; provided, however, that notwithstanding the foregoing, Barefoot's
Board of Directors may take, and disclose to Barefoot's stockholders a
position contemplated by Rules for 14d-9 and 14e-2 promulgated under the
Exchange Act with respect to any tender offer for shares of capital
stock of Barefoot. Prior to furnishing any information to any such
Person making a Takeover Proposal, Barefoot shall have obtained a
confidentiality agreement from such Person containing confidentiality
provisions substantially similar to the confidentiality provisions in
the Confidentiality Agreement. Barefoot shall notify ServiceMaster of
any such offers, proposals, inquiries or Takeover Proposals (including,
without limitation, the material terms and conditions thereof and the
identity of the Person making it), within 24 hours of the receipt
thereof, and shall provide ServiceMaster with a copy of any written
Takeover Proposal or amendments or supplements thereto, and shall
thereafter inform ServiceMaster on a reasonable basis of the status of
any discussions or negotiations with such a third party, and any
material changes to the terms and conditions of such Takeover Proposal,
and shall promptly give ServiceMaster a copy of any information
delivered to such Person which has not previously been reviewed by
ServiceMaster.
(b) Barefoot hereby represents and warrants to ServiceMaster that Barefoot,
its subsidiaries and affiliates, and their respective officers,
directors, employees, investment bankers, attorneys, accountants and
other agents, are not presently, and have not since November 1, 1996,
engaged in or participated in any discussions or negotiations
whatsoever with any person, entity or "group" (as that term is defined
in Section 13(d)(3) of the Exchange Act) with respect to any Takeover
Proposal relating to Barefoot.
(c) As used in this Agreement, "Takeover Proposal" shall mean any tender or
exchange offer involving the capital stock of Barefoot, any proposal
for a merger, consolidation or other business combination involving
Barefoot, any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the business or assets
of, Barefoot or any subsidiary of Barefoot, any proposal or offer with
respect to any recapitalization or restructuring with respect to
Barefoot or any subsidiary of Barefoot or any proposal or offer with
respect to any other transaction similar to any of the foregoing with
respect to Barefoot or any subsidiary of Barefoot other than pursuant
to the transactions to be effected pursuant to this Agreement.
5.6 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its diligent efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable, whether under applicable laws and
regulations or otherwise, or to remove any injunctions or other impediments or
delays, legal or otherwise, to consummate and make effective the Offer and the
Merger and the other transactions contemplated by this Agreement; provided
however, the foregoing shall not require any party to waive or modify any
condition or provision hereof.
5.7 Barefoot Franchises. As soon as practicable after the Closing Time
ServiceMaster shall make every effort to provide to each Barefoot franchisee
the option to do any of the following: (i) to sell such franchise to Barefoot
on terms and conditions as the franchisee and ServiceMaster may agree; (ii) to
continue to operate Barefoot franchise in accordance with existing agreements
between the franchisee and Barefoot (very likely to be in competition with
other affiliates of ServiceMaster engaged in the lawn care business); or (iii)
to terminate the existing agreement between the franchisee and Barefoot and to
operate its business independently without use of Barefoot trade names,
service marks or similar rights.
Annex A-I-25
<PAGE>
5.8 Publicity. So long as this Agreement is in effect, neither Barefoot nor
ServiceMaster nor their affiliates shall issue or cause the publication of any
press release or other public statement or announcement with respect to this
Agreement or the transactions contemplated hereby without prior consultation
with the other party, except as may be reasonably required by law, reasonably
necessary for compliance with the Securities Act or Exchange Act or by
obligations pursuant to any listing agreement with a national securities
exchange, and in such case shall use all reasonable efforts to consult with
the other party prior to such release or announcement being issued.
5.9 Notification of Certain Matters. Barefoot shall give prompt notice to
ServiceMaster and MergerSub, and ServiceMaster and MergerSub shall give prompt
notice to Barefoot, of (a) the occurrence, or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date and (b) any material failure
of Barefoot, MergerSub or ServiceMaster, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant
to this Section 5.9 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.10 Directors' and Officers' Insurance and Indemnification. ServiceMaster
agrees that at all times after the Closing Time, it shall indemnify (and
advance expenses to) each person who is now, or has been at any time prior to
the date hereof, a director or officer of Barefoot or of any of Barefoot's
subsidiaries (individually an "Indemnified Party" and collectively the
"Indemnified Parties"), to the same extent and in the same manner as is now
provided in the respective charters or by-laws of Barefoot and such
subsidiaries or otherwise in effect on the date hereof, with respect to any
claim, liability, loss, damage, cost or expense (whenever asserted or claimed)
("Indemnified Liability") based in whole or in part on, or arising in whole or
in part out of, any matter existing or occurring at or prior to the Closing
Time. ServiceMaster shall, or shall cause Barefoot to, maintain in effect for
not less than six (6) years after the Closing the current policies of
directors' and officers' liability insurance maintained by Barefoot and its
subsidiaries on the date hereof with respect to matters existing or occurring
at or prior to the Closing Time (provided that ServiceMaster may substitute
therefor policies having at least the same coverage and containing terms and
conditions which are no less advantageous to the persons currently covered by
such policies and with carriers reasonably comparable to Barefoot's existing
carriers in terms of creditworthiness). The insurance required by the
preceding sentence shall be in an amount at any particular time equal to the
greater of (i) the amount of coverage provided by Barefoot's insurance on the
date hereof or (ii) the amount of coverage provided to ServiceMaster's own
directors at the particular time. Promptly after receipt by an Indemnified
Party of notice of the assertion (an "Assertion") of any claim or the
commencement of any action against him or her in respect to which indemnity or
reimbursement may be sought against ServiceMaster, Barefoot, the Surviving
Corporation or a subsidiary of Barefoot or the Surviving Corporation
("Indemnitors") hereunder, such Indemnified Party shall notify any Indemnitor
in writing of the Assertion, but the failure to so notify any Indemnitor shall
not relieve any Indemnitor of any liability it may have to such Indemnified
Party hereunder except where such failure shall have materially prejudiced
Indemnitor in defending against such Assertion. No Indemnified Party shall
settle any Assertion without the prior written consent of ServiceMaster. The
provisions of this Section 5.10 are intended for the benefit of, and shall be
enforceable by, the respective Indemnified Parties.
5.11 Existing Stockholder Agreements and Registration Rights
Agreements. Barefoot will use its best efforts to terminate or cause to be
terminated, prior to the Closing Time, any stockholder agreements or
registration rights agreements with or among any of its security holders.
Barefoot will suspend all sales under any shelf registration statement at
least two business days prior to the Expiration Date and will cause any
registration rights agreement not to have any application to any securities of
ServiceMaster or its subsidiaries following the Closing Time.
Annex A-I-26
<PAGE>
5.12 Stock Exchange Listing. ServiceMaster shall cause ServiceMaster Shares
issued pursuant to the Offer to be approved for listing on the NYSE prior to
the Closing.
5.13 Resignations/Replacement of Directors and Officers. Barefoot shall
cause such officers and directors of Barefoot and its subsidiaries as
ServiceMaster may request to resign their positions as such at the Closing
Time and/or shall arrange for the election or appointment as officers and
directors of Barefoot and its subsidiaries, at the Closing Time, of the
persons designated by ServiceMaster. The instruments effecting the foregoing
resignations, appointments and/or elections to act are herein referred to as
the "Director and Officer Actions."
5.14 HSR. Each of Barefoot and ServiceMaster shall as soon as practicable,
file Notification and Report Forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and shall use its best efforts to cooperate and
respond as promptly as practicable to all inquiries received from the FTC or
the Antitrust Division for additional information or documentation.
5.15 Material Consents. Between the date of this Agreement and the Closing
Date, Barefoot and ServiceMaster and each of their respective subsidiaries
shall in good faith use their reasonable best efforts to obtain all consents
and approvals of all lenders, lessors, franchisees, vendors, customers, and
other persons necessary to permit the Offer and the Merger and other
transactions contemplated by this Agreement to be consummated without
violating any loan agreement, lease or other material contract to which
Barefoot, ServiceMaster, or any of their respective subsidiaries is a party or
by which Barefoot, ServiceMaster, or any of their respective subsidiaries is
bound.
5.16 Stock Purchase Rights. As of the date of this Agreement there are
outstanding a number of Stock Purchase Rights equal to the aggregate number of
Shares issued and outstanding, which rights are exercisable for shares of
Barefoot's Series A Junior Participating Preferred Stock pursuant to the terms
of the Rights Agreement dated as of April 11, 1995 between Barefoot and
National City Bank (the "Rights Agreement"). The Board of Directors of
Barefoot has taken such action, and will take such additional action, as is
required to prevent the Stock Purchase Rights from becoming exercisable by
reason of this Agreement, the Merger Agreement, the Offer or the Merger.
5.17 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to cooperate with each other and
to use its reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, in each case consistent with the fiduciary duties
of their respective Boards of Directors, all things necessary, proper or
advisable (i) under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as soon as
reasonably practicable, including to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and all
actions necessary to comply with and to permit the Offer and Merger to proceed
under Section 1707.041 of the Ohio Revised Code and (ii) to lift any
injunction or other legal bar to the Offer or the Merger as soon as reasonably
practicable; provided, however, that nothing in this Section or elsewhere in
this Agreement shall require any party hereto to incur any expense or make any
commitment in connection with the transactions contemplated hereby which in
its reasonable judgement is not warranted under the circumstances (including
but not limited to any divestiture of a significant asset or acceptance of any
material restriction on the operations of any party in order to obtain any
waiver, consent or approval required by this Agreement). The preceding proviso
shall not limit Barefoot's obligation under this paragraph with respect to any
expense, commitment or action which would only apply or become effective if
the Offer is closed and which shall be approved by ServiceMaster.
Annex A-I-27
<PAGE>
ARTICLE 6.0
TERMINATION
6.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement and the Merger Agreement may be terminated and
Offer and the Merger contemplated herein may be abandoned at any time prior to
the Closing:
(a) By the mutual consent of the Board of Directors of ServiceMaster and
the Board of Directors of Barefoot;
(b) By either of the Board of Directors of Barefoot or the Board of
Directors of ServiceMaster:
(1) if the Offer shall not have been commenced by February 15, 1997;
provided, however, that the right to terminate this Agreement under
this Section 6.1(b)(1) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
primary and but-for cause of the failure of the Offer to have been
commenced by February 15, 1997; or
(2) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their diligent efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting the Offer or the Merger or any material aspect of Offer
or the Merger and such order, decree, ruling or other action shall
have become final and non-appealable;
(c) By the Board of Directors of Barefoot:
(1) if the Board of Directors of Barefoot shall have (A) withdrawn, or
modified or changed in a manner adverse to ServiceMaster its
approval or recommendation of this Agreement, the Offer or the
Merger as a result of a Takeover Proposal (other than the Offer or
the Merger), in order to approve a Takeover Proposal (other than
the Offer or the Merger), or to permit Barefoot to execute a
definitive agreement relating to a Takeover Proposal, and (B)
determined, after having received the advice of outside legal
counsel to Barefoot and the advice of Barefoot's financial advisor,
that such Takeover Proposal is for consideration per Share in
excess of the Offer Consideration and the failure to take such
action as set forth in the preceding clause (A) would result in a
breach of the Board of Directors' fiduciary duties under applicable
law; provided, however, that Barefoot shall have given
ServiceMaster forty-eight (48) hours advance notice of any
termination pursuant to this Section 6.1(c)(1) and that Barefoot
shall have paid ServiceMaster the fees and expenses required by
Section 7.1(b) hereof;
(2) if ServiceMaster or MergerSub breaches or fails in any material
respect to perform or comply with any of its material covenants and
agreements contained herein; provided, however, that if any such
breach is curable by the breaching party through the exercise of
the breaching party's diligent efforts and for so long as the
breaching party shall be so using diligent efforts to cure such
breach, Barefoot may not terminate this Agreement pursuant to this
Section 6.1(c)(2); or
(3) if ServiceMaster breaches any of its representations or warranties
and such breach (i) is reasonably likely to have a material adverse
effect upon ServiceMaster and its subsidiaries taken as a whole and
(ii) has not been incorporated into the prospectus provided to
Barefoot shareholders.
Annex A-I-28
<PAGE>
(d) By the Board of Directors of ServiceMaster:
(1) if Barefoot (x) breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties
in any material respect and such breach would have or would be
reasonably likely to have a material adverse effect on Barefoot and
its subsidiaries or create a situation in which any of the
conditions set forth in Annex 1 would not reasonably be expected to
be satisfied prior to Closing; provided, however, that if any such
breach is curable by Barefoot through the exercise of Barefoot's
diligent efforts and for so long as Barefoot shall be so using
diligent efforts to cure such breach, ServiceMaster may not
terminate this Agreement pursuant to this Section 6.1(d)(1); or
(2) if the Board of Directors of Barefoot shall have withdrawn, or
modified or changed in a manner adverse to ServiceMaster its
approval or recommendation of this Agreement, the Offer or the
Merger or shall have recommended a Takeover Proposal or other
business combination, or Barefoot shall have entered into an
agreement in principle (or similar agreement) or definitive
agreement providing for a Takeover Proposal or other business
combination with a person or entity other than ServiceMaster,
MergerSub or their subsidiaries (or the Board of Directors of
Barefoot resolves to do any of the foregoing by formal action); or
(3) by ServiceMaster if the Offer shall have expired or been terminated
without any Shares being purchased thereunder as a result of the
occurrence of any event that would result in the failure to satisfy
any of the conditions set forth in Annex 1; or
(4) as provided in Annex 3.
Such right of termination shall be exercised by written notice of termination
given by the terminating party to the other parties hereto in the manner
hereinafter provided.
6.2 Effect of Termination. If this Agreement is validly terminated by
Barefoot or ServiceMaster pursuant to Section 6.1, this Agreement and the
Merger Agreement will forthwith become null and void and there will be no
liability or obligation on the part of either Barefoot, ServiceMaster or
MergerSub (or any of their respective representatives or affiliates) in
respect of this Agreement or the Merger Agreement, except that this Section
6.2 and Section 7.1 shall continue to apply after such termination. Without
limiting by implication the generality of the preceding sentence,
ServiceMaster shall not be obligated to continue the Offer after any
termination of this Agreement pursuant to any provision in Section 6.1. No
termination of this Agreement or the Merger Agreement shall impair or
terminate the rights or obligations of ServiceMaster or Barefoot under the
Confidentiality Agreement to which they are parties.
ARTICLE 7.0
MISCELLANEOUS
7.1 Fees and Expenses.
(a) Except as otherwise set forth in this Section 7.1, all costs and
expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by
the party incurring such expenses. All legal fees and accounting fees
incurred by Barefoot shall be based upon actual time spent on the
transactions contemplated by this Agreement and on hourly rates
consistent with past practices.
Annex A-I-29
<PAGE>
(b) In the event
(1) the Board of Directors of Barefoot shall terminate this Agreement
pursuant to subsection 6.1(c)(1) hereof, or
(2) the Board of Directors of ServiceMaster shall terminate this
Agreement pursuant to subsection 6.1(d)(2),
then Barefoot shall pay $9.3 million in cash to ServiceMaster.
(c) In the event ServiceMaster shall not consummate the offer and shall be
entitled to take such action because of the failure of any of the
conditions specified in clause (a), (b), (h), (k), or (l) in Annex 1 or
because rights to purchase Barefoot shares representing more than 1% of
Barefoot's outstanding common stock would remain outstanding after the
Closing then Barefoot shall pay $7 million in cash to ServiceMaster.
(d) In the event ServiceMaster shall be entitled payment under the
provisions of both 7.1(b) and Section 7.1(c), then the amount of the
payment owed by Barefoot to ServiceMaster shall be the amount specified
in Section 7.1(b) and ServiceMaster shall not have the right to obtain
any additional payment under Section 7.1(c).
(e) The payment specified under Section 7.1(b) or Section 7.1(c) shall be
due on the date (the "due date") upon which Barefoot shall receive
written request from ServiceMaster for such payment after the
occurrence of the event specified in such Section. If Barefoot shall
for any reason fail to make the payment specified under Section 7.1(b)
or Section 7.1(c) on its due date, then Barefoot shall pay
ServiceMaster on demand interest at 300 basis points in excess of the
prime rate (as reported in the Wall Street Journal) on the amount
remaining unpaid from that due date until such payment shall be
received by ServiceMaster and shall also reimburse ServiceMaster for
all attorney's fees and other expenses which ServiceMaster shall
reasonably incur to enforce its rights to such payment.
7.2 ServiceMaster Reincorporating Merger. Barefoot understands that: (i)
ServiceMaster's shareholders have previously approved a merger described in a
proxy statement/prospectus dated December 11, 1991 (the "Reincorporation Proxy
Statement") pursuant to which (i) ServiceMaster will be replaced as the parent
company for the ServiceMaster enterprise by ServiceMaster Incorporated of
Delaware ("ServiceMaster Incorporated") and each ServiceMaster partnership
share outstanding immediately prior to the merger will be converted into a
share of common stock issued by ServiceMaster Incorporated. Barefoot
understands that to the extent that Barefoot Stockholders acquire any
ServiceMaster Shares pursuant to the Offer that such ServiceMaster Shares
shall be subject to the pre-approval of the Reincorporating Merger by
ServiceMaster's shareholders pursuant to the Reincorporation Proxy Statement.
7.3 Amendment and Modification. This Agreement may not be amended except by
an instrument in writing approved by the parties to this Agreement and signed
on behalf of each of the parties hereto.
7.4 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall
survive the consummation of the Merger.
7.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or sent by an overnight courier
Annex A-I-30
<PAGE>
service, such as Federal Express, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to ServiceMaster or MergerSub, to:
ServiceMaster Limited Partnership One ServiceMaster Way Downers
Grove, Illinois 60515 Attention: Chief Financial Officer Fax: 630
271-5870
with a copy to:
Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601
Attention: Robert H. Kinderman Fax: 312 861-2200
(b) if to Barefoot, to:
Barefoot Inc. 450 West Wilson Bridge Road Worthington, Ohio 43085
Attention: Patrick Norton Fax: 614 846-5142
with a copy to:
Vorys, Sater, Seymour and Pease 52 East Gay Street Columbus, Ohio
43215 Attention: Roger E. Lautzenhiser Fax: 614 464-6350
Either party may change the address to which notices and other communications
hereunder are to be delivered by giving the other party notice in the manner
herein set forth.
7.6 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation". The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date written in the first
paragraph of this Agreement. As used in this Agreement, the term
"affiliate(s)" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
7.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
7.8 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement, the Merger Agreement and the Confidentiality
Agreement (including the exhibits hereto and the documents
Annex A-I-31
<PAGE>
and the instruments referred to herein and therein): (a) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, and (b)
except as provided in Section 5.10 are not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
7.9 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to
be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
7.10 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties, except that ServiceMaster may assign, in its sole discretion,
any or all of its rights, interests and obligations hereunder to ServiceMaster
or to any direct or indirect wholly owned subsidiary of ServiceMaster;
provided, however, that no such assignment shall relieve ServiceMaster from
any of its obligations hereunder. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
7.11 No Strict Construction. No rule of strict construction, rule resolving
ambiguities against the person who drafted the provision giving rise to such
ambiguities, or other such rule of interpretation shall be applied against any
party with respect to this Agreement.
7.12 Specific Performance. Each party to this Agreement shall have the right
to enforce each obligation of the other party under this Agreement by specific
performance or by injunctive relief.
7.13 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
* * * *
IN WITNESS WHEREOF, ServiceMaster, MergerSub and Barefoot have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
SERVICEMASTER LIMITED PARTNERSHIP
By ServiceMaster Management
Corporation
Managing General Partner
/s/ Carlos H. Cantu
By: _____________________________
Carlos H. Cantu
Name: ___________________________
President and Chief
Executive Officer
Title: __________________________
SERVICEMASTER ACQUISITION
CORPORATION
/s/ Carlos H. Cantu
By: _________________________________
Carlos H. Cantu
Name: _______________________________
President
Title: ______________________________
BAREFOOT INC.
/s/ Patrick J. Norton
By: _________________________________
Patrick J. Norton
Name: _______________________________
Chief Executive Officer
Title: ______________________________
Annex A-I-32
<PAGE>
ANNEX 1 TO THE ACQUISITION AGREEMENT
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Agreement or the Offer, and
except as expressly limited below, ServiceMaster shall not be required to
purchase any Shares tendered, if, prior to the time of purchase of any such
Shares, any of the following events (each, an "Event") shall have occurred,
(each of paragraphs (a) through (n) providing a separate and independent
condition to ServiceMaster's obligations pursuant to the Agreement and the
Offer):
(a) fewer than the Minimum Number of all outstanding Shares are validly
tendered and not withdrawn prior to 12:00 midnight, New York City Time
on the Expiration Date;
(b) except as contemplated by the provisions of this Agreement Barefoot or
any subsidiary of Barefoot shall have authorized or recommended, or
shall have announced an intention to authorize or, recommend, or shall
have entered into an agreement in principle with respect to, any
merger, consolidation or business combination, any acquisition of a
material amount of assets or securities, any disposition of a material
amount of assets or securities or any material change in its
capitalization or any release or relinquishment of any material
contract rights not in the ordinary course of business;
(c) an injunction or other order shall have been entered and remain in
effect in any action or proceeding before any court or governmental
agency or other regulatory or administrative agency or commission,
domestic or foreign, based upon any provision of the Offer (i) making
the acceptance for payment of, or purchase or payment for, the Shares
pursuant to the Offer or the Merger illegal, or resulting in a material
delay in the ability of ServiceMaster to accept for payment or pay for
some or all of the Shares, (ii) imposing material limitations on the
ability of ServiceMaster effectively to acquire or hold or to exercise
full rights of ownership of the Shares acquired by it, including, but
not limited to, the right to vote the Shares purchased by it on all
matters properly presented to the stockholders of Barefoot, (iii)
imposing material limitations on the ability of either ServiceMaster
(so long as such injunction or other order is related to the Offer or
the Merger) or Barefoot to continue effectively all or any material
portion of its respective business as heretofore conducted or to
continue to own or operate effectively all or any material portion of
its respective assets as heretofore owned or operated or (iv) to the
effect that the Offer or the Merger is violative of any applicable law;
(d) there shall have been any law, statute, rule or regulation, domestic or
foreign, promulgated or proposed after the date hereof that, directly
or indirectly, results or may be reasonably anticipated to result in
any of the consequences referred to in paragraph (c) above (other than
any state law, statute, rule or regulation whose applicability can be
avoided by not extending the Offer to residents of such state provided
that in the aggregate not more than 2% of the outstanding Shares on the
date of the Closing shall be owned of record by residents of any such
state);
(e) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on the New York Stock Exchange or
in the over-the-counter market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States, (iii) the commencement of war involving the United
States, or (iv) any limitation not in existence as of the date of the
Agreement by any governmental authority, or any other event not in
existence as of the date of the Agreement, which will materially limit
the extension of credit by banks or other lending institutions in the
United States;
Annex A-I-33
<PAGE>
(f) the representations and warranties of Barefoot contained herein shall
not be true and correct at and as of the time of each purchase under
the Offer as if made at and as of such time except for matters which,
individually or in the aggregate, do not and will not have a material
adverse effect on the business, operation or financial condition of
Barefoot and its subsidiaries taken as a whole and the ability of
Barefoot to perform its obligations under the Merger Agreement;
(g) all material terms, agreements and conditions of the Agreement and the
Merger Agreement to be complied with or performed or fulfilled by
Barefoot at or prior to any purchase pursuant to the Offer shall not
have been complied with, performed and fulfilled in all material
respects;
(h) Barefoot's Board of Directors shall have modified or amended in any
respect its recommendation of the Offer and the Merger to the
stockholders of Barefoot in any manner not approved by ServiceMaster or
shall have resolved to do so by formal action;
(i) Barefoot and ServiceMaster shall have reached an agreement that the
Offer shall be terminated;
(j) any waiting period (and any extension thereof) applicable to the
consummation of the Offer under the HSR Act shall not have expired or
been terminated;
(k) the rights under the Rights Agreement shall not have been redeemed or
made inapplicable to the Offer, the separation of outstanding Stock
Purchase Rights from the Shares shall have occurred, or the Stock
Purchase Rights shall have become exercisable;
(l) any director of Barefoot or its subsidiaries (as requested by
ServiceMaster) shall have failed to resign effective as of the
consummation of the Offer;
(m) the conditions precedent specified in Section 1.6 or 1.8 of the
Acquisition Agreement shall not be satisfied; or
(n) a stop order suspending effectiveness of the Registration Statement
shall have been issued or a proceeding for that purpose shall have been
initiated or threatened by the SEC;
which in the reasonable judgment of ServiceMaster, in any such case and
regardless of the circumstances (including any action or inaction by
ServiceMaster or any of its affiliates) giving rise to any such condition,
makes it inadvisable to proceed with the Offer or with such acceptance for
payment or payment for the Shares.
The foregoing conditions are for the benefit of ServiceMaster and may be
asserted by ServiceMaster regardless of the circumstances giving rise to any
such condition and, subject to the terms and conditions of the Acquisition
Agreement, may be waived by ServiceMaster, in whole or in part, at any time
and from time to time, in the sole discretion of ServiceMaster. The failure by
ServiceMaster at any time to exercise any of the foregoing rights will not be
deemed a waiver of any other right and each right will be deemed an ongoing
right which may be asserted at any time and from time to time. Notwithstanding
the fact that ServiceMaster reserves the right to assert the occurrence of a
condition following acceptance for payment but prior to payment in order to
delay or cancel its obligation to pay for properly tendered Shares,
ServiceMaster will either promptly pay for such Shares or promptly return such
Shares.
Each term which is defined in the Acquisition Agreement has the same meaning
whenever it is used in this Annex 1 as the meaning it is given in the
Acquisition Agreement.
Annex A-I-34
<PAGE>
ANNEX 2 TO THE ACQUISITION AGREEMENT
SEVERANCE AND STAY PAY BENEFITS
The severance and stay protection plan benefits as adopted by Barefoot shall
be as follows:
A. Severance: one week of compensation for each year of service with
Barefoot, provided that the employee leaves in good standing.
B. Stay pay: additional compensation of four, six or eight weeks, as
applicable, to employees who are scheduled to remain for extended
periods to assist with the transaction. The specific amount of stay pay
for an employee shall be determined by the employee's position. These
benefits may be modified based on individual circumstances and/or
critical value.
C. Vacation: vested vacation shall be paid in addition to items A and B.
Annex A-I-35
<PAGE>
ANNEX 3 TO THE ACQUISITION AGREEMENT
COMPLETION OF DUE DILIGENCE
1. ServiceMaster shall have the right to continue its due diligence
investigation of Barefoot after the date hereof. Such investigation may
include (but is not limited to) on-site inspections and environmental audits
of any and all branch facilities and access to branch records; access to
Barefoot branch and key home office personnel; access to legal counsel for
review of pending or threatened litigation (if any); review of accounting and
financial records (including all detail profit and cost center statements for
1995 and 1996 and detailed balance sheets); and review of outstanding
contractual commitments in excess of $10,000 (including chemical and supply
purchases, capital expenditures, software development, franchise sales, direct
mail and other advertising expenditures).
2. Subject to paragraphs 3 and 4, ServiceMaster shall have the right to
terminate this Agreement at any time on or before December 31, 1996 if the due
diligence investigation conducted pursuant to paragraph 1 discloses any one or
more of the following conditions:
(a) Unreserved environmental exposures (whether or not Superfund-related)
at sites of current or former Barefoot facilities or unreserved
exposures attributable to other activities of Barefoot (for example,
improper chemical disposal activities);
(b) Other unrecorded or understated liabilities or overstated assets;
(c) Material differences between the customer base (after allowing for
normal year end cancellations) as reflected in branch records compared
to the reported revenue base of Barefoot.
3. Notwithstanding the disclosure of facts of a nature described in items
(a), (b) and/or (c) in paragraph 2, such facts shall give ServiceMaster the
right to terminate this Agreement only if--
In the case of Item (a) and Item (b) (taken together), the probable loss
exposure, net of recorded reserves, and the extent of the under recording
of liabilities and the overstatement of assets is, in ServiceMaster's
reasonable judgment, likely to exceed $2,000,000 in total. The basis for
such reasonable judgment shall be set forth in a written statement which
shall be submitted to Barefoot on or before December 19, 1996 and which
shall set forth the amount of the expected loss, under recording and/or
overstatement, as the case may be, and the reasons why such matters are
expected to be of such magnitude.
In the case of Item (c), differences between the customer base as reflected
in branch records and Barefoot's reported revenue base will be considered
"material" only if the difference would have an aggregate adverse impact on
the annual pre-tax profits of Barefoot of more than $1,000,000. The details
of such adverse impact shall be set forth in a written statement which
shall be submitted to Barefoot on or before December 19, 1996.
4. If ServiceMaster submits one or more statements to Barefoot pursuant to
paragraph 3, Barefoot shall have five business days to respond to such
statement(s) before ServiceMaster's right to terminate this Agreement shall
become final. During such period, senior executives of ServiceMaster and
Barefoot shall mutually review such statements with a view to determining the
correctness thereof and whether the basis or bases for ServiceMaster's
termination right under this Annex 3 in fact exists. If, by the end of such
period, ServiceMaster is not in good faith satisfied that such basis or bases
do not in fact exist, then ServiceMaster shall have the right to terminate
this Agreement without any obligation to commence the Offering and without
liability of any kind to Barefoot, provided that such right of termination
shall expire and shall not be exercisable unless ServiceMaster shall provide
Barefoot with written notice of ServiceMaster's exercise of such right on or
before December 31, 1996.
Annex A-I-36
<PAGE>
ANNEX 4 TO THE ACQUISITION AGREEMENT
EXCERPTS FROM BAREFOOT BOARD RESOLUTIONS APPROVING THE OFFER AND THE MERGER
BOARD OF DIRECTORS OF BAREFOOT INC.
RESOLVED, that the Transactions, as reflected in the Acquisition Agreement
and the Merger Agreement, are deemed, in the opinion of this Board of
Directors, to be in the best interests of the Corporation and its stockholders
and to be fair to the stockholders of the Corporation; and that the Board of
Directors does hereby recommend that the stockholders of the Corporation
accept the Offer, tender their shares of common stock of the Corporation
pursuant to the Offer and, if required by applicable law, approve, adopt and
accept the Merger Agreement; provided, however, that the Board's determination
that the Transactions are in the best interests of the Corporation's
stockholders and are fair to the stockholders of the Corporation, and its
recommendation that the stockholders of the Corporation accept the Offer and
tender their shares of common stock of the Corporation pursuant to the Offer
are based on and subject to the assumptions and limitations regarding the
ServiceMaster Share price contained in the opinion of Robert W. Baird & Co.
Incorporated dated December 4, 1996.
Annex A-I-37
<PAGE>
ANNEX A-II--THE MERGER AGREEMENT
PLAN AND AGREEMENT OF MERGER
BY AND AMONG
SERVICEMASTER LIMITED PARTNERSHIP
(A DELAWARE LIMITED PARTNERSHIP)
SERVICEMASTER ACQUISITION CORPORATION
(A DELAWARE CORPORATION)
AND
BAREFOOT INC.
(A DELAWARE CORPORATION)
DECEMBER 5, 1996
<PAGE>
PLAN AND AGREEMENT OF MERGER
This PLAN AND AGREEMENT OF MERGER, dated as of December 5, 1996, is entered
into by and among ServiceMaster Limited Partnership ("ServiceMaster"), a
Delaware limited Partnership, ServiceMaster Acquisition Corporation (the
"Merger Sub"), a Delaware corporation and wholly-owned indirect subsidiary of
ServiceMaster and Barefoot Inc. ("Barefoot"), a Delaware corporation.
RECITALS
Simultaneous with the execution of this Agreement, the parties hereto have
entered into an Acquisition Agreement which provides subject to the terms and
conditions specified therein that ServiceMaster will make a tender offer (the
"Offer") for all of the issued and outstanding shares of Barefoot in which
ServiceMaster will pay the Offer Consideration (as defined in Acquisition
Agreement) for each Share tendered. The term "Share" as used in this Agreement
means a share of Barefoot's common stock as constituted prior to the
consummation of the Merger provided for by this Agreement.
The respective boards of directors of ServiceMaster, MergerSub and Barefoot
have determined that it is advisable for MergerSub to be merged with and into
Barefoot (the "Merger") on the terms prescribed in this Agreement. The Merger
is intended to (i) convert all Shares not tendered in the Offer into an amount
of cash (herein called the "Merger Price") exactly equal to the Cash
Consideration paid under the Acquisition Agreement for the Shares acquired by
means of the Offer and (ii) convert Barefoot into a wholly-owned subsidiary of
ServiceMaster. The parties have entered into this Agreement to prescribe terms
for the Merger. Each term which is defined in the Acquisition Agreement and is
not given a different meaning in this Agreement has the same meaning in this
Agreement as the term is given in the Acquisition Agreement.
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3), in
accordance with this Agreement and the Delaware General Corporation Law, as
amended (the "Delaware Law"), MergerSub shall be merged with and into
Barefoot, the separate existence of MergerSub (except as may be continued by
operation of law) shall cease, and Barefoot shall continue as the surviving
corporation. Barefoot, in its capacity as the surviving corporation in the
Merger, is hereinafter sometimes referred to as the "Surviving Corporation."
Barefoot and MergerSub are sometimes referred to collectively as the
"Constituent Corporations", or individually as a "Constituent Corporation."
1.2 Effect of the Merger. The Surviving Corporation shall at and after the
Effective Time possess all the rights, privileges, immunities, and franchises,
as well of a public and of a private nature, of the Constituent Corporations
and all property, real, personal and mixed, and all debts due on whatever
account, and all other causes of action, and all and every other interest, or
belonging to or due to each of the Constituent Corporations, shall be taken
and deemed to be transferred to and vested in the Surviving Corporation
without further act or deed, and the title to any real estate, or any interest
thereto, vested in any of the Constituent Corporations, shall not revert or be
in any way impaired by reason of the Merger; and the Surviving Corporation
shall henceforth be responsible and liable for all the obligations and
liabilities of each of the Constituent Corporations, and any claim existing or
action or proceeding pending by or against any of the Constituent Corporations
may be prosecuted to judgment as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place, all with the effect set
forth in Sections 259, 260 and 261 of the Delaware Law.
Annex A-II-1
<PAGE>
The authority of the officers of MergerSub shall continue with respect to the
due execution thereof or conveyance and other documents where the execution
thereof is required or convenient to comply with any provision of the Delaware
Law, of any contract to which MergerSub was a party or the plan of merger
contained herein.
1.3 Effective Time. As soon as is reasonably practicable after the
stockholders of Barefoot have approved the Merger or ServiceMaster shall have
acquired at least 90% of then outstanding Shares (whichever shall first
occur), the parties hereto shall cause the Merger to be consummated by filing
with the Secretary of State of Delaware in accordance with Section 251 or
Section 253 of the Delaware Law three duplicate original certificates of
merger with respect to the Merger (the "Certificates of Merger"), in the form
and executed and acknowledged as required by Section 103 of the Delaware Law.
The Merger shall become effective at the time of such filing or at such other
subsequent time specified in the Certificate of Merger. The time and date on
which the Merger shall become effective is referred to as the "Effective
Time."
1.4 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation of MergerSub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation as amended by the Certificate of Merger, and thereafter
shall continue to be its Certificate of Incorporation until amended as
provided therein and under the Delaware Law, except that the name of the
Surviving Corporation shall be "Barefoot Inc."
(b) The Bylaws of MergerSub, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation and thereafter shall
continue to be its Bylaws until amended as provided therein and under the
Delaware Law.
1.5 Directors and Officers. Unless otherwise determined by ServiceMaster
prior to the Effective Time, the officers of Barefoot holding office
immediately prior to the Effective Time shall be the officers (holding the
same positions as they held with Barefoot) of the Surviving Corporation
immediately after the Effective Time, to hold office until their successors
have been elected and shall qualify or as otherwise provided by the Bylaws of
the Surviving Corporation. Unless otherwise determined by ServiceMaster prior
to the Effective Time, the directors of MergerSub holding office immediately
prior to the Effective Time shall be the directors of the Surviving
Corporation immediately after the Effective Time, to hold office until their
successors have been elected and shall qualify or as otherwise provided by the
Bylaws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of MergerSub Common Stock. Each of the shares of common stock
of MergerSub ("MergerSub Common Stock") issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and represent the
right to receive one fully paid and non-assessable share of common stock of
the Surviving Corporation ("Surviving Corporation Common Stock"). From and
after the Effective Time, each outstanding certificate theretofore
representing shares of MergerSub Common Stock shall be deemed for all purposes
to evidence ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of MergerSub Common Stock
shall have been converted. Promptly after the Effective Time, the Surviving
Corporation shall issue a stock certificate or certificates representing
shares of Surviving Corporation Common Stock in exchange for the certificate
or certificates which formerly represented the shares of MergerSub Common
Stock, which shall be canceled.
Annex A-II-2
<PAGE>
2.2 Conversion of Barefoot Securities. Each Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive an amount, in cash, without interest, equal to the Merger
Price except that each of the following Shares shall not be so converted: (i)
every Barefoot Share held by ServiceMaster shall be canceled and shall cease
to be outstanding; (ii) Dissenting Shares (as defined in Section 2.4) in
respect of which appraisal rights are perfected (which shall be treated as
prescribed in Section 2.4); and (iii) every Share held in the treasury of
Barefoot or by any direct or indirect subsidiary of Barefoot (which shall be
canceled and retired at the Effective Time).
2.3 Surrender of Certificates.
(a) As soon as practicable after the Effective Time, a person appointed by
ServiceMaster to act as exchange agent to effect the exchange of certificates
(the "Exchange Agent") shall mail to each holder of record of a certificate or
certificates (the "Certificates") that immediately prior to the Effective Time
represented outstanding Shares (other than Shares excluded from conversion
under clauses (i) - (iii) in Section 2.2) a form letter of transmittal for
return to the Exchange Agent (which form shall specify that delivery of
Certificates shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the certificates in
exchange for the Merger Price. From time to time at or following the Effective
time, ServiceMaster shall deposit with the Exchange Agent in trust for the
benefit of the holders immediately available funds in an amount necessary to
make the payments contemplated by Section 2.2 hereof on a timely basis (such
amount being hereinafter referred to as the "Payment Fund"). Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by ServiceMaster and Barefoot, together with such
letter of transmittal and such documentation as shall be necessary effectively
to transmit the Certificate for cancellation, duly executed, the holder of
such Certificates shall be entitled to receive in exchange therefor the Merger
Price, and the Certificate so surrendered shall forthwith be canceled. The
Exchange Agent shall, pursuant to irrevocable instructions, make the payments
referred to in the preceding sentence out of the Payment Fund. The Payment
Fund shall not be used for any other purpose except as described herein. Until
surrendered and exchanged, each such certificate shall represent solely the
right to receive the Merger Price for each Share previously represented by
that certificate, and ServiceMaster shall not be required to pay the holder
thereof any property, stock or cash to which such holder otherwise would be
entitled as a holder of Barefoot Common Stock, provided that customary and
appropriate procedures allowing for the surrender and exchange of former
Shares represented by lost or destroyed certificates shall be provided.
(b) Any cash in respect of the Merger Price delivered or made available to
the Exchange Agent pursuant to this Section 2.3 and not exchanged for
Certificates within one year after the Effective Time pursuant to this Section
2.3 shall be returned by the Exchange Agent to ServiceMaster, after which time
persons entitled thereto may look only to ServiceMaster for payment thereof,
subject to the rights of holders of unsurrendered Certificates under this
Article II and subject to any applicable abandoned property, escheat or
similar law.
(c) If the Merger Price is to be issued to a person whose name is other than
that in which the Certificate surrendered in exchange therefor is registered,
it shall be a condition of the issuance thereof that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the payment
of the Merger Price to a person whose name is other than that of the
registered holder of the Certificate so surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable. Notwithstanding the foregoing, neither
the Exchange Agent nor any party hereto shall be liable to a holder of any
Certificate for any amount paid to or deposited with a public official
pursuant to any applicable abandoned property, escheat or similar law.
Annex A-II-3
<PAGE>
(d) After the Effective Time, there shall be no transfers on the stock
transfer books for the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented for transfer to the
Exchange Agent or to the Surviving Corporation, they shall be canceled and
exchanged for the Merger Price.
2.4 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, but only in the circumstances and to the extent provided by the
Delaware Law, Shares that are issued and outstanding immediately prior to the
Effective Time and that are held by stockholders who have not voted such
Shares in favor of the approval and adoption of the Merger Agreement and shall
have delivered a written demand for appraisal of such Shares in the manner
(including the time of delivery) provided in Section 262 of the Delaware Law
(the "Dissenting Shares") shall not be converted into or be exchangeable for
the right to receive the Merger Price, but shall be entitled to receive such
consideration as shall be determined pursuant to Section 262 of the Delaware
Law; provided, however, that, if such holder shall have failed to perfect or
shall have effectively withdrawn or lost such holder's right to appraisal and
payment under the Delaware Law, such holder's Shares shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Merger Price, without any interest
thereon, in accordance with Section 2.2, and such Shares shall no longer be
Dissenting Shares.
ARTICLE III
AMENDMENT AND TERMINATION
3.1 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. The respective boards
of directors of each of the parties hereto shall have the right to amend this
Agreement without approval of their respective stockholders to the extent
permitted by (S)251(d) of the Delaware Law.
3.2 Termination. At any time prior to the Effective Time, whether before or
after approval by the stockholders of the Constituent Corporations, this
Agreement may (subject to the provisions in Section 6.1 of the Acquisition
Agreement) be terminated and the Merger abandoned by mutual agreement of the
boards of directors of Barefoot and ServiceMaster. This Agreement shall be
automatically terminated if the Acquisition Agreement is validly terminated
pursuant to the provisions of Section 6.1 thereof. The filing of the
Certificate of Merger with the Secretary of State of Delaware pursuant to
Section 1.3 hereof shall constitute certification that this Agreement has not
theretofore been terminated. If terminated as provided in this Section 3.2,
this Agreement shall forthwith become wholly void and of no further force and
effect.
ARTICLE IV
MISCELLANEOUS
4.1 Counterparts. This Agreement may be executed in one or more
counterparts, each of which together shall constitute one agreement.
4.2 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware.
* * * *
Annex A-II-4
<PAGE>
IN WITNESS WHEREOF, ServiceMaster, MergerSub and Barefoot have caused this
Agreement to be executed on the date first written above by their duly
authorized officers.
SERVICEMASTER LIMITED PARTNERSHIP
By ServiceMaster Management Corporation
Managing General Partner
/s/ Carlos H. Cantu
By: ____________________________________
Carlos H. Cantu
Name: __________________________________
President and Chief Executive
Officer
Title: _________________________________
SERVICEMASTER ACQUISITION CORPORATION
/s/ Carlos H. Cantu
By: ______________________________________
Carlos H. Cantu
Name: ____________________________________
President
Title: ___________________________________
BAREFOOT INC.
/s/ Patrick J. Norton
By: ______________________________________
Patrick J. Norton
Name: ____________________________________
Chief Executive Officer
Title: ___________________________________
Annex A-II-5
<PAGE>
ANNEX B -- OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
<PAGE>
[LETTERHEAD OF ROBERT W. BAIRD]
December 4, 1996
Board of Directors
Barefoot Inc.
450 West Wilson Bridge Road
Worthington, Ohio 43085
Gentlemen:
Barefoot Inc., a Delaware corporation (the "Company"), proposes to enter into
an Acquisition Agreement (the "Agreement") with ServiceMaster Limited
Partnership, a Delaware limited partnership ("Parent"), and ServiceMaster
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Parent ("Sub"). Pursuant to the Agreement, Parent would make a tender offer
(the "Offer") to acquire all of the outstanding shares of common stock, par
value $.01 per share (the "Company Common Stock"), together with the associated
Series A Junior Participating Preferred Stock Purchase Rights of the Company,
at the price of $16.00 per share (the "Consideration"). Each holder of Company
Common Stock may elect to receive the Consideration in cash or in limited
partnership interests of Parent. With respect to holders of Company Common
Stock electing to receive limited partnership interests, the Consideration of
$16.00 per share assumes that the Average ServiceMaster Share Price (as defined
in the Agreement) is at least equal to $23.00 per share. As soon as practicable
after the purchase of not less than the Minimum Number (as defined in the
Agreement) of shares of Company Common Stock pursuant to the Offer, Sub would
be merged (the "Merger") with and into the Company and each share of Company
Common Stock not owned by Parent would be converted into the right to receive
the Consideration in cash. The Offer and the Merger are referred to herein as
the "Transaction."
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Company Common Stock of the Consideration in the
Transaction.
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment banking
business, is engaged in the evaluation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes.
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In
that connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company and Parent furnished to us for
purposes of our analysis, as well as publicly available information including
but not limited to the Company's and Parent's recent filings with the
Securities and Exchange Commission (the "SEC") and equity analyst research
reports prepared by various investment banking firms including, in the case of
the Company, Baird; (ii) reviewed the Agreement in the form presented to the
Company's Board of Directors; (iii) compared the historical market prices and
trading activity of the Company Common Stock and limited partnership interests
of
LOGO
1
<PAGE>
Parent with those of certain other publicly traded companies we deemed
relevant; (iv) compared the financial position and operating results of the
Company and Parent with those of other publicly traded companies we deemed
relevant; and (v) compared the proposed financial terms of the Transaction
with the financial terms of certain other business combinations we deemed
relevant. We have held discussions with certain members of the Company's and
Parent's senior management concerning the Company's and Parent's respective
historical and current financial conditions and operating results as well as
the future prospects of the Company and Parent, respectively. We have not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of the Company. We have also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant for the preparation of
this opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to us by
or on behalf of the Company and Parent, or publicly available, and have not
assumed any responsibility to verify any such information independently. We
have also assumed, with your consent, that (i) the Merger will be accounted
for under the purchase method; (ii) there has been no material change in the
assets or liabilities of the Company or Parent from those set forth in the
most recent consolidated financial statements of the Company and Parent,
respectively; and (iii) the Transaction will be consummated in accordance with
the terms of the Agreement in the form presented to the Company's Board of
Directors. Management of the Company and Parent have represented to us, and we
have assumed, that the financial forecasts examined by us were reasonably
prepared on bases reflecting the best available estimates and good faith
judgments of the Company's and Parent's senior management as to future
performance of the Company and Parent, respectively. In conducting our review,
we have not undertaken nor obtained an independent evaluation or appraisal of
any of the assets or liabilities (contingent or otherwise) of the Company or
Parent nor have we made a physical inspection of the properties or facilities
of the Company or Parent. Our opinion necessarily is based upon economic,
monetary and market conditions as they exist and as can be evaluated on the
date hereof, and does not predict or take into account any changes which may
occur, or information which may become available, after the date hereof.
Our opinion has been prepared solely for the information of the Company's
Board of Directors, and shall not be used for any other purpose or disclosed
to any other party without the prior written consent of Baird; provided,
however, that this letter may be reproduced in full as required for any filing
with the SEC required to be made by the Company or Parent in connection with
the Transaction. This opinion does not address the relative merits of the
Transaction and any other potential transactions or business strategies
considered by the Company's Board of Directors, and does not constitute a
recommendation to any stockholder of the Company as to (i) whether any such
stockholder should tender shares pursuant to the Offer, (ii) whether any such
stockholder electing to tender shares should elect to receive cash or limited
partnership interests of Parent, or (iii) how any such stockholder should vote
with respect to the Merger. Baird has acted as financial advisor to the
Company in connection with the Transaction and will receive a fee for its
services, part of which is payable upon delivery of this opinion and part of
which is contingent upon consummation of the Transaction. In the past, we have
provided investment banking services to the Company, for which we received
agreed upon compensation.
In the ordinary course of our business, we may from time to time trade the
securities of the Company or Parent for our own account or accounts of our
customers and, accordingly, may at any time hold long or short positions in
such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to the
holders of Company Common Stock; provided, however, that because holders of
Company Common Stock can elect to receive cash
2
<PAGE>
pursuant to the Offer at any time prior to expiration of the Offer, no opinion
is given as to the fairness of the Consideration to such holders who receive
limited partnership interests of Parent if the Average ServiceMaster Share
Price is less than $23.00 per share.
Sincerely yours,
Robert W. Baird & Co. Incorporated
3
<PAGE>
ANNEX C-I
<PAGE>
[VORYS, SATER, SEYMOUR AND PEASE LETTERHEAD]
December 12, 1996
Barefoot Inc.
450 West Wilson Bridge Road
Worthington, Ohio 43085
Re: Tender Offer for Shares of Barefoot Inc.
Ladies and Gentlemen:
In connection with (i) the proposed tender offer by ServiceMaster Limited
Partnership, a Delaware limited partnership ("ServiceMaster"), to acquire each
outstanding share of common stock, par value $0.01 per share, of Barefoot
Inc., a Delaware corporation ("Barefoot"), together with the associated Series
A Junior Participating Preferred Stock Purchase Rights, for, at the election
of the holder, either: (i) $16.00 in cash, without any interest thereon; or
(ii) a fraction (the "Conversion Fraction") of a validly issued, fully paid
and nonassessable share of limited partnership interest in ServiceMaster
("ServiceMaster Share"), determined by dividing $16.00 by the greater of (x)
$23.00 or (y) the average (without rounding) of the closing price of
ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on
the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the
fifth NYSE trading day immediately preceding the date that the Expiration Date
(as defined) and rounding the result to the nearest one one-hundred thousandth
of a share (the "Offer") pursuant to an Acquisition Agreement by and among
ServiceMaster, ServiceMaster Acquisition Corporation and Barefoot (the
"Acquisition Agreement") and (ii) the proposed cash-out merger of Merger Sub
with and into Barefoot for $16.00 per Share upon the terms and subject to the
conditions set forth in a Merger Agreement executed simultaneously with the
Acquisition Agreement (the "Merger Agreement") as described in the Offering
Circular/Prospectus contained in the Form S-4 Registration Statement relating
to the Offer to be filed with the Securities and Exchange Commission (the
"Commission"), you have requested our legal opinion concerning certain United
States federal income tax consequences of the Offer.
