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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001052045-01-000003.txt : 20010330
<SEC-HEADER>0001052045-01-000003.hdr.sgml : 20010330
ACCESSION NUMBER: 0001052045-01-000003
CONFORMED SUBMISSION TYPE: 10-K/A
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SERVICEMASTER CO
CENTRAL INDEX KEY: 0001052045
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741]
IRS NUMBER: 363858106
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K/A
SEC ACT:
SEC FILE NUMBER: 001-14762
FILM NUMBER: 1582936
BUSINESS ADDRESS:
STREET 1: ONE SERVICEMASTER WAY
CITY: DOWNERS GROVE
STATE: IL
ZIP: 60515
BUSINESS PHONE: 6302711300
MAIL ADDRESS:
STREET 1: ONE SERVICEMASTER WAY
CITY: DOWNERS GROVE
STATE: IL
ZIP: 60515
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>TEXT OF AMENDMENT NO. 1 TO 2000 FORM 10-K
<TEXT>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000.
Commission File number 1-14762.
THE SERVICEMASTER COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3858106
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One ServiceMaster Way, Downers Grove, Illinois 60515-1700
---------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (630) 271-1300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------------------ ------------------------
Common Stock New York Stock Exchange
Preferred Stock Purchase Rights 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______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ((ss.) 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of shares of common stock held by
non-affiliates of the Registrant as of March 7, 2001 was $2,998,872,297. The
number of shares outstanding of the Registrant's common stock as of March 7,
2001 was 298,833,100.
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the Registrant's Annual Report to Shareholders for the
year ended December 31, 2000 are incorporated into Part I, Part II and Part IV
of this Form 10-K.
Certain parts of the Registrant's Proxy Statement for the 2001 Annual
Meeting of Shareholders are incorporated into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C>
1. Business................................................................................... 1
2. Properties................................................................................. 10
3. Legal Proceedings.......................................................................... 11
4. Submission of Matters to a Vote of Security Holders........................................ 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 13
6. Selected Financial Data.................................................................... 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 13
7A. Quantitative and Qualitative Disclosures About Market Risk................................ 13
8. Financial Statements and Supplementary Data................................................ 13
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 14
PART III
10. Directors and Executive Officers of the Registrant......................................... 15
11. Executive Compensation..................................................................... 17
12. Security Ownership of Certain Beneficial Owners and Management............................. 17
13. Certain Relationships and Related Transactions............................................. 17
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 18
Signatures...................................................................................... 22
Exhibit Index................................................................................... 24
</TABLE>
-i-
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PART I
Item 1. Business
This Annual Report on Form 10-K is filed by The ServiceMaster Company,
a Delaware corporation ("ServiceMaster"). The ServiceMaster Company is the
successor to ServiceMaster Limited Partnership, a Delaware limited partnership.
On December 26, 1997, by means of a statutory merger, The ServiceMaster Company
succeeded to ServiceMaster Limited Partnership as the publicly traded parent
entity in the ServiceMaster enterprise.
Forward-Looking Statements
This Annual Report contains or incorporates by reference certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. ServiceMaster intends that such forward-looking
statements be subject to the safe harbors created by such legislation.
ServiceMaster notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that affect ServiceMaster's results of operations. Factors which could cause
actual results to differ materially from those expressed or implied in a
forward-looking statement include the following (among others): weather
conditions adverse to certain of ServiceMaster's businesses; the entry of
additional competitors in any of the markets served by ServiceMaster; labor
shortages; consolidation of hospitals in the healthcare market; the cost and
length of time to integrate acquired businesses; unexpected changes in operating
costs; the condition of the U.S. economy; and other factors discussed from time
to time in ServiceMaster's filings with the Securities and Exchange Commission.
Principal Business Groups
ServiceMaster is a holding company whose shares of common stock are
traded on the New York Stock Exchange. Through its subsidiaries, ServiceMaster
is engaged in providing a variety of specialty services to homeowners and
commercial facilities and supportive management services in several markets,
including the healthcare market, the education market, and certain segments of
the business and industry market.
ServiceMaster is organized into four principal operating groups. Three
groups--the TruGreen Group, the Terminix Group, and the Home Maintenance and
Improvement Group--are headquartered in Memphis, Tennessee. The fourth
group--ServiceMaster Management Services Group--has operating divisions
headquartered in Downers Grove, Illinois. All subsidiaries of ServiceMaster are
wholly owned, except for (1) WeServeHomes.com, Inc., in which Kleiner, Perkins,
Caufield & Byers has an 18.0% equity interest and senior managers of the
ServiceMaster enterprise have a 0.9% equity interest, (2) TruGreen Holding
L.L.C. and American Residential Services L.L.C., in each of which senior
management for those subsidiaries have purchased nominal equity interests which
are subject to certain put and call rights, and (3) The Terminix International
Company L.P., in which Allied Bruce-Terminix Companies, Inc. is a Class B
limited partner. Financial information for each operating group for 1998, 1999,
and 2000 is contained in the Notes to the Consolidated Financial Statements of
our Annual Report to Shareholders for 2000 and is incorporated by reference.
The services provided by the TruGreen, Terminix, and Home Maintenance
and Improvement Groups comprise the ServiceMaster "Quality Service Network" and
are accessed via a single toll-free telephone number (1-800-WE SERVE) or the
internet at www.WeServeHomes.com. ServiceMaster focuses on establishing
relationships to provide one or more services on a repetitive basis to
customers. Since 1986, the number of customers served by the Quality Service
Network has increased from fewer than one million domestic customers to more
than 12 million worldwide customers.
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TruGreen Group
We provide lawn care, tree and shrub services through TruGreen Limited
Partnership ("TruGreen ChemLawn") under the "TruGreen", "ChemLawn" and
"Barefoot" service marks, among others. We provide landscaping and tree services
through TruGreen LandCare L.L.C. under the "TruGreen" and "LandCare" service
marks, among others. Customers include both homeowners and commercial
facilities. Revenues derived from the TruGreen Group constituted 19%, 24%, and
26% in 1998, 1999, and 2000 of the operating revenue of the consolidated
ServiceMaster enterprise. The TruGreen ChemLawn and TruGreen LandCare business
is seasonal in nature.
TruGreen ChemLawn. As of December 31, 2000, TruGreen ChemLawn had 211
company-owned branches and 71 franchised branches. With nearly 3.5 million
residential and commercial customers, TruGreen ChemLawn is the leading provider
of lawn care services in the United States. TruGreen ChemLawn provides lawn,
tree and shrub care services in Egypt, Japan, the Palestine Authority, Saudi
Arabia, and Turkey through licensing arrangements and in Canada through a
subsidiary.
TruGreen LandCare. On March 18, 1999, ServiceMaster completed the
acquisition of LandCare USA, Inc., a leading provider of commercial landscaping
and tree services (including line clearing and tree care). The landscaping
business previously conducted by TruGreen ChemLawn was combined with the
business of the acquired company and now operates as TruGreen LandCare L.L.C.
TruGreen LandCare is a leading provider of commercial landscaping and tree
services. As of December 31, 2000, TruGreen LandCare had 140 company-owned
branches with approximately 18,000 customers. TruGreen Landcare has no
international operations.
On January 1, 2001, members of senior management of the TruGreen Group
purchased an equity interest in TruGreen Holding L.L.C., the holding company of
both TruGreen ChemLawn and TruGreen LandCare. The capital structure of TruGreen
Holding consists of 90% intercompany debt and 10% equity. Senior management of
TruGreen ChemLawn and TruGreen LandCare purchased just under 5.0% of the equity
interest, representing just under 0.5% of the total investment in TruGreen
Holding. Such interest is subject to reciprocal put and call rights which will
become exercisable on January 1, 2006 and which will be consummated on the basis
of the then fair market value of the interest. The intercompany debt has been
eliminated in the consolidated financial statements of ServiceMaster.
Terminix Group
We provide termite and pest control services through The Terminix
International Company L.P. under the "Terminix" service mark, among others.
Customers include both homeowners and commercial facilities. Revenues derived
from the Terminix Group constituted 13%, 12%, and 12% in 1998, 1999, and 2000 of
the operating revenue of the consolidated ServiceMaster enterprise. The Terminix
business is seasonal in nature.
With over 2.6 million domestic residential and commercial customers,
Terminix, through its company-owned branches and franchisees, is the leading
provider of termite and pest control services in the United States. As of
December 31, 2000, Terminix was providing these services in 45 states through
255 company-owned branches and 209 franchised branches. Terminix provides
termite and pest control services through licensing arrangements with local
service providers in 29 countries and through subsidiaries in 9 countries.
Effective January 1, 2001, Terminix acquired substantially all of the
assets and certain liabilities of the termite and pest control business of
Allied Bruce-Terminix Companies, Inc., the largest franchisee of Terminix. As
part of the acquisition, Allied Bruce became a Class B limited partner of
Terminix, entitling Allied Bruce to quarterly cash distributions. The Class B
partnership interest belonging to Allied Bruce is subject to reciprocal put and
call rights under which the Class B partnership interest is exchangeable for
shares of ServiceMaster common stock. The put right is exercisable immediately;
the call right will become exercisable on January 1, 2006.
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Home Maintenance and Improvement Group
We provide other specialty services to homeowners and commercial
facilities principally through six companies: American Residential Services
L.L.C.; American Home Shield Corporation; ServiceMaster Residential/Commercial
Services L.P. ("ServiceMaster Clean"); Merry Maids L.P.; AmeriSpec, Inc.; and
Furniture Medic L.P. The services provided by these companies include:
electrical, plumbing, heating, ventilation and air conditioning services under
the "ARS" and "AMS" service marks, among others; plumbing and drain cleaning
services under the "Rescue Rooter" service mark, among others; warranty
contracts for home systems and appliances under the "American Home Shield"
service mark, among others; residential and commercial cleaning and disaster
restoration services under the "ServiceMaster" and "ServiceMaster Clean" service
marks, among others; domestic housekeeping services under the "Merry Maids"
service mark, among others; home inspection services under the "AmeriSpec"
service mark, among others; and on-site furniture repair and restoration under
the "Furniture Medic" and "Rx" service marks, among others. Revenues derived
from the Home Maintenance and Improvement Group constituted 9%, 16%, and 20% in
1998, 1999, and 2000 of the operating revenue of the consolidated ServiceMaster
enterprise.
American Residential Services. American Residential Services, a leading
provider of electrical, plumbing, heating, ventilation and air conditioning
services, was acquired by ServiceMaster in April 1999. American Residential
Services performed services for approximately 1.6 million customers in 2000 in
26 states through 97 company-owned branches. American Residential Services has
no international licensees or company-owned operations. The American Residential
Services business is seasonal in nature.
American Residential Services includes the assets and business of
Rescue Rooter, which provides plumbing and drain cleaning services, originally
acquired by ServiceMaster in January 1998. Under the Rescue Rooter brand,
American Residential Services also provides plumbing and drain cleaning services
through a licensing arrangement with a local service provider in one other
country.
American Mechanical Services, a subsidiary of American Residential
Services, is a leading provider of heating, ventilation, and air conditioning
services to commercial customers.
In 1999, ServiceMaster established a capital structure for American
Residential Services whereby 90% of the invested capital was in the form of
intercompany debt and 10% in the form of equity. In 1999, members of senior
management purchased 8.5% of that equity interest, representing 0.85% of the
total investment in American Residential Services. Management's equity interest
is subject to reciprocal put and call rights which will become exercisable on
July 1, 2004 and which will be consummated on the basis of the then fair market
value of the interest. The intercompany debt has been eliminated in
ServiceMaster's consolidated financial statements.
American Home Shield. American Home Shield is a leading provider of
home systems and appliance warranty contracts ("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. Warranty contracts are sold through participating real
estate brokerage offices in conjunction with resales of single-family residences
to homeowners. American Home Shield also sells warranty contracts directly to
non-moving homeowners by renewing existing contracts and through various other
distribution channels which are currently being expanded. As of December 31,
2000, American Home Shield warranty contracts provided for services to
approximately 860,000 homes through 21,754 independent repair maintenance
contractors in 50 states and the District of Columbia, with operations in
California, Texas, and Arizona accounting for 25%, 21% and 6%, respectively, of
gross contracts written by American Home Shield. American Home Shield also
provides home service warranty contracts through a licensing arrangement with a
local service provider in Saudi Arabia.
ServiceMaster Clean. ServiceMaster Clean is the leading franchisor in
the United States in the residential and commercial cleaning field.
ServiceMaster Clean provides carpet and upholstery cleaning and janitorial
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services, disaster restoration services, and window cleaning services. As of
December 31, 2000, these services were provided to approximately 1.9 million
residential and commercial customers worldwide through a network of 4,442
independent franchisees. ServiceMaster Clean provides its services through
subsidiaries in Canada, Ireland and the United Kingdom, and through licensing
arrangements with local service providers in 17 other countries.
Merry Maids. With approximately 306,000 worldwide customers, including
274,000 customers in the United States, Merry Maids is the leading provider of
domestic house cleaning services in the United States. As of December 31, 2000,
these services were provided through 43 company-owned branches and 1,114
licensees operating in all 50 states. Merry Maids provides domestic house
cleaning services through subsidiaries in Canada, Ireland and the United Kingdom
and through licensing arrangements with local service providers in 9 other
countries.
AmeriSpec. AmeriSpec is a wholly-owned subsidiary of American Home
Shield. AmeriSpec is a leading provider of home inspection services in the
United States. AmeriSpec provides home inspection services through 1
company-owned branch and 430 franchise locations. During 2000, AmeriSpec
conducted approximately 140,000 home inspections in 48 states and Canada, with
operations in California, Illinois, and New York accounting for 18.2%, 4.1% and
3.4%, respectively, of the gross number of inspections conducted through
AmeriSpec. AmeriSpec has no international licensees or company-owned operations
except for Canada.
Furniture Medic. Furniture Medic provides on-site furniture repair and
restoration services in 46 states. As of December 31, 2000, these services were
provided to approximately 175,000 residential and commercial customers worldwide
through a network of 597 licensees. Furniture Medic also provides its services
through subsidiaries in Canada and the United Kingdom and through a licensing
arrangement with a local service provider in Saudi Arabia.
ServiceMaster Management Services Group
ServiceMaster pioneered the providing of supportive management services
to healthcare facilities by instituting housekeeping management services in
1962. Since then, ServiceMaster has expanded its management services business
and it now provides a variety of supportive management services to healthcare,
education, and business and industrial customers (including the management of
housekeeping, plant operations and maintenance, laundry and linen, grounds and
landscaping, clinical equipment maintenance, food service, materials management,
and total facility management). 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.
ServiceMaster Management Services provides service on a nationwide
basis to three key markets. These markets are healthcare, education, and
business & industry. Revenues derived from ServiceMaster Management Services
Group constituted 39%, 33%, and 32% in 1998, 1999, and 2000 of the operating
revenue of the consolidated ServiceMaster enterprise.
As of December 31, 2000, ServiceMaster Management Services provided
supportive management services to 1,094 healthcare customers and to 623
educational and commercial customers. These services were being provided in all
50 states and the District of Columbia. Outside of the United States,
ServiceMaster provides management services through a subsidiary in Canada and
through licensing arrangements with local service providers in Japan and 25
other countries.
Healthcare Market. ServiceMaster Management Services is a leading
provider to the healthcare market of supportive management services, including
the management of housekeeping, plant operations and maintenance, laundry and
linen, grounds and landscaping, clinical equipment maintenance, food services,
and total facility management. As of December 31, 2000, ServiceMaster served
1,094 customers and managed 1,126 healthcare facilities. Although the healthcare
market has undergone significant consolidation in recent years, ServiceMaster
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believes that there continues to be potential for expansion in the healthcare
market due to the trend of healthcare facilities to outsource more of their
service requirements.
Education Market. ServiceMaster Management Services is a leading
provider to the education market of maintenance, custodial and grounds services.
The facilities which comprise the education market include primary schools,
secondary schools and school districts, private specialty schools, and colleges
and universities. As of December 31, 2000, ServiceMaster served 294 educational
customers and managed 4,581 facilities. ServiceMaster believes there is
potential for expansion in the education market due to its current relatively
low penetration of that market and the trend of educational facilities to
outsource more of their service requirements. However, a majority of the
educational facilities continue to assume direct responsibility for managing
their support functions.
Business & Industry Market. ServiceMaster Management Services is a
leading provider of plant operations and maintenance, custodial and grounds
management services to business and industrial customers in selected markets.
These markets include the food processing, transportation, healthcare products,
and automotive markets. As of December 31, 2000, ServiceMaster served 329
customers and managed 11,057 business or industrial facilities. ServiceMaster
believes that there is potential for expansion in these business and industrial
markets due to ServiceMaster's current low penetration of those markets, the
trend of businesses to outsource more of their service requirements, and the
trend of governmental units to privatize parts of their operations.
2000 Strategic Business Initiatives
During the year 2000, ServiceMaster introduced or expanded two
strategic business initiatives.
E-Commerce Initiative. ServiceMaster organized a new Internet company
to provide comprehensive on-line solutions for home services, products, and
information. On January 20, 2000, ServiceMaster, in conjunction with Kleiner,
Perkins, Caufield & Byers, announced the formation and initial funding of
WeServeHomes.com, Inc. as the Internet company which will provide these
solutions at a website having the URL "WeServeHomes.com". WeServeHomes launched
its web site on March 31, 2000. The equity interests in WeServeHomes initially
were divided between ServiceMaster (approximately 84%) and Kleiner Perkins
(approximately 16%, for which Kleiner Perkins contributed $15 million in cash).
Subsequently, certain senior managers in the ServiceMaster enterprise purchased
an equity interest for $1 million in May 2000. Current equity interests are
81.1%, 18.0%, and 0.9% for ServiceMaster, Kleiner Perkins and senior managers of
the ServiceMaster enterprise. In February 2001, Kleiner Perkins exercised a
warrant to purchase additional capital stock for $5.0 million, and ServiceMaster
purchased additional capital stock for $10 million. Kleiner Perkins has a
warrant to purchase an additional $6.5 million in capital stock. ServiceMaster
supports WeServeHomes through intensive co-branding efforts, access to the
customer base of operating companies of the Quality Service Network, the
fulfillment by those operating companies of orders placed by WeServeHomes
customers, and licenses for the use of certain service marks.
ServiceMaster Site Service. ServiceMaster Site Service, a division of
Business & Industry Management Services, expanded its operations in several
markets, including retail chain stores, outpatient healthcare centers,
telecommunications and self-service storage centers. It currently has over
10,000 sites under management. Customers of ServiceMaster Site Service typically
have multiple locations throughout a large geographic area and require
centralized ordering, dispatching and reporting of maintenance and repair
services. ServiceMaster Site Service leverages the capabilities of the
ServiceMaster enterprise to manage the maintenance and repair of customer
facilities, providing a single toll-free number to a national operations center
in Memphis, Tennessee where individual customer locations may order services.
Other Businesses
ServiceMaster Employer Services. ServiceMaster Employer Services is one
of the nation's larger professional employer organizations. It provides more
than 704 clients, leasing approximately 11,186 employees,
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with administrative processing of payroll, workers compensation insurance,
health insurance, unemployment insurance, and other employee benefits.
International Operations. ServiceMaster provides services in
international markets either through licensing arrangements with local entities
or ownership of foreign operating companies acquired by ServiceMaster. Except as
noted below, the TruGreen, Terminix, Home Maintenance and Improvement and
ServiceMaster Management Services Groups are responsible for overseeing these
activities.
ServiceMaster manages the following European pest control companies,
all of which are subsidiaries of TMX-Europe B.V., a wholly-owned subsidiary
of ServiceMaster: Terminix Ltd., a leading pest control and wood
preservation company in the United Kingdom and Ireland; Terminix B.V. and
Riwa B.V., each a leading pest control company in the Netherlands and
Belgium; Anticimex Development A.B., a holding company for the leading pest
control company in Sweden and which also operates in Norway; and Terminix
GmbH & Co. KG, a holding company for a group of pest control companies in
Germany.
Intellectual Property; Franchises
ServiceMaster holds various service marks, trademarks, trade names,
patents, and copyrights, none of which, other than certain service marks and
trademarks, is considered by ServiceMaster to be material to its financial
condition and results of operations. ServiceMaster's service marks and
trademarks are important for all elements of ServiceMaster's business, although
these marks are particularly important in the advertising and franchising
activities conducted by the TruGreen, Terminix, and Home Maintenance and
Improvement Groups. These marks are registered in over 95 countries and the U.S.
and are renewed at each registration expiration date. ServiceMaster also owns
certain trade secrets including training manuals, pricing models, customer
information, and software source code.
Franchises are important for the TruGreen ChemLawn, Terminix,
ServiceMaster Clean, Merry Maids, AmeriSpec, and Furniture Medic businesses.
Nevertheless, revenues and profits derived from franchise-related activities
constitute less than 2% 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. Most of ServiceMaster's
franchise agreements which expire in any given year are renewed.
Dispositions
ServiceMaster Diversified Health Services. In September 2000,
ServiceMaster sold substantially all of the operations of ServiceMaster
Diversified Health Services, which provides management services to freestanding,
hospital-based and government-owned nursing homes, skilled nursing facilities,
and assisted living facilities, to a company owned and operated by a group of
former senior managers of ServiceMaster Diversified Health Services.
ServiceMaster retained its ownership interest in five assisted living
facilities; however, the new owners of the Diversified Health Services business
will operate these facilities. This sale is consistent with ServiceMaster's
previously announced strategy to reduce its operational involvement in the
long-term care industry.
TruGreen Interior Plantcare. In September 2000, TruGreen sold the
operations of its interior plantcare division. The transaction did not
materially impact ServiceMaster's operating results for the year. This sale
represents ServiceMaster's continued focus on the growth and investment in its
core business.
Other Activities
Shared Services. Shared Services coordinates administration of payroll,
benefits, risk management, and the administration of travel services for
ServiceMaster's internal operations. In addition, Shared Services manages the
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sale and distribution of products including technical development and
assistance, financing for customers and affiliates, and sales and support for
international affiliates.
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, information technology, and
legal services.
Manufacturing Division. ServiceMaster's manufacturing division
formulates, combines, and distributes supplies, products, and equipment used
internally in providing management services to customers and which are sold to
licensees for use in the operation of their businesses. The customer bases
consists of 69% internal management services customers, 27% distributors who in
turn sell to licensees, and 4% international and other customers. ServiceMaster
has a small share of the market for the manufacture and distribution of cleaning
equipment, chemicals, and supplies. The manufacturing division offers about
4,000 products in its product line, and employs 75 people.
Industry Position, Competition and Customers
We base the following information on estimates, which cannot be
verified, made by our management. In considering ServiceMaster's industry and
competitive positions, you should recognize 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.
In the TruGreen, Terminix, and Home Maintenance and Improvement Groups,
we employ the following principal methods of competition: name recognition,
price, assurance of customer satisfaction, and a history of providing quality
services to homeowners. In the ServiceMaster Management Services Group, we
employ the following principal methods of competition: quality of service,
price, and experience in providing management services. In the ServiceMaster
Employer Services business, we employ the following principal methods of
competition: name recognition, assurance of customer satisfaction, and financial
strength.
The TruGreen, Terminix, and Home Maintenance and Improvement Groups
provide a variety of residential and commercial services under their respective
brands 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.
TruGreen Group
Lawn Care Services. TruGreen ChemLawn, both directly and through
independently owned franchisees, provides lawn care services to residential and
commercial customers. Competition within the lawn care market is strong, coming
mainly from local, independently-owned firms and from homeowners who care for
their lawns personally. TruGreen ChemLawn is the leading national lawn care
company within the lawn care market.
Lawn care services are regulated by law in most of the states in which
TruGreen ChemLawn operates. These laws require licensing which requires a
showing of technical competence and adequate bonding and insurance. Pesticide
products used in the lawn care industry are regulated primarily at the federal
level under the Federal Insecticide, Fungicide and Rodenticide Act, though there
is also limited state regulation. There are also many telemarketing laws that
regulate the sales practices of TruGreen ChemLawn. These laws, together with a
variety of state and local laws and regulations, may limit or prohibit the sale
of services and the use of certain pesticides, thereby possibly adversely
affecting the business of TruGreen ChemLawn.
Landscaping and Tree Services. TruGreen LandCare provides landscaping
installation, landscape maintenance, nursery and tree care services to
commercial and residential customers. Competition in the landscape and tree care
service industry is strong. Most competitors of TruGreen LandCare's landscape
and tree care services
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are small, owner-operated companies operating in a limited geographic market,
but there are a few large companies operating in multiple markets.
Competition in the power line brush and tree clearing market is characterized by
a small number of large companies. Many of TruGreen LandCare's commercial
accounts, particularly in landscape construction and power line clearing, are
large contracts which can adversely affect the business if canceled.
Terminix Group
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, from homeowners who treat their termite and pest
control problems personally 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 operates. These laws require licensing which requires a
showing of technical competence and adequate bonding and insurance. The laws
also regulate the manner in which Terminix conducts and documents its pesticide
applications. The pest management 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. These local, state and federal laws and related
regulations may adversely affect the use of certain pesticides and the business
of Terminix.
Home Maintenance and Improvement Group
Heating, Ventilation and Air Conditioning Services. Competition in the
market for heating, ventilation and air conditioning services is strong in both
the residential and commercial sectors. American Residential Services believes
that its share of the total potential market for such services is small and that
there is significant potential for future expansion and penetration. Many states
in which American Residential Services provides heating, ventilation, and air
conditioning services regulate these services. The level of regulation and
licensing varies from state to state.
Plumbing and Drain Cleaning Services. Competition in the market for
plumbing and drain cleaning services is strong in both the residential and
commercial sectors. Rescue Rooter believes that its share of the total potential
market for such services is small and that there is significant potential for
future expansion and penetration. Plumbing is regulated by most states in which
Rescue Rooter operates. The level of licensing varies from state to state. There
are no state or federal guidelines regulating drain cleaning services.
Home Systems and Appliance Warranty Contracts. Competition in the
market for home systems and appliance warranty contracts is strong, coming
mainly from regional competitors in the real estate distribution channel,
marketed and sold through real estate professionals in connection with an
underlying residential real estate transaction. Some competition also derives
from insurance affiliated entities in the consumer segment. ServiceMaster
believes that American Home Shield maintains a favorable position in its
industry due to the system developed and used by American Home Shield for
accepting, dispatching, and fulfilling service calls from homeowners through a
nationwide network of independent contractors. American Home Shield also has a
computerized information system developed and owned by American Home Shield, and
an electronic digital voice communication system through which American Home
Shield handles requests for service. Many states in which American Home Shield
provides home systems and appliance warranty contracts regulate these services.
Residential and Commercial Cleaning Services. Competition in the market
for domestic house cleaning services is very strong. 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 significant potential for further expansion of its
housecleaning business through continued internal expansion and greater
penetration of the housecleaning market. Through company-owned branches and
8
<PAGE>
franchisees, ServiceMaster Clean and Merry Maids have a small share of the
market for the cleaning of residential and commercial buildings. There are no
state or federal guidelines regulating residential and commercial cleaning
services.
Home Inspection Services. Competition within the home inspection market
is strong, coming mainly from regional and local, independently-owned firms. The
level of regulation and licensing varies from state to state. The home
inspection industry is unregulated at the federal level.
Furniture Repair Services. Competition in the market for furniture
repair services is strong, coming mainly from independent contractors.
ServiceMaster believes that Furniture Medic maintains a favorable position in
its industry due to its on-site delivery of services and its patented,
environmentally sensitive procedure for repairing furniture in the customer's
home. There are no state or federal guidelines regulating furniture repair
services.
ServiceMaster Management Services Group
Health Care. Within the market consisting of general healthcare
facilities having 50 or more beds, ServiceMaster is a leading supplier of plant
operations and maintenance, housekeeping, clinical equipment maintenance, and
laundry and linen management services. The majority of healthcare facilities
within this market not currently served by ServiceMaster assume direct
responsibility for managing their own non-medical support functions. There are
no state or federal guidelines regulating the services rendered by ServiceMaster
Management Services in the healthcare market.
ServiceMaster believes that its management services for healthcare
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 healthcare delivery, and payment for services (including in
particular changes in Medicare reimbursement regulations) continue to affect the
healthcare environment.
Education. ServiceMaster is a leading provider to the education market
of maintenance, custodial, and grounds 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. ServiceMaster believes there is potential for expansion in the
education market due to its current relatively low penetration of that market
and the trend of educational facilities to outsource more of their service
requirements. However, a majority of the educational facilities continue to
assume direct responsibility for managing their support functions. There are no
state or federal guidelines regulating the services rendered by ServiceMaster
Management Services in the education market.
Business and Industry. ServiceMaster is a leading provider of plant
operations and maintenance, custodial and grounds management services to
business and industrial customers in selected markets. 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, the trend of businesses to outsource 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. There are no state
or federal guidelines regulating the services rendered by ServiceMaster
Management Services in the business and industry market.
Major Customers
ServiceMaster has no single customer that accounts for more than 10% of
its operating revenue. No part of ServiceMaster's business is dependent on a
single customer or a few customers, the loss of which would have a
9
<PAGE>
material adverse effect on ServiceMaster's financial condition or results of
operation. Revenues from governmental sources are immaterial.
Employees
On December 31, 2000, ServiceMaster had a total of approximately 72,000
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 ServiceMaster's Annual Report to Shareholders for the year ended December 31,
2000.
Item 2. Properties
ServiceMaster and ServiceMaster Management Services Group
Chicago Area. The headquarters campus of ServiceMaster, which also
serves as headquarters for the ServiceMaster Management Services Group and
WeServeHomes.com, is owned by ServiceMaster and is located on a seventeen-acre
tract at One ServiceMaster Way, Downers Grove, Illinois. The campus contains two
office buildings. The headquarters building contains approximately 118,900
square feet of office space, 2,100 square feet of laboratory space, and space
for food service demonstrations, dining facilities, and the Kenneth and Norma
Wessner Training Center. ServiceMaster leases approximately half the space
(50,000 square feet) in the second building to a commercial tenant, with the
balance of the space utilized by ServiceMaster and WeServeHomes personnel. In
addition to the headquarters campus, ServiceMaster owns a 50,000 square foot
warehouse and distribution facility near Aurora, Illinois. We believe that these
office and warehouse facilities are suitable and adequate to support
ServiceMaster's current needs for administrative and warehouse space in the
Chicago area.