We are familiar with the corporate proceedings taken to date with respect to
the Offer and have examined the form of the Acquisition Agreement and the
Merger Agreement and such other records and documents as we considered
necessary for the purpose of rendering the opinion set forth herein.
Annex C-I-1
<PAGE>
Barefoot, Inc.
December 12, 1996
Page 2
The opinion set forth herein is based on relevant provisions of the Internal
Revenue Code of 1986, as amended through the date hereof, Treasury regulations
promulgated thereunder, and interpretations thereof by the courts and the
Internal Revenue Service, all as they exist at the date of this letter (the
"Existing Law"). No tax rulings will be sought from the Internal Revenue
Service with respect to any of the matters discussed herein. The Existing Law
is subject to change at any time and, in some circumstances, with retroactive
effect. Any such change could affect any or all of the conclusions set forth
in this opinion.
Based on the foregoing and assuming that the documents to be delivered in
connection with the Offer are, to the extent applicable, executed and
delivered in substantially the form we have examined, we are of the opinion
that the statements in this Offering Circular/Prospectus under the caption
"Certain Federal Income Tax Consequences--The Offer" fairly describe the
material United States federal tax consequences of the Offer. There can be no
assurance, however, that such discussion will not be successfully challenged
by the Internal Revenue Service, or significantly altered by new legislation,
changes in Internal Revenue Service positions or judicial decisions, any of
which challenges or alterations may be applied retroactively with respect to
completed transactions.
We hereby consent to the disclosure of this opinion in the Offering
Circular/Prospectus and as an exhibit to the Registration Statement.
Very truly yours,
VORYS, SATER, SEYMOUR AND PEASE
Annex C-I-2
<PAGE>
ANNEX C-II
<PAGE>
ANNEX C-II
[LETTERHEAD OF KIRKLAND & ELLIS]
To Call Writer Direct: Facsimile:
312 861-2000 312 861-2200
December 12, 1996
ServiceMaster Limited Partnership
One ServiceMaster Way
Downers Grove, Illinois 60515
Re: TENDER OFFER FOR SHARES OF BAREFOOT INC.
Dear Ladies and Gentlemen:
In connection with (i) the proposed tender offer by ServiceMaster Limited
Partnership to acquire each outstanding share of common stock, par value $0.01
per share of Barefoot Inc., a Delaware corporation, together with the
associated Series A Junior Participating Preferred Stock Purchase Rights not
already owned by ServiceMaster, for, at the election of the holder, either: (A)
$16.00 in cash, without any interest thereon; or (B) a fraction (the
"Conversion Fraction") of a validly issued, fully paid and nonassessable share
of limited partnership interest in ServiceMaster ("ServiceMaster Share"),
determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average
(without rounding) of the closing price of ServiceMaster Shares on the New York
Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15
consecutive NYSE trading days ending on the fifth NYSE trading day immediately
preceding the date that the Expiration Date (as defined) and rounding the
result to the nearest one one-hundred thousandth of a share (the "Offer")
pursuant to an Acquisition Agreement by and among ServiceMaster Limited
Partnership, ServiceMaster Acquisition Corporation and Barefoot Inc. (the
"Acquisition Agreement") and (ii) the proposed cash-out merger of Merger Sub
with and into the Company for $16.00 per Share upon the terms and subject to
the conditions set forth in a Merger Agreement executed simultaneously with the
Acquisition Agreement (the "Merger Agreement") as described in this Offering
Circular/Prospectus contained in the Form S-4 Registration Statement relating
to the Offer to be filed with the Securities and Exchange Commission (the
"Commission"), you have requested our legal opinion concerning certain United
States federal income tax consequences of the Offer.
We are familiar with the corporate proceedings to date with respect to the
Offer and have examined the form of the Acquisition Agreement and the Merger
Agreement and such other records and documents as we considered necessary. We
have also examined a representation letter from ServiceMaster Limited
Partnership dated December 9, 1996 (the "Representation Letter").
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<PAGE>
[LETTERHEAD OF KIRKLAND & ELLIS]
The opinion set forth herein is based on relevant provisions of the Internal
Revenue Code of 1986, as amended through the date hereof (the "Code"),
Treasury regulations promulgated thereunder (the "Regulations"), and
interpretations thereof by the courts and the Internal Revenue Service, all as
they exist at the date of this letter. No tax rulings will be sought from the
Internal Revenue Service with respect to any of the matters discussed herein.
All such provisions of the Code, Regulations, judicial decisions, and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. Any such change could affect any or
all of the conclusions set forth in this opinion.
Based on the foregoing authorities and the representation of ServiceMaster
Limited Partnership in the Representation Letter and assuming that the
documents to be delivered in connection with the Offer are, to the extent
applicable, executed and delivered in substantially the form we have examined,
we are of the opinion that the statements in this Offering Circular/Prospectus
under the caption "Certain Federal Income Tax Consequences" fairly describe
the material United States federal tax consequences of the Offer. There can be
no assurance, however, that such discussion will not be successfully
challenged by the Internal Revenue Service, or significantly altered by new
legislation, changes in Internal Revenue Service positions or judicial
decisions, any of which challenges or alterations may be applied retroactively
with respect to completed transactions.
We hereby consent to the disclosure of this opinion in the Offering
Circular/Prospectus and the Registration Statement.
Sincerely,
Kirkland & Ellis
<PAGE>
ANNEX D--CERTAIN PORTIONS OF THE SERVICEMASTER 1995 10-K
ALL INFORMATION IN ANNEX D IS FROM THE SERVICEMASTER 1995 10-K WHICH WAS
FILED ON MARCH 15, 1996, AND HAS NOT BEEN UPDATED OR SUPPLEMENTED.
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995.
Commission File number 1-9378
SERVICEMASTER LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Certificate)
Delaware 36-3497008
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
One ServiceMaster Way, Downers Grove, Illinois 60515-9969
---------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (708) 271-1300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- ---------------------
Partnership Shares New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by Check Mark Whether the Registrant (1) Has Filed All
Reports Required to Be Filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such Shorter Period That the
Registrant Was Required to File Such Reports), and (2) Has Been Subject to Such
Filing Requirements for the Past 90 Days. Yes X No
--- ---
The Aggregate Market Value of Shares Held by Non-Affiliates of the
Registrant As of February 6, 1996 was $3,032,880,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the Registrant's Annual Report to Shareholders for
the year ended December 31, 1995 are incorporated into Part I, Part II and Part
IV of this Form 10-K.
- --------------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Business
The Company
This annual report on Form 10-K is filed by ServiceMaster Limited
Partnership (hereinafter sometimes called the "Registrant"). The Registrant and
its immediate subsidiary, The ServiceMaster Company Limited Partnership, were
formed in December 1986 as limited partnerships under the laws of the State of
Delaware to succeed to the business and assets of ServiceMaster Industries Inc.
The Registrant and The ServiceMaster Company, together with all other entities
affiliated with these two limited partnerships and the Registrant's predecessor
organization, are hereinafter referred to as "ServiceMaster" or the "Company" or
the "ServiceMaster enterprise".
The Registrant is a holding company whose limited partner shares are
listed on the New York Stock Exchange and whose principal asset consists of all
of the common limited partner interest in The ServiceMaster Company. Until
January 31, 1992, the Registrant had both individual general partners and one
corporate general partner. In January 1992, the shareholders of the Registrant
approved an amendment of the Registrant's agreement of limited partnership under
which the structure of the Registrant was changed by the withdrawal of the three
individual general partners and the admission of ServiceMaster Corporation as a
special general partner. These changes are described further under the caption
"The 1992 Reorganization".
The two principal operating groups of the ServiceMaster business are
Consumer Services and Management Services, each of which is organized as a
separate limited partnership. ServiceMaster Consumer Services Limited
Partnership was formed in the summer of 1990, and ServiceMaster Management
Services Limited Partnership was formed in December 1991.
All subsidiaries of The ServiceMaster Company (which for purposes of
this paragraph are limited to first-tier subsidiaries) are wholly owned except
for the following: ServiceMaster Management Services L.P., as to which senior
management owns a 10% equity interest (determined after giving effect to
intercompany debt), and LTCS Investment L.P. (the immediate parent of
ServiceMaster Diversified Health Services), as to which senior management of
ServiceMaster Diversified Health Services owns an 11% equity interest.
All subsidiaries of ServiceMaster Consumer Services L.P. are wholly
owned. The 15% interest in TruGreen Limited Partnership which was owned by
senior management of TruGreen Limited Partnership was acquired by the Registrant
in January 1995. See Note I, page 15, for further information regarding this
transaction.
All subsidiaries of ServiceMaster Management Services L.P. are wholly
owned.
The 1992 Reorganization
On January 13, 1992, the shareholders of the Registrant approved a
"Reorganization Package" consisting of a comprehensive amendment and restatement
of the Registrant's partnership agreement and a merger by which the Registrant
can convert to corporate form. Current tax law effectively requires such
conversion to occur at the end of December 1997; however, pursuant to the
Reorganization Package, the board of directors of the Registrant's general
partner has the authority to decide to accelerate the conversion date to a date
prior to December 31, 1997. The best interests of the Registrant's shareholders
will be the determinative consideration in selecting a conversion date.
As a result of the approval of the Reorganization Package,
ServiceMaster Corporation was admitted as a Special General Partner of the
Registrant to serve as a vehicle through which institutional investors could be
offered
1
<PAGE>
opportunities to invest in ServiceMaster through the acquisition of a corporate
security. If shares of stock were to be issued by ServiceMaster Corporation
("Corporate Shares"), the Corporate Shares would indirectly represent the same
percentage interest in the Registrant as was then represented by each limited
partner share in ServiceMaster. At the present time there are no plans to issue
stock of ServiceMaster Corporation.
The merger agreement which was approved as part of the Reorganization
Package provides for the merger by which ServiceMaster expects to return to
corporate form (the "Reincorporating Merger"). ServiceMaster Incorporated of
Delaware has been organized to become the successor entity through which the
public will invest in ServiceMaster after the Reincorporating Merger. The
limited partner shares of the Registrant will be converted on a one-for-one
basis into new shares of common stock of ServiceMaster Incorporated. As a result
of these conversions, ServiceMaster Incorporated will be entirely owned by the
persons who, collectively, owned all of the limited partner shares of the
Registrant immediately prior to the Reincorporating Merger.
The Reorganization Package included certain changes in the identity of
and the capital contribution requirements for the general partners of the
Registrant. These changes were effected on January 31, 1992. On that date,
ServiceMaster Management Corporation became the sole general partner of the
Registrant and of The ServiceMaster Company with sole management authority with
respect to these partnerships and the amount of independent capital required to
be maintained by ServiceMaster Management Corporation was reduced to $15
million.
For further information concerning the changes effected by the 1992
Reorganization, see the discussion captioned "Description of the Structure of
the ServiceMaster Enterprise" beginning on page 11.
1995 Transaction with WMX Technologies, Inc.
On December 31, 1995, the Registrant completed a transaction with WMI
Urban Services, Inc. ("WMUS"), a wholly owned subsidiary of WMX Technologies,
Inc. ("WMX") in which WMUS contributed its 27.76% interest in ServiceMaster
Consumer Services L.P. to the Registrant and, in exchange therefor, the
Registrant issued to WMUS 18,107,143 unregistered limited partner shares of the
Registrant and an option to purchase an additional 1,250,000 shares of the
Registrant's limited partner shares at a price of $33.00 per share at any time
and from time to time during the period January 1, 1997 to December 31, 2000.
This issuance of limited partner shares to WMUS increased the Registrant's total
shares outstanding to approximately 95,200,000. The shares held by WMX (through
WMUS) immediately after the foregoing exchange transaction constituted
approximately 19% of the Registrant's total shares outstanding.
Concurrently with the foregoing exchange transaction, the Registrant
and WMX entered into an agreement under which WMX committed not to increase its
ownership interest in the Registrant to more than 21% through purchases of the
Registrant's shares. To the extent that an exercise of the option would result
in WMX owning more than a 21% interest in the Registrant, the Registrant may at
its sole option pay WMX cash in the amount of the spread between the value of
the shares not issued and the option exercise price for such shares.
The shares which WMUS received on December 31, 1995 together with the
shares which WMUS can acquire under the option are subject to certain
restrictions, including among other things, commitments by WMX and WMUS: not to
sell at any one time any of such shares in public market transactions in a
number in excess of 15% of the average daily trading volume of the Registrant's
shares over the preceding four calendar weeks; not to sell such shares to anyone
who is or would become, as a result of the sale, an owner of more than 5% of the
Registrant's outstanding shares; not to attempt to or propose or endorse a
takeover of the Registrant; not to vote such shares in favor of a takeover which
is opposed by the Registrant's board of directors; and not to oppose candidates
for the Registrant's board of directors who are nominated by a majority of the
incumbent ServiceMaster directors. In addition, the Registrant has a first
refusal right, at then current market prices, by which the Registrant can elect
to acquire any shares that WMX or WMUS may desire to sell.
2
<PAGE>
The shares which WMUS received on December 31, 1995 and the shares
which WMUS can acquire under the option were not and will not be registered
under the Securities Act of 1933, but WMUS may demand up to four registrations
of such shares after December 31, 1997, with each registration being subject to
specified minimum and maximum amounts. WMX also has piggyback registration
rights with respect to such shares.
The foregoing is a brief summary of the major provisions of the
agreements entered into among the Registrant, WMX and WMUS on December 31, 1995.
Such agreements are described in further detail in the Registrant's Form 8-K
dated January 15, 1996 and filed with the Securities and Exchange Commission on
that date. The contents of such Form 8-K and the exhibits thereto are
incorporated herein by reference.
Principal Business Groups
ServiceMaster is functionally divided into four operating groups:
Consumer Services, Management Services, Diversified Health Services and
International. Consumer Services and Management Services are the two principal
operating groups. Reference is made to the information under the caption
"Business Unit Reporting" on page 39 of the ServiceMaster Annual Report to
Shareholders for 1995 (the "1995 Annual Report") for detailed financial
information on these two groups.
Trademarks and Service Marks; Franchises
The Company's trademarks and service marks are important for all
elements of the Company's business, although such marks are particularly
important in the advertising and franchising activities conducted by the
operating subsidiaries of ServiceMaster Consumer Services L.P. Such marks are
registered and are renewed at each registration expiration date.
Within ServiceMaster Consumer Services, franchises are important for
the TruGreen-ChemLawn, Terminix, ServiceMaster Residential/Commercial, and Merry
Maids businesses. Nevertheless, revenues and profits derived from franchise-
related activities constitute less than 10% of the revenue and profits of the
consolidated ServiceMaster enterprise. Franchise agreements made in the course
of these businesses are generally for a term of five years. ServiceMaster's
renewal history is that most of the franchise agreements which expire in any
given year are renewed.
Consumer Services
ServiceMaster Consumer Services provides specialty services to
homeowners and commercial facilities through five companies: TruGreen L.P.
("TruGreen-ChemLawn"); The Terminix International Company L.P. ("Terminix");
ServiceMaster Residential/Commercial Services L.P. ("Res/Com"); Merry Maids L.P.
("Merry Maids"); and American Home Shield Corporation ("American Home Shield" or
"AHS"). The services provided by these companies include: lawn care, tree and
shrub services and indoor plant maintenance services under the "TruGreen" and
"ChemLawn" service marks; termite, pest control and radon testing services under
the "Terminix" service mark; residential and commercial cleaning and disaster
restoration services under the "ServiceMaster" service mark; domestic
housekeeping services under the "Merry Maids" service mark; and home systems and
appliance warranty contracts under the "American Home Shield" service mark.
The services provided by the five Consumer Services companies are part
of the ServiceMaster "Quality Service Network" and are accessed by calling a
single toll-free telephone number: 1-800-WE SERVE. ServiceMaster focuses on
establishing relationships to provide one or more of these services on a
repetitive basis to customers. Since 1986, the number of customers served by
ServiceMaster Consumer Services has increased from fewer than one million
customers to more than 7.7 million customers (including international
operations).
3
<PAGE>
The International Group is responsible for overseeing the Consumer
Services which are provided in foreign markets.
TruGreen-ChemLawn. Until January 1, 1995, TruGreen-ChemLawn was an 85%
owned subsidiary of ServiceMaster Consumer Services Limited Partnership with
senior management of TruGreen-ChemLawn holding the remaining 15% interest.
However, effective January 1, 1995, all of the holders of the 15% minority
interest contributed their interests to the Registrant in exchange for shares of
the Registrant. See Note I, page 15 for further information regarding this
transaction. With over 2.5 million residential and commercial customers,
TruGreen-ChemLawn is the leading provider of lawn care services in the United
States. As of December 31, 1995, TruGreen-ChemLawn had 182 company-owned
branches and 76 franchised branches. TruGreen-ChemLawn also provides lawn, tree
and shrub care services in some parts of the Middle East through a licensing
arrangement. The TruGreen-ChemLawn business is seasonal in nature.
Terminix. Terminix is a wholly owned subsidiary of ServiceMaster
Consumer Services L.P. With approximately 2.1 million residential and commercial
customers, Terminix, through its company-owned branches and through franchisees,
is the leading provider of termite and pest control services in the United
States. As of December 1995, Terminix was providing these services through 327
company-owned branches in 40 states and Mexico and through 234 franchised
branches in 27 states. Terminix also provides termite and pest control services
in Japan, Taiwan, Indonesia, Turkey, Lebanon, Saudi Arabia, Oman, the Bahamas,
Dominican Republic, Jamaica, and Puerto Rico through licensing arrangements with
local partners. It provides the same services through subsidiaries in Belgium,
the Netherlands, Norway, Sweden, the Republic of Ireland, the United Kingdom,
and Mexico. The Terminix business is seasonal in nature.
Res/Com. Res/Com is a wholly owned subsidiary of ServiceMaster
Consumer Services L.P. ServiceMaster, through Res/Com, is the leading franchisor
in the residential and commercial cleaning field. Res/Com provides carpet and
upholstery cleaning and janitorial services, disaster restoration services and
window cleaning services to over 1.4 million residential and commercial
customers worldwide through a network of over 4,400 independent franchisees.
Res/Com provides its services through subsidiaries in Germany, Ireland and the
United Kingdom, through an affiliate in Canada, and through licensees in
Australia, New Zealand, Austria, Brazil, Canada, Finland, Spain, Turkey, Saudi
Arabia, Korea, and Japan.
Merry Maids. Merry Maids is a wholly owned subsidiary of ServiceMaster
Consumer Services Limited Partnership. Merry Maids is the organization through
which ServiceMaster provides domestic house cleaning services. With
approximately 217,000 customers, Merry Maids is the leading provider of domestic
house cleaning services in the United States. As of December 31, 1995, these
services were provided through 14 company-owned branches in 13 states and
through 820 licensees operating in 49 states. Merry Maids also provides domestic
housecleaning services in the United Kingdom through a subsidiary, in Canada
through an affiliate and in Japan, Saudi Arabia, Denmark and Australia through
licensing arrangements with local service providers.
American Home Shield. AHS is a wholly owned subsidiary of SVM Holding
Corp., a wholly owned subsidiary of ServiceMaster Consumer Services L.P. AHS is
a leading provider of home service warranty contracts in the United States,
providing homeowners with contracts covering the repair or replacement of built-
in appliances, hot water heaters and electrical, plumbing, central heating, and
central air conditioning systems which malfunction by reason of normal wear and
tear. Service contracts are presently sold principally through participating
real estate brokerage offices in conjunction with resales of single-family
residences to homeowners. AHS also sells service warranty contracts directly to
non-moving homeowners through various other distribution channels which are
currently being expanded. As of December 31, 1995, AHS was providing services to
approximately 387,000 homes through approximately 10,000 independent repair
maintenance contractors in 47 states and the District of Columbia, with
operations in California, Texas and Arizona accounting for 26%, 23% and 8%,
respectively, of AHS' gross contracts written. AHS also provides home service
warranty contracts in Japan and Saudi Arabia through licensing arrangements with
local service providers.
4
<PAGE>
Management Services
ServiceMaster pioneered the providing of supportive management
services to health care facilities by instituting housekeeping management
services in 1962. Since then, ServiceMaster has expanded its management services
business such that it now provides a variety of supportive management services
to health care, education and commercial customers (including the management of
housekeeping, plant operations and maintenance, laundry and linen, grounds and
landscaping, clinical equipment maintenance, energy management services and food
service). ServiceMaster's general programs and systems free the customer to
focus on its core business activity with confidence that the support services
are being managed and performed in an efficient manner.
At the end of 1994, Management Services was reorganized into three
discrete operating units each providing a separate functional service on a
nationwide basis. These units are: Healthcare Management Services; Education
Management Services; and Business and Industry Management Services. Effective
January 1, 1996, the services provided by the Healthcare Management Services
unit and the services provided by ServiceMaster Diversified Health Services
Group (described below) were integrated so as to provide a coordinated range of
services to the health care market.
As of December 31, 1995, ServiceMaster was providing supportive
management services to more than 2,500 health care, educational and commercial
facilities. These services were being provided in all 50 states and the District
of Columbia and in 16 foreign countries. Outside of the United States,
ServiceMaster was providing management services through a subsidiary in Japan,
through affiliated companies in Canada, Japan, Italy, Mexico, and the United
Kingdom, and through licensees in Korea, Australia, New Zealand, Singapore,
Taiwan, Hong Kong, Czech Republic, Chile, Japan, Malaysia, Spain and and several
countries in the Middle East. The International and New Business Development
Group is responsible for overseeing the management services which are provided
in foreign markets.
In February 1995, Management Services formed a joint venture with DAKA
International in which the latter, in effect, acquired 80% of Management
Services' education food service management business. As of December 31, 1995,
the DAKA/ServiceMaster joint venture was serving approximately 57 customers.
ServiceMaster Healthcare Services
The integration of ServiceMaster Healthcare Management Services and
ServiceMaster Diversified Health Services under the name "ServiceMaster
Healthcare Services" is expected to increase the ability of the Registrant to
deliver services across the broad spectrum of customer needs in the various
segments of the healthcare market. These segments include acute care hospitals,
long-term care, assisted living facilities, hospice and home health care. As of
January 1, 1996, ServiceMaster Healthcare Services was serving more than 1,600
customers.
Diversified Health Services
The Diversified Health Services Group was organized in 1993. It
consists of the ServiceMaster Diversified Health Services companies and
ServiceMaster Home Health Care Services. The Diversified Health Services
companies were acquired by ServiceMaster in August 1993, at which time they were
known as VHA Long Term Care.
ServiceMaster Diversified Health Services. ServiceMaster Diversified
Health Services, Inc., ServiceMaster Diversified Health Services L.P. and their
respective subsidiaries and ServiceMaster Home Health Care Services
(collectively, the "ServiceMaster Diversified Health Services Companies") form a
comprehensive health services organization which provides: management services
to freestanding, hospital based, and government owned nursing homes, skilled
nursing facilities, and assisted living facilities; management services to
hospital-based home health
5
<PAGE>
care agencies (as well as the direct operation of freestanding home health care
agencies); design, development, refurbishing and construction consulting
services to long-term care facilities; hospice services; rehabilitation services
and the sale of various medical products and supplies. As of December 31, 1995,
the ServiceMaster Diversified Health Services Companies had management services
contracts with over 130 facilities in 28 states with a total of approximately
15,000 beds. Effective January 1, 1996, the services provided by Diversified
Health Services Companies and the services provided by the Healthcare Management
Services unit were integrated so as to provide a coordinated range of services
to the health care market.
International and New Business Development
International. The International unit oversees the performance of
supportive management services and consumer services in international markets
either through the arrangements described above or through ownership of foreign
operating companies acquired by ServiceMaster.
In the Spring of 1994, ServiceMaster made a strategic decision to
expand its pest control business into Europe through the acquisition of existing
pest control companies. In August 1994, International organized TMX-Europe B.V.,
a Netherlands limited company ("TMX-Europe") as a subsidiary of The
ServiceMaster Company to serve as a holding company for acquisitions of pest
control businesses in the United Kingdom and Europe. As a result of acquisitions
made during 1994, TMX-Europe owned controlling interests in Peter Cox Ltd., a
leading pest control and wood preservation company in the United Kingdom;
Protekta B.V. and Riwa B.V., each a leading pest control company in the
Netherlands; and Anticimex Development AB, a holding company for the leading
pest control company in Sweden. In October 1995, Peter Cox Ltd. acquired two
pest control companies in the Republic of Ireland and Northern Ireland, and in
January 1996, TMX-Europe acquired the Stenglein group of pest control companies
in Germany.
New Business Development. ServiceMaster Child Care Services, Inc., was
part of the New Business Development Group until November 30, 1995. This company
operated employer or developer sponsored child care centers under the
"GreenTree" service mark. The company was sold to Bright Horizons Children's
Centers, Inc. effective December 1, 1995 for cash, a promissory note and a
warrant to purchase common stock of the buyer. This transaction was not material
to the Registrant's financial statements.
Other Activities
Supporting Departments. ServiceMaster has various departments
responsible for technical, engineering, management information, planning and
market services, and product and process development activities. Various
administrative support departments provide personnel, public relations,
administrative, education, accounting, financial and legal services.
Manufacturing Division. ServiceMaster has a manufacturing division
which formulates, combines and distributes supplies, products and equipment that
are used internally in providing management services to customers and which are
sold to licensees for use in the operation of their businesses. ServiceMaster
has an insignificant share of the market for the manufacture and distribution of
cleaning equipment, chemicals and supplies.
Venture Capital Fund. In August 1995, the Registrant established the
ServiceMaster Venture Fund (the "Fund") with the objective of establishing a
mechanism within the ServiceMaster enterprise which would invest in emerging
growth companies which show an ability to provide innovative service
technologies to the Registrant's current and new customers. The Fund is to be
managed so as not to be intrusive to the ongoing operations of the Registrant's
operating units.
6
<PAGE>
Industry Position, Competition and Customers
The following information is based solely upon estimates made by the
management of ServiceMaster and cannot be verified. In considering
ServiceMaster's industry and competitive positions, it should be recognized that
ServiceMaster competes with many other companies in the sale of its services,
franchises and products and that some of these competitors are larger or have
greater financial and marketing strength than ServiceMaster.
The principal methods of competition employed by ServiceMaster in the
Consumer Services business are name recognition, assurance of customer
satisfaction and history of providing quality services to homeowners. The
principal methods of competition employed by ServiceMaster in each of the
operating units in the Management Services business are price, quality of
service and history of providing management services. The principal methods of
competition employed by ServiceMaster in the Diversified Health Services
business are name recognition, price, quality of services and history of
providing management services.
Consumer Services
Consumer Services subsidiaries provide a variety of residential and
commercial services under their respective names on the basis of their and
ServiceMaster's reputation, the strength of their service marks, their size and
financial capability, and their training and technical support services. The
markets served by Terminix and TruGreen/ChemLawn are seasonal in nature.
Lawn Care Services. TruGreen-ChemLawn, both directly and through
franchisees, provides lawn care services to residential and commercial
customers. Competition within the lawn care market is strong, coming mainly from
regional and local, independently owned firms and from homeowners who elect to
care for their lawns through their own personal efforts. TruGreen-ChemLawn is
the leading national lawn care company within this market. In 1995, TruGreen-
ChemLawn initiated a business to provide indoor plant maintenance to commercial
customers.
Lawn care services are regulated by law in most of the states in which
TruGreen-ChemLawn provides such services. These laws require licensing which is
conditional on a showing of technical competence and adequate bonding and
insurance. The lawn care industry is regulated at the federal level under the
Federal Insecticide, Fungicide and Rodenticide Act, and lawn care companies
(such as TruGreen-ChemLawn) which apply herbicides and pesticides are regulated
under the Federal Environmental Pesticide Control Act of 1972. Such laws,
together with a variety of state and local laws and regulations, may limit or
prohibit the use of certain herbicides and pesticides, and such restrictions may
adversely affect the business of TruGreen-ChemLawn.
Termite and Pest Control Services. The market for termite and pest
control services to commercial and residential customers includes many
competitors. Terminix is the leading national termite and pest control company
within this market. Competition within the termite and pest control market is
strong, coming mainly from regional and local, independently owned firms
throughout the United States and from one other large company which operates on
a national basis.
Termite and pest control services are regulated by law in most of the
states in which Terminix provides such services. These laws require licensing
which is conditional on a showing of technical competence and adequate bonding
and insurance. The extermination industry is regulated at the federal level
under the Federal Insecticide, Fungicide and Rodenticide Act, and pesticide
applicators (such as Terminix) are regulated under the Federal Environmental
Pesticide Control Act of 1972. Such laws, together with a variety of state and
local laws and regulations, may limit or prohibit the use of certain pesticides,
and such restrictions may adversely affect the business of Terminix.
7
<PAGE>
House Cleaning Services. The market for domestic house cleaning
services is highly competitive. In urban areas the market involves numerous
local companies and a few national companies. ServiceMaster believes that its
share of the total potential market for such services is small and that there is
a significant potential for further expansion of its housecleaning business
through continued internal expansion and greater penetration of the
housecleaning market. Through its franchisees, ServiceMaster has a small share
of the market for the cleaning of residential and commercial buildings.
Home Systems and Appliance Warranty Contracts. The market for home
systems and appliance warranty contracts is relatively new. ServiceMaster
believes that AHS maintains a favorable position in its industry due to the
system developed and used by AHS for accepting, dispatching and fulfilling
service calls from homeowners through a nationwide network of independent
contractors. AHS also has a computerized information system developed and owned
by AHS, and an electronic digital voice communication system through which AHS
handled more than 5.2 million calls in 1995.
Management Services
Health Care. Within the market consisting of general health care
facilities having 50 or more beds, ServiceMaster is the leading supplier of
plant operations and maintenance, housekeeping, clinical equipment maintenance,
and laundry and linen management services. As of December 31, 1995,
ServiceMaster was serving in approximately 1,500 health care facilities. The
majority of health care facilities within this market not currently served by
ServiceMaster assume direct responsibility for managing their own non-medical
support functions.
ServiceMaster believes that its management services for health care
facilities may expand by the addition of facilities not presently served, by
initiating additional services at facilities which use only a portion of the
services now offered, by the development of new services and by growth in the
size of facilities served. At the same time, industry consolidation, changes in
use and methods of health care delivery and payment for services continue to
affect the health care environment.
As described on page 5, effective January 1, 1996, ServiceMaster
Healthcare Management Services was integrated with ServiceMaster Diversified
Health Services to form ServiceMaster Healthcare Services.
Education. ServiceMaster is a leading provider to the education market
of maintenance, custodial and grounds services, and, through the
DAKA/ServiceMaster joint venture, food management services. The facilities which
comprise the education market served by ServiceMaster include primary schools,
secondary schools and school districts, private specialty schools and colleges
and universities. As of December 31, 1995, ServiceMaster was serving in
approximately 400 educational facilities. ServiceMaster believes there is
significant potential for expansion in the education market due to its current
relatively low penetration of that market and the trend of educational
facilities to consider outsourcing more of their service requirements. However,
a majority of the educational facilities continue to assume direct
responsibility for managing their support functions.
Business and Industry. ServiceMaster is a leading provider of plant
operations and maintenance, custodial and grounds management services to
business and industrial customers. ServiceMaster believes that there is
potential for expansion in those business and industrial markets which
ServiceMaster has elected to emphasize due to ServiceMaster's low current
penetration of those markets and the trend of business to consider outsourcing
more of their service requirements and the trend of governmental units to
privatize parts of their operations. The emphasized markets include the food
processing, transportation, healthcare products, and automotive markets. As of
December 31, 1995, ServiceMaster was serving in approximately 160 business or
industrial facilities.
8
<PAGE>
Diversified Health Services
At December 31, 1995, the ServiceMaster Diversified Health Services
Companies constituted the nation's twelfth largest long term care company based
on the number of beds served and the largest company that was primarily a
management services company (as distinguished from a real estate operator). It
was also a major provider of planning and design services for long term care
facilities and for acute care hospitals.
At December 31, 1995, ServiceMaster Home Health Care Services was a
provider of management services to hospital-affiliated home health care
agencies. The number of free-standing home health care agencies operated by
ServiceMaster Home Health Care Services represented a very small percentage of
home health care agencies in the United States.
As described on page 5, effective January 1, 1996, ServiceMaster
Diversified Health Services was integrated with ServiceMaster Healthcare
Management Services to form ServiceMaster Healthcare Services.
International
The pest control companies acquired by ServiceMaster through its
European holding company (TMX-Europe) are each leaders in the pest control
business in the countries in which they operate. ServiceMaster believes that
there is potential for expansion of these businesses in both the United Kingdom
and elsewhere on the European continent.
Major Customers.
ServiceMaster has no single customer which accounts for more than 10%
of its total revenues. No part of the Company's business is dependent on a
single customer or a few customers the loss of which would have a material
adverse effect on the Company as a whole. Revenues from governmental sources are
not material.
Employees
On December 31, 1995, ServiceMaster had a total of approximately
34,000 employees.
ServiceMaster provides its employees with annual vacation, medical,
hospital and life insurance benefits and the right to participate in additional
benefit plans which are described in the Notes to Financial Statements included
in the 1995 Annual Report.
9
<PAGE>
<TABLE>
<CAPTION>
STRUCTURE OF SERVICEMASTER
(March 15, 1996)
<S> <C> <C> <C> <C> <C> <C> <C>
Public Investors
Note A, page 13
|
| 99%
________________________ ___________|____________
| | | |
| ServiceMaster | | ServiceMaster |
| Management |_____ | Limited Partnership |
| Corporation | | | |
| | | 1% | |
| | |__________| |
| Note D, page 13 | | | Note B, page 13 |
|______________________| | |______________________|
| |
| |
| | 99%
| ___________|____________
| | |
| | The |
| 1% | ServiceMaster Company|
|__________| Limited Partnership |
| |
| |
| Note C, page 13 |
|______________________|
|
__________________________|_________________________________________________________________
| 100% | 90% | |
| (Note E) | (Note F) | |
___________|____________ ___________|____________ __ __ __ __|__ __ __ ___ __ __ __ __|__ __ __ ___
| | | | | | | |
| ServiceMaster | | ServiceMaster | ServiceMaster International and
|Consumer Services L.P.| | Management | | Diversified | | New Business |
| | | Services L.P. | Health Services Development
| | | | | | | |
| | | |
| | | | | | | |
| Note E, page 14 | | Note F, page 15 | Note G, page 15 Note H, page 15
|______________________| |______________________| |_ __ __ __ __ __ __ __| |_ __ __ __ __ __ __ __|
| | |
_____________|_____________ _____________|_____________ |
| | | 89% | |
| | | (Note G) | |
___________|____________ ___________|____________ ___________|____________ ___________|____________ ___________|____________
| | | | | | | | | |
| TruGreen/ | | Merry Maids L.P. | | ServiceMaster | | ServiceMaster | | TMX-Europe B.V. |
| ChemLawn L.P. | | | | Diversified | | Home Health Care | | |
| | | | | Health Services | | Services Inc. | | |
| | | | | Companies | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Note I, page 15 | | Note L, page 16 | | Note N, page 16 | | Note O, page 16 | | Note P, page 16 |
|______________________| |______________________| |______________________| |______________________| |______________________|
| | |
| | |__Peter Cox
___________|____________ ___________|____________ |
| | | | |__Protekta/Riwa
| Terminix Int'l L.P. | | American Home | |
| | | Shield Corp. | |__Anticimex
| | | | |
| | | | |__Stenglein
| | | |
| Note J, page 16 | | Note M, page 16 |
|______________________| |______________________|
|
|
___________|____________
| |
| Res/Com L.P. |
| |
| |
| Note K, page 16 |
|______________________|
</TABLE>
Solid lines show a legal entity.
Dotted lines show a division of The ServiceMaster Company.
10
<PAGE>
DESCRIPTION OF THE STRUCTURE OF THE SERVICEMASTER ENTERPRISE
Organization and Structure of the Parent Companies
Until December 30, 1986, the ServiceMaster business was conducted by
ServiceMaster Industries Inc. On December 30, 1986, ServiceMaster was
reorganized into a limited partnership with the following results, among
others: ServiceMaster Limited Partnership became the parent unit in the
ServiceMaster enterprise, with one limited partnership share in ServiceMaster
Limited Partnership being issued to replace every then outstanding share of
common stock issued by ServiceMaster Industries Inc., and The ServiceMaster
Company Limited Partnership was established as the principal operating
subsidiary of ServiceMaster Limited Partnership.
Until January 31, 1992, the general partners in ServiceMaster Limited
Partnership and The ServiceMaster Company were ServiceMaster Management
Corporation, which served as the managing general partner, and three individual
general partners. On January 31, 1992, the three individual general partners
withdrew and became stockholders of ServiceMaster Management Corporation,
leaving ServiceMaster Management Corporation as the sole general partner having
management authority in the two principal partnerships and, as further
discussed below, the sole general partner having an interest in the 1% carried
interest reserved to the general partners of the two partnerships.
Since January 1, 1987, the general partners have collectively held a
1% interest in all profits and losses of ServiceMaster Limited Partnership and
of The ServiceMaster Company, in each case limited to profits and losses
generated since that date. Following the withdrawal of the individual general
partners on January 31, 1992, the entire 1% interest in the profits and losses
of each of ServiceMaster Limited Partnership and The ServiceMaster Company has
been held by ServiceMaster Management Corporation. These separate interests
constitute an aggregate interest of approximately 2% of the consolidated income
and losses of the ServiceMaster business (determined after allowing for minority
interests in subsidiaries, where applicable).
The Board of Directors of ServiceMaster Management Corporation has the
ultimate power to govern the ServiceMaster business. A majority of the
positions on the Board are reserved for independent directors. Although the
stock of ServiceMaster Management Corporation is owned by members of
ServiceMaster management, the stockholders have entered into voting trust
arrangements under which the incumbent members of the Board have the right to
determine the persons who will be elected to the Board each year. These
arrangements were not altered by the 1992 Reorganization.
Although the owners of the outstanding limited partner shares issued
by ServiceMaster Limited Partnership do not have the right to vote directly for
the directors of ServiceMaster Management Corporation, they do have the right to
replace ServiceMaster Management Corporation as the managing general partner by
voting the percentages of their shares prescribed in the Partnership Agreement
in favor of such replacement (provided, however, that certain opinions of
counsel are obtained). The holders of the outstanding shares of ServiceMaster
Limited Partnership accordingly retain the ultimate right to select
ServiceMaster management.
The 1992 Reorganization (ServiceMaster Corporation)
Reference is made to the discussion on page 1 for the background of
the 1992 Reorganization. As a result of the approval of the Reorganization
Package on January 13, 1992, ServiceMaster Corporation was admitted as a Special
General Partner of the Registrant on January 31, 1992. As of March 15, 1996, no
shares of stock of ServiceMaster Corporation had been issued and the corporation
remains dormant.
11
<PAGE>
Organization and Structure of Consumer Services
ServiceMaster Consumer Services Limited Partnership ("SMCS") provides
a separate identity for the Consumer Services business. SMCS is a holding
company for all of the operating groups which comprise such business, i.e.,
TruGreen-ChemLawn, Terminix, ServiceMaster Residential/Commercial Services,
Merry Maids, and American Home Shield.
SMCS has two general partners, ServiceMaster Consumer Services, Inc.
and The ServiceMaster Company. As a result of the transaction with WMX
Technologies, Inc. on December 31, 1995 (described on pages 2 and 3), The
ServiceMaster Company is the sole limited partner of SMCS. The controlling
interest in ServiceMaster Consumer Services, Inc., is held by ServiceMaster
Management Corporation.
Organization and Structure of Management Services
ServiceMaster Management Services Limited Partnership ("SMMS")
provides a separate identity for the Management Services business. This business
is primarily carried out through three divisions of SMMS, with a small amount of
specialized business conducted through a wholly owned subsidiary.
SMMS has two general partners, ServiceMaster Management Services,
Inc., and The ServiceMaster Company and 53 limited partners in two classes:
Class A and Class B. The general partners together hold a 1% interest in SMMS.
The Class A limited partners, all of whom are senior members of SMMS management,
collectively own 10% of the equity of SMMS (with equity determined for this
purpose after allowing for $505.6 million of intercompany debt to The
ServiceMaster Company). The Class B limited partner is The ServiceMaster
Company, which holds the remaining equity interest in SMMS.
Organization and Structure of Diversified Health Services
The ServiceMaster Company holds the controlling interests in the
following organizations which, together, comprise the ServiceMaster Diversified
Health Services group: the ServiceMaster Diversified Health Services Companies
and ServiceMaster Home Health Care Services Inc.
The ServiceMaster Diversified Health Services Companies consist of a
limited partnership and its general partner and their respective subsidiaries.
The ServiceMaster Company owns 89% of the equity of the ServiceMaster
Diversified Health Services Companies, with members of senior management owning
the remaining 11% of such equity.
ServiceMaster Home Health Care Services Inc. is wholly owned by The
ServiceMaster Company.
Organization and Structure of the International and New Business Development
Group
International operations of the Company are carried out through
subsidiaries, licensing or joint venture arrangements, all of which are
coordinated and supervised by the International component of the International
and New Business Development Group. As previously noted, in 1994, the Company,
through its Netherlands subsidiary, TMX-Europe B.V., acquired pest control
businesses in the United Kingdom, the Netherlands and Sweden.
On December 1, 1995, The ServiceMaster Company sold all of its equity
interest in ServiceMaster Child Care Services, Inc. to Bright Horizons
Children's Centers, Inc.
12
<PAGE>
Notes to Organizational Structure Chart
The following Notes are intended to be read in conjunction with the
organizational structure chart on page 10.
Note A--Public Investors
The public investors in the Registrant collectively hold a 99%
interest in the profits, losses and distributions of the Registrant through
their ownership of the limited partner interests in the Registrant ("Partnership
Shares"). The Partnership Shares are listed on the New York Stock Exchange under
the symbol "SVM". For the reasons indicated in Note D below, the public
investors' 99% interest in the Registrant entitles the public investors to an
approximately 98% interest in the consolidated profits, losses and distributions
of ServiceMaster.
Note B--ServiceMaster Limited Partnership
The Registrant (ServiceMaster Limited Partnership) serves as the
holding company for the ServiceMaster business. It does not conduct any
significant business operations or own any significant property except for its
99% common equity interest in the profits, losses and distributions of The
ServiceMaster Company Limited Partnership.
Note C--The ServiceMaster Company Limited Partnership
The ServiceMaster Company Limited Partnership supervises the
Company's international operations and serves as a holding company for the
Consumer Services, Management Services, and Diversified Health Services groups.
All of the common limited partner interests of The ServiceMaster Company are
held by the Registrant. On January 1, 1993, the ServiceMaster SGP Trust became a
special general partner of The ServiceMaster Company and has remained a special
general partner of The ServiceMaster Company since that date--see Note R.
Note D--ServiceMaster Management Corporation (Managing General Partner)
ServiceMaster Management Corporation is the managing general partner
of ServiceMaster Limited Partnership and The ServiceMaster Company Limited
Partnership (collectively referred to in this Note D as the "Partnerships").
ServiceMaster Management Corporation has the ultimate authority to control each
entity in the ServiceMaster enterprise.
The certificate of incorporation of ServiceMaster Management
Corporation requires that a majority of the positions on its board of directors
must be comprised of independent directors. The certificate of incorporation
further provides that this requirement may not be amended without the consent of
the holders of a majority of the outstanding shares of ServiceMaster Limited
Partnership. During the year 1995, the stock of ServiceMaster Management
Corporation was owned by persons who were past or present senior members of the
ServiceMaster management. The stockholders of this corporation have deposited
their stock in a voting trust of which the directors themselves are trustees
with discretionary power to vote the stock. These arrangements enable the
incumbent members of the Board of Directors to choose the persons elected to the
Board each year.
On January 31, 1992, as contemplated by the 1992 Reorganization, all
individuals who were then serving as general partners of the Partnership
withdrew as general partners and became stockholders of ServiceMaster Management
Corporation with stock interests therein which indirectly represented their
former general partner carried interests. Their general partner carried
interests were transferred to ServiceMaster Management Corporation as part of
these adjustments.
13
<PAGE>
ServiceMaster Management Corporation does not employ any significant
number of persons or own any office space or other equipment used to conduct the
day-to-day management of ServiceMaster; rather, the employees and assets
necessary to manage the ServiceMaster business are based within The
ServiceMaster Company or the operating entities.
The applicable partnership agreements as adopted in 1986 and as
amended since then provide that the general partners of the Partnerships are
entitled to a 1% interest in each of the two Partnerships. Since January 31,
1992, the sole holder of the 1% interest in each of the two Partnerships has
been ServiceMaster Management Corporation. These interests are "carried
interests" which means that ServiceMaster Management Corporation is not required
to contribute to the capital of the Partnerships except as may be necessary to
pay liabilities for which provision cannot otherwise be made. These carried
interests remain at a constant 1% in each of the two Partnerships at all times
regardless of the extent to which additional investments in the Partnerships are
made by others and regardless of the extent to which the Partnerships redeem
other interests. These 1% interests provide ServiceMaster Management Corporation
with approximately 1.99% of the profits and losses of the entire ServiceMaster
enterprise, that is, ServiceMaster Management Corporation is entitled to 1% of
the profits of The ServiceMaster Company Limited Partnership and, because that
partnership is 99% owned by ServiceMaster Limited Partnership, it is entitled to
an additional 1% of the 99% of The ServiceMaster Company Limited Partnership's
profits which are allocated to ServiceMaster Limited Partnership.
For the year 1995, each of the Partnerships made cash distributions
equal to 1% of its net income to ServiceMaster Management Corporation. The total
of the distributions made with respect to the year 1995 was $3,717,268. From
that amount the corporation paid state corporate taxes and, on behalf of its
stockholders but subject to reimbursement by them, the letter of credit fees
charged with respect to the promissory notes described in the next paragraph.
The balance, $3,514,856, was distributed by ServiceMaster Management Corporation
to those past and present officers of ServiceMaster who constituted the
stockholders of ServiceMaster Management Corporation. At December 31, 1995, such
persons included Messrs. Cantu, Erickson, Keith, Mrozek and Oxley, whose
participations within the 1.99% total carried interest of ServiceMaster
Management Corporation at the end of 1995 were, respectively, 14.79%, 10.85%,
5.44%, 3.20%, and 5.44%.
At December 31, 1995, the stock of ServiceMaster Management
Corporation was owned by 34 ServiceMaster executives, each of whom has signed a
promissory note payable to the corporation in the amount of the purchase price
of his or her stock. Such notes total approximately $15,000,000 in the aggregate
and are payable upon demand. The payment of each such note is secured by a
letter of credit from the Bank of America (Illinois). The fees for such letters
of credit are borne entirely by the makers of the notes and not by
ServiceMaster.
Note E--ServiceMaster Consumer Services Limited Partnership and ServiceMaster
Consumer Services, Inc.
ServiceMaster Consumer Services Limited Partnership ("SMCS") is the
holding company for the Consumer Services business. ServiceMaster Consumer
Services, Inc. is one of the two general partners of SMCS. The second general
partner is The ServiceMaster Company. The ServiceMaster Company, through its
direct and indirect ownership of the 1% interest held by the general partners
and as the sole limited partner, holds a 100% equity interest in SMCS.
Note F--ServiceMaster Management Services Limited Partnership and ServiceMaster
Management Services, Inc.
ServiceMaster Management Services Limited Partnership ("SMMS") is the
holding company for the Management Services business. ServiceMaster Management
Services, Inc. is one of the two general partners of SMMS. The second general
partner is The ServiceMaster Company. The general partners collectively hold a
1%
14
<PAGE>
interest in SMMS, and The ServiceMaster Company, as the Class B limited
partner, and members of senior management of Management Services, as Class A
limited partners, hold the remaining 99% interest.
In January 1994, members of senior SMMS management purchased a 10%
interest in SMMS as Class A limited partners. The equity of SMMS is determined,
for purposes of such 10% interest, after allowing for intercompany debt to The
ServiceMaster Company. Such intercompany debt is offset and eliminated in
preparing the consolidated financial statements of the Registrant. SMMS has the
right (the "call right") to purchase this minority interest and each Class A
limited partner has the right (the "put right") to require SMMS to purchase his
or her interest at any time after the end of the year 1997. The purchase price
for all transactions involving the purchase of a Class A limited partner
interest is the then current fair market value of the interest as confirmed by
an independent appraisal.
Note G--ServiceMaster Diversified Health Services
ServiceMaster Diversified Health Services is a division of The
ServiceMaster Company. It is comprised of the ServiceMaster Diversified Health
Services Companies ("DHS") and ServiceMaster Home Health Care Services. The
former is 89% owned by The ServiceMaster Company (see Note N) while the latter
is 100% owned by The ServiceMaster Company. The ServiceMaster Diversified Health
Services Companies include a parent limited partnership and its general partner,
and a number of subsidiary companies.
Note H--International and New Business Development
International and New Business Development is a division of The
ServiceMaster Company. It consists of the International unit and New Business
Development. The International unit oversees and provides administrative support
for ServiceMaster's international operations. It owns all of the shares of TMX-
Europe B.V., the Netherlands holding company for all pest control businesses
acquired in Europe. The New Business Development component oversees and provides
administrative support for businesses which are in their formative stages. At
December 31, 1995, there were no such businesses in operation.
Note I--TruGreen Limited Partnership
TruGreen Limited Partnership ("TruGreen") has two general partners:
TruGreen, Inc., which is the managing general partner, and TSSGP Limited
Partnership, a Delaware limited partnership ("TSSGP"). Until January 1, 1995,
members of TruGreen management owned a 15% minority interest in TruGreen.
Effective January 1, 1995, all of the holders of the minority interest
contributed their limited partner units in TruGreen to the Registrant in
exchange for 2,824,062 shares of the Registrant and a contingent right to
receive an additional payment in 1997 depending upon the magnitude of TruGreen's
earnings and the performance of the Registrant's shares in 1995 and 1996. As a
result of this transaction, the Registrant and Consumer Services together became
the owners of 100% of the equity interests in TruGreen.
Note J--The Terminix International Company Limited Partnership
The Terminix International Company Limited Partnership ("Terminix")
has two general partners: Terminix International, Inc., the managing general
partner, and TSSGP. Terminix is a wholly owned subsidiary of SMCS.
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Note K--Res/Com Limited Partnership
ServiceMaster Residential/Commercial Services Limited Partnership
("Res/Com") has two general partners: ServiceMaster Residential/Commercial
Services Management Corporation, which is the managing general partner, and
TSSGP. Res/Com is a wholly owned subsidiary of SMCS.
Note L--Merry Maids Limited Partnership
Merry Maids Limited Partnership ("Merry Maids") has two general
partners: Merry Maids, Inc., which is the managing general partner, and TSSGP.
Merry Maids is a wholly owned subsidiary of SMCS.
Note M--American Home Shield Corporation
American Home Shield Corporation ("AHS") is a wholly-owned subsidiary
of SVM Holding Corp. ("Holding"). Holding is a wholly owned subsidiary of SMCS.
Note N--ServiceMaster Diversified Health Services Companies
The ServiceMaster Diversified Health Services Companies (formerly VHA
Long Term Care) are wholly owned subsidiaries of LTCS Investment L.P. ("LTCS").
LTCS is 89% owned by The ServiceMaster Company and 11% by members of senior
management of the ServiceMaster Diversified Health Services Companies. LTCS has
the right (the "call right") to purchase this 11% minority interest, and each
person who holds a part of the minority interest has the right (the "put right")
to require LTCS to purchase his or her minority interest in LTCS. The call right
and the put right may be exercised at any time during the period beginning on
January 1, 1999, and ending on January 31, 2004. The purchase price for all
transactions involving a minority interest purchase is the then current fair
market value as confirmed by an independent appraisal.
Note O--Home Health Care Services
ServiceMaster Home Health Care Services Inc. is a wholly owned
subsidiary of The ServiceMaster Company and is a part of the ServiceMaster
Diversified Health Services group.
Note P--TMX-Europe
TMX-Europe B.V., a Netherlands limited company, is a wholly owned
subsidiary of The ServiceMaster Company. TMX-Europe serves as the holding
company for ServiceMaster's European pest control companies.
Note Q--Other Subsidiaries
Other subsidiaries include CMI Group, Inc., a subsidiary of
ServiceMaster Management Services L.P., and miscellaneous operating and name
protection entities. Reference is made to Exhibit 21 for a complete list of the
subsidiaries of the Registrant.
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NOTE R--SERVICEMASTER SGP TRUST
On January 1, 1993, the limited partnership agreement of The ServiceMaster
Company was amended to admit a trust as a Special General Partner of The
ServiceMaster Company (the "SGP Trust"). The beneficiaries of the SGP Trust
are the limited partners of the Registrant as constituted from time to time.
The SGP Trust receives each year an allocation of taxable income equal to the
amount by which the aggregate taxable income of The ServiceMaster Company
exceeds the cash distributions made by the Registrant directly to its limited
partners. As a result of this allocation of taxable income, the cash
distributions made by the Registrant directly to its limited partners will
equal or exceed the taxable income of the Registrant which is directly
allocated to its limited partners. The ServiceMaster Company makes cash
distributions to the SGP Trust in the amounts required by the trust for the
payment of its federal and state income tax liabilities. This arrangement
prevents taxable income as allocated to the public shareholders from exceeding
their cash distributions from the Registrant and thereby solves the "crossover
problem" as described in earlier annual reports and in the Registrant's Proxy
Statement dated December 11, 1991.
* * *
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of Federal income tax matters describes the
material consequences to the non-corporate U.S. shareholders of ServiceMaster
Limited Partnership (the "Public Partnership") and to the Public Partnership as
sole common limited partner of The ServiceMaster Company Limited Partnership
(the "Principal Subsidiary Partnership"). (These two partnerships are together
referred to as the "Principal Partnerships".) This discussion does not
consider state, local and foreign tax issues, nor does it separately describe
(except where noted) the consequences to shareholders who received their shares
as a form of compensation (or in exchange for ServiceMaster stock issued in
prior years as compensation), or which are corporations, tax-exempt entities,
or non-resident alien individuals.
THIS DISCUSSION MAY NOT BE DIRECTLY APPLICABLE TO ANY PARTICULAR
SHARE-HOLDER, DEPENDING ON THAT SHAREHOLDER'S UNIQUE CIRCUMSTANCES. SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE FEDERAL INCOME TAX
TREATMENT IN THEIR SPECIFIC TAX SITUATIONS, INCLUDING THE APPLICATION AND EFFECT
OF THE STATE, LOCAL AND FOREIGN LAWS WHICH MIGHT APPLY TO A SPECIFIC
SHAREHOLDER.
The following discussion is based on provisions of the Internal
Revenue Code of 1986 (the "Code"), as amended, existing and proposed regulations
promulgated thereunder, judicial decisions, legislative history, and current
administrative rulings and practices. For a number of Code sections the Internal
Revenue Service (the "IRS") has been directed or authorized by statute to issue
regulations that may materially affect the tax consequences of holding an
interest in ServiceMaster. As of the date hereof, certain of these regulations
have not yet been promulgated. Moreover, any of the statutes, regulations,
rulings, practices, or judicial precedents upon which this discussion is based
could be changed, perhaps retroactively, with adverse tax consequences.
The Federal income tax treatment of shareholders, as described below,
depends in some instances on interpretation by ServiceMaster Management
Corporation (the "Managing General Partner") of complex provisions of the
Federal income tax law for which no clear precedent or authority may be
available. In determining basis adjustments, allocations, asset valuations and
taxable income of the Principal Partnerships, the Managing General Partner must
make determinations that will affect a shareholder in various ways depending on
such factors as the date a shareholder purchased shares of the Public
Partnership.
Possible Legislative Changes. Congress is considering the possible
enactment of proposals to revise in certain respects the federal income
taxation of widely held partnerships (such as the Public Partnership). These
proposals would, among other changes, simplify the rules under which the
partners report their share of partnership income or loss and change the rules
relating to the auditing of, and the collection of deficiencies with respect
to, such partnerships.
Tax Status of the Principal Partnerships
Significance of "Partnership" Status. Except as otherwise provided by
Code Section 7704, a partnership incurs no Federal income tax liability unless
the partnership is classified as an association taxable as a corporation.
Instead, each partner in a partnership is required to take into account in
computing his or her Federal income tax liability his or her allocable share of
the income, gains, losses, deductions and credits of the partnership. The
Federal income tax treatment contemplated for shareholders of the Public
Partnership will be available only if the Public Partnership is not classified
as an association taxable as a corporation.
If either of the Principal Partnerships were classified as an
association taxable as a corporation in any year, such partnership's income,
gains, losses, deductions and credits would be reflected on its own tax return,
rather than being passed through to shareholders, and its net income would be
taxed at corporate rates (with the maximum rate
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for regular tax currently equal to 35%, and the rate for alternative minimum tax
equal to 20%). In addition, distributions made to shareholders would be treated
as (a) taxable dividend income (to the extent of such partnership's current and
accumulated earnings and profits) or, to the extent distributions exceed the
partnership's earnings and profits, (b) a non-taxable return of capital (to the
extent of a shareholder's basis for his or her shares) or (c) taxable capital
gain. In sum, classification of either of the Principal Partnerships as an
association taxable as a corporation would result in a material reduction in the
anticipated cash flow and after-tax return to shareholders from holding Public
Partnership shares.
Classification of the Principal Partnerships. The Principal
Partnerships received an opinion of counsel that, as of their formation in
December, 1986, the Principal Partnerships would be classified as partnerships
for Federal income tax purposes. The Principal Partnerships believe that, since
that date, nothing has occurred which changes the conclusion that each of these
entities is to be classified as a partnership for Federal income tax purposes.
This conclusion is based upon the following factors, among other things:
(a) ServiceMaster Management Corporation has acted as a
general partner in each of the Principal Partnerships and has
maintained and will continue to maintain a net worth, on a fair market
value basis, of at least $15.0 million (apart from direct or indirect
interests in either of the Principal Partnerships or in any
subsidiaries of the Principal Partnerships) in the form of (i) cash or
cash equivalents; (ii) marketable obligations issued or guaranteed by
the United States government or any agency or political subdivision
thereof or issued by any state of the United States or any agency or
political subdivision thereof; (iii) commercial paper; (iv)
certificates of deposit; (v) bankers' acceptances; (vi) securities
regularly traded on an established market; and/or (vii) notes
receivable secured by bank letters of credit;
(b) Each of the Principal Partnerships has operated at all
times in accordance with applicable provisions of the Delaware Revised
Uniform Limited Partnership Act, the terms and conditions of their
respective partnership agreements, and the statements and
representations made in ServiceMaster's December 11, 1991, proxy
statement/prospectus;
(c) Except as required by Section 704(c) of the Code or as the
result of a temporary allocation required under Section 704(b) of the
Code (for example, a qualified income offset or a minimum gain
chargeback), the aggregate interest of the Managing General Partner in
each material item of gain, loss, deduction or credit of each of the
Principal Partnerships has always been equal to at least 1% of each
such item;
(d) The partnership agreement governing each of the Principal
Partnerships has provided, and continues to provide, in accordance
with IRS Revenue Procedure 89-12, that upon dissolution of the
respective partnerships the general partners of that partnership will
contribute to the partnership an amount equal to the deficit balance,
if any, in their capital accounts; and
(e) The general partners of each of the Principal Partnerships
have always held their respective interests in each of the Principal
Partnerships for their own accounts and, in managing each of the
Principal Partnerships, have not acted under the direction of or as
agents for the limited partners of the Public Partnership.
If the Managing General Partner were to withdraw as a partner at a
time when there is no successor managing general partner, or if the successor
managing general partner could not satisfy the applicable net worth requirement
and other restrictions, then the IRS might attempt to classify one or both of
the Principal Partnerships as associations taxable as corporations.
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The Managing General Partner and the Principal Partnerships intend to
contest any material adverse determination by the IRS classifying either of the
Principal Partnerships as an association taxable as a corporation.
Shareholders should be aware that the Principal Partnerships, and hence
indirectly the shareholders, may incur substantial legal expenses in the event
of such a contest, and there can be no assurance that such a contest would be
successful. At the same time, however, such an adverse determination is not
expected to occur.
Publicly Traded Partnerships Treated as Corporations. Section 7704 of
the Code provides that a publicly traded partnership (i.e., any partnership if
interests in the partnership are traded on an established securities market or
are readily tradeable on a secondary market or the substantial equivalent
thereof) will generally be treated as a corporation for Federal income tax
purposes with respect to taxable years beginning after 1987. However, Section
7704 also provides that a partnership whose interests were publicly traded on
December 17, 1987 will not be treated as a corporation under Section 7704 until
the partnership's first taxable year beginning after 1997. This "grandfather
status" is lost, however, if the partnership adds a substantial new line of
business after December 17, 1987; in that event, the partnership may be treated
as a corporation as of the day after the date on which such substantial new line
of business is added. The Public Partnership is a publicly traded partnership
for purposes of Section 7704 but ServiceMaster currently intends to operate its
businesses in a manner so as to continue to qualify under this exception to the
general rule of Section 7704 and to thereby retain its partnership tax status
for Federal income tax purposes for all tax years beginning before 1998.
In accordance with shareholder approval granted on January 13, 1992,
ServiceMaster currently intends to engage in a reincorporating merger on
December 31, 1997, immediately prior to the time when Code Section 7704 would
otherwise automatically treat the Public Partnership as a corporation for
Federal income tax purposes. The reincorporating merger should provide certain
benefits which might not be available if ServiceMaster remained in partnership
form subject to the application of Code Section 7704. As discussed more fully
in ServiceMaster's December 11, 1991 proxy statement/prospectus, no Federal
income tax will be imposed on shareholders in the Public Partnership by reason
of the reincorporating merger, assuming that Federal income tax laws remain as
now constituted.
The board of directors of the Managing General Partner may accelerate
the effective date of the reincorporating merger to a date earlier than December
31, 1997 if either changes in tax laws or other developments cause more than 51%
of ServiceMaster's income to be subject to corporate income tax prior to 1998 or
the board of directors, in its sole discretion, determines that the advantages
of such acceleration to ServiceMaster and the holders of a majority of its
outstanding shares outweigh the disadvantages. It is possible that an
acceleration of the effective date of the reincorporating merger could adversely
impact some shareholders in the Public Partnership.
THE DISCUSSION THAT FOLLOWS IS BASED ON THE ASSUMPTION THAT THE
PRINCIPAL PARTNERSHIPS ARE NOT CLASSIFIED FOR FEDERAL INCOME TAX PURPOSES AS
ASSOCIATIONS TAXABLE AS CORPORATIONS, AND THAT THE PUBLIC PARTNERSHIP IS NOT
TREATED AS A CORPORATION PURSUANT TO CODE SECTION 7704.
Tax Consequences of Partnership Share Ownership
General. The Public Partnership is not subject to Federal income tax
as an entity. Rather, subject to the limitations prescribed in Code Section 469,
each partner is required to report on his or her Federal and state income tax
returns his or her allocable share of the income, gains, losses, deductions and
credits (and, for alternative minimum tax purposes, tax preference items) of the
Public Partnership for the taxable year of the Public Partnership ending with or
within his or her taxable year and will be taxable directly on his or her
allocable share of the Public Partnership's taxable income. The Public
Partnership's taxable income includes its allocable share of the income, gains,
losses, deductions and credits (and, for alternative minimum tax purposes, tax
preference items) of the Principal Subsidiary Partnership which, in turn,
includes its allocable share of such items of subsidiary partnerships. The
beneficial owners of Partnership Shares are treated as partners of the Public
Partnership for Federal income
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tax purposes. Thus, if Partnership Shares are held by a nominee, the beneficial
owner of the Partnership Shares will be taxed on income and loss of the Public
Partnership. Subject to the discussion set forth in the next five paragraphs,
because shareholders are required to include Public Partnership income in their
income for tax purposes without regard to whether they receive cash
distributions of that income, shareholders may be liable for Federal income
taxes with respect to Public Partnership income even though they have not
received cash distributions from the Public Partnership sufficient to pay such
taxes. However, throughout the period from January 1, 1987 to December 31, 1995,
the Public Partnership's cash distributions to its shareholders have been
substantially in excess of the taxes payable in respect of the taxable income
allocated to such shareholders. The Public Partnership has no reason to expect
that this situation will not continue through the end of the year 1997.
ServiceMaster SGP Trust. In recognition of the fact that in 1993 (for
the first time in the Public Partnership's history) taxable income was likely to
exceed cash distributions to many shareholders of the Public Partnership, the
Principal Subsidiary Partnership admitted the ServiceMaster T Trust as a special
general partner of the Principal Subsidiary Partnership effective January 1,
1993. On September 30, 1993, the ServiceMaster T Trust was replaced by the
ServiceMaster A Trust. Each of these trusts is hereinafter referred to as the
"SGP Trust". The interest held by the SGP Trust is denominated in the Principal
Subsidiary Partnership's partnership agreement as a Class T Partnership
Interest. (See Note R, page 17). As stated in Note R, the beneficiaries of the
SGP Trust are the limited partners of the Public Partnership as constituted from
time to time. On the date on which ServiceMaster converts back to corporate form
pursuant to the Reincorporating Merger approved on January 16, 1992, the SGP
Trust will be assimilated into ServiceMaster Incorporated of Delaware, the
successor corporate holding company for the ServiceMaster enterprise.
The beneficial interests held by the beneficiaries of the SGP Trust
are not assignable or transferable separately, but only by and in connection
with the transfer of shares in the Public Partnership. Every assignment, sale or
transfer of any interest in shares in the Public Partnership prior to the date
on which the SGP Trust terminates will include a proportional undivided
beneficial interest in the SGP Trust.
Since January 1, 1993 the SGP Trust has been allocated that amount of
the taxable income (determined without regard to section 743(b) adjustments) of
the Principal Subsidiary Partnership which exceeds the aggregate cash
distributions made by the Public Partnership to its limited partners. The effect
of this arrangement is that the cash distributions made by the Public
Partnership to its limited partners will always equal or exceed the taxable
income of the Public Partnership which is directly allocated to its limited
partners. With respect to the additional taxable income which is allocated to
the SGP Trust, the Principal Subsidiary Partnership makes cash distributions to
the SGP Trust from time to time in the amounts required by the SGP Trust to
discharge its federal and state income tax liabilities. The SGP Trust does not
receive any other allocations of income or cash distributions.
The formation of the SGP Trust was not a taxable event to the
Principal Partnerships or the shareholders, and the creation of the Class T
Partnership Interest was not a taxable event to either the SGP Trust or the
Principal Subsidiary Partnership or to the Public Partnership. The distribution
of funds to the SGP Trust by the Principal Subsidiary Partnership is not a
taxable event to either party. The SGP Trust includes in its taxable income its
allocable share of the income of the Principal Subsidiary Partnership.
If the SGP Trust were to distribute its income to its beneficiaries,
such distributions would be taxable to the beneficiaries. However, because it is
not anticipated that the SGP Trust will make any distributions to its
beneficiaries, the shareholders of the Public Partnership will not recognize any
taxable income on account of the establishment of, and the allocations to, the
SGP Trust.
Accounting Method and Tax Information. The Public Partnership uses the
accrual method of accounting in reporting income and computes income on the
basis of a taxable year ending on December 31. The Public Partnership will
prepare and furnish to each shareholder of record during any taxable year the
information necessary
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for the preparation of the shareholder's Federal, state and other tax returns
required as a result of the operations of the Public Partnership for that year.
Tax Basis of Partnership Shares. The tax basis of a shareholder in his
or her Partnership Shares is significant because (i) basis is used in measuring
the gain or loss recognized for tax purposes either upon the receipt of cash
distributions from the Public Partnership or upon a partial or complete
disposition of Partnership Shares by the shareholder and (ii) a shareholder may
deduct his or her allocable share of Public Partnership losses only to the
extent of his or her tax basis in his or her shares. See "Tax Consequences of
Partnership Share Ownership -- Taxation of Partners on Public Partnership
Distributions" and "Sale or Other Disposition of Shares."
Taxation of Partners on Public Partnership Distributions. If the cash
distributions to a shareholder by the Public Partnership in any year exceed his
or her allocable share of the Public Partnership's taxable income for that year,
the excess will constitute a return of capital to the shareholder to the extent
of the shareholder's basis in his or her Partnership Shares. This situation is
expected to occur for shareholders whose taxable income is determined by
reference to the Section 754 election (see "Section 754 Election", page 50). A
return of capital will not be reportable as taxable income by a shareholder for
Federal income tax purposes, but will reduce the tax basis of his or her
Partnership Shares. If a shareholder's tax basis were reduced to zero, then any
further cash distribution to the shareholder for any year in excess of his or
her allocable share of the Public Partnership's tax-able income for that year
would be taxable to him or her as though it were gain on the sale or exchange of
his or her Partnership Shares. All or a portion of such excess cash distribution
could be treated as ordinary income as the result of the application of the
recapture provisions of the Code. See "Sale or Other Disposition of Shares."
Limitation on Losses. No investor should invest in the Public
Partnership with the expectation that an investment in the Public Partnership
will result in tax losses that may be applied to offset an investor's income
from other sources. To the extent that the Principal Partnerships' operations
result in losses for tax purposes in any calendar year, a shareholder generally
will be entitled to use his or her allocable share of such losses to the extent
of his or her tax basis in his or her Partnership Shares at the end of the year,
subject to the limitations prescribed in Code Section 469.
Code Section 469 limits a taxpayer's ability to use losses or credits
generated by limited partnerships and other business activities in which such
taxpayer does not materially participate ("passive activities"). In general,
losses from passive activities will not offset earned income (salary and bonus)
or portfolio income (interest, dividends and royalties). Such losses will
generally only offset income from other passive activities. Similarly, tax
credits from passive activities will only reduce income tax attributable to
income from passive activities. Losses and credits from a passive activity which
cannot be used in a given year are generally carried forward. These deferred
losses and credits, if not usable sooner, will generally be allowed in full when
the taxpayer disposes of his or her entire interest in the activity.
Section 469 applies separately to each publicly traded partnership.
Thus, passive activity losses and credits attributable to a limited partner's
interest in a publicly traded partnership (such as the Public Partnership)
cannot be applied against the limited partner's other income, even if such
income is treated as passive under Section 469. Such losses and credits are
suspended and carried forward for applications against income from the publicly
traded partnership in future years. Upon a complete disposition of the limited
partner's interest in the publicly traded partnership in a fully taxable
transaction, any of the limited partner's remaining suspended losses generally
may be applied against other income. Income attributable to a limited partner's
interest in a publicly traded partnership (such as the Public Part-nership)
cannot be offset by losses or credits from the limited partner's other passive
activities.
Substantially all of any losses or credits generated by the Public
Partnership will likely be subject to the limitations prescribed in Section 469.
The limitations prescribed in Section 469 generally apply to individuals,
estates, trusts, personal service corporations and, with certain modifications,
closely-held corporations.
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Under current law, a partner who is subject to the "at-risk"
limitations of Code Section 465 may not deduct his or her allocable share of
partnership losses for a taxable year to the extent they exceed the aggregate
amount for which he or she is considered to be "at-risk" with respect to the
partnership activities giving rise to those losses as of the end of its taxable
year in which the losses occur. Because it is not anticipated that the Principal
Partnerships will incur losses that exceed either the shareholders' aggregate
basis in their Partnership Shares or amounts "at-risk" with respect to the
Principal Partnerships' activities, the "at-risk" limitations under current law
should generally not affect shareholders adversely.
Federal Income Tax Allocations
General. In general, items of income, gain, loss, deduction and
credit for the Principal Partnerships are allocated for both accounting and
Federal income tax purposes in accordance with the percentage interests of the
general and limited partners. However, as discussed in greater detail below, the
Managing General Partner is empowered by the limited partnership agreements for
the Principal Partnerships (the "Principal Partnership Agreements") to specially
allocate various Principal Partnership tax items other than in accordance with
percentage interests when, in the judgment of the Managing General Partner, such
special allocations are necessary to comply with applicable provisions of the
Code and the regulations or, to the extent permissible under the Code and the
regulations, to preserve the uniformity of the shares in the Public Partnership,
i.e., to ensure that all Partnership Shares will have identical attributes.
These allocation provisions will be recognized for Federal income tax purposes
if they are considered to have "substantial economic effect" within the meaning
of Code Section 704(b). If any allocation fails to satisfy the "substantial
economic effect" requirement, the allocated items will be reallocated among the
shareholders based on their respective "interests in the partnership,"
determined on the basis of all of the relevant facts and circumstances.
Pursuant to regulations issued under Section 704(b), a partnership
allocation will be considered to have "substantial economic effect" if it is
determined that the allocation has "economic effect" and the economic effect is
"substantial." An allocation to partners (other than an allocation of loss,
deduction or certain other items attributable to nonrecourse liabilities
("nonrecourse deductions")) will be considered to have "economic effect" if
(i) the partnership maintains capital accounts in accordance with specific
rules set forth in the regulations and the allocation is reflected through an
increase or decrease in the partners' capital accounts, (ii) liquidating
distributions are required to be made in accordance with the partners'
respective positive capital account balances by the end of the taxable year
(or, if later, within 90 days after the date of liquidation), and (iii) any
partner with a deficit in his or her capital account following the
distribution of liquidation proceeds would be unconditionally required to
restore the amount of such deficit to the partnership. If the first two of
these requirements are met but the partner to whom an allocation is made is not
obligated to restore the full amount of any deficit balance in his or her
capital account, the allocation still will be considered to have "economic
effect" to the extent the allocation does not cause or increase a deficit
balance in the partner's capital account (determined after reducing that
account for certain "expected" adjustments, allocations, and distributions
specified by the regulations) if the partnership agreement contains a
"qualified income offset" provision. A qualified income offset requires that
in the event of any unexpected distribution (or specified adjustments or
allocations) to a partner that results in a deficit balance in such partner's
capital account, there must be an allocation of income or gain to the dis-
tributee that eliminates the resulting capital account deficit as quickly as
possible.
In order for the "economic effect" of an allocation to be considered
"substantial," the regulations require that the allocation must have a
"reasonable possibility" of "substantially" affecting the dollar amounts to be
received by the partners, independent of tax consequences. The regulations
provide that the "economic effect" of an allocation will be presumed to be
insubstantial if it merely shifts tax consequences within a partnership taxable
year or is transitory, i.e., likely to be offset by other allocations in
subsequent taxable years. The regulations state, however, that adjustments to
the tax basis in property will be presumed to be matched by corresponding
changes in the fair market value of the property. Thus, the regulations
conclude that there will not be a strong likelihood
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that an allocation of deductions attributable to depreciation will be transitory
due to a provision for a subsequent corresponding allocation of gain
attributable to the disposition of that property.
In addition to the regulations described above, the Treasury has
issued regulations which address the effect of nonrecourse liabilities upon
partnership allocations. Under the regulations, if (i) the partnership maintains
capital accounts in accordance with specific rules set forth in the regulations
and allocations are reflected through an increase or decrease in partners'
capital accounts and (ii) liquidating distributions are required to be made in
accordance with partners' respective positive capital account balances by the
end of the taxable year (or, if later, within 90 days after the date of
liquidation), then a partner may be allocated nonrecourse deductions that cause
his or her capital account to fall below zero, provided (among other
requirements) that the deficit produced by the allocation is not in excess of
the minimum gain that would be allocated to the partner in the event the
partnership property securing the nonrecourse liability were disposed of in a
taxable transaction in full satisfaction of such liability. The regulations
further provide that in the event there is a decrease in such partnership's
minimum gain for a partnership taxable year, the partners must be allocated
items of partnership income and gain for such year (and, if necessary, for
subsequent years) in proportion to, and to the extent of, an amount equal to
such partner's share of the net decrease in partnership minimum gain during such
year.
The Principal Partnership Agreements provide that a capital account is
to be maintained for each partner, that the capital accounts are to be
maintained in accordance with applicable principles set forth in the
regulations, and that all allocations to a partner are to be reflected in the
partner's capital account. In addition, distributions upon liquidation of the
Principal Partnerships are to be made in accordance with respective capital
account balances. The Principal Partnership Agreements do not require the
limited partners to restore any deficit balance in their capital accounts upon
liquidation of the Principal Partnerships. However, the Principal Partnership
Agreements contain a "minimum gain" allocation for nonrecourse deductions and a
"qualified income offset" provision. Pursuant to the Principal Partnership
Agreements, tax income and gain will be allocated in a manner consistent with
the book income and gain allocations associated with the minimum gain and
qualified income offset provisions.
The manner of allocation of items of income, gain, loss, deduction and
credit for both book and Federal income tax purposes is set forth in the
Principal Partnership Agreements. In general, the Principal Partnerships'
income, gains, losses, deductions and credits are allocated pursuant to the
Principal Partnership Agreements among the partners pro rata in accordance with
their percentage interests, except that the allocation of taxable income of the
Principal Subsidiary Partnership to the ServiceMaster SGP Trust is determined in
the manner described above and in Note T, page [16]. The Principal Partnership
Agreements contain special allocations of book income and gain for the qualified
income offset and minimum gain provisions (discussed above) and special
allocations of income and deduction to preserve the uniformity of shares. The
Principal Partnership Agreements further provide exceptions to the pro rata
allocations for Federal income tax purposes of (i) income, gain, loss and
deductions attributable to properties contributed to the Principal Partnerships
in exchange for shares ("Contributed Property"), (ii) income, gain, loss and
deductions attributable to the Principal Partnerships' properties where the
Principal Partnerships have adjusted the book value of such properties upon the
Public Partnership's issuance of additional shares to reflect unrealized
appreciation or depreciation in value from the later of the Principal
Partnerships' acquisition date for such properties or the latest date of a prior
issuance of shares ("Adjusted Property"), (iii) curative allocations of gross
income and deductions to preserve the uniformity of shares issued or sold from
time to time, (iv) recapture income resulting from the sale or disposition of
Principal Subsidiary Partnership assets ("Recapture Income"), (v) income and
gain in a manner consistent with the allocation of book income and gain pursuant
to a qualified income offset, and (vi) income and gain attributable to
nonrecourse debt in a manner consistent with the allocation of book income and
gain under a minimum gain provision.
With respect to property contributed by a shareholder to the Principal
Partnerships, the Principal Partnership Agreements provide that, for Federal
income tax purposes, partnership income, gain, loss and deductions shall first
be allocated among the partners in a manner consistent with Code Section 704(c).
In addition, the Principal Partnership Agreements provide that partnership
income, gain, loss and deductions attributable to Adjusted Property shall be
allocated for Federal income tax purposes in accordance with Section 704(c)
principles.
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Pursuant to Section 704(c), items of partnership income, gain, loss and
deduction with respect to Contributed Property are to be shared among the
partners pursuant to regulations so as to take account of the differences
between the Principal Subsidiary Partnership's basis for the property and the
fair market value of the property at the time of the contribution (i.e., a Book-
Tax Disparity).
The IRS has issued final regulations under Section 704(c) which
provide that these allocations of partnership income, gain, loss and deduction
to account for the Book-Tax Disparity can be made by any reasonable method. The
final regulations set forth three non-exclusive allocation methods which are
generally considered to be reasonable. The Principal Subsidiary Partnership
makes every effort to comply with these regulations.
As discussed below, the Code Section 754 election permits an
adjustment in the basis in the assets of the Principal Subsidiary Partnership
and subsidiary partnerships pursuant to Code Section 743(b) to reflect the price
at which Partnership Shares are purchased from a shareholder as if such
purchaser had acquired a direct interest in such assets. See "Section 754
Election." Such Section 743(b) adjustment is attributed solely to such purchaser
of shares and is not added to the bases of the assets of the Principal
Subsidiary Partnership and subsidiary partnerships associated with all of the
shareholders ("common bases"). With respect to Section 743(b) adjustments,
proposed regulations relating to ACRS depreciation appear to require the
acquiring partner to use a depreciation method and useful life for the increase
in basis which is different from the method and useful life generally used to
depreciate the Public Partnership's common bases in the assets of the Principal
Subsidiary Partnerships and subsidiary partnerships.
The Managing General Partner has the authority under the Principal
Partnership Agreements to specially allocate items of income and deductions in a
manner that will preserve the uniformity among all shares, so long as such
allocations are consistent with and supportable under the principles of Code
Section 704. The Managing General Partner may use a "depreciation convention
method" or any other convention to preserve the uniformity of shares. If no
allowable or workable convention is available to preserve the uniformity of
Partnership Shares or the Managing General Partner in its discretion so elects,
the Partnership Shares may be separately identified as distinct classes to
reflect differences in tax consequences. The Managing General Partner has
adopted conventions and allocations to achieve uniformity among all Partnership
Shares.
The Principal Partnership Agreements also require that gain from the
sale of Principal Subsidiary Partnership properties, to the extent characterized
as Recapture Income, be allocated (to the extent such allocation does not alter
the allocation of gain otherwise provided for in the Principal Partnership
Agreements) among the partners (or their successors) in the same manner in which
such partners were allocated the deductions giving rise to such Recapture
Income.
The Section 704(b) regulations and Sections 1.1245-1(e) and 1.1250-
1(f) of the regulations tend to support a special allocation of Recapture
Income. However, such regulations do not specifically address a special
allocation based on the allocation of the deductions giving rise to such
Recapture Income as stated in the Principal Partnership Agreements. Therefore,
it is not clear that the allocation of Recapture Income will be given effect for
Federal income tax purposes. If it is not, such Recapture Income will be
allocated to all shareholders and the general partners.
Transferor/Transferee Allocations. The Principal Partnerships will
allocate their taxable income and losses among the shareholders of record in
proportion to the number of Partnership Shares owned by them based on the number
of months during the year for which each shareholder was record owner of the
shares. The Principal Partnerships' taxable income and loss allocable to each
month will be determined by allocating such income or loss pro rata to each
month in the year. With respect to any Partnership Share that is transferred
during any calendar month, the Principal Partnerships will treat a shareholder
who becomes the record owner of such share on or before the close of business on
the fifteenth day of the month as having been the owner of such share for the
entire month if he or she holds such share for the remainder of such month.
Conversely, a shareholder who becomes the record
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owner of a Partnership Share during such month but after the fifteenth day of a
calendar month will be allocated the taxable income and losses attributable to
the second half of such month if he or she holds such share for the remainder of
such month.
Depreciation; Amortization; Recapture
General. The Principal Partnerships claim depreciation, cost recovery
and amortization deductions with respect to the purchase price (or other tax
basis) of the various properties of the Principal Partnerships and subsidiary
partnerships and related improvements to the extent permitted by the applicable
Code provisions. Land is not subject to depreciation, cost recovery or
amortization deductions.
Until the enactment of Code section 197 in 1993, the general rule was
that if an intangible asset has a determinable useful life, then the cost of the
asset may be amortized over that useful life using a straight-line method. If,
however, the useful life of an intangible asset is not determinable, then the
cost of the intangible asset may not be amortized or deducted.
In 1993, Congress enacted Code Section 197. This section allows for
the amortization of certain intangibles over a 15-year period. This 15-year
amortization period must be used even if the intangible asset has a useful life
of less than 15 years. The types of intangible assets covered by Code Section
197 include goodwill, going concern value, work force in place, licenses,
permits, covenants not to compete, franchises, trademarks, trade names, customer
- -based intangible assets (e.g., favorable sale contracts) and supplier-based
intangible assets (e.g., favorable supply contracts). Interests in partnerships
are specifically excluded from Code Section 197, among other types of intangible
assets. Code Section 197 applies to intangible assets acquired after August 10,
1993 unless an election is made to apply Code Section 197 retroactively starting
after July 25, 1991.
The Principal Partnerships elected to have the provisions of Code
Section 197 apply retroactively to an increase in basis for property acquired by
the Principal Partnerships after that date. This election can be expected to
increase the amount of intangible amortization of the Principal Partnerships.
Various components of the Principal Partnerships' properties fall into
each of the categories discussed in the preceding paragraphs. A portion of the
cost of certain Principal Partnership properties is allocable to (i)
nondepreciable, nonamortizable land, (ii) tangible property, some of which is
real property (i.e., buildings and structural components) or tangible personal
property that may qualify for depreciation deductions, and (iii) intangible
property that may or may not qualify for amortization.
For shareholders who purchased shares in the Public Partnership after
August 18, 1993, the amortization on the intangible assets acquired by the
Principal Partnerships before July 26, 1991 allowed by Section 197 will apply
only to the increase in basis resulting from the Code Section 754 election. In
other words, no amortization under Code Section 197 will be allowed on the
Principal Partnerships' original basis in intangible assets, unless those assets
were acquired by the Principal Partnerships after July 25, 1991.
Deductions for depreciation, cost recovery and amortization claimed by
the Principal Partnerships with respect to assets of the Principal Partnerships
and subsidiary partnerships reduce the partnerships' adjusted basis for the
properties, thereby increasing the potential gain (or decreasing the potential
loss) to the Principal Partnerships upon the ultimate disposition of the
properties. These deductions also have the effect of reducing the shareholders'
adjusted basis for their Partnership Shares (by reducing taxable income or
increasing tax losses), thereby affecting the potential gain or loss to be
realized upon a subsequent sale of the shares. See "Sale or Other Disposition of
Shares."
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Sale or Other Disposition of Shares
General. In the event of a sale or disposition of Partnership Shares,
a shareholder will recognize gain or loss, as the case may be, on the
disposition in an amount equal to the difference between the amount realized by
the shareholder on the disposition and his adjusted tax basis for his
Partnership Shares. See "Tax Consequences of Partnership Share Ownership" --"Tax
Basis of Partnership Shares." For these purposes, a shareholder's share (as
determined for purposes of Code Section 752) of any Principal Partnership
indebtedness attributable to the transferred Partnership Shares will be included
in the amount realized on the disposition.
Generally, under current law, gain recognized by a shareholder on the
sale or exchange of shares that have been held for more than twelve months will
be taxable as long-term capital gain, taxable at a maximum rate of 28% in the
case of taxpayers other than corporations. However, that portion of the gain
attributable to "substantially appreciated inventory items" and "unrealized
receivables" of the Principal Partnerships, as those terms are defined in the
Code, will be treated as ordinary income. Ordinary income attributable to
unrealized receivables and inventory items may exceed the net taxable gain
realized upon the sale and may be recognized even if there is a net tax loss
realized upon the sale. "Unrealized receivables" include, among other things,
the shareholder's proportionate share of the amounts that would be recaptured as
ordinary income if the Principal Partnerships were to have sold their assets at
fair market value at the time the shareholder transferred his shares. See
"Depreciation; Amortization; Recapture". Any loss recognized upon the sale of
shares generally will be treated as a capital loss.
A shareholder will not ordinarily recognize any gain or loss upon
making a gift of Partnership Shares. However, a shareholder making a gift of
Partnership Shares more likely than not will include as an amount realized the
share (as determined for purposes of Code Section 752) of any of the
Partnerships' indebtedness allocable to the transferred Partnership Shares. See
"Tax Consequences of Partnership Share Ownership" -- "Tax Basis of Partnership
Shares." Such shareholder would therefore recognize gain (but not loss) on
making a gift of Partnership Shares if the shareholder's basis had declined so
that it were less than such amount deemed realized. In the case of a deductible
gift to a charitable organization the donor's basis is apportioned between the
value deemed contributed and the deemed sale price. Any gain recognized more
likely than not would be subject to the same rules (described above) which apply
to gain recognized on a sale of a Partnership Share, so that some portion could
be treated as ordinary income.
The IRS has ruled that a partner must maintain an aggregate adjusted
tax basis in his entire partnership interest (consisting of all interests in a
given partnership acquired in separate transactions). Upon the sale of a portion
of such aggregate interest, such partner would be required to allocate his
aggregate tax basis between the portion of the interest sold and the portion of
the interest retained according to some equitable apportionment method. (The IRS
ruling requires that the apportionment be based on the relative fair market
values of such interests on the date of sale.) This requirement, if applicable
to the Public Partnership, effectively would preclude a shareholder owning
shares that were purchased at different prices on different dates from
controlling the timing of the recognition of the inherent gain or loss in his
shares by selecting the specific shares that he will sell. However, the
application of this ruling in the context of a publicly traded limited
partnership such as the Public Partnership is not clear. The ruling does not
address whether this aggregation requirement, if applicable, results in the
tacking of the holding period of older shares onto the holding period of more
recently acquired shares.
Transferor/Transferee Allocations. The manner in which the Principal
Partnerships intend to allocate their taxable income and losses between
transferors and transferees of shares is described above under "Federal Income
Tax Allocations" -- "Transferor/Transferee Allocations." Shareholders
contemplating a transfer of shares should note that cash distributions to which
they are entitled may not correspond to the Principal Partnerships' taxable
income and loss which shall be allocated between the transferor and transferee
of such shares.
Information Return Filing Requirements. The Public Partnership is
required to notify the IRS of any sale or exchange (of which the Public
Partnership has notice) of a share and to report to the IRS the name, address,
and
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taxpayer identification number of the transferee and the transferor who were
parties to such transaction and of the Public Partnership, the date of the
transaction and any additional information required by the applicable
information return or its instructions. The Public Partnership also must provide
this information to the transferor and the transferee. If the Public Partnership
fails to furnish the required information to the IRS, the Public Partnership may
be subject to a penalty of up to $50 per failure, up to an annual maximum
penalty of $250,000, unless the failure is due to an intentional disregard of
the requirement, in which case a penalty of $100 per failure or if greater, 5%
of the amount required to be reported, would apply, without limit. Penalties
could also be asserted against the Public Partnership if it fails to furnish the
required information to the transferor and the transferee.
Any person who directly or indirectly holds an interest in the Public
Partnership as a nominee on behalf of another person during a Public Partnership
taxable year must furnish the Public Partnership with a written statement for
such taxable year identifying the name, address and taxpayer identification
number of the nominee and such other person and providing information regarding
acquisitions and transfers of Partnership Shares (including information
regarding acquisition cost and net sale proceeds) made by the nominee on behalf
of such other person during such taxable year.
Section 754 Election
Effect of the Election. The Principal Partnerships have made and
expect to continue to make the election permitted by Section 754 of the Code
which allows adjustments to the basis of partnership property under Section 743
of the Code upon certain transfers of a partnership interest. Such election,
once made, is irrevocable absent the consent of the IRS. The general effect of
such an election upon a transfer of shares is to permit the purchaser of such
shares to adjust the basis of the Principal Partnerships' properties for
purposes of his tax return to reflect the price at which his shares are
purchased, as if such purchaser had acquired a direct interest in the Principal
Partnerships' assets.
Effect of the Interplay Between the Section 754 Election, Section 197
and the SGP Trust. As discussed on page 44, the existence of the SGP Trust means
that the taxable income of ServiceMaster Limited Partnership as allocated to
each of its shareholders will not be greater than the cash distributions made to
that shareholder. For many shareholders, however, taxable income will be less
than their cash distributions due to the effect of the Section 754 election. The
principal effect of the Section 754 election is to cause the calculation of a
partner's share of taxable income to reflect amortization and depreciation
deductions which are determined by using a higher basis (reflecting the
partner's purchase price) in the underlying assets than the partnership's own
internal, historical basis for those assets. In this connection, the provision
in the Revenue Reconciliation Act of 1993 which permits the amortization of
intangible assets over a 15-year period has important consequences to those
persons who purchased ServiceMaster shares on August 10, 1993 or thereafter. If
their purchase price for such shares is at least $22 per share ($33 per share
before the June 7, 1993 3-for-2 share split), their proportionate interest in
the assets of ServiceMaster, including goodwill and other intangible assets on
which amortization is now being taken over a 15-year period, will cause the
calculation of their share of ServiceMaster's taxable income to include
deductions which are expected to leave such persons with an allocation of no
taxable income on such ServiceMaster shares or with negative taxable income on
those shares. (If a limited partner is allocated negative taxable income on his
or her ServiceMaster shares, it can be used to offset a like amount of positive
taxable income on other ServiceMaster shares or gain upon the sale of
ServiceMaster shares; however, it can not be used to offset taxable income from
other sources). Under these circumstances, cash distributions on such shares
will decrease the tax basis of those shares by the amount of cash distributed
and without an offsetting increase in basis attributable to the allocation of
taxable income to those shares. Accordingly, the amount of gain realized upon a
taxable disposition of the shares will be greater than would be the case if the
Section 754 election had not been made.
Tax exempt organizations such as pension plans, profit sharing plans,
IRAs, Keoghs, private foundations and other charitable organizations will
benefit from the interplay among the Section 754 election, the SGP Trust and the
amortization of intangibles in another way. Such entities are subject to the
unrelated business income tax
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on their share of the taxable income of a publicly traded partnership (such as
ServiceMaster). However, since their ServiceMaster taxable income is expected to
be zero or less (for the reasons discussed above), such entities should not be
subject to any unrelated business income tax liability or tax return filing
requirement.
Other Section 754-Related Matters. If a shareholder's adjusted basis
in his or her Partnership Shares is less than his or her proportionate share of
adjusted basis of the Principal Partnerships' property at the time of
acquisition of such Partnership Shares, such shareholder's share of adjusted
basis of the Principal Partnerships' property must be reduced to equal his or
her basis in the Partnership Shares, resulting in adverse consequences to such
shareholder.
A proper allocation of the adjustment among the various assets deemed
purchased for purposes of Section 743(b) requires a determination of the
relative value of the Principal Partnerships' assets at such time. The IRS may
challenge any such allocations.
Should the IRS require a different basis adjustment to be made, and
should, in the Corporate General Partner's opinion, the expense of compliance
exceed the benefit of the election, the Corporate General Partner may seek
permission from the IRS to revoke the Section 754 elections for the Principal
Partnerships. If such permission is granted, a purchaser of Partnership Shares
probably will incur increased tax liability.
Termination of the Principal Partnerships for Tax Purposes
Code Section 708 provides that if 50% or more of the capital and
profits interests in a partnership are sold or exchanged within a single 12-
month period, the partnership will be considered to have terminated for tax
purposes. Because of the structure of the Principal Partnerships, it is likely
that a Code Section 708 termination of the Public Partnership would result in a
Code Section 708 termination of the Principal Subsidiary Partnership as well. In
view of the fact that Partnership Shares will be publicly traded, it is possible
that shares representing 50% or more of the Public Partnership's capital and
profits interests might be sold or exchanged within a single 12-month period.
However, a share that changes hands several times during a 12-month period would
only be counted once for purposes of determining whether a termination has
occurred. If the Principal Partnerships should terminate for tax purposes, they
would be deemed to have distributed their assets to their partners, who would
then be deemed to have contributed the assets to new partnerships. The Principal
Partnerships would have a new basis in their non-cash assets equal to the
aggregate basis of the shareholders in their Partnership Shares prior to the
termination plus any gain recognized by the shareholders in the termination,
less any cash deemed distributed to the shareholders in connection with the
termination. Accordingly, if the basis of the shareholders in their Partnership
Shares is more or less than the Principal Partnerships' aggregate basis in their
assets immediately prior to the termination, the Principal Partnerships' basis
in their non-cash assets following the termination might have to be reallocated
among those assets to reflect the relative fair market values of those assets at
the time of termination. Such a reallocation may be favorable or unfavorable,
depending on the circumstances.
Generally, a shareholder would not recognize any taxable gain or loss
as a result of the deemed pro rata distribution of Principal Partnership assets
incident to a termination of the Principal Partnerships. A shareholder, however,
would recognize gain to the extent, if any, that the shareholder's pro rata
share of the Principal Partnerships' cash (and the reduction, if any in the
shareholder's share of the Principal Partnerships' indebtedness as determined
for purposes of Code Section 752) at the date of termination exceeded the
adjusted tax basis of his Partnership Shares. Also, the Principal Partnerships'
taxable years would terminate. If the shareholder's taxable year were other than
the calendar year, the inclusion of more than one year of the Principal
Partnerships' income in a single taxable year of the shareholder could result.
Also, new tax elections would be required to be made by the reconstituted
partnerships. Finally, a termination of the Principal Partnerships may cause the
Principal Partnerships or their assets to become subject to unfavorable
statutory or regulatory changes enacted prior to the termination but previously
not applicable to the Principal Partnerships or their assets because of
protective "transitional" rules. However, a constructive termination under Code
Section 708 should not cause the Partnership
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to lose the benefits of the up-to-10-year grace period during which the
application of new Code Section 7704 is postponed. See "Tax Status of the
Principal Partnerships" and "Publicly Traded Partnerships Treated as
Corporations."
In order to preserve maximum liquidity for the Partnership Shares, the
Public Partnership has not adopted procedures designed to prevent a deemed
termination of the Principal Partnerships from occurring.
An actual dissolution of the Principal Partnerships will result in the
distribution to the shareholders of record of any assets remaining after payment
of, or provision for, the Principal Partnerships' debts and liabilities. To the
extent that a shareholder is deemed to receive money (including any reduction in
his share of Principal Partnership liabilities as determined for purposes of
Code Section 752) in excess of the basis of his Partnership Shares, such excess
generally will be taxed as a capital gain, except to the extent of any
unrealized receivables or substantially appreciated inventory items, as
described above. See "Sale or Other Disposition of Shares." A shareholder will
recognize a loss upon dissolution only if the liquidating distribution consists
solely of cash, or of cash and unrealized receivables and appreciated inventory
items, and then only to the extent that the adjusted basis of his Partnership
Shares exceeds the amount of money received and his basis in such unrealized
receivables and inventory items.
Minimum Tax on Tax Preference Items
The Code provides for an alternative minimum tax on the excess of
alternative minimum taxable income over an exemption amount. Although these
rules are applicable to the shareholders of the Public Partnership, in fact the
Public Partnership has had no preference items since inception and does not
anticipate generating any preference items in the future.
Investment Interest
Each individual shareholder's distributive share of the Public
Partnership's portfolio income (i.e., income from interest, dividends, annuities
and royalties not derived in the ordinary course of a trade or business) will be
treated as investment income under Code Section 163(d) and may be offset by the
shareholder's investment interest expense. Code section 163(d) has been amended
to exclude capital gains on the disposition of investment property from the
computation of investment income unless a shareholder elects to include such
gains in his or her taxable income at ordinary rates. A portion of the interest
incurred by a shareholder to finance the acquisition of Partnership Shares will
generally be treated as investment interest expense if the Principal
Partnerships hold investment property.