Cairo, Illinois. ServiceMaster owns five properties in Cairo, Illinois:
(1) a 36,000 square foot, three-story building used for manufacturing and
warehousing equipment, supplies and products used in the business; (2) a 30,000
square foot warehouse and package facility; (3) a 43,000 square foot three-story
warehouse and manufacturing building; (4) a 2,500 square foot building used for
a machine shop; and (5) a 6,000 square foot warehouse facility. ServiceMaster
also leases one warehouse property with 14,000 square feet in Cairo, Illinois.
We believe that these manufacturing and warehouse facilities are suitable and
adequate to support the current needs of ServiceMaster.
TruGreen, Terminix, and Home Maintenance and Improvement Groups
Memphis, Tennessee. The headquarters for TruGreen ChemLawn, TruGreen
LandCare, Terminix, American Home Shield, AmeriSpec, American Residential
Services, Rescue Rooter, and American Mechanical Services are located in leased
premises at 860 Ridge Lake Boulevard, Memphis, Tennessee. The headquarters for
ServiceMaster Clean, Merry Maids, and Furniture Medic are located in leased
premises at 889 Ridge Lake Boulevard, Memphis, Tennessee. Besides these two
headquarters facilities in Memphis, ServiceMaster leases space for a call center
located at 6399 Shelby View Drive, Memphis, Tennessee. The call center contains
approximately 60,000 square feet of office space from which telephone sales,
scheduling services, and other business functions are conducted. We believe that
these headquarters and call center facilities are suitable and adequate to
support the current office needs of the TruGreen, Terminix, and Home Maintenance
and Improvement Groups in the Memphis area.
The operating companies within these three groups own and lease a
variety of facilities throughout the United States for branch operations and for
office, storage, call center, and data processing space. The following chart
identifies for each operating company the number of owned facilities, the number
of leased facilities, and the number of states represented by those owned and
leased facilities. We believe that these facilities, when added to
10
<PAGE>
the headquarters and call center facilities, are suitable and adequate to
support the current needs of the TruGreen, Terminix, and Home
Maintenance and Improvement Groups.
Operating Owned Leased No. of
Company Facilities Facilities States
- -------------- ---------- ---------- ------
TruGreen ChemLawn 9 271 43
TruGreen LandCare 1 177 28
Terminix 27 390 41
American Residential Services 6 58 23
Rescue Rooter 3 17 10
American Mechanical Services 1 15 7
American Home Shield 1 11 7
ServiceMaster Clean 0 5 5
Merry Maids 0 44 21
Furniture Medic 0 0 0
ServiceMaster Employer Services
The headquarters for ServiceMaster Employer Services and Certified
Systems, Inc., the principal subsidiary of ServiceMaster Employer Services, are
located at 3218 Highway 67, Mesquite, Texas. ServiceMaster Employer Services
leases other administrative facilities in Little Rock, Arkansas, and Memphis,
Tennessee. We believe that these office facilities are suitable and adequate to
support the current needs of ServiceMaster Employer Services.
Item 3. Legal Proceedings
In the ordinary course of conducting its business activities,
ServiceMaster becomes involved in judicial, administrative and regulatory
proceedings which involve both private parties and governmental authorities. As
of March 1, 2001, these proceedings included general and commercial liability
actions and a small number of environmental proceedings.
Ray D. Martin V. ServiceMaster. In June 1996, Ray D. Martin, a former
salesman employed by ServiceMaster Management Services, filed a lawsuit in the
State Court of Fulton County, Georgia (Civ. Action File No. 96VS114677J). The
complaint, as originally filed, contended that ServiceMaster had not paid Mr.
Martin the full amount of commission due to him on a sale in which he was
involved. In the course of the pre-trial proceedings, the trial court entered a
default judgment against ServiceMaster, thereby leaving only the question of
damages to be considered at the trial. At trial in September 1999, a jury
awarded the plaintiff compensatory damages and fees of approximately $1 million
and punitive damages of $135 million. In October 1999, ServiceMaster filed a
motion for judgment notwithstanding the verdict or, in the alternative, for a
new trial. On June 1, 2000 the trial court entered a new judgment in the amount
of $461,440 in compensatory damages and $45 million in punitive damages, as well
as amounts for attorneys fees and interest. ServiceMaster filed a notice of
appeal that same day. On June 13, 2000, Mr. Martin filed a notice of
cross-appeal. The appeal will be fully briefed by early spring 2001.
ServiceMaster believes that the award of $45 million in punitive damages is not
supported by the facts of the case or by applicable state law and that the
judgment will be reversed by the court of appeals. Under Georgia law, a judgment
accrues interest at the rate of 12% per annum. ServiceMaster continues to be
unable reasonably to estimate the ultimate outcome of this case, and
accordingly, minimal expense has been recorded. If the existing judgment is
sustained, or if the original judgment is reinstated (which is not anticipated
by ServiceMaster), then it would be likely that ServiceMaster's results of
operations for a particular year may be materially adversely affected. However,
ServiceMaster believes, based on advice from legal counsel, that the
11
<PAGE>
ultimate outcome of this litigation is not expected to have a material adverse
effect on ServiceMaster's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, we
submitted no matters to a vote of security holders.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Except for the information set forth in the second and third sentences
of this Item 5, the portions of our Annual Report to Shareholders for 2000 under
the captions "Statements of Shareholders' Equity" (pages 60-61) and "Cash
Dividends Per Share" and "Price Per Share" in the Quarterly Operating Results
table (pages 80-81) supply the information required by this item, and these
portions are incorporated by reference. Our common stock is listed and traded on
the New York Stock Exchange under the symbol "SVM". At March 7, 2001, our common
stock was held of record by approximately 59,500 persons. We estimate that
approximately 42,000 persons held shares of our common stock in the names of
nominees.
Item 6. Selected Financial Data
The portion of the our Annual Report to Shareholders for 2000 in the
Financial Statements section under the caption "Eleven Year Financial Summary"
on pages 50-51 supplies the information required by this item, and that portion
is incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of financial condition and results
of operations for the three years ended December 31, 2000, is contained in the
Management Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report to Shareholders for 2000 on pages 39-49
and is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
ServiceMaster is exposed to market risk from changes in interest rates.
However, ServiceMaster generally maintains the majority of its debt at fixed
rates (over 85% at December 31, 2000 after considering swap agreements), and
therefore its exposure to short-term interest rate fluctuations is immaterial to
the consolidated financial statements of ServiceMaster as a whole. ServiceMaster
has from time to time, entered into interest rate swap or similar arrangements
to mitigate its exposure to interest rate fluctuations, and does not, as a
matter of policy, enter into hedging contracts for trading or speculative
purposes. Further disclosure is included in the Long-Term Debt note in the
Financial Statements of our Annual Report to Shareholders for 2000 on pages
73-74 and is incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated statements of financial position of ServiceMaster as
of December 31, 2000 and 1999, and the consolidated statements of income, cash
flows, and shareholders' equity for the years ended December 31, 2000, 1999, and
1998 and notes to the consolidated financial statements are contained in the
Management Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements sections of our Annual Report to
Shareholders for 2000 on pages 52-81 and are incorporated by reference. The
report of Arthur Andersen LLP thereon dated January 23, 2001, and the summary of
significant accounting policies are contained in the Financial Statements and
Management Discussion and Analysis of Financial Condition and Results of
Operations sections of our Annual Report to Shareholders for 2000 on pages 52-55
and are incorporated by reference.
13
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information contained under the heading "Election of Directors" in
the proxy statement for our 2001 Annual Meeting of Shareholders is incorporated
by reference.
Senior Management Advisers
Our Bylaws provide that our Board of Directors may appoint officers of
ServiceMaster or a subsidiary and other persons having a special relationship to
ServiceMaster to serve as Senior Management Advisers. Senior Management Advisers
attend the meetings of the Board and advise the Board but do not have the power
to vote. The Board has determined that providing officers the opportunity to
advise and interact with the Board is in the best interest of ServiceMaster as
well as the individual officers. The Senior Management Advisers receive no
additional compensation for these services.
Our Board appointed the persons listed below as Senior Management
Advisers effective as of the 2000 annual meeting of the Board to serve until the
annual meeting of the Board in 2001 or until otherwise determined by the Board.
Robert D. Erickson, age 57, is an Executive Vice President. Mr.
Erickson was a director of ServiceMaster from May 1987 to May 1993. He
previously served as a director of ServiceMaster from May 1981 to June 1984. He
served as the President and Chief Operating Officer of ServiceMaster's
International business unit from October 1993 to December 1997.
Jim L. Kaput, age 40, is Senior Vice President and General Counsel of
ServiceMaster. From June 1994 until he joined ServiceMaster in April 2000, Mr.
Kaput was a partner at the law firm of Sidley & Austin in Chicago, Illinois.
Donald K. Karnes, age 50, is President of TruGreen Group. He served as
Group President of ServiceMaster Consumer and Commercial Services from January
1996 to December 2000.
Robert F. Keith, age 44, is Group President of ServiceMaster Management
Services. He served as President and Chief Operating Officer, ServiceMaster
Management Services from January 1997 to October 1998, and President and Chief
Operating Officer, ServiceMaster Consumer Services from July 1994 to December
1996.
Ernest J. Mrozek, age 47, is President of ServiceMaster Consumer and
Commercial Services. He served as President and Chief Operating Officer,
ServiceMaster Consumer Services from January 1997 to October 1998, and Senior
Vice President and Chief Financial Officer of ServiceMaster from January 1995 to
December 1996.
Steven C. Preston, age 40, has served as Executive Vice President and
Chief Financial Officer since July 1, 1998. He served as Senior Vice President
and Chief Financial Officer from April 1997 through June 1998. From August 1993
to March 1997, he was Senior Vice President and Corporate Treasurer for First
Data Corporation, Atlanta, Georgia.
Phillip B. Rooney, age 56, is President of Management Services Group.
He served as President of Business Services Group, from April 2000 to
December 2000. From April 1997 to April 2000 he served as Vice Chairman.
From May 1996 to February 1997 he was President and Chief Executive Officer
of Waste Management, Inc.,
15
<PAGE>
Oakbrook, Illinois. Mr. Rooney is a director of Van Kampen Fund, Oak Brook,
Illinois, an investment management company and Illinois Tool Works, Inc.,
Glenview, Illinois, a diversified manufacturing company.
David M. Slott, age 42, is Chief Operating Officer of TruGreen Group.
He served as President and Chief Operating Officer of TruGreen from January 1996
to December 2000.
Richard W. Williams, age 51, is President of Education Management
Services. He served as Executive Vice President of Education Management
Services from January 1994 to April 1996.
Executive Officers of ServiceMaster
The following table shows (i) the names and ages (as of March 1, 2001)
of our executive officers; (ii) all positions presently held by each officer;
and (iii) the year each person became an officer. Each person has served as an
officer continuously since the year shown. There are no arrangements or
understandings between any executive officer and any other person pursuant to
which the officer was or is to be selected as an officer.
<TABLE>
<CAPTION>
First Became
Name Age Present Positions An Officer
- ------------------ ----- ---------------------------- ------------
<S> <C> <C> <C>
C. William Pollard 62 Chairman and Director 1977
Jonathan P. Ward 46 President, Chief Executive Officer, and Director 2001
Carlos H. Cantu 67 Senior Chairman and Director 1986
Robert D. Erickson 57 Executive Vice President and a Senior Management Adviser 1976
Jim L. Kaput 40 Senior Vice President, General Counsel, and a Senior 2000
Management Adviser
Donald K. Karnes 50 President, TruGreen Group, and a Senior Management Adviser 1992
Robert F. Keith 44 Group President, Management Services, and 1986
a Senior Management Adviser
Ernest J. Mrozek 47 President, Consumer and Commercial Services, and a 1987
Senior Management Adviser
Steven C. Preston 40 Executive Vice President and Chief Financial Officer, and 1997
a Senior Management Adviser
Phillip B. Rooney 56 President, Management Services Group, and a Senior Management 1997
Adviser
David M. Slott 42 Chief Operating Officer, TruGreen Group, and a Senior 1990
Management Adviser
Richard W. Williams 51 President, Education Management Services, and a Senior 1982
Management Adviser
David P. Aldridge 41 Senior Vice President 1990
Patrick E. Moroney 47 Senior Vice President and Chief Information Officer 2000
16
<PAGE>
Deborah A. O'Connor 38 Senior Vice President and Controller 1993
Eric R. Zarnikow 41 Senior Vice President and Treasurer 1994
</TABLE>
Messrs. Pollard, Ward, and Cantu are also directors of ServiceMaster.
For biographical information with respect to these persons, see "Election
of Directors" in the proxy statement for our 2001 Annual Meeting of
Shareholders. Messrs. Erickson, Kaput, Karnes, Keith, Mrozek, Preston,
Rooney, Slott, and Williams are Senior Management Advisers. See page 15 for
biographical information with respect to these persons.
David P. Aldridge, age 41, has served as Senior Vice President, People,
since April 2000. He served as Vice President, Service Solutions Development,
from October 1997 to March 2000. Prior to 1997 he served as Vice President of
Integrated Services.
Patrick E. Moroney, age 47, has served as Senior Vice President and
Chief Information Officer since July 2000. He served Monsanto Corporation in
Chicago, Illinois, as Chief Information Officer from March 1997 to July 2000 and
as Director of Information Technology during 1995 and 1996.
Deborah A. O'Connor, age 38, has served as Senior Vice President and
Controller since December 1999. She served as Vice President and Controller from
January 1993 until December 1999.
Eric R. Zarnikow, age 41, has served as Senior Vice President and
Treasurer since December 1999. He served as Vice President and Treasurer from
May 1994 until December 1999.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The information contained under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the proxy statement for our 2001 Annual
Meeting of Shareholders is incorporated by reference.
Item 11. Executive Compensation
The information contained under the headings "Compensation of
Directors", "Executive Compensation", and "Certain Transactions-Employment of
Jonathan P. Ward" in the proxy statement for our 2001 Annual Meeting of
Shareholders is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Ownership of our Common
Stock" in the proxy statement for our 2001 Annual Meeting of Shareholders is
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain Transactions" in
the proxy statement for our 2001 Annual Meeting of Shareholders is incorporated
by reference.
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements, Schedules, and Exhibits.
1. Financial Statements
The documents shown below are contained in the Financial
Statements and Management Discussion and Analysis section of
our Annual Report to Shareholders for 2000 on pages 52-81 and
are incorporated by reference:
Summary of Significant Accounting Policies
Report of Independent Public Accountants
Consolidated Statements of Income for the three
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Financial Position as of
December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the three
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for
the three years ended December 31, 2000, 1999, and
1998.
Notes to the Consolidated Financial Statements
2. Financial Statements Schedules
Schedule IV--Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees other than Related
Parties:
None
Included in Part IV of this Report:
Schedule II--Valuation and Qualifying Accounts
Report of Independent Public Accountants on Schedules
Exhibit 23--Consent of Independent Public Accountants
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
18
<PAGE>
3. Exhibits
The exhibits filed with this report are listed on pages 24-26
(the "Exhibits Index"). Certain entries in the Exhibits Index are management
contracts or compensatory plans in which a director or any of our named
executive officers does or may participate. Such entries are indicated by an
asterisk next to the exhibit's number. Reference is made to the Exhibits Index
for the filing with the Commission that contains such contract or plan.
(b) Reports on Form 8-K filed during the last quarter of 2000.
None
19
<PAGE>
SCHEDULE II
THE SERVICEMASTER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions Deductions
--------- ----------
Balance at Charged to Write-offs of Balance at
Beginning of Costs and Uncollectible end of
Description Period Expenses Accounts Period
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 2000:
Allowance for doubtful accounts --
Accounts receivable (current) $37,203 40,926 42,375 $35,754
------- ------ ------ -------
Notes receivable (current) $1,808 889 481 $2,216
------ --- --- ------
AS OF DECEMBER 31, 1999:
Allowance for doubtful accounts --
Accounts receivable (current) $34,153 28,797 25,747 $37,203
------- ------ ------ -------
Notes receivable (current) $4,835 688 3,715 $1,808
------ ---- ----- ------
AS OF DECEMBER 31, 1998:
Allowance for doubtful accounts --
Accounts receivable (current) $27,544 25,998 19,389 $34,153
------- ------ ------ -------
Notes receivable (current) $ 4,677 686 528 $4,835
------- --- --- ------
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of The ServiceMaster Company:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements included in The ServiceMaster Company's
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 23, 2001. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedules included in Part IV in the Form 10-K are the responsibility of
ServiceMaster's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These supporting schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 23, 2001
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE SERVICEMASTER COMPANY
Registrant
Date: March 16, 2001 By /s/ JONATHAN P. WARD
------------------------
Jonathan P. Ward
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ C. WILLIAM POLLARD Chairman and Director March 16, 2001
- ---------------------------
C. William Pollard
/s/ JONATHAN P. WARD President, Chief Executive March 16, 2001
- --------------------------- Officer and Director
Jonathan P. Ward
/s/ CARLOS H. CANTU Senior Chairman and Director March 16, 2001
- ---------------------------
Carlos H. Cantu
/s/ STEVEN C. PRESTON Executive Vice President and March 16, 2001
- ---------------------- Chief Financial Officer (Principal
Steven C. Preston Financial Officer and Principal
Accounting Officer)
/s/ PAUL W. BEREZNY, JR. Director March 16, 2001
- ---------------------------
Paul W. Berezny, Jr.
/s/ BRIAN GRIFFITHS Director March 16, 2001
- ---------------------------
Brian Griffiths
22
<PAGE>
/s/ SIDNEY E. HARRIS Director March 16, 2001
- ---------------------------
Sidney E. Harris
/s/ GLENDA A. HATCHETT Director March 16, 2001
- ---------------------------
Glenda A. Hatchett
/s/ HERBERT P. HESS Director March 16, 2001
- ---------------------------
Herbert P. Hess
/s/ MICHELE M. HUNT Director March 16, 2001
- ---------------------------
Michele M. Hunt
/s/ GUNTHER H. KNOEDLER Director March 16, 2001
- -----------------------
Gunther H. Knoedler
/s/ JAMES D. McLENNAN Director March 16, 2001
- ----------------------
James D. McLennan
/s/ VINCENT C. NELSON Director March 16, 2001
- ----------------------
Vincent C. Nelson
/s/ DALLEN W. PETERSON Director March 16, 2001
- -----------------------
Dallen W. Peterson
/s/ DONALD G. SODERQUIST Director March 16, 2001
- ------------------------
Donald G. Soderquist
/s/ CHARLES W. STAIR Director March 16, 2001
- -----------------------
Charles W. Stair
/s/ DAVID K. WESSNER Director March 16, 2001
- -----------------------
David K. Wessner
23
<PAGE>
Exhibits Index
Exh.
No. Description of Exhibit
- ---- -------------------------------------------------------------------
3(i) Amended and Restated Certificate of Incorporation of The ServiceMaster
Company, a Delaware corporation, as filed with the Secretary of State,
State of Delaware, on November 6, 1997 is incorporated by reference to
Exhibit 1 to the Current Report on Form 8-K, No. 2 dated February 26, 1998
(File No. 1-4762) (the "1998 8-K, No. 2").
3(ii)Bylaws of The ServiceMaster Company as amended through September 29, 2000
are incorporated by reference to Exhibit 1.4 to Amendment No. 1 to Form
8-A/A dated October 6, 2000 (File No. 1-14762).
4.1 Shareholder Rights Agreement between The ServiceMaster Company and the
Harris Trust and Savings Bank as adopted on December 12,1997 is
incorporated by reference to Exhibit 3 to the 1998 8-K, No.2.
4.2 Certificate of Designation, Preferences and Rights of Junior Participating
Preferred Stock, Series A, is incorporated by reference to Exhibit 4 to the
1998 8-K, No. 2.
4.3 Indenture dated as of August 15, 1997 between The ServiceMaster Company
and the Harris Trust and Savings Bank as trustee is incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-3
(File No. 333-32167) (the "1997 S-3").
4.4 First Supplemental Indenture dated as of August 15, 1997 between The
ServiceMaster Company and the Harris Trust and Savings Bank as trustee
is incorporated by reference to Exhibit 4.4 to the Annual Report on
Form 10-K for the year ended December 31, 1997 (File No. 1-14762) (the
"1997 10-K").
4.5 Second Supplemental Indenture dated as of January 1, 1998 between The
ServiceMaster Company and the Harris Trust and Savings Bank as trustee
is incorporated by reference to Exhibit 2 to the Current Report on Form
8-K, No. 1 dated February 26, 1998 (File No. 1-14762).
4.6 Third Supplemental Indenture dated as of March 2, 1998 between The
ServiceMaster Company and the Harris Trust and Savings Bank as trustee is
incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K,
No. 3 dated February 27, 1998 (File No. 1-14762) (the "1998 8-K, No. 3").
4.7 Fourth Supplemental Indenture dated as of August 10, 1999 between The
ServiceMaster Company and the Harris Trust and Savings Bank as trustee
is incorporated by reference to Exhibit 3 to the Current Report on Form
8-K dated August 16, 1999 (File No. 1-14762) (the "1999 8-K").
4.8 Indenture dated as of November 18, 1999 between The ServiceMaster
Company and the Harris Trust and Savings Bank as trustee is
incorporated by reference to Exhibit 4.16 to the Registration Statement
on Form S-3 (File No. 333-91381) (the "1999 S-3").
4.9 First Supplemental Indenture dated as of April 4, 2000 between The
ServiceMaster Company and Harris Trust and Savings Bank as trustee is
incorporated by reference to Exhibit 4.2 to the Quarterly Report on
Form 10-Q dated May 15, 2000 (File No. 1-14762) (the "2000 10-Q").
4.10 Forms of 6.95% Note due August 14, 2007 and 7.45% Note due August 14, 2027
are incorporated by reference to Exhibit 4.2 to the 1997 S-3.
4.11 Form of 7.10% Note due March 1, 2018 is incorporated by reference to
Exhibit 4.1 the 1998 8-K, No. 3.
4.12 Form of 7.25% Note due March 1, 2038 is incorporated by reference to
Exhibit 4.2 to the 1998 8-K, No. 3.
4.13 Form of 7.875% Note due August 15, 2009 is incorporated by reference to
Exhibit 4 to the 1999 8-K.
24
<PAGE>
4.14 Form of 7.875% Note due August 15, 2009 is incorporated by reference to
Exhibit 5 to the 1999 8-K.
4.15 Form of 8.45% Note due April 15, 2005 is incorporated by reference to
Exhibit 4.1 to the 2000 10-Q.
4.16 $750,000,000 Credit Agreement among The ServiceMaster Company Limited
Partnership, the First National Bank of Chicago and Morgan Guaranty
Trust Company dated as of April 1, 1997, is incorporated by reference
to Exhibit 10.2 to the 1997 10-K.
10.1*Senior Executive Ownership Election Plan as approved by the Board of
Directors on December 10, 1999 is incorporated by reference to Exhibit 10.5
to the 1999 10-K.
10.2* Form of Directors Deferred Fees Plan is incorporated by reference to
Exhibit 10.18 to the ServiceMaster Limited Partnership Annual Report on
Form 10-K for the year ended December 31, 1990 (File No. 1-09378) (the
"1990 10-K").
10.3*Form of Directors Deferred Fees Agreement is incorporated by reference to
Exhibit 10.19 of the 1990 10-K.
10.4*Form of Deferred Fees Plan Trust is incorporated by reference to Exhibit
10.20 of the 1990 10-K.
10.5* 10-Plus Plan as amended September 3, 1991 is incorporated by reference
to Exhibit 10.21 to the ServiceMaster Limited Partnership Annual Report
on Form 10-K for the year ended December 31, 1991 (File No. 1-09378)
(the "1991 10-K").
10.6*Form of Option Agreement for the 10-Plus Plan as amended September 3, 1991
is incorporated by reference to Exhibit 10.22 to the 1991 10-K.
10.7* 1994 Non-Employee Directors Share Option Plan is incorporated by
reference to Exhibit 4.2 to the ServiceMaster Limited Partnership
Registration Statement on Form S-8 (File No. 33-55761) (the "1994
S-8").
10.8* Form of Option Agreement for the 1994 Non-Employee Director Share
Option Plan is incorporated by reference to Exhibit 4.3 to the 1994
S-8.
10.9* 1997 Share Option Plan is incorporated by reference to Exhibit 10.28 to
the ServiceMaster Limited Partnership Annual Report on Form 10-K for
the year ended December 31,1996 (File No. 1-09378) (the "1996 10-K").
10.10* Form of Option Agreement for the 1997 Share Option Plan is incorporated
by reference to Exhibit 10.29 to the 1996 10-K.
10.11* 1998 Equity Incentive Plan is incorporated by reference to Exhibit 10.15
to the 1997 10-K.
10.12* Form of Option Agreement for the 1998 Equity Incentive Plan
(Non-Qualifying Stock Options) is incorporated by reference to Exhibit
10.20 to the 1997 10-K.
10.13* Form of Option Agreement for the 1998 Equity Incentive Plan (Incentive
Stock Options) is incorporated by reference to Exhibit 10.21 to the
1997 10-K.
10.14* 1998 Non-Employee Directors Discounted Stock Option Plan is incorporated
by reference to Exhibit 10.21 to the 1997 10-K.
25
<PAGE>
10.15* 1998 Long-Term Performance Award Plan is incorporated by reference to
Exhibit 10.22 to the 1997 10-K.
10.16* 2000 Equity Incentive Plan is incorporated by reference to Exhibit 4.4 to
the Registration Statement on Form S-8 (File No. 333-42680) (the "2000
S-8").
10.17* Form of Option Agreement for the 2000 Equity Incentive Plan.
10.18* 2001 Long-Term Performance Award Plan is incorporated by reference to
Exhibit B to the Proxy Statement dated March 24, 2000 (File No. 1-14762).
10.19* Employment Agreement of Jonathan P. Ward dated as of January 9, 2001.
10.20* Stock Option Agreement of Jonathan P. Ward dated as of January 9, 2001.
10.21* WeServeHomes.com 2000 Stock Option/Stock Issuance Plan.
10.22* Form of Stock Option Agreement for the WeServeHomes.com 2000 Stock
Option/Stock Issuance Plan.
10.23* Form of Stock Purchase Agreement for the WeServeHomes.com 2000 Stock
Option/Stock Issuance Plan.
11 Exhibit regarding detail of income per share computation for each of
the three years ended December 31, 2000, 1999 and 1998 is incorporated
by reference to the footnote on page 57 of the 2000 Annual Report
(defined in Exhibit 13).
13 Annual Report to Shareholders for the year ended December 31, 2000 (the
"2000 Annual Report"). The parts of the 2000 Annual Report which are
expressly incorporated into this report by reference shall be deemed
filed with this report. All other parts of the 2000 Annual Report are
furnished for the information of the Commission and are not filed with
this report.
21 Subsidiaries of ServiceMaster.
23 Consent of Arthur Andersen LLP.
26
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>FORM OF OPTION AGREEMENT '00 EQUITY INCENTIVE PLAN
<TEXT>
EXHIBIT 10.17
THE SERVICEMASTER COMPANY
STOCK OPTION AGREEMENT
November 2, 2000
The Company hereby grants to the Optionee as of the Grant Date, pursuant to
the provisions of the Plan, the Option to purchase the number of Option Shares
specified in the Term Sheet at the Exercise Price per share upon and subject to
the terms and conditions set forth below and in the Term Sheet. References to
employment shall also mean an agency or independent contractor relationship and
references to employment by the Company shall also mean employment by a
Subsidiary. Capitalized terms not defined herein shall have the meanings
specified in the Term Sheet or the Plan.
1. Option Subject to Acceptance of Agreement. The Option shall be null and
void unless the Optionee shall accept this Agreement by executing one copy of
the related Term Sheet and returning an original execution copy to the Company.
2. Time and Manner of Exercise of Option.
2.1. Maximum Term of Option. In no event may the Option be exercised, in
whole or in part, after the Expiration Date.
2.2. Exercise of Option. (a) Except as otherwise provided by Sections
2.2(b) hereof and by Section 11 of the Plan, the Option shall become exercisable
in accordance with the Exercise Schedule set forth in the Term Sheet.
(b) If the Optionee's employment with the Company terminates
by reason of Disability or death, the Option shall be immediately exercisable
with respect to all of the Option Shares on the effective date of the Optionee's
termination of employment or date of death and may thereafter be exercised by
the Optionee or the Optionee's Legal Representative or Permitted Transferees, as
the case may be, until and including the earliest to occur of (i) the date which
is two years after the effective date of the Optionee's termination of
employment or date of death and (ii) the Expiration Date.
(c) If the Optionee's employment with the Company terminates
by reason of retirement on or after age 63 or after a minimum of fifteen years
of employment (fifteen years need not be consecutive) with the Company
("Retirement"), the Option shall continue in accordance with its terms and, to
the extent the Option shall be or become exercisable with respect to the Option
Shares, may thereafter be exercised by the Optionee or the Optionee's Legal
Representative until the Expiration Date.
(d) If the Optionee's employment with the Company terminates
for any reason other than Disability, death or Retirement, the Option shall be
exercisable only to the extent it is
1
<PAGE>
exercisable on the effective date of the Optionee's termination of employment
and may thereafter be exercised by the Optionee or the Optionee's Legal
Representative until and including the earliest to occur of (i) the date which
is six months after the effective date of the Optionee's termination of
employment and (ii) the Expiration Date; provided that if the Optionee's
employment is terminated for Gross Misconduct, the Option shall terminate
automatically on the effective date of the Optionee's termination of employment.
Gross Misconduct means the commission of any act of fraud, embezzlement or
dishonesty by the Optionee, any unauthorized use or disclosure by the Optionee
of confidential information or trade secrets of the Company or any Subsidiary,
or any other intentional misconduct by the Optionee adversely affecting the
business or affairs of the Company or any Subsidiary in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Company or any Subsidiary may consider as grounds for the
dismissal or discharge of the Optionee or any other individual in the employment
of the Company or any Subsidiary.