The IRS has announced that forthcoming Regulations will also treat an
individual shareholder's net passive income from a publicly traded partnership
(such as the Public Partnership) as investment income under Code Section 163(d).
Accordingly, the amount of an individual shareholder's net passive income if any
from the Public Partnership will be treated as investment income for purposes of
Code Section 163(d). For this purpose, the computation of the amount of a
shareholder's net passive income from the Public Partnership will take into
account any passive activity deductions attributable to expenses of the
shareholder that are incurred outside the Public Partnership and are properly
allocable to the interest in passive activities that the shareholder holds
through Partnership Shares. Thus, the amount of a shareholder's net passive
income, if any, from the Public Partnership generally will be reduced on account
of a portion of any interest incurred by the shareholder to finance the
acquisition of Partnership Shares.
Noncorporate shareholders are urged to consult their tax advisors with
regard to the specific effect that limitations on the deduction of investment
interest would have on their investment in the Public Partnership.
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Tax-Exempt Entities, Individual Retirement Accounts and Regulated Investment
Companies
Unrelated Business Taxable Income. Tax-exempt entities (including IRAs
and trusts that hold assets of employee benefit or retirement plans) are subject
to tax on certain income derived from a business regularly carried on by the
entity that is unrelated to its exempt activities (i.e., "unrelated business
taxable income" ("UBTI")). It is anticipated that nearly all of any tax-exempt
entity's share (whether or not distributed) of the Principal Partnerships' gross
income will be treated as gross income from an unrelated business, and the tax-
exempt entity's share of nearly all of the Principal Partnerships' deductions
will be allowed in computing the tax-exempt entity's UBTI.
Tax-exempt shareholders other than those who benefit from the
interplay between the Section 754 Election, Section 197 and the SGP Trust as
described on page 51 would be subject to tax on any UBTI to the extent that the
sum of such UBTI (i.e., gross income net of deductions), if any, from their
Partnership Shares and from other sources were to exceed $1,000 in any
particular year. Moreover, even if their UBTI does not exceed $1,000 so that
tax-exempt shareholders do not incur a Federal income tax liability, they
nevertheless will be required to file income tax returns if their gross income
included in computing such UBTI is $1,000 or more for any tax year.
Investment Company Income. For purposes of determining whether a
shareholder is a regulated investment company (within the meaning of Code
Section 851), the shareholder's income derived from the Principal Partnerships
will be treated as income from dividends, interest and gains from the sale or
other disposition of securities only to the extent the shareholder's income is
attributable to such dividends, interest and gains realized by the Principal
Partnerships.
Administrative Matters
Information to Shareholders and Assignees. In addition to the required
Schedule K1 to be furnished by the Public Partnership to holders of Partnership
Shares during a particular taxable year, the Public Partnership intends to
furnish detailed instructions and explanations advising recipients of the
Schedule K1 as to how to fill out their own income tax returns. The information
will be provided within 90 days after the end of the Public Partnership's
taxable year.
Partnership Tax Returns and Possible Audit. Although a partnership is
not required to pay any Federal income tax, tax audits are conducted, and the
tax treatment of partnership income, loss, deduction and credit is determined,
at the partnership level in a unified proceeding.
In audits of partnerships, the IRS ordinarily will provide notice of
the commencement of administrative proceedings and final adjustment only to each
partner with an interest in profits of 1% or more. The Corporate General Partner
is designated the "tax matters partner" ("TMP") to receive notice on behalf of
and to provide notice to those shareholders with interests of less than 1% in
the Public Partnership ("non-notice shareholders"). The TMP may extend the
statutory period of limitations for assessment of adjustments attributable to
"partnership items" for all shareholders and may enter into a binding settlement
on behalf of non-notice shareholders, except for any group of such shareholders
with an aggregate interest of 5% or more in Public Partnership profits that
elects to form a separate notice group or shareholders who otherwise properly
notify the IRS that the TMP is not authorized to act on their behalf. If the IRS
and the TMP fail to settle an audit proceeding, then the TMP may choose to
litigate the matter. In that event, the TMP would select the court in which such
litigation would occur (including, perhaps, a court where prepayment of the tax
may be required). All shareholders would have the right to participate in such
litigation and, regardless of participation, would be bound by the outcome of
the litigation. Because shareholders will be affected by the outcome of any
administrative or court proceedings with respect to both the Public Partnership
and the Principal Subsidiary Partnership, the Corporate General Partner intends
to provide shareholders with appropriate notices of Federal income tax
proceedings with respect to both Principal Partnerships.
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Shareholders will be required to treat Public Partnership items on
their individual returns in a manner consistent with the treatment of those
items on the Public Partnership's return, unless the shareholders file with the
IRS a statement identifying the inconsistency. Examination of the Principal
Partnerships' tax returns could result in an adjustment to the tax liability of
a shareholder without any examination of the shareholder's tax return. In
addition, any such audit could result in an audit of a shareholder's entire tax
return and in adjustments to non-partnership related items on that return.
Tax Shelter Registration. The Code requires a tax shelter organizer to
register a "tax shelter" with the IRS by the first date on which interests in
the tax shelter are offered for sale. Such registration does not indicate
approval by the IRS and could result in an audit. The registration provisions
require the tax shelter organizer to maintain a list containing information on
each investor, would require the shareholders to report the Public Partnership's
tax registration number on their separate Federal income tax returns, and would
require the Public Partnership to maintain a list of each person to whom it
transfers an interest in a "tax shelter." Penalties may be imposed if
registration is required and not made. A "tax shelter" for purposes of the
registration requirement is one in which a person could reasonably infer, from
the representations made in connection with any offer for sale of any interest
in the investment, that the "tax shelter ratio" for any investor may be greater
than two to one as of the close of any of the first five years ending after the
date on which the investment is offered for sale. The term "tax shelter ratio"
is the ratio that the aggregate amount of gross deductions plus 350% of the
credits that are potentially allowable to an investor bears to the partner's
investment base for the year.
The Public Partnership has not been registered as a "tax shelter"
because it expects that no shareholder's tax shelter ratio will exceed two to
one.
Accuracy-Related Penalties. The Code provides for a penalty to be
assessed in the event of a tax underpayment attributable to a substantial
overstatement of the value or adjusted basis of property claimed on a tax
return. This penalty will apply if (i) the claimed value or adjusted basis of
the property equals or exceeds 200% of the correct value or adjusted basis, and
(ii) the amount of the tax underpayment for the taxable year attributable to
substantial valuation overstatements exceeds $5,000 ($10,000 in the case of a
corporation other than an S corporation or a personal holding company). The
amount of the penalty generally is 20% of the tax underpayment attributable to
substantial valuation overstatements where the claimed value or adjusted basis
is less than 400% of the correct value of adjusted basis, and 40% of the tax
underpayment attributable to substantial valuation overstatements where the
claimed value or adjusted basis equals or exceeds 400% of the correct value or
adjusted basis. The penalty will likely be potentially applicable to partners in
cases where the partnership has made a substantial valuation overstatement. The
penalty generally will not apply with respect to any portion of a tax
underpayment attributable to a substantial valuation overstatement (with respect
to property other than charitable deduction property) if it is shown that there
was a reasonable cause for such portion and that the taxpayer acted in good
faith with respect to such portion.
The Code provides for a penalty in the amount of 20% of any
underpayment of tax attributable to a "substantial understatement of income
tax." A "substantial understatement of income tax" is the amount of the
understatement of tax on a taxpayer's return for a particular taxable year that
exceeds the greater of $5,000 ($10,000 if the taxpayer is a corporation other
than an S corporation or a personal holding company) or 10% of the tax required
to be shown on the return for the year. As a general rule, the penalty will not
be imposed with respect to underpayments attributable to items for which (i)
there is or was substantial authority for the tax treatment afforded such items
by the taxpayer, or (ii) the relevant facts affecting the treatment of such
items are adequately disclosed in the taxpayer's return or in a statement
attached to the return and there was a reasonable basis for the position. The
penalty will not apply with respect to any portion of a tax underpayment
attributable to a substantial understatement of income tax if it is shown that
there was a reasonable cause for such portion and that the taxpayer acted in
good faith with respect to such portion. There can be no assurance that a
shareholder will not have a substantial understatement of income tax as a result
of the treatment of items of income, gain, loss, deduction and credit resulting
from his investment in the Public Partnership or that the IRS will not contend
that there is not
55
<PAGE>
substantial authority for the treatment on the shareholder's return of certain
items of income, gain, loss, deduction and credit. If the IRS should challenge
the treatment by the Principal Partnerships for tax purposes of the various
items of income, gain, loss, deduction and credit, and if a shareholder should
fail to meet the substantial authority and adequate disclosure tests, a
shareholder could incur a penalty for a substantial underpayment of taxes
resulting from his investment in the Public Partnership.
Interest on Deficiencies. The Code provides that interest accrues on
all tax deficiencies at a rate based on the Federal short-term rate plus 3
percentage points (5 percentage points in certain cases involving underpayment
by a C corporation of tax amounting to more than $100,000) and compounded daily.
This interest applies to penalties as well as tax deficiencies.
Backup Withholding. Distributions to shareholders whose Partnership
Shares are held on their behalf by a broker may constitute reportable payments
subject to backup withholding. Backup withholding, however, would apply only
if the shareholder (i) failed to furnish his Social Security number or other
taxpayer identification number to the person subject to the backup withholding
requirement (e.g., the broker) or (ii) furnished an incorrect Social Security
number or taxpayer identification number. If backup withholding were
applicable to a shareholder, the person subject to the backup withholding
requirement would be required to withhold 31% of each distribution to such
shareholder and to pay such amount to the IRS on behalf of such shareholder.
Amounts withheld under the backup withholding provisions are allowable as a
refundable credit against a taxpayer's Federal income tax.
Tax Considerations for Foreign Investors
General. A nonresident alien or foreign corporation, trust or estate
("foreign person") which is a partner in a partnership which is engaged in a
business in the United States will be considered to be engaged in such
business, even though the foreign person is only a limited partner. The
activities of the Principal Partnerships will constitute a United States
business for this purpose, and such activities likely will be deemed to be
conducted through a permanent establishment within the meaning of the Code and
applicable tax treaties. Therefore, a foreign person who becomes a shareholder
in the Public Partnership will be required to file a United States tax return
on which he must report his distributive share of the Principal Partnerships'
items of income, gain, loss, deduction and credit, and to pay United States
taxes at regular United States rates on his share of any of the Principal
Partnerships' net income, whether ordinary income or capital gains.
Code Section 1446 generally requires partnerships which have taxable
income effectively connected with a trade or business in the United States to
withhold tax with respect to the portion of such income allocable to foreign
partners. This withholding tax generally is imposed at the rate of 39.6% with
respect to effectively connected income (as computed for purposes of Section
1446) allocable to foreign individuals, and 35% with respect to effectively
connected income (as computed for purposes of Section 1446) allocable to
foreign corporations and withholding may be required under Section 1446 even if
no actual distribution has been made to partners. However, pursuant to an IRS
Revenue Procedure, in the case of a publicly traded partnership (such as the
Public Partnership) the Code Section 1446 withholding tax will be imposed in an
alternative manner unless the publicly traded partnership elects not to have
such alternative treatment apply. Under this alternative approach, the Code
Section 1446 withholding tax is imposed on distributions made to individual or
corporate foreign partners. The Treasury is authorized to issue such
regulations applying Section 1446 to publicly traded partnerships as may be
necessary to carry out the purposes of Section 1446, but such regulations have
not yet been issued. Although foreign shareholders would be entitled to a
United States tax credit for amounts withheld by Principal Partnerships under
Section 1446, either Section 1446 or the regulations (not yet issued) applying
Section 1446 to publicly traded partnerships could under some circumstances
adversely affect the Principal Partnerships and the foreign shareholders.
Branch Profits Tax. Code Section 884 imposes a branch profits tax at
the rate of 30 percent (or lower to the extent provided by any applicable income
tax treaty) on the earnings and profits (after certain adjustments) of a U.S.
branch of a foreign corporation, if such earnings and profits are attributable
to income effectively connected
56
<PAGE>
with a U.S. trade or business. The legislative history of Code Section 884
indicates that the branch prose tax is intended to apply to foreign
corporations that are partners in partnerships which have a U.S. trade or
business. Thus, foreign corporations which own shares in the Public Part-
nership may be subject to the branch profits tax on earnings and profits
attributable to the Principal Partnerships' income as well as federal income
tax on their share of Partnership income. The earnings and profits (which are
subject to branch profits tax) attributable to Partnership Shares held by a
foreign corporation will, of course, reflect a reduction for Federal income
taxes paid by the foreign corporate shareholder on its share of Partnership
income.
FIRPTA. The Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), as amended by subsequent legislation, provides that gain or loss on
the disposition of a United States Real Property Interest ("USRPI") is taxable
in the United States as if effectively connected with a U.S. business and
imposes withholding requirements on such sales and on distributions of USRPIs
by partnerships to foreign persons. USRPIs include (i) United States real
estate and (ii) interest in certain entities (including publicly traded
partnerships) holding United States real estate. The shares will not be USRPIs
unless the value of the Principal Partnerships' United States real estate
equals or exceeds 50% of the value of all its business assets. Furthermore,
the FIRPTA rules generally do not apply to any foreign person which owns 5% or
less of the publicly traded Partnership Shares. FIRPTA also imposes certain
withholding obligations with respect to dispositions of USRPIs by a partnership
that are includable in a foreign person's share of partnership income.
Foreign Taxes. A foreign person may be subject to tax on his share of
the Principal Partnerships' income and gain in his country of nationality or
residence, or elsewhere. The method of taxation in such jurisdictions, if any,
may differ considerably from the United States tax system described previously,
and may be affected by the United States characterization of the Principal
Partnerships and their income. Prospective investors who are foreign persons
should consult their own tax advisors with respect to the potential tax effects
of these and other items related to an investment in the Public Partnership.
State and Local Income Taxes
In addition to the Federal income tax consequences described above,
prospective investors should consider state and local tax consequences of an
investment in the Public Partnership. A shareholder's share of the taxable
income or loss of the Principal Partnerships generally will be required to be
included in determining his reportable income for state or local tax purposes.
If the Public Partnership is treated as a corporation under Code Section 7704,
as described above under "Tax Status of the Partnerships" -- "Publicly Traded
Partnerships Treated as Corporations," the Public Partnership may also be
treated as a corporation for state tax purposes in those states which base state
income taxes on Federal income tax laws.
Management has been successful in filing a composite return on behalf
of its individual shareholders in all states where the Principal Partnerships do
business. The Public Partnership will provide information each year to the
shareholders as to the share of income and taxes paid on their behalf in each
state. For those entities not included in the composite state return (corpo-
rations, partnerships and certain other entities), the Public Partnership will
provide the applicable state information.
Certain tax benefits which are available to shareholders for Federal
income tax purposes may not be available to shareholders for state or local tax
purposes and, in this regard, investors are urged to consult their own tax
advisors. The Public Partnership intends to supply shareholders with
information regarding their income, if any, derived from various jurisdictions
in which the Principal Subsidiary Partnership operates.
57
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATE
GENERAL PARTNER, SERVICEMASTER AND MERGER SUB
1. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATE GENERAL PARTNER AND
SERVICEMASTER. The following table sets forth, as of the date hereof, the
name, business address and present principal occupation or employment, and
material occupations, positions, offices or employments for the last five
years of each director and executive officer of the Corporate General Partner
and ServiceMaster. Each person is a citizen of the United States of America,
and, unless otherwise indicated below, the business address of each such
person is c/o The ServiceMaster Company, One ServiceMaster Way, Downers Grove,
Illinois 60515-9969.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------------------
<S> <C>
C. William Pollard...... Director since December 1977. Since May 1990, he has been the
Chairman of the Board of Directors and Chairman of the Executive
Committee. He is a member of the Consumer Services and
International and New Business Development Committee, the
Management Services and Diversified Health Services Committee,
the Finance Committee and the Nominating Committee. From May
1983 to December 31, 1993, Mr. Pollard served as the Chief
Executive Officer of ServiceMaster. He served as President of
ServiceMaster from 1981 to May 1990. Mr. Pollard is a director
of Herman Miller, Inc., Zeeland, Michigan, an office furniture
manufacturer, and a director of Provident Companies, Inc.,
Chattanooga, Tennessee.
Carlos H. Cantu......... Director since 1988. He is a member of the Executive Committee,
the Consumer Services and International and New Business
Development Committee, the Management Services and Diversified
Health Services Committee, the Finance Committee and the
Nominating Committee. On January 1, 1994, Mr. Cantu became the
President and Chief Executive Officer of ServiceMaster. He
served as the President and Chief Executive Officer of
ServiceMaster Consumer Services from May 1991 to August 1994, as
Executive Vice President and Chief Operating Officer, Consumer
Services, from October 1988 to May 1990 and as President and
Chief Operating Officer of ServiceMaster Consumer Services from
June 1, 1990 to May 1991. He served as President and Chief
Executive Officer of The Terminix International Company Limited
Partnership from December 18, 1986 to December 31, 1992. He has
been a director of Haggar Corporation, a clothing manufacturing
company in Dallas, Texas, since February 9, 1995 and a director
of First Tennessee National Corporation, a bank holding company,
since April 16, 1996.
Charles W. Stair........ Director since December 1986. He previously served as a director
from 1976 to 1983. On December 10, 1994 he was elected Vice
Chairman of the Board of Directors. He is a member of the
Management Services and Diversified Health Services Committee.
Mr. Stair is a member of the Profit Sharing, Savings and
Retirement Plan Administrative Committee. He served as the
President and Chief Executive Officer of ServiceMaster
Management Services from May 1991 to December 31, 1994, as
President and Chief Operating Officer, Management Services, from
June 1990 to April 1991, and as Executive Vice President and
Chief Operating Officer, Management Services, from October 1,
1988 to May 1990.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------------------
<S> <C>
Paul W. Berezny......... Director since October 7, 1995. He is a member of the Management
Services and Diversified Health Services Committee. He is
President of Berezny Investments, Inc., a real estate
development and management company.
Sidney E. Harris........ Director since December 10, 1994. He is a member of the
Management Services and Diversified Health Services Committee.
He has been the Dean of the Peter F. Drucker Graduate Management
Center at the Claremont Graduate School, Claremont, California
since 1991. He is a cofounder of the Institute for the Study of
U.S./Japan Relations in the World Economy. Dr. Harris is a
director of Transamerica Investors, Inc., Los Angeles,
California, a mutual funds investment company.
Herbert P. Hess......... Director since 1981. He is a member of the Executive Committee,
the Consumer Services and International and New Business
Development Committee, the Finance Committee, the Nominating
Committee, the Compensation Committee and the Share Option
Committee. Mr. Hess is a Managing Director of Berents & Hess
Capital Management, Inc., an investment management firm. He is
the past President and Chief Executive Officer of State Street
Research & Management Company, an investment management firm.
Mr. Hess was Chairman of MetLife-State Street Investment
Services, Inc. from 1988 to April 1, 1990.
Kay A. Orr.............. Director since January 1, 1994. She is a member of the Consumer
Services and International and New Business Development
Committee. Mrs. Orr was Governor of Nebraska from 1987 to 1991
and served as the State Treasurer of Nebraska from 1981 to 1986.
From 1979 to 1981, she served as Chief of Staff to the Governor
of Nebraska. Mrs. Orr is a director of The Williams Companies,
Inc., Tulsa, Oklahoma, a pipeline company.
Phillip B. Rooney....... Director since January 1, 1994. He is a member of the Executive
Committee, the Consumer Services and International and New
Business Development Committee and the Compensation Committee.
Mr. Rooney is a director and the President and Chief Operating
Officer of WMX Technologies, Inc., Oak Brook, Illinois, the
Chairman of the Board and Chief Executive Officer of
Wheelabrator Technologies Inc., Hampton, New Hampshire, and a
director of Waste Management International, plc, London,
England. He is also a director of Illinois Tool Works, Inc.,
Caremark International. Inc. and Urban Shopping Centers, Inc.
Lord Brian Griffiths of
Fforestfach............ Director since August 1992. He is a member of the Executive
Committee, the Nominating Committee and the Compensation
Committee. Since 1991, he has been an international advisor to
Goldman, Sachs & Co. concerned with strategic issues related to
their United Kingdom and European operations and business
development activities worldwide. During the period 1985 to
1990, he served at No. 10 Downing Street as Head of the Prime
Minister's Policy Unit. He was made a life peer at the
conclusion of his service to the Prime Minister. Lord Griffiths
is a director of THORN EMI plc, a music recording company, Times
Newspapers Holding Ltd., London, England, a newspaper company,
Herman Miller, Inc., Zeeland, Michigan, an office furniture
manufacturer, and Telewest, London, England, a television
company.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------------------
<S> <C>
Michele M. Hunt......... Director since October 7, 1995. She is a member of the
Management Services and Diversified Health Services Committee.
Since July 1995, Ms. Hunt has been a private business
consultant. She was appointed by President Clinton as Director
of the Federal Quality Institute and served in such role from
August 1993 to June 1995. From 1980 to July 1993, she served as
Corporate Vice President for People and Quality with Herman
Miller, Inc., an office furniture manufacturer.
Gunther H. Knoedler..... Director since 1979. He is a member of the Executive Committee,
the Management Services and Diversified Health Services
Committee, the Audit Committee (of which he is the Chairman),
the Compensation Committee and the Share Option Committee. Mr.
Knoedler is a retired Executive Vice President and Director
Emeritus of Bell Federal Savings & Loan Association, Chicago,
Illinois.
Vincent C. Nelson....... Director since 1978. Mr. Nelson is a member of the Executive
Committee, the Consumer Services and International and New
Business Development Committee, the Nominating Committee, the
Compensation Committee, the Audit Committee, the Employee Share
Purchase Plan Administrative Committee and the Share Option
Committee. Mr. Nelson is a business investor.
Dallen W. Peterson...... Director since October 7, 1995. Mr. Peterson served as the
Chairman of Merry Maids, Inc. until the acquisition of that
company's assets by Merry Maids Limited Partnership in July
1988. He is presently the Chairman of Merry Maids Limited
Partnership. He is a member of the Consumer Services and
International and New Business Development Committee.
Henry O. Boswell........ Director since 1985. He is a member of the Executive Committee,
the Consumer Services and International and New Business
Development Committee, the Finance Committee, the Nominating
Committee and the Compensation Committee. From 1983 until his
retirement in October 1987, Mr. Boswell was President of Amoco
Production Company. During the same time period, he was Chairman
of the Board of Amoco Canada and a director of Amoco
Corporation. Mr. Boswell is a director of Rowan Companies, Inc.,
Houston, Texas, an offshore oil drilling company, and Cabot Oil
& Gas Corp., Houston, Texas, an oil and gas production company.
James D. McLennan....... Director since May 1986. He is a member of the Management
Services and Diversified Health Services Committee and the Audit
Committee. Mr. McLennan joined McLennan Company, a full service
real estate company, in 1958. He was named partner in 1968 and
became President in 1981. Mr. McLennan is also a director of The
Loewen Group Inc., a provider of funeral services, Burnaby,
B.C., Canada.
Burton E. Sorensen...... Director since May 1984. He is a member of the Executive
Committee, the Finance Committee and the Compensation Committee.
He is the Chairman and Chief Executive Officer of Lord
Securities Corporation. He served as President and Chief
Executive Officer of the corporation from December 1984 to
December 1992. Mr. Sorensen is also a director of Provident
Companies, Inc., Chattanooga, Tennessee.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------------------
<S> <C>
David K. Wessner........ Director since March 1987. He is a member of the Executive
Committee, the Management Services and Diversified Health
Services Committee and the Compensation Committee. Mr. Wessner
is Executive Vice President, HealthSystem Minnesota. Previously,
he was Senior Vice President, Program and Process Improvement,
Geisinger Health System, from November 1992 to August 1994 and
Senior Vice President and Administrative Director from 1982 to
November 1992.
Ernest J. Mrozek........ Chief Financial Officer and, since January 1, 1997, President
and Chief Operating Officer, Consumer Services. He served as
Vice President and Chief Financial Officer from May 1994 to
December 1994, as Vice President, Treasurer and Chief Financial
Officer from November 1, 1992 to April 30, 1994, as Vice
President and Chief Accounting Officer, from January 1, 1990 to
October 31, 1992 and as Vice President, Accounting, from
December 1987 to December 1989. He practiced public accounting
as a manager with Arthur Andersen LLP from 1981 to December
1987.
Robert D. Erickson...... Director from May 1987 to May 1993. He previously served as a
director from May 1981 through May 1984. He is a non-director
member of the Consumer Services and international and New
Business Development Committee. Mr. Erickson also is a member of
the Profit Sharing, Savings and Retirement Plan Administrative
Committee, the Employee Share Purchase Plan Administrative
Committee, and the Employee Benefits Plan Committee. He is
President and Chief Operating Officer, International and New
Business Development. He served as Executive Vice President and
Chief Operating Officer of this division from November 1992 to
October 1993. He served as Executive Vice President and Chief
Operating Officer, People Services, from January 1990 to October
1992.
Brian D. Oxley.......... Executive Vice President since January 1, 1997. From January 1,
1994 to December 31, 1996, he served as President and Chief
Operating Officer of ServiceMaster Management Services and
ServiceMaster Healthcare Services. From November 1992 to
December 31, 1993, he served as the President and Chief
Executive Officer of the International and New Business
Development Group. He served as Executive Vice President, New
Business Development from January 1991 to November 11, 1992 and
as President of International Services from January 1, 1988 to
November 11, 1992. He is a non-director member of the Management
Services and Diversified Health Services Committee.
Jerry D. Mooney......... President and Chief Executive Officer of ServiceMaster
Diversified Health Services, Inc. until December 31, 1995, and
now serves as President, Healthcare New Business Initiatives. He
has held the positions with Diversified Health Services since
the acquisition of the business by the Registrant in August
1993. He is a non-director member of the Management Services and
Diversified Health Services Committee of the Board of Directors.
He is also a director, chairman of the audit committee and
member of the compensation committee of Concord EFS, Inc.,
Memphis, Tennessee, involved primarily in the electronic
processing of debit and credit card transactions. He also serves
as a director of Thompco Medical, Inc., and on an Advisory Board
for SouthTrust Corporation.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS
- ------------------------- ----------------------------------------------------------------
<S> <C>
Robert F. Keith......... President and Chief Operating Officer of ServiceMaster
Management Services since January 1, 1997. He served as
President and Chief Operating Officer, ServiceMaster Consumer
Services from July 1994 to December 31, 1996, Group President,
ServiceMaster Consumer Services, from November 1992 to July
1994. He had been Vice President, Treasurer and Chief Financial
Officer from November 1989 to October 1992. He is a non-director
member of the Consumer Services and International and New
Business Development Committee.
Vernon T. Squires....... Senior Vice President and General Counsel effective January 1,
1988. He served as Vice President and General Counsel from April
1, 1987 until December 31, 1987. He served as an associate and
partner with the law firm of Wilson & McIlvaine in Chicago,
specializing in corporate and tax law, from 1960 to April 1,
1987. He is presently Of Counsel to that firm.
Eric R. Zarnikow........ Vice President and Treasurer effective May 1, 1994. He is a
member of all ServiceMaster employee benefit plan committees.
From August 1991 to April 1994, he served as Vice President and
Treasurer of Gaylord Container Corporation. He was Treasurer of
Gaylord Container Corporation from June 1987 to July 1991.
Deborah A. O'Connor..... Vice President and Controller effective January 1, 1993. From
July 1991 to December 1992, she was Manager of Financial
Projects. She previously had practiced public accounting with
Arthur Andersen LLP since 1984. She is a member of the Profit
Sharing, Savings and Retirement Plan Administrative Committee.
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB
<TABLE>
<CAPTION>
NAME POSITION WITH MERGER SUB
---- ------------------------
<C> <S>
Carlos H. Cantu President
Ernest J. Mrozek Director and Vice President
Vernon T. Squires Director, Vice President and Secretary
Eric R. Zarnikow Director and Treasurer
</TABLE>
I-5
<PAGE>
Facsimile copies of the Letter of Transmittal will not be accepted. The
Letter of Transmittal, certificates for Shares and any other required
documents should be sent by each holder of Shares to the Exchange Agent as
follows:
Exchange Agent:
HARRIS TRUST COMPANY OF NEW YORK
By Mail: By Hand: By Overnight
Courier:
Harris Trust Company Harris Trust Harris Trust
of New York Company Company
Wall Street Station of New York of New York
P.O. Box 1023 Receive Window 77 Water Street
New York, New York 10268- 5th Floor New York, New York
1023 77 Water Street 10005
New York, New York
Delivery of this Letter of Transmittal to an address other than as set forth
above will not constitute a valid delivery.
Any questions or requests for assistance or additional copies of the
Offering Circular / Prospectus and the Letter of Transmittal may be directed
to either the Exchange Agent by calling (212) 701-7624 (collect) or the
Information Agent at its telephone number and location listed below. You may
also contact your broker, dealer, commercial bank or trust company or other
nominee for assistance concerning the Offer.
----------------
Information Agent:
D. F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (Collect)
Toll Free (800) 848-3410
----------------
The Dealer Managers are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000
<PAGE>
LETTER OF TRANSMITTAL/
FORM OF ELECTION
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
PURCHASE RIGHTS)
OF
BAREFOOT INC.
PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED JANUARY 17, 1997
BY
SERVICEMASTER LIMITED PARTNERSHIP
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED.
The Exchange Agent for the Offer is
HARRIS TRUST COMPANY OF NEW YORK
By Mail: By Hand: By Overnight Courier:
Harris Trust Company Harris Trust Company Harris Trust Company
of New York of New York of New York
Wall Street Station Receive Window 4th Floor
P.O. Box 1023 5th Floor 77 Water Street
New York, New York 10268- 77 Water Street New York, New York
1023 New York, New York 10005
This Letter of Transmittal/Form of Election is to be completed by holders of
shares of common stock, par value $.01 per share ("Barefoot Share"), of
Barefoot Inc., a Delaware corporation ("Barefoot"), if certificates
representing Barefoot Shares, including the associated Series A Junior
Participating Preferred Stock Purchase Rights ("Certificate(s)") are to be
forwarded herewith. Holders of Barefoot Shares whose certificates are not
immediately available, or who are unable to deliver their certificates or a
confirmation of a book-entry transfer of their Barefoot Shares into the
Exchange Agent's account at a Book-Entry Transfer Facility (a "Book Entry
Confirmation") and all other documents required by this Letter of
Transmittal/Form of Election to the Exchange Agent on or prior to the
Expiration Date (as defined in the section of the Offering Circular/Prospectus
entitled "The OFFER--Terms of the Offer"), must tender their Barefoot Shares
according to the guaranteed delivery procedure set forth in the section of the
Offering Circular/Prospectus entitled "The OFFER--Procedures for Tendering
Shares." See Instruction B.
Facsimile copies of this Letter of Transmittal/Form of Election will not be
accepted. This Letter of Transmittal/Form of Election, Certificates and any
other required documents should be sent by each holder of Barefoot Shares to
the Exchange Agent at one of the addresses set forth above.
Delivery of this Letter of Transmittal/Form of Election to an address other
than as set forth above will not constitute a valid delivery.
If you have any questions regarding this Letter of Transmittal/Form of
Election, please call the Exchange Agent collect at (212) 701-7624.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
In connection with the offer by ServiceMaster Limited Partnership
("ServiceMaster") to acquire each outstanding share ("Barefoot Share") of
common stock, par value $0.01 per share, of Barefoot Inc. ("Barefoot"), a
Delaware corporation, together with the associated Series A Junior
Participating Preferred Stock Purchase Rights (the "Rights") not already owned
by ServiceMaster, the undersigned hereby submits the Certificates evidencing
Barefoot Shares referred to below and directs (the "Election") that each such
Barefoot Share be exchanged for (i) $16.00 in cash, without any interest
thereon (the "Cash Consideration") pursuant to a "Cash Election"; or (ii) a
fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of
limited partnership interest in ServiceMaster, determined by dividing $16.00
by the greater of (x) $23.00 or (y) the average (without rounding) of the
closing price (the "Average ServiceMaster Share Price") of ServiceMaster
Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE
Composite Tape for the 15 consecutive NYSE trading days ending on the fifth
NYSE trading day immediately preceding the Expiration Date and rounding the
result to the nearest one one-hundred thousandth of a share (the "Share
Consideration") pursuant to a "Share Election." It is understood that a tender
of Barefoot Shares is subject to (i) the terms, conditions and limitations set
forth in the Offering Circular/Prospectus, dated January 17, 1997, receipt of
which is hereby acknowledged by the undersigned, (ii) the terms of the
Acquisition Agreement, dated as of December 5, 1996 (the "Acquisition
Agreement"), attached as Annex A-I to the Offering Circular/Prospectus and
(iii) the accompanying instructions. The undersigned understands that tenders
of Barefoot Shares pursuant to any of the procedures described below or in the
Offering Circular/Prospectus will constitute the undersigned's acceptance of
the terms and conditions described herein. Unless the Barefoot Shares tendered
with this Letter of Transmittal/Form of Election have been properly withdrawn
in accordance with the instructions found below and in the Offering
Circular/Prospectus, ServiceMaster's acceptance of Barefoot Shares delivered
pursuant to this Form of Election/Letter of Transmittal will constitute a
binding agreement between the undersigned and ServiceMaster upon the terms and
subject to the conditions of (i), (ii) and (iii) listed above. The Offering
Circular/Prospectus and this Letter of Transmittal/Form of Election together
form, and are referred to herein as, the "Offer."
Capitalized terms used but not defined herein shall have the meanings set
forth in the Offering Circular/Prospectus.
Unless Rights certificates are issued, a tender of Barefoot Shares pursuant
to the Offer will constitute a tender of the associated Rights evidenced by
the certificates for such Barefoot Shares. All references to Barefoot Shares
shall include the associated Rights.
NONE OF SERVICEMASTER, BAREFOOT, THE BAREFOOT BOARD OF DIRECTORS OR THE
SERVICEMASTER BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER
STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE
CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR
OWN DECISION WITH RESPECT TO SUCH ELECTION.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
the Certificates listed below and to receive on behalf of the undersigned, in
exchange for the Barefoot Shares represented thereby, any check for the cash
or any certificate for the ServiceMaster Shares issuable pursuant to the
Offer.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the Certificate(s) surrendered herewith or covered
by a guarantee of delivery, free and clear of any liens, claims, charges or
encumbrances whatsoever. The undersigned understands and acknowledges that the
method of delivery of the Certificate(s) and all other required documents is
at the option and risk of the undersigned and that the risk of loss of such
Certificate(s) shall pass only after the Exchange Agent has actually received
the
2
<PAGE>
Certificate(s). All questions as to the validity, form and eligibility of any
Election and surrender of Certificates hereunder shall be determined by
ServiceMaster (which may delegate such authority in whole or in part to the
Exchange Agent), and such determination shall be final and binding. The
undersigned, upon request, shall execute and deliver all additional documents
deemed by the Exchange Agent or ServiceMaster to be necessary or desirable to
complete the sale, assignment, transfer, cancellation and retirement of the
Barefoot Shares delivered herewith. No authority hereby conferred or agreed to
be conferred hereby shall be affected by, and all such authority shall
survive, the death or incapacity of the undersigned. All obligations of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
By executing this Letter of Transmittal/Form of Election, the undersigned
irrevocably appoints designees of ServiceMaster as the undersigned's
attorneys-in-fact and proxies, each with full power of substitution, to the
full extent of the undersigned's rights with respect to the Barefoot Shares
tendered by the undersigned and accepted for payment by ServiceMaster (and any
and all other Barefoot Shares or other securities issued or issuable in
respect of such Tendered Shares on or after the date of the Acquisition
Agreement). All such proxies shall be considered coupled with an interest in
the Tendered Shares. This appointment will be effective when, and only to the
extent that, ServiceMaster accepts Barefoot Shares for payment. Upon
acceptance for payment, all prior proxies given by the undersigned with
respect to the Barefoot Shares or other securities will, without further
action, be revoked, and no subsequent proxies may be given nor any subsequent
written consent executed by the undersigned (and, if given or executed, will
not be deemed to be effective) with respect thereto. The designees of
ServiceMaster will, with respect to the Barefoot Shares and other securities,
be empowered to exercise all voting and other rights of the undersigned as
they in their sole discretion may deem proper at any annual, special or
adjourned meeting of Barefoot's stockholders, by written consent or otherwise.
ServiceMaster reserves the right to require that, in order for Barefoot Shares
to be deemed validly tendered, immediately upon ServiceMaster's acceptance for
payment of such Barefoot Shares, ServiceMaster must be able to exercise full
voting and other rights of a record and beneficial holder, including rights in
respect of acting by written consent, with respect to such Barefoot Shares.
The undersigned understands that, in lieu of any fractional ServiceMaster
Share, ServiceMaster will pay to each former stockholder of Barefoot who
otherwise would be entitled to receive a fractional ServiceMaster Share an
amount in cash determined by multiplying (i) the greater of $23.00 or the
Average ServiceMaster Share Price by (ii) the fractional interest in a
ServiceMaster Share to which such holder would otherwise be entitled.
Unless otherwise indicated in the box entitled "Special Payment
Instructions," please issue any check and register any certificate for
ServiceMaster Shares in the name of the registered holder(s) of the Barefoot
Shares appearing below. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any check and any
certificate for ServiceMaster Shares to the registered holder(s) of the
Barefoot Shares at the addresses of the registered holder(s) appearing below
under the box entitled "Certificates Surrendered." In the event that the box
entitled "Special Payment Instructions" and the box entitled "Special Delivery
Instructions" both are completed, please issue any check and any certificate
for ServiceMaster Shares in the name(s) of, and mail such check and such
certificate to, the person(s) so indicated.
3
<PAGE>
Enclosed are the following Certificates representing Barefoot Shares, which
are tendered pursuant to the Offer:
BOX A: CERTIFICATES SURRENDERED
Please list in Box A all the Certificates that you are tendering regardless
of which Election you make. If there is not enough space below to list all of
your Certificates, please attach a separate sheet. Use Box B to specify how
many shares, if any, are covered by each Election. A separate Letter of
Transmittal/Form of Election should be submitted for shares registered in
different names (see General Instruction H-2).
<TABLE>
- -------------------------------------------------------------------------------------------------
<CAPTION>
NAME(S) AND ADDRESS OF REGISTERED HOLDER(S)
(PLEASE FILL IN OR MAKE CORRECTIONS NEEDED IF LABEL IS CERTIFICATES
AFFIXED) ENCLOSED
- -------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF
CERTIFICATE BAREFOOT NUMBER OF BAREFOOT
NUMBER(S) SHARES SHARES TENDERED*
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
TOTAL TOTAL
- -------------------------------------------------------------------------------------------------
</TABLE>
*Unless otherwise indicated, it will be assumed that all Barefoot Shares
being delivered to the Exchange Agent are being tendered.
4
<PAGE>
BOX B: ELECTION FORM
PLEASE READ CAREFULLY INSTRUCTIONS A THROUGH G
PRIOR TO COMPLETING THIS FORM.
CHECK ONLY ONE OF THE BOXES BELOW. You may make a Cash Election or a Share
Election as to any Barefoot Share or combination of Barefoot Shares that you
hold. If you wish to make multiple elections, check the "Multiple Election" box
below and indicate in the space provided below the number of Barefoot Shares
represented by the Certificate(s) submitted for which a Cash Election or a
Share Election is being made. IF YOU FAIL TO MAKE AN EFFECTIVE ELECTION, YOU
WILL BE DEEMED TO HAVE MADE A CASH ELECTION.
[_] The CASH ELECTION ($16.00 in cash per share) is made as to all of the
Barefoot Shares represented by the Certificate(s) submitted with this
Letter of Transmittal/Form of Election.
[_] The SHARE ELECTION (The fraction of a ServiceMaster Share per Barefoot
Share determined by dividing $16.00 by the greater of (i) $23.00 or (ii)
the Average ServiceMaster Share Price) is made as to all of the Barefoot
Shares represented by the Certificate(s) submitted with this Letter of
Transmittal/Form of Election.
[_] Multiple Elections are made as to the Barefoot Shares represented by
the Certificate(s) submitted with this Letter of Transmittal/Form of
Election, in the following proportions:
<TABLE>
<CAPTION>
NUMBER OF SHARES AS NUMBER OF SHARES AS
TO WHICH A CASH TO WHICH A SHARE
ELECTION IS MADE ELECTION IS MADE
------------------- -------------------
<S> <C>
<CAPTION>
------------------- -------------------
</TABLE>
If a Multiple Election has been made, the total number of Barefoot Shares
subject to the Multiple Election must equal the total number of Barefoot Shares
being tendered hereby as reflected in Box A.
For information as to certain Federal income tax consequences of an Election,
see the section of the Offering Circular/Prospectus entitled "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES".
NOTE: IF YOU HAVE SUBMITTED A NOTICE OF GUARANTEED DELIVERY FOR THE BAREFOOT
SHARES DELIVERED WITH THIS LETTER OF TRANSMITTAL/FORM OF ELECTION AND THE OFFER
HAS EXPIRED PRIOR TO DELIVERY HEREOF, THEN THE ELECTION MADE IN SUCH NOTICE OF
GUARANTEED DELIVERY MAY NOT BE CHANGED BY THIS LETTER OF TRANSMITTAL /FORM OF
ELECTION.
---------------
Except as otherwise requested in the "Special Payment Instructions" or the
"Special Delivery Instructions" boxes below, the undersigned requests that the
check for any cash payment and the certificate for any ServiceMaster Shares to
which the undersigned is entitled be made payable to the order of and
registered in the name of, and be delivered to, the registered holder(s) set
forth in Box A above at the address set forth in Box A above.
5
<PAGE>
BOX C: SPECIAL PAYMENT INSTRUCTIONS
Fill in ONLY if the check and/or certificate(s) are to be issued in a name
OTHER than the name appearing in Box A above. (If this Box C is filled in,
then unless otherwise indicated in Box D, any check or certificates issued in
exchange for Barefoot Shares will be mailed to the address indicated in this
Box C.)
Issue check and/or certificates to:
Name: ___________________________________________________
(PLEASE PRINT)
Address: ________________________________________________
--------------------------------------------------
(ZIP CODE)
---------------------------------------------------------
SOCIAL SECURITY OR IRS IDENTIFICATION NUMBER OF PERSON NAMED ABOVE
BOX D: SPECIAL DELIVERY INSTRUCTIONS
Fill in ONLY if the check and/or certificate(s) are to be sent to an
address OTHER than the address appearing in Box A above, or if Box C is
filled in, to an address OTHER than the address appearing in Box C.
Mail check and/or certificates to:
Name: ___________________________________________________
(PLEASE PRINT)
Address: ________________________________________________
--------------------------------------------------
(ZIP CODE)
BOX E: GUARANTEE OF DELIVERY
[_] CHECK THIS BOX IF THE BAREFOOT SHARES WHICH ARE THE SUBJECT OF THIS
LETTER OF TRANSMITTAL/FORM OF ELECTION HAVE BEEN PREVIOUSLY TENDERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY ENDORSED BY AN ELIGIBLE INSTITUTION.
Name of Registered Holder: ___________________________________________________
Name of Eligible Institution Guaranteeing Delivery: __________________________
6
<PAGE>
SIGNATURES
Dated: _____________, 1997
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) or by persons authorized to become registered holders by
certificates and documents transmitted herewith. If signature is by an
officer of a corporation, attorney-in-fact, executor, administrator, trustee,
guardian or other persons acting in a fiduciary or representative capacity,
please set forth full title and see General Instructions H-2, 4 and 5.)
Name: _____________________________
(PLEASE PRINT)
Signature: ________________________
Capacity (full title): ____________
Address: __________________________
----------------------------
(ZIP CODE)
Area Code and
Tel. No.: _________________________
-----------------------------------
(IRS Identification or Social Security No.)
(Also complete Substitute Form W-9 below)
Name: _____________________________
(PLEASE PRINT)
Signature: ________________________
Capacity (full title): ____________
Address: __________________________
----------------------------
(ZIP CODE)
Area Code and
Tel. No.: _________________________
-----------------------------------
(IRS Identification or Social Security No.)
(Also complete Substitute Form W-9 below)
GUARANTEE OF SIGNATURES
(IF REQUIRED--SEE GENERAL INSTRUCTIONS H-3 AND H-4)
Authorized Signature of
Guarantor's Representative: ___________________________
Name: _________________________________________________
(PLEASE PRINT)
Name of Firm: _________________________________________
Address: ______________________________________________
-------------------------------------------------
(ZIP CODE)
Area Code and
Tel. No.: _____________________________________________
Dated: _____________, 1997
7
<PAGE>
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
SUBSTITUTE
PART 1--PLEASE Social security number(s) or IRS
PROVIDE YOUR TIN IN Identification Number(s)
THE BOX AT RIGHT AND
CERTIFY BY SIGNING
AND DATING BELOW.
FORM W-9
DEPARTMENT --------------------------
OF THE (If awaiting TIN write "Applied For")
TREASURY
INTERNAL ----------------------------------------------------------------
REVENUE
SERVICE PART 2--Certificates--Under penalties of perjury, I certify
that:
PAYER'S (1) The number shown on this form is my correct taxpayer
REQUEST FOR identification number (or I am waiting for a number to be
TAXPAYER issued for me), and
IDENTIFICATION (2) I am not subject to backup withholding because: (a) I am
NUMBER exempt from backup withholding, or (b) I have not been
("TIN") notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
CERTIFICATION INSTRUCTIONS--You must cross out item (2)
above if you have been notified by the IRS that you are
currently subject to backup withholding because of under
reporting interest or dividends on your tax return.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF THE SUBSTITUTE FORM W-9.
----------------------------------------------------------------
PART 3--
SIGNATURE:
DATE: Awaiting
TIN ^ [_]
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me thereafter will be withheld
until I provide a number.
Signature: __________________________________________ Date: ________________
8
<PAGE>
INSTRUCTIONS FOR COMPLETION OF LETTER OF TRANSMITTAL/FORM OF ELECTION
This Letter of Transmittal/Form of Election should be properly filled in,
dated, signed and delivered, together with the Certificates representing the
Barefoot Shares currently held by you, to the Exchange Agent.
This Letter of Transmittal/Form of Election and the Election you make
herein, are subject to the terms and conditions set forth herein, in the
Offering Circular/Prospectus which has been enclosed herewith and in the
Acquisition Agreement which is attached as Annex A-I thereto.
EACH HOLDER OF BAREFOOT SHARES IS STRONGLY ENCOURAGED TO READ THE OFFERING
CIRCULAR/PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE CONTENTS THEREOF AND
THIS LETTER OF TRANSMITTAL/FORM OF ELECTION WITH HIS OR HER FINANCIAL AND TAX
ADVISORS PRIOR TO DECIDING UPON AN ELECTION.
A. ELECTIONS
This Letter of Transmittal/Form of Election provides for your Election as to
the form of consideration to be received by you in exchange for your Barefoot
Shares. At your direction, subject to the terms and conditions set forth in
this Letter of Transmittal/Form of Election and in the Offering
Circular/Prospectus, each Barefoot Share will be converted into either:
. $16.00 in cash (the "Cash Consideration") pursuant to a "CASH ELECTION;"
or
. The fraction of a ServiceMaster Share determined by dividing $16.00 by
the greater of (i) $23.00 or (ii) the Average ServiceMaster Share Price
(the "Share Consideration") pursuant to a "SHARE ELECTION".
You may make a Cash Election or a Share Election as to any Barefoot Share or
combination of Barefoot Shares that you hold.
If you have previously submitted a Notice of Guaranteed Delivery for the
Barefoot Shares which are the subject of this Letter of Transmittal/Form of
Election and the Offer has expired, then the election made in such Notice of
Guaranteed Delivery may not be changed by this Letter of Transmittal/Form of
Election.
B. TIME IN WHICH TO MAKE A TENDER AND AN ELECTION
In order for a tender of Barefoot Shares and an Election to be effective,
the Exchange Agent must receive a properly completed and executed Letter of
Transmittal/Form of Election, accompanied by all Certificates (or a proper
Guarantee of Delivery, as described below), NO LATER THAN 12:00 MIDNIGHT NEW
YORK CITY TIME ON THE EXPIRATION DATE. HOLDERS WHOSE LETTER OF
TRANSMITTAL/FORM OF ELECTION (OR GUARANTEE OF DELIVERY) DOES NOT CONTAIN A
PROPERLY COMPLETED ELECTION WILL BE DEEMED TO HAVE MADE A CASH ELECTION.
If your Certificates are not immediately available, you may also make an
effective tender of Barefoot Shares if all of the following guaranteed
delivery procedures are satisfied:
(i) such tender is made by or through a member in good standing of the
Securities Transfer Agents Medallion Program, the New York Stock Exchange,
Inc. Medallion Signature Program or the Stock Exchanges' Medallion Program
(an "Eligible Institution"), such as a commercial bank or trust company or
a broker or dealer that is a member of the National Association of
Securities Dealers, Inc., or by a member of the National Association of
Securities Dealers, Inc.;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, in the form enclosed herewith, is received by the Exchange Agent
no later than 12:00 midnight, New York City time on the Expiration Date;
and
(iii) the Certificates guaranteed by the Notice of Guaranteed Delivery
(in proper form for transfer in accordance with General Instructions H-3
and H-4 below) (or a Book-Entry Confirmation) together with a
9
<PAGE>
Letter of Transmittal/Form of Election, properly completed and duly
executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) are received by the Exchange Agent
within three Nasdaq National Market trading days after the execution of the
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery must include an endorsement by an Eligible
Institution in the form set forth in such Notice of Guaranteed Delivery.