(e) If the Optionee dies during the post-employment exercise
period pursuant to Section 2.2(b) following termination of employment by reason
of Disability, the Option shall continue in accordance with its terms and, to
the extent the Option has not been exercised as of the date of death, the Option
may thereafter by exercised by the Optionee's Legal Representative or Permitted
Transferees, as the case may be, until the earlier to occur of (i) two years
after the effective date of the Optionee's termination of employment and (ii)
the Expiration Date.
(f) If the Optionee dies following termination of employment
by reason of Retirement and prior to the Expiration Date, and to the extent the
Option has not been exercised as of the date of death, the Option may thereafter
be exercised by the Optionee's Legal Representative or Permitted Transferees, as
the case may be, until the earliest to occur of (i) two years after the date of
death and (ii) the Expiration Date.
(g) If the Optionee dies during post-employment exercise
period determined pursuant to Section 2.2(d) following termination of employment
for any reason other than Disability, Retirement or Gross Misconduct, and to the
extent the Option has not been exercised as of the date of death, the Option may
thereafter be exercised by the Optionee's Legal Representative or Permitted
Transferees, as the case may be, until the earliest to occur of (i) six months
after the effective date of the Optionee's termination of employment and (ii)
the Expiration Date.
2.3. Method of Exercise. Subject to the limitations set forth
in this Agreement, the Option may be exercised by the Optionee (1) by giving
written notice to the Company specifying the number of whole shares of Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (i) in cash, (ii) by
delivery (either actual delivery or by attestation procedures established by the
Company) of previously owned whole shares of Stock (which the Optionee has held
for at least six months prior to the delivery of such shares or which the
Optionee purchased on the open market and in each case for which the Optionee
has good title, free and clear of all liens and encumbrances) having an
aggregate Fair Market Value, determined as of the date of exercise, equal to the
aggregate purchase price payable pursuant to the Option by reason of such
exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the
Optionee has submitted
2
<PAGE>
an irrevocable notice of exercise or (iv) a combination of (i) and (ii),
and (2) by executing such documents as the Company may reasonably request.
The Company shall have sole discretion to disapprove of an election pursuant to
any of clauses (ii) - (iv). Any fraction of a share of Stock which would be
required to pay such purchase price shall be rounded down and the Optionee
will be required to pay the fractional share portion to the next whole share.
No certificate representing a share of Stock shall be delivered until the
full purchase price therefor has been paid.
2.4 Termination of Option and Forfeiture of Option Gain. (a)
Notwithstanding the Term Sheet or any provision of this Agreement, if at any
time prior to the date that is one year after the date of exercise of all or any
portion of the Option, the Optionee:
(1) directly or indirectly (whether as owner, stockholder,
director, officer, principal, agent, independent contractor, partner or
otherwise), in North America or any other geographic area in which the
Company is then conducting business, owns, manages, operates, controls,
participates in, performs services for, or otherwise carries on, a
business similar to or competitive with the business conducted by the
Company or any Subsidiary; or
(2) directly or indirectly attempts to induce any employee of
the Company to be employed or perform services elsewhere or any attempt
directly or indirectly to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company; or
(3) directly or indirectly engages in any activity which is
contrary, inimical or harmful to the interests of the Company,
including but not limited to (i) violations of Company policies (ii)
disclosure or misuse of any confidential information or trade secrets
of the Company or a Subsidiary (iii) participation in any activity not
approved by the Board or Chairman which could reasonably be foreseen as
contributing to or resulting in a Change in Control of the Company and
(iv) conduct related to employment for which either criminal or civil
penalties may be sought;
then the Option shall terminate automatically on the date the Optionee engages
in such activity and the Optionee shall pay the Company, within five business
days of receipt by the Optionee of a written demand therefor, an amount in cash
determined by multiplying the number of shares of Stock purchased pursuant to
each exercise of the Option within the one-year period described above (without
reduction for any shares of Stock delivered by the Optionee or withheld by the
Company pursuant to Section 2.3 or Section 3.2) by the difference between (i)
the Fair Market Value of a share of Stock on the date of such exercise and (ii)
the Exercise Price per share of Stock.
(b) The Optionee may be released from the Optionee's
obligations under Section 2.4(a) only if and to the extent the Committee
determines in its sole discretion that such a release is in the best interests
of the Company.
(c) The Optionee agrees that by executing this Agreement the
Optionee authorizes the Company and its Subsidiaries to deduct any amount or
amounts owed by the
3
<PAGE>
Optionee pursuant to Section 2.4(a) from any amounts payable by the Company or
any Subsidiary to the Optionee, including, without limitation, any amount
payable to the Optionee as salary, wages, vacation pay or bonus. This right of
setoff shall not be an exclusive remedy and the Company's or a Subsidiary's
election not to exercise this right of setoff with respect to any amount payable
to the Optionee shall not constitute a waiver of this right of setoff with
respect to any other amount payable to the Optionee or any other remedy.
3. Additional Terms and Conditions of Option.
-----------------------------------------
3.1. Nontransferability of Option. The Option may not be
transferred by the Optionee other than (i) by will or the laws of descent and
distribution or (ii) pursuant to beneficiary designation procedures approved by
the Company. Except to the extent permitted by the foregoing sentence, during
the Optionee's lifetime the Option is exercisable only by the Optionee or the
Optionee's Legal Representative. Except to the extent permitted by the
foregoing, the Option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Option, the Option and all rights hereunder shall
immediately become null and void.
3.2. Withholding Taxes. (a) As a condition precedent to the
delivery of Stock upon exercise of the Option, the Optionee shall, upon request
by the Company, pay to the Company in addition to the purchase price of the
shares, such amount of cash as the Company may be required, under all applicable
federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with respect to
such exercise of the Option. If the Optionee shall fail to advance the Required
Tax Payments after request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or thereafter payable by
the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to
advance the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 3.2(a), (2) delivery (either actual
delivery or by attestation procedures established by the Company) to the Company
of previously owned whole shares of Stock (which the Optionee has held for at
least six months prior to the delivery of such shares or which the Optionee
purchased on the open market and in each case for which the Optionee has good
title, free and clear of all liens and encumbrances) having an aggregate Fair
Market Value, determined as of the date the obligation to withhold or pay taxes
first arises in connection with the Option (the "Tax Date"), equal to the
Required Tax Payments, (3) authorizing the Company to withhold whole shares of
Stock which would otherwise be delivered to the Optionee upon exercise of the
Option having an aggregate Fair Market Value, determined as of the Tax Date,
equal to the Required Tax Payments, (4) a cash payment by a broker-dealer
acceptable to the Company to whom the Optionee has submitted an irrevocable
notice of exercise or (5) any combination of (1), (2) and (3). The Company shall
have sole discretion to disapprove of an election pursuant to any of clauses
(2)-(5). No certificate representing a share of Stock shall be delivered until
the Required Tax Payments have been satisfied in full.
4
<PAGE>
3.3. Adjustment. In the event of any change in the
capitalization of the Company (such as a stock split) or a corporate transaction
(such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company), any reorganization (whether
or not such reorganization comes within the definition of such term in Section
368 of the Code) or any partial or complete liquidation of the Company, the
number and class of securities subject to the Option and the purchase price per
security shall be appropriately adjusted by the Committee without an increase in
the aggregate purchase price. The decision of the Committee regarding any such
adjustment shall be final, binding and conclusive.
3.4. Compliance with Applicable Law. The Option is subject to
the condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
3.5. Delivery of Certificates. Upon the exercise of the
Option, in whole or in part, the Company shall deliver or cause to be delivered
one or more certificates representing the number of shares purchased against
full payment therefor. The Company shall pay all original issue or transfer
taxes and all fees and expenses incident to such delivery, except as otherwise
provided in Section 3.2.
3.6. Option Confers No Rights as Shareholder. The Optionee
shall not be entitled to any privileges of ownership with respect to shares of
Stock subject to the Option unless and until purchased and delivered upon the
exercise of the Option, in whole or in part, and the Optionee becomes a
shareholder of record with respect to such delivered shares; and the Optionee
shall not be considered a shareholder of the Company with respect to any such
shares not so purchased and delivered.
3.7. Option Confers No Rights to Continued Employment. In no event shall
the granting of the Option or its acceptance by the Optionee give or be deemed
to give the Optionee any right to continued employment by or service with the
Company or any affiliate of the Company.
3.8. Decisions of Board or Committee. The Board or the
Committee shall have the right to resolve all questions which may arise in
connection with the Option or its exercise. Any interpretation, determination or
other action made or taken by the Board or the Committee regarding the Plan or
this Agreement shall be final, binding and conclusive.
3.9. Company to Reserve Shares. The Company shall at all times
prior to the expiration or termination of the Option reserve and keep available,
either in its treasury or out of its authorized but unissued shares of Stock,
the full number of shares subject to the Option from time to time.
5
<PAGE>
3.10. Agreement Subject to the Plan. This Agreement is subject to the
provisions of the Plan, and shall be interpreted in accordance therewith. The
Optionee hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
------------------------
4.1. Designation as Nonqualified Stock Option. The Option is hereby
designated as not constituting an "incentive stock option" within meaning of
section 422 of the Code; this Agreement shall be interpreted and treated
consistently with such designation.
4.2. Meaning of Certain Terms. (a) As used herein, employment by the
Company shall include employment by a corporation which is a "subsidiary
corporation" of the Company, as such term is defined in section 424 of the Code.
References in this Agreement to sections of the Code shall be deemed to refer to
any successor section of the Code or any successor internal revenue law.
(b) As used herein, the term "Legal Representative" shall
include an executor, administrator, legal representative, guardian or similar
person and the term "Permitted Transferee" shall include any transferee (i)
pursuant to a transfer permitted under Section 6.7 of the Plan and Section 3.1
hereof or (ii) designated pursuant to beneficiary designation procedures
approved by the Company.
4.3. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Optionee, acquire any rights hereunder in
accordance with this Agreement or the Plan.
4.4. Notices. All notices, requests or other communications
provided for in this Agreement shall be made, if to the Company, to the
Corporate Secretary at The ServiceMaster Company, One ServiceMaster Way, Downers
Grove, IL 60515, and if to the Optionee, to the address of the Optionee
contained in the Company's records. All notices, requests or other
communications provided for in this Agreement shall be made in writing either
(a) by personal delivery, (b) by facsimile with confirmation of receipt, (c) by
mailing in the United States mails to the last known address of the party
entitled thereto, (d) by express courier service or (e) electronic mail delivery
system. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission or upon receipt by the party entitled thereto if by United States
mail, express courier service or return receipt of electronic mail delivery
system; provided, however, that if a notice, request or other communication sent
to the Company is not received during regular business hours, it shall be deemed
to be received on the next succeeding business day of the Company.
4.5. Governing Law. This Agreement, the Option and all
determinations made and actions taken pursuant hereto and thereto, to the extent
not governed by the laws of the United States, shall be governed by the laws of
the State of Delaware and construed in accordance therewith without giving
effect to principles of conflicts of law.
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT OF JONATHAN P. WARD
<TEXT>
EXHIBIT 10.19
THE SERVICEMASTER COMPANY
One ServiceMaster Way
Downers Grove, Illinois 60515
January 7, 2001
Mr. Jonathan P. Ward
425 East Woodlands
Lake Forest, Illinois 60045
Dear Jon:
It is my pleasure to extend to you an offer of employment with
The ServiceMaster Company (the "Company") upon the terms set forth in the
attached term sheet. This offer has been approved by a special committee of the
Board of Directors of the Company and will remain open for your acceptance until
5:00 p.m. (C.D.T.) January 9, 2001. Please signify your acceptance of such
employment by signing as indicated below. This letter agreement may be executed
in counterparts.
THE SERVICEMASTER COMPANY
/s/ C. WILLIAM POLLARD
----------------------
C. William Pollard
Chairman and CEO
ACCEPTED AND AGREED:
/s/ JONATHAN P. WARD
--------------------
Name: Jonathan P. Ward
Date: January 9, 2001
1
<PAGE>
Principal Terms For
Employment Of
Jonathan P. Ward ("Executive") By
The ServiceMaster Company ("Company")
1. Position: President and Chief Executive Officer reporting to the Board of
Directors. Executive will also be elected a director of the Company and
shall serve as a member of the Board's Executive Committee.
2. Term: Through December 31, 2002.
3. Annual Salary: $700,000 for 2001, subject to increase (but not decrease)
thereafter.
4. Bonuses:
(a) Annual performance bonus based upon the terms and conditions of the
Company's APC bonus plan, with target at 150% of annual salary. Unless
Executive's employment is terminated for Cause or Executive terminates
employment without Good Reason prior to the normal bonus payment date,
minimum bonus for 2001 will be at target.
(b) Additional bonuses as awarded in the discretion of the Board of Directors.
5. Long-Term Performance Award: The Company will grant the Executive 1000
participation units under the Company's 2001 Long-Term Performance Award
Plan for the performance period beginning January 1, 2001 ("Initial
Performance Units"). The Initial Performance Units will have a target value
of $701 per unit.
6. Group/Executive Benefits: Participation by Executive and his family, on
terms no less favorable to Executive than the terms offered to other senior
executives of the Company, in any group and/or executive life,
hospitalization or disability insurance plan, health program (with COBRA
equivalent premiums paid during any waiting period), profit sharing, 401(k)
and similar benefit plans (qualified, non-qualified and supplemental) or
other fringe benefits of the Company, including automobile allowance and
similar programs as in effect from time to time (collectively referred to
as the "Benefits").
2
<PAGE>
7. Equity-Based Incentive Compensation:
(a) Initial grant of ten-year options with respect to 1,630,000 shares to vest
(i) 380,000 shares on the commencement of Executive's employment with the
Company, and (ii) 250,000 shares on each of the first five anniversaries of
such commencement. The exercise price for the options will be equal to the
average closing NYSE price for the 5 trading days immediately preceding
Executivess.s commencement of employment with the Company.
(b) The Executive will purchase a ten-year Convertible Debenture on the date
his employment commences with a face value (the "Minimum Face Value") equal
to (i) 100,000 multiplied by (ii) the fair market value of a share of the
Company's common stock. The Minimum Face Value of such Convertible
Debenture shall be financed through a full recourse note executed by the
Executive. Interest on the principal balance of the note shall accrue at
the same rate as under the Convertible Debenture and shall be payable on
the same interest payment dates as under the Convertible Debenture.
(c) At the Executive's option pursuant to notice provided to the Company no
later than the six-month anniversary of the date on which his employment
commences, the face value of the Convertible Debenture may be increased to
an amount equal to (i) a multiple greater than 100,000 but not greater than
200,000 times (ii) the fair market value of a share of the Company's common
stock. Any face value amount above the Minimum Face Value shall be paid 50%
in cash by the Executive, with the remaining 50% financed through an
increase in the principal amount of the full recourse note executed by the
Executive. If the Company receives proper notice of the Executive's option
to increase the face value of the Convertible Debenture after the initial
issuance of the Convertible Debenture, then the Company and the Executive
shall issue, respectively, an additional Convertible Debenture for such
increased amount and an additional full recourse note for 50% of such
increased amount, in each case bearing terms identical to those contained
in the original corresponding instruments.
(d) Beginning in 2002, Executive will be eligible to receive future grants
under the Company's stock incentive programs consistent with performance
and competitive pay practices generally, with an annual target of 380,000
shares.
2
<PAGE>
(e) All equity based awards will fully vest upon a Change-in-Control (as
defined in the Company's 2000 Equity Incentive Plan).
8. Sign-On Loan: $500,000 loan to be dispersed within three business days of
the day the Executive commences employment with the Company (the "Executive
Loan"), to be due and payable upon the earlier of five years and
termination of Executive's employment for any reason. The Executive Loan
shall be full recourse and without interest.
9. Severance Benefits: In the event that the Executive's employment with the
Company is terminated on or prior to December 31, 2002 by the Executive for
Good Reason or by the Company for any reason other than for Cause,
Executive shall receive continued vesting of all equity awards through
December 31, 2002 (with stock options being exercisable in accordance with
stock options granted generally to executives of the Company, but the date
of termination of employment being deemed to be December 31, 2002), full
vesting of his deferred compensation benefit, and shall be entitled to
receive as severance benefits (a) the Executive's then-current annual
salary through December 31, 2002, (b) the 2001 bonus shall be payable in
accordance with Section 4(a) above, (c) a bonus in respect of 2002 shall be
payable to the Executive on the dates of payment to other executives of the
Company, but only to the extent earned (it being understood that the
Executive does not need to be employed by the Company on December 31, 2002
or on any date of payment in order for any such bonus to have been earned),
and (d) continuation of employee benefits and perquisites through December
31, 2002; provided, however, that if Executive's employment with the
Company is terminated on or prior to December 31, 2002 by the Company for
any reason other than for Cause, Executive shall be entitled to receive the
Executive's then-current annual salary for a period of 24 months beginning
on the date of such termination of employment. "Cause" and "Good Reason"
are defined in the attached Appendix A.
10. Use and Ownership of Proprietary Information: Executive acknowledges that
during Executive's period of employment by the Company, Executive has had
and will have access to proprietary information and materials owned by the
Company. Except to the extent authorized by the Company, Executive agrees
that Executive will not at any time, from and after the date of this
agreement, use, divulge, furnish or make accessible to any person,
enterprise, business or institution any confidential or proprietary
information of the Company. Confidential and proprietary information of the
Company includes (and Executive so acknowledges) information relating to
products, methods, processes, improvements, formulas, designs and methods
of distribution and/or manufacture of the Company which are
3
<PAGE>
not in the public domain; all manuals, materials, and information of the
Company marked oConfidentialo; the Companyss.s methods and formulas for
calculating costs; the customers of the Company (actual and potential); and the
business and marketing strategies of the Company. Executive acknowledges
that said confidential and proprietary information, whether in written or
other physical form (including computer materials), is the sole and
exclusive property of the Company and Executive agrees prior to termination
of employment to return to the Company all such confidential and
proprietary information and all copies thereof.
11. Restrictions on Employment and Other Activities after Termination:
(a) Executive acknowledges that his employment with the Company enables him to
develop specialized knowledge, goodwill, and valuable relationships with
the Companyss.s customers, which would be of great value to the Company's
competitors. Executive further acknowledges that in his position as a
corporate officer of the Company, Executive is in a unique relationship to
the Company wherein Executive is privy to the present operations of the
Company and its subsidiaries as well as the short and long range plans and
programs of the Company. Therefore, Executive agrees that during the term
of his employment, and for twenty four (24) months thereafter, he will not
directly or indirectly own, manage, operate, control, serve, be employed
by, participate in, or be connected in any way with any person, enterprise,
business or institution, whether a competitor or customer of the Company or
a subsidiary of the Company, which offers or performs services similar to
those performed by the Company or a subsidiary of the Company whether such
services are performed on a contract or other basis or whether such
services are licensed to be performed by others.
(b) Executive also agrees that for a period of eighteen months (18) after
termination of this agreement, Executive will not approach, counsel,
solicit, or attempt to induce any then present employee of the Company or
affiliate, or any subsidiary thereof, to terminate and/or leave such
employment.
12. Fees and Expenses: The Company will pay all reasonable professional fees
and related expenses incurred by Executive in connection with the
negotiation and preparation of these terms of employment.
4
<PAGE>
13. Successor; Coordination: The Company will be required to have any successor
to all or substantially all of its business and/or assets expressly assume
and agree to fulfill the terms of Executive's employment in the same manner
and to the same extent that the Company would be required to do so if no
such succession had taken place. These terms of employment shall supersede
any inconsistent terms of any Company plan, document, or award agreement.
* * * *
5
<PAGE>
Appendix A
Termination for "Cause" means: a termination by the Company, within one hundred
twenty (120) days of the Chairman of the Board becoming aware of the event,
resulting from Executive's (i) conviction (including a plea of guilty or nolo
contendere) of any felony of any kind (other than Limited Vicarious Liability or
a routine traffic infraction) or any other crime (whether it is a felony or not)
involving securities fraud or theft of substantial assets of the Company, (ii)
willful misconduct with regard to the Company, or gross neglect or dereliction
of duty resulting in either case in material economic harm to the Company or
significant damage to the Company's reputation; (iii) failure to follow in good
faith the reasonable lawful direction of the Board despite written instruction
to do so; or (iv) a violation of his statutory or common law duty of loyalty to
the Company. Limited Vicarious Liability, as used above, shall mean any
liability which is (x) based on acts of the Company for which Executive is
charged solely as a result of his offices with the Company and (y) provided that
(1) he was not directly involved in such acts and either had no prior knowledge
of such intended actions or promptly acted reasonably and in good faith to
attempt to prevent the acts causing such liability or (2) he did not have a
reasonable basis to believe that the law was being violated by such acts.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless he has (i) had ten (10) days' written notice setting
forth the reasons for the Company's intention to terminate for Cause, (ii) had
an opportunity to be heard before the Board, and (iii) received a notice of
termination from the Board stating that in the opinion of a majority of the full
Board that Executive is guilty of conduct of a type set forth above and
specifying the particulars thereof.
"Good Reason" means: (i) diminution in Executive's titles, (ii) the assignment
of duties to Executive that are materially and adversely inconsistent with
Executive's positions, (iii) any material diminution in Executive's authority,
responsibility or reporting lines, including, but not limited to, maintaining
Executive's then positions in the Company and the Company becoming more than
fifty percent (50%) owned by another entity and Executive not having the same
titles, responsibilities and duties in the parent entity, (iv) reduction in
Executive's annual salary, (v) removal from, or failure to reelect Executive to,
the Board or the Executive Committee thereof, or (vi) a Change-in-Control (as
defined in the Company's 2000 Equity Incentive Plan). If Executive determines
that Good Reason exists, Executive must notify the Company in writing, within
one hundred eighty (180) days following Executive's knowledge of the first event
which Executive determines constitutes Good Reason, or such event shall not
constitute Good Reason under the terms of Executive's employment. If the Company
remedies such event within thirty (30) days following receipt of such notice,
the Executive may not terminate employment for Good Reason as a result of such
event.
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>STOCK OPTION AGREEMENT OF JOHATHAN P. WARD
<TEXT>
EXHIBIT 10.20
THE SERVICEMASTER COMPANY
STOCK OPTION AGREEMENT
January 9, 2001
The Company hereby grants to the Optionee as of the Grant
Date, pursuant to the provisions of the Plan, the Option to purchase the number
of Option Shares specified in the Term Sheet at the Exercise Price per share
upon and subject to the terms and conditions set forth below and in the Term
Sheet. References to employment shall also mean an agency or independent
contractor relationship and references to employment by the Company shall also
mean employment by a Subsidiary. Capitalized terms not defined herein shall have
the meanings specified in the Term Sheet or the Plan.
1. Option Subject to Acceptance of Agreement. The Option shall be null and
void unless the Optionee shall accept this Agreement by executing one copy of
the related Term Sheet and returning an original execution copy to the Company.
2. Time and Manner of Exercise of Option.
2.1. Maximum Term of Option. In no event may the Option be exercised, in
whole or in part, after the Expiration Date.
2.2. Exercise of Option. (a) Except as otherwise provided by Sections
2.2(b) hereof and by Section 11 of the Plan, the Option shall become exercisable
in accordance with the Exercise Schedule set forth in the Term Sheet.
(b) If the Optionee's employment with the Company terminates
by reason of Disability or death, the Option shall be immediately exercisable
with respect to all of the Option Shares on the effective date of the Optionee's
termination of employment or date of death and may thereafter be exercised by
the Optionee or the Optionee's Legal Representative or Permitted Transferees, as
the case may be, until and including the earliest to occur of (i) the date which
is two years after the effective date of the Optionee's termination of
employment or date of death and (ii) the Expiration Date.
(c) If the Optionee's employment with the Company terminates
by reason of retirement on or after age 63 or after a minimum of fifteen years
of employment (fifteen years need not be consecutive) with the Company
("Retirement"), the Option shall continue in accordance with its terms and, to
the extent the Option shall be or become exercisable with respect to the Option
Shares, may thereafter be exercised by the Optionee or the Optionee's Legal
Representative until the Expiration Date.
(d) If the Optionee's employment with the Company terminates for any reason
other than Disability, death or Retirement, the Option shall be exercisable only
to the
1
<PAGE>
extent it is exercisable on the effective date of the Optionee's
termination of employment and may thereafter be exercised by the Optionee or the
Optionee's Legal Representative until and including the earliest to occur of (i)
the date which is six months after the effective date of the Optionee's
termination of employment and (ii) the Expiration Date; provided that if the
Optionee's employment is terminated on or prior to December 31, 2002 by the
Optionee for Good Reason or by the Company for any reason other than for Cause,
the effective date of the Optionee's termination of employment shall, for
purposes of the Option, be deemed to be December 31, 2002 and, accordingly, the
Option shall be exercisable to the extent it is exercisable as of December 31,
2002 and may thereafter be exercised by the Optionee or the Optionee's Legal
Representative until and including June 30, 2003; provided further, that if the
Optionee's employment is terminated for Cause, the Option shall terminate
automatically on the effective date of the Optionee's termination of employment.
The term "Good Reason" and "Cause" shall have the respective meanings set forth
in the attached Appendix A.
(e) If the Optionee dies during the post-employment exercise period
pursuant to Section 2.2(b) following termination of employment by reason of
Disability, the Option shall continue in accordance with its terms and, to the
extent the Option has not been exercised as of the date of death, the Option may
thereafter by exercised by the Optionee's Legal Representative or Permitted
Transferees, as the case may be, until the earlier to occur of (i) two years
after the effective date of the Optionee's termination of employment and (ii)
the Expiration Date.
(f) If the Optionee dies following termination of employment
by reason of Retirement and prior to the Expiration Date, and to the extent the
Option has not been exercised as of the date of death, the Option may thereafter
be exercised by the Optionee's Legal Representative or Permitted Transferees, as
the case may be, until the earliest to occur of (i) two years after the date of
death and (ii) the Expiration Date.
(g) If the Optionee dies during post-employment exercise
period determined pursuant to Section 2.2(d) following termination of employment
for any reason other than Disability, Retirement or by the Company for Cause,
and to the extent the Option has not been exercised as of the date of death, the
Option may thereafter be exercised by the Optionee's Legal Representative or
Permitted Transferees, as the case may be, until the earliest to occur of (i)
six months after the effective date of the Optionee's termination of employment
and (ii) the Expiration Date.
2.3. Method of Exercise. Subject to the limitations set forth
in this Agreement, the Option may be exercised by the Optionee (1) by giving
written notice to the Company specifying the number of whole shares of Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (i) in cash, (ii) by
delivery (either actual delivery or by attestation procedures established by the
Company) of previously owned whole shares of Stock (which the Optionee has held
for at least six months prior to the delivery of such shares or which the
Optionee purchased on the open market and in each case for which the Optionee
has good title, free and clear of all liens and encumbrances) having an
aggregate Fair Market Value, determined as of the date of exercise, equal to the
aggregate purchase price payable pursuant to the Option by reason of such
exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the
Optionee has submitted an irrevocable notice of exercise or (iv) a combination
of (i) and (ii), and (2) by executing such
2
<PAGE>
documents as the Company may reasonably request. The Company shall have sole
discretion to disapprove of an election pursuant to any of clauses (ii) - (iv).
Any fraction of a share of Stock which would be required to pay such purchase
price shall be rounded down and the Optionee will be required to pay the
fractional share portion to the next whole share. No certificate representing
a share of Stock shall be delivered until the full purchase price therefor
has been paid.
2.4 Termination of Option and Forfeiture of Option Gain. (a)
Notwithstanding the Term Sheet or any provision of this Agreement, if at any
time prior to the date that is one year after the date of exercise of all or any
portion of the Option, the Optionee:
(1) directly or indirectly (whether as owner, stockholder,
director, officer, principal, agent, independent contractor, partner or
otherwise), in North America or any other geographic area in which the
Company is then conducting business, owns, manages, operates, controls,
participates in, performs services for, or otherwise carries on, a
business similar to or competitive with the business conducted by the
Company or any Subsidiary; or
(2) directly or indirectly attempts to induce any employee of
the Company to be employed or perform services elsewhere or any attempt
directly or indirectly to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company; or
(3) directly or indirectly engages in any activity which is
contrary, inimical or harmful to the interests of the Company,
including but not limited to (i) violations of Company policies (ii)
disclosure or misuse of any confidential information or trade secrets
of the Company or a Subsidiary (iii) participation in any activity not
approved by the Board or Chairman which could reasonably be foreseen as
contributing to or resulting in a Change in Control of the Company and
(iv) conduct related to employment for which either criminal or civil
penalties may be sought;
then the Option shall terminate automatically on the date the Optionee engages
in such activity and the Optionee shall pay the Company, within five business
days of receipt by the Optionee of a written demand therefor, an amount in cash
determined by multiplying the number of shares of Stock purchased pursuant to
each exercise of the Option within the one-year period described above (without
reduction for any shares of Stock delivered by the Optionee or withheld by the
Company pursuant to Section 2.3 or Section 3.2) by the difference between (i)
the Fair Market Value of a share of Stock on the date of such exercise and (ii)
the Exercise Price per share of Stock.
(b) The Optionee may be released from the Optionee's
obligations under Section 2.4(a) only if and to the extent the Committee
determines in its sole discretion that such a release is in the best interests
of the Company.
(c) The Optionee agrees that by executing this Agreement the
Optionee authorizes the Company and its Subsidiaries to deduct any amount or
amounts owed by the Optionee pursuant to Section 2.4(a) from any amounts payable
by the Company or any
3
<PAGE>
Subsidiary to the Optionee, including, without limitation, any amount payable to
the Optionee as salary, wages, vacation pay or bonus. This right of setoff
shall not be an exclusive remedy and the Company's or a Subsidiary's
election not to exercise this right of setoff with respect to any amount payable
to the Optionee shall not constitute a waiver of this right of setoff with
respect to any other amount payable to the Optionee or any other remedy.
3. Additional Terms and Conditions of Option.
3.1. Nontransferability of Option. The Option may not be
transferred by the Optionee other than (i) by will or the laws of descent and
distribution or (ii) pursuant to beneficiary designation procedures approved by
the Company. Except to the extent permitted by the foregoing sentence, during
the Optionee's lifetime the Option is exercisable only by the Optionee or the
Optionee's Legal Representative. Except to the extent permitted by the
foregoing, the Option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Option, the Option and all rights hereunder shall
immediately become null and void.
3.2. Withholding Taxes. (a) As a condition precedent to the
delivery of Stock upon exercise of the Option, the Optionee shall, upon request
by the Company, pay to the Company in addition to the purchase price of the
shares, such amount of cash as the Company may be required, under all applicable
federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with respect to
such exercise of the Option. If the Optionee shall fail to advance the Required
Tax Payments after request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or thereafter payable by
the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to
advance the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 3.2(a), (2) delivery (either actual
delivery or by attestation procedures established by the Company) to the Company
of previously owned whole shares of Stock (which the Optionee has held for at
least six months prior to the delivery of such shares or which the Optionee
purchased on the open market and in each case for which the Optionee has good
title, free and clear of all liens and encumbrances) having an aggregate Fair
Market Value, determined as of the date the obligation to withhold or pay taxes
first arises in connection with the Option (the "Tax Date"), equal to the
Required Tax Payments, (3) authorizing the Company to withhold whole shares of
Stock which would otherwise be delivered to the Optionee upon exercise of the
Option having an aggregate Fair Market Value, determined as of the Tax Date,
equal to the Required Tax Payments, (4) a cash payment by a broker-dealer
acceptable to the Company to whom the Optionee has submitted an irrevocable
notice of exercise or (5) any combination of (1), (2) and (3). The Company shall
have sole discretion to disapprove of an election pursuant to any of clauses
(2)-(5). No certificate representing a share of Stock shall be delivered until
the Required Tax Payments have been satisfied in full.
4
<PAGE>
3.3. Adjustment. In the event of any change in the
capitalization of the Company (such as a stock split) or a corporate transaction
(such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company), any reorganization (whether
or not such reorganization comes within the definition of such term in Section
368 of the Code) or any partial or complete liquidation of the Company, the
number and class of securities subject to the Option and the purchase price per
security shall be appropriately adjusted by the Committee without an increase in
the aggregate purchase price. The decision of the Committee regarding any such
adjustment shall be final, binding and conclusive.
3.4. Compliance with Applicable Law. The Option is subject to
the condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
3.5. Delivery of Certificates. Upon the exercise of the
Option, in whole or in part, the Company shall deliver or cause to be delivered
one or more certificates representing the number of shares purchased against
full payment therefor. The Company shall pay all original issue or transfer
taxes and all fees and expenses incident to such delivery, except as otherwise
provided in Section 3.2.
3.6. Option Confers No Rights as Shareholder. The Optionee
shall not be entitled to any privileges of ownership with respect to shares of
Stock subject to the Option unless and until purchased and delivered upon the
exercise of the Option, in whole or in part, and the Optionee becomes a
shareholder of record with respect to such delivered shares; and the Optionee
shall not be considered a shareholder of the Company with respect to any such
shares not so purchased and delivered.
3.7. Option Confers No Rights to Continued Employment. In no event shall the
granting of the Option or its acceptance by the Optionee give or be deemed to
give the Optionee any right to continued employment by or service with the
Company or any affiliate of the Company.
3.8. Decisions of Board or Committee. The Board or the
Committee shall have the right to resolve all questions which may arise in
connection with the Option or its exercise. Any interpretation, determination or
other action made or taken by the Board or the Committee regarding the Plan or
this Agreement shall be final, binding and conclusive.
3.9. Company to Reserve Shares. The Company shall at all times
prior to the expiration or termination of the Option reserve and keep available,
either in its treasury or out of its authorized but unissued shares of Stock,
the full number of shares subject to the Option from time to time.
5
<PAGE>
3.10. Agreement Subject to the Plan. This Agreement is subject to the provisions
of the Plan, and shall be interpreted in accordance therewith. The Optionee
hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
4.1. Designation as Nonqualified Stock Option. The Option is hereby
designated as not constituting an "incentive stock option" within meaning
of section 422 of the Code; this Agreement shall be interpreted and treated
consistently with such designation.
4.2. Meaning of Certain Terms. (a) As used herein, employment by the
Company shall include employment by a corporation which is a "subsidiary
corporation" of the Company, as such term is defined in section 424 of the
Code. References in this Agreement to sections of the Code shall be deemed
to refer to any successor section of the Code or any successor internal
revenue law.
(b) As used herein, the term "Legal Representative" shall
include an executor, administrator, legal representative, guardian or similar
person and the term "Permitted Transferee" shall include any transferee (i)
pursuant to a transfer permitted under Section 6.7 of the Plan and Section 3.1
hereof or (ii) designated pursuant to beneficiary designation procedures
approved by the Company.
4.3. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company and any person or
persons who shall, upon the death of the Optionee, acquire any rights
hereunder in accordance with this Agreement or the Plan.
4.4. Notices. All notices, requests or other communications
provided for in this Agreement shall be made, if to the Company, to the
Corporate Secretary at The ServiceMaster Company, One ServiceMaster Way, Downers
Grove, IL 60515, and if to the Optionee, to the address of the Optionee
contained in the Company's records. All notices, requests or other
communications provided for in this Agreement shall be made in writing either
(a) by personal delivery, (b) by facsimile with confirmation of receipt, (c) by
mailing in the United States mails to the last known address of the party
entitled thereto, (d) by express courier service or (e) electronic mail delivery
system. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission or upon receipt by the party entitled thereto if by United States
mail, express courier service or return receipt of electronic mail delivery
system; provided, however, that if a notice, request or other communication sent
to the Company is not received during regular business hours, it shall be deemed
to be received on the next succeeding business day of the Company.
4.5. Governing Law. This Agreement, the Option and all
determinations made and actions taken pursuant hereto and thereto, to the extent
not governed by the laws of the United States, shall be governed by the laws of
the State of Delaware and construed in accordance therewith without giving
effect to principles of conflicts of law.
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>WSH.COM 2000 STOCK OPTION /STOCK ISSUANCE PLAN
<TEXT>
EXHIBIT 10.21
WESERVEHOMES.COM, INC.
2000 STOCK OPTION/STOCK ISSUANCE PLAN
(as amended through December 13, 2000)
Article One
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Option/Stock Issuance Plan is intended to
promote the interests of WeServeHomes.com, Inc., a Delaware corporation, by
providing eligible persons in the Corporation's employ or service with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to continue in
such employ or service.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons may, at the
discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or
Subsidiary).
B. The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
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<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. Plan Administrator shall have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any option or stock issuance
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee members of the
board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine, (i) with
respect to the grants made under the Option Grant Program, which eligible
persons are to receive the option grants, the time or times when those grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times when each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for which
the option is to remain outstanding and (ii) with respect to stock issuances
made under the Stock Issuance Program, which eligible persons are to receive
stock issuances, the time or times when those issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid by the
Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either to grant
options in accordance with the Option Grant Program or to effect stock issuances
in accordance with the Stock Issuance Program.
2
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but unissued
or reacquired Common Stock. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed 19,800,000 shares.
B. Shares of Common Stock subject to outstanding options shall be available for
subsequent issuance under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan and
(ii) the number and/or class of securities and the exercise price per share in
effect under each outstanding option in order to prevent the dilution or
enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred stock into shares of Common Stock.
3
<PAGE>
Article Two
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator and may
be less than, equal to or greater than the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option
and shall, subject to the provisions of Section I of Article Four and the
documents evidencing the option, be payable in cash or check made payable to the
Corporation. Should the Common Stock be registered under Section 12 of the 1934
Act at the time the option is exercised, then the exercise price may also be
paid as follows:
(i) in shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares, through a special
sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such time
or times, during such period and for such number of shares as shall be
determined by the
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Plan Administrator and set forth in the documents evidencing the option grant.
However, no option shall have a term in excess of ten (10) years measured from
the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any reason other
than death, Permanent Disability or Misconduct, then the Optionee shall
have a period of three (3) months following the date of such cessation
of Service during which to exercise each outstanding option held by
such Optionee.
(ii) Should Optionee's Service terminate by reason of Permanent Disability,
then the Optionee shall have a period of twelve (12) months following
the date of such cessation of Service during which to exercise each
outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding option, then the
personal representative of his or her estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or
the laws of inheritance shall have a twelve (12)-month period following
the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such option be exercisable
after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares for
which the option is exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding with
respect to any and all option shares for which the option is not otherwise
at the time exercisable or in which the Optionee is not otherwise at that
time vested.
(vi) Should Optionee's Service be terminated for Misconduct, then all
outstanding options held by the Optionee shall terminate immediately
and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable either at the
time an option is granted or at any time while the option remains outstanding,
to:
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<PAGE>
(i) extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service or death from the limited
period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares
of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under
the option had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no stockholder rights
with respect to the shares subject to the option until such person shall have
exercised the option, paid the exercise price and become the recordholder of the
purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to grant
options which are exercisable for unvested shares of Common Stock. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase, at the exercise price paid per share, any or all
of those unvested shares. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. First Refusal Rights. Until such time as the Common Stock is first registered
under Section 12 of the 1934 Act, the Corporation shall have the right of first
refusal with respect to any proposed disposition by the Optionee (or any
successor in interest) of any shares of Common Stock issued under the Option
Grant Program. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
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H. Withholding. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options granted under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common
Stock (determined as of the respective date or dates of grant) for which one or
more options granted to any Employee under the Plan (or any other option plan of
the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one (1) calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a
10% Stockholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the option grant date and the option term shall not exceed five (5) years
measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at the time of a
Corporate Transaction shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall not vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread
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<PAGE>
existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate automatically, and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction, except to the extent: (i)
those repurchase rights are assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed by the Plan Administrator at
the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction shall
be appropriately adjusted, immediately after such Corporate Transaction, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction, had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such
Corporate Transaction and (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration (in whole or in part) of one or more
outstanding options (and the immediate termination of the Corporation's
repurchase rights with respect to the shares subject to those options) upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed in the Corporate Transaction.
F. The Plan Administrator shall also have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to structure such option so that the shares subject to that option
will automatically vest on an accelerated basis should the Optionee's Service
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which the option is assumed and the repurchase rights
applicable to those shares do not otherwise terminate. Any option so accelerated
shall remain exercisable for the fully-vested option shares until the earlier of
(i) the expiration of the option term or (ii) the expiration of the one (1)-year
period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately terminate
on an accelerated basis, and the shares subject to those terminated rights shall
accordingly vest at that time.
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<PAGE>
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Option Grant
Program and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
9
<PAGE>
Article Three
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan Administrator and may
be less than, equal to or greater than the Fair Market Value per share of Common
Stock on the issue date.
2. Subject to the provisions of Section I of Article Four, shares of Common
Stock may be issued under the Stock Issuance Program for any of the following
items of consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance Program may, in the
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant's period
of Service or upon attainment of specified performance objectives.
2. Any new, substituted or additional securities or other property (including
money paid other than as a regular cash dividend) which the Participant may have
the right to receive with respect to the Participant's unvested shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant's unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.
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<PAGE>
3. The Participant shall have full stockholder rights with respect to any shares
of Common Stock issued to the Participant under the Stock Issuance Program,
whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or more
unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
C. First Refusal Rights. Until such time as the Common Stock is first registered
under Section 12 of the 1934 Act, the Corporation shall have the right of first
refusal with respect to any proposed disposition by the Participant (or any
successor in interest) of any shares of Common Stock issued under the Stock
Issuance Program. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
II. CORPORATE TRANSACTION
A. All of the outstanding repurchase rights under the Stock Issuance Program
shall terminate automatically, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event of any
Corporate Transaction, except to the extent: (i) those repurchase rights are
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
B. The Plan Administrator shall have the discretionary authority, exercisable
either at the time the unvested shares are issued or any time while the
Corporation's repurchase rights with respect to those shares remain outstanding,
to provide that those rights shall automatically terminate on an accelerated
basis, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should
11
<PAGE>
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those repurchase
rights are assigned to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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<PAGE>
Article Four
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Option Grant Program or the purchase
price for shares issued under the Stock Issuance program by delivering a full
recourse, interest bearing promissory note payable in one or more installments
and secured by the purchased shares. The terms of any such promissory note
(including the interest rate and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion. In no event shall the maximum
credit available to the Optionee or Participant exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board, but no option
granted under the Plan may be exercised, and no shares shall be issued under the
Plan, until the Plan is approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the date of
the Board's adoption of the Plan, then all options previously granted under the
Plan shall terminate and cease to be outstanding, and no further options shall
be granted and no shares shall be issued under the Plan. Subject to such
limitation, the Plan Administrator may grant options and issue shares under the
Plan at any time after the effective date of the Plan and before the date fixed
herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration of the ten
(10)-year period measured from the date the Plan is adopted by the Board, (ii)
the date on which all shares available for issuance under the Plan shall have
been issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with an Corporate Transaction. All options and unvested
stock issuances outstanding at the time of a clause (i) termination event shall
continue to have full force and effect in accordance with the provisions of the
documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend or
modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect any rights and obligations with respect to
options or unvested stock issuances at the time outstanding under the Plan,
unless the Optionee or the Participant consents
13
<PAGE>
to such amendment or modification. In addition, certain amendments may
require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the Option
Grant Program and shares of Common Stock may be issued under the Stock Issuance
Program which are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short-Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options or upon the issuance or vesting of any shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options granted
under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Code shall mean the Internal Revenue Code of 1986, as amended.
C. Committee shall mean a committee of one (1) or more Board members appointed
by the Board to exercise one or more administrative functions under the
Plan.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the
Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. Corporation shall mean WeServeHomes.com, Inc., a Delaware corporation, and
any successor corporation to all or substantially all of the assets or
voting stock of WeServeHomes.com, Inc. which shall by appropriate action
adopt the Plan.
G. Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and
method of performance.
H. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
I. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
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<PAGE>
(ii) If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any Stock Exchange
nor traded on the Nasdaq National Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.
J. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.
K. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the Corporation for
reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in his
or her position with the Corporation which materially reduces his or
her duties and responsibilities or the level of management to which he
or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonuses under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected without the individual's
consent.
L. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
M. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
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<PAGE>
N. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
O. Option Grant Program shall mean the option grant program in effect under
the Plan.
P. Optionee shall mean any person to whom an option is granted under the
Option Grant Program.
Q. Parent shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
S. Permanent Disability shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which is expected to result
in such person's death or to continue for a period of twelve (12) consecutive
months or more.
T. Plan shall mean the Corporation's 2000 Stock Option/Stock Issuance Plan, as
set forth in this document.
U. Plan Administrator shall mean either the Board or the Committee acting in
its capacity as administrator of the Plan.
V. Service shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor, except
to the extent otherwise specifically provided in the documents evidencing the
option grant or stock issuance.
W. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
X. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
Y. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
Z. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other
17
<PAGE>
than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
AA. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>FORM OF STOCK OPTION AGREEMENT WSH.COM 2000 PLAN
<TEXT>
EXHIBIT 10.22
WESERVEHOMES.COM, INC.
[INCENTIVE] STOCK OPTION AGREEMENT
WeServeHomes.com, Inc. a Delaware corporation (the "Company"),
hereby grants to Optionee as of the Grant Date, pursuant to the provisions of
the Plan, the Option to purchase the number of Option Shares specified in the
Notice of Grant at the Exercise Price per share upon and subject to the terms
and conditions set forth below. References to "Employment with the Company" mean
employment by, or the performance of services for, the Company and employment
by, or the performance of services for, any Parent or Subsidiary or any
Subsidiary of any Parent in the capacity of an employee, a non-employee member
of the board of directors of the Company or board of directors of any Parent or
Subsidiary or a consultant or independent adviser in the service of the Company
or any Parent or Subsidiary. Capitalized terms not defined in this Option
Agreement, including the attached Appendix, shall have the meanings specified in
the Notice of Grant.
1. Option Subject to Acceptance of Option Agreement. The Option shall
be null and void unless the Optionee shall accept this Option Agreement by
executing the Notice of Grant and returning an original execution copy to
the Company at 2500 Warrenville Road, Downers Grove, Illinois 60515,
Attention: Controller.
2. REPURCHASE RIGHTS AND FIRST REFUSAL RIGHTS. ALL OPTION
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION ARE SUBJECT TO REPURCHASE RIGHTS
AND FIRST REFUSAL RIGHTS EXERCISABLE BY THE COMPANY WHICH ARE DESCRIBED IN THE
NOTICE OF GRANT AND SPECIFIED IN THE STOCK PURCHASE AGREEMENT.
3. Maximum Term of Option. In no event may the Option be exercised, in
whole or in part, after the Expiration Date.
4. Exercisibility. The Option shall be exercisable on and as
of the Grant Date with respect to 100% of the Option Shares; provided, however,
that on and as of the Grant Date, 100% of any Option Shares purchased by
Optionee shall be subject to the Repurchase Rights which shall lapse over the
period specified in the Notice of Grant, and the First Refusal Rights.
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<PAGE>
5. Rights on Termination of Employment
(a) Permanent Disability and Death. If Optionee's Employment
with the Company terminates by reason of Permanent Disability or death, all
Repurchase Rights existing as of the effective date of Optionee's termination of
employment or date of death shall lapse, all First Refusal Rights shall continue
in accordance with their terms and, to the extent the Option has not been
exercised as of such effective date or date of death, the Option may thereafter
be exercised by Optionee or Optionee's Legal Representative until and including
the earliest to occur of (i) 5:00 p.m., Chicago time, on the date which is 12
months after the effective date of Optionee's termination of employment or date
of death and (ii) the Expiration Date.
(b) Retirement. If Optionee's Employment with the Company
terminates by reason of Retirement, all Repurchase Rights existing as of the
effective date of Optionee's Retirement shall lapse, all First Refusal Rights
shall continue in accordance with their terms and, to the extent the Option has
not been exercised as of such effective date, the Option may thereafter be
exercised by Optionee or Optionee's Legal Representative until and including the
Expiration Date[; provided, however, that to the extent the Option is exercised
after the date that is three (3) months after the effective date of Optionee's
Retirement, the Option shall be a Non-Statutory Option and not an Incentive
Option.]
(c) Misconduct. If Optionee's Employment with the Company
terminates by reason of Misconduct, then to the extent the Option has not been
exercised as of the effective date of Optionee's termination of employment, the
Option shall terminate automatically as of such effective date and all
Repurchase Rights and First Refusal Rights existing as of the effective date of
Optionee's termination of employment shall continue in accordance with their
terms.
(d) Other Termination. If Optionee's Employment with the
Company terminates for any reason other than Permanent Disability, death,
Retirement or Misconduct, all Repurchase Rights and First Refusal Rights
existing as of the effective date of Optionee's termination of employment shall
continue in accordance with their terms and, to the extent the Option has not
been exercised as of such effective date, the Option may thereafter be exercised
by Optionee or Optionee's Legal Representative until and including the earliest
to occur of (i) 5:00 p.m., Chicago time, on the date which is three (3) months
after the effective date of Optionee's termination of employment and (ii) the
Expiration Date; provided, however, that Section 7(d) of this Option Agreement
shall apply in the event of Optionee's Involuntary Termination within 18 months
after the consummation of a Corporate Transaction.
(e) Death after Termination of Employment.
-------------------------------------
(1) If Optionee dies during the post-employment exercise period
determined pursuant to Section 5(a) following termination of employment by
reason of Permanent Disability, all First Refusal Rights shall continue in
accordance with their terms and, to the extent the Option has not been
exercised as of the date of death, the Option may thereafter be exercised
by Optionee's Legal Representative until and including the earliest to
occur of (i)
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<PAGE>
5:00 p.m., Chicago time, on the date which is 12 months after
the date of death and (ii) the Expiration Date.
(2) If Optionee dies following termination of employment by reason of
Retirement and prior to the Expiration Date, all First Refusal Rights shall
continue in accordance with their terms and, to the extent the Option has
not been exercised as of the date of death, the Option may thereafter be
exercised by Optionee's Legal Representative until and including the
Expiration Date.
(3) If Optionee dies during the post-employment exercise period
determined pursuant to Section 5(d) above following termination of
employment for any reason other than Permanent Disability, death,
Retirement or Misconduct, or pusuant to Section 7(d) of this Option
Agreement, all Repurchase Rights and First Refusal Rights existing as of
the date of death shall continue in accordance with their terms and to the
extent the Option has not been exercised as of the date of death, the
Option may thereafter be exercised by Optionee's Legal Representative until
and including the earliest to occur of (i) 5:00 p.m., Chicago time, on the
date which is three (3) months after the date of death and (ii) the
Expiration Date.
6. Manner of Exercising Option.
---------------------------
(a) Each time Optionee exercises the Option, Optionee or Optionee's
Legal Representative shall:
(1) Execute and deliver to the Company a Stock Purchase Agreement for
the Option Shares for which the Option is exercised.
(2) Pay the aggregate Exercise Price for the purchased Option Shares
in one or more of the following forms:
(i) cash or check made payable to the Company; or
(ii) a promissory note payable to the Company, but only to the extent
authorized by the Plan Administrator in accordance with Section 10(b) of
this Option Agreement.
Should the Stock be registered under Section 12 of the
Securities Exchange Act of 1934 at the time the Option is
exercised, then the Exercise Price may also be paid as
follows:
(iii) by delivery (either actual delivery or by attestation procedures
established by the Company) of previously owned whole shares of Stock
(which Optionee (or Optionee's Legal Representative) has held for at least
six months prior to the delivery of such shares or which Optionee purchased
on the open market and in each case for which Optionee has good title, free
and clear of all liens and encumbrances) having an aggregate Fair Market
Value,
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<PAGE>
determined as of the date of exercise, equal to the aggregate
Exercise Price for the purchased Option Shares; or
(iv) to the extent the Option is exercised for Option Shares that are
not subject to Repurchase Rights, through a special sale and remittance
procedure pursuant to which Optionee (or Optionee's Legal Representative)
shall concurrently provide irrevocable instructions to a Company-designated
brokerage firm to effect the immediate sale of the purchased Option Shares
and to remit to the Company, out of the sale proceeds available on the
settlement date of the sale, sufficient funds to pay the aggregate Exercise
Price for the purchased Option Shares plus all applicable Federal, state
and local income and employment taxes required to be withheld by reason of
such exercise and irrevocable instructions to the Company to deliver the
certificate(s) for the purchased Option Shares directly to such brokerage
firm in order to complete the sale.
Note: Except to the extent the foregoing sale and remittance procedure is
utilized in connection with an Option exercise, payment of the Exercise Price
shall accompany the Stock Purchase Agreement delivered to the Company in
connection with the Option exercise.
(3) If the person exercising the Option is not Optionee, deliver to
the Company documentation acceptable to the Company evidencing that the
person exercising the Option has the right to exercise the Option.
(4) Execute and deliver to the Company such written representations as
may be requested by the Company in order for the Company to comply with
applicable Federal and state securities laws.
(5) If any Federal, state and local income and employment tax
withholding requirements apply to the Option exercise, make arrangements
acceptable to the Company for the satisfaction of such requirements.
(6) Execute and deliver to the Company documentation deemed necessary
or desirable by the Company to enforce any Repurchase Rights or First
Refusal Rights.
(b) As soon as practical after any date of exercise, the Company shall issue to
or on behalf of Optionee (or Optionee's Legal Representative) a certificate for
the purchased Option Shares. If any portion of the aggregate Exercise Price is
paid out of the proceeds of a promissory note in accordance with Section 10(b)
of this Option Agreement or to the extent any purchased Option Shares are
subject to Repurchase Rights or First Refusal Rights, in the Company's sole
discretion, the certificates for those Option Shares may be endorsed with an
4
<PAGE>
appropriate legend and may be held by the Company until such Option Shares are
no longer subject to Repurchase Rights or First Refusal Rights.
(c) In no event may the Option be exercised for any fractional shares.
7. Special Acceleration of Option.
------------------------------
(a) Immediately upon the consummation of a Corporate
Transaction, all then existing Repurchase Rights shall lapse and all First
Refusal Rights shall continue in accordance with their terms; provided, however,
that Repurchase Rights shall not lapse if and to the extent: (i) the Option is,
upon consummation of the Corporate Transaction, either assumed by the successor
corporation (or parent thereof) in the Corporate Transaction or (ii) the Option
is, upon consummation of the Corporate Transaction, replaced with a cash
incentive program of the successor corporation (or parent thereof) which
preserves the spread existing on the Option Shares which are subject to
Repurchase Rights at the time of the Corporate Transaction (the excess of the
Fair Market Value of those Option Shares over the Exercise Price payable for
such shares) and provides for subsequent payout at the same time or times that
the Repurchase Rights would have otherwise lapsed and, in the case of either
clause (i) or (ii), the Repurchase Rights are assigned to such successor (or
parent thereof).
(b) Immediately following the consummation of the Corporate Transaction, the
Option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) upon consummation of the
Corporate Transaction.
(c) If the Option is assumed upon consummation of a Corporate Transaction, then
the Option shall be appropriately adjusted, immediately after consummation of
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee upon consummation of such Corporate
Transaction had the Option been exercised immediately prior to consummation of
such Corporate Transaction, and appropriate adjustment shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
d) Notwithstanding Section 5(d) of this Option Agreement and
the proviso contained in the first sentence of Section 7(a) above, in the event
of Optionee's Involuntary Termination within 18 months after the consummation of
a Corporate Transaction pursuant to which the Option is assumed by, and the
Repurchase Rights are assigned to, the successor corporation (or parent thereof)
or the Option is replaced with a cash incentive program of the successor
corporation (or parent thereof), all Repurchase Rights existing as of the
effective date of Optionee's Involuntary Termination shall lapse, all First
Refusal Rights shall continue in accordance with their terms and, to the extent
the Option has not been exercised as of the effective date of Optionee's
Involuntary Termination, the Option may thereafter be exercised by Optionee or
Optionee's Legal Representative until and including the earliest to occur of (i)
5:00 p.m., Chicago time, on the date which is one (1) year after the effective
date of Optionee's Involuntary Termination and (ii) the Expiration Date.
(e) This Option Agreement shall not in any way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or
5
<PAGE>
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
8. Additional Terms and Conditions of Option
(a) Adjustment. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Stock other than a
regular cash dividend, the number and class of securities subject to the Option
and the purchase price per security shall be appropriately adjusted by the Plan
Administrator without an increase in the aggregate Exercise Price. If any
adjustment would result in a fractional security being subject to the Option,
the Company shall pay Optionee, in connection with the first exercise of the
Option occurring after such adjustment, an amount in cash determined by
multiplying (i) the fraction of such security (rounded to the nearest hundredth)
by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date
over (B) the exercise price of the Option. The decision of the Plan
Administrator regarding any such adjustment shall be final, binding and
conclusive.
(b) Stockholder Rights. Optionee shall not be entitled to any
privileges of ownership with respect to any Option Shares unless and until
purchased and delivered upon the exercise of the Option, in whole or in part,
and Optionee becomes a stockholder of record with respect to such delivered
shares.
(c) Nontransferability of Option. The Option may not be
transferred by Optionee other than (i) by will or the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Company. [To the extent the Option is a Non-Statutory Option, then the Option
may be assigned in whole or in part during Optionee's lifetime either as (i) as
a gift to one or more members of Optionee's Immediate Family, to a trust in
which Optionee and/or one or more of Optionee's Immediate Family hold more than
fifty percent (50%) of the beneficial interest or an entity in which more than
fifty percent (50%) of the voting interests are owned by Optionee and/or one or
more members of Optionee's Immediate Family, or (ii) pursuant to a domestic
relations order. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the Option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the Option immediately prior to such assignment and shall be
set forth in or determined pursuant to such documents relating to an assignment
as the Plan Administrator deems appropriate in its sole discretion.] Except to
the extent permitted by the foregoing, during Optionee's lifetime the Option is
exercisable only by Optionee or Optionee's Legal Representative. Except to the
extent permitted by the foregoing, the Option may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or similar
process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise dispose of the Option, the Option and all rights hereunder
shall immediately become null and void.
(d) Compliance with Applicable Law. The Option is subject to
the condition that if the listing, registration or qualification of the Option
Shares upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other
6
<PAGE>
action is necessary or desirable as a condition of, or in connection with, the
purchase or delivery of shares hereunder, the Option may not be exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any such listing, registration, qualification, consent or
approval.
(e) Company to Reserve Shares. The Company shall at all times
prior to the expiration or termination of the Option reserve and keep available,
either in its treasury or out of its authorized but unissued shares of Stock,
the full number of shares subject to the Option from time to time.
(f) Decision of Plan Administrator. The Plan Administrator
shall have the right to resolve all questions which may arise in connection with
the Option, including its exercise. Any interpretation, determination or other
action made or taken by the Plan Administrator regarding the Plan, the Notice of
Grant, this Option Agreement or the Stock Purchase Agreement shall be final,
binding and conclusive.
9. Additional Terms Applicable to an Incentive Option. In the event the
Option is designated an Incentive Option, then to the extent the aggregate
Fair Market Value (determined at the Grant Date) of the Option Shares for
which the Option would otherwise first become exercisable in the calendar year
in which the Option is granted would, when added to the aggregate Fair Market
Value (determined as of the respective date or dates of grant) of the Stock
and any other securities for which one or more other Incentive Options granted
to the Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Company or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate, then the Option shall be a Non-Statutory Option.
10. Miscellaneous Provisions.
(a) Successors and Assigns. The Notice of Grant and this
Option Agreement shall be binding upon and inure to the benefit of any
successors or assigns of the Company and any person or persons who shall,
pursuant to Section 8(c), acquire any rights under the Option in accordance with
the Notice of Grant, this Option Agreement or the Plan.
(b) Financing. The Company may, in its sole discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
any purchased Option Shares by delivering a full-recourse, interest-bearing
promissory note secured by those Option Shares and any other collateral the
Company deems necessary or desirable. The Company, in its sole discretion, shall
establish the terms and conditions of any such promissory note.