C. FAILURE TO MAKE AN EFFECTIVE ELECTION
If you fail to make an effective Election, or if your Election is deemed by
ServiceMaster to be defective in any way, you will be deemed to have made a
Cash Election.
D. BAREFOOT SHARES AS TO WHICH AN ELECTION IS MADE
You may make a CASH ELECTION or a SHARE ELECTION with respect to all or any
portion of your Barefoot Shares by checking the appropriate box and, in the
case of multiple elections, listing the number of shares for which you wish to
make a specific Election, in the appropriate column on the Election Form (Box
B) contained herein. If there is insufficient space to list all of your
Certificates being submitted to the Exchange Agent or to respond to any other
request for information, please attach a separate sheet.
E. SPECIAL CONDITIONS
1. Change of Election
You may change any Election or revoke or change any other instruction in this
Letter of Transmittal/Form of Election only by written notice, signed and dated
by you, to the Exchange Agent. Such written notice must identify the name of
the holder of record of the Barefoot Shares subject to such notice and the
Certificate number shown on the Certificate(s) representing such Barefoot
Shares. The written notice must be received by the Exchange Agent prior to
12:00 midnight, New York City time on the Expiration Date.
2. Withdrawal of Tendered Barefoot Shares
Barefoot Shares tendered pursuant to the Offer may be withdrawn only by a
written, telegraphic or facsimile transmission notice of withdrawal, signed by
you and received by the Exchange Agent by 12:00 midnight, New York City time on
the Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Barefoot Shares to be withdrawn, the number of Barefoot
Shares to be withdrawn and the name of the registered holder, if different from
that of the person who tendered such Barefoot Shares. If Certificates for
Barefoot Shares have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such Certificates, the Certificate numbers
of the particular Certificates evidencing the Barefoot Shares to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution, except in the case of Barefoot Shares tendered for the account of
an Eligible Institution, must also be furnished to the Exchange Agent as
described above. If Barefoot Shares have been tendered pursuant to the
procedures for book-entry transfer, any notice of withdrawal must also specify
the name and number of the account at the appropriate Book-Entry Transfer
Facility to be credited with the withdrawn Barefoot Shares. If you withdraw
your tender of Barefoot Shares in accordance with these procedures, the
Certificate(s) for your Barefoot Shares shall be promptly returned to you.
3. Shares Held by Nominees, Trustees or other Representatives
Holders of record of Barefoot Shares who hold such Barefoot Shares as
nominees, trustees or in other representative or fiduciary capacities (each a
"Representative") may submit one or more Letters of Transmittal/Forms of
Election covering the aggregate number of Barefoot Shares held by such
Representative for the beneficial owners for whom the Representative is making
an Election. Any Representative who makes an
10
<PAGE>
Election may be required to provide the Exchange Agent with such documents
and/or additional certifications, if requested, in order to satisfy the
Exchange Agent that such Representative holds such Barefoot Shares for a
particular beneficial owner of such shares.
F. NO FRACTIONAL SERVICEMASTER SHARES
The undersigned understands that in lieu of the issuance of any fractional
ServiceMaster Share pursuant to the Offer, ServiceMaster will pay to each
former stockholder of Barefoot who otherwise would be entitled to receive a
fractional ServiceMaster Share an amount in cash determined by multiplying (i)
the greater of $23.00 or the Average ServiceMaster Share Price by (ii) the
fractional interest in a ServiceMaster Share to which such holder would
otherwise be entitled.
G. PARTIAL TENDERS
If fewer than all of the Barefoot Shares evidenced by the Certificates
submitted are to be tendered, fill in the number of Barefoot Shares that are
to be tendered in Box A entitled "Certificates Surrendered." In such case, as
soon as practicable after the Expiration Date, new certificates for the
remainder of the Barefoot Shares that were evidenced by your old Certificates
will be sent to you, unless otherwise provided in Box C or D on this Letter of
Transmittal/Form of Election. ALL BAREFOOT SHARES REPRESENTED BY CERTIFICATES
DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS
OTHERWISE INDICATED.
H. GENERAL INSTRUCTIONS
1. Execution and Delivery of Letter of Transmittal/Form of Election and
Certificates.
This Letter of Transmittal/Form of Election, or a photocopy of it, should be
properly completed, dated and signed, and should be delivered, together with
your Certificate(s) representing your Barefoot Shares (or a properly completed
Notice of Guaranteed Delivery) to the Exchange Agent at the appropriate
address set forth on the cover page to this Letter of Transmittal/Form of
Election.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL/FORM OF ELECTION, THE
CERTIFICATES FOR BAREFOOT SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED FOR SUCH
DOCUMENTS TO REACH THE EXCHANGE AGENT. EXCEPT AS OTHERWISE PROVIDED, DELIVERY
WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal/Form of
Election, waive any right to receive any notice of the acceptance of their
Barefoot Shares for payment.
2. Signatures.
The signature (or signatures, in the case of Certificate(s) owned by two or
more joint holders) on this Letter of Transmittal/Form of Election must
correspond exactly to the name as written on the face of the Certificate(s)
sent to the Exchange Agent, unless the Barefoot Shares have been transferred
by the holder of record. If there has been any such transfer, the signatures
on this Letter of Transmittal/Form of Election should be signed in exactly the
same form as the name of the last transferee indicated on the accompanying
stock powers attached to or endorsed on the Certificate(s) (see General
Instruction 4 below).
If Barefoot Shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit a separate
Letter of Transmittal/Form of Election for each different registration of
Certificates. For example, if some Certificates are registered solely in your
name, some are registered solely in your spouse's name and some are registered
jointly in the name of you and your spouse, three separate Letters of
Transmittal/Forms of Election should be submitted.
11
<PAGE>
3. Checks and/or Certificates in Same Name.
If checks in payment of any cash and/or any new share certificates are to be
payable to the order of and/or registered in exactly the same name as
inscribed on the surrendered Certificate(s) (representing Barefoot Shares),
you will not be required to endorse the old Certificates or make payment for
transfer taxes or have your signature guaranteed. For corrections in name or
changes in name not involving changes in ownership, see General Instruction
4(d) below.
4. Checks and/or Certificates in Different Names.
(IGNORE THIS INSTRUCTION 4 IF THE FIRST SENTENCE OF INSTRUCTION 3 APPLIES)
If checks in payment of any cash and/or any new share certificates are to be
payable to the order and/or registered in a different name from exactly the
registered name inscribed on the surrendered Certificate(s) (representing
Barefoot Shares), please follow these instructions:
(a) Endorsement and Stock Transfer Guarantee. The Certificate(s) surrendered
must be properly endorsed or accompanied by appropriate stock power(s)
properly executed by the record holder of such Certificate(s) to the person
who is to receive the check or certificate representing ServiceMaster Shares.
The signature of the record holder on the endorsement(s) or stock power(s)
must correspond with the name that appears on the face of the Certificate(s)
in every particular and must be guaranteed by an Eligible Institution. If this
General Instruction 4 applies, please check with your financial institution or
brokerage firm immediately to determine whether it is an Eligible Institution
or will need to help you locate an Eligible Institution. The criteria to
identify Eligible Institutions are set forth in Instruction B. NOTARIES PUBLIC
CANNOT EXECUTE ACCEPTABLE GUARANTEES OF SIGNATURES.
(b) Transferee's Signature. If a certificate has previously been properly
transferred but the transfer has not yet been recorded on the books of
Barefoot, this Letter of Transmittal/Form of Election must be signed by the
transferee or by his agent and should not be signed by the transferor. The
signature of such transferee or agent on this Letter of Transmittal/Form of
Election must be guaranteed by an Eligible Institution.
(c) Transfer Taxes. In the event that any transfer or other tax becomes
payable by reason of the issuance of a check in payment of any Cash
Consideration and/or the issuance of any share certificates representing
ServiceMaster Shares in any name other than that of the record holder, the
transferee or assignee must pay such tax to the Exchange Agent or must
establish to the satisfaction of the Exchange Agent that such tax has been
paid. You should consult your own tax advisor as to any possible tax
consequences resulting from the issuance of shares or cash in a name different
from that of the holder of record of the surrendered Certificate.
(d) Correction of or Change in Name. For a correction in name which does not
involve a change in ownership, the surrendered Certificate(s) should be
appropriately endorsed; for example, "John A. Doe, incorrectly inscribed as
John B. Doe," with the signature guaranteed by an Eligible Institution. For a
change in name by marriage, etc., the surrendered Certificate(s) should be
appropriately endorsed; for example, "Mary Doe, now by marriage Mrs. Mary
Jones," with the signature guaranteed by an Eligible Institution.
5. Supporting Evidence.
If this Letter of Transmittal/Form of Election or any certificate or stock
power is signed by a trustee, executor, administrator, guardian, attorney-in-
fact, agent, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to ServiceMaster of such person's authority to so
act must be submitted.
6. Notice of Defects; Resolution of Disputes.
NONE OF SERVICEMASTER, BAREFOOT AND THE EXCHANGE AGENT WILL BE UNDER ANY
OBLIGATION TO NOTIFY YOU OR ANYONE ELSE THAT THE EXCHANGE AGENT HAS NOT
RECEIVED A PROPERLY COMPLETED LETTER OF TRANSMITTAL/FORM OF ELECTION OR THAT
THE LETTER OF TRANSMITTAL/FORM OF ELECTION SUBMITTED BY YOU IS DEFECTIVE IN
ANY WAY.
12
<PAGE>
Any and all disputes with respect to Letters of Transmittal/Forms of
Elections and Elections made in respect of Barefoot Shares (including but not
limited to matters relating to the Expiration Date, time limits, defects or
irregularities in the surrender of any Certificate and effectiveness of any
Election) will be resolved by ServiceMaster and its decision will be final and
binding on all parties concerned. ServiceMaster will have the absolute right
in its sole discretion to reject any and all Letters of Transmittal/Forms of
Election, Notices of Guaranteed Delivery and surrenders of Certificates which
are deemed by it to be not in proper form or to waive any immaterial
irregularities in any Letter of Transmittal/Form of Election or Notice of
Guaranteed Delivery or in the surrender of any Certificate. Surrenders of
Certificates will not be deemed to have been made until all defects or
irregularities that have not been waived have been cured.
7. Federal Tax Withholding/Substitute Form W-9.
Under federal income tax law, the Exchange Agent is required to file a
report with the Internal Revenue Service (IRS) disclosing the cash payments
being made to you as an exchanging stockholder. Federal law also required each
stockholder to provide the Exchange Agent with such stockholder's current
Taxpayer Identification Number ("TIN") on a Substitute Form W-9 set forth
above. If such stockholder is an individual, the TIN is his social security
number. If the Exchange Agent is not provided with the correct TIN, the
stockholder or other payee may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, cash payments that are made to such
stockholder or other payee with respect to Barefoot Shares acquired pursuant
to the Offer may be subject to 31% backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8, signed under penalties of
perjury, attesting to that individuals exempt status. A form W-8 can be
obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies the Exchange Agent is required to withhold 31%
of any cash payment made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld.
If withholding results in an overpayment of taxes, a refund may be obtained
from the Internal Revenue Service.
If the box in Part 3 of the Substitute Form W-9 is checked and the Exchange
Agent is not provided with a TIN by the time of payment the Exchange Agent
will withhold 31% on all such cash payments to be made to you until a TIN is
provided to the Exchange Agent. You must also complete the Certificate of
Awaiting Taxpayer Identification Number.
The stockholder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Barefoot Shares. If the Barefoot Shares are registered in more than one name
or are not registered in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9," for additional guidance on which number to report.
8. Special Payment and Delivery Instructions.
Any checks representing Cash Consideration, any certificates representing
ServiceMaster Shares, or any Certificates representing untendered Barefoot
Shares will be mailed to the address of the holder of record as indicated in
Box A or to the person identified in Box C (if completed), unless instructions
to the contrary are given in Box D.
9. Lost Stock Certificates.
If you are unable to locate the Certificate(s) representing your Barefoot
Shares, contact the Exchange Agent by a collect call at (212) 701-7624. The
Exchange Agent will instruct you on the procedures to follow. In order to make
an effective Election with respect to the lost Certificate(s) and receive the
Cash Consideration or the Share
13
<PAGE>
Consideration, you will be required to complete certain additional
documentation and pay for an indemnity bond covering the lost Certificate(s).
The cost of the bond will be based on the value of the Barefoot Shares
represented by the lost Certificates.
10. Miscellaneous.
As soon as practicable after acceptance of tendered Barefoot Shares by
ServiceMaster, the Exchange Agent will begin mailing and delivering checks and
share certificates for ServiceMaster Shares in exchange for Certificates
representing Barefoot Shares that have been received by the Exchange Agent.
There will be a delay, however, if backup withholding pursuant to General
Instruction 7 applies.
Requests for assistance may be directed to the Exchange Agent at the address
set forth on the first page of this Letter of Transmittal/Form of Election.
Additional copies of the Offering Circular/Prospectus or this Letter of
Transmittal/Form of Election may be obtained from the Exchange Agent at the
address set forth on the cover page of this Letter of Transmittal/Form of
Election or from the Information Agent at the address set forth below.
IMPORTANT: THIS LETTER OF TRANSMITTAL/FORM OF ELECTION, TOGETHER WITH
CERTIFICATES (OR A NOTICE OF GUARANTEED DELIVERY, OR A FACSIMILE THEREOF),
MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE AS
SET FORTH ON THE COVER PAGE HERETO.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Toll Free (800) 848-3410
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000
14
<PAGE>
NOTICE OF GUARANTEED DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
PURCHASE RIGHTS)
OF
BAREFOOT INC.
PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED JANUARY 17, 1997
BY
SERVICEMASTER LIMITED PARTNERSHIP
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED.
As set forth in the Offering Circular/Prospectus, this form, or one
substantially equivalent hereto, must be used to accept the Offer if
certificates for shares of the common stock, par value $.01 per share
("Barefoot Share"), including the associated Series A Junior Participating
Preferred Stock Purchase Rights, of Barefoot Inc., a Delaware corporation
("Barefoot"), are not immediately available or if the procedures for delivery
by book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Exchange Agent on or prior to the
Expiration Date (as defined in the section of the Offering Circular/Prospectus
entitled "THE OFFER--Terms of the Offer"). Such form may be delivered by hand
or transmitted by telegram, facsimile transmission or mail to Harris Trust
Company of New York (the "Exchange Agent"). See the section of the Offering
Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares".
The Exchange Agent for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
By Mail: By Facsimile: By Hand: By Overnight
Courier:
Harris Trust (212) 701-7636 Harris Trust
Company of (212) 701-7640 Company of Harris Trust
New York New York Company of
Wall Street Confirm by Receive Window New York
Station Telephone: 5th Floor 4th Floor
P.O. Box 1023 (212) 701-7624 77 Water Street 77 Water Street
New York, New York New York, New York New York, New York
10268-1023 10005
----------------
Capitalized terms used but not defined herein shall have the meanings set
forth in the enclosed Letter of Transmittal/Form of Election.
DELIVERY OF THIS FORM TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL/FORM OF ELECTION IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE
GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE BOX ENTITLED
"SIGNATURES" ON THE LETTER OF TRANSMITTAL/FORM OF ELECTION.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to ServiceMaster Limited Partnership, a
Delaware limited partnership, upon the terms and subject to the conditions set
forth in its Offering Circular/Prospectus dated January 17, 1997 (the "Offering
Circular/Prospectus") and the related Letter of Transmittal/Form of Election
(the "Letter of Transmittal/Form of Election", together with the Offering
Circular/Prospectus, the "Offer"), receipt of each of which is hereby
acknowledged, the number of shares of common stock par value $.01 per share
("Barefoot Share") of Barefoot Inc., a Delaware corporation, indicated below:
Number of Barefoot Shares: Name(s) of Record Holder(s):
- ------------------------------------- -------------------------------------
Certificate Number for Barefoot -------------------------------------
Shares Please Type or Print
(if available)
Address(es): ________________________
- -------------------------------------
-------------------------------------
- ------------------------------------- (Zip Code)
If Shares will be delivered by book- -------------------------------------
entry transfer, check one box and Area Code and Telephone Number
provide
account number. Signature(s): ______________________
[_] The Depository Trust Company -------------------------------------
[_] Philadelphia Depository Trust
Company
With the express understanding that the Election made in this Notice of
Guaranteed Delivery may not be changed after 12:00 midnight, New York City time
on the Expiration Date, including by a Letter of Transmittal/Form of Election
submitted after 12:00 midnight, New York City time on the Expiration Date, the
undersigned hereby makes the following elections with respect to the Barefoot
Shares listed above:
Account Number: _____________________
CHECK ONLY ONE OF THE BOXES BELOW. You may make a Cash Election or a Share
Election as to any Barefoot Share or combination of Barefoot Shares that you
hold. If you wish to make multiple elections, check the "Multiple Election" box
below and indicate in the space provided below the number of Barefoot Shares
represented by the Certificate(s) submitted for which a Cash Election or a
Share Election is being made. IF YOU FAIL TO MAKE AN EFFECTIVE ELECTION, YOU
WILL BE DEEMED TO HAVE MADE A CASH ELECTION.
[_]The CASH ELECTION ($16.00 in cash per share) is made as to all of the
Barefoot Shares listed above.
[_]The SHARE ELECTION (The fraction of a ServiceMaster Share per Barefoot
Share determined by dividing $16.00 by the greater of (i) $23.00 or (ii)
The Average ServiceMaster Share Price) is made as to all of the Barefoot
Shares listed above.
[_]Multiple Elections are made as to the Barefoot Shares listed above, in
the following amounts:
2
<PAGE>
Number of Shares Number of Shares
As As
To Which a Cash To Which a Share
Election Is Made Election Is Made
----------------- -----------------
----------------- -----------------
If a Multiple Election is made, the total number of Barefoot Shares subject
to the Multiple Election must equal the total number of Barefoot Shares being
tendered hereby as reflected above.
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member in good standing of the Securities Transfer Agents
Medallion Program, the New York Stock Exchange, Inc. Medallion Signature
Program, the Stock Exchanges' Medallion Program (an "Eligible Institution") or
a member of the National Association of Securities Dealers, Inc., hereby (i)
represents that the above-named persons are deemed to own the shares tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 14e-4"), (ii) represents that such
tender of Barefoot Shares complies with Rule 14e-4 and (iii) guarantees that
either the certificates representing the Barefoot Shares tendered hereby in
proper form for transfer or timely confirmation of the book entry transfer of
such Barefoot Shares into the Exchange Agent's account at The Depository Trust
Company or the Philadelphia Depository Trust Company (pursuant to the
procedures set forth in the section of the Offering Circular/Prospectus
entitled "THE OFFER--Procedures for Tendering Shares"), together with a
properly completed and duly executed Letter of Transmittal/Form of Election
with any required signature guarantee (or, in the case of a book-entry
transfer, an Agent's Message) and any other documents required by the Letter
of Transmittal/Form of Election, will be received by the Exchange Agent at one
of its addresses set forth above within three Nasdaq National Market trading
days after the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of
Transmittal/Form of Election and certificates for the Barefoot Shares listed
herein to the Exchange Agent within the time period shown herein. Failure to
do so could result in a financial loss to such Eligible Institution.
Name of Firm: _______________________ Title: ______________________________
Authorized Signature: Address: ____________________________
(Zip Code)
- -------------------------------------
Area Code and Telephone Number:
-------------------------------------
Date: ________________________ ,1997
DO NOT SEND CERTIFICATES WITH THIS NOTICE. CERTIFICATES SHOULD ONLY BE SENT
WITH YOUR LETTER OF TRANSMITTAL/FORM OF ELECTION.
3
<PAGE>
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
OFFER TO ACQUIRE
EACH OUTSTANDING SHARE OF COMMON STOCK
(INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
PURCHASE RIGHTS)
OF
BAREFOOT INC.
BY
SERVICEMASTER LIMITED PARTNERSHIP
FOR, AT THE ELECTION OF THE HOLDER,
(I) $16.00 IN CASH, OR (II) A FRACTION OF A SHARE OF
SERVICEMASTER LIMITED PARTNERSHIP
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED.
January 17, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by ServiceMaster Limited Partnership, a Delaware
limited partnership ("ServiceMaster"), to act as Dealer Managers in connection
with ServiceMaster's offer to acquire each outstanding share of common stock,
par value $.01 per share ("Barefoot Share"), of Barefoot Inc., a Delaware
corporation ("Barefoot"), together with the associated Series A Junior
Participating Preferred Stock Purchase Rights, not already owned by
ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash,
without any interest thereon (the "Cash Consideration"); or (ii) a fraction
(the "Conversion Fraction") of a share ("ServiceMaster Share") of limited
partnership interest in ServiceMaster, determined by dividing $16.00 by the
greater of (x) $23.00 or (y) the average (without rounding) of the closing
price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the
New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for
the 15 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date (as defined in the Offering
Circular/Prospectus dated January 17, 1997, the "Offering Circular/Prospectus"
) and rounding the result to the nearest one one-hundred thousandth of a share
(the "Share Consideration"). Pursuant to the Offer (as defined below),
Barefoot stockholders may elect to receive all cash or all ServiceMaster
Shares or any combination thereof. The Offer is made upon the terms and
subject to the conditions set forth in the Offering Circular/Prospectus and
the related Letter of Transmittal/Form of Election (the "Letter of
Transmittal", together with the Offering Circular/Prospectus, the "Offer")
enclosed herewith. The Offer is being made pursuant to an Acquisition
Agreement and a related Plan and Agreement of Merger, each dated as of
December 5, 1996, by and among ServiceMaster, ServiceMaster Acquisition
Corporation (a Delaware corporation and a wholly owned subsidiary of
ServiceMaster) and Barefoot.
<PAGE>
For your information and for forwarding to your clients for whom you hold
Barefoot Shares registered in your name or in the name of your nominee, or who
hold Barefoot Shares registered in their own names, we are enclosing the
following documents:
1. The Offering Circular/Prospectus;
2. The Letter of Transmittal/Form of Election to tender Barefoot Shares
for your use and for the information of your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Barefoot Shares are not immediately available or time will
not permit certificates for Barefoot Shares and all other documents to
reach the Exchange Agent prior to the Expiration Date (as defined in the
Offering Circular/Prospectus) or if the procedures for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose accounts
you hold Barefoot Shares in your name or in the name of a nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. A return envelope addressed to Harris Trust Company of New York, the
Exchange Agent.
THE OFFER IS CONDITIONED ON A MINIMUM NUMBER (THE "MINIMUM NUMBER") OF THE
OUTSTANDING BAREFOOT SHARES BEING TENDERED FOR EITHER CASH OR SERVICEMASTER
SHARES PURSUANT TO THE OFFER SUCH THAT, WHEN ADDED TO ALL BAREFOOT SHARES
OWNED BY SERVICEMASTER PRIOR TO CONSUMMATION OF THE OFFER, SERVICEMASTER WILL
OWN AT LEAST 75.0% OF THE BAREFOOT SHARES WHICH SHALL BE OUTSTANDING AS OF THE
CONSUMMATION OF THE OFFER. SERVICEMASTER, AS OF THE DATE HEREOF, BENEFICIALLY
OWNS 289,000 BAREFOOT SHARES OR APPROXIMATELY 2.0% OF THE OUTSTANDING BAREFOOT
SHARES. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN
THE OFFERING CIRCULAR/PROSPECTUS.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extensions
or amendment), ServiceMaster will be deemed to have accepted for payment or
exchange (and thereby purchased or exchanged), and will pay for or exchange
for ServiceMaster Shares, all Barefoot Shares validly tendered prior to the
Expiration Date and not properly withdrawn if, as and when ServiceMaster gives
oral or written notice to the Exchange Agent of ServiceMaster's acceptance of
such Barefoot Shares for payment or exchange pursuant to the Offer. In all
cases, payment for, or exchange of, Barefoot Shares purchased or exchanged
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of a properly completed and duly executed Letter of Transmittal/Form of
Election (or, in the case of a book-entry transfer, an Agent's Message) and
certificates evidencing such Barefoot Shares (or a properly completed Notice
of Guaranteed Delivery) or a timely confirmation of a book-entry transfer of
such Barefoot Shares into the Exchange Agent's account at The Depository Trust
Company or the Philadelphia Depository Trust Company, pursuant to the
procedures described in the section of the Offering Circular/Prospectus
entitled "THE OFFER--Procedures for Tendering Shares" and accompanied by any
other documents required by the Letter of Transmittal/Form of Election.
In order to properly tender Barefoot Shares in the Offer, a duly executed
and properly completed Letter of Transmittal/Form of Election, with any
required signature guarantees and any other required documents, should be sent
to the Exchange Agent, and certificates representing the tendered Barefoot
Shares should be delivered, all in accordance with the instructions set forth
in the Letter of Transmittal/Form of Election and the Offering
Circular/Prospectus.
If holders of Barefoot Shares wish to tender their Barefoot Shares, but it
is impracticable for them to tender their certificates on or prior to the
Expiration Date or to comply with the book-entry transfer
2
<PAGE>
procedures on a timely basis, a tender may be effected by following the
guaranteed delivery procedures specified in the section of the Offering
Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares".
ServiceMaster will not pay any fee or commission to any broker or dealer or
any other person (other than the Dealer Managers, as described in the Offering
Circular/Prospectus) in connection with the solicitation of tenders of
Barefoot Shares pursuant to the Offer. ServiceMaster will, however, upon
request, reimburse brokers, dealers, commercial banks and trust companies for
reasonable and necessary costs and expenses incurred by them in forwarding the
Offering Circular/Prospectus and the related documents to the beneficial
owners of Barefoot Shares held by them as nominee or in a fiduciary capacity.
ServiceMaster will pay or cause to be paid all stock transfer taxes applicable
to the purchase of Barefoot Shares pursuant to the Offer, except as set forth
in General Instruction H-4 of the Letter of Transmittal/Form of Election.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997,
UNLESS EXTENDED.
Any inquiries you have with respect to the Offer should be addressed to the
Dealer Managers or the Information Agent, at their addresses and telephone
numbers set forth on the back cover of the Offering Circular/Prospectus.
Additional copies of the enclosed material may be obtained from the
Information Agent or the Exchange Agent or from brokers, dealers, commercial
banks or trust companies.
Very truly yours,
GOLDMAN, SACHS & CO.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS THE AGENT OF SERVICEMASTER, ANY AFFILIATE OF SERVICEMASTER,
THE DEALER MANAGERS, THE EXCHANGE AGENT OR THE INFORMATION AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF
OF ANY OF THEM IN CONNECTION WITH THE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY
MADE IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL/FORM OF ELECTION.
3
<PAGE>
OFFER TO ACQUIRE
EACH OUTSTANDING SHARE OF COMMON STOCK
(INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
PURCHASE RIGHTS)
OF
BAREFOOT INC.
BY
SERVICEMASTER LIMITED PARTNERSHIP
FOR, AT THE ELECTION OF THE HOLDER,
(I) $16.00 IN CASH, OR (II) A FRACTION OF A SHARE OF
SERVICEMASTER LIMITED PARTNERSHIP
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED.
January 17, 1997
To Our Clients:
Enclosed for your consideration is the Offering Circular/Prospectus, dated
January 17, 1997 (the "Offering Circular/Prospectus"), and the related Letter
of Transmittal/Form of Election (the "Letter of Transmittal/Form of Election",
together with the Offering Circular/Prospectus, the "Offer") relating to the
offer by ServiceMaster Limited Partnership, a Delaware limited partnership
("ServiceMaster"), to acquire each outstanding share of common stock, par
value $.01 per share ("Barefoot Share"), of Barefoot Inc., a Delaware
corporation ("Barefoot"), together with the associated Series A Junior
Participating Preferred Stock Purchase Rights, not already owned by
ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash,
without any interest thereon (the "Cash Consideration"); or (ii) a fraction
(the "Conversion Fraction") of a share ("ServiceMaster Share") of limited
partnership interest in ServiceMaster, determined by dividing $16.00 by the
greater of (x) $23.00 or (y) the average (without rounding) of the closing
price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the
New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for
the 15 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date (as defined in the Offering
Circular/Prospectus) and rounding the result to the nearest one one-hundred
thousandth of a share (the "Share Consideration" and collectively with the
Cash Consideration, the "Offer Consideration"). Pursuant to the Offer,
Barefoot stockholders may elect to receive all cash or all ServiceMaster
Shares or any combination thereof. There is no limit on the percentage of the
Offer Consideration which may be received as cash or as ServiceMaster Shares.
The Offer is made upon the terms and subject to the conditions set forth in
the Offer. This material is being sent to you as the beneficial owner of
Barefoot Shares held by us for your account but not registered in your name. A
TENDER OF SUCH BAREFOOT SHARES MAY ONLY BE MADE BY US PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL/FORM OF ELECTION IS FURNISHED TO YOU
FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER BAREFOOT SHARES
HELD BY US FOR YOUR ACCOUNT.
<PAGE>
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all of the Barefoot Shares held by us for your
account, pursuant to the terms and subject to the conditions set forth in the
Offer.
Your attention is directed to the following:
1. The Offer Consideration for each Barefoot Share is, at your election,
either (i) $16.00 in cash or (ii) a fraction of a ServiceMaster Share
determined by dividing $16.00 by the greater of (x) $23.00 or (y) the
Average ServiceMaster Share Price.
2. The Offer is being made pursuant to an Acquisition Agreement and a
related Plan and Agreement of Merger, each dated as of December 5, 1996, by
and among ServiceMaster, ServiceMaster Acquisition Corporation (a wholly
owned subsidiary of ServiceMaster) and Barefoot. The Acquisition Agreement
is attached to the Offering Circular/Prospectus as Annex A-I and the Plan
and Agreement of Merger is attached to the Offering Circular/Prospectus as
Annex A-II.
3. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Friday, February 21, 1997, unless the Offer is extended.
4. The Offer is being made for all outstanding Barefoot Shares. The Offer
is conditioned upon, among other things, a minimum number of the
outstanding Barefoot Shares being tendered for either cash or ServiceMaster
Shares pursuant to the Offer such that, when added to all Barefoot Shares
owned by ServiceMaster prior to consummation of the Offer, ServiceMaster
will own at least 75.0% of the Barefoot Shares which shall be outstanding
as of the consummation of the Offer. ServiceMaster, as of the date hereof,
beneficially owns 289,000 Barefoot Shares or approximately 2.0% of the
outstanding Barefoot Shares. The Offer is also subject to other terms and
conditions set forth in the section of the Offering Circular/Prospectus
entitled "THE OFFER--Conditions to the Offer" (all such conditions are
referred to as the "Offer Conditions").
5. In addition to the Offer, pursuant to the Plan and Agreement of
Merger, assuming the satisfaction of the Offer Conditions, ServiceMaster
Acquisition Corporation will be merged, as promptly as possible after the
consummation of the Offer, with and into Barefoot for $16.00 in cash per
Barefoot Share without interest thereon and upon the terms and conditions
set forth in the Plan and Agreement of Merger.
6. Stockholders who tender Barefoot Shares will not be obligated to pay
brokerage fees or commissions or, except as set forth in General
Instruction H-4 of the Letter of Transmittal/Form of Election, stock
transfer taxes on the acquisition of Barefoot Shares by ServiceMaster
pursuant to the Offer.
The Offer is being made to all holders of Barefoot Shares. ServiceMaster is
not aware of any jurisdiction where the making of the Offer is not in
compliance with the laws of such jurisdiction. If ServiceMaster becomes aware
of any jurisdiction where the making of the Offer would not be in compliance
with such laws, ServiceMaster will make a reasonable good faith effort to
comply with any such laws or seek to have such laws declared inapplicable to
the Offer. If, after such reasonable good faith effort, ServiceMaster cannot
comply with any applicable law, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) holders of Barefoot Shares residing
in such jurisdiction. In those jurisdictions where the securities, blue sky or
other laws of which require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on behalf of ServiceMaster by
Goldman, Sachs & Co. or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
If you wish to have us tender any or all of your Barefoot Shares held by us
for your account, please so instruct us by completing, executing and returning
to us the instruction form set forth below. An envelope to return your
instructions to us is enclosed. Please forward your instructions to us in
ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer. If you authorize the tender of your Barefoot Shares,
all such Barefoot Shares will be tendered unless otherwise specified on the
instruction form set forth below.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO ACQUIRE FOR CASH OR EXCHANGE FOR
SERVICEMASTER SHARES ALL OUTSTANDING SHARES OF COMMON STOCK OF BAREFOOT INC.
The undersigned acknowledge receipt of your letter and the enclosed Offering
Circular/Prospectus, dated January 17, 1997, and the related Letter of
Transmittal/Form of Election (which together constitute the "Offer") relating
to the offer by ServiceMaster Limited Partnership, a Delaware limited
partnership ("ServiceMaster"), to acquire all of the outstanding shares of
common stock, par value $.01 per share ("Barefoot Share"), of Barefoot Inc., a
Delaware corporation, together with the associated Series A Junior
Participating Preferred Stock Purchase Rights, not already owned by
ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash,
without any interest thereon (the "Cash Consideration"); or (ii) a fraction
(the "Conversion Fraction") of a share ("ServiceMaster Share") of limited
partnership interest in ServiceMaster, determined by dividing $16.00 by the
greater of (x) $23.00 or (y) the average (without rounding) of the closing
price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the
New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for
the 15 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date (as defined) and rounding the result
to the nearest one one-hundred thousandth of a share (the "Share
Consideration").
This will instruct you to (i) tender to ServiceMaster the number of Barefoot
Shares indicated below (or if no number is indicated below, all Barefoot
Shares) that are held by you for the account of the undersigned and (ii) elect
the Cash Consideration or the Share Consideration for such tendered Barefoot
Shares as is indicated below, upon the terms and subject to the conditions set
forth in the Offer.
Dated: _________________ , 1997
-------------------------------------
-------------------------------------
Total Number of Barefoot Signature(s)
Shares to be Tendered:* -------------------------------------
-------------------------------------
Number of Tendered Barefoot Print name(s)
Shares as to which Cash -------------------------------------
Consideration is elected: -------------------------------------
Shares Address(es)
-------------------------------------
Number of Tendered Barefoot Area Code and Telephone Number
Shares as to which Share -------------------------------------
Consideration is elected: IRS Identification or Social
Shares Security Number
- --------
*I understand that if I sign this instruction form without indicating a lesser
number of Barefoot Shares in the space above, all Barefoot Shares held by
you for my account will be tendered to ServiceMaster and that if I do not
specify which type of consideration is elected for any Barefoot Share(s), I
will receive the Cash Consideration for such Barefoot Share(s).
3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one of
the
individuals(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if
joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only contributor,
the minor(1)
6. Account in the name of The ward, minor,
guardian or committee for a or incompetent
designated ward, minor, or person(3)
incompetent person
7. a.The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also trustee)
b.So-called trust account The actual
that is not a legal or valid owner(1)
trust under State law
8. Sole proprietorship The owner(4)
account
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF --
----------------------------------------------------
<S> <C> <C>
9. A valid trust, estate, or The legal entity
pension trust (Do not furnish
the identifying
number of the
personal
representative or
trustee unless
the legal entity
itself is not
designated in the
account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
receives agricultural
program payments
</TABLE>
- -------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
.A corporation.
.A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a)
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not pro-
vided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends un-
der section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, inter-
est, or other payments to give taxpayer identification numbers to payers who
must report the payments to IRS. IRS uses the numbers for identification pur-
poses. Payers must be given the numbers whether or not recipients are required
to file tax returns. Beginning January 1, 1993, payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain penal-
ties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are sub-
ject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or pat-
ronage dividends in gross income, such failure will be treated as being due to
negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing evi-
dence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or im-
prisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE>
NEWS RELEASE
- --------------------------------------------------------------------------------
[LOGO OF SERVICEMASTER] The ServiceMaster
Company L.P.
One ServiceMaster Way
Downers Grove, IL 60515-1700
708/964-1300
EXHIBIT (a)(7)
For further information contact:
Service Master
Ernest J. Mrozek, CFO, 630-271-2637
Clair Buchan, VP Comm., 630-271-2150
Barefoot
Mike Goodrich, CFO, 614-846-1800
FOR IMMEDIATE RELEASE
- ---------------------
January 17, 1997
COMMENCEMENT OF SERVICEMASTER'S OFFER
TO ACQUIRE SHARES OF BAREFOOT
-----------------------------
DOWNERS GROVE, Illinois and COLUMBUS, Ohio -- ServiceMaster (NYSE:SVM) and
Barefoot Inc. (NASDAQ:BARE) announced that, pursuant to their previously
announced December 5, 1996 agreement, ServiceMaster has commenced today its
tender offer for all shares of common stock of Barefoot. As previously
announced, ServiceMaster will offer $16.00 for each Barefoot share in either
cash or an equivalent amount of ServiceMaster shares, at the election of the
Barefoot stockholder. The transaction has an aggregate value of approximately
$232 million.
The consummation of the transaction is contingent upon participation in the
tender offer by the shareholders of at least 75% of Barefoot's 14.5 million
outstanding shares. For purposes of the offer, ServiceMaster shares will be
valued at the 15-day average NYSE composite tape closing price for the period
ending February 13, 1997, unless the offer is extended, but not less than $23.00
per share. ServiceMaster shares to be issued in the transaction have been
registered with the Securities and Exchange Commission.
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF SERVICEMASTER]
The tender offer and withdrawal rights expire at midnight Eastern Standard
Time on February 21, 1997 unless extended.
If the tender offer is completed, ServiceMaster intends to cause Barefoot
to consummate a merger in which each remaining outstanding share of common stock
of Barefoot is converted into cash in the amount of $16.00 per share.
Barefoot is the nation's second largest lawn care company, with over
500,000 system-wide customers, spanning 103 metropolitan markets, with 53
company owned markets, 50 franchises, and annualized customer level revenues in
excess of $125 million. For the nine months ended September 30, 1996, the
company had operating income before amortization of $21 million.
TruGreen-ChemLawn is the nation's largest lawn care company, with customer
level revenues of over $630 million, serving 2.5 million customers through over
260 service centers across the country.
ServiceMaster serves more than 6 million customers in the United States and
in 30 countries around the world, with annual customer level revenue of more
than $4.5 billion. ServiceMaster is a network of quality service companies with
two major operating segments, ServiceMaster Consumer Services and ServiceMaster
Management Services, and two emerging business units, ServiceMaster Diversified
Health Services and International.
<PAGE>
SERVICEMASTER
ServiceMaster Consumer Services includes seven market-leading companies --
TruGreen-ChemLawn, Terminix, ServiceMaster Residential and Commercial Services,
Merry Maids, American Home Shield, Amerispec and Furniture Medic -- which
operate through the ServiceMaster Quality Service Network of over 5,500
U.S. company-owned and franchised businesses.
ServiceMaster Management Services has over 2,500 customers and is the
leading facilities management company serving education, healthcare and
business and industrial facilities with management of plant operations and
maintenance, housekeeping, clinical equipment maintenance, food service,
laundry, grounds and energy.
ServiceMaster Diversified Health Services provides a broad range of
services to home care, assisted living, subacute and long-term care markets,
with more than 145 health care facilities under contract.
ServiceMaster International includes both direct operations and a variety
of license agreements in 30 foreign countries, which provide the broad range of
the company's services.
The offering will be made only by means of a prospectus which is part of a
registration statement declared effective pursuant to the 1933 Securities Acts.
<PAGE>
NEWS RELEASE
- --------------------------------------------------------------------------------
The ServiceMaster
Company L.P.
One ServiceMaster Way
Downers Grove, IL 60515-1700
630/271-1300
ServiceMaster
-------------
Ernie Mrozek, CFO, 630-271-2637
Claire Buchan, VP Comm., 630-271-2150
Barefoot
--------
Mike Goodrich, CFO, 614-846-1800
FOR IMMEDIATE RELEASE
- ---------------------
December 5, 1996
SERVICEMASTER AGREES TO ACQUIRE BAREFOOT INC.
----------------------------------------------
DOWNERS GROVE, Illinois and COLUMBUS, Ohio -- ServiceMaster (NYSE:SVM) and
Barefoot Inc. (NASDAQ:BARE) today announced that their Boards of Directors have
reached a definitive agreement on a business combination. The transaction is to
be carried out through a tender offer in which ServiceMaster will offer Barefoot
stockholders $16 per share in either cash or an equivalent amount of
ServiceMaster shares, at their election. The transaction has an aggregate value
of approximately $230 million. After the transaction, Barefoot operations will
be merged with those of TruGreen-ChemLawn, the nation's largest lawn care
company and a subsidiary of ServiceMaster.
The consummation of the transaction will require, among other things,
registration of ServiceMaster shares with the Securities and Exchange
Commission, receipt of Hart-Scott-Rodino anti-trust approval, and successful
completion of final due diligence by
[LOGO]
<PAGE>
ServiceMaster. The tender offer will begin upon fulfillment of these
requirements. Closing of the transaction is contingent upon participation in the
tender offer by the holders of at least 75 percent of Barefoot's 14.5 million
outstanding shares. For purposes of the offer, ServiceMaster shares will be
valued at the 15-day average closing price for the period ending five trading
days prior to the expiration of the tender offer, but at not less than $23 per
share. ServiceMaster shares closed yesterday at $24.625 and Barefoot shares
closed at $12.75.
"We are excited about combining the nation's two largest lawn care companies
with the objective of creating expanded market opportunity, economies of scale,
and productivity improvements. The experience we have had in successfully
assimilating a number of other companies in recent years will help us accomplish
these objectives. We also look forward to offering Barefoot's 500,000 customers
the additional high-quality services that are currently enjoyed by the 6 million
customers of the ServiceMaster Quality Service Network," said ServiceMaster
Chief Executive Officer Carlos H. Cantu.
"Barefoot is joining with the nation's largest lawn care company and one of the
leading service companies in the country," said Patrick Norton, Barefoot Chief
Executive Officer. "ServiceMaster has a reputation for outstanding customer
service, with an emphasis on training and developing people."
Barefoot is the nation's second largest lawn care company, with over 500,000
system-wide customers, spanning 103 metropolitan markets, with 53 company owned
markets, 50
[LOGO]
<PAGE>
franchises, and annualized customer level revenues in excess of $125 million.
For the nine months ended September 30, 1996, the company had operating income
before amortization of $21 million.
TruGreen-ChemLawn is the nation's largest lawn care company, with customer level
revenues of over $630 million, serving 2.5 million customers through over 260
service centers across the country.
ServiceMaster serves more than 6 million customers in the United States and in
30 countries around the world, with annual customer level revenue of more than
$4.5 billion. ServiceMaster is a network of quality service companies with two
major operating segments, ServiceMaster Consumer Services and ServiceMaster
Management Services, and two emerging business units, ServiceMaster Diversified
Health Services and International.
ServiceMaster Consumer Services includes seven market-leading companies --
TruGreen-ChemLawn, Terminix, ServiceMaster Residential and Commercial Services,
Merry Maids, American Home Shield, Amerispec and Furniture Medic -- which
operate through the ServiceMaster Quality Service Network of over 5,500 U.S.
company-owned and franchised businesses.
ServiceMaster Management Services has over 2,500 customers and is the leading
facilities management company serving education, healthcare and business and
industrial facilities
[LOGO]
<PAGE>
ServiceMaster
with management of plant operations and maintenance, housekeeping, clinical
equipment maintenance, food service, laundry, grounds and energy.
ServiceMaster Diversified Health Services provides a broad range of services to
home care, assisted living, subacute and long-term care markets, with more than
145 health care facilities under contract.
ServiceMaster International includes both direct operations and a variety of
license agreements in 30 foreign countries, which provide the broad range of the
company's services.
The offering will be made only by means of a prospectus which is part of a
registration statement declared effective pursuant to the 1933 Securities Acts.
ServiceMaster is expected to file the registration statement with the securities
and Exchange Commission next week.
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
------------------------------------------------------------------------------
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell shares. The Offer is made solely by the Offering
Circular/Prospectus dated January 17, 1997, and the related Letter of
Transmittal/Form of Election and any amendments or supplements
thereto and is being made to all holders of Barefoot Shares. The
Offer is not being made to (nor will tenders be accepted from
or on behalf of) holders of Barefoot Shares in any
jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with
the laws of such jurisdiction. In any jurisdiction
where the securities, blue sky or other laws
require the Offer to be made by a licensed broker
or dealer, the Offer will be deemed to be made on
behalf of ServiceMaster by the Dealer Managers or
one or more registered brokers or dealers that are
licensed under the laws of such jurisdiction
NOTICE OF OFFER TO ACQUIRE
EACH OUTSTANDING SHARE OF COMMON STOCK
(INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
PURCHASE RIGHTS)
OF
BAREFOOT INC.
BY
SERVICEMASTER LIMITED PARTNERSHIP
FOR, AT THE ELECTION OF THE HOLDER,
(I) $16.00 IN CASH OR (II) A FRACTION OF A SHARE OF SERVICEMASTER LIMITED
PARTNERSHIP
ServiceMaster Limited Partnership, a Delaware limited partnership (
"ServiceMaster"), is offering to acquire each outstanding share of common
stock, par value $0.01 per share ("Share" or "Barefoot Share"), of Barefoot
Inc., a Delaware corporation ("Barefoot"), together with the associated Series
A Junior Participating Preferred Stock Purchase Rights, not already owned by
ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash,
without any interest thereon (the "Cash Consideration"); or (ii) a fraction
(the "Conversion Fraction") of a share ("ServiceMaster Share") of limited
partnership interest in ServiceMaster, determined by dividing $16.00 by the
greater of (x) $23.00 or (y) the average (without rounding) of the closing
price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the
New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the
15 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Expiration Date (as defined in the Offering
Circular/Prospectus) and rounding the result to the nearest one one hundred
thousandth of a share (the "Share Consideration" and collectively with the Cash
Consideration, the "Offer Consideration"). Pursuant to the Offer (as defined
below), Barefoot stockholders may elect to receive all cash or all
ServiceMaster Shares or any combination thereof. There is no limit on the
percentage of the Offer Consideration which may be received as cash or as
ServiceMaster Shares. The Offer is made upon the terms and subject to the
conditions set forth in the Offering Circular/Prospectus, dated January 17,
1997 (the "Offering Circular/Prospectus"), and in the related Letter of
Transmittal/Form of Election (the "Letter of Transmittal/Form of Election",
together with the Offering Circular/Prospectus, the "Offer"). The purpose of
the Offer is to acquire as many outstanding Barefoot Shares as possible and
thereafter ServiceMaster intends to effect the merger described below.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME,
ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED.
The Offer is conditioned on a minimum number of the outstanding Barefoot
Shares being tendered for either cash or ServiceMaster Shares pursuant to the
Offer such that, when added to all Barefoot Shares owned by ServiceMaster prior
to consummation of the Offer, ServiceMaster will own at least 75.0% of the
Barefoot Shares which shall be outstanding as of the consummation of the Offer.
ServiceMaster, as of the date hereof, beneficially owns 289,000 Barefoot Shares
or approximately 2.0% of the outstanding Barefoot Shares. The Offer is also
subject to certain other conditions, any or all of which may be waived by
ServiceMaster.
The Offer is being made pursuant to an Acquisition Agreement (the
"Acquisition Agreement") and Plan and Agreement of Merger (the "Merger
Agreement"), both dated as of December 5, 1996, among ServiceMaster,
ServiceMaster Acquisition Corporation ("Merger Sub", a wholly owned subsidiary
of ServiceMaster) and Barefoot, pursuant to which, as promptly as possible
after the completion of the Offer, Merger Sub will be merged with and into
Barefoot (the "Merger"). On the effective date of the Merger, each outstanding
Barefoot Share, other than Barefoot Shares owned by ServiceMaster or any
subsidiary of ServiceMaster and Barefoot Shares which are held by stockholders
exercising appraisal rights pursuant to Section 262 of the Delaware General
Corporation Law, will be converted into and represent the right to receive
$16.00 in cash, without interest thereon (the "Merger Consideration"). The
Acquisition Agreement and the Merger Agreement are more fully described in the
section of the Offering Circular/Prospectus entitled "DESCRIPTION OF
ACQUISITION AGREEMENT AND MERGER AGREEMENT".
ServiceMaster and Barefoot believe that, for United States federal income tax
purposes: (i) the Cash Consideration received by any holder of Barefoot Shares
tendered and accepted by ServiceMaster pursuant to the Offer will be treated as
the receipt of cash in a taxable sale of the Shares, and (ii) for United States
persons who hold Barefoot Shares as a "capital asset" (generally, property held
for investment) within the meaning of Section 1221 of the Internal Revenue Code
("Code"), the exchange of Barefoot Shares for ServiceMaster Shares pursuant to
the Offer as provided for herein will qualify as a tax free contribution of
property to ServiceMaster within the meaning of Section 721 of the Code. The
foregoing is based upon the laws, regulations, rulings and decisions currently
in effect, all of which are subject to change. Barefoot stockholders should
consult their own tax advisors to determine the federal, state, local and other
tax consequences of participating in the Offer or the Merger. Stockholders
should note that no rulings have been or will be sought from the Internal
Revenue Service (the "IRS") with respect to the federal income tax consequences
of the Offer or the Merger, and no assurance can be given that the IRS will not
take contrary positions.
BAREFOOT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE CASH CONSIDERATION
AVAILABLE IN THE OFFER AND THE MERGER CONSIDERATION ARE FAIR TO THE BAREFOOT
STOCKHOLDERS AND IN THEIR BEST INTERESTS. THE BAREFOOT BOARD HAS ALSO
DETERMINED THAT THE SHARE CONSIDERATION WHICH THE STOCKHOLDERS HAVE THE RIGHT
TO CHOOSE AS AN ALTERNATIVE TO RECEIVING $16.00 PER SHARE IN CASH IS FAIR TO
STOCKHOLDERS AND IN THEIR BEST INTERESTS, PROVIDED THAT THE BAREFOOT BOARD
EXPRESSES NO OPINION AS TO THE FAIRNESS OF THE SHARE CONSIDERATION IF THE
AVERAGE SERVICEMASTER SHARE PRICE TURNS OUT TO BE LESS THAN $23.00. SUBJECT TO
THIS PROVISO, THE BAREFOOT BOARD HAS CONCLUDED THAT THE OFFER AND THE MERGER
ARE IN THE BEST INTERESTS OF BAREFOOT AND ITS STOCKHOLDERS AND THAT SUCH
TRANSACTIONS ARE FAIR TO THE STOCKHOLDERS OF BAREFOOT, AND IT RECOMMENDS THAT
BAREFOOT STOCKHOLDERS ACCEPT THE OFFER, TENDER THEIR SHARES PURSUANT TO THE
OFFER AND, IF REQUIRED BY APPLICABLE LAW, APPROVE AND ADOPT THE MERGER
AGREEMENT.
Because the market price for ServiceMaster Shares will fluctuate, the market
price for the fraction of a ServiceMaster Share issuable in exchange for each
Share at any time on or after the consummation of the Offer is likely to be
higher or lower than $16.00. Each Barefoot stockholder has the right to decide
whether to receive ServiceMaster Shares or cash in the Offer. Factors a
Barefoot stockholder may wish to consider in connection with such decision
include: the value to the Barefoot stockholder of the ability to defer
recognition of any capital gain for federal income tax purposes by electing to
receive ServiceMaster Shares; the inclination of such stockholder to continue
to hold the ServiceMaster Shares received in the Offer (since a capital
<PAGE>
------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
gain tax may be imposed when the ServiceMaster Shares are sold); the
stockholder's willingness to assume the risk inherent in holding ServiceMaster
equity securities with a view to possibly realizing future gains (as to which
no assurance can be given); and the stockholder's evaluation of the
attractiveness of alternative investments which the stockholder would be able
to make with the net after-tax proceeds which the stockholder would receive if
the stockholder elected to receive the Cash Consideration. A stockholder who
would be subject to little or no tax upon the disposition of Shares will likely
give little or no weight to the tax related factors identified above and may
accordingly evaluate the relative attractiveness of the Share Consideration and
Cash Consideration differently from a stockholder who is in a taxable
situation. The foregoing does not purport to be a complete list of all of the
factors which may be relevant to a stockholder's decision to receive cash or
ServiceMaster Shares.
In addition, if, and to the extent, the Average ServiceMaster Share Price
should turn out to be below $23.00, the risk that the market value of the Share
Consideration at the time the Offer is consummated will be less than the $16.00
Cash Consideration available to Barefoot stockholders would increase.
ServiceMaster will issue a press release and file an amendment to its Schedule
14D-1 with the SEC promptly after the Average ServiceMaster Share Price is
determined disclosing the amount of that price. Since Barefoot stockholders
have the ability to switch their elections between Share Consideration and Cash
Consideration until midnight on the Expiration Date of the Offer, Barefoot
stockholders should review this ServiceMaster announcement so that their final
election can take into account the Average ServiceMaster Share Price as well as
the market price for ServiceMaster Shares on or near the Expiration Date.
Patrick J. Norton (Barefoot's Chief Executive Officer) has advised
ServiceMaster that it is his present intention to tender all of his Barefoot
Shares (which represent approximately 9.5% of all outstanding Barefoot Shares)
and to elect the Share Consideration for substantially all of such tendered
Shares. Mr. Norton's action is not intended to constitute advice or a
recommendation as to whether or not any stockholder should tender or how any
other Barefoot stockholder should choose between the Cash Consideration and
Share Consideration alternatives.
NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER
STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE
CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR
OWN DECISION WITH RESPECT TO SUCH ELECTION.
On December 4, 1996, the last full trading day prior to the announcement by
ServiceMaster and Barefoot that they had entered into the Acquisition
Agreement, the closing price of ServiceMaster Shares as reported by the NYSE
Composite Tape, was $24.625 per ServiceMaster Share and the closing price of
the Barefoot Shares, as reported on the Nasdaq National Market, was $12.75 per
Barefoot Share. The closing prices of ServiceMaster Shares and the Barefoot
Shares on January 15, 1997, the most recent date prior to the printing of this
Summary Advertisement, as reported by the NYSE Composite Tape and the Nasdaq
National Market, respectively, were $26.125 per ServiceMaster Share and $15.75
per Barefoot Share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS.
For purposes of the Offer, ServiceMaster will be deemed to have accepted for
payment and/or exchange Barefoot Shares validly tendered and not withdrawn as,
if and when ServiceMaster gives oral or written notice to Harris Trust Company
of New York (the "Exchange Agent") of its acceptance for payment and/or
exchange of such Barefoot Shares pursuant to the Offer. Payment for, or
exchange of, Barefoot Shares accepted for payment or exchange pursuant to the
Offer will be made by deposit of the Cash Consideration or certificates
representing ServiceMaster Shares therefore with the Exchange Agent, which will
act as agent for the tendering stockholders for the purpose of receiving
payments or share certificates from ServiceMaster and transmitting such
payments or certificates to the tendering stockholders. UNDER NO CIRCUMSTANCES
WILL INTEREST ON THE PAYMENT OF THE CASH CONSIDERATION FOR BAREFOOT SHARES BE
PAID, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
In all cases, payment for and/or exchange of Barefoot Shares tendered and
accepted pursuant to the Offer will be made only after timely receipt by the
Exchange Agent of (i) certificates for such Barefoot Shares or timely
confirmation of the book-entry transfer of such Barefoot Shares into the
Exchange Agent's account at The Depository Trust Company or the Philadelphia
Depository Trust Company (each a "Book-Entry Transfer Facility") pursuant to
the procedures set forth in the section of the Offering Circular/Prospectus
entitled "THE OFFER--Procedures for Tendering Shares," (ii) the Letter of
Transmittal/Form of Election, properly completed and duly executed, with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message (as defined in the section of the Offering Circular/Prospectus
entitled "THE OFFER--Procedures for Tendering Shares")) and (iii) any other
documents required by such Letter of Transmittal/Form of Election.
Subject to the terms of the Acquisition Agreement, the Merger Agreement and
the applicable rules and regulations of the Securities and Exchange Commission,
ServiceMaster expressly reserves the right, in its sole discretion, at any time
or from time to time, to extend the period of time during which the Offer is
open by giving oral or written notice of such extension to the Exchange Agent.
Any such extension will also be publicly announced by press release issued no
later than 9:00 A.M., New York City time, on the next business day after the
previously scheduled expiration date of the Offer.
Tenders of Barefoot Shares made pursuant to the Offer are irrevocable except
that Barefoot Shares tendered pursuant to the Offer may be withdrawn at any
time prior to the expiration of the Offer and, unless theretofore accepted for
payment by ServiceMaster pursuant to the Offer, may also be withdrawn at any
time after March 17, 1997.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent
at one of its addresses set forth on the back cover of the Offering
Circular/Prospectus. Any such notice of withdrawal must specify the name of the
person having tendered the Barefoot Shares to be withdrawn, the number of
Barefoot Shares to be withdrawn and the names in which the certificate(s)
evidencing the Barefoot Shares to be withdrawn are registered, if different
from that of the person who tendered such Barefoot Shares. If certificates for
Barefoot Shares to be withdrawn have been delivered or otherwise identified to
the Exchange Agent, then prior to the physical release of such certificates,
the certificate numbers of the particular certificates evidencing the Barefoot
Shares to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution (as defined in the section of the
Offering Circular/Prospectus entitled "THE OFFER--Procedure for Tendering
Shares"), except in the case of Barefoot Shares tendered for the account of an
Eligible Institution, must also be furnished to the Exchange Agent as described
above. If Barefoot Shares have been tendered pursuant to the procedures for
book-entry transfer as set forth in the section of the Offering
Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares," any
notice of withdrawal must also specify the name and number of the account at
the appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Barefoot Shares. All Barefoot Shares properly withdrawn will be deemed to be
not validly tendered for the purposes of the Offer. However, withdrawn Barefoot
Shares may be retendered by again following one of the procedures described in
the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures
for Tendering Shares" at any time prior to the Expiration Date.
The information required to be disclosed by paragraph (e)(1)(vii) of Rule
14d-6 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, is contained in the Offering Circular/Prospectus and is
incorporated herein by reference.
Barefoot has provided ServiceMaster with Barefoot's stockholder list and
security position listings for the purpose of disseminating the Offer to
holders of Barefoot Shares. The Offering Circular/Prospectus and the Letter of
Transmittal/Form of Election and, if required, other relevant materials, will
be mailed by ServiceMaster to record holders of Barefoot Shares and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on Barefoot's
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of Barefoot Shares.
THE OFFERING CIRCULAR/PROSPECTUS AND LETTER OF TRANSMITTAL/FORM OF ELECTION
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY
DECISION IS MADE WITH RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the Information
Agent or to the Dealer Managers at their respective addresses and telephone
numbers set forth below. Requests for additional copies of the Offering
Circular/Prospectus, the Letter of Transmittal/Form of Election and other
tender offer materials may be directed to the Information Agent or to brokers,
dealers, commercial banks or trust companies. All questions as to the form and
validity (including time of receipt) of any notice of withdrawal will be
determined by ServiceMaster, in its sole discretion, which determination shall
be final and binding.
THE INFORMATION AGENT FOR THE OFFER IS:
D. F. KING & CO., INC.
77 WATER STREET
NEW YORK, NEW YORK 10005
TOLL FREE (800) 848-3410
THE DEALER MANAGERS FOR THE OFFER ARE:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000
January 17, 1997
<PAGE>
- --------------------------------------------------------------------------------
$300,000,000
CREDIT AGREEMENT
dated as of August 31, 1995
among
THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP,
THE LENDERS
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
and
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Documentation Agent
- --------------------------------------------------------------------------------
J.P. MORGAN SECURITIES INC.,
Arranger
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
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1.1 Defined Terms...........................................................1
1.2 Accounting Terms and Determinations....................................17
1.3 Rules of Construction..................................................17
1.4. Rounding...............................................................17
ARTICLE II
THE FACILITY
------------
2.1. The Facility...........................................................17
2.1.1. Description of Facility........................................17
2.1.2. Availability of Facility; Required Payments....................18
2.2. Committed Advances.....................................................18
2.2.1. Committed Advances.............................................18
2.2.2. Types of Committed Advances....................................18
2.2.3. Method of Selecting Types and Interest Periods for New
Committed Advances.............................................18
2.2.4. Conversion and Continuation of Outstanding Committed
Advances.......................................................19
2.3. Competitive Bid Advances...............................................20
2.3.1. Competitive Bid Option; Repayment of Competitive Bid
Advances.......................................................20
2.3.2. Competitive Bid Quote Request..................................20
2.3.3. Submission and Contents of Competitive Bid Quotes..............21
2.3.4. Acceptance and Notice by the Borrower..........................22
2.3.5. Allocation by the Borrower.....................................23
2.3.6. Notice by the Borrower to the Administrative Agent.............23
2.4. Facility Fees..........................................................23
2.5. General Facility Terms.........................................24
2.5.1. Method of Borrowing............................................24
2.5.2. Minimum Amount of Each Committed Advance.......................24
2.5.3. Optional Principal Payments....................................24
2.5.4. Interest Periods...............................................25
2.5.5. Rate after Maturity............................................25
2.5.6. Interest Payment Dates; Interest Basis.........................25
2.5.7. Method of Payment..............................................26
2.5.8. Notes..........................................................26
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2.5.9. Notification of Advances, Interest Rates and Prepayments......26
2.5.10. Non-Receipt of Funds by the Administrative Agent..............26
2.5.11. Cancellation..................................................27
2.5.12. Lending Installations.........................................27
2.5.13. Currency Equivalents..........................................27
2.5.14. Taxes.........................................................28
2.5.15. Regulation D Compensation.....................................30
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Yield Protection.......................................................30
3.2. Changes in Capital Adequacy Regulations................................31
3.3. Availability of Types of Advances......................................31
3.4. Funding Indemnification................................................32
3.5. Lender Statements; Limit on Retroactivity; Survival of Indemnity.......32
3.6. Foreign Subsidiary Costs...............................................33
3.7. Replacement of Lenders.................................................33
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Initial Advance........................................................34
4.2. Initial Advance to each Eligible Subsidiary............................35
4.3. Each Advance...........................................................35
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
5.1. Organization and Authority.............................................36
5.2. Organization and Authority of Subsidiaries.............................37
5.3. Organization and Authority of Corporate General Partner................37
5.4. Business and Property..................................................37
5.5. Financial Statements...................................................38
5.6. Full Disclosure........................................................38
5.7. Pending Litigation.....................................................38
5.8. Loan Documents are Legal, Valid, Binding and Authorized................38
5.9. Governmental Consent...................................................39
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5.10. Taxes...........................................................39
5.11. Employee Retirement Income Security Act of 1974.................39
5.12. Investment Company Act..........................................40
5.13. Compliance with Environmental Laws..............................40
5.14. Regulations U and X.............................................40
ARTICLE VI
COVENANTS
---------
6.1.1. Information............................................40
6.1.2. Use of Parent Information..............................41
6.2. Use of Proceeds................................................42
6.3. Notice of Default..............................................42
6.4. Inspection.....................................................42
6.5. Legal Existence, Etc...........................................42
6.6. Insurance......................................................42
6.7. Taxes, Claims for Labor and Materials, Compliance with Laws....42
6.8. Maintenance, Etc...............................................43
6.9. Nature of Business.............................................43
6.10. Restricted Payments............................................43
6.11. Payment of Dividends by Subsidiaries...........................44
6.12. Transactions with Affiliates...................................44
6.13. Negative Pledge................................................44
6.14. Consolidations, Mergers and Sales of Assets....................46
6.15. Leverage Test..................................................46
6.16. Subsidiary Debt Limitation.....................................46
ARTICLE VII
DEFAULTS
--------
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration....................................................48
8.2. Amendments......................................................49
8.3. Preservation of Rights..........................................49
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ARTICLE IX
GENERAL PROVISIONS
------------------
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9.1. Survival of Representations.....................................50
9.2. Headings........................................................50
9.3. Entire Agreement................................................50
9.4. Several Obligations.............................................50
9.5. Expenses; Indemnification.......................................50
9.6. Numbers of Documents............................................51
9.7. Severability of Provisions......................................51
9.8. Nonliability of Lenders.........................................51
9.9. CHOICE OF LAW...................................................52
9.10. CONSENT TO JURISDICTION.........................................52
9.11. WAIVER OF JURY TRIAL............................................52
9.12. Confidentiality.................................................52
ARTICLE X
THE AGENTS
----------
10.1. Appointment.....................................................53
10.2. Powers..........................................................53
10.3. General Immunity................................................53
10.4. No Responsibility for Loans, Recitals, etc......................53
10.5. Action on Instructions of Lenders...............................53
10.6. Employment of Agents and Counsel................................54
10.7. Reliance on Documents; Counsel..................................54
10.8. Agent's Reimbursement and Indemnification.......................54
10.9. Rights as a Lender..............................................54
10.10. Lender Credit Decision..........................................54
10.11. Successor Agent.................................................55
10.12. Agents' Fees....................................................55
ARTICLE XI
SETOFF RATABLE PAYMENTS
-----------------------
11.1. Setoff..........................................................55
11.2. Ratable Payments................................................55
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ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
<S> <C> <C>
12.1. Successors and Assigns..........................................56
12.2. Participations..................................................56
12.2.1. Permitted Participants; Effect.........................56
12.2.2. Voting Rights..........................................57
12.3. Assignments.....................................................57
12.3.1. Permitted Assignments..................................57
12.3.2. Effect; Effective Date.................................57
12.4. Dissemination of Information....................................57
12.5. Tax Treatment...................................................58
12.6. Increased Costs.................................................58
ARTICLE XIII
NOTICES
-------
13.1. Giving Notice...................................................58
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
OF ELIGIBLE SUBSIDIARIES
------------------------------
14.1. Existence and Power.............................................59
14.2. Corporate or Partnership and Governmental Authorization;
Contravention...................................................59
14.3. Binding Effect..................................................59
14.4. Taxes...........................................................59
ARTICLE XV
GUARANTY
--------
15.1. The Guaranty....................................................59
15.2. Guaranty Unconditional..........................................59
15.3. Discharge Only Upon Payment In Full; Reinstatement In Certain
Circumstances...................................................60
15.4. Waiver by the Company...........................................61
15.5. Subrogation.....................................................61
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15.6. Stay of Acceleration..........................................61
</TABLE>
ARTICLE XVI
COUNTERPARTS; EFFECTIVENESS
---------------------------
PRICING SCHEDULE
Schedule 6.11 Subsidiary Restrictions
Exhibit "A" Note
Exhibit "B-1" Form of Opinion of Kirkland & Ellis
Exhibit "B-2" Form of Opinion of General Counsel
Exhibit "C" Form of Competitive Bid Quote Request
Exhibit "D" Form of Competitive Bid Quote
Exhibit "E" Form of Assignment Agreement
Exhibit "F" Form of Loan/Credit Related Money Transfer Instruction
Exhibit "G" Form of Election to Participate
Exhibit "H" Form of Election to Terminate
Exhibit "I" Form of Opinion of Counsel for Eligible Subsidiary
Exhibit "J" Form of Opinion of Counsel for the Agents
-vi-
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of August 31, 1995, is among The
ServiceMaster Company Limited Partnership, the Lenders, The First National Bank
of Chicago, as Administrative Agent, and Morgan Guaranty Trust Company of New
York, as Documentation Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. As used in this Agreement:
"Absolute Rate" means, with respect to a Loan made by a given Lender
for the relevant Absolute Rate Interest Period, the rate of interest per annum
(rounded to the nearest 1/100 of 1%) offered by such Lender and accepted by the
Borrower pursuant to Section 2.3.4.
"Absolute Rate Advance" means a borrowing hereunder consisting of the
aggregate amount of the several Absolute Rate Loans made by some or all of the
Lenders to the Borrower at the same time and for the same Absolute Rate Interest
Period.
"Absolute Rate Auction" means a solicitation of Competitive Bid Quotes
setting forth Absolute Rates pursuant to Section 2.3.
"Absolute Rate Interest Period" means, with respect to an Absolute
Rate Advance or an Absolute Rate Loan, a period of not less than 7 days
commencing on a Business Day selected by the Borrower pursuant to this
Agreement. If such Absolute Rate Interest Period would end on a day which is
not a Business Day, such Absolute Rate Interest Period shall end on the next
succeeding Business Day.
"Absolute Rate Loan" means a Loan which bears interest at an Absolute
Rate.
"Acquiring Person" means any Person (other than the Parent, the
Surviving Parent and the Surviving Company) or group of two or more Persons
acting as a partnership, limited partnership, syndicate, or other group for the
purpose of acquiring, holding or disposing of Equity Interests of the Company,
the Surviving Company, the Parent or the surviving Parent, together with all
affiliates and associates (as defined in Rule 12b-2 under the Securities and
Exchange Act of 1934, as amended) of such Person or Persons.
"Administrative Agent" means The First National Bank of Chicago in its
capacity as contractual representative for the Lenders pursuant to Article X,
and not in its individual capacity as a Lender, and any successor Administrative
Agent appointed pursuant to Article X.
<PAGE>
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in a form satisfactory to the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Company) duly
completed by each Lender.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by some or all of the Lenders to the Borrower
of the same Type (or on the same interest basis in the case of Competitive Bid
Advances) and, in the case of Fixed Rate Advances, for the same Interest Period
and includes a Competitive Bid Advance.
"Affected Lender" is defined in Section 3.7.
"Affiliate" means any Person (other than a Subsidiary) which directly
or indirectly controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of Voting Equity Interest, by contract
or otherwise.
"Agent" means the Administrative Agent or the Documentation Agent and
"Agents" means both of the foregoing.
"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders hereunder, as reduced from time to time pursuant to the terms
hereof.
"Agreement" means this Credit Agreement, as it may be amended or
modified and in effect from time to time.
"Alternate Base Rate" means, on any date and with respect to all
Floating Rate Advances, a fluctuating rate of interest per annum equal to the
higher of (i) the Federal Funds Effective Rate most recently determined by the
Administrative Agent plus 1/2% per annum and (ii) the Corporate Base Rate.
Changes in the rate of interest on each Floating Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate. The Administrative
Agent will give notice promptly to the Borrowers and the Lenders of changes in
the Alternate Base Rate, provided, however, that the Administrative Agent's
failure to give any such notice will not affect any Borrower's obligation to pay
interest to the Lenders on Floating Rate Advances at the then effective
Alternate Base Rate.
"Alternative Currency" means British Sterling, German Marks, French
Francs, Japanese Yen, Dutch Guilders, Swedish Kronor and any other currency
(other than Dollars) which is freely transferable and convertible into Dollars
in the London interbank market which has been expressly approved in writing as
an Alternative Currency for purposes hereof by all Lenders.
-2-
<PAGE>
"Applicable Margin" means the respective margin percentages for each
Committed Fixed Rate Advance determined in accordance with the Pricing Schedule.
"Approved Multiple" means (a) in respect of any borrowing or
prepayment of a Floating Rate Advance, $1,000,000 or any larger integral
multiple of $1,000,000, (b) in the case of any other Advance denominated in
Dollars, $5,000,000 or any larger integral multiple of $1,000,000 and (c) in the
case of any Advance denominated in an Alternative Currency, such multiples of
such currency as the Administrative Agent deems appropriate and reasonably
comparable to a $3,000,000 minimum Dollar Amount.
"Article" means an article of this Agreement unless another document
is specifically referenced.
"Assessment Rate" means, for any CD Interest Period, the net
assessment rate per annum payable to the Federal Deposit Insurance Corporation
(or any successor) for the insurance of domestic deposits of the Administrative
Agent during the calendar year in which the first day of such CD Interest Period
falls, as estimated by the Administrative Agent on the first day of such CD
Interest Period.
"Board of Directors" prior to the Effective Date of the Reorganization
means the Board of Directors of the Corporate General Partner and on or after
the Effective Date of the Reorganization means the Board of Directors of the
Company.
"Borrower" means any obligor in its capacity as borrower of a Loan or
Advance hereunder, and "Borrowers" means all such borrowers. References to "the
Borrower" in relation to any Loan or Advance are to the Borrower which has
borrowed or which proposes to borrow such Loan or Advance.
"Borrowing Date" means a date on which an Advance is made or to be
made hereunder.
"British Sterling" means the lawful currency of the United Kingdom.
"Business Day" means (i) with respect to any borrowing, payment or
rate selection of Eurocurrency Committed Advances or Eurocurrency Bid Rate
Advances, a day other than Saturday or Sunday on which banks are open for
business in Chicago and New York City and on which dealings in the relevant
currency are carried on in the London interbank market and, where funds are to
be paid or made available in an Alternative Currency, on which commercial banks
are open for domestic and international business in the place where such funds
are paid or made available and (ii) for all other purposes, a day other than
Saturday or Sunday on which banks are open for business in Chicago and New York
City.
-3-
<PAGE>
"CD Interest Period" means, with respect to a Fixed CD Rate Advance or
a Fixed CD Rate Loan, a period of 30, 60, 90 or 180 days commencing on a
Business Day selected by the Borrower pursuant to this Agreement. if such CD
Interest Period would end on a day which is not a Business Day, such CD Interest
Period shall end on the next succeeding Business Day.
"Change of Control" shall be deemed to have occurred: (a) prior to the
Effective Date of the Reorganization, on the date on which:
(i) the Corporate General Partner ceases to have a Controlling General
Partnership Interest in both the Company and the Parent; or
(ii) Voting Stock of the Corporate General Partner sufficient to elect
at least a majority of its board of directors ceases to be subject to the
voting trust arrangement described in the Form 10-K; or
(iii) Continuing Directors cease to constitute a majority of the board
of directors of the Corporate General Partner; or
(iv) an Acquiring Person shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of more than 30% (or if such Acquiring Person is WMX
Technologies, Inc. or one of its subsidiaries, 40%) of the Limited
Partnership Interests in the Company or the Parent; and
(b) on and after the Effective Date of the Reorganization, on the date
on which:
(i) Continuing Directors cease to constitute a majority of the board
of directors of the Surviving Parent or, if the Surviving Parent and the
Surviving Company shall have merged or consolidated, of the Surviving
Company; or
(ii) the Surviving Company shall cease to be a subsidiary of the
Surviving Parent (except by reason of a merger or consolidation between
them); or
(iii) an Acquiring Person shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of more than 30% (or if such Acquiring Person is WMX
Technologies, Inc. or one of its subsidiaries, 40%) of the Voting Stock in
the Surviving Company or the Surviving Parent.
For avoidance of doubt, the Reorganization and related transactions described in
the Proxy Statement do not in and of themselves give rise to a Change of
Control.
-4-
<PAGE>
"Commitment" means, for each Lender, the obligation of the Lender to
make Loans to the Borrowers not exceeding the amount set forth opposite its
signature below or as set forth in an applicable Assignment Agreement
substantially in the form of Exhibit 'IF" hereto received by the Administrative
Agent under the terms of Section 12.3, as such amount may be modified from time
to time pursuant to the terms of this Agreement.
"Committed Advance" means a borrowing hereunder consisting of the
aggregate amount of the several Committed Loans made by the Lenders to the
Borrower at the same time, of the same Type and, in the case of Fixed Rate
Advances, for the same Interest Period.
"Committed Borrowing Notice" is defined in Section 2.2.3.
"Committed Fixed Rate Advance" means a Fixed CD Rate Advance or a
Eurocurrency Committed Advance.
"Committed Loan" means a Loan made by a Lender pursuant to Section
2.2.
"Company" means The ServiceMaster Company Limited Partnership, a
Delaware limited partnership and its permitted successors and assigns including
the Surviving Company following the assumption of the obligations of the Company
hereunder pursuant to Section 6.14.
"Competitive Bid Advance" means a borrowing hereunder consisting of
the aggregate amount of the several Competitive Bid Loans made by some or all of
the Lenders to the Borrower at the same time, at the same interest basis, and
for the same Interest Period.
"Competitive Bid Borrowing Notice" is defined in Section 2.3.4.
"Competitive Bid Loan" means a Eurocurrency Bid Rate Loan or an
Absolute Rate Loan, as the case may be.
"Competitive Bid Margin" means the margin above or below the
applicable Eurocurrency Base Rate offered for a Eurocurrency Bid Rate Loan,
expressed as a percentage (rounded to the nearest 1/100 of 1%) to be added or
subtracted from such Eurocurrency Base Rate.
"Competitive Bid Quote" means a Competitive Bid Quote substantially in
the form of Exhibit I'D" hereto completed and delivered by a Lender to the
Borrower in accordance with Section 2.3.3
"Competitive Bid Quote Request" means a Competitive Bid Quote Request
substantially in the form of Exhibit 'IC" hereto completed and delivered by the
Borrower in accordance with Section 2.3.3.
-5-
<PAGE>
"Consolidated Debt" means at any date, without duplication, the Debt
of the Company and its Consolidated Subsidiaries, determined on a consolidated
basis as of such date.
"Consolidated EBIT" means, for any fiscal period, without duplication,
Consolidated Net Income for such period plus, to the extent deducted in
determining Consolidated Net Income for such period, the aggregate amount of (i)
Consolidated Interest Expense and (ii) income tax expense.
"Consolidated EBITDA" means, for any fiscal period, without
duplication, Consolidated EBIT for such period plus to the extent deducted in
determining Consolidated Net Income for such period, the aggregate amount of
depreciation and amortization. In the event of a purchase by the Company or a
Consolidated Subsidiary of all or any portion of the minority interest in SMCS,
Consolidated EBITDA for any period of four consecutive fiscal quarters ending on
or after the date of such purchase and prior to the first anniversary thereof
shall be determined as if such purchase had been made on the first day of such
four-quarter period.
"Consolidated Interest Expense" means, for any fiscal period, without
duplication, the interest expense of the Company and its Consolidated
Subsidiaries plus dividends accrued on preferred stock of the Company or a
Consolidated Subsidiary which constitutes Debt, all determined on a consolidated
basis for such period.
"Consolidated Net Income" means, for any fiscal period, without
duplication, the net income of the Company and its Consolidated Subsidiaries
(before dividends on preferred stock of the Company) determined on a
consolidated basis for such period, exclusive of the effect of (i) any
extraordinary or other unusual gain and (ii) any extraordinary or other unusual
losses, write-offs or writedowns to the extent that such losses, write-offs or
writedowns do not represent a cash expenditure in such period and will not
represent a cash expenditure in any future period.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity which would be consolidated with the Company in its consolidated
financial statements if such statements were prepared as of such date in
accordance with GAAP.
"Continuing Director" means (i) a director of the Corporate General
Partner at the date of this Agreement and (ii) an individual who after the date
of this Agreement becomes a director of the Corporate General Partner (including
any successor Corporate General Partner) or, after the Effective Date of the
Reorganization, of the Company and/or the Parent (x) in connection with the
death, disability or retirement of an incumbent director, or otherwise in the
ordinary course of the affairs of the corporation and (y) whose election was
effected or recommended by a majority of the Continuing Directors then in office
(or by a nominating committee appointed by such a majority of Continuing
Directors). For avoidance of doubt, the foregoing definition contemplates that
the same individuals would successively constitute the Continuing Directors of
the Corporate General Partner, any successor Corporate General Partner
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and, upon consummation of the Reorganization, the Parent and/or the Company,
subject to normal turnover.
"Controlling General Partner Interest" means a General Partnership
Interest which permits the owner of such General Partnership Interest to direct
the management of a general partnership or a limited partnership.
"Conversion/Continuation Notice" is defined in Section 2.2.4.
"Corporate Base Rate" means a rate per annum equal to the corporate
base rate of interest announced by the Administrative Agent from time to time,
changing when and as said corporate base rate changes.
"Corporate General Partner" means ServiceMaster Management
Corporation, a Delaware corporation, and its successors.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable or accrued expenses arising in the
ordinary course of business, (iv) all obligations of such Person as lessee which
are capitalized in accordance with GAAP, (v) all obligations (absolute or
contingent) of such Person to reimburse any bank or other Person issuing a
letter of credit or similar instrument, (vi) any preferred stock issued by such
Person which is redeemable otherwise than at the sole option of such Person for
consideration other than Equity Interests in such Person, in the Company or in
the Parent, (vii) all Debt secured by a Lien on any asset of such Person,
whether or not such Debt is otherwise an obligation of such Person, and (viii)
all Guaranties by such Person of Debt of others.
"Debt Limit" means, at any date, the product of (a) Consolidated
EBITDA for the period of four consecutive fiscal quarters ending at the date of
the balance sheet most recently delivered (or required to be delivered) on or
prior to such date pursuant to section 5.5 or 6.1 and (b) the applicable
Leverage Factor.
"Default" means an event described in Article VII.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
Any determination of the amount
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of Derivatives Obligations owing at any time shall be calculated net of offsets
available at such time under any applicable netting agreement.
"Disclosure Documents" is defined in Section 5.4.
"Documentation Agent" means Morgan, in its capacity as the contractual
representative for all of the Banks for purposes of this Agreement, as
designated and appointed in accordance with Article X, any successor thereto as
provided herein.
"Dollar Amount" means (i) in relation to any Advance denominated in
Dollars, the aggregate principal amount thereof and (ii) in relation to any
Advance denominated in an Alternative Currency, the equivalent amount thereof in
Dollars determined by the Administrative Agent pursuant to Section 2.5.13. The
Dollar Amount of any Advance denominated in an Alternative Currency at any date
is the Dollar Amount thereof determined as of such date or, if no Dollar Amount
is determined as of such date in accordance with Section 2.5.13, then determined
as of the then most recent date for which such a determination has been made.
Each Advance denominated in an Alternative currency shall be deemed a
utilization of the Commitments in an amount equal to the Dollar Amount thereof.
"Dollars" and the sign "$" mean the lawful currency of the United
States of America.
"D&P" means Duff & Phelps, Inc.
"Dutch Gilders" means the lawful currency of The Netherlands.
"Effective Date of the Reorganization" means the date upon which the
Reorganization shall be effective.
"Election to Participate" means an Election to Participate
substantially in the form of Exhibit "GI' hereto.
"Election to Terminate" means an Election to Terminate substantially
in the form of Exhibit "HI' hereto.
"Eligible Subsidiary" means any Subsidiary of the Company as to which
an Election to Participate shall have been delivered to the Agents and as to
which an Election to Terminate shall not have been delivered to the Agents.
Each such Election to Participate and Election to Terminate shall be duly
executed on behalf of such Subsidiary and the Company. The delivery of an
Election to Terminate with respect to an Eligible Subsidiary shall not affect
any obligation of such Eligible Subsidiary theretofore incurred. The
Administrative Agent shall promptly give notice to the Lenders of the receipt of
any Election to Participate or Election to Terminate.
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"Equity Interest" means, in the case of a corporation, stock of any
class, and in the case of a partnership or a limited partnership, a General
Partnership Interest or Limited Partnership Interest, but excluding preferred
stock which constitutes Debt.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Eurocurrency Auction" means a solicitation of Competitive Bid Quotes
setting forth Competitive Bid Margins pursuant to Section 2.3.
"Eurocurrency Base Rate" means, with respect to a Eurocurrency
Committed Advance, a Eurocurrency Committed Loan, a Eurocurrency Bid Rate
Advance or a Eurocurrency Bid Rate Loan for the relevant Eurocurrency Interest
Period, the average of the respective rates per annum at which deposits in
Dollars or, in the case of any Eurocurrency Loan denominated in an Alternative
Currency, the relevant Alternative Currency are offered to each of the Reference
Banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Loan of such Reference Bank
to which such Interest Period is to apply and for a period of time comparable to
such Interest Period (or, in the case of a Competitive Bid Advance, the amount
which would have been the amount of the Loan of such Reference Bank if such
Advance were a Committed Advance).
"Eurocurrency Bid Rate" means, with respect to a Loan made by a given
Lender for the relevant Eurocurrency Interest Period, the sum of (i) the
Eurocurrency Base Rate and (ii) the Competitive Bid Margin offered by such
Lender and accepted by the Borrower pursuant to Section 2.3.4(i).
"Eurocurrency Bid Rate Advance" means a Competitive Bid Advance which
bears interest at a Eurocurrency Bid Rate.
"Eurocurrency Bid Rate Loan" means a competitive Bid Loan which bears
interest at a Eurocurrency Bid Rate.
"Eurocurrency Committed Advance" means an Advance which bears interest
at a Eurocurrency Rate requested by the Borrower pursuant to Section 2.2.
"Eurocurrency Committed Loan" means a Loan which bears interest at a
Eurocurrency Rate requested by the Borrower pursuant to Section 2.2.
"Eurocurrency Interest Period" means, with respect to a Eurocurrency
Committed Advance, a Eurocurrency Committed Loan, a Eurocurrency Bid Rate
Advance or a Eurocurrency Bid Rate Loan, a period of one, two, three or six
months commencing on a Business Day selected by the Borrower pursuant to this
Agreement. Such Eurocurrency Interest Period shall
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end on the day which corresponds numerically to such date of commencement one,
two, three or six months thereafter, provided, however, that any such period
which begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such period) shall end on the last Business Day of a calendar month. If a
Eurocurrency Interest Period would otherwise end on a day which is not a
Business Day, such Eurocurrency Interest Period shall end on the next succeeding
Business Day, provided, however, that if such next succeeding Business Day falls
in a new month, such Eurocurrency Interest Period shall end on the immediately
preceding Business Day.
"Eurocurrency Loan" means a Eurocurrency committed Loan or a
Eurocurrency Bid Rate Loan, as applicable.
"Eurocurrency Rate" means, with respect to a Eurocurrency Committed
Advance or a Eurocurrency Committed Loan for the relevant Eurocurrency Interest
Period, the sum of (a) the Eurocurrency Base Rate applicable to such
Eurocurrency Interest Period plus (b) the Applicable Margin.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to (i) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York; or (ii) if such rate is
not so published for any day which is a Business Day, the average of the
quotations at approximately 10:00 a.m. (Chicago time) for such day on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by the Administrative Agent.
"Financial Officers" means with respect to the Company and any
Eligible Subsidiary, prior to the Effective Date of the Reorganization, the
Chief Financial Officer or Treasurer of the Corporate General Partner and
subsequent to the Effective Date of the Reorganization, the Chief Financial
Officer or Treasurer of the Company.
"First Chicago" means The First National Bank of Chicago in its
individual capacity, and its successors and assigns (by merger or otherwise).
"Fixed CD Base Rate" means, with respect to a Fixed CD Rate Advance or
a Fixed CD Rate Loan for the relevant CD Interest Period, the rate determined by
the Administrative Agent to be the arithmetic average of the rates reported to
the Administrative Agent as the prevailing bid rate for the purchase at face
value at or before 10:00 a.m. (Chicago time) on the first day of such CD
Interest Period by three certificate of deposit dealers in New York or Chicago
of recognized standing selected by the Administrative Agent of certificates of
deposit of each Reference Bank in the approximate amount of such Reference
Bank's relevant Fixed CD Rate Loan and having a maturity approximately equal to
such CD Interest Period.
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"Fixed CD Rate" means, with respect to a Fixed CD Rate Advance or
Fixed CD Rate Loan for the relevant CD Interest Period, a rate per annum equal
to the sum of (i) the quotient of (a) the Fixed CD Base Rate applicable to that
CD Interest Period, divided by (b) one minus the Reserve Requirement (expressed
as a decimal) applicable to that CD Interest Period, plus (ii) the Assessment
Rate applicable to that CD Interest Period, plus (iii) the Applicable Margin.
"Fixed CD Rate Advance" means an Advance which bears interest at a
Fixed CD Rate.
"Fixed CD Rate Loan" means a Loan which bears interest at a Fixed CD
Rate.
"Fixed Rate" means the Fixed CD Rate, the Eurocurrency Rate, the
Eurocurrency Bid Rate or the Absolute Rate.
"Fixed Rate Advance" means an Advance which bears interest at a Fixed
Rate.
"Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate.
"Floating Rate" means, for any day, a rate per annum equal to the
Alternate Base Rate.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Form 10-K" is defined in Section 5.4.
"French Francs" means the lawful currency of France.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America.
"General Partnership Interest" means the interest of a general partner
in a general partnership and the interest of a general partner in a limited
partnership.
"German Marks" means the lawful currency of Germany.
"Guaranties" by any Person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, all obligations incurred
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through an agreement, contingent or otherwise, by such Person: (i) to purchase
such Debt or any property or assets constituting security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of such Debt, (y) to
maintain income, working capital or other balance sheet condition or otherwise
to advance or make available funds for the purchase or payment of such Debt, or
(iii) to lease property or to purchase Securities or other property or services
primarily for the purpose of assuring the owner of such Debt of the ability of
the primary obligor to make payment of the Debt, or (iv) otherwise to assure the
owner of the Debt of the primary obligor against loss in respect thereof. For
the purposes of all computations made under this Agreement, a Guaranty in
respect of any Debt shall be deemed to be Debt equal to the principal amount of
such Debt which has been guaranteed.
"Interest Coverage Ratio" means, as at the last day of any fiscal
quarter, the ratio of Consolidated EBIT for the period of four fiscal quarters
then ended to Consolidated Interest Expense for such four-quarter period.
"Interest Period" means a CD Interest Period, a Eurocurrency Interest
Period or an Absolute Rate Interest Period.
"Japanese Yen" means the lawful currency of Japan.
"Lenders" means the financial institutions listed on the signature
pages of this Agreement and their respective successors and assigns.
"Lending Installation" means any office, branch, subsidiary or
affiliate of any Lender or the Administrative Agent.
"Leverage Factor" means, with respect to any period of four
consecutive fiscal quarters, if such period ends (a) prior to the fiscal quarter
in which the Effective Date of the Reorganization occurs, 4.5, (b) with the
fiscal quarter in which the Effective Date of the Reorganization occurs, 4.275,
(c) with the fiscal quarter immediately following the fiscal quarter in which
the Effective Date of the Reorganization occurs, 4.05, (d) with the second
fiscal quarter following the fiscal quarter in which the Effective Date of
Reorganization occurs, 3.825 and (e) with any fiscal quarter thereafter, 3.6.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purpose of this Agreement, the Company or any Subsidiary shall be deemed
to own subject to a Lien (i) any asset that it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement or other
title retention agreement relating to such asset or any capital lease or (ii)
any account receivable transferred by it with recourse for collectibility
(including any such transfer subject to a holdback or similar arrangement which
effectively imposes the risk of collectibility upon the transferor).
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"Limited Partnership Interest" means the interest of a limited partner
in a limited partnership.
"Loan" means, with respect to a Lender, such Lender's portion, if any,
of any Advance.
"Loan Documents" means this Agreement, the Notes and each Election to
Participate and Election to Terminate.
"Material Adverse Effect" means (i) a material adverse effect on the
properties, business, operations or financial condition of the Company and its
Subsidiaries taken as a whole, (ii) a material adverse effect on the ability of
the Company to perform its obligations under the Loan Documents or (iii) any
material impairment of the rights and remedies of the Agents and the Lenders
against the obligors under the Loan Documents.
"Material Commitment" means a legally binding commitment by one or
more banks or other financial institutions to extend credit to the Company
and/or its subsidiaries in an aggregate amount of $25,000,000 or more pursuant
to a written agreement signed by the Company or a Subsidiary.
"Material Subsidiary" means (i) any Eligible Subsidiary and (ii) any
other Subsidiary which has consolidated assets or consolidated annual revenues
of more than $10,000,000.
"Moody's" means Moody's Investors Service, Inc.
"Morgan" means Morgan Guaranty Trust Company of New York in its
individual capacity, and its successors and assigns.
"Note" means a promissory note in substantially the form of Exhibit
"All hereto, duly executed and delivered to the Documentation Agent by the
Borrower for the account of a Lender and payable to the order of such Lender,
including any amendment, modification, renewal or replacement of such promissory
note.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and all other reimbursements,
indemnities or other obligations of the obligors to any Lender or Agent arising
under the Loan Documents.
"Obligor" means the Company or any Eligible Subsidiary, and "Obligors"
means all of them.
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"Parent" means The ServiceMaster Limited Partnership, a Delaware
limited partnership, and its successors, including any corporate successor
resulting from the Reorganization.
"Partnership Interest" means Limited Partnership Interests and General
Partnership Interests.
"Payment Date" means the fifteenth day of each March, June, September,
and December.
"Person" means any corporation, limited liability company, natural
person, firm, joint venture, partnership, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Plans" is defined in Section 5.11.
"Pricing Level" is defined in the Pricing Schedule.
"Pricing Schedule" means the Schedule hereto entitled "Pricing
Schedule".
"Proxy Statement" means the Proxy Statement/Prospectus dated December
11, 1991 of the Parent.
"Reference Banks" means ABN AMRO Bank, First Chicago and Morgan. If
any such Reference Bank ceases to be a Lender, the Company and the Agents shall
designate another Lender as a replacement Reference Bank.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of the
Federal Reserve System.
"Regulations U and X" means Regulations U and X of the Board of
Governors of the Federal Reserve System from time to time in effect and shall
include any successor or other regulations or official interpretations of said
Board of Governors relating to the extension of credit by banks for the purpose
of purchasing or carrying margin stock applicable to member banks of the Federal
Reserve System.
"Reorganization" means the change in the organizational structure of
the ServiceMaster enterprise substantially as described in the Proxy Statement.
"Replacement Lender" is defined in Section 3.7.
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"Required Lenders" means Lenders in the aggregate having at least 66-
2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been
terminated, Lenders in the aggregate holding at least 66-2/3% of the aggregate
unpaid principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to a Eurocurrency Interest
Period or a CD Interest Period, the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed under Regulation D on new non-personal time deposits of $100,000 or more
with a maturity equal to that of the CD Interest Period (in the case of Fixed CD
Rate Advances or Fixed CD Rate Loans) or on Eurocurrency liabilities (in the
case of Eurocurrency Committed Advances or Eurocurrency Committed Loans). The
Reserve Requirement shall be adjusted automatically on and as of the effective
date of any change in the applicable reserve requirement.
"Restricted Payments" means, without duplication:
(a) the declaration or payment by the Company of any dividends or
distributions, either in cash or property, on any Equity Interest of
the Company (except dividends or other distributions to the extent
payable solely in Partnership Interests of the Company or capital
stock of the Company);
(b) the purchase, acquisition, redemption or retirement by the
Company directly or indirectly, or through any Subsidiary, of any
Equity Interest of the Company or the Parent or any warrants, rights
or options to purchase or acquire any Equity Interest of the Company
or the Parent; and
(c) to the extent not included in clause (a) or (b) above, any
other payment or distribution by the Company, either directly or
indirectly or through any Subsidiary, in respect of any Equity
Interest of the Company or the Parent.
"SMCS" means ServiceMaster Consumer Services Limited Partnership, a
Delaware limited partnership.
"SMMS" means ServiceMaster Management Services Limited Partnership, a
Delaware limited partnership.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Security" shall have the same meaning as in Section (2)(1) of the
Securities Act of 1933, as amended.
"S&P" means Standard & Poor's Ratings Group.
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The term "subsidiary" means, as to any particular parent business
entity, any business entity of which such parent business entity and/or one or
more business entities which are themselves subsidiaries of such parent business
entity, (i) in the case of any corporation, own more than 50% of the Voting
Stock, or (ii) in the case of any partnership other than SMCS and SMMS, own a
Controlling General Partnership Interest and, if any such partnership is a
limited partnership, own more than 50% of the Limited Partnership Interest;
provided, however, SMCS and SMMS shall be deemed subsidiaries of the Company so
long as (i) prior to the Effective Date of the Reorganization the Controlling
General Partnership Interest shall be owned by the Corporate General Partner and
(ii) the Company owns more than 50% of the Partnership Interests therein.
The term "Subsidiary" means a subsidiary of the Company.
"Surviving company" means ServiceMaster corporation, a Delaware
corporation, which as part of the Reorganization, shall be a wholly-owned
subsidiary of the Surviving Parent, and its successors. As part of the
Reorganization the Parent and the Company will be liquidated into the Surviving
Company and the Surviving Company will assume the obligations of the Company
under the Loan Documents pursuant to Section 6.14.
"Surviving Parent" means ServiceMaster Incorporated, a Delaware
corporation, which shall own 100% of the outstanding Voting Stock of the Company
following the consummation of the Reorganization, and its successors. The
Surviving Company and the Surviving Parent may merge or consolidate as part of
or following the Reorganization, in which case the resulting or surviving entity
shall be the Surviving Company for purposes of this Agreement.
"Swedish Kronor" means the lawful currency of the Kingdom of Sweden.
"Termination Date" means August 31, 2000, unless the Commitments are
earlier terminated pursuant to the terms hereof.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Loan or Advance, its nature as a
Floating Rate Advance or Loan, Fixed CD Rate Advance or Loan, Eurocurrency
Committed Advance or Loan in a particular currency, Eurocurrency Bid Rate
Advance or Loan in a particular currency or Absolute Rate Advance or Loan.
"Unmatured Default" means an event which, but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Voting Equity Interest" means Voting Stock and General Partnership
Interests.
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"Voting Stock" means securities of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
1.2. Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP, applied on a
basis consistent (except for changes concurred in by the Parent's independent
public accountants) with the most recent audited consolidated financial
statements of the Parent and its Consolidated Subsidiaries delivered to the
Banks; provided that, if the Company notifies the Documentation Agent that the
Company wishes to amend any covenant in Article VI to eliminate the fact of any
change in GAAP on the operation of such covenant (or if the Documentation Agent
notifies the Company that the Required Lenders wish to amend Article VI for such
purpose), then the Company's compliance with such covenant shall be determined
on the basis of GAAP in effect immediately before the relevant change in GAAP
became effective, until either such notice is withdrawn or such covenant is
amended in a manner satisfactory to the Company and the Required Lenders.
1.3. Rules of Construction. Any reference contained in any of the
Loan Documents to "knowledge" or "awareness" of the Company or any Eligible
Subsidiary shall be deemed limited to the "knowledge" or "awareness" of one or
more Financial Officers.
1.4. Rounding. All determinations of rates per annum under this
Agreement shall be rounded to the nearest 1/100th of 1% (with 0.0050% being
rounded upward to 0.01%).
ARTICLE II
THE FACILITY
------------
2.1. The Facility.
2.1.1. Description of Facility. The Lenders grant to the Borrowers a
revolving credit facility pursuant to which, and upon the terms and subject to
the conditions herein set out:
(i) each Lender severally agrees to make Committed Loans in Dollars or
(in the case of Eurocurrency Committed Loans) in Alternative Currencies to
the Borrowers in accordance with Section 2.2;
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(ii) each Lender may, in its sole discretion, make bids to make
Competitive Bid Loans in Dollars or (in the case of Eurocurrency Bid Rate
Loans) in Alternative Currencies to the Borrowers in accordance with
Section 2.3; and
(iii) in no event may the sum of the aggregate Dollar Amount of all
outstanding Advances to all Borrowers (including both the Committed
Advances and the Competitive Bid Advances) exceed the Aggregate Commitment.