(c) Notices. All notices, requests or other communications
provided for in this Option Agreement shall be made, if to the Company, to 2500
Warrenville Road, Downer's Grove, Illinois 60515, Attention: Controller, and if
to Optionee, to the address indicated below Optionee's signature line on the
Notice of Grant. All notices, requests or other communications provided for in
this Option Agreement shall be made in writing either (a) by personal delivery,
(b) by facsimile with confirmation of receipt, (c) by mailing in the United
States mails to the last
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<PAGE>
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received
upon personal delivery, upon confirmation of receipt of facsimile
transmission or upon receipt by the party entitled thereto if by United
States mail or express courier service; provided, however, that if a
notice, request or other communication sent to the Company is not received
during regular business hours, it shall be deemed to be received on the next
succeeding business day of the Company.
(d) Governing Law. The interpretation, performance and
enforcement of the Notice of Grant, this Option Agreement and the Option, to the
extent not governed by the laws of the United States, shall be governed by the
laws of the State of Illinois and construed in accordance therewith without
giving effect to principles of conflicts of laws.
(e) Counterparts. This Option Agreement may be executed in two
counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
8
<PAGE>
APPENDIX
The following definitions shall be in effect under this Option
Agreement:
Code means the Internal Revenue Code of 1986, as amended.
Corporate Transaction means either of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company.
Fair Market Value per share of Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing
selling price per share of Stock on the date in question, as
the price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is
no reported closing selling price for the Stock on the date in
question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which a closing
selling price is reported.
(ii) If the Stock is at the time listed on any national securities
exchange, then the Fair Market Value shall be the closing
selling price per share of Stock on the date in question on
the national securities exchange determined by the Plan
Administrator in its sole discretion to be the primary market
for the Stock, as such price is reported in the composite tape
of transactions on such exchange. If there is no reported
closing selling price for the Stock on the date in question,
then the Fair Market Value shall be the closing selling price
on the last preceding date for which a closing selling price
is reported.
(iii) If the Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan
Administrator in its sole discretion after taking into account
such factors as the Plan Administrator shall deem appropriate.
[Immediate Family of Optionee means Optionee's child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law,
A-1
<PAGE>
father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships.]
Incentive Option means an option which satisfies the requirements of
Code Section 422.
Involuntary Termination means the termination of Optionee's Employment
with the Company by reason of (i) Optionee's involuntary dismissal or
discharge by the Company for reasons other than for Misconduct, or (ii)
Optionee's voluntary resignation following (A) a change in Optionee's
position with the Company (or a Subsidiary employing Optionee) which
materially reduces Optionee's duties and responsibilities or the level
of management to which Optionee reports, (B) a reduction in Optionee's
level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
Optionee's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Company without Optionee's consent.
Legal Representative means an executor, administrator, legal
representative, guardian, beneficiary, other person to whom the Option
has been transferred in accordance with this Option Agreement or
similar person.
Misconduct means the commission of any act of fraud, embezzlement or
dishonesty by Optionee, any unauthorized use or disclosure by Optionee
of confidential information or trade secrets of the Company (or any
Parent or Subsidiary or any Subsidiary of any Parent), or any other
intentional misconduct by Optionee adversely affecting the business or
affairs of the Company (or any Parent or Subsidiary or any Subsidiary
of any Parent) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the
Company (or any Parent or Subsidiary or any Subsidiary of any Parent)
may consider as grounds for the dismissal or discharge of Optionee or
any other individual in the employment of the Company (or any Parent or
Subsidiary or any Subsidiary of any Parent).
Non-Statutory Option means an option not intended to satisfy the
requirements of Code Section 422.
Parent means any corporation, partnership or limited liability company
(other than the Company) in an unbroken chain of corporations,
partnerships or limited liability companies ending with the Company,
provided each corporation, partnership or limited liability company in
the unbroken chain (other than the Company) owns, at the time of the
determination, stock or other equity interests which possess fifty
percent (50%) or more of the total combined voting power or equity
interests of all classes of stock or equity interests in one of the
other corporations, partnerships or limited liability companies in such
chain.
Permanent Disability means the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment
A-2
<PAGE>
which is expected to result in death or
has lasted or can be expected to last for a continuous period of 12
months or more.
Plan Administrator means either the board of directors of the Company
or a committee of the board acting in its capacity as administrator of
the Plan.
Retirement means cessation of Employment with the Company on or after
age 65 or on or after age 55 after a minimum of ten (10) years of
Employment with the Company.
Subsidiary means any corporation, limited partnership or limited
liability company (other than the Company) in an unbroken chain of
corporations, partnerships or limited liability companies beginning
with the Company, provided each corporation, partnership or limited
liability company (other than the last corporation, partnership or
limited liability company) in the unbroken chain owns, at the time of
the determination, stock or other equity interests which possess fifty
percent (50%) or more of the total combined voting power or equity
interests of all classes of stock or equity interests in one of the
other corporations in such chain.
A-3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>FORM OF STOCK PURCHASE AGREEMENT WSH.COM 2000 PLAN
<TEXT>
EXHIBIT 10.23
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this __ day of _________, 20__, by and
between WeServeHomes.com, Inc. (the "Company") and
_____________________________, Optionee under the Company's 2000 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement have the meanings
assigned to them in this Agreement including the attached Appendix, the Notice
of Grant and Option Agreement (as defined below).
A. EXERCISE OF OPTION
1. Exercise. Optionee hereby purchases ___________ shares (the "Purchased
Shares") of Stock pursuant to that certain option (the "Option") granted to
Optionee on ____________________, 200__ (the "Grant Date") to purchase up to
_______________ shares of Stock under the Plan at the exercise price of $______
per share (the "Exercise Price").
2. Payment. Concurrently with the delivery of this Agreement to the Company,
Optionee shall pay the aggregate Exercise Price for the Purchased Shares in
accordance with the provisions of the Stock Option Agreement relating to the
Purchased Shares (the "Option Agreement") and shall deliver to the Company any
other documents required pursuant to the Option Agreement as a condition to
exercise together with a duly-executed blank Assignment Separate from
Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. Company May Hold Purchased Shares. The Company shall have the right to hold
the certificates representing any Purchased Shares which are subject to
Repurchase Rights or First Refusal Rights.
4. Stockholder Rights. Until such time as the Company exercises the Repurchase
Rights or the First Refusal Rights, Optionee (or any successor in interest)
shall have all the rights of a stockholder (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, including any
Purchased Shares held by the Company hereunder, subject, however, to the
transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. Restricted Securities. The Purchased Shares have not been registered under
the Securities act of 1933 (the "Securities Act") and are being issued to
Optionee in reliance upon the exemption from such registration provided by
Section 4(2) of the Securities Act or Rule 701 under the Securities Act.
Optionee hereby confirms that Optionee has been informed that the Purchased
Shares are restricted securities under the Securities Act and may not be resold
or transferred unless the Purchased Shares are first registered under the
Federal
1
<PAGE>
securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 under the Securities Act, which exempts certain resales of
unrestricted securities, is not currently available to exempt the resale of the
Purchased Shares from the registration requirements of the Securities Act.
2. Restrictions on Disposition of Purchased Shares. Optionee shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
(i) Optionee shall have provided the Company with a written summary of the
terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of this Agreement
applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Company with written assurances, in
form and substance satisfactory to the Company, that (a) the proposed
disposition does not require registration of the Purchased Shares under
the Securities Act or (b) all appropriate action necessary for
compliance with the registration requirements of the Securities Act or
any exemption from registration available under the Securities Act
(including Rule 144) has been taken.
The Company shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. In the Company's sole discretion, the stock certificates
for the Purchased Shares may be endorsed with the following restrictive legends:
(i) "The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares may not be sold or offered
for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a `no action' letter of the Securities
and Exchange Commission with respect to such sale or offer or (c)
satisfactory assurances to the Company that registration under such Act
is not required with respect to such sale or offer."
(ii) "The shares represented by this certificate are subject to certain
repurchase rights and rights of first refusal granted to the Company and
accordingly may not be sold, transferred, assigned, pledged, hypothecated,
encumbered, or in any manner disposed of except in conformity with the terms of
a written Stock Purchase Agreement between the Company and the registered holder
of the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Company's principal corporate offices."
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<PAGE>
C. TRANSFER RESTRICTIONS
1. Restrictions on Transfer. Except for any Permitted Transfer, Optionee shall
not sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose
of any of the Purchased Shares which are subject to the Repurchase Rights. In
addition, Purchased Shares, regardless of whether such Purchased Shares are
subject to the Repurchase Rights, shall not be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of in contravention of
the First Refusal Rights or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the Company) to whom the
Purchased Shares are transferred by means of a Permitted Transfer shall, as a
condition precedent to the validity of such transfer, acknowledge in writing to
the Company that such person is bound by the provisions of this Agreement and
that the transferred shares are subject to (i) the Repurchase Rights, (ii) the
First Refusal Rights and (iii) the Market Stand-Off, to the same extent such
shares would be so subject if retained by Optionee.
3. Market Stand-Off.
(a) In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including but not limited to the Company's initial public
offering, Optionee (and any other Owner) shall not sell, make any short sale of,
loan, hypothecate, pledge, grant any option for the purchase of, or otherwise
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to, any Purchased Shares without the prior
written consent of the Company or its lead underwriter. Such restriction (the
"Market Stand-Off") shall be in effect for such period of time from and after
the date of the final prospectus for the offering as may be requested by the
Company or such underwriter. In no event, however, shall such period exceed one
hundred eighty (180) days with respect to any particular offering and the Market
Stand-Off shall in all events terminate two (2) years after the effective date
of the Company's initial public offering.
(b) Optionee (and any other Owner) shall be subject to the Market Stand-Off
provided and only if and for the same duration officers and directors of the
Company are also subject to similar restrictions.
(c) Any new, substituted or additional securities or other property which is by
reason of any Recapitalization or Reorganization distributed with respect to, or
exchanged for, the Purchased Shares shall be immediately subject to the Market
Stand-Off, to the same extent the Purchased Shares are at the time subject to
such provisions.
(d) In order to enforce the Market Stand-Off, the Company may impose
stop-transfer instructions with respect to the Purchased Shares until the end of
the applicable stand-off period.
D. REPURCHASE RIGHTS
1. Grant. The Company is hereby granted rights ("Repurchase Rights"),
exercisable at any time during the 90-day period following the date Optionee
ceases
3
<PAGE>
Employment with the Company for any reason other than Permanent
Disability, death or Retirement or (if later) during the 90-day period following
the execution date of this Agreement, to repurchase at the Exercise Price all or
any portion of the Purchased Shares as to which Repurchase Rights have not
lapsed in accordance with the schedule set forth in the Notice of Grant.
2. Exercise of Repurchase Rights. Repurchase Rights shall be exercised by
written notice given to an Owner on or prior to the last day of the 90-day
exercise period. The notice shall indicate the number of Purchased Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than 30 days after such notice is given. If the Company does not
hold the certificates representing Purchased Shares to be repurchased, such
certificates, together with a stock power(s) duly executed in blank, shall be
delivered to the Company prior to the close of business on the date specified
for the repurchase. On the date of repurchase, the Company shall pay to Owner,
in cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Purchased Shares which are being repurchased.
3. Termination of the Repurchase Rights. Repurchase Rights shall lapse with
respect to any Purchased Shares for which they are not timely exercised under
Paragraph D.2. In addition, Repurchase Rights shall lapse in accordance with the
schedule set forth in the Notice of Grant, Section 5 of the Option Agreement
relating to termination of Employment with the Company, Section 7(a) of the
Option Agreement relating to the consummation of a Corporate Transaction
pursuant to which the Repurchase Rights are not assigned to the successor
corporation (or parent thereof), and Section 7(d) of the Option Agreement
relating to Optionee's Involuntary Termination within 18 months after the
consummation of a Corporation Transaction. All Purchased Shares as to which
Repurchase Rights lapse shall, subject to the terms of this Agreement and under
the Option Agreement, remain subject to (i) the First Refusal Rights and (ii)
the Market Stand-Off.
4. Aggregate Limitation. If the Option is exercised in more than one increment
so that Optionee is a party to one or more other Stock Purchase Agreements (the
"Prior Purchase Agreements") which are executed prior to the date of this
Agreement, then the total number of Purchased Shares under this Agreement and
all Prior Purchase Agreements which are not subject to Repurchase Rights shall
not exceed in the aggregate the number of Purchased Shares which would not be
subject to repurchase had all the Purchased Shares (including those acquired
under the Prior Purchase Agreements) been acquired exclusively under this
Agreement.
5. Recapitalization/Reorganization. Subject to Sections 7(a) and 7(d) of the
Option Agreement, any new, substituted or additional securities or other
property which is by reason of any Recapitalization or Reorganization
distributed with respect to, or exchanged for, the Purchased Shares shall be
immediately subject to Repurchase Rights, but only to the extent the Purchased
Shares are at the time subject to Repurchase Rights. Appropriate adjustments to
reflect such distribution shall be made to price per share to be paid upon
exercise of Repurchase Rights in order to reflect the effect of any such
Recapitalization or Reorganization upon the Company's capital structure;
provided, however, that the aggregate Exercise Price shall remain
4
<PAGE>
the same. Any securities or other property so distributed with respect to
Purchased Shares that are subject to Repurchase Rights may be held by the
Company.
E. RIGHTS OF FIRST REFUSAL
1. Grant. The Company is hereby granted rights of first refusal (the "First
Refusal Rights"), exercisable in connection with any proposed transfer of
Purchased Shares which are not subject to Repurchase Rights. For purposes of
this Article E, the term "transfer" shall include any sale, transfer,
assignment, pledge, hypothecate, encumbrance or other disposition of the
Purchased Shares proposed or intended to be made by Owner, but shall not include
any Permitted Transfer.
2. Notice of Disposition. In the event any Owner of Purchased Shares which are
not subject to Repurchase Rights desires to accept a bona fide third-party offer
for the transfer of any or all of such shares (the Purchased Shares subject to
such offer to be hereinafter referred to as the "Target Shares"), Owner shall
promptly (i) deliver to the Company written notice (the "Disposition Notice") of
the terms of the offer, including the proposed purchase price and the identity
of the third-party offeror, and (ii) provide proof satisfactory to the Company
that the disposition of the Target Shares to such third-party offeror would not
be in contravention of the provisions set forth in Articles B and C.
3. Exercise of First Refusal Rights. The Company shall, for a period of 45 days
after the Disposition Notice is given, have the right to repurchase any or all
of the Target Shares subject to the Disposition Notice upon the same terms as
those specified in the Disposition Notice or upon such other terms (not
materially different from those specified in the Disposition Notice) to which
Owner consents. First Refusal Rights shall be exercised by written notice (the
"Exercise Notice") given to an Owner on or prior to the last day of the 45-day
exercise period. If First Refusal Rights are exercised with respect to all the
Target Shares, then the Company shall effect the repurchase of such shares,
including payment of the purchase price, not more than 15 business days after
the Exercise Notice is given. If the Company does not hold the certificates
representing the Target Shares, such certificates, together with stock power(s)
duly executed in blank, shall be delivered to the Company prior to the close of
business on the date specified for repurchase.
Should the purchase price specified in the Disposition Notice
be payable in property other than cash or evidences of indebtedness, the Company
shall have the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If Owner and the Company cannot agree on
such cash value within 30 days after the Disposition Notice is given, the
valuation shall be made by an appraiser of recognized standing selected by Owner
and the Company or, if they cannot agree on an appraiser within 45 days after
the Disposition Notice is given, each shall select an appraiser of recognized
standing and the two (2) appraisers shall designate a third appraiser of
recognized standing, whose appraisal shall be determinative of such value. The
cost of such appraisal shall be shared equally by Owner and the Company. The
repurchase of Target Shares shall then be held on the later of (i) the 15th
business day after the Exercise Notice is given or (ii) the 15th business day
after such valuation shall have been made.
5
<PAGE>
4. Non-Exercise of First Refusal Rights. In the event an Exercise Notice is not
given to Owner on or prior to the last day of the 45-day exercise period, Owner
shall have a period of 30 days thereafter in which to sell or otherwise dispose
of the Target Shares to the third-party offeror identified in the Disposition
Notice upon terms (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition shall not be effected in violation of
Article B and Paragraph C.3. The third-party offeror shall acquire the Target
Shares free and clear of the Repurchase Rights and the First Refusal Rights, but
the acquired shares shall remain subject to Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified 30-day period, the First Refusal Rights shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until the
First Refusal Rights lapse in accordance with this Article.
5. Partial Exercise of First Refusal Rights. In the event the Company gives a
timely Exercise Notice with respect to a portion, but not all, of the Target
Shares specified in the Disposition Notice, Owner shall have the option,
exercisable by written notice to the Company given within 15 business days after
Owner is given the Exercise Notice, to effect the sale of Target Shares pursuant
to either of the following alternatives:
(i) sale or other disposition of all the Target Shares to the third-party
offeror identified in the Disposition Notice, but in full compliance
with the requirements of Paragraph E.4, as if the Company did not
exercise the First Refusal Rights; or
(ii) sale to the Company of the portion of the Target Shares which the
Company has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Paragraph E.3. First
Refusal Rights shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until the First Refusal
Rights lapse in accordance with this Article.
Failure of Owner to give timely notification under this
Paragraph E.5 to the Corporation shall be deemed to be an election by Owner to
sell the Target Shares pursuant to alternative (i) above.
6. Recapitalization/Reorganization. Any new, substituted or
additional securities or other property which is by reason of any
Recapitalization or Reorganization distributed with respect to, or exchanged
for, the Purchased Shares shall be immediately subject to First Refusal Rights,
but only to the extent the Purchased Shares are at the time subject to First
Refusal Rights. Any securities or other property so distributed with respect to
Purchased Shares that are subject to First Refusal Rights may be held by the
Company.
7. Lapse. First Refusal Rights shall lapse upon the earliest to occur of (i) the
first date on which shares of Stock are held of record by more than 500 persons,
(ii) a determination is made by the board of directors of the Company that a
public market exists for the Stock or (iii) the closing of a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Stock in the aggregate
amount of at least ten million dollars ($10,000,000). All Purchased Shares as to
6
<PAGE>
which First Refusal Rights lapse, subject to the terms of this Agreement and the
Option Agreement, remain subject to (i) the Repurchase Rights and (ii) the
Market Stand-Off.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse
tax consequences which may be avoided or mitigated by filing an election under
Code Section 83(b). Such election must be filed within 30 days after the date of
this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF
OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS
OR HER BEHALF.
G. GENERAL PROVISIONS
1. Assignment. The Company may assign Repurchase Rights and/or First Refusal
Rights to any person or entity selected by the board of directors of the
Company, including (without limitation) one or more stockholders of the Company.
2. No Employment or Service Contract. Subject to any rights Optionee may have
under any other agreement with the Company, nothing in this Notice or in the
Option Agreement or Plan confers upon Optionee any right to continue in the
employment of the company for any period of time or interfere with or otherwise
restrict in any way the rights of the Company (or any Parent or Subsidiary
employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Employment at any time for
any reason, with or without cause.
3. Notices. All notices, requests or other communications provided for in this
Option Agreement shall be made, if to the Company, to 2500 Warrenville Road,
Downers Grove, Illinois 60515, Attention: Controller, and if to Optionee, to the
address indicated below Optionee's signature line on the Notice of Grant. All
notices, requests or other communications provided for in this Option Agreement
shall be in writing either (a) by personal delivery, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed given upon personal
delivery, upon confirmation of receipt of facsimile transmission or upon receipt
by the party entitled thereto if by United States mail or express courier
service; provided, however, that if a notice, request or other communication
sent to the Company is not given during regular business hours, it shall be
deemed to be given on the next succeeding business day of the Company.
4. No Waiver. The failure of the Company in any instance to exercise Repurchase
Rights or First Refusal Rights shall not constitute a waiver of any other
repurchase
7
<PAGE>
rights and/or rights of first refusal that may subsequently arise
under the provisions of this Agreement or any other agreement between the
Company and Optionee. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
5. Cancellation of Shares. If the Company shall make available, at the time and
place and in the amount and form provided in this Agreement, the consideration
for the Purchased Shares to be repurchased in accordance with the provisions of
this Agreement, then from and after such time, the person from whom such shares
are to be repurchased shall no longer have any rights as a holder of such shares
(other than the right to receive payment of such consideration in accordance
with this Agreement). Such shares shall be deemed purchased in accordance with
the applicable provisions hereof, and the Company shall be deemed the owner and
holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.
6. Optionee Undertaking. Optionee hereby agrees to take whatever additional
action and execute whatever additional documents the Company may deem necessary
or advisable in order to carry out or effect one or more of the obligations or
restrictions imposed on either Optionee or the Purchased Shares pursuant to the
provisions of this Agreement.
7. Governing Law. The interpretation, performance and enforcement of this
Agreement, the Notice of Grant, the Option Agreement and the Plan, to the extent
not governed by the laws of the United States, shall be governed by the laws of
the State of Illinois and construed in accordance therewith without giving
effect to principles of conflicts of laws.
8. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of any successors or assigns of the Company and any person or persons
who shall, pursuant to Section 8(c) of the Option Agreement, acquire any rights
under the Option in accordance with the Notice of Grant, this Option Agreement
or the Plan.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first indicated above.
WESERVEHOMES.COM, INC.
By:
Title:
Address:
OPTIONEE
Name:
Address:
9
<PAGE>
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. Fair Market Value of a share of Common Stock on any relevant date, prior to
the initial public offering of the Common Stock, shall be determined by the Plan
Administrator after taking into account such factors as it shall deem
appropriate.
B. Owner means Optionee and all subsequent holders of the Purchased Shares who
derive their chain of ownership through a Permitted Transfer from Optionee.
C. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
Shares, provided and only if Optionee obtains the Company's prior written
consent to such transfer, (ii) a transfer of title to the Purchased Shares
effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Company in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
D. Recapitalization means any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Stock as a class without the Company's receipt of
consideration.
E. Reorganization means any of the following transactions:
(i) a merger or consolidation in which the Company is not the surviving entity,
(ii) a sale, transfer or other disposition of all or substantially all of the
Company's assets,
(iii)a reverse merger in which the Company is the surviving entity but in which
the Company's outstanding voting securities are transferred in whole or in
part to a person or persons different from the persons holding those
securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in which the Company
is incorporated or to create a holding company structure.
A-1
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________ hereby sell(s),
assign(s) and transfer(s) unto WeServeHomes.com, Inc. (the "Company"),
__________________ (_______) shares of the Common Stock of the Company standing
in his or her name on the books of the Company represented by Certificate No(s).
__________________ herewith and do(es) hereby irrevocably constitute and appoint
__________________________ Attorney to transfer the said stock on the books of
the Company with full power of substitution in the premises.
Dated: _________________
Signature:
----------------------------------------
Name:
----------------------------------------------
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Company to exercise
the Repurchase Rights or First Refusal Rights without requiring additional
signatures on the part of Optionee.
I-1
<PAGE>
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES
AND SECTION 83(b) TAX ELECTION
I. Federal Income Tax Consequences and Section 83(b) Election For Exercise of
Non-Statutory Option. If the Purchased Shares are acquired pursuant to the
exercise of a Non-Statutory Option, as specified in the Notice of Grant, then
under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Company to repurchase the Purchased Shares pursuant to
the Repurchase Rights. However, Optionee may elect under Code Section 83(b) to
be taxed at the time the Purchased Shares are acquired, rather than when and as
such Purchased Shares cease to be subject to such forfeiture restrictions. Such
election must be filed with the Internal Revenue Service within 30 days after
the date of this Agreement. Even if the Fair Market Value of the Purchased
Shares on the date of this Agreement equals the Exercise Price paid (and thus no
tax is payable), the election must be made to avoid adverse tax consequences in
the future. The form for making this election is attached as part of this
Exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE 30-DAY PERIOD WILL
RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE
RESTRICTIONS LAPSE.
II. Federal Income Tax Consequences and Conditional Section 83(b) Election
For Exercise of Incentive Option. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Notice
of Grant, then the following tax principles shall apply to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be recognized at the
time the Option is exercised.
(ii)The excess of (a) the Fair Market Value of the Purchased Shares on the
date the Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Purchased Shares lapse over (b) the
Exercise Price paid for the Purchased Shares will be includible in
Optionee's taxable income for alternative minimum tax purposes.
(iii)If Optionee makes a disqualifying disposition of the Purchased Shares,
then Optionee will recognize ordinary income in the year of such
disposition equal in amount to the excess of (a) the Fair Market Value
of the Purchased Shares on the date the Option is exercised or (if
later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (b) the Exercise Price paid for the
Purchased Shares. Any additional gain recognized upon the disqualifying
disposition will be either short-term or long-term capital
II-1
<PAGE>
gain depending upon the period for which the Purchased Shares are held
prior to the disposition.
(iv) For purposes of the foregoing, the term "forfeiture restrictions"
includes the right of the Company to repurchase the Purchased Shares
pursuant to the Repurchase Rights. The term "disqualifying disposition"
means any sale or other disposition [fn. 1] of the Purchased Shares
within two (2) years after the Grant Date or within one (1) year
after the exercise date of the Option.
(v) Optionee may, in connection with the exercise of the Option for any
Purchased Shares at the time subject to forfeiture restrictions, file a
protective election under Code Section 83(b) which would limit Optionee's
alternative minimum taxable income upon exercise to the excess of the Fair
Market Value of the Purchased Shares on the date the Option is exercised
over the Exercise Price paid for the Purchased Shares. In the absence of
final Treasury Regulations relating to Incentive Options, it is not certain
whether Optionee may similarly file a protective election under Section
83(b) which would limit Optionee's ordinary income upon a disqualifying
disposition to the excess of the Fair Market Value of the Purchased Shares
on the date the Option is exercised over the Exercise Price paid for the
Purchased Shares. Accordingly, such election if properly filed will only be
allowed to the extent the final Treasury Regulations permit such a
protective election. Page 2 of the attached form for making the election
should be filed with any election made in connection with the exercise of
an Incentive Option.
1 Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax-free
exchanges permitted under the Code.
II-2
<PAGE>
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of WeServeHomes.com, Inc.
(3) The property was issued on ____________________.
(4) The taxable year in which the election is being made is the calendar year
____________.
(5) The property is subject to repurchase rights pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
installments over a four-year period ending on ___________, 200__.
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $_____________ per share.
(7) The amount paid for such property is $__________ per share.
(8) A copy of this statement was furnished to WeServeHomes.com, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _________________________.
- ---------------------- ------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within 30
days after the execution date of the Stock Purchase Agreement. This filing
should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
Page 1 of 2
<PAGE>
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Internal Revenue Code (the "Code"). Accordingly,
it is the intent of the Taxpayer to utilize this election to achieve the
following tax results:
1. The purpose of this election is to have the alternative minimum taxable
income attributable to the purchased shares measured by the amount by which the
fair market value of such shares at the time of their transfer to the Taxpayer
exceeds the purchase price paid for the shares. In the absence of this election,
such alternative minimum taxable income would be measured by the spread between
the fair market value of the purchased shares and the purchase price which
exists on the various lapse dates in effect for the forfeiture restrictions
applicable to such shares. The election is to be effective to the full extent
permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income any excess of
the fair market value of the purchased shares over the amount paid for such
shares. Accordingly, this election is also intended to be effective in the event
there is a "disqualifying disposition" of the shares, within the meaning of
Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
Page 2 of 2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>2000 ANNUAL REPORT OF THE SERVICEMASTER COMPANY
<TEXT>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For Years ended December 31,
(In thousands, except per share data) 2000 1999 Change
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
<S> <C> <C> <C>
Customer level revenue (1) .................................... $ 7,677,000 $ 7,335,000 + 5%
Operating revenue ............................................. 5,970,615 5,703,535 + 5%
Operating income .............................................. 416,899 383,174 + 9%
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(3) ............ 416,899 468,674 - 11%
Net income .................................................... 173,827 173,563 -
PROFORMA NET INCOME BEFORE NET NON-RECURRING
ITEMS AND ASSUMING THE CHANGE IN ACCOUNTING
PRINCIPLE IS APPLIED RETROACTIVELY(2),(3) .................... 184,988 219,637 - 16%
Per share: (4)
Diluted as reported .................................... $ 0.57 $ 0.55 + 4%
PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS AND
ASSUMING THE CHANGE IN ACCOUNTING PRINCIPLE IS APPLIED
RETROACTIVELY(2),(3) ................................. $ 0.61 $ 0.70 - 13%
Cash Dividends Per Share ............................. $ 0.38 $ 0.36 + 6%
FINANCIAL POSITION:
Total assets .................................................. $ 3,967,668 $ 3,870,215
Long-term debt ................................................ 1,756,757 1,697,582
Shareholders' equity .......................................... 1,161,588 1,205,716
SHARE PRICE RANGE :
(Traded on the New York Stock Exchange under the symbol SVM)
High price .................................................... $ 14.94 $ 22.00
Low price ..................................................... $ 8.25 $ 10.13
Closing price ................................................. $ 11.50 $ 12.31
</TABLE>
(1) Customer level revenue represents the combined revenues of the Company's
direct operations and the estimated revenues of its various independently
licensed franchisees.
(2) In 2000, the Company changed its method of accounting for revenue from its
termite baiting contracts. The cumulative effect of this accounting change
as of January 1, 2000, was $11.1 million ($18.9 million pretax). The impact
of adopting the new accounting method compared to the previous methodology
was not material in 2000. The pro forma impact in 1999 was a reduction of
$0.02 per diluted share.
(3) In 1999, the Company realized an after-tax gain of $30 million ($50.1
million pretax) relating to the sales of its Premier automotive business
and its remaining 15 percent interest in ServiceMaster Energy Management,
and recorded a one-time after-tax charge of $81 million ($135.6 million
pretax) relating to its Diversified Health Services business.
(4) Diluted earnings per share is calculated based on 305,518 shares in 2000
and 314,406 shares in 1999.
1
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(ALL SHARE AND PER SHARE DATA REFLECT THE THREE-FOR-TWO SHARE
SPLIT IN AUGUST 1998)
2000 COMPARED WITH 1999
Revenues in 2000 exceeded $5.9 billion, an increase of five percent. Revenue
from continuing operations, excluding the impact from sold or discontinued
operations, increased nine percent. This growth reflects the full year impact of
the LandCare and American Residential Services acquisitions and tuck-in
acquisitions offset, in part, by the sale of discontinued businesses. Operating
income before non-recurring unusual items recorded in the prior year decreased
11 percent to $417 million. Operating income margins on this basis decreased to
7.0 percent of revenues from 8.2 percent in 1999. The costs related to the
WeServeHomes.com Internet initiative accounted for three percent of the decrease
in operating income and about 20 basis points of the decrease in operating
margins. These costs have been allocated to the Company's minority partner in
WeServeHomes.com, Kleiner Perkins Caufield & Byers (Kleiner Perkins), and are
offset in net minority interest income below the operating income line. The
remaining 100 basis point decrease in operating margins primarily reflects the
impact of significantly lower operating margins at TruGreen LandCare (the
commercial landscape operations) and reduced margins in the lawn care operations
of TruGreen ChemLawn and in Management Services. Pro forma diluted earnings per
share, before the non-recurring items and assuming that the change in accounting
principle discussed below was applied retroactively, decreased 13 percent to
$.61 compared to $.70 last year. Net income on this same basis decreased 16
percent to $185 million from $220 million in 1999.
The Staff of the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition," leading the Company to change in
2000 its method of accounting for revenue from its termite baiting contracts.
The cumulative net income effect of retroactively applying the new accounting
method as of January 1, 2000 totaled $11.1 million, or $.04 per share, and was
recognized entirely in 2000, resulting in reported net income of $174 million
and diluted earnings per share of $.57 for 2000. In the second quarter of 1999,
the Company realized an after-tax gain of $30 million relating to the sale of
certain non-core businesses and the Company recorded a one-time after-tax charge
of $81 million relating to its Diversified Health Services business. These items
reduced net income from ongoing operations by $51 million. As a result, the
Company reported net income of $174 million, with diluted earnings per share of
$.55 for 1999.
During 2001, the Company will be making investments in technology, systems,
and marketing to expand its channels for access to and from the customer and to
realize greater benefits from its multiple service offerings and strong
fulfillment system. Profit growth in 2001 will be affected by added interest
costs and some added pressure on operating margins, especially in the first half
of the year. The Company anticipates earnings per share to be in a range of $.61
to $.65 for 2001 and a return to double-digit growth in 2002.
The TruGreen business unit includes lawn care operations performed under the
TruGreen ChemLawn brand name and landscaping services provided under the
TruGreen LandCare brand name. This combined unit reported revenue of $1.6
billion, an increase of 12 percent, reflecting one additional quarter of revenue
from the LandCare USA acquisition, smaller regional acquisitions completed last
year, and internal growth. Operating income decreased 25 percent to $173
million, primarily due to the slower than anticipated integration of the
individual landscape companies and higher production costs such as labor, health
care, fuel and other costs. In the landscaping operations, the process of
bringing over 100 separate business units into one company has taken longer than
anticipated. The Company experienced particularly significant operational issues
in five of the fifteen regions it serves. TruGreen has addressed these issues by
strengthening the management infrastructure in these regions, integrating these
operations with the lawn care business, and making significant progress in
establishing greater operating disciplines and in improving the cost structure.
Many year-end lawn care services that were scheduled to be completed were
canceled due to the severe winter and snow conditions in several regions of the
country. This caused the Company to report dramatically lower than expected
profits in the fourth quarter. Capital employed by TruGreen increased three
percent to $1.5 billion, lower than the 12 percent revenue growth, as a result
of tighter working capital management.
The Terminix business unit (which includes the domestic termite and pest
control services) reported a nine percent increase in revenue to $734 million
and operating income of $91 million, 12 percent above last year. This growth
reflects acquisitions as well as solid increases in new termite contracts and
contract renewals, bolstered by productivity improvements and strong overhead
controls. Capital employed by Terminix decreased one percent to $526 million
with strong working capital management offsetting the impact of acquisitions. In
January 2001, the Company acquired the Allied Bruce Terminix companies, the
Company's largest Terminix franchise and the fourth largest pest control company
in the United States. The total consideration consisted of an equity interest in
the Terminix subsidiary, which is exchangeable into eight million ServiceMaster
common shares and cash payments due over nine years totaling $25 million.
The Home Maintenance and Improvement business unit includes heating,
ventilation, air conditioning, and plumbing services provided under the American
Residential Services (ARS) and Rescue Rooter brand names, home systems and
appliance warranty contracts offered through American Home Shield, and the
franchised operations, ServiceMaster Clean and Merry Maids. This business unit
achieved a 34 percent increase in revenue to $1.2 billion reflecting good
internal growth at all of the companies and an additional four months of
operations from the ARS acquisition (which closed in late April 1999). Operating
income grew 19 percent to $106 million, reflecting lower margins primarily
attributable to the full year inclusion of ARS which currently has lower
operating margins than the rest of this unit and, to a lesser extent, from the
increase in claim costs at American Home Shield. The integration of ARS has
continued in line with expectations and management has made
2
<PAGE>
significant progress in improving the financial condition, controls and employee
morale at many of the ARS branch locations that were performing poorly at the
time of the acquisition. Progress continues to be made in fulfilling the service
needs of American Home Shield customers through ARS and Rescue Rooter, with a
threefold increase in completed service transactions during 2000. The franchise
operations, ServiceMaster Clean and Merry Maids, achieved solid revenue and
profit increases, reflecting strong growth in Company-owned operations and
productivity improvements. Capital employed by this unit increased six percent
to $624 million, reflecting acquisition activity partially offset by improved
working capital management.
The Management Services business unit serves institutional health care,
education and commercial facilities. This business unit reported revenue of $1.9
billion, comparable to 1999, and a 15 percent decrease in operating income to
$67 million. The decrease in profits reflects pricing issues on certain
contracts, the loss of several profitable contracts and incremental costs to
unwind these contracts. The Company also continues to invest in the SiteService
outsourcing initiative and is encouraged by its progress. Capital employed by
Management Services decreased 19 percent to $99 million reflecting the payment
of a significant note receivable and other working capital reductions.
Other Operations consists of the Company's international operations which
includes Terminix Europe; Employer Services (the professional employer
organization); WeServeHomes.com, the Company's Internet initiative; the
Company's headquarters operations; and certain non-core businesses that have
been sold or discontinued. Revenues declined, primarily reflecting the impact of
sold and discontinued operations. Operating profits before non-recurring items
in this segment decreased from 1999, reflecting the impact of costs ($14
million) relating to the WeServeHomes.com initiative. These costs have been
allocated to the Company's minority partner in WeServeHomes.com, Kleiner
Perkins, and are offset in minority interest income below the operating income
line.
On a consolidated basis, costs of services rendered and products sold
increased five percent, primarily due to general business growth and
acquisitions. Cost of services increased as a percentage of revenue to 78.7
percent from 78.2 percent in 1999. This growth primarily reflects increases in
direct materials and service related costs, including labor, insurance and fuel.
Selling and administrative expenses increased 10 percent, due to general
business growth and acquisitions as well as increased investments, including the
Internet initiatives. These costs increased as a percentage of revenue to 14.4
percent from 13.6 percent in 1999.
Interest expense increased from the prior year, primarily due to increased debt
levels associated with acquisitions and share repurchases and higher rates.
Interest and investment income increased over the prior year levels due to
additional gains realized on financial investments and marketable securities.
Minority interest income includes the allocation of losses totaling $14 million
related to WeServeHomes.com to the Company's minority partner. The tax provision
reflects a higher effective tax rate compared to 1999, primarily due to the
non-deductibility of goodwill from acquisitions completed in 1999.
In January 2000, the Company announced the formation and initial funding of
WeServeHomes.com, a separate company that offers comprehensive on-line and
off-line solutions for the consumer market by offering home services, products,
and information from a single point of purchase. ServiceMaster initially owned
84 percent of WeServeHomes.com through the contribution of its 1-800-WE SERVE
call center and the assets of its Internet business. In addition, ServiceMaster
supports WeServeHomes.com through extensive co-branding efforts, access to its
customer base and third-party contractor relationships, fulfillment support, and
licensing the use of certain trademarks. Kleiner Perkins, one of the nation's
most respected and successful venture capital firms, initially contributed $15
million for a 16 percent ownership interest. In February 2001, Kleiner Perkins
exercised a warrant to purchase additional capital stock for $5 million, and the
Company purchased additional capital stock for $10 million. The Company
currently has an 81 percent ownership interest and Kleiner Perkins has an 18
percent interest. Kleiner Perkins also has a warrant to purchase additional
capital stock for $6.5 million.
As also described in the Notes to the Consolidated Financial Statements, a
lawsuit is currently pending in Atlanta, Georgia wherein the plaintiff, a former
salesman, claimed that the Company had not paid him the full amount of
commissions due to him. In September 1999, the jury awarded the plaintiff
compensatory damages and fees of approximately $1 million and punitive damages
of $135 million. In October 1999, the Company filed a motion for judgment
notwithstanding the verdict or, in the alternative, for a new trial. On June 1,
2000, the trial court entered a new judgment in the amount of $461,440 in
compensatory damages and $45 million in punitive damages, as well as amounts for
attorney fees and interest. The Company filed a notice of appeal that same day.
On June 13, 2000, the plaintiff filed a notice of cross-appeal. The Company
expects that the appeal will be fully briefed and argued in the court of appeals
in May of 2001. The Company believes that the award of $45 million in punitive
damages is not supported by the facts of the case or by applicable state law and
that the judgment will be reversed by the court of appeals. Under Georgia law, a
judgment accrues interest at the rate of 12 percent per annum. The Company
continues to be unable to reasonably estimate the ultimate outcome of this case,
and accordingly, minimal expense has been recorded. In the event that the
existing judgment is sustained, or the original judgment is reinstated (which is
not anticipated by the Company), it would be likely that the Company's results
of operations for a particular year may be materially adversely affected.
However, the Company believes, based on advice from legal counsel, that the
ultimate outcome of this litigation is not expected to have a material adverse
effect on the Company's financial condition or results of operations.
1999 COMPARED WITH 1998
Revenues increased 21 percent to $5.7 billion, reflecting strong growth from
acquisitions and increases in base operations. Approximately six percent of the
revenue increase resulted from internal growth and small tuck-in acquisitions in
established businesses, while the newer initiatives, including landscaping,
plumbing, and heating/air conditioning services, provided 21 percent of the
growth. This growth was partially offset by the sale of Premier and
ServiceMaster Energy Management and the wind-down of the Home Health Care
business. Operating income before non-recurring items increased 18 percent over
3
<PAGE>
the prior year. Margins decreased to 8.2 percent of revenue from 8.4 percent in
1998, resulting from a shift in business mix as the new initiatives in
landscaping, heating/air conditioning and plumbing represented a higher portion
of revenue. Operating margins, excluding these operations, increased 10 basis
points. Diluted earnings per share, before non-recurring items and assuming
restatement for the change in accounting principle adopted in 2000, increased 11
percent to $.70, compared with $.63 in 1998. Net income on this same basis grew
18 percent to $220 million from $186 million in 1998. Net income grew at a
faster rate than earnings per share due to an increase in shares outstanding,
resulting from the full year impact of shares issued for acquisitions and the
Company's equity offering in May 1998.
The TruGreen business unit reported a 56 percent increase in revenues to $1.4
billion and a 19 percent increase in operating income to $229 million. TruGreen
ChemLawn, the Company's lawn care operations, reported modest revenue growth but
lower profits due to the effects of the extreme drought in the Northeast and the
Mid-Atlantic regions of the country. Solid revenue growth in commercial accounts
helped support the weaker growth in residential lawn care services. Through the
acquisitions of LandCare USA and other smaller businesses, the Company has
become the largest provider of commercial landscape services in the country.
TruGreen LandCare, the Company's landscape operations, achieved significant
increases through acquisitions but also realized double-digit internal growth.
The Terminix business unit reported revenue of $676 million, 11 percent higher
than 1998 and a 16 percent increase in operating income to $81 million. These
results reflect solid increases in revenue from termite completions and
renewals, improved branch efficiencies, and the successful integration of
acquisitions. Growth in termite revenues reflects a continued strong demand for
higher-priced termite baiting systems.
The Home Maintenance and Improvement business unit achieved a 115 percent
increase in revenue to $904 million, reflecting good growth in established
businesses, as well as contributions from the Company's heating/air conditioning
and plumbing initiatives. Operating income grew 66 percent to $88 million,
reflecting increases at all of the companies. American Home Shield achieved
double-digit growth in revenues and profits, reflecting increases in warranty
contracts sold through all distribution channels. In addition, a greater
percentage of its revenues was derived from customer renewals, which carry
higher margins and retention rates. The combined Rescue Rooter and American
Residential Services operations reported strong growth in revenues and profits.
American Residential Services, which was acquired in April 1999, provides
comprehensive maintenance, repair and replacement services for heating,
ventilation and air conditioning (HVAC); plumbing, electrical and other systems;
and major appliances in homes and commercial buildings. This acquisition
established the Company as one of the country's leading providers of these
services and also complements the Company's established plumbing business. In
addition, it significantly expanded the Company's service offerings on a
nationwide basis and provides added support for American Home Shield. Both the
HVAC and plumbing operations achieved good internal growth and productivity
gains. The franchise operations, ServiceMaster Clean and Merry Maids, achieved
solid increases in revenues and profits based on continued growth of
Company-owned operations, increased license sales, and productivity
improvements.
The Management Services business unit reported revenue growth of three percent
to $1.9 billion and operating income of $78 million, three percent above 1998.
The traditional Healthcare market reported a modest decrease in revenues and
reduced profits compared to the prior. The Company achieved solid revenue and
profit increases in both the Business & Industry and Education markets,
reflecting increased volume and lower overhead spending. The base of annualized
revenue from continuing operations grew two percent for the year, which
reflected a strong sales year and an increased number of contracts served.
Revenue and operating income before non-recurring items in Other Operations
decreased from 1998, reflecting the impact of sold and discontinued operations
and reduced profitability in the Diversified Health Services business.
On a consolidated basis, cost of services rendered and products sold increased
21 percent, primarily due to acquisitions and general business growth, and
increased as a percentage of revenues to 78.2 percent in 1999 from 77.9 percent
in 1998. The landscaping, heating/air conditioning and plumbing acquisitions
have significantly affected this comparison because their cost of services as a
percentage of revenues is higher than the average for the enterprise. Excluding
these platform acquisitions, cost of services rendered and products sold
decreased as a percentage of revenues to 76.0 percent from 77.7 percent in 1998.
This decrease primarily reflects the changing mix of the business as TruGreen
ChemLawn and Terminix increase in size in relationship to the overall business
of the Company. The TruGreen ChemLawn and Terminix businesses generally operate
at higher gross margin levels than the rest of the business, but also incur
somewhat higher selling and administrative expenses as a percentage of revenues.
Consolidated selling and administrative expenses increased 20 percent over 1998
and, as a percentage of revenues, decreased to 13.6 percent in 1999 from 13.7
percent in 1998. The platform initiatives noted above have lower selling and
administrative expenses, as a percentage of revenues, than the Company average.
Interest expense increased over 1998, primarily due to higher debt levels
associated with acquisitions. The increase in interest and investment income
primarily resulted from additional gains realized on financial investments. The
tax provision reflects a higher effective tax rate compared with 1998, primarily
due to the non-deductibility of goodwill related to several large acquisitions
completed in 1999.
2000 FINANCIAL POSITION
Net cash provided from operations of $401 million was significantly higher
than last year. There are two unusual tax timing items in the cash flow
statements: (i) a $39 million tax refund realized in 2000 and (ii) the payment
of 1998 taxes in the first quarter of 1999. Excluding these unusual tax items,
cash from operations increased eight percent to $362 million, reflecting higher
non-cash expenses and lower working capital usage, especially in the platform
initiatives.
Cash and marketable securities totaled approximately $101 million at December
31, 2000. Debt levels increased, reflecting a significant amount of share
repurchases combined with the effects of acquisitions, capital spending and
dividends. The Company is a party to a number of long-term debt agreements
4
<PAGE>
which require it to comply with certain financial covenants, including
limitations on indebtedness, restricted payments, fixed charge coverage ratios
and net worth. The Company is in compliance with the covenants related to these
debt agreements. Management believes that funds generated from operations and
other existing financial resources will continue to be adequate to satisfy the
ongoing operating needs of the Company. In addition, the Company had $520
million of unused commitment on its revolving bank facility at December 31,
2000.
In April 2000, the Company completed a $250 million senior unsecured debt
offering with a 8.45 percent coupon, priced to yield 8.505 percent and due April
15, 2005. The net proceeds were used to repay a portion of the Company's
borrowings under its revolving bank credit facility, thereby reducing the
Company's exposure to short term interest rate fluctuations.
Accounts receivable decreased, primarily reflecting the sale of Diversified
Health Services and improved receivable collections, especially at the platform
initiatives. Prepaid expenses and other assets increased, due to general
business growth and the capitalization of sales commissions and other direct
contract acquisition costs relating to termite baiting and pest contracts.
Property and equipment decreased, reflecting general business growth offset by a
reduced level of technology projects. The Company does not have any material
capital commitments at this time.
The Company completed a number of acquisitions in 2000, which primarily
included lawn care, HVAC/plumbing and pest control companies. Total acquisitions
were approximately $214 million and were mostly financed through cash payments
and seller financing.
In September 2000, the Company completed the sales of two non-core businesses.
The Company's interior plant care business was sold for $44 million in cash. In
addition, the Company sold its Diversified Health Services unit, a business that
manages long-term care facilities, to a company which is owned and operated by a
group of former senior managers of Diversified Health Services. The charges
recorded in the prior year related to this business were considered to be
appropriate and adequate. Neither transaction had a material impact on the
Company's operating results.
Other accrued liabilities decreased due to the timing of various payments and
amounts relating to acquisition-related payments as well as the sale of
Diversified Health Services. Deferred revenues increased primarily as a result
of the change in method of accounting for termite baiting contracts, strong
growth in warranty contracts written at American Home Shield and increases in
customer prepayments for pest control services.
Total shareholders' equity decreased slightly to $1.16 billion, reflecting
shareholders dividends and share repurchases, partially offset by current year
net income. In July 2000, the Company announced that its Board of Directors
authorized the repurchase of $350 million in shares over time in the open market
or in privately negotiated transactions. This authorization replaces the
Company's previous authorization of $150 million announced in October 1999.
Approximately $136 million in shares were repurchased in 2000.
Cash dividends paid directly to shareholders totaled $114 million, or $.38 per
share, from $.36 per share in the prior year. The total amount of cash
distributions increased two percent from the prior year, reflecting the per
share increase offset by a reduced level of shares outstanding resulting from
shares repurchased.
In January 2001, the Company paid a cash dividend for the first quarter of
$.10 per share. This quarterly dividend payment is consistent with the dividend
rate paid for the prior two quarters and would provide for an annual payment for
the year 2001 of $.40 per share, a five percent increase over 2000. While the
Company has historically increased its dividend payment annually, the timing and
amount of future dividend increases will be at the discretion of the Board of
Directors and will depend on, among other things, the Company's capital
structure objectives and cash requirements.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a
commonly-used supplemental measurement of a company's ability to generate cash
flow and is used by many of the Company's investors and lenders. Management
believes that EBITDA is another measure that demonstrates the exceptional
cash-generating abilities of the Company's businesses. EBITDA in 2000 of $613
million, decreased three percent but exceeded net income by over $420 million or
230 percent. EBITDA should not be considered an alternative to net income in
measuring the Company's performance or be used as an exclusive measure of cash
flow, because it does not consider the impact of working capital growth, capital
expenditures, debt principal reductions or other sources and uses of cash which
are disclosed in the Consolidated Statements of Cash Flows.
THE COMPANY NOTES THAT STATEMENTS THAT LOOK FORWARD IN TIME, WHICH INCLUDE
EVERYTHING OTHER THAN HISTORICAL INFORMATION, INVOLVE RISKS AND UNCERTAINTIES
THAT AFFECT THE COMPANY'S RESULTS OF OPERATIONS. FACTORS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN A
FORWARD-LOOKING STATEMENT INCLUDE THE FOLLOWING (AMONG OTHERS): WEATHER
CONDITIONS ADVERSE TO CERTAIN OF THE COMPANY'S CONSUMER AND COMMERCIAL SERVICES
BUSINESSES; THE ENTRY OF ADDITIONAL COMPETITORS IN ANY OF THE MARKETS SERVED BY
THE COMPANY; LABOR SHORTAGES; CONSOLIDATION OF HOSPITALS IN THE HEALTHCARE
MARKET; THE COST AND LENGTH OF TIME TO INTEGRATE ACQUIRED BUSINESSES; UNEXPECTED
CHANGES IN OPERATING COSTS; THE CONDITION OF THE U.S. ECONOMY; AND OTHER FACTORS
LISTED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
5
<PAGE>
ELEVEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
All share and per share data reflect the three-for-two share splits in 1998,
1997, 1996, 1993 and 1992.
(In thousands, except per share and percentage data) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C>
Operating revenue ............................................. $5,970,615 $5,703,535 $ 4,724,119
Cost of services rendered and products sold ................... 4,696,467 4,459,035 3,679,612
Selling and administrative expenses ........................... 857,249 775,826 648,085
Other, net (2) ............................................... - 85,500 -
----------- ---------- -----------
Operating income .............................................. 416,899 383,174 396,422
----------- ---------- -----------
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(2) ............ 416,899 468,674 396,422
Percentage of operating revenue ........................... 7.0% 8.2% 8.4%
Non-operating expense (income) ............................... 98,592 86,981 77,644
Provision for income taxes (3) ................................ 133,319 122,630 128,786
Cumulative effect of change in accounting principle, net(1) ... 11,161 - -
----------- ---------- -----------
Net income (pro forma corporate form prior to 1998)(3) ........ $ 173,827 $ 1 73,563 $ 189,992
=========== ========== ===========
PRO FORMA NET INCOME BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively(1),(2) ................................ $ 184,988 $ 219,637 $ 186,021
========== ========== ===========
Percentage of operating revenue .......................... 3.1% 3.9% 3.9%
Earnings per share (pro forma corporate form prior to 1998):(3)
Basic ..................................................... $ 0.57 $ 0.56 $ 0.66
Diluted as REPORTED ....................................... $ 0.57 $ 0.55 $ 0.64
PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS AND
assuming the change in accounting principle is
applied retroactively (1),(2) ........................... $ 0.61 $ 0.70 $ 0.63
Shares used to compute basic net income per share ............. 302,487 307,637 289,315
Shares used to compute diluted net income per share ........... 305,518 314,406 298,887
Shares outstanding, net of treasury shares .................... 298,474 307,530 298,030
Cash distributions per share .................................. $ 0.38 $ 0.36 $ 0.33
Share price range:
High price ................................................ $ 14.94 $ 22.00 $ 25.50
Low price ................................................. $ 8.25 $ 10.13 $ 16.00
Financial Position (at year end):
Current assets ................................................ $ 984,759 $ 959,238 $ 670,202
Current liabilities ........................................... 833,414 845,804 753,697
Working capital ............................................... 151,345 113,434 (83,495)
Current ratio ................................................. 1.2-1 1.1-1 .9-1
Total assets .................................................. $3,967,668 $3,870,215 $ 2,914,851
Non-current liabilities ....................................... 1,972,666 1,818,695 1,204,668
Minority interest/deferred gain ............................... - - -
Shareholders' equity .......................................... 1,161,588 1,205,716 956,486
PERCENTAGE RETURN ON WEIGHTED-AVERAGE SHAREHOLDERS' EQUITY .... 15% 19% 25%
</TABLE>
(1) In 2000, the Company changed its method of accounting for revenue from its
termite baiting contracts. The cumulative effect of this accounting change
as of January 1, 2000 was $11.1 million ($18.9 million pretax). The impact
of adopting of the new accounting method compared to the previous
methodology was not material in 2000. The pro forma impact in 1999, 1998
and 1997 of this change was to reduce diluted earnings per share by $0.02,
$0.01, and $0.01, respectively.
(2) In the above presentation, the operating results in 1999 and 1990 through
1993 have been stated to exclude the impact of non-recurring items. In
1999, the Company realized an after-tax gain of $30 million ($50.1 million
pretax) relating to the sale of its Premier automotive business and its
remaining 15 percent interest in ServiceMaster Energy Management, and
recorded a one-time after-tax charge of $81 million ($135.6 million pretax)
relating to its Diversified Health Services business. In the years 1990
through 1993, the Company recorded gains on issuance of subsidiary shares,
restructuring charges, and a change in accounting for post-retirement
benefits.
6
<PAGE>
ELEVEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(In thousands, except per share and percentage data) 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C> <C>
Operating revenue ................................................. $3,961,502 $3,458,328 $3,202,504 $2,985,207
Cost of services rendered and products sold ....................... 3,058,160 2,681,008 2,499,700 2,356,435
Selling and administrative expenses ............................... 559,409 482,102 450,937 414,746
Other, net (2) ................................................... - - - -
---------- ---------- ---------- ----------
Operating income .................................................. 343,933 295,218 251,867 214,026
---------- ---------- ---------- ----------
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(2) ............... 343,933 295,218 251,867 214,026
Percentage of operating revenue................................ 8.7% 8.5% 7.9% 7.2%
Non-operating expense (income) .................................... 69,654 42,821 74,260 71,388
Provision for income taxes (3) .................................... 110,809 101,968 71,753 57,626
Cumulative effect of change in accounting principle net (1) ....... - - - -
---------- ---------- ---------- ----------
Net income (pro forma corporate form prior to 1998)(3) ............ $ 163,470 $ 150,429 $ 105,854 $ 85,012
========== ========== ========== ==========
PRO FORMA NET INCOME BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively(1),(2) .................................... $ 161,506 $ 150,429 $ 105,854 $ 85,012
========== ========== ========== ==========
Percentage of operating revenue............................... 4.1% 4.3% 3.3% 2.8%
Earnings per share (pro forma corporate form prior to 1998):(3)
Basic.......................................................... $ 0.57 $ 0.47 $ 0.41 $ 0.33
Diluted as REPORTED............................................ $ 0.55 $ 0.46 $ 0.39 $ 0.32
PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively (1),(2).................................. $ 0.54 $ 0.46 $ 0.39 $ 0.32
SHARES USED TO COMPUTE BASIC NET INCOME PER SHARE ................. 285,944 317,381 260,382 255,650
Shares used to compute diluted net income per share ............... 299,640 330,429 273,203 266,892
Shares outstanding, net of treasury shares ........................ 279,944 320,396 321,341 256,419
Cash distributions per share....................................... $ 0.31 $ 0.29 $ 0.28 $ 0.27
Share price range:
High price..................................................... $ 19.67 $ 11.83 $ 9.00 $ 8.41
Low price...................................................... $ 10.92 $ 8.61 $ 6.37 $ 6.37
FINANCIAL POSITION (at year end):
Current assets .................................................... $ 594,084 $ 499,334 $ 393,239 $ 331,045
Current liabilities ............................................... 558,177 425,552 372,930 304,395
Working capital ................................................... 35,907 73,782 20,309 26,650
Current ratio...................................................... 1.1-1 1.2-1 1.1-1 1.1-1
Total assets ...................................................... $2,475,224 $1,846,841 $1,649,890 $1,230,839
Non-current liabilities ........................................... 1,392,609 607,614 517,603 483,906
Minority interest/Deferred gain ................................... - 16,908 12,697 135,272
Shareholders' equity .............................................. 524,438 796,767 746,660 307,266
PERCENTAGE RETURN ON WEIGHTED-AVERAGE SHAREHOLDERS' EQUITY ........ 26% 19% 24% 28%
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991 1990
------------------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C> <C>
Operating revenue ................................................. $2,758,859 $2,488,854 $2,109,941 $1,825,750
Cost of services rendered and products sold ....................... 2,192,684 2,021,010 1,762,700 1,545,527
Selling and administrative expenses ............................... 393,131 326,477 225,814 177,941
Other, net (2) ................................................... - 78,935 - 6,500
---------- ---------- ---------- ----------
Operating income .................................................. 173,044 62,432 121,427 95,782
---------- ---------- ---------- ----------
OPERATING INCOME BEFORE NET NON-RECURRING ITEMS(2) ............... 173,044 141,367 121,427 102,282
Percentage of operating revenue ............................... 6.3% 5.7% 5.8% 5.6%
Non-operating expense (income) .................................... 24,952 (68,367) 34,020 10,398
Provision for income taxes (3) .................................... 59,829 52,843 35,312 34,495
Cumulative effect of change in accounting principle net (1)........ - 4,470 - -
---------- ---------- ---------- ----------
Net income (pro forma corporate form prior to 1998)(3)............. $ 88,263 $ 73,486 $ 52,095 $ 50,889
========== ========== ========== ==========
PRO FORMA NET INCOME BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively(1),(2) .................................... $ 70,264 $ 56,994 $ 48,614 $ 42,843
========== ========== ========== ==========
Percentage of operating revenue .............................. 2.5% 2.3% 2.3% 2.3%
Earnings per share (pro forma corporate form prior to 1998):(3)
Basic ......................................................... $ 0.35 $ 0.29 $ 0.22 $ 0.21
Diluted as REPORTED ........................................... $ 0.34 $ 0.28 $ 0.21 $ 0.21
PRO FORMA DILUTED BEFORE NET NON-RECURRING ITEMS
and assuming the change in accounting principle is
applied retroactively (1),(2) ................................. $ 0.27 $ 0.22 $ 0.20 $ 0.18
SHARES USED TO COMPUTE BASIC NET INCOME PER SHARE ................. 253,919 249,828 240,276 239,730
Shares used to compute diluted net income per share ............... 266,231 262,941 252,579 243,038
Shares outstanding, net of treasury shares ........................ 257,901 255,386 243,527 242,939
Cash distributions per share ...................................... $ 0.26 $ 0.26 $ 0.25 $ 0.24
Share price range:
High price .................................................... $ 9.19 $ 5.90 $ 5.13 $ 3.13
Low price ..................................................... $ 5.22 $ 4.35 $ 2.89 $ 2.60
FINANCIAL POSITION (at year end):
Current assets .................................................... $ 291,325 $ 257,542 $ 217,517 $ 237,262
Current liabilities ............................................... 244,552 206,755 157,458 158,046
Working capital ................................................... 46,773 50,787 60,059 79,216
Current ratio ..................................................... 1.2-1 1.2-1 1.4-1 1.5-1
Total assets ...................................................... $1,122,461 $1,005,531 $ 843,660 $ 796,935
Non-current liabilities ........................................... 471,177 511,211 376,638 372,052
Minority interest/Deferred gain ................................... 117,513 77,906 187,583 170,831
Shareholders' equity .............................................. 289,219 209,659 121,981 96,006
PERCENTAGE RETURN ON WEIGHTED-AVERAGE SHAREHOLDERS' EQUITY ........ 28% 33% 45% 80%
</TABLE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(3) The Company converted from partnership to corporate form in a tax-free
exchange for shareholders on December 26, 1997. Prior to the conversion,
the partnership was not subject to federal income taxes as its taxable
income was allocated to the partnership's partners. As a result of the
conversion, the Company has been a taxable entity and has been responsible
for such payments. The results shown above for the years ended December 31,
1997 and before have been restated to adjust the actual historical
partnership information to a pro forma basis that assumes that
reincorporation had occurred as of the beginning of that year. The pro
forma provision for income taxes has been calculated assuming that the
Company's effective tax rate had been approximately 40 percent of pretax
earnings. Actual historical net income per share as a partnership for 1997
and 1996 was as follows:
1997 (a) 1996
-------- --------
Net Income $264,076 $245,140
EPS: Basic $.92 $.77
Diluted $.89 $.75
(a) Including the one-time tax gain related to reincorporation, net income was
$329,076 and basic and diluted earnings per share were $1.15 and $1.10,
respectively.