2.1.2. Availability of Facility; Required Payments. Subject to the
terms and conditions set forth in this Agreement, the facility is available from
the date of this Agreement to the Termination Date, and the Borrowers may
borrow, repay and reborrow at any time prior to the Termination Date. The
Commitments to lend hereunder shall expire on the Termination Date and all
outstanding Advances and all other unpaid Obligations shall be paid in full on
the Termination Date.
2.2. Committed Advances.
2.2.1. Committed Advances. From and including the date of this
Agreement and prior to the Termination Date, each Lender severally agrees, on
the terms and conditions set forth in this Agreement, to make Committed Loans to
the Borrowers from time to time in Dollar Amounts not to exceed in the aggregate
at any one time outstanding to all Borrowers the amount of such Lender's
Commitment. Each Committed Advance hereunder shall consist of borrowings made
from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment. The Committed Advances
shall be evidenced by the Notes and shall be repaid as provided by the terms of
Section 2.1.2.
2.2.2. Types of Committed Advances. The Committed Advances may be
Floating Rate Advances, Fixed CD Rate Advances or Eurocurrency Committed
Advances, or a combination thereof, selected by the Borrower in accordance with
Sections 2.2.3 and 2.2.4.
2.2.3. Method of Selecting Types and Interest Periods for New
Committed Advances. The Borrower shall select the Type of Advance and, in the
case of each Fixed Rate Advance, the Interest Period applicable to each
Committed Advance from time to time. The Borrower shall give the Administrative
Agent notice (a "Committed Borrowing Notice") not later than 10:00 a.m. (Chicago
time) on the Borrowing Date of each Floating Rate Advance, two Business Days
before the Borrowing Date of each Fixed CD Rate Advance, three Business Days
before the Borrowing Date for each Eurocurrency Committed Advance denominated in
Dollars and five Business Days before the Borrowing Date for each Eurocurrency
Committed Advance denominated in an Alternative Currency. A Committed Borrowing
Notice shall specify:
(i) the Borrowing Date, which shall be a Business Day, of such
Committed Advance;
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(ii) the aggregate principal amount of such Committed Advance;
(iii) the Type of Committed Advance selected (including, in the case
of a Eurocurrency Committed Advance, the currency in which such Advance is
to be denominated); and
(iv) in the case of each Committed Fixed Rate Advance, the Interest
Period applicable thereto.
Subject to Section 3.3, each Committed Borrowing Notice shall be irrevocable.
2.2.4. Conversion and Continuation of Outstanding Committed Advances.
Floating Rate Advances shall continue as Floating Rate Advances unless and until
such Floating Rate Advances are either prepaid in accordance with Section 2.5.3
or converted into Committed Fixed Rate Advances denominated in Dollars. Unless
sooner prepaid in accordance with Section 2.5.3 or converted in accordance with
this Section, each Committed Fixed Rate Advance of any Type shall continue as a
Fixed Rate Advance of such Type until the end of the then applicable Interest
Period therefor, at which time (x) if such Fixed Rate Advance is a Committed
Fixed Rate Advance denominated in Dollars such Committed Fixed Rate Advance
shall be automatically converted into a Floating Rate Advance unless the
Borrower shall have given the Administrative Agent a timely notice of prepayment
thereof pursuant to Section 2.5.3 or a timely Conversion/ Continuation Notice
requesting that, at the end of such Interest Period, such Committed Fixed Rate
Advance either continue as a Committed Fixed Rate Advance of such Type for the
same or another Interest Period or be converted into an Advance of another Type
denominated in Dollars and (y) subject to Section 2.5.13(b), if such Fixed Rate
Advance is a Committed Fixed Rate Advance denominated in an Alternative
Currency, such Committed Fixed Rate Advance shall be automatically continued as
a Committed Fixed Rate Advance in the same Alternative Currency for an
additional Interest Period of one month, unless the Borrower shall have given
the Administrative Agent a timely notice of prepayment thereof pursuant to
Section 2.5.3 or a timely Continuation Notice requesting that at the end of such
Interest Period such Committed Fixed Rate Advance continue as a Committed Fixed
Rate Advance for another Interest Period. If the Administrative Agent does not
receive such timely notice of prepayment or Continuation Notice, it shall notify
the Lenders to such effect on the date such notice is due. Subject to the terms
of Section 2.5.2, the Borrower may elect from time to time to convert all or any
part of a Committed Advance of any Type denominated in Dollars into any other
Type or Types of Committed Advances denominated in Dollars; provided that any
conversion of any Committed Fixed Rate Advance on any day other than the last
day of the Interest Period applicable thereto shall be subject to Section 3.4.
The Borrower shall give the Administrative Agent notice (a "Conversion/
Continuation Notice") of each conversion of a committed Advance or continuation
of a Committed Fixed Rate Advance not later than 10:00 a.m. (Chicago time) on
the date of, in the case of a conversion into a Floating Rate Advance, or two
Business Days, in the case of a conversion into or continuation of a Fixed CD
Rate Advance, three Business Days, in the case of a conversion into or
continuation of a Eurocurrency Committed Advance denominated in Dollars
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or five Business Days, in the case of a continuation of a Eurocurrency Committed
Advance denominated in an Alternative Currency, prior to the date of, the
requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Committed Advance which is
to be converted or continued; and
(iii) the amount and Type(s) of Committed Advance(s) into which such
Committed Advance is to be converted or continued and, in the case of a
conversion into or continuation of a Committed Fixed Rate Advance, the
duration of the Interest Period applicable thereto.
Subject to Section 3.3, each Conversion/continuation Notice shall be
irrevocable. Changes in the currency in which an Advance is denominated may not
be effected by a conversion pursuant to this Section 2.2.4.
2.3. Competitive Bid Advances.
2.3.1. Competitive Bid Option; Repayment of Competitive Bid Advances.
In addition to Committed Advances pursuant to Section 2.2, but subject to the
terms and conditions set forth in this Agreement (including, without limitation,
the limitation set forth in Section 2.1.1(iii) as to the maximum aggregate
principal amount of all outstanding Advances hereunder and the limitation set
forth in Section 4.3(iii) as to the minimum credit standing for Competitive Bid
Advances), any Borrower may, as set forth in this Section 2.3, request the
Lenders, prior to the Termination Date, to make offers to make Competitive Bid
Advances to such Borrower. Each Lender may, but shall have no obligation to,
make such offers and the Borrower may, but shall have no obligation to, accept
any such offers in the manner set forth in this Section 2.3. Competitive Bid
Advances shall be evidenced by the Notes. Each Competitive Bid Advance shall be
repaid in full by the Borrower on the last day of the Interest Period applicable
thereto.
2.3.2. Competitive Bid Quote Request. When the Borrower wishes to
request offers to make Competitive Bid Loans under Section 2.3, it shall
transmit to each Lender by telex or telecopy a Competitive Bid Quote Request so
as to be received no later than (i) 10:00 a.m. (Chicago time) at least five
Business Days prior to the Borrowing Date proposed therein, in the case of a
Eurocurrency Auction denominated in Dollars, (ii) 10:00 a.m. (Chicago time) at
least seven Business Days prior to the Borrowing Date, in the case of a
Eurocurrency Auction denominated in an Alternative Currency or (iii) 10:00 a.m.
(Chicago time) at least one Business Day prior to the Borrowing Date proposed
therein, in the case of an Absolute Rate Auction specifying:
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(a) the proposed Borrowing Date, which shall be a Business Day, for
the proposed Competitive Bid Advance;
(b) the aggregate principal amount of such Competitive Bid Advance;
(c) whether the Competitive Bid Quotes requested are to set forth a
Competitive Bid Margin or an Absolute Rate, or both;
(d) in the case of a Eurocurrency Auction, the currency in which the
Loans are to be denominated; and
(e) the Interest Period applicable thereto (which may not end after
the Termination Date).
The Borrower may request offers to make Competitive Bid Loans for more than one
Interest Period and for a Eurocurrency Auction and an Absolute Rate Auction in a
single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be
given within 3 Business Days of any other Competitive Bid Quote Request. Each
Competitive Bid Quote Request shall be in an Approved Multiple.
2.3.3. Submission and Contents of Competitive Bid Quotes. (i) Each
Lender may, in its sole discretion, submit to the Borrower a Competitive Bid
Quote containing an offer or offers to make Competitive Bid Loans in response to
any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must
comply with the requirements of this Section 2.3.3 and must be submitted to the
Borrower by telecopy at its address specified in or pursuant to Article XIII not
later than (a) 1:00 p.m. (Chicago time) at least three Business Days prior to
the proposed Borrowing Date, in the case of a Eurocurrency Auction denominated
in Dollars, (b) 1:00 p.m. (Chicago time) at least five Business Days prior to
the proposed Borrowing Date, in the case of a Eurocurrency Auction denominated
in an Alternative Currency or (c) 9:00 a.m. (Chicago time) on the proposed
Borrowing Date, in the case of an Absolute Rate Auction. Subject to Articles IV
and VIII, any Competitive Bid Quote so made shall be irrevocable.
(ii) Each Competitive Bid Quote shall in any case specify:
(a) the proposed Borrowing Date, which shall be the same as that
set forth in the applicable Invitation for Competitive Bid Quotes;
(b) the principal amount of the Competitive Bid Loan for which
each such offer is being made, which principal amount (1) may be
greater than, less than or equal to the Commitment of the quoting
Lender, (2) must be an Approved Multiple and (3) may not exceed the
principal amount of Competitive Bid Loans for which offers were
requested;
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(c) in the case of a Eurocurrency Auction, the Competitive Bid
Margin offered for each such Competitive Bid Loan;
(d) the limit, if any, as to the aggregate principal amount of
the Competitive Bid Loans from such Lender which may be accepted by
the Borrower;
(e) in the case of an Absolute Rate Auction, the Absolute Rate
offered for each such Competitive Bid Loan;
(f) the applicable Interest Period; and
(g) the identity of the quoting Lender.
(iii) The Borrower shall reject any Competitive Bid Quote that:
(a) is not substantially in the form of Exhibit "D" hereto or
does not specify all of the information required by Section 2.3.3(ii);
(b) contains qualifying, conditional or similar language, other
than any such language contained in Exhibit "D" hereto;
(c) proposes terms other than or in addition to those set forth
in the applicable Invitation for Competitive Bid Quotes; or
(d) arrives after the time set forth in Section 2.3.3(i).
If any Competitive Bid Quote shall be rejected pursuant to this Section
2.3.3(iii), then the Borrower shall notify the relevant Lender of such rejection
as soon as practical.
2.3.4. Acceptance and Notice by the Borrower. Not later than (a)
2:00 p.m. (Chicago time) at least three Business Days prior to the proposed
Borrowing Date, in the case of a Eurocurrency Auction denominated in Dollars,
(b) 2:00 p.m. (Chicago time) at least five Business Days prior to the proposed
Borrowing Date, in the case of a Eurocurrency Auction denominated in an
Alternative Currency or (c) 10:00 a.m. (Chicago time) on the proposed Borrowing
Date, in the case of an Absolute Rate Auction, the Borrower shall notify each
Lender of its acceptance or rejection of the offers so notified to it pursuant
to Section 2.3.3; Provided, however, that the failure by the Borrower to give
such notice to any Lender shall be deemed to be a rejection by the Borrower of
all such offers made by such Lender. In the case of acceptance, such notice (a
"Competitive Bid Borrowing Notice") shall specify the aggregate principal amount
of offers for each Interest Period that are accepted. The Borrower may accept
or reject any Competitive Bid Quote in whole or in part (subject to the terms of
Section 2.3.3(ii)(d)); provided that:
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(a) the aggregate principal amount of each Competitive Bid Advance may
not exceed the applicable amount set forth in the related Competitive Bid
Quote Request;
(b) acceptance of offers may only be made on the basis of ascending
Competitive Bid Margins or Absolute Rates, as the case may be; and
(c) the Borrower may not accept any offer of the type described in
Section 2.3.3(iii) or that otherwise fails to comply with the requirements
of this Agreement for the purpose of obtaining a Competitive Bid Loan under
this Agreement.
2.3.5. Allocation by the Borrower. If offers are made by two or
more Lenders with the same Competitive Bid Margins or Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in respect
of which offers are permitted to be accepted for the related Interest Period,
the principal amount of Competitive Bid Loans in respect of which such offers
are accepted shall be allocated by the Borrower among such Lenders as nearly as
possible (in such multiples, not greater than $1,000,000 (or the equivalent in
an Alternative Currency), as the Borrower may deem appropriate) in proportion to
the aggregate principal amount of such offers. Allocations by the Borrower of
the amounts of Competitive Bid Loans shall be conclusive in the absence of
manifest error. The Borrower shall promptly, but in any event on the same
Business Day in the case of Eurocurrency Bid Rate Advances, and by 11:00 a.m.
(Chicago time) in the case of Absolute Rate Advances, notify each Lender that
submitted a Competitive Bid Quote of its receipt of a Competitive Bid Borrowing
Notice and the aggregate principal amount of such Competitive Bid Advance
allocated to each participating Lender.
2.3.6. Notice by the Borrower to the Administrative Agent. Promptly,
but in any event on the same Business Day that the Borrower issues any
competitive Bid Borrowing Notice, the Borrower shall give the Administrative
Agent notice of the amount, maturity, applicable interest rate and Lender for
each Competitive Bid Loan accepted by the Borrower pursuant to such Competitive
Bid Borrowing Notice.
2.4. Facility Fees. The company hereby agrees to pay to the
Administrative Agent for the account of each Lender, ratably in the proportion
that such Lender's Commitment bears to the Aggregate Commitment, a per annum
facility fee at the Facility Fee Rate (determined daily in accordance with the
Pricing Schedule) on the daily amount of the Aggregate Commitment, payable
quarterly in arrears on each Payment Date and on the Termination Date. All
accrued facility fees hereunder shall be payable on the effective date of any
termination of the obligations of the Lenders to make Loans hereunder.
2.5. General Facility Terms.
2.5.1. Method of Borrowing. Not later than (i) 12:00 noon (Chicago
time) on each Borrowing Date for each Advance denominated in Dollars and (ii)
the funding deadline
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designated by the Administrative Agent in the case of any Advance denominated in
an Alternative Currency (which shall be no earlier than 10:00 a.m. local time in
the place of payment and no later than 12:00 noon (Chicago time)), each Lender
shall make available its Loan or Loans, if any, in immediately available funds,
to the Administrative Agent at its address specified pursuant to Article XIII or
at such other location as the Administrative Agent shall direct. The
Administrative Agent shall promptly deposit the funds so received from the
Lenders in the Borrower's account at the Administrative Agent's main office in
Chicago or as otherwise directed by the Borrower. Notwithstanding the foregoing
provisions of this Section 2.5.1, to the extent that a Loan made to a Borrower
by a Lender matures on the Borrowing Date of a requested Loan to such Borrower
in the same currency, such Lender shall apply the proceeds of the Loan it is
then making to the repayment of principal of the maturing Loan.
2.5.2. Minimum Amount of Each Committed Advance. Each Committed
Advance shall be in an Approved Multiple; provided, however, that any Floating
Rate Advance may be in the aggregate amount of the unused Aggregate Commitment.
2.5.3. Optional Principal Payments. The Borrower may from time to
time pay all of its outstanding Committed Advances, or, in an Approved Multiple,
any portion of the outstanding Committed Advances upon (i) in the case of any
Floating Rate Advance, notice to the Administrative Agent not later than 10:00
a.m. (Chicago time) on the date of prepayment, (ii) in the case of any Fixed CD
Rate Advance, two Business Days' prior notice to the Administrative Agent, (iii)
in the case of any Eurocurrency Committed Advance denominated in Dollars, three
Business Days' prior notice to the Administrative Agent and (iv) in the case of
any Eurocurrency Committed Advance denominated in an Alternative Currency, five
Business Days' prior notice to the Administrative Agent. Any such notice of
prepayment shall be irrevocable. All such payments shall be made in immediately
available funds to the Administrative Agent at the Administrative Agent's
address specified in Article XIII or at any other location specified by the
Administrative Agent in accordance with Section 2.5.7 not later than (i) noon
(Chicago time) on the date of payment for each Advance denominated in Dollars
and (ii) the funding deadline designated by the Administrative Agent in the case
of any Advance denominated in an Alternative Currency (which should be no
earlier than 10:00 a.m. local time in the place of payment and no later than
12:00 noon (Chicago time)). Subject to Section 2.5.13(a), a Competitive Bid
Advance may not be prepaid prior to the last day of its applicable Interest
Period without the prior consent of the Lender which originally made such Loan,
which consent may be given or withheld at the Lender's sole and absolute
discretion, provided that no Competitive Bid Advance may be prepaid if there
exists a Default. Any prepayment of a Fixed Rate Advance prior to the end of
its applicable Interest Period shall be subject to the indemnity provisions of
section 3.4.
2.5.4. Interest Periods. Subject to the provisions of Section
2.5.5, each Advance shall bear interest from and including the first day of the
Interest Period applicable thereto to (but not including) the earlier of (i) the
last day of such Interest Period or (ii) the date of any earlier
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prepayment as permitted by Section 2.5.3, at the interest rate determined as
applicable to such Advance, payable in the currency of such Advance.
2.5.5. Rate after Maturity. Except as provided in the next
sentence, any Advance not paid at maturity, whether by acceleration or
otherwise, shall bear interest until paid in full at a rate per annum equal to
(i) in the case of an Advance denominated in Dollars, the Alternate Base Rate
plus 2% per annum, payable upon demand and (ii) in the case of an Advance
denominated in an Alternative Currency, the sum of 2% plus the Applicable Margin
for Eurocurrency Committed Advances for such day plus the quotient obtained by
dividing (x) the average of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than five Business Days, then for such
other period of time not longer than three months as the Administrative Agent
may select) deposits in such Alternative Currency in an amount approximately
equal to such overdue payment due to each of the Reference Banks (or, in the
case of a Competitive Bid Advance, the amount which would have been due to each
Reference Bank if such Advance were a Committed Advance) are offered to such
Reference Bank in the London interbank market for the applicable period
determined as provided above by (y) 1.00 minus the Reserve Requirement. In the
case of a Fixed Rate Advance the maturity of which is accelerated, such Fixed
Rate Advance shall bear interest for the remainder of the applicable Interest
Period (or until paid if paid prior to the end of such Interest Period), at the
higher of the rate otherwise applicable to such Fixed Rate Advance for such
Interest Period plus 2% per annum or the applicable rate specified in the
preceding sentence.
2.5.6. Interest Payment Dates; Interest Basis. Interest accrued on
each Fixed Rate Advance shall be payable on the last day of its applicable
Interest Period, on any date on which such Fixed Rate Advance is prepaid or
converted, and at the maturity of such Advance. Interest accrued on each
Floating Rate Advance shall be payable on each Payment Date, on any date on
which such Floating Rate Advance is prepaid, and at the maturity of such
Advance. Interest accrued on each Fixed Rate Advance having an Interest Period
longer than three months shall also be payable on the last day of each 90 day
interval (in the case of Fixed CD Rate Advances or Absolute Rate Advances) or
three-month interval (in the case of Eurocurrency Committed Advances or
Eurocurrency Bid Rate Advances) during such Interest Period. Interest on Fixed
Rate Loans and facility fees hereunder shall be calculated for actual days
elapsed on the basis of a 360-day year. Interest on Floating Rate Loans shall
be calculated for actual days elapsed on the basis of a 365-day year, or, when
applicable, 366-day year. Interest shall be payable for the day an Advance is
made but not for the day of any payment on the amount paid if payment is
received prior to the deadline specified pursuant to Section 2.5.7. If any
payment of principal of or interest on an Advance shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment.
2.5.7. Method of Payment. Subject to the last sentence of Section
2.5.1, all payments of principal, interest, and fees hereunder shall be made by
(i) noon (local time) for each
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payment in Dollars and (ii) the funding deadline designated by the
Administrative Agent for each payment in an Alternative Currency (which shall be
no earlier than 10:00 a.m. local time in the place of payment and no later than
12:00 noon (Chicago time)), on the date when due in immediately available funds
to the Administrative Agent at the Administrative Agent's address specified
pursuant to Article XIII, or at any other location specified in writing by the
Administrative Agent to the Borrower and shall be distributed by the
Administrative Agent ratably among all Lenders in the case of fees and payments
in respect of committed Advances and ratably among the applicable Lenders in
respect of Competitive Bid Advances. Each payment delivered to the
Administrative Agent for the account of any Lender shall be delivered promptly
by the Administrative Agent to such Lender in the same type of funds which the
Administrative Agent received at its address specified pursuant to Article XIII
or at any location specified in a notice received by the Administrative Agent
from such Lender. All payments of the principal of and interest on any Loan
shall be made in the currency in which such Loan is denominated.
2.5.8. Notes. Each Lender is hereby authorized to record on the
schedule attached to each of its Notes, or otherwise record in accordance with
its usual practice, the date and amount of each of its Loans evidenced by such
Note; Provided, however, that any failure to so record shall not affect the
Obligors' obligations under any Loan Document.
2.5.9. Notification of Advances, Interest Rates and Prepayments.
The Administrative Agent will notify each Lender of the contents of each
Aggregate Commitment reduction notice, Committed Borrowing Notice,
Conversion/Continuation Notice and repayment notice received by it hereunder
promptly and in any event before the close of business on the same Business Day
of receipt thereof (or, in the case of borrowing notices with respect to
Floating Rate Advances and Absolute Rate Advances, within one hour of receipt
thereof). The Administrative Agent will notify each Lender of the interest rate
applicable to each Fixed Rate Advance promptly upon determination of such
interest rate and will give each Lender prompt notice of each change in the
Alternate Base Rate.
2.5.10. Non-Receipt of Funds by the Administrative Agent. Unless
the Borrower or a Lender, as the case may be, notifies the Administrative Agent
prior to the date on which it is scheduled to make payment to the Administrative
Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case
of the Borrower, a payment of principal, interest or fees to the Administrative
Agent for the account of the Lenders, that it does not intend to make such
scheduled payment, the Administrative Agent may assume that such scheduled
payment has been made. The Administrative Agent may, but shall not be obligated
to, make the amount of such scheduled payment available to the intended
recipient in reliance upon such assumption. If such Lender or the Borrower, as
the case may be, has not in fact made such scheduled payment to the
Administrative Agent, the recipient of such scheduled payment shall, on demand
by the Administrative Agent, repay to the Administrative Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative
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Agent recovers such amount at a rate per annum equal to (x) in the case of
scheduled payment by a Lender, the Federal Funds Effective Rate for such day or
(y) in the case of scheduled payment by the Borrower, the interest rate
applicable to the relevant Loan.
2.5.11. Cancellation. The Company may at any time after the date
hereof cancel the Aggregate Commitment, in whole, or in a minimum aggregate
amount of $10,000,000 (and in integral multiples of $1,000,000 if in excess
thereof) ratably among the Lenders upon written notice to the Administrative
Agent not later than 10:00 a.m. (Chicago time) on the effective date of
cancellation specified therein, which notice shall specify the amount of such
reduction; provided, however, no such notice of cancellation shall be effective
to the extent that it would reduce the Aggregate Commitment to an amount which
would be less than the aggregate Dollar Amount of Loans outstanding at the time
such cancellation is to take effect. Any notice of cancellation given pursuant
to this Section 2.5.11 shall be irrevocable and shall specify the date upon
which such cancellation is to take effect.
2.5.12. Lending Installations. Subject to Section 12.6, each Lender
may, by written (including telex or telecopy) notice to the Administrative Agent
and the Company, book its Loans at any Lending Installation selected by such
Lender and may from time to time change its Lending Installation and for whose
account Loan payments are to be made. Each Lender will notify the
Administrative Agent and the Company on or prior to the date of this Agreement
of the Lending Installation which it intends to utilize for each type of Loan
hereunder.
2.5.13. Currency Equivalents. (a) The Administrative Agent shall
determine the Dollar Amount of each Advance denominated in an Alternative
Currency as of the first day of each Interest Period applicable thereto, and in
the case of any such Interest Period of more than three months, at three month
intervals after the first day thereof, and shall promptly notify the Borrower
and the Lenders of each Dollar Amount so determined by it. Each such
determination shall be based on the spot rate at which in accordance with normal
banking procedures the Administrative Agent could purchase the Alternative
Currency with Dollars in the interbank market in London at 11:00 a.m. (London
time) two Business Days prior to the date as of which such Dollar Amount is to
be determined. If after giving effect to any such determination of a Dollar
Amount, the aggregate Dollar Amount of all outstanding Advances exceeds the
Aggregate Commitment, the Borrowers shall within five Business Days prepay
outstanding Advances (as selected by the Company) to the extent necessary to
eliminate such excess; provided that such prepayment shall be applied to
outstanding Committed Advances to the extent necessary to prepay such Advances
in full before prepayment of any Competitive Bid Advances pursuant to this
Section 2.5.13(a).
(b) If for the purpose of obtaining judgment in any court it is
necessary to convert a sum due from any Obligor hereunder or under any of the
Notes in the currency expressed to be payable herein or under the Notes (the
"specified currency") into another currency, the parties hereto agree, to the
fullest extent that they may effectively do so, that the rate of exchange used
shall be that at which in accordance with normal banking procedures the
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Administrative Agent could purchase the specified currency with such other
currency at the Administrative Agent's London office at 11:00 a.m. (London time)
on the Business Day preceding that on which final judgment is given. The
obligations of each Obligor in respect of any sum due to any Lender or the
Administrative Agent hereunder or under any Note shall, notwithstanding any
judgment in a currency other than the specified currency, be discharged only to
the extent that on the Business Day following receipt by such Lender or the
Administrative Agent (as the case may be) of any sum adjudged to be so due in
such other currency such Lender or the Administrative Agent (as the case may be)
may in accordance with normal banking procedures purchase the specified currency
with such other currency; if the amount of the specified currency so purchased
is less than the sum originally due to such Lender or the Administrative Agent,
as the case may be, in the specified currency, each Obligor agrees, to the
fullest extent that it may effectively do so, as a separate obligation and
notwithstanding any such judgment, to indemnify such Lender or the
Administrative Agent, as the case may be, against such loss, and if the amount
of the specified currency so purchased exceeds (a) the sum originally due to any
Lender or the Administrative Agent, as the case may be, in the specified
currency and (b) any amounts shared with other Lenders as a result of
allocations of such excess as a disproportionate payment to such Lender under
Article XI, such Lender or the Administrative Agent, as the case may be, agrees
to remit such excess to the Company for the account of the Obligors.
2.5.14. Taxes. (a) Any and all payments by a Borrower hereunder or
under the Notes shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto excluding, (i) in the
case of each Lender and Agent, taxes imposed on its income, and franchise or
similar taxes imposed on it, by the jurisdiction under the laws of which such
Lender or Agent is organized or any political subdivision thereof and taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction of
such Lender's applicable Lending Installation or any political subdivision
thereof and (ii) in the case of each Lender, any United States withholding tax
imposed on such payments but only to the extent not attributable to a change in
law, regulation, treaty or interpretation after the time such Lender first
becomes a party to this Agreement (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities arising out of or related to
this Agreement being hereinafter referred to as "Taxes"). If any Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Lender or Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.5.14) such Lender or Agent (as the case may be) receives an amount equal to
the sum it would have received had no deductions been made, (ii) such Borrower
shall make such deductions and (iii) such Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law and provide such Lender or Agent (as the case may be) with a
receipt or other evidence of such payment.
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(b) In addition, each Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under the Notes or
from the execution, delivery, enforcement or registration of, or otherwise with
respect to, the Loan Documents (hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Lender and Agent for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.5.14) paid by such Lender or Agent and any liability including penalties,
interest and expenses arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted by the relevant
taxing authority or other governmental entity. This indemnification shall be
made to the Administrative Agent for the account of such Lender or Agent (as the
case may be) within 30 days from the date such Lender or Agent makes written
demand therefor (with a copy, in the case of a demand by a Lender or the
Documentation Agent, of such demand to the Administrative Agent). If a Lender
or Agent shall become aware that it is entitled to receive a refund in respect
of Taxes or other Taxes as to which it has been indemnified by a Borrower
pursuant to this Section 2.5.14, it shall promptly notify such Borrower of the
availability of such refund and, unless such Lender or Agent determines in good
faith that it is not in its best interests to do so, shall apply for such
refund. If any Lender or Agent receives a refund in respect of any Taxes or
Other Taxes as to which it has been indemnified by a Borrower pursuant to this
Section 2.5.14, it shall promptly notify such Borrower of such refund and shall
promptly repay such refund to such Borrower (to the extent of amounts that have
been paid by such Borrower under this Section 2.5.14 with respect to such
refund), net of all out-of-pocket expenses of such Lender or Agent in obtaining
such refund; provided that the Borrower, upon the request of such Lender or
Agent agrees to return such refund (plus penalties, interest or other charges)
to such Lender or Agent in the event such Lender or Agent is required to repay
such refund.
(d) Notwithstanding the foregoing, unless, prior to the initial
Borrowing Date (in the case of a Lender listed on the signature pages hereto),
and prior to the effective date of the Assignment and Acceptance by which it
became a Lender (in the case of Lender that became a Lender pursuant to such
Assignment and Acceptance), and in each case from time to time thereafter, if
requested by the Company or the Administrative Agent, each Lender organized
under the laws of a jurisdiction outside the United States shall have provided
the Company and the Administrative Agent with the forms prescribed by the
Internal Revenue Service of the United States certifying as to such Lender's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments of interest to be made to such Lender
hereunder or other documents satisfactory to the Company which, in each case,
shall indicate that all payments to be made to such Lender hereunder are not
subject to United States withholding tax or are subject to such taxes at a rate
reduced to zero by an applicable tax treaty, neither the Company nor any other
Borrower shall have any obligation under the last sentence of Section 2.5.14(a)
to make any payments to or for the benefit of such Lender in respect of Taxes
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imposed by the United States of America unless such Lender is unable to provide
such form as a result of a change in law or treaty after the time such Lender
becomes a party to this Agreement.
2.5.15. Regulation D Compensation. For so long as any Lender
maintains reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which interest rate on
Eurocurrency Committed Loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United States office of
such Lender to United States residents), and as a result the cost to such Lender
(or its Lending Installation) of making or maintaining any of its Eurocurrency
Committed Loans is increased, then such Lender may require the Borrower to pay,
contemporaneously with each payment of interest on such Loans, additional
interest on the related Eurocurrency Committed Loan of such Lender at a rate per
annum up to but not exceeding the excess of (i)(A) the applicable Eurocurrency
Base Rate divided by (B) one minus the Reserve Requirement over (ii) the
applicable Eurocurrency Base Rate. Any Lender wishing to require payment of
such additional interest (x) shall so notify the Borrower and the Administrative
Agent, in which case such additional interest on the Eurocurrency Committed
Loans of such Lender shall be payable to such Lender at the place indicated in
such notice with respect to each Interest Period which commences at least three
Business Days after the giving of such notice and (y) shall furnish to the
Borrower at least five Business Days prior to each date on which interest is
payable on the Eurocurrency Committed Loans a certificate setting forth the
amount to which such Lender is then entitled under this Section.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Yield Protection. If, after the date of this Agreement, the
adoption of any law or the application of any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any change therein, or any change in the interpretation or
administration thereof, or the compliance of any Lender therewith,
(i) with respect to Committed Loans bearing interest at a Fixed Rate,
imposes or increases or deems applicable any reserve, assessment, insurance
charge, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender or any
applicable Lending Installation (other than reserves and assessments taken
into account in determining the interest rate applicable to Committed
Advances bearing interest at a Fixed Rate or for which such Lender is
compensated pursuant to Section 2.5.15), or
(ii) with respect to Committed Loans bearing interest at a Fixed Rate,
imposes any other condition,
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the result of which is to increase the cost to any Lender or any applicable
Lending Installation of making, funding or maintaining such Loans or reduces any
amount receivable by any Lender or any applicable Lending Installation in
connection with such Loans, or requires any Lender or any applicable Lending
Installation to make any payment calculated by reference to the amount of such
Loans held or interest received by it, by an amount deemed material by such
Lender, then, within 30 days of demand by such Lender, the Borrower shall pay
such Lender that portion of such increased expense incurred or reduction in an
amount received which such Lender reasonably and in good faith determines is
attributable to the making, funding and maintaining of such Loans by it.
3.2. Changes in Capital Adequacy Regulations. If a Lender
reasonably and in good faith determines that the amount of capital required or
expected to be maintained by such Lender, any Lending Installation of such
Lender or any corporation controlling such Lender attributable to this
Agreement, the Loans or its obligation to make Loans hereunder is increased as a
result of a Change (as hereafter defined), then, within 15 days of demand by
such Lender, the Company shall pay such Lender the amount which such Lender
reasonably and in good faith determines is necessary to compensate it for any
reduction in the rate of return on capital to an amount below that which such
Lender could have achieved but for such Change and is attributable to this
Agreement, the Loans or its obligation to make Loans hereunder, provided,
however, that the effect of any Change shall be determined based on the effect
on such Lender that would be applicable to such Lender if such Lender was
maintaining the highest credit quality as determined by the applicable
regulatory authorities at the time of such Change. "Change" means (i) any
change after the date of this Agreement in the Risk-Based Capital Guidelines or
(ii) any adoption of or change in any other law, governmental or quasi-
governmental rule, regulation, policy, guideline, interpretation, or directive
(whether or not having the force of law) of general applicability after the date
of this Agreement which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-
based capital guidelines in effect in the United States on the date of this
Agreement, including transition rules, and (ii) the corresponding capital
regulations promulgated by regulatory authorities outside the United States
implementing the July 1988 report of the Basle Committee on Banking Regulation
and Supervisory Practices Entitled "International Convergence of Capital
Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If the Required Lenders
reasonably and in good faith determine that (i) deposits of a type and maturity
appropriate to match fund Committed Advances bearing interest at a Fixed Rate
are not available or (ii) solely in the case of a Eurocurrency Committed Advance
denominated in an Alternative Currency, the interest applicable to such
Committed Advance does not accurately reflect the funding cost of such Committed
Advance, then the Administrative Agent shall forthwith give notice thereof to
the Company and the Lenders, whereupon until the Administrative Agent notifies
the Company that the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders
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to make Fixed CD Rate Loans or Eurocurrency Loans (in the affected currency), or
to convert outstanding Loans into such Loans or continue outstanding Loans as
such Loans for an additional Interest Period, shall be suspended and (i) any
affected outstanding Committed Advance denominated in Dollars shall be converted
into a Floating Rate Advance on the last day of the then current Interest Period
applicable thereto, (ii) any affected Committed Advance denominated in Dollars
for which a Committed Borrowing Notice has previously been given shall instead
be made as a Floating Rate Advance, unless the Borrower elects not to borrow
such Advance by giving one Business Day's notice to the Administrative Agent to
such effect, (iii) any affected outstanding Committed Advance denominated in an
Alternative Currency shall mature and be due and payable on the last day of the
then current Interest Period applicable thereto and (iv) any affected
Eurocurrency Advance denominated in an Alternative Currency for which a
Committed Borrowing Notice or a Competitive Bid Borrowing Notice has previously
been given shall be canceled. Nothing in this Section 3.3 shall affect any
right of the Borrower to borrow or convert outstanding Loans into Loans of a
Type not affected by the circumstances described above under and in accordance
with the other applicable provisions of this Agreement. If any Lender determines
that maintenance of any of its Eurocurrency Loans would violate any applicable
law, rule, regulation or directive, whether or not having the force of law, then
such Lender may by notice to the Company, through the Administrative Agent,
require that such Eurocurrency Loans be converted to an unaffected Type of Loan
on the last day of the then current Interest Period applicable thereto, if such
Lender may lawfully maintain such Loan to such date, or on such earlier date as
such Lender may require if it is not able lawfully to maintain such Loan to such
date.
3.4. Funding Indemnification. If any payment of a Fixed Rate Loan
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or other-wise, or any Fixed Rate
Loan is converted to a Loan of a different Type on a date which is not the last
day of the applicable Interest Period (except pursuant to the last sentence of
Section 3.3), or the Borrower fails to prepay any Fixed Rate Loan after notice
of prepayment has been given in accordance with Section 2.5.3, or a Fixed Rate
Advance is not made, converted or continued on the date specified by the
Borrower for any reason other than default by the Lenders, the Borrower will
indemnify each Lender for any loss or cost incurred by it resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the Fixed Rate Advance.
3.5. Lender Statements; Limit on Retroactivity; Survival of
Indemnity. To the extent reasonably possible, each Lender shall designate an
alternate Lending Installation with respect to its Fixed Rate Loans to reduce
any liability of the Borrower or the Company to such Lender under Section 3.1,
3.2 or 3.6 or to avoid the unavailability of a Type of Committed Advance under
Section 3.3, so long as such designation is not disadvantageous to such Lender.
Each Lender shall deliver a written statement of such Lender as to the amount
due, if any, under Section 3.1, 3.2, 3.3, 3.4 or 3.6. Such written statement
shall set forth in reasonable detail the calculations upon which such Lender
determined such amount and shall be final, conclusive and binding in the absence
of manifest error. Determination of amounts payable under such Sections
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in connection with a Fixed ]Rate Loan shall be calculated as though each Lender
funded its Fixed Rate Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
Fixed Rate applicable to such Loan, whether in fact that is the case or not.
The Borrower or the Company, as the case may be, shall only be obligated to
compensate any Lender under Section 3.1, :3.2, 3.4 or 3.6 for any amount arising
or accruing during (i) any time or period commencing not more than 90 days prior
to the date on which such Lender notifies the Administrative Agent and the
Company that it proposes to demand such compensation and identifies to the
Administrative Agent and the Company the statute, regulation or other basis upon
which the claimed compensation is or will be based and (ii) any time or period
during which, because of the retroactive application of such statute, regulation
or other such basis, such Lender did not know that such amount would arise or
accrue. Unless otherwise provided herein, the amount specified in the written
statement shall be payable on demand after receipt by the Borrower or the
Company, as the case may be, of the written statement. The obligations of the
Obligors under Sections 3.1, 3.2, 3.4 and 3.6 shall survive payment of any other
of the Obligations and the termination of this Agreement.
3.6. Foreign Subsidiary Costs. If any Lender determines reasonably
and in good faith that the cost to such Lender of making or maintaining any Loan
to an Eligible Subsidiary is increased, or the amount of any sum received or
receivable by any Lender (or its Lending Installation) is reduced by an amount
deemed by such Lender to be material, by reason of the fact that such Eligible
Subsidiary is incorporated in, or conducts business in, a jurisdiction outside
the United States of America, the Company shall indemnify such Lender for such
increased cost or reduction within 30 days after demand by such Lender (with a
copy to the Administrative Agent). A certificate of such Lender claiming
compensation under this Section 3.6 and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error.
3.7. Replacement of Lenders. In the event a Lender (an "Affected
Lender") shall have: (i) failed to either fund its ratable share of any
Committed Advance which such Lender is obligated to fund under the terms of
Section 2.2 or its share of any Competitive Bid Advance which such Lender is
obligated to fund under the terms of Section 2.3, and in either case such
failure has not been cured within five Business Days, (ii) either repudiated its
obligations under this Agreement or failed to reaffirm such obligations in
writing within ten Business Days of a written request therefor from the Company
(with a copy to each Agent), or (iii) made demand for additional amounts
pursuant to Sections 2.5.14, 3.1, 3.2 or 3.6, as a result of any condition
described in any such Section, then, unless such Affected Lender has theretofore
taken steps to remove or cure, and has removed or cured within ten Business
Days, such failure or the conditions creating the cause for such demand for such
additional amounts, as the case may be, the Company may require the Affected
Lender to transfer and assign without recourse (in accordance with and subject
to the restrictions contained in Sections 12.1, 12.2 and 12.3) all its
interests, rights and obligations under this Agreement to a bank designated by
the Company and which is reasonably acceptable to the Agents (such bank being
herein called a "Replacement Lender"); provided, that (i) no such assignment
shall conflict with any law, rule or regulation or
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order of any state, federal or local govern-mental authority and (ii) the
Replacement Lender shall pay to the Affected Lender in immediately available
funds on the date of such assignment the principal of and interest accrued to
the date of payment on the Loans made by it hereunder and all other amounts
accrued for its account or owed to it hereunder (including, without limitation,
any amount which would be payable pursuant to Section 3.4 in connection with a
prepayment in full of the Loans of the Affected Lender on the date of such
assignment). Each Lender agrees to use its best efforts to notify the Company
as promptly as practicable upon such Lender's becoming aware that circumstances
exist which would cause any obligor to become obligated to pay additional
amounts to such Lender pursuant to Sections 2.5.14, 3.1, 3.2 or 3.6.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Initial Advance. No Lender shall be required to make the
initial Advance hereunder unless the Company has furnished or caused to be
furnished to the Documentation Agent:
(i) the Company, together with all amendments thereto, and the
Company's Certificate of Limited Partnership, all as filed with the
Secretary of State of Delaware, certified by a Financial officer or the
President of the Company.
(ii) Copies, certified by a Financial Officer, of the Corporate
General Partner's Certificate of Incorporation, By-Laws and Board of
Directors' resolutions authorizing the execution, delivery and performance
of the Loan Documents on behalf of the Company.
(iii) An incumbency certificate, executed by a Financial Officer,
which shall identify by name and title and bear the signature of the
Financial Officers authorized to sign the Loan Documents and to make
borrowings hereunder, upon which certificate the Lenders shall be entitled
to rely until informed of any change in writing by the Company.
(iv) Copies of a long-form certificate of the Secretary of State of
the State of Delaware, dated reasonably near the date hereof, listing the
Certificate of Limited Partnership of the Company and each amendment, if
any, thereto, on file in the office of the Secretary of State of the State
of Delaware and stating that such documents are the only charter documents
of the Company on file in the office of the Secretary of State of the State
of Delaware and that the Company is a limited partnership in good standing
in the State of Delaware.
(v) A written opinion of the Company's special counsel, Kirkland &
Ellis, in substantially the form of Exhibit "B-1" hereto.
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(vi) A written opinion of the General Counsel to the Company, Vernon
T. Squires, Esq., in substantially the form of Exhibit "B-2" hereto.
(vii) The Notes of the Company payable to the order of each of the
Lenders.
(viii) A certificate, signed by a Financial Officer, stating that no
Default or Unmatured Default has occurred and is continuing and (ii)
setting forth a calculation of the Interest Coverage Ratio as at June 30,
1995 and the Pricing Level as at the date of delivery of such certificate.
(ix) A duly completed Loan/Credit Related Money Transfer Instruction
for the Company in substantially the form of Exhibit "F" hereto.
(x) A written opinion of Davis Polk & Wardwell, special counsel for
the Agents, in substantially the form of Exhibit "J" hereto.
(xi) Such other documents as the Documentation Agent or its counsel
may have reasonably requested.
4.2. Initial Advance to each Eligible Subsidiary. No Lender shall
be required to make the initial Advance hereunder to any Eligible Subsidiary
unless such Eligible Subsidiary has furnished or caused to be furnished to the
Documentation Agent:
(i) The Notes of such Eligible Subsidiary payable to the order of each
Lender.
(ii) An opinion of counsel for such Eligible subsidiary reasonably
acceptable to the Documentation Agent, substantially in the form of Exhibit
"I" hereto and covering such additional matters relating to the
transactions contemplated hereby as the Documentation Agent or the Required
Lenders may reasonably request.
(iii) All documents which the Documentation Agent may reasonably
request relating to the existence of such Eligible Subsidiary, the
corporate or partnership authority for and the validity of the Election to
Participate of such Eligible Subsidiary, this Agreement and the Notes of
such Eligible Subsidiary, and any other matters relevant thereto, all in
form and substance reasonably satisfactory to the Documentation Agent.
(iv) A duly completed Loan/Credit Related Money Transfer Instruction
for such Eligible Subsidiary in substantially the form of Exhibit 'IF"
hereto.
4.3. Each Advance. No Lender shall be required to make any Advance
(including, without limitation, the initial Advance hereunder), unless on the
applicable Borrowing Date:
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(i) Prior to and after giving effect to such Advance there exists no
Default or Unmatured Default.
(ii) The representations and warranties of the Company and (if other
than the Company) the Borrower contained in Articles V and XIV of this
Agreement are true and correct in all material respects as of such
Borrowing Date, other than (x) Sections 5.4, 5.5(a) and 5.6, which
representations and warranties are made only as of the date of this
Agreement and (y) in the case of any Committed Advance which does not
result in an increase in the aggregate Dollar Amount of Committed Advances
at the time outstanding, Sections 5.5(b) and 5.7.
(iii) In the case of any Competitive Bid Advance, the Company's senior
unsecured debt without third-party credit enhancement is rated at least
BBB(Baa3) by at least one of S&P, Moody's or D&P.
Each borrowing of an Advance shall constitute a representation and
warranty by the Company and (if other than the Company) the Borrower that the
conditions contained in Section 4.3(i) and (ii) have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Lenders that:
5.1. Organization and Authority. The Company
(a) prior to the Effective Date of the Reorganization, is a limited
partnership duly organized and validly existing under the laws of the State
of Delaware and on and after the Effective Date of the Reorganization, will
be duly incorporated, validly existing and in good standing under the laws
of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary licenses
and permits to own and operate its properties and to carry on its business
as now conducted;
(c) is duly licensed or qualified and is in good standing as a foreign
limited partnership (to the extent qualification as a foreign limited
partnership is permitted by statute), or, on and after the Reorganization,
corporation, in each jurisdiction wherein the failure to be so qualified
would reasonably be expected to have a Material Adverse Effect; and
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(d) does not believe that the inability of the Company to qualify as a
foreign limited partnership in any state in which such qualification is not
permitted by law will have a Material Adverse Effect.
5.2. Organization and Authority of Subsidiaries. Each Material
Subsidiary:
(a) is a limited partnership, general partnership or corporation, duly
organized, validly existing and, where applicable, in good standing under
the laws of its jurisdiction of incorporation or the jurisdiction where
organized, as the case may be;
(b) has all requisite power and authority and all necessary licenses
and permits to own and operate its properties and to carry on its business
as now conducted; and
(c) is duly licensed or qualified and is in good standing as a foreign
corporation or partnership (to the extent qualification as a foreign
partnership is permitted by statute), as the case may be, in each
jurisdiction wherein the failure to be so qualified would reasonably be
expected to have a Material Adverse Effect.
The Company does not believe that the inability of any Subsidiary partnership to
qualify as a foreign partnership in any state in which such qualification is not
permitted by law will have a Material Adverse Effect.
5.3. Organization and Authority of Corporate General Partner. The
Corporate General Partner:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware;
(b) has all requisite power and authority and all necessary licenses
and permits to own and operate its properties and to carry on its business
as now conducted; and
(c) is duly licensed or qualified and is in good standing as a foreign
corporation in each jurisdiction wherein the failure to be so qualified
would reasonably be expected to have a Material Adverse Effect.
5.4. Business and Property. The Lenders have each heretofore been
furnished with a copy of the Annual Report of the Parent on Form 10-K for the
fiscal year ended December 31, 1994 (the "Form 10-K"), the Quarterly Report of
the Parent on Form 10-Q for the fiscal quarter ended June 30, 1995 (the "Form
10-Q") and the Information Memorandum dated July 1995 (the "Information
Memorandum") of the Company, which Information Memorandum generally sets forth
the business conducted by the Company and its Subsidiaries and the principal
properties of the Company and its Subsidiaries. The Form 10-K, the Form 10-Q,
and the Information Memorandum are hereinafter referred to as the "Disclosure
Documents."
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5.5. Financial Statements. (a) The consolidated balance sheets of
the Parent and its subsidiaries as of December 31, 1994, and the statements of
income and cash flows for the fiscal year ended on said date accompanied by a
report thereon containing an opinion unqualified as to scope limitations imposed
by the Parent and otherwise without qualification except as therein noted, by
Arthur Andersen LLP, have been prepared in accordance with GAAP consistently
applied except as therein noted, fairly present in all material respects the
financial position of the Company and its Subsidiaries as of such date and the
results of their operations and cash flows for such period. The unaudited
consolidated balance sheet of the Parent and its subsidiaries as of June 30,
1995, and the unaudited statement of income and cash flows for the six-month
period ended on said date prepared in accordance with GAAP consistently applied,
fairly present in all material respects the financial position of the Company
and its Subsidiaries as of such date and the results of their operations and
changes in their cash flows for such period subject to year-end audit
adjustments and the absence of footnotes.
(b) Since December 31, 1994, no event or condition has occurred which
has had or which would reasonably be expected to have a material adverse effect
on the properties, business, operations or financial condition of the Company
and its Subsidiaries taken as a whole.
5.6. Full Disclosure. The financial statements referred to in
Section 5.5 do not, nor do the Disclosure Documents or any other written
statement furnished by the Parent or any obligor to the Agents or the Lenders in
connection with the negotiation of the Loan Documents, contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading as of the dates thereof.
There is no fact peculiar to the Company or its Subsidiaries which the Company
has not disclosed to the Lenders in writing which materially affects adversely
nor, so far as the Company can foresee, will materially affect adversely the
properties, business, operations or financial condition of the Company and its
Subsidiaries taken as a whole.
5.7. Pending Litigation. There are no proceedings pending or, to
the knowledge of the Company threatened, against or affecting the Company, any
of its General Partners, its Parent or any Subsidiary in any court or before any
governmental authority or arbitration board or tribunal which would reasonably
be expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is in default with respect to any order of any court or governmental
authority or arbitration board or tribunal which would reasonably be expected to
have a Material Adverse Effect.