7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of ServiceMaster and its majority-owned subsidiary partnerships and
corporations, collectively referred to as the Company. Intercompany transactions
and balances have been eliminated in consolidation. Certain immaterial 1999 and
1998 amounts have been reclassified to conform with the 2000 presentation.
The preparation of the consolidated financial statements requires management
to make certain estimates and assumptions required under generally accepted
accounting principles which may differ from the actual results. The more
significant areas requiring the use of management estimates relate to the
allowance for receivables, accruals for self-insured retention limits related to
medical, workers compensation, auto and general liability insurance, the
possible outcomes of outstanding litigation, and the useful lives for
depreciation and amortization expense.
REVENUES: Revenues from lawn care, pest control, heating/air conditioning and
plumbing services are recognized as the services are provided. Revenues from
landscaping services are recognized based upon agreed monthly contract payments
or when services are performed for non-contractual arrangements. Revenues from
the Company's commercial installation contracts, primarily relating to HVAC and
landscape, are recognized on the percentage of completion method in the ratio
that total incurred costs bear to total estimated costs.
Fees from home warranty and termite baiting contracts are recognized as
revenues over the life of the contract while the service costs are expensed as
incurred. Franchised services revenues (which in aggregate represent less than
two percent of consolidated totals) consist of initial franchise fees received
from the sales of licenses, sales of products to franchisees, and continuing
monthly fees based upon franchise revenue.
Revenues from management services are recognized as services are rendered and
consist of contract fees, which reflect the total price of such services. Where
the Company act as principal and manages people who are employees of the
facility, the contract fee is recognized as revenue by the Company and payroll
costs for such employees are included in "Cost of services rendered and products
sold" in the Consolidated Statements of Income. Receivables from the facilities
are reflected in the Consolidated Statements of Financial Position at the net
amount due, after deducting from the contract price all amounts chargeable to
the Company.
Revenues from the professional employer organization are recognized as the
services are rendered. Consistent with industry practice, revenues include the
gross amount billed to clients, which includes payroll and other direct costs.
INVENTORY VALUATION: Inventories are valued at the lower of cost (first-in,
first-out basis) or market. Inventory costs include material, labor, factory
overhead and related handling costs. Raw materials represent less than three
percent of the inventory value at December 31, 2000. The remaining inventory is
finished goods to be used on the customers' premises or sold to franchisees.
DEPRECIATION AND AMORTIZATION: Buildings and equipment used in the business are
stated at cost and depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes. The estimated useful
lives for building and improvements range from 10 to 40 years, while the
estimated useful lives for equipment range from three to 10 years. Intangible
assets consist primarily of trade names ($250 million) and goodwill ($2.3
billion). These assets are amortized on a straight-line basis over their
estimated useful lives, which are predominately 40 years. Long-lived assets,
including fixed assets and intangible assets, are periodically reviewed to
determine recoverability by comparing their carrying values to the undiscounted
future cash flows expected to be realized from their use. No recovery problems
have been indicated by these comparisons. Based on the reviews, when the
undiscounted future cash flows are less than the carrying amount of the asset,
an impairment loss is recognized based on the asset's fair value, and the
carrying amount of the asset is reduced accordingly.
INCOME TAXES: The Company accounts for income taxes under the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
Statement uses an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. Deferred income taxes are provided to reflect the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements.
EARNINGS PER SHARE: Basic earnings per share is based on the weighted-average
number of common shares outstanding during the year. Shares potentially issuable
under options have been considered outstanding for purposes of the diluted
earnings per share calculation.
CHANGE IN ACCOUNTING PRINCIPLE: In December 1999, the Staff of the Securities
and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101 "Revenue
Recognition," which provides additional guidance in applying generally accepted
accounting principles for revenue recognition in financial statements. The
Company's interpretation of the requirements of SAB No. 101 resulted in changes
to the Company's accounting policies for revenue recognition on sales of its
termite baiting contracts. Prior to the adoption of SAB No. 101, the Company
recognized approximately 80% of the termite baiting revenue at the time of the
sale and installation of the baiting station, while the remaining 20% of the
revenue was recognized over the life of the contract as follow-up inspections of
the stations were performed. As a result of SAB No. 101, the Company's policy is
to recognize revenue over the life of the contract. In addition, sales
commissions and other direct contract acquisition costs are deferred and
amortized on a straight-line basis over the life of the contract.
8
<PAGE>
The change in method of accounting for termite baiting contracts is effective
January 1, 2000. The cumulative effect of the accounting change, as of January
1, 2000, resulted in a non-cash charge that reduced net income for the year
ended December 31, 2000 by $11.1 million, ($18.9 million pretax). The cumulative
after-tax effect on both basic and diluted earnings per share was a reduction of
$.04. The impact of adopting the new accounting method compared to the previous
methodology was not material in 2000. The pro forma impact in 1999 and 1998 of
this change was to reduce diluted earnings per share by $0.02 and $0.01,
respectively.
NEWLY ISSUED ACCOUNTING STATEMENTS AND POSITIONS: In 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement was subsequently amended to defer its effective date. The Company
adopted this Statement in January 2001 as required by the amended Statement.
Adoption of this Statement did not have a material impact on the Company's
financial statements.
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
THE SERVICEMASTER COMPANY
We have audited the accompanying consolidated statements of financial position
of THE SERVICEMASTER COMPANY (organized under the laws of the State of Delaware,
formerly ServiceMaster Limited Partnership) AND SUBSIDIARIES, as of December 31,
2000 and 1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
ServiceMaster Company and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
As explained in the Summary of Significant Accounting Policies section of the
Notes to the Consolidated Financial Statements, effective January 1, 2000, the
Company changed certain of its accounting principles for revenue recognition as
a result of the adoption of Staff Accounting Bulletin No. 101 "Revenue
Recognition."
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 23, 2001
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended December 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING Revenue............................................. $ 5,970,615 $ 5,703,535 $ 4,724,119
OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold................... 4,696,467 4,459,035 3,679,612
Selling and administrative expenses........................... 857,249 775,826 648,085
Other, net (1)................................................ - 85,500 --
------------ ------------ ------------
Total operating costs and expenses............................ 5,553,716 5,320,361 4,327,697
----------- ------------ ------------
OPERATING Income.............................................. 416,899 383,174 396,422
NON-OPERATING EXPENSE (INCOME):
Interest expense.............................................. 136,831 108,955 92,945
Interest and investment income................................ (25,002) (21,974) (15,301)
Minority interest income...................................... (13,237) - -
----------- ----------- ------------
INCOME BEFORE INCOME Taxes.................................... 318,307 296,193 318,778
Provision for income taxes ................................... 133,319 122,630 128,786
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING Principle............................. 184,988 173,563 189,992
Cumulative effect of change in accounting
for revenue recognition on termite baiting contracts (1).. 11,161 - -
------------ ------------- ------------
NET INCOME (1)................................................ $ 173,827 $ 173,563 $ 189,992
============ ============= ============
PER SHARE (1), (2)
Basic earnings per share, before cumulative effect of
change in accounting principle...................... $ 0.61 $ 0.56 $ 0.66
Cumulative effect of changing revenue recognition on
termite baiting contracts (0.04) - -
------------ ------------ ------------
BASIC EARNINGS PER share................................... $ 0.57 $ 0.56 $ 0.66
============ ============ ============
Diluted earnings per share, before cumulative effect of
change in accounting principle......................... $ 0.61 $ 0.55 $ 0.64
Cumulative effect of changing revenue recognition on
termite baiting contracts (0.04) - -
------------ ------------ ------------
DILUTED EARNINGS PER share................................. $ 0.57 $ 0.55 $ 0.64
============ ============ ============
</TABLE>
(1) In 2000, the Company changed its method of accounting for revenue from
its termite baiting contracts. The cumulative effect of this accounting
change as of January 1, 2000, was $11.1 million, ($18.9 million pretax).
The impact of adopting the new accounting method compared to the previous
methodology was not material in 2000. The pro forma impact in 1999 and 1998
of this change was to reduce diluted earnings per share by $0.02 and $0.01,
respectively.
In 1999, the Company realized an after-tax gain of $30 million ($50.1
million pretax) relating to the sales of its Premier automotive business
and its remaining 15 percent interest in ServiceMaster Energy Management,
and recorded a one-time after-tax charge of $81 million ($135.6 million
pretax) relating to its Diversified Health Services business. Excluding the
impact of the above items, net income and earnings per share were as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------- -------------- -----------
<S> <C> <C> <C>
Pro forma net income before net non-recurring items and
assuming the change in accounting principle is applied
retroactively............................................... $ 184,988 $ 219,637 $ 186,021
Pro forma diluted earnings per share before net non-recurring items and
assuming the change in accounting principle is applied
retroactively............................................... $ 0.61 $ 0.70 $ 0 .63
========= ========= =========
</TABLE>
(2) Basic earnings per share is calculated based on 302,487 shares in 2000,
307,637 shares in 1999, and 289,315 shares in 1998, while diluted earnings
per share is calculated based on 305,518 shares in 2000, and 314,406 shares
in 1999 and 298,887 shares in 1998. All share and per share data reflect
the three-for-two share split in August 1998.
See accompanying Summary of Significant Accounting Policies and Notes to the
Consolidated Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS)
As of December 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
ASSETS:
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents................................................. $ 44,386 $ 59,834
Marketable securities ..................................................... 56,531 54,376
Receivables, less allowances of $37,970 in 2000 and $39,011 in 1999 556,941 558,842
Inventories................................................................ 88,152 82,861
Prepaid expenses and other assets......................................... 168,403 140,690
Deferred taxes and tax receivables......................................... 70,346 62,635
--------- ---------
Total current assets................................................... 984,759 959,238
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and buildings......................................................... 73,248 71,972
Equipment................................................................. 608,321 587,838
--------- ---------
681,569 659,810
Less: accumulated depreciation........................................... 375,585 341,712
--------- ---------
Net property, plant, and equipment....................................... 305,984 318,098
--------- ---------
OTHER ASSETS:
Intangible assets, primarily trade names and goodwill,
less accumulated amortization of $422,899 in 2000 and $343,316 in 1999 2,521,633 2,461,389
Notes receivable, long-term securities, and other assets.................. 155,292 131,490
---------- ----------
Total Assets........................................................ $ 3,967,668 $ 3,870,215
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable......................................................... $ 147,788 $ 160,237
Accrued liabilities:
Payroll and related expenses............................................ 100,651 99,910
Insurance and related expenses.......................................... 54,990 53,412
Income taxes payable.................................................... 1,235 6,479
Other................................................................... 142,144 196,529
Deferred revenues.......................................................... 325,246 257,521
Current portion of long-term debt.......................................... 61,360 71,716
---------- -----------
Total current liabilities.............................................. 833,414 845,804
---------- -----------
LONG-TERM DEBT........................................................... 1,756,757 1,697,582
DEFERRED TAX LIABILITY..................................................... 115,150 19,800
OTHER LONG-TERM OBLIGATIONS................................................ 100,759 101,313
COMMITMENTS AND CONTINGENCIES (see Notes)
SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1 billion shares; issued and
outstanding of 298,474 shares in 2000 and 307,530 shares in 1999....... 2,985 3,075
Additional paid-in capital............................................... 1,030,399 1,033,568
Retained earnings.......................................................... 301,207 241,701
Accumulated other comprehensive income .................................... (2,832) (1,821)
Restricted stock........................................................... (1,829) (2,577)
Treasury stock, at cost................................................... (168,342) (68,230)
---------- ----------
Total shareholders' equity........................................... 1,161,588 1,205,716
----------- ----------
Total Liabilities and Shareholders' Equity............................. $ 3,967,668 $ 3,870,215
=========== ============
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1................................... $ 59,834 $ 66,400 $ 64,876
CASH FLOWS FROM OPERATIONS:
NET Income............................................................... 173,827 173,563 189,992
Adjustments to reconcile net income to
net cash provided from operations:
Cumulative effect of accounting change............................. 11,161 - -
Depreciation ...................................................... 78,108 67,382 50,644
Amortization....................................................... 79,583 71,062 53,961
Non-recurring items, net........................................... - 85,500 -
Deferred 1998 tax payment.......................................... - (78,500) 78,500
Tax refunds from 1999 payments..................................... 39,000 - -
Deferred income tax expense........................................ 54,218 20,300 36,400
Change in working capital, net of acquisitions:
Receivables........................................................ (14,210) (49,130) (46,205)
Inventories and other current assets............................... (4,754) (32,368) (2,360)
Accounts payable................................................... (13,241) (2,703) 18,475
Deferred revenues.................................................. 19,140 28,026 22,033
Accrued liabilities................................................ (20,564) (25,022) 2,472
Other, net........................................................... (1,244) (1,535) 1,627
---------- ---------- ----------
NET CASH PROVIDED FROM Operations........................................ 401,024 256,575 405,539
------- ------- -------
MEMO: NET CASH PROVIDED FROM OPERATIONS EXCLUDING UNUSUAL TAX ITEMS 362,024 335,075 327,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions................................................... (76,603) (88,754) (75,297)
Sale of equipment and other assets................................... 14,720 8,021 6,941
Business acquisitions, net of cash acquired.......................... (152,306) (510,512) (222,452)
Proceeds from sale of businesses..................................... 44,784 70,344 45,893
Net purchases of investment securities............................... (6,940) (12,474) (11,011)
Notes receivable and financial investments........................... (5,401) (19,357) (10,645)
Payments to sellers of acquired businesses........................... (21,546) (12,664) (10,271)
-------- -------- --------
NET CASH USED FOR INVESTING Activities................................... (203,292) (565,396) (276,842)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings, net...................................................... 571,339 1,263,427 310,190
Payment of borrowings and other obligations.......................... (547,247) (776,183) (564,448)
Proceeds from stock offering......................................... - - 208,561
Shareholders' dividends.............................................. (114,321) (111,702) (75,152)
Purchase of ServiceMaster stock...................................... (135,633) (93,046) (18,310)
Proceeds from employee share plans................................... 12,730 19,259 12,638
Other................................................................ (48) 500 (652)
---------- ---------- ----------
NET CASH PROVIDED FROM (USED FOR) FINANCING Activities................... (213,180) 302,255 (127,173)
---------- ---------- ----------
CASH INCREASE (DECREASE) DURING THE Year................................. (15,448) (6,566) 1,524
CASH AND CASH EQUIVALENTS AT DECEMBER 31................................. $ 44,386 $ 59,834 $ 66,400
========== =========== ==========
</TABLE>
See accompanying Summary of Significant Accounting Policies and Notes to the
Consolidated Financial
Statements.
13
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
ADDITIONAL ACCUMULATED
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 .......................... $ 2,799 $ 513,148 $ 65,000 $ 5,343
============================================================
Net income 1998 ..................................... 189,992
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment ................ (485)
Foreign currency translation ($640 tax expense) .. (947)
------------------------------------------------------------
Total comprehensive income .......................... 189,992 (1,432)
Shareholder dividends ............................... (75,152)
Shares issued in public offering (11,400 shares) .... 114 208,447
Shares issued under option, debentures,
grant plans and other (2,514 shares) ............. 25 9,403
Treasury shares purchased and related costs
(888 shares) ..................................... (9)
Shares issued for acquisitions (5,059 shares) ...... 51 57,126
------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 .......................... $ 2,980 $ 788,124 $ 179,840 $ 3,911
============================================================
Net income 1999 ..................................... 173,563
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment ................ (3,730)
Foreign currency translation ($1,424 tax expense) (2,002)
-------------------------------------------------------------
Total comprehensive income .......................... 173,563 (5,732)
Shareholder dividends ............................... (111,702)
Shares issued under option, debentures,
grant plans and other (1,979 shares) ............. 20 5,076
Treasury shares purchased and related costs
(7,049 shares) ................................... (70)
Shares issued for acquisitions (14,570 shares) ..... 145 240,368
--------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 .......................... $ 3,075 $ 1,033,568 $ 241,701 $ (1,821)
==============================================================
Net income 2000 ..................................... 173,827
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment ................ 2,845
Foreign currency translation ($2,741 tax expense) (3,856)
--------------------------------------------------------------
Total comprehensive income .......................... 173,827 (1,011)
Shareholder dividends ............................... (114,321)
Shares issued under option, debentures,
grant plans and other (2,099 shares) ............. 21 (1,655)
Treasury shares purchased and related costs
(12,637 shares) .................................. (126)
Shares issued for acquisitions (1,482 shares) ...... 15 (1,514)
--------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 .......................... $ 2,985 $ 1,030,399 $ 301,207 $ (2,832)
==============================================================
</TABLE>
<TABLE>
<CAPTION>
TREASURY RESTRICTED TOTAL
STOCK STOCK EQUITY
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 .......................... $ (57,582) $ (4,270) $ 524,438
==========================================
Net income 1998 ..................................... 189,992
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment ................ (485)
Foreign currency translation ($640 tax expense) .. (947)
------------------------------------------
Total comprehensive income .......................... 188,560
Shareholder dividends ............................... (75,152)
Shares issued in public offering (11,400 shares) .... 208,561
Shares issued under option, debentures,
grant plans and other (2,514 shares) ............. 13,507 887 23,822
Treasury shares purchased and related costs
(888 shares) ..................................... (18,301) (18,310)
Shares issued for acquisitions (5,059 shares) ...... 47,390 104,567
------------------------------------------
BALANCE, DECEMBER 31, 1998 .......................... $ (14,986) $ (3,383) $ 956,486
==========================================
Net income 1999 ..................................... 173,563
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment ................ (3,730)
Foreign currency translation ($1,424 tax expense) (2,002)
------------------------------------------
Total comprehensive income .......................... 167,831
Shareholder dividends ............................... (111,702)
Shares issued under option, debentures,
grant plans and other (1,979 shares) ............. 13,630 806 19,532
Treasury shares purchased and related costs
(7,049 shares) ................................... (92,976) (93,046)
Shares issued for acquisitions (14,570 shares) ..... 26,102 266,615
------------------------------------------
BALANCE, DECEMBER 31, 1999 .......................... $ (68,230) $ (2,577) $ 1,205,716
==========================================
Net income 2000 ..................................... 173,827
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of reclassification adjustment ................ 2,845
Foreign currency translation ($2,741 tax expense). (3,856)
------------------------------------------
Total comprehensive income .......................... 172,816
Shareholder dividends ............................... (114,321)
Shares issued under option, debentures,
grant plans and other (2,099 shares) ............. 18,866 748 17,980
Treasury shares purchased and related costs
(12,637 shares) .................................. (135,507) (135,633)
Shares issued for acquisitions (1,482 shares) ...... 16,529 15,030
------------------------------------------
BALANCE, DECEMBER 31, 2000 .......................... $ (168,342) $ (1,829) $ 1,161,588
==========================================
</TABLE>
All share data reflect the three-for-two share split in August 1998.
Disclosure of reclassification amounts (net of tax) relating to comprehensive
income (loss):
2000 1999 1998
---- ---- ----
Unrealized holding gains arising in $ 12,100 $ 555 $ 3,295
period
Less: gains realized (9,255) (4,285) (3,780)
------ ------- ---------
Net unrealized gains (losses) on
securities $ 2,845 $(3,730) $ (485)
======== ======== ==========
See accompanying Summary of Significant Accounting Policies and Notes to the
Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS UNIT REPORTING
The business of the Company is primarily conducted through four operating
segments: TruGreen, Terminix, Home Maintenance and Improvement, and Management
Services. In accordance with Statement of Financial Accounting Standards No. 131
(SFAS 131), the Company's reportable segments are strategic business units that
offer different services. The TruGreen unit provides residential and commercial
lawn care and landscaping services through the TruGreen ChemLawn and TruGreen
LandCare companies. The Terminix unit provides domestic termite and pest control
services to residential and commercial customers. The Home Maintenance and
Improvement unit includes American Residential Services, American Home Shield,
ServiceMaster Clean and Merry Maids. This unit provides heating, ventilation and
air conditioning, plumbing, and cleaning services to residential and commercial
customers as well as home warranties to consumers. The Management Services unit
provides a variety of supportive management services to health care, education
and commercial accounts.
The Other Operations unit includes entities that are managed separately from
the four major units and aggregated together in accordance with SFAS 131 due to
their size or developmental nature. This unit includes the Company's European
pest control operations; ServiceMaster Employer Services, a professional
employer organization that provides clients with administrative processing of
payroll, workers' compensation insurance, health insurance, unemployment
insurance and other employee benefit plans; WeServeHomes.com, a joint venture
offering home services through the Internet; the Company's headquarters
operations; and certain non-core businesses that have been sold or discontinued.
Information regarding the accounting policies used by the Company is described
in the Summary of Significant Accounting Policies. The Company derives
substantially all of its revenues from customers in the United States with less
than five percent generated in foreign markets. Operating expenses of the
business units consist primarily of direct costs.
Identifiable assets are those used in carrying out the operations of the
business unit and include intangible assets directly related to its operations.
The Company's headquarters facility and other investments are included in the
identifiable assets of Other Operations.
15
<PAGE>
<TABLE>
<CAPTION>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
% %
2000 Change 1999 Change 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenue:
TruGreen $ 1,563,704 12% $ 1,393,917 56% $ 892,639
Terminix 733,654 9% 675,813 11% 607,583
Home Maintenance and Improvement 1,211,674 34% 903,970 115% 419,658
Management Services 1,906,138 0% 1,897,299 3% 1,838,268
Other Operations 555,445 N/A 832,536 N/A 965,971
---------------- ------------- ------------- -------------- --------------
TOTAL OPERATING REVENUE $ 5,970,615 5% $ 5,703,535 21% $ 4,724,119
================ ============= ============= ============== ==============
OPERATING INCOME:
TruGreen $ 172,615 -25% $ 228,665 19% $ 192,548
Terminix 90,594 12% 80,933 16% 69,809
Home Maintenance and Improvement 105,588 19% 88,393 66% 53,131
Management Services 66,806 -15% 78,178 3% 75,583
Other Operations (18,704) N/A (92,995) N/A 5,351
OTHER OPERATIONS EXCLUDING NON-RECURRING ITEMS(1) (18,704) N/A (7,495) N/A 5,351
---------------- ------------- ------------- -------------- --------------
TOTAL OPERATING INCOME $ 416,899 9% $ 383,174 -3% $ 396,422
================ ============= ============= ============== ==============
TOTAL OPERATING INCOME, EXCLUDING
NON-RECURRING ITEMS(1) $ 416,899 -11% $ 468,674 18% $ 396,422
CAPITAL EMPLOYED:
TruGreen $ 1,475,655 3% $ 1,430,255 67% $ 857,311
Terminix 525,913 -1% 532,476 12% 477,389
Home Maintenance and Improvement 624,421 6% 590,303 123% 264,968
Management Services 98,829 -19% 121,978 -2% 123,946
Other Operations 254,887 -15% 300,002 -17% 360,654
---------------- ------------- ------------- -------------- --------------
TOTAL CAPITAL EMPLOYED $ 2,979,705 0% $ 2,975,014 43% $ 2,084,268
================ ============= ============= ============== ==============
IDENTIFIABLE ASSETS:
TruGreen $ 1,581,523 0% $ 1,584,460 63% $ 974,921
Terminix 694,968 6% 655,790 11% 588,523
Home Maintenance and Improvement 980,861 10% 891,971 84% 484,393
Management Services 222,117 -1% 224,694 -6% 237,924
Other Operations 488,199 -5% 513,300 -18% 629,090
---------------- ------------- ------------- -------------- --------------
TOTAL IDENTIFIABLE ASSETS $ 3,967,668 3% $ 3,870,215 33% $ 2,914,851
================ ============= ============= ============== ==============
DEPRECIATION AND AMORTIZATION EXPENSE:
TruGreen $ 64,505 26% $ 51,222 65% $ 30,954
Terminix 28,392 5% 27,045 17% 23,037
Home Maintenance and Improvement 29,116 27% 22,867 108% 10,979
Management Services 21,222 9% 19,424 -12% 22,023
Other Operations 14,456 -19% 17,886 2% 17,612
---------------- ------------- ------------- -------------- --------------
TOTAL DEPRECIATION AND AMORTIZATION EXPENSE $ 157,691 14% $ 138,444 32% $ 104,605
================ ============= ============= ============== ==============
CAPITAL EXPENDITURES:
TruGreen $ 28,056 18% $ 23,732 88% $ 12,608
Terminix 7,084 9% 6,483 -2% 6,607
Home Maintenance and Improvement 14,522 -9% 15,993 3% 15,551
Management Services 15,345 -49% 30,370 2% 29,757
Other Operations 11,596 -5% 12,176 13% 10,774
---------------- ------------- ------------- -------------- --------------
TOTAL CAPITAL EXPENDITURES $ 76,603 -14% $ 88,754 18% $ 75,297
================ ============= ============= ============== ==============
</TABLE>
(1) In 1999, the Other Operations segment included the $50 million pretax gain
related to the sales of the Premier automotive business and the Company's
remaining 15 percent interest in ServiceMaster Energy Management, and the
$136 million pretax charge related to the Diversified Health Services
operation, which included write-downs for the impairment of assets. In
1998, the Other Operations segment included a $38 million pretax gain
related to the formation of a strategic venture which acquired 85% of the
assets of ServiceMaster Energy Management and pretax charges totaling $38
million related primarily to the home health care operations, which
included a write-down for the impairment of assets and costs relating to
exiting customer arrangements.
16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
REINCORPORATION
Most operations of ServiceMaster and its subsidiary partnerships were
conducted from 1986 through 1997 in partnership form, free of federal corporate
income tax. Had ServiceMaster remained a partnership, the Internal Revenue Code
would have imposed a federal corporate tax on ServiceMaster operations beginning
in 1998. In anticipation of this change, the shareholders approved a tax-free
plan of reorganization to return to corporate form. The ServiceMaster Company
was created as part of this plan and it became the successor entity through
which the public invests in ServiceMaster. At the time of reincorporation, each
outstanding limited partnership share was converted into one share of
ServiceMaster par value common stock. No federal income taxes were imposed on
the shareholders as a result of the reincorporation.
INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory tax rate
to the Company's effective income tax rate is as follows:
2000 1999 1998
---- ---- ----
Tax at U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of U.S. federal benefit 4.2% 4.2% 4.4%
Non-deductible amortization 1.9% 1.5% -
Other 0.8% 0.7% 1.0%
----- ----- -----
Effective rate 41.9% 41.4% 40.4%
===== ===== =====
Income tax expense is as follows:
2000
--------------------------------------
(In thousands) CURRENT DEFERRED TOTAL
--------- ---------- ---------
U.S. federal $ 42,300 $64,200 $106,500
State and local 6,800 12,200 19,000
-------- -------- --------
$ 49,100 $76,400 $125,500
======== ======= ========
1999
--------------------------------------
(In thousands) CURRENT DEFERRED TOTAL
------- -------- -----
U.S. federal $ 76,830 $26,400 $103,230
State and local 14,000 5,400 19,400
--------- --------- --------
$ 90,830 $31,800 $122,630
======== ======= ========
1998
--------------------------------------
(In thousands) CURRENT DEFERRED TOTAL
------- -------- -----
U.S. federal $ 76,646 $30,200 $106,846
State and local 15,740 6,200 21,940
-------- --------- -----------
$ 92,386 $36,400 $128,786
======== ======= ========
Deferred income tax expense results from timing differences in the recognition
of income and expense for income tax and financial reporting purposes. Deferred
income tax balances reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and
income tax purposes. As a result of the reincorporation at the end of 1997, the
Company recognized a step-up in the tax basis of its intangible assets. These
assets are amortized over 15 years with the associated book assets assuming a 40
year life. Management believes that, based upon its lengthy and consistent
history of profitable operations, it is probable that its deferred tax assets
will be realized on future tax returns, primarily from the generation of future
taxable returns, primarily from the operation of future taxable income.
Significant components of the Company's deferred tax balances are as follows:
2000 1999
---- ----
(In thousands)
Deferred tax assets (liabilities):
Current:
Prepaid expenses and other $ (21,500) $ (26,700)
Accounts receivable allowance 15,100 12,900
Accrued insurance and
related expenses 22,000 24,900
Other accrued expenses (250) 33,600
---------- -----------
Total current asset 15,350 44,700
Long-Term:
Long-term assets (130,800) (43,100)
Insurance expenses 32,600 32,300
Other long-term obligations (16,950) (9,000)
---------- -----------
Total long term (liability) (115,150) (19,800)
---------- -----------
Net deferred tax asset (liability) $ (99,800) $ 24,900
========= =========
Total tax payments in 2000, net of refunds, were $38 million. In 1999 there were
$177 million of tax payments, which included $79 million for the 1998 federal
taxes that were deferred into 1999. Total tax payments in 1998 were $8 million.