5.8. Loan Documents are Legal, Valid, Binding and Authorized. The
execution and delivery of the Loan Documents by the Company and compliance by
the Company with all of the provisions of the Loan Documents
(a) are within the power of the Company and have been duly authorized
by proper action on the part of the Company; and
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(b) will not violate in any material respect any provisions of any law
or any order of any court or governmental authority or agency and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the limited partnership
agreement of the Company or any indenture or other agreement or instrument
governing Debt or any other material agreement or instrument to which the
Company is a party or by which it may be bound or result in the imposition
of any liens or encumbrances on any property of the Company.
The execution and delivery by the Company of the Loan Documents and the
performance of its obligations thereunder have been duly authorized by proper
corporate and partnership proceedings, and the Loan Documents constitute legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors/
rights generally.
5.9. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution, delivery and performance by the
Company of the Loan Documents or compliance by the Company with any of the
provisions of the Loan Documents.
5.10. Taxes. All United States Federal income tax returns and all
other material tax returns required to be filed by the Parent, the Company or
any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, and
all material assessments, fees and other governmental charges upon the Parent,
the Company or any Subsidiary or upon any of their respective properties, income
or franchises, which are shown to be due and payable in such returns have been
paid. The Company does not know of any proposed additional tax assessment
against the Parent, the Company or any Subsidiary for which adequate provision
has not been made on its accounts. To the best of the Company's knowledge, the
provisions for taxes on the books of the Parent, the Company and each Subsidiary
are adequate for all open years, and for its current fiscal period.
5.11. Employee Retirement Income Security Act of 1974. The
consummation of the transactions provided for in this Agreement and compliance
by the Company with the provisions of the Loan Documents will not involve any
prohibited transaction within the meaning of the ERISA or Section 4975 of the
Code. No "employee pension benefit plans", as defined in ERISA ("Plans"),
maintained by the Company or any Person which is under common control with the
Company within the meaning of Section 4001(b) of ERISA, nor any trusts created
thereunder, have incurred any "accumulated funding deficiency" as defined in
Section 302 of ERISA. Neither the Company nor, to the best of the Company's
knowledge, any Person which is under common control with the Company, within the
meaning of section 4001(b) of ERISA, maintains any "qualified defined benefit
plan" as defined in ERISA.
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5.12. Investment Company Act. Neither the Company nor any Subsidiary
is an "investment company" or an "affiliated person" thereof or an "affiliated
person" of such affiliated person as such terms are defined in the Investment
Company Act of 1940, as amended.
5.13. Compliance with Environmental Laws. Neither the Company nor
any Subsidiary is in violation of any applicable Federal, state, or local laws,
statutes, rules, regulations or ordinances relating to public health, safety or
the environment, including, without limitation, relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to the
withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including,
without limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances which violation would
reasonably be expected to have a Material Adverse Effect.
5.14. Regulations U and X. Margin stock (as defined in Regulations
U and X) constitutes less than 25% of those assets of the Company and its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
ARTICLE VI
COVENANTS
---------
6.1. During the term of this Agreement, unless the Required Lenders
shall otherwise consent in writing:
6.1.1. Information. The Company will deliver to each of the Lenders:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Company, consolidated and consolidating
balance sheets of the Company and its Consolidated Subsidiaries (subject to
Section 6.1.2) as of the end of such fiscal year and the related
consolidated and consolidating statements of income and cash flows for such
fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, such consolidated statements to be reported on in
a manner which satisfies the financial reporting requirements of the
Securities and Exchange Commission by a firm of independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Company, the
internally prepared consolidated and consolidating balance sheets of the
Company and its Consolidated subsidiaries (subject to Section 6.1.2) as of
the end of such quarter and the
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related consolidated and consolidating statements of income and cash flows
for such quarter and for the portion of the Company's fiscal year ended at
the end of such quarter, setting forth in the case of such statements of
income and cash flows in comparative form the figures for the corresponding
quarter and the corresponding portion of the Company's previous fiscal
year, all certified (subject to normal year-end adjustments and the absence
of footnotes) as to fairness of presentation, GAAP and consistency by a
Financial Officer of the Company;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of a
Financial Officer of the Company (i) setting forth in reasonable detail the
calculations required to establish whether the Company was in compliance
with the requirements of Sections 6.10, 6.15 and 6.16 on the date of such
financial statements, (ii) stating whether any Default or Unmatured Default
exists on the date of such certificate and, if any Default or Unmatured
Default then exists, setting forth the details thereof and the action which
the Company is taking or proposes to take with respect thereto and (iii)
setting forth the Interest Coverage Ratio as at the date of such financial
statements and the Pricing Level as at the date of delivery of such
certificate;
(d) promptly upon the mailing thereof to the securityholders of the
Company or the Parent generally, copies of all financial statements,
reports and proxy statements so mailed;
(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the Company or the Parent shall have filed with
the Securities and Exchange Commission; and
(f) from time to time such additional information regarding the
financial position or business of the Company and its Subsidiaries as the
Administrative Agent, at the request of any Lender, may reasonably request.
6.1.2. Use of Parent Information. If the certificate furnished
pursuant to Section 6.1(c) shall state that (i) the financial statements of the
Parent and its subsidiaries fairly present in all material respects the
financial condition of the Company and its Consolidated Subsidiaries for the
period in respect of which such certificate shall be given and (ii) the
consolidated revenue of the Company and its Consolidated Subsidiaries
constitutes at least 98% of the consolidated revenues of the Parent and its
subsidiaries and that the combined assets of the Company and its Consolidated
Subsidiaries constitute at least 98% of the consolidated assets of the Parent
and its subsidiaries, then the Company may furnish consolidated financial
statements of the Parent otherwise complying with the requirements of subsection
(a) or (b) above, as applicable, in lieu of the consolidated financial
statements of the Company specified therein. The consolidating
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financial statements required by such subsections shall be prepared in
substantially the same format as those set forth in the Information Memorandum.
6.2. Use of Proceeds. The Company will, and will cause each of its
Subsidiaries to, use the proceeds of the Advances for general corporate
purposes. The Company will not, nor will it permit any Subsidiary to, use the
proceeds of any Advance in violation of Regulations U and X.
6.3. Notice of Default. Upon the obtaining of actual knowledge
thereof by a Financial Officer, the Company will, and will cause each of its
Subsidiaries to, give prompt notice in writing to the Administrative Agent of
(i) the occurrence of any Default or Unmatured Default and what actions the
Company proposes to take with respect thereto, if any, and (ii) any other
development, financial or otherwise, which would reasonably be expected to have
a material adverse effect on the properties, business, operations or financial
condition of the Company and its Subsidiaries taken as a whole.
6.4. Inspection. The Company will, and will cause each Subsidiary
to, permit the Lenders, by their respective representatives and agents, to
inspect any of the properties, corporate books and financial records of the
Company and each Subsidiary, to examine and make copies of the books of accounts
and other financial records of the Company and each Subsidiary, and to discuss
the affairs, finances and accounts of the Company and each Subsidiary with, and
to be advised as to the same by, their respective officers at such reasonable
times and intervals as the Lenders may reasonably designate.
6.5. Legal Existence, Etc. The Company will preserve and keep in
force and effect, and will cause each Material Subsidiary to preserve and keep
in force and effect, its legal existence as a limited partnership, general
partnership or as a corporation, as the case may be, and all licenses and
permits necessary to the proper conduct of its business, provided that the
foregoing shall not prevent (x) any transaction permitted by Section 6.14
(including without limitation the Reorganization), (y) the merger or
consolidation of any Eligible Subsidiary with, or the liquidation of any
Eligible Subsidiary into, any other Eligible Subsidiary or, subject to Section
6.14, the Company or (z) the merger or consolidation of any other Material
Subsidiary with or the liquidation of any other Material Subsidiary into any
other Subsidiary or, subject to Section 6.14, the Company.
6.6. Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are customary for
companies engaged in the same or similar business activities and owning and
operating similar properties.
6.7. Taxes, Claims for Labor and Materials, Compliance with Laws.
The Company will promptly pay and discharge, and will cause each Subsidiary
promptly to pay and discharge all material lawful taxes, assessments and
governmental charges or levies imposed
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upon the Company or such Subsidiary, respectively, or upon or in respect of all
or any material part of the property or business of the Company or such
Subsidiary, all trade accounts payable in accordance with usual and customary
business terms, and all claims for work, labor or materials, which if unpaid
might become a lien or charge upon any material property of the Company or such
Subsidiary, provided the Company or such Subsidiary shall not be required to pay
any such tax, assessment, charge, levy, account payable or claim if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale of
any material property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such Subsidiary, and (ii)
the Company or such Subsidiary shall set aside on its books, reserves deemed by
it to be adequate with respect thereto. The Company will promptly comply, and
will cause each Subsidiary to comply, in all material respects with all laws,
ordinances or governmental rules and regulations to which it is subject,
including without limitation, ERISA, the Occupational Safety and Health Act of
1970, Federal Insecticide, Fungicide and Rodenticide Act and Federal
Environmental Pesticide Control Act of 1972 and all laws, ordinances,
governmental rules and regulations relating to environmental protection in all
applicable jurisdictions, the violation of which would reasonably be expected to
have a Material Adverse Effect.
6.8. Maintenance, Etc. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties which are used in the conduct of its business (whether owned in fee
or a leasehold interest) in good repair and working order and from time to time
will make all necessary repairs, replacements, renewals and additions so that at
all times (in the Company's reasonable judgment) the efficiency thereof shall be
maintained, except where the failure to do so would not reasonably be expected
to have a Material Adverse Effect.
6.9. Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries and described in the
Annual Report of the Parent on Form 10-K for the fiscal year ended December 31,
1994.
6.10. Restricted Payments. The Company will not make any
Restricted Payment if at the time of such Restricted Payment and after the
giving effect thereto a Default shall have occurred and be continuing. In
addition, the Company will not make any Restricted Payment if after giving
effect thereto the aggregate amount of Restricted Payments made during the
period from and after April 1, 1995 to and including the date of the making of
the Restricted Payment in question would exceed the sum of (i) Consolidated Net
Income for such period, computed on a cumulative basis for such entire period,
(ii) the net proceeds (whether cash or other property, and in the case of other
property, at a value determined by the Company reasonably and in good faith) to
the Company from the issue or sale of Equity Interests in the Company or the
Parent on or after April 1, 1995 and (iii) $100,000,000.
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For the purposes of this Section 6.10 the amount of any Restricted
Payment declared, paid or distributed in property of the Company shall be deemed
to be the greater of the book value or fair market value (as determined in good
faith by the Board of Directors) of such property at the time of the making of
the Restricted Payment in question.
6.11. Payment of Dividends by Subsidiaries. The Company will not
and will not permit any Subsidiary to enter into any agreement which restricts
the ability of any Subsidiary to declare any dividend or to make any
distribution on any Equity Interest of such Subsidiary, other than the
restrictions set forth in Schedule 6.11.
6.12. Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, enter into or be a party to, any material
transaction or arrangement with any Affiliate (including without limitation, the
purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Company's or such Subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would reasonably be expected to be obtained in a comparable
arm's-length transaction with a Person other than an Affiliate; provided that
the foregoing shall not prevent the transactions described in the Proxy
Statement relating to the Reorganization. For the purposes of this Section
6.12, the incurrence of Debt which is payable to the Parent or the Surviving
Parent shall not be prohibited so long as such Debt is permitted pursuant to
Section 6.15 and shall have terms which are comparable to the terms which would
reasonably be expected to be obtained in an arm's-length transaction with a
Person other than an Affiliate. It is understood that the relationship between
the Company and the Corporate General Partner established by the Company's
agreement of limited partnership, and the performance of such agreement by the
parties thereto, do not contravene this Section 6.12.
6.13. Negative Pledge. Neither the Company nor any Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement;
(b) any Lien existing on any asset of any corporation or other entity
at the time such corporation or other entity becomes a Subsidiary and not
created in contemplation of such event;
(c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches to such asset concurrently with or within
90 days after the acquisition thereof;
(d) any Lien on any asset of any corporation or other entity existing
at the time such corporation or other entity is merged or consolidated with
or into the Company
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or a Subsidiary and not created in contemplation of such event, provided
that such Lien does not extend to any additional assets;
(e) any Lien existing on any asset prior to the acquisition thereof by
the Company or a Subsidiary and not created in contemplation of such
acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is
not secured by any additional assets;
(g) Liens imposed by any governmental authority for taxes, assessments
or charges not yet due or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
(h) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business that are not
overdue for a period of more than 30 days or that are being contested in
good faith and by appropriate proceedings and Liens securing judgments but
only to the extent for an amount and for a period not resulting in a
Default under Section 7.6 hereof;
(i) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(j) deposits to secure the performance of bids, trade contracts (other
than for Debt or Derivatives Obligations), leases, statutory obligations,
surety bonds, appeal bonds with respect to judgments not exceeding
$25,000,000, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(k) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of property or minor imperfections in title thereto that, in the
aggregate, are not material in amount ' and that do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company and its
Subsidiaries;
(l) other Liens arising in the ordinary course of its business which
(i) do not secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount exceeding $25,000,000 and (iii) do not in the
aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business;
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(m) Liens arising from receivables financings accounted for as sales
under generally accepted accounting principles; provided that the aggregate
unrecovered investment of the purchasers shall at no time exceed
$100,000,000 (plus accrued interest);
(n) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $10,000,000; and
(o) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date
not to exceed $25,000,000.
6.14. Consolidations, Mergers and Sales of Assets. (a) The Company
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer all or substantially all of its assets to any other
Person, provided that the foregoing provisions of this Section 6.14 shall not
preclude (x) consummation of the Reorganization, (y) any merger or consolidation
to which the Company is a party or (z) with the prior written consent of the
Required Lenders, the sale or other transfer of all or substantially all of the
assets of the Company so long as, in the case of each of (x), (y) and (z), (i)
at the time the Surviving Company, in the case of the Reorganization, the
surviving entity, in the case of a merger or consolidation, or the transferee,
in the case of a sale of all or substantially all of the assets of the Company,
is organized under the laws of the United States of America or a state thereof
and (except in the case of a merger in which the Company is the surviving
entity) expressly assumes all obligations of the Company under the Loan
Documents pursuant to an instrument in form and substance reasonably
satisfactory to the Required Lenders and (ii) after giving effect thereto, no
Default or Unmatured Default shall have occurred and be continuing.
(b) The Company will not sell, lease or otherwise transfer, directly
or indirectly, in any period of four consecutive fiscal quarters assets having
an aggregate net book value greater than 20% of the consolidated total assets of
the Company and its Subsidiaries at the commencement of such period; provided
that this subsection (b) shall not apply to sale or other disposition in the
ordinary course of business of inventory or obsolete equipment.
6.15. Leverage Test. Consolidated Debt shall at no time exceed the
Debt Limit.
6.16. Subsidiary Debt Limitation. The aggregate Debt of
Subsidiaries, exclusive of (i) Debt under this Agreement and (ii) Debt owing to
the Company or a Subsidiary, shall at no time exceed 20% of the Debt Limit.
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ARTICLE VII
DEFAULTS
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The occurrence of any one or more of the following events shall
constitute a Default:
7.1. Any representation or warranty made or deemed made under Article
IV by any Obligor to the Lenders or the Administrative Agent under or in
connection with this Agreement or any certificate or other document delivered in
connection with this Agreement or any other Loan Document shall be materially
false on the date as of which made or deemed made.
7.2. Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or of any facility fee or other obligations under any of
the Loan Documents within five days after the same becomes due.
7.3. The breach by the Company of any of the terms or provisions of
Sections 6.10 through 6.16.
7.4. The breach by the Company (other than a breach which constitutes
a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of
this Agreement which is not remedied within thirty days after the earlier of (a)
any Financial Officer of the Company having knowledge of such breach or (b)
written notice from the Administrative Agent or any Lender.
7.5. Default by the Company or any Subsidiary in the payment of the
principal of or interest on any Debt and/or Derivatives Obligations in an
aggregate amount of $25,000,000 or more, as and when the same shall become due
and payable by the lapse of time, by declaration, by call for redemption or
otherwise, and such default shall continue beyond the period of grace, if any,
allowed with respect thereto.
7.6. Default or the happening of any event shall occur under any
indenture, agreement, or other instrument under which any Material Commitment is
made or any Debt of the Company or any subsidiary in an aggregate amount of
$25,000,000 or more is outstanding and such default or event shall continue for
a period of time sufficient to permit the acceleration of the maturity of any
Debt of the Company or any subsidiary outstanding thereunder or to permit
termination of any Material Commitment, provided any such default which exists
solely on account of the Reorganization shall not constitute a Default or
Unmatured Default under this Section 7.6 once such default shall have been
waived by the holders of such Debt or the makers of such Material Commitment.
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7.7. The Corporate General Partner shall withdraw from the Company
(except in connection with the Reorganization) and no successor Corporate
General Partner shall have been elected prior thereto or substantially
simultaneously therewith in accordance with Section 12.1 of the limited
partnership agreement of the Company.
7.8. A custodian, trustee or receiver is appointed for the Company,
the Corporate General Partner or any Material Subsidiary or for the major part
of the property of any of the foregoing and is not discharged within 30 days
after such appointment.
7.9. Final judgment or judgments for the payment of money aggregating
in excess of $25,000,000 is or are outstanding against the Company or any
Subsidiary and such judgments have remained unpaid, unvacated, unbonded or
unstayed by appeal or otherwise for a period of 30 days.
7.10. The Company, the Corporate General Partner or any Material
Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as
they become due or makes an assignment for the benefit of creditors, or the
Company, the Corporate General Partner or any Material Subsidiary causes or
suffers an order for relief to be entered with respect to it under applicable
Federal bankruptcy law or applies for or consents to the appointment of a
custodian, trustee or receiver for the Company, the Corporate General Partner or
such Material Subsidiary or for the major part of the property of any of the
foregoing.
7.11. Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company, the
Corporate General Partner or any Material Subsidiary, and, if instituted against
the Company, the Corporate General Partner or any Material Subsidiary, are
consented to or are not dismissed within 60 days after such institution.
7.12. Any Change of Control shall occur.
7.13. The Guaranty of the Company under Article XV shall cease to be
in full force and effect or the Company shall contest in any manner the
validity, binding nature or enforceability of Article XV, in either case at a
time when any Loans are outstanding hereunder to an Eligible Subsidiary.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. If any Default described in Section 7.8, 7.10 or
7.11 occurs with respect to the Company, the obligations of the Lenders to make
Loans hereunder shall automatically terminate and the obligations shall
immediately become due and payable without
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presentment, demand, protest or notice of any kind (all of which the Company
hereby expressly waives) or any other election or action on the part of the
Administrative Agent or any Lender. If any other Default occurs, the Required
Lenders may terminate or suspend the obligations of the Lenders to make Loans
hereunder, or declare the Obligations to be due and payable, or both, in either
case upon written notice to the Company, whereupon the obligations shall become
immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which each obligor hereby expressly waives.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Loan Documents may be amended to add or modify any provisions thereof or change
in any manner the rights of the Lenders or the obligors thereunder or waive any
Default thereunder, but only in a writing signed by the Required Lenders (or the
Documentation Agent with the consent in writing of the Required Lenders) and the
Company; provided, however, that no such supplemental agreement shall, without
the consent of each Lender affected thereby:
(i) Extend the maturity of any Loan or Note or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of
interest thereon or fees under Section 2.4.
(ii) Change the percentage of the Commitments or the aggregate unpaid
principal amount, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action under this Section 8.2 or any
other provision (including any definition) of this Agreement.
(iii) Extend the Termination Date or increase the amount of the
Commitment of any Lender hereunder, or permit any Borrower to assign its
rights or obligations under this Agreement except in connection with the
Reorganization and in compliance with the terms of Section 6.5 and 6.14.
(iv) Amend Section 2.5.13(a), Section 8.1 or this Section 8.2.
(v) Release the Company from its obligations under Article XV.
No amendment of any provision of this Agreement relating to either Agent shall
be effective without the written consent of such Agent. The Administrative
Agent may waive payment of the fee required under Section 12.3.2 without
obtaining the consent of-any of the Lenders. No amendment shall, unless signed
by an Eligible Subsidiary, (w) subject such Eligible Subsidiary to any
additional obligation, (x) increase the principal of or rate of interest on any
outstanding Loan of such Eligible Subsidiary, (y) accelerate the stated maturity
of any outstanding Loan of such Eligible Subsidiary or (z) change this proviso.
8.3. Preservation of Rights. No delay or omission of any Lender or
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a
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waiver of any Default or an acquiescence therein, and the making of a Loan
notwithstanding the existence of a Default or the inability of the Borrower to
satisfy the conditions precedent to such Loan shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders required pursuant to Section 8.2, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Agents and the Lenders until the Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1. Survival of Representations. All representations and warranties
of the Obligors contained in this Agreement shall survive delivery of the Notes
and the making of the Loans herein contemplated.
9.2. Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
9.3. Entire Agreement. The Loan Documents embody the entire
agreement and understanding among the Obligors, the Agents and the Lenders and
supersede all prior agreements and understandings among the Obligors, the Agents
and the Lenders relating to the subject matter thereof except as contemplated in
Section 10.12.
9.4. Several Obligations. The respective obligations of the Lenders
hereunder are several and not joint and no Lender shall be the partner or agent
of any other (except to the extent to which either Agent is authorized to act as
such). The failure of any Lender to perform any of its obligations hereunder
shall not relieve any other Lender from any of its obligations hereunder. No
Lender shall have any liability for the failure of any other Lender to perform
its obligations hereunder. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
9.5. Expenses; Indemnification. (a) The Company shall reimburse (i)
the Agents for any reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' fees of Davis Polk & Wardwell, special counsel
for the Agents) paid or incurred by either Agent in connection with the
preparation, review, execution, delivery, amendment, modification and
administration of the Loan Document and (ii) the Agents and the Lenders for any
reasonable costs, internal charges and out-of-pocket expenses (including
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reasonable attorneys' fees and allocated costs of inside counsel for the Agents
and the Lenders) paid or incurred by either Agent or any Lender in connection
with the collection and enforcement of the Loan Documents, any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or any insolvency or bankruptcy proceedings in respect of
any Obligor.
(b) The Company further agrees to indemnify each Agent and each
Lender, their respective affiliates, and the respective directors, officers,
employees and agents of the foregoing, against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all expenses of litigation or preparation therefor whether or not the Agent or
any Lender is a party thereto) (collectively, the "Indemnified Amounts") which
any of them may pay or incur arising out of or relating to this Agreement, the
other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Loan
hereunder; provided that it is understood that the Company shall not, in respect
of the legal expenses of the Lenders in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Lenders designated by the Agents (except if and to the extent that, owing to
existing or potential conflicts of interest among them, such counsel shall
advise that representation of all Lenders by a single firm would not be
appropriate); and provided, further, that the Company shall not be liable to any
Lender for any Indemnified Amounts (x) resulting from the gross negligence or
willful misconduct of such Lender, its affiliates or any of their respective
officers, directors, employees and agents or (y) constituting the costs and
expenses of prosecuting a suit or proceeding commenced by such Lender which is
finally determined adversely to such Lender (any counterclaim asserted against
such Lender being treated as a separate proceeding for this purpose). The
obligations of the Company under this Section 9.5 shall survive the termination
of this Agreement.
9.6. Numbers of Documents. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agents may furnish one to each of the
Lenders.
9.7. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid ir any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.8. Nonliability of Lenders. The relationship between the Obligors
and the Lenders and the Agents shall be solely that of debtor and creditor.
Neither Agent nor any Lender shall have any fiduciary responsibilities to any
Obligor. Neither Agent nor any Lender undertakes any responsibility to any
Obligor to review or inform any Obligor of any matter in connection with any
phase of its business or operations.
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9.9. CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF
THE STATE OF NEW YORK.
9.10. CONSENT TO JURISDICTION. EACH OBLIGOR HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW
YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH OBLIGOR HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES TO THE EXTENT ALLOWED BY LAW
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF EITHER AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY OBLIGOR AGAINST EITHER AGENT OR
ANY LENDER OR ANY AFFILIATE OF EITHER AGENT OR ANY LENDER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK CITY, UNLESS SUCH
OBLIGOR IS UNABLE TO OBTAIN SUCH JURISDICTION.
9.11. WAIVER OF JURY TRIAL. EACH OBLIGOR, AGENT AND LENDER HEREBY
WAIVES TO THE EXTENT ALLOWED BY LAW TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.12. Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Parent, the Company or any of its
Subsidiaries pursuant to this Agreement in confidence, except for disclosure (i)
to other Lenders and their respective Affiliates, (ii) to legal counsel,
accountants, and other professional advisors to that Lender, (iii) to regulatory
officials upon their request or otherwise pursuant to law or regulation, (iv) as
requested pursuant to or as required by law, regulation, or legal process, (v)
in connection with any legal proceeding to which that Lender is a party, and
(vi) permitted by Section 12.4. The restrictions in this Section 9.12 shall not
apply to any information which is or becomes generally available to the public
other than as a result of disclosure by a Lender or a Lender's representatives.
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ARTICLE X
THE AGENTS
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10.1. Appointment. First Chicago and Morgan are hereby appointed
Administrative Agent and Documentation Agent, respectively, hereunder and under
each other Loan Document, and each of the Lenders irrevocably authorizes each
such Agent to act as the contractual representative of such Lender. Each such
Agent agrees to act as such upon the express conditions contained in this
Article X. Neither Agent shall have a fiduciary relationship in respect of any
Lender by reason of this Agreement.
10.2. Powers. Each Agent shall have and may exercise such powers
under the Loan Documents as are specifically delegated to such Agent by the
terms thereof, together with such powers as are reasonably incidental thereto.
Neither Agent shall have any implied duties to the Lenders, or any obligation to
the Lenders to take any action thereunder except any action specifically
provided by the Loan Documents to be taken by such Agent.
10.3. General Immunity. Neither Agent nor any of its affiliates nor
any of their respective directors, officers, agents or employees shall be liable
to any obligor or any Lender for any action taken or omitted to be taken by it
or them in their respective agency capacities under or in connection with this
Agreement except for its own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither Agent nor
any of its affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into,
or verify (i) any statement, warranty or representation made in connection with
any Loan Document or any borrowing hereunder; (ii) the performance or observance
of any of the covenants or agreements of any Obligor under any Loan Document;
(iii) the satisfaction of any condition specified in Article IV, except receipt
of items required to be delivered to such Agent; or (iv) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith, except for the authority of such
Agent's signatory to this Agreement.
10.5. Action on Instructions of Lenders. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Loan Document in accordance with written instructions signed by
the Required Lenders (or, where so specified herein, all the Lenders), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders and on all holders of Notes. Each Agent shall be
fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Lenders pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action, provided
that, such indemnity need not include liability, costs and expenses arising
solely from the gross negligence or willful misconduct of the Agent.
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10.6. Employment of Agents and Counsel. Each Agent may execute any
of its duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. Each Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. Each Agent shall be entitled
to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and, in respect
to legal matters, upon the opinion of counsel selected in good faith by such
Agent, which counsel may be employees of such Agent or may be counsel for an
Obligor.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify each Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Company for which such
Agent is entitled to reimbursement by the Company under the Loan Documents, (ii)
for any other expenses not reimbursed by the Company incurred by such Agent on
behalf of the Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever and not
reimbursed by the Company which may be imposed on, incurred by or asserted
against such Agent in any way relating to or arising out of the Loan Documents
or any other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of any
such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of such Agent.
10.9. Rights as a Lender. With respect to its Commitment, Loans made
by it and the Notes issued to it, each Agent shall have the same rights and
powers hereunder and under any other Loan Document as any Lender and may
exercise the same as though it were not an Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include each Agent in
its individual capacity. Each Agent may accept deposits from, lend money to,
and generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Company or any of its Subsidiaries.
10.10. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon either Agent or any other Lender and
based on the financial statements submitted by the Company and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan Documents.
Each Lender also acknowledges that it will, independently and
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without reliance upon either Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.11. Successor Agent. Each Agent may resign at any time by giving
at least 30 days' prior written notice thereof to the Lenders and the Company
and such resignation shall be effective upon the appointment of a successor
agent. Upon any such resignation, the Company, with the approval of the
Required Lenders, shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed and approved and shall have
accepted such appointment within thirty days after the retiring Agent's giving
notice of resignation, then the retiring Agent may appoint a successor Agent.
Such successor Agent shall be a commercial bank with an office located in the
United States of America having capital and retained earnings of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent.
The retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Loan Documents upon the effectiveness of its resignation
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article X shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was acting as Agent
hereunder and under the other Loan Documents.
10.12. Agents' Fees. The Company hereby agrees to pay to each Agent
for its sole account such fees as heretofore agreed upon by the Company and such
Agent in writing.
ARTICLE XI
SETOFF RATABLE PAYMENTS
-----------------------
11.1. Setoff. In addition to, and without limitation of, any rights
of the Lenders under applicable law, if any Obligor becomes insolvent, however
evidenced, or any Default occurs, any indebtedness from any Lender to any
Obligor (including all account balances, whether provisional or final and
whether or not collected or available) may be offset and applied toward the
payment of the obligations owing by such Obligor to such Lender, whether or not
such Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it upon its share of any Advance (other than
payments received pursuant to Article III) in a greater proportion than that
received by any other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Loans comprising that Advance held by the other
Lenders so that after such purchase each Lender will hold its ratable proportion
of the unpaid Loans comprising that Advance. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for
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its Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to their
Loans. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Obligors, the
Agents and the Lenders and their respective successors and assigns, except that
(i) no Obligor shall have the right to assign its rights or obligations under
the Loan Documents (except in a transaction expressly permitted by Section 6.5
or 6.14(a)) and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of any Obligor or either Agent, assign all or
any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; provided, however, that no such assignment shall release the
transferor Lender from its obligations hereunder. Each Agent may treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
such payee complies with Section 12.3 in the case of an assignment thereof or,
in the case of any other transfer, a written notice of the transfer is filed
with each Agent. Any assignee or transferee of a Note agrees by acceptance
thereof to be bound by all the terms and provisions of the Loan Documents. Any
request, authority or consent of any Person, who at the time of making such
request or giving such authority or consent is the holder of any Note, shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender, the
Commitment of such Lender, or any other interest of such Lender under the Loan
Documents; provided, however, that, except in the case of a sale of a
participation in a Competitive Bid Loan, such participations shall require the
consent of the Company and shall each be in a minimum amount of $10,000,000. In
the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all amounts
payable by the Obligors under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Obligors
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and the Agents shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any amendment,
modification or waiver with respect to any Loan or Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the interest rate or fees payable with respect to any such Loan or
Commitment, postpones any date fixed for any regularly-scheduled payment of
principal of, or interest or fees on, any such Loan or Commitment, releases any
guarantor of any such Loan, if any, or releases any substantial portion of
collateral, if any, securing any such Loan.
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time assign
to one or more banks or other entities ("Purchasers") all or a portion (in a
minimum amount of $10,000,000) of its rights and obligations under the Loan
Documents. Such assignment shall be substantially in the form of Exhibit "El'
hereto. The consent of the Company and the Agents shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not both a
financial institution and an affiliate of the transferor. Such consents shall
be given in substantially the form attached as Exhibit 'III'' to Exhibit "El'
hereto.
12.3.2. Effect; Effective Date. Upon (i) delivery to the Company and
the Agents of a notice of assignment, substantially in the form attached as
Exhibit "I" to Exhibit "El' hereto (a "Notice of Assignment"), together with any
consent required by Section 12.3.1, and (ii) payment of a $3,500 fee to the
Administrative Agent by the assignee or assignor Lender for processing such
assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by the Lenders and shall have all
the rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party hereto, and no further consent or action
by the Obligors, the Lenders or the Agents shall be required to release the
transferor Lender with respect to the percentage of the Aggregate Commitment and
Loans assigned to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agents and
the Obligors shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate, replacement
Notes, are issued to such Purchaser, in each case in principal amounts
reflecting their respective Commitments, as adjusted pursuant to such
assignment.
12.4. Dissemination of Information. The Obligors authorize each
Lender to disclose to any Participant or Purchaser or any other Person acquiring
an interest in the Loan Documents by operation of law (each a "Transferee") and
any prospective Transferee any and all
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information in such Lender's possession concerning the creditworthiness of the
Company and its Subsidiaries; provided that each Transferee and prospective
Transferee agrees to be bound by Section 9.12 of this Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is
transferred to any Purchaser which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Purchaser, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 2.5.14.
12.6. Increased Costs. Subject to the applicable limitations set
forth therein and to the further provisions of this Section 12.6, each
Transferee shall be entitled to the benefits of Section 2.5.14 and 2.5.15 and
Article III with respect to the rights transferred to it to the same extent as a
Lender. No Transferee (including, for purposes of this Section 12.6, any
successor Lending Installation) of any Lender's rights shall be entitled to
receive any greater payment under Section 2.5.14 or Article III than such Lender
would have been entitled to receive with respect to the rights transferred,
unless such transfer is made with the Company's prior written consent or by
reason of the provisions of Section 3.4 requiring such Lender to designate a
different Lending Installation under certain circumstances or at a time when the
circumstances giving rise to such greater payment did not exist.
ARTICLE XIII
NOTICES
-------
13.1. Giving Notice. All notices and other communications provided
to any party hereto under this Agreement or any other Loan Document shall be in
writing (including telex or facsimile) and addressed or delivered to such party:
(a) in the case of the Company or either Agent, at its address, facsimile number
or telex number set forth on the signature pages hereof, (b) in the case of any
Lender, at its address, facsimile number or telex number set forth in its
Administrative Questionnaire, (c) in the case of any Eligible Subsidiary, to it
care of the Company and (d) in the case of any party, such other address,
facsimile number or telex number as such party may hereafter specify for the
purpose by notice to the Agents and the Company. All such notices shall be
effective when received at the address specified above.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
OF ELIGIBLE SUBSIDIARIES
------------------------------
Each Eligible Subsidiary shall be deemed by the execution and delivery
of its Election to Participate to have represented and warranted that:
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14.1. Existence and Power. It is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and is a
Subsidiary of the Company.
14.2. Corporate or Partnership and Governmental Authorization;
Contravention. The execution and delivery by it of its Election to Participate
and its Notes, and the performance by it of this Agreement and its Notes, are
within its legal powers, have been duly authorized by all necessary corporate,
partnership or other legal action, require no action by or in respect of, or
filing with, any governmental body, agency or official and do not contravene, or
constitute a default under, in any material respect any provision of applicable
law or regulation or of its organizational documents or of any indenture or
other agreement or instrument governing Debt or any other material agreement or
instrument binding upon the Company or such Eligible Subsidiary or result in the
creation or imposition of any liens or encumbrances on any asset of the Company
or any of its Subsidiaries.
14.3. Binding Effect. This Agreement constitutes a legal, valid and
binding agreement of such Eligible Subsidiary and each of its Notes, when
executed and delivered in accordance with this Agreement, will constitute a
legal, valid and binding obligation of such Eligible Subsidiary, in each case
enforceable in accordance with its terms except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
14.4. Taxes. Except as disclosed in such Election to Participate,
there is no income, stamp or other tax of any country, or any taxing authority
thereof or therein, imposed by or in the nature of withholding or otherwise,
which is imposed on any payment to be made by such Eligible Subsidiary pursuant
hereto or on its Notes, or is imposed on or by virtue of the execution, delivery
or enforcement of its Election to Participate or of its Notes.
ARTICLE XV
GUARANTY
--------
15.1. The Guaranty. The Company hereby unconditionally guarantees
the full and punctual payment (whether at stated maturity, upon acceleration or
otherwise) of the principal of and interest on each Note issued by any Eligible
Subsidiary pursuant to this Agreement, and the full and punctual payment of all
other amounts payable by any Eligible Subsidiary under this Agreement. Upon
failure by any Eligible Subsidiary to pay punctually any such amount, the
Company shall forthwith on demand pay the amount not so paid at the place and in
the manner specified in this Agreement.
15.2. Guaranty Unconditional. The obligations of the Company
hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
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(i) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of any Eligible Subsidiary under this
Agreement or any Note, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to this Agreement
or any Note;
(iii) any release, impairment, non-perfection or invalidity of any
direct or indirect security for any obligation of any Eligible Subsidiary
under this Agreement or any Note;
(iv) any change in the corporate existence, structure or ownership of
any Eligible Subsidiary, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting any Eligible Subsidiary or its assets or
any resulting release or discharge of any obligation of any Eligible
Subsidiary contained in this Agreement or any Note;
(v) the existence of any claim, set-off or other rights which the
Company may have at any time against any Eligible Subsidiary, either Agent,
any Lender or any other Person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against any
Eligible Subsidiary for any reason of this Agreement or any Note, or any
provision of applicable law or regulation purporting to prohibit the
payment by any Eligible Subsidiary of the principal of or interest on any
Note or any other amount payable by it under this Agreement; or
(vii) any other act or omission to act or delay of any kind by any
Eligible Subsidiary, either Agent, any Lender or any other Person or any
other circumstance whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of or defense to the
Company's obligations hereunder.
15.3. Discharge Only Upon Payment In Full; Reinstatement In Certain
Circumstances. The Company's obligations hereunder shall remain in full force
and effect until the Commitments shall have terminated and the principal of and
interest on the Notes and all other amounts payable by the Company and each
Eligible Subsidiary under this Agreement shall have been paid in full. If at
any time any payment of principal of or interest on any Note or any other amount
payable by any Eligible Subsidiary under this Agreement is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of any Eligible Subsidiary or otherwise, the Company's obligations hereunder
with respect to such payment shall be reinstated at such time as though such
payment had been due but not made at such time.
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15.4. Waiver by the Company. The Company irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against any Eligible Subsidiary or any other Person.
15.5. Subrogation. Upon making any payment with respect to any
Eligible Subsidiary hereunder, the Company shall be subrogated to the rights of
the payee against such Eligible Subsidiary with respect to such payment;
provided that the Company shall not enforce any payment by way of subrogation
until all amounts of principal of and interest on the Notes and all other
amounts payable by such Eligible Subsidiary under this Agreement have been paid
in full.
15.6. Stay of Acceleration. In the event that acceleration of the
time for payment of any amount payable by any Eligible Subsidiary under this
Agreement or its Notes is stayed upon insolvency, bankruptcy or reorganization
of such Eligible Subsidiary, all such amounts otherwise subject to acceleration
under the terms of this Agreement shall nonetheless be payable by the Company
hereunder forthwith on demand by the Required Lenders.
ARTICLE XVI
COUNTERPARTS; EFFECTIVENESS
---------------------------
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when the Documentation Agent shall have received
evidence reasonably satisfactory to it that (i) this Agreement has been executed
by the Company, the Agents and the Lenders and (ii) the commitments of the
lenders parties to the Credit Agreement dated as of June 3, 1992 among the
Company, such lenders and First Chicago, as agent (the "Prior Agreement") shall
have terminated and all loans outstanding thereunder and all accrued interest
and fees thereunder shall have been paid in full; provided that any "Competitive
Bid Loan" made by a Lender pursuant to the Prior Agreement which is outstanding
at the time the other conditions to the effectiveness hereof are satisfied shall
remain outstanding on the terms applicable thereto under the Prior Agreement,
and shall be deemed a Competitive Bid Loan made hereunder on such terms.
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IN WITNESS WHEREOF, the Company, the Lenders and the Agents have
executed this Agreement as of the date first above written.
THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP
By: ServiceMaster Management Corporation, its
General Partner
By:____________________________________________
Title:_________________________________________
Address: One ServiceMaster Way
Downers Grove, IL 60515
Attention: Mr. Eric Zarnikow
Telephone: (708) 964-1300
Facsimile: (708) 719-6878
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Commitment
- ----------
$35,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Agent
By:______________________________________
Title:___________________________________
Address: One First National Plaza
Suite 0324
Chicago, IL 60670
Attention: Margaret H. Harper
Telephone: (312) 732-7703
Facsimile: (312) 732-5296
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$35,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, individually and as Documentation Agent
By:______________________________________
Title:___________________________________
Address: 60 Wall Street
New York, NY 10260
Attention: Charles King
Telephone: (212) 648-7138
Facsimile: (212) 648-5336
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$20,000,000 ABN AMRO Bank N.V.
By:______________________________________
Title:___________________________________
By:______________________________________
Title:___________________________________
Address: 135 South LaSalle Street,
Suite 425
Chicago, IL 60674-9135
Attention: James M. Minich
Telephone: (312) 904-2767
Facsimile: (312) 606-8425
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$30,000,000 BANK OF AMERICA NATIONAL TRUST & SAVINGS
ASSOCIATION
By:______________________________________
Title:___________________________________
Address: 231 S. LaSalle Street
Chicago, Illinois 60697
Attention: William F. Sweeney
Telephone: (312) 828-1843
Facsimile: (312) 987-1276
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$20,000,000 BANK OF MONTREAL
By:______________________________________
Title:___________________________________
Address: 115 S. LaSalle Street, 12 West
Chicago, Illinois 60603
Attention: Daniel A. Brown
Telephone: (312) 750-4358
Facsimile: (312) 750-3783
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$20,000,000 THE BANK OF NEW YORK
By:______________________________________
Title:___________________________________
Address: One Wall Street - 19th Floor
New York, NY 10286
Attention: John M. Lokay
Telephone: (212) 635-1172
Facsimile: (212) 635-1208/09
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$10,000,000 FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By:______________________________________
Title:___________________________________
Address: 165 Madison Avenue
Memphis, TN 38103-2723
Telephone: (901) 523-4108
Facsimile: (901) 523-4267
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$20,000,000 MELLON BANK, N.A.
By:______________________________________
Title:___________________________________
Address: Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Telephone: (412) 234-2465
Facsimile: (412) 234-0110
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$30,000,000 NA TIONSBANK N.A. (CAROLINAS)
By:______________________________________
Title:___________________________________
Address: 233 South Wacker Drive
Suite 2800
Chicago, Illinois 60606
Telephone: (312) 234-5643
Facsimile: (312) 234-5601
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$20,000,000 THE SANWA BANK LIMITED
By:______________________________________
Title:___________________________________
Address: 10 South Wacker Drive
31st Floor
Chicago, Illinois 60603
Telephone: (312) 368-3006
Facsimile: (312) 346-6677
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$20,000,000 THE SUMITOMO BANK, LIMITED
By:______________________________________
Title:___________________________________
Address: 233 South Wacker Drive
Suite 4800
Chicago, Illinois 60603
Telephone: (312) 876-6406
Facsimile: (312) 876-6436
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$20,000,000 UNION BANK OF SWITZERLAND, CHICAGO
BRANCH
By:______________________________________
Title:___________________________________
Address: 30 South Wacker Drive
Chicago, Illinois 60606
Attention: Denis Campbell
Telephone: (312) 993-5604
Facsimile: (312) 993-5530
- ------------
$300,000,000
============
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AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 15, 1996
among THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP, the LENDERS parties hereto,
THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Documentation Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a Credit
Agreement dated as of August 31, 1995 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as set forth
herein and to restate the Agreement in its entirety to read as set forth in the
Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended and restated hereby.
SECTION 2. Amendment of the Agreement. (a) The date "August 31,
2000" in the definition of Termination Date in Section 1.1 of the Agreement is
changed to "October 31, 2001."
(b) The Pricing Schedule is amended to read in its entirety as the
Pricing Schedule attached to this Amendment.
(c) The following new Section 2.6 is added to the Agreement:
2.6 Optional Increase in Commitments. At any time, if no Default or
Unmatured Default shall have occurred and be continuing, the Company may,
if it so elects, increase the aggregate amount of the Commitments, either
by designating one or more banks or other financial institutions not
theretofore a Lender to become a Lender (such designation to be effective
only with the prior written consent of the Administrative Agent, which
consent will not be unreasonably withheld) or by agreeing with one or more
existing Lenders that such Lender's Commitment shall be increased. Upon
execution and delivery by the Company and each such Lender or bank or other
financial institution of
<PAGE>
an instrument in form reasonably satisfactory to the Administrative Agent,
such existing Lender shall have a Commitment as therein set forth or such
bank or other financial institution shall become a Lender with a Commitment
as therein set forth and all the rights and obligations of a Lender with
such a Commitment hereunder; provided:
(a) that the Company shall provide prompt notice of such increase to
the Administrative Agent, who shall promptly notify the Lenders;
(b) that the amount of such increase is not less than $10,000,000; and
(c) that the amount of such increase, together with all other
increases in the aggregate amount of the Commitments pursuant to this
Section 2.6 since the date of this Agreement, does not exceed $75,000,000.
Upon any increase in the aggregate amount of the Commitments pursuant to this
Section 2.6, within five Business Days, in the case of each Floating Rate
Advance then outstanding, and at the end of the then current Interest Period
with respect thereto, in the case of each Committed Fixed Rate Advance then
outstanding, the Borrower shall prepay or repay such Advance in its entirety
and, to the extent the Borrower elects to do so and subject to the conditions
specified in Article IV, the Borrower shall reborrow Committed Loans from the
Lenders in proportion to their respective Commitments after giving effect to
such increase, until such time as all outstanding Committed Loans are held by
the Lenders in such proportion.
(d) Section 5.4 is amended to read in its entirety as follows:
5.4 Business and Property: The Lenders have each heretofore
been furnished with a copy of the Annual Report of the Parent on Form 10-K
for the fiscal year ended December 31, 1995 (the "Form 10-K"), the
Quarterly Report of the Parent on Form 10-Q for the fiscal quarter ended
June 30, 1996 (the "Form 10-Q") and the Information Memorandum dated July
1995 (the "Information Memorandum") of the Company, which Information
Memorandum generally sets forth the business conducted by the Company and
its Subsidiaries and the principal properties of the Company and its
Subsidiaries. The Form 10-K, the Form 10-Q and the Information Memorandum
are hereinafter referred to as the "Disclosure Documents."
(e) Section 5.5 is amended to read in its entirety as follows:
5.5 Financial Statements. (a) The consolidated balance sheets
of the Parent and its subsidiaries as of December 31, 1995, and the
statements of income and cash flows for the fiscal year ended on said date
accompanied by a report thereon containing an opinion unqualified as to
scope limitations imposed by the Parent and otherwise without qualification
except as therein noted, by Arthur Andersen LLP have been prepared in
accordance with GAAP consistently applied except as therein noted
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<PAGE>
fairly present in all material respects the financial position of the
Company and its Subsidiaries as of such date and the results of their
operations and cash flows for such period. The unaudited consolidated
balance sheet of the Parent and its subsidiaries as of June 30, 1996 and
the unaudited statement of income and cash flows for the six-month period
ended on said date prepared in accordance with GAAP consistently applied
fairly present in all material respects the financial position of the
Company and its Subsidiaries as of such date and the results of their
operations and changes in their cash flows for such period subject to year-
end audit adjustments and the absence of footnotes.
(b) Since December 31, 1995, no event or condition has occurred which
has had or which would reasonably be expected to have a material adverse
effect on the properties, business, operations or financial condition of
the Company and its Subsidiaries taken as a whole.
SECTION 3. Governing Law. This Amendment and Restatement shall be
governed by and construed in accordance with the laws of
the State of New York.
SECTION 4. Counterparts; Effectiveness. This Amendment and
Restatement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Amendment and Restatement shall become effective
as of the date hereof when
(i) the Documentation Agent shall have received duly executed
counterparts hereof signed by each of the parties hereto (or, in the case
of any party as to which an executed counterpart shall not have been
received, the Documentation Agent shall have received facsimile or other
written confirmation from such party of execution of a counterpart hereof
by such party);
(ii) the Documentation Agent shall have received an opinion of the
General Counsel of the Company, substantially to the effect of Exhibits B-1
and B-2 to the Agreement with reference to this Amendment and Restatement
and the Agreement as amended and restated hereby;
(iii) the Documentation Agent shall have received a certificate of a
Financial Officer to the effect that (a) no Default or Unmatured Default
has occurred and is continuing and (b) the representations and warranties
contained in Articles V and XIV of the Agreement, as amended and restated
hereby, are true in all material respects in each case on and as of the
date on which this Amendment and Restatement becomes effective; and
(iv) the Documentation Agent shall have received all documents it may
reasonably request relating to the existence of the Company, the corporate
authority for and the validity of this Amendment and Restatement and the
Agreement as amended and
-3-
<PAGE>
restated hereby, and any other matters relevant hereto, all in form and
substance reasonably satisfactory to the Documentation Agent.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Restatement to be duly executed by their respective authorized officers as of
the day and year first above written.
THE SERVICEMASTER COMPANY LIMITED
PARTNERSHIP
By: ServiceMaster Management Corporation, its
General Partner
By:___________________________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Administrative Agent
By:___________________________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, individualy and as Documentation
Agent
By:___________________________________________
Title:
ABN AMRO BANK, N.V.
By:___________________________________________
Title:
By:___________________________________________
Title:
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<PAGE>
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:___________________________________________
Title:
BANK OF MONTREAL
By:___________________________________________
Title:
THE BANK OF NEW YORK
By:___________________________________________
Title:
CREDIT AGRICOLE
By:___________________________________________
Title:
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:___________________________________________
Title:
MELLON BANK, N.A.
By:___________________________________________
Title:
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<PAGE>
NATIONSBANK N.A. (CAROLINAS)
By:___________________________________________
Title:
THE SANWA BANK LIMITED
By:___________________________________________
Title:
THE SUMITOMO BANK, LIMITED
By:___________________________________________
Title:
UNION BANK OF SWITZERLAND, CHICAGO
BRANCH
By:___________________________________________
Title:
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