17
<PAGE>
ACQUISITIONS
Acquisitions have been accounted for using the purchase method and,
accordingly, the results of operations of the acquired businesses have been
included in the Company's consolidated financial statements since their dates of
acquisition. The assets and liabilities of these businesses were recorded in the
financial statements at their estimated fair market values as of the acquisition
dates.
CURRENT YEAR
During 2000, the Company acquired many small companies, primarily in the lawn
care, heating/air conditioning and plumbing, pest control and landscaping
businesses. The aggregate fair market value of the net assets acquired was $214
million, with approximately $162 million of goodwill.
In January 2001, the Company acquired the Allied Bruce Terminix companies, the
Company's largest Terminix franchise and the fourth largest pest control company
in the United States. The total consideration consisted of an equity interest in
the Terminix subsidiary, which is exchangeable into eight million ServiceMaster
common shares and longer-term cash payments due over nine years totaling $25
million. This transaction is not expected to have a material impact on the
Company's 2001 earnings per share.
PRIOR YEARS
During 1999, the Company completed two significant acquisitions. In March 1999,
the Company acquired LandCare USA (LandCare) which, when combined with the
existing landscape operations of the Company, created the largest commercial
landscaping company in the United States. In April 1999, the Company acquired
American Residential Services (ARS), establishing the Company as one of the
nation's leading providers of heating, ventilation, and air conditioning
services. The fair market values of the assets acquired less liabilities assumed
for LandCare and ARS acquisitions were $331 million and $292 million,
respectively. The excess of the consideration paid over the fair value of the
tangible assets relating to LandCare and ARS businesses was $251 million and
$225 million, respectively, which was recorded as goodwill and trade names that
are being amortized over 40 years.
As of the acquisition dates, certain members of management acquired, at fair
market value, equity interests in the landscaping operations and the heating/air
conditioning and plumbing operations. As a result of the decision to integrate
the landscape and lawn care operations, the equity interests in the landscaping
operations were repurchased in 2000 at fair market value. In early 2001, equity
interests in the combined TruGreen segment were offered for sale at fair market
value to management investors. The Company and the holders of minority interests
in the combined TruGreen business unit and in heating/air conditioning and
plumbing operations have respective options to acquire or sell the minority
interests in the future at a price to be determined based on fair market value.
The future acquisition of these minority interests will be recorded as
additional purchase cost at the time of payment.
Also during 1999, the Company acquired many smaller companies, primarily in
the landscaping, lawn care and pest control businesses. The aggregate fair
market value of the assets acquired less liabilities assumed for these purchases
was $315 million, including approximately $278 million of goodwill.
In 1998, the Company completed a number of acquisitions, including Rescue
Industries, Inc. (Rescue), Ruppert Landscape Company (Ruppert), National
Britannia and other lawn care, landscape and pest control businesses. Rescue,
which operates under the Rescue Rooter trade name, was one of the largest
plumbing and drain cleaning companies in America. Ruppert was one of the
Mid-Atlantic's largest commercial landscape companies. National Britannia was
the third largest pest control company in the United Kingdom. The aggregate fair
market value of the assets acquired less liabilities assumed for these
acquisitions was $143 million, which consisted almost entirely of goodwill.
During 1998, the Company acquired a number of smaller companies, primarily in
the lawn care, landscaping and pest control businesses. The aggregate fair
market value of the net assets acquired was $293 million, including
approximately $249 million of goodwill.
Supplemental cash flow information regarding the Company's acquisitions is as
follows:
(In thousands) 2000 1999 1998
---- ---- ----
Fair value of assets acquired $ 253,669 $ 1,078,105 $ 459,400
Less liabilities assumed (40,149) (140,477) (23,167)
------------ ----------- -----------
Net assets acquired $ 213,520 $ 937,628 $ 436,233
Net cash paid for acquisitions $ 152,306 $ 510,512 $ 222,452
Shares issued 15,030 266,615 104,567
Seller financed and assumed debt 46,184 160,501 109,214
----------- ----------- ------------
Payment for acquisitions $ 213,520 $ 937,628 $ 436,233
=========== =========== ============
18
<PAGE>
DISPOSITIONS
CURRENT YEAR
In September 2000, the Company sold its interior plant care business for $44
million in cash. The transaction did not materially impact the Company's
operating results for the year. This sale represents the Company's continued
focus on the growth and investment in its core businesses.
Also in September 2000, the Company announced the sale of Diversified Health
Services, a company that manages long-term care facilities, to a company which
is owned and operated by a group of former senior managers of Diversified Health
Services. ServiceMaster has retained its ownership interest in five assisted
living facilities; however, these facilities will be operated by the new owners
of the Diversified Health Services business. The sale of Diversified Health
Services is consistent with the Company's previously announced strategy to
reduce its operational involvement in the long-term care industry. Last year,
the Company completed a strategic review and assessment of the services that
comprised the Diversified Health Services operation, considering the changes in
reimbursement and compliance policies as well as the resulting financial
difficulties of a number of its customers. Based on the review of the business
and the credit risks involved, the Company substantially reduced the scope of
the services it offered. As a result of this review, the Company recorded an
after-tax charge of $81 million in the second quarter of 1999 relating to
Diversified Health Services. The following summarizes the components of the
charge:
(AFTER-TAX, IN MILLIONS)
Write-down of impaired assets,
primarily goodwill $ 51
Write-down of receivables,
loans, and investments in nursing homes 19
Provisions for losses on contractual requirements
and exit costs of certain ancillary services 11
----
Total $ 81
====
Substantially all of the reserves that were in 1999 were appropriately used in
2000 and were deemed to have been adequate. No gain or loss was realized from
the final sale transaction in 2000. The results of operations of the Diversified
Health Services business were not material to the Company's financial statements
for the periods presented.
PRIOR YEARS
On April 21, 1999, the Company sold its Premier business unit to Durr AG of
Germany for $76 million. Premier provides cleaning services for paint booths and
other related maintenance services in the automotive industry. The Company
believes that alliances or significant incremental investments would have been
required to remain competitive in this industry. The sale of Premier allowed
ServiceMaster to realize the significant appreciation in its investment and to
reinvest the proceeds in initiatives more central to the Company's core
strategies. The sale resulted in an after-tax gain of approximately $25 million
($42 million pretax).
In 1998, the Company formed a strategic venture with Texas Utilities Company for
the ownership and operation of the ServiceMaster Energy Management business. The
venture acquired all of the assets of ServiceMaster Energy Management and was
owned 85 percent by Texas Utilities and 15 percent by ServiceMaster. This
transaction resulted in a pretax gain of $38 million. During 1999, the Company
sold its remaining 15% interest in the venture, which resulted in and after-tax
gain of $5 million ($8 million pretax).
In late 1998, the Company completed a strategic review of its
Home Health Care operations and concluded that, without significant investment,
it could not profitably provide high quality service in the future and continue
to satisfy all the changes and the requirements of new governmental
reimbursement programs. Consequently, in late 1998, the Company determined to
discontinue its activities in the Home Health Care business and recognized
certain impairment losses and wrote off certain accounts receivable. At the
time, the Company also established after-tax reserves of $5 million related to
the costs associated with exiting certain customer arrangements. The Company
substantially completed the exit of direct Home Health Care operations in the
first quarter of 1999, and determined that the reserve was adequate and
appropriate. The results of operations of the Home Health Care business were not
material to the Company's financial results for the periods presented.
COMMITMENTS AND CONTINGENCIES
The Company carries insurance policies on insurable risks which it believes to
be appropriate. The Company generally has self-insured retention limits and has
obtained fully insured layers of coverage above such self-insured retention
limits. Accruals for self insurance losses are made based on the Company's
claims experience and actuarial assumptions. The Company has certain liabilities
with respect to existing or potential claims, lawsuits, and other proceedings.
The Company accrues for these liabilities when it is probable that future costs
will be incurred and such costs can be reasonably estimated.
19
<PAGE>
In June 1996, Ray D. Martin, a former salesman employed by ServiceMaster
Management Services, filed a lawsuit in the State Court of Fulton County,
Georgia. The complaint as originally filed, contended that the Company had not
paid him the full amount of commissions due to him. In the course of the
pre-trial proceedings, the trial court entered a default judgment against the
Company, leaving the question of damages to be considered at the trial. In
September 1999, the jury awarded the plaintiff compensatory damages and fees of
approximately $1 million and punitive damages of $135 million. In October 1999,
the Company filed a motion for judgment notwithstanding the verdict or, in the
alternative, for a new trial. On June 1, 2000, the trial court entered a new
judgment in the amount of $461,440 in compensatory damages and $45 million in
punitive damages, as well as amounts for attorney fees and interest. The Company
filed a notice of appeal that same day. On June 13, 2000, Mr. Martin filed a
notice of cross-appeal. The Company expects that the appeal will be fully
briefed and argued in the court of appeals in May of 2001. The Company believes
that the award of $45 million in punitive damages is not supported by the facts
of the case or by applicable state law and that the judgment will be reversed by
the court of appeals. Under Georgia law, a judgment accrues interest at the rate
of 12 percent per annum. The Company continues to be unable to reasonably
estimate the ultimate outcome of this case, and accordingly, minimal expense has
been recorded. In the event that the existing judgment is sustained, or the
original judgment is reinstated after all appeals (which is not anticipated by
the Company), it would be likely that the Company's results of operations for a
particular year may be materially adversely affected. However, the Company
believes, based on advice from legal counsel, that the ultimate outcome of this
litigation is not expected to have a material adverse effect on the Company's
financial condition or results of operations.
EMPLOYEE BENEFIT PLANS
Contributions to qualified profit sharing plans were made in the amount of
$11.7 million in 2000, $11.6 million in 1999 and $9.9 million in 1998. Under the
Employee Share Purchase Plan, the Company contributed $1.2 million in 2000, $1.3
million in 1999 and $1.2 million in 1998. These funds defrayed part of the cost
of the shares purchased by employees.
20
<PAGE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt includes the following:
(In thousands) 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes Payable:
10.57%, maturing in 2000..................................$ - $ 9,000
8.38%, maturing in 2001.................................. 10,000 20,000
10.81%, maturing in 2001 - 2002........................... 36,700 55,000
6.65%, maturing in 2002 - 2004........................... 70,000 70,000
8.45%, maturing in 2005.................................. 250,000 -
7.40%, maturing in 2006.................................. 125,000 125,000
6.95%, maturing in 2007.................................. 100,000 100,000
7.88%, maturing in 2009.................................. 250,000 250,000
7.10%, maturing in 2018.................................. 149,000 150,000
7.45%, maturing in 2027.................................. 200,000 200,000
7.25%, maturing in 2038.................................. 150,000 150,000
Revolving credit facilities ................................ 248,615 382,500
International borrowings.................................... 90,979 93,048
Other....................................................... 137,823 164,750
Less current portion......................................... (61,360) (71,716)
------------- --------------
Total long-term debt........................................$ 1,756,757 $ 1,697,582
============ =============
</TABLE>
The Company is party to a number of long-term debt agreements that require it
to comply with certain financial covenants, including limitations on
indebtedness, restricted payments, fixed charge coverage ratios and net worth.
The Company has been and currently is in compliance with the covenants related
to these debt agreements.
Since August 1997, ServiceMaster has issued $1.1 billion of senior unsecured
debt securities pursuant to registration statements filed with the Securities
and Exchange Commission.
As of year-end, ServiceMaster had $550 million of senior unsecured debt
securities and equity interests available for issuance under an effective shelf
registration statement.
The Company has a committed revolving credit facility for up to $750 million
maturing in April 2002. The facility can be used for general Company purposes.
The revolving credit facility had $520 million of unused commitment as of
December 31, 2000.
The Company is exposed to interest rate fluctuations on its floating rate
debt. As of year-end, the Company had approximately $215 million in floating
rate borrowings after considering swap agreements. The Company has, from time to
time, entered into interest rate swap or similar arrangements to mitigate its
exposure to interest rate fluctuations, and does not, as a matter of policy,
enter into hedging contracts for trading or speculative purposes. In May 1999,
the Company entered into a three-year interest rate swap agreement to fix the
interest rate on $175 million of floating rate bank borrowings at an average
rate of 5.88 percent. As of December 2000, $50 million of this swap was unwound,
leaving the remaining $125 million at an average rate of 5.97 percent.
Cash interest payments were $131 million in 2000, $97 million in 1999, and $88
million in 1998. Average rates paid on the revolving credit facility were 6.6
percent in 2000, 5.5 percent in 1999, and 5.9 percent in 1998. Future scheduled
long-term debt payments are $61.4 million in 2001 (average rate of 5.4 percent),
$62.6 million in 2002 (average rate of 6.1 percent), $51.9 million in 2003
(average rate of 4.8 percent), $47.0 million in 2004 (average rate of 5.3
percent) and $259.5 million in 2005 (average rate of 8.3 percent). The $248.6
million revolving credit facility balance as of year-end has not been included
in the scheduled payments above as the Company expects to extend the revolving
credit facility beyond 2005.
Based upon the borrowing rates currently available to the Company for
long-term borrowings with similar terms and maturities, the fair value of
long-term debt is approximately $1.5 billion.
Future long-term noncancelable operating lease payments are $59.8 million in
2001, $49.6 million in 2002, $41.0 million in 2003, $32.3 million in 2004, $22.8
million in 2005 and $60.8 million thereafter. Rental expense for 2000, 1999, and
1998 was $160.3 million, $137.9 million, and $103.8 million, respectively.
The Company maintains operating lease facilities with banks totaling $95
million which provide for the acquisition and development of properties to be
leased by the Company. The Company has guaranteed the residual value of the
properties under the lease up to 82 percent of the fair market value at the
commencement of the lease. The Company does not expect to be required to make
residual value payments and, therefore, no amounts have been included in the
future payments above. At December 31, 2000, approximately $79 million was
funded under these facilities.
CASH AND MARKETABLE SECURITIES
Marketable securities held at December 31, 2000 and 1999, with maturities of
three months or less, are included in the Statements of Financial Position
caption "Cash and Cash Equivalents." Marketable securities are designated as
available for sale and recorded at current market value, with unrealized gains
and losses reported in a separate component of shareholders' equity. The
Company's investments consist primarily of publicly-traded debt and common
equity securities.
21
<PAGE>
As of December 31, 2000, the aggregate market value of the Company's short- and
long-term investments in debt and equity securities was $126.4 million and the
aggregate cost basis was $114.8 million.
Interest and dividend income received on cash and marketable securities was
$10.0 million, $9.0 million and $8.9 million, in 2000, 1999, and 1998,
respectively. Gains and losses on sales of investments, as determined on a
specific identification basis, are included in investment income in the period
they are realized.
COMPREHENSIVE INCOME
The Company reports all changes in equity during a period, except those
resulting from investment by owners and distribution to owners. Comprehensive
Income, which encompasses net income, unrealized gains on marketable securities
and the effect of foreign currency translation, is disclosed in the Statement of
Shareholders' Equity.
(in thousands) 2000 1999 1998
---- ---- ----
Unrealized holding gains
arising in period $20,578 $1,026 $5,529
Tax expense 8,478 471 2,234
----- ------ ------
Net of tax amount $12,100 $ 555 $3,295
======= ====== ======
Gains realized $15,713 $7,239 $6,342
Tax expense 6,458 2,954 2,562
------- ------ ------
Net of tax amount $9,255 $4,285 $3,780
======= ====== ======
Accumulated comprehensive income (loss) included the following components as of
December 31:
(in thousands) 2000 1999 1998
---- ---- ----
Unrealized gain on
securities $ 6,868 $ 4,023 $ 7,753
Foreign currency
translation (9,700) (5,844) (3,842)
----------- ----------- ----------
Total $ (2,832) $ (1,821) $ 3,911
=========== =========== ==========
SHAREHOLDERS' EQUITY
The Company has authorized one billion shares of common stock with a par value
of $.01 and 11 million shares of preferred stock. There are no shares of
preferred stock issued or outstanding. In December 1997, ServiceMaster converted
from a publicly-traded limited partnership to a corporation. At the time of
reincorporation, each outstanding limited partnership share was converted into
one share of common stock on a tax-free basis to the shareholders. The shares
underlying the obligations and rights relating to the employee option plans also
were converted from partnership shares to corporate stock on a one-for-one
basis.
The Company has an effective shelf registration statement to issue shares of
common stock in connection with future, unidentified acquisitions. This filing
allows the Company to issue registered shares much more efficiently when
acquiring privately-held companies. The Company plans to use the shares over
time in connection with purchases of small strategic acquisitions. There were
approximately 4.7 million shares available at year end.
As of December 31, 2000, there were 39.9 million Company shares available for
issuance upon the exercise of employee options outstanding and future grants.
Share options are issued at a price not less than the fair market value on the
grant date. Certain options may permit the holder to pay the option exercise
price by tendering Company shares that have been owned by the holder without
restriction for an extended period. Share grants carry a vesting period and are
restricted as to the sale or transfer of the shares.
22
<PAGE>
The Company accounts for employee share options under Accounting Principles
Board Opinion 25, as permitted under generally accepted accounting principles.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements related to these options. Had compensation cost for these
plans been determined consistent with Statement of Financial Accounting
Standards No. 123 (SFAS 123), which is an accounting alternative that is
permitted but not required, pro forma net income and net income per share would
reflect the following:
(In thousands, except per share 2000 1999 1998
data) ---- ---- ----
Net Income:
As reported $173,827 $173,563 $189,992
SFAS 123 pro forma $165,657 $166,601 $185,555
Net Income Per Share:
Basic: As reported $.57 $.56 $.66
SFAS 123 pro forma $.55 $.54 $.64
Diluted: As reported $.57 $.55 $.64
SFAS 123 pro forma $.54 $.53 $.62
The SFAS 123 pro forma net income reflects options granted in 2000, 1999 and
1998. Had awards been granted in earlier years that carried similar vesting
requirements as the current options, then the pro forma compensation expense
presented would have been higher. Consequently, the pro forma disclosure is not
indicative of pro forma results which may be expected in future years.
The fair value of each option is estimated on the date of grant based on the
Black-Scholes option pricing model with the following weighted-average
assumptions in 2000, 1999, and 1998: risk-free interest rates of 6.1 percent,
5.4 percent and 5.6 percent, respectively; volatility rates of 29 percent, 25
percent and 22 percent, respectively; distribution yields of 4.1 percent, 2.5
percent and 1.9 percent, respectively; and average expected lives of six to
seven years. The options granted to employees in 2000, 1999 and 1998 have
weighted-average fair values of $2.19, $4.15, and $5.17, respectively and vest
ratably over five years. The Company has estimated the value of these options
assuming a single weighted-average expected life for the entire award.
23
<PAGE>
Option and grant transactions during the last three years are summarized below:
<TABLE>
<CAPTION>
Share Price Weighted Average Share Price
Options Range Exercise Price Grants Range
===================================================================================================================================
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Total exercisable, December 31, 1997 6,919,718 $ 0.73 - 10.78 $ 6.05 -- --
Total outstanding, December 31, 1997 15,320,157 $ 0.73 - 18.42 $ 8.65 1,256,106 $ 2.86 - 7.96
TRANSACTIONS DURING 1998
Granted to employees 3,574,376 $ 15.74 - 22.77 $ 18.29 -- --
Exercised, paid, or vested (1,604,784) $ 2.25 - 11.22 $ 6.29 (293,376) $ 2.86 - 7.96
Terminated or resigned (377,023) $ 0.73 - 18.26 $ 8.57 -- --
Total exercisable, December 31, 1998 7,269,279 $ 0.73 - 22.33 $ 7.51 -- --
Total outstanding, December 31, 1998 16,912,726 $ 0.73 - 22.77 $ 10.89 962,730 $ 2.86 - 7.96
TRANSACTIONS DURING 1999
Granted to employees 6,599,732 $ 11.50 - 21.16 $ 15.55 -- --
Assumed in acquisitions 1,779,395 $ 6.48 - 45.79 $ 19.02 -- --
Exercised, paid, or vested (1,355,345) $ 0.73 - 18.26 $ 7.61 (248,900) $ 2.86 - 7.96
Terminated or resigned (435,069) $ 0.73 - 45.79 $ 19.32 -- --
Total exercisable, December 31, 1999 10,006,644 $ 2.24 - 45.79 $ 10.37 -- --
Total outstanding, December 31, 1999 23,501,439 $ 2.24 - 45.79 $ 12.85 713,830 $ 2.86 - 7.96
TRANSACTIONS DURING 2000
Granted to employees 4,326,164 $ 8.48 - 12.55 $ 9.71 -- --
Exercised, paid, or vested (591,517) $ 2.24 - 14.55 $ 9.31 (231,474) $ 2.86 - 7.96
Terminated or resigned (966,857) $ 2.25 - 37.61 $ 12.86 -- --
Total exercisable, December 31, 2000 11,985,121 $ 2.24 - 45.79 $ 11.57 -- --
Total outstanding, December 31, 2000 26,269,229 $ 2.24 - 45.79 $ 12.43 482,356 $ 2.86 - 7.96
===================================================================================================================================
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options outstanding at December 31, 2000:
Number
Range of Outstanding Remaining Weighted-Average Number Exercisable Weighted-Average
Exercise Prices at 12/31/00 Life Exercise Price at 12/31/00 Exercise Price
===================================================================================================================================
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
$ 2.24 - 6.44 2,052,204 3.0 years $ 5.59 2,052,204 $ 5.59
6.48 - 10.78 7,584,324 5.0 years 8.93 3,565,686 8.83
11.22 - 15.94 9,200,850 8.0 years 11.68 3,823,012 12.00
16.12 - 22.77 7,121,916 8.0 years 18.19 2,298,520 18.27
27.20 - 45.79 309,935 6.0 years 32.99 245,699 31.58
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2.24 - 45.79 26,269,229 7.0 years $ 12.43 11,985,121 $ 11.57
===================================================================================================================================
===================================================================================================================================
</TABLE>
24
<PAGE>
EARNINGS PER SHARE
Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average
number of shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of convertible securities and options to purchase common
stock.
The following chart reconciles both the numerator and the denominator of the
basic earnings per share computation to the numerator and the denominator of the
diluted earnings per share computation:
<TABLE>
<CAPTION>
For year ended 2000 For year ended 1999 For year ended 1998
---------------------------------------------------------- -------------------------
(In thousands, except per share data) Income Shares EPS Income Shares EPS Income Shares EPS
---------- ---------- ---------- ------------------------- ------------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS $ 173,827 302,487 $ 0.57 $ 173,563 307,637 $ 0.56 $ 189,992 289,315 $ 0.66
EFFECT OF DILUTIVE SECURITIES, NET OF TAX:
Options 3,031 6,769 9,391
Convertible debentures - - - - 32 181
---------- ---------- ---------- -------- ---------- --------
DILUTED EPS $ 173,827 305,518 $ 0.57 $ 173,563 314,406 $ 0.55 $ 190,024 298,887 $ 0.64
========== ========== ======= ========== ======= ====== ========= ======= ======
</TABLE>
25
<PAGE>
QUARTERLY OPERATING RESULTS
Quarterly operating results and related growth for the last three years in
revenues, gross profit, net income, and basic and diluted net income per share
are shown in the table below. For interim accounting purposes, certain costs
directly associated with the generation of lawn care revenues are initially
deferred and recognized as expense as the related revenues are recognized. Full
year results are not affected.
Certain amounts from prior periods have been reclassified to conform with the
current presentation.
As discussed in the "Change in Accounting Principle" note, the Company adopted
SAB 101 effective January 1, 2000. The impact of this accounting change on 2000
is below.
<TABLE>
<CAPTION>
AS PREVIOUSLY REPORTED ADJUSTED TO RETROACTIVELY APPLY SAB 101
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
(Unaudited, in thousands, except per share data) 2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------- ---------------------------------------------------------------------
- -------------------------------------------------------------- ---------------------------------------------------------------------
OPERATING REVENUE:
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 1,346,505 $ 1,115,062 $ 981,788 $ 1,340,884 $ 1,109,491 $ 976,620
Second Quarter 1,626,359 1,537,074 1,244,627 1,614,695 1,520,352 1,231,953
Third Quarter 1,586,260 1,584,225 1,273,093 1,591,484 1,588,798 1,275,026
Fourth Quarter N/A 1,467,174 1,224,611 1,423,552 1,475,157 1,230,559
---------- ---------- ---------- ---------- ---------
$ 5,703,535 $4,724,119 $ 5,970,615 $ 5,693,798 $ 4,714,158
GROSS PROFIT:
First Quarter $ 261,089 $ 215,247 $ 186,991 $ 256,068 $ 209,140 $ 182,086
Second Quarter 394,481 368,237 293,261 389,652 355,423 284,031
Third Quarter 348,407 359,885 316,718 354,013 364,818 319,371
Fourth Quarter N/A 301,131 247,537 274,415 307,742 252,355
-------- -------- -------- -------- -------
$ 1,244,500 $1,044,507 $ 1,274,148 $ 1,237,123 $ 1,037,843
NET INCOME:
First Quarter $ 39,011 $ 35,609 $ 29,270 $ 36,054 $ 31,994 $ 26,347
Second Quarter 69,371 18,035 56,404 66,315 10,449 50,904
BEFORE NON-RECURRING ITEMS 69,371 69,335 56,404 66,315 61,749 50,904
Third Quarter 47,484 66,637 56,352 50,786 69,557 57,933
Fourth Quarter N/A 53,282 47,966 31,833 56,337 50,837
------- ------- ------- ------- ------
Net income $ 173,563 $ 189,992 $ 184,988 $ 168,337 $ 186,021
BEFORE NET NON-RECURRING ITEMS $ 224,863 $189,992 $ 184,988 $ 219,637 $ 186,021
BASIC NET INCOME PER SHARE:
First Quarter $ 0.13 $ 0.12 $ 0.11 $ 0.12 $ 0.11 $ 0.10
Second Quarter 0.23 0.06 0.20 0.22 0.03 0.18
BEFORE NON-RECURRING ITEMS 0.23 0.22 0.20 0.22 0.19 0.18
Third Quarter 0.16 0.21 0.19 0.17 0.22 0.20
Fourth Quarter N/A 0.17 0.16 0.11 0.18 0.17
----- ----- ----- ----- ----
Basic net income per share $ 0.56 $ 0.66 $ 0.62 $ 0.54 $ 0.65
BEFORE NET NON-RECURRING ITEMS $ 0.73 $ 0.66 $ 0.62 $ 0.71 $ 0.65
DILUTED NET INCOME PER SHARE:
First Quarter $ 0.13 $ 0.12 $ 0.10 $ 0.12 $ 0.11 $ 0.09
Second Quarter 0.22 0.06 0.19 0.21 0.03 0.17
BEFORE NON-RECURRING ITEMS 0.22 0.22 0.19 0.21 0.19 0.17
Third Quarter 0.16 0.21 0.19 0.17 0.22 0.20
Fourth Quarter N/A 0.17 0.16 0.11 0.18 0.17
----- ----- ----- ----- ----
Diluted net income per share $ 0.55 $ 0.64 $ 0.61 $ 0.53 $ 0.63
BEFORE NET NON-RECURRING ITEMS $ 0.72 $ 0.64 $ 0.61 $ 0.70 $ 0.63
CASH DIVIDENDS PER SHARE:
First Quarter $ 0.09 $ 0.09 $ 0.08
Second Quarter 0.09 0.09 0.08
Third Quarter 0.10 0.09 0.08
Fourth Quarter 0.10 0.09 0.09
----- ------ -----
$ 0.38 $ 0.36 $ 0.33
PRICE PER SHARE:
First Quarter $14.94 - 10.69 $ 22.00 - 17.50 $ 19.63 - 16.50
Second Quarter 13.75 - 10.63 20.94 - 17.31 25.50 - 17.92
Third Quarter 11.50 - 8.38 18.56 - 14.00 24.75 - 19.75
Fourth Quarter 11.50 - 8.25 16.25 - 10.13 23.81 - 16.00
</TABLE>
All share and per share data reflect the three-for-two share split in August
1998.
26
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>SUBSIDIARIES OF THE SERVICEMASTER COMPANY
<TEXT>
EXHIBIT 21
SUBSIDIARIES OF THE SERVICEMASTER COMPANY
As of March 1, 2001, ServiceMaster had the following subsidiaries:
<TABLE>
<CAPTION>
State or Country
of
Incorporation
Subsidiary or Organization
<S> <C>
ServiceMaster Consumer Services Limited Partnership........................................................Delaware
ServiceMaster Consumer Services, Inc. ....................................................................Delaware
TruGreen Limited Partnership...............................................................................Delaware
TruGreen, Inc. ...........................................................................................Delaware
Barefoot Grass Lawn Services, Inc. .......................................................................Delaware
Barefoot Services L.L.C. .................................................................................Delaware
TruGreen LandCare L.L.C. 1.................................................................................Delaware
TruGreen Holding L.L.C.....................................................................................Delaware
The Terminix International Company Limited Partnership.....................................................Delaware
Terminix International, Inc. .............................................................................Delaware
ServiceMaster Residential/Commercial Services Limited Partnership..........................................Delaware
ServiceMaster Residential/Commercial Services Management Corporation.......................................Delaware
Merry Maids Limited Partnership............................................................................Delaware
Merry Maids, Inc. ........................................................................................Delaware
American Home Shield Corporation 2.........................................................................Delaware
AmeriSpec, Inc. ..........................................................................................Delaware
Furniture Medic Limited Partnership........................................................................Delaware
Furniture Medic, Inc. ....................................................................................Delaware
American Residential Services L.L.C. 3.....................................................................Delaware
Rescue Rooter L.L.C. .....................................................................................Delaware
ServiceMaster Management Services Limited Partnership......................................................Delaware
ServiceMaster Management Services, Inc. ..................................................................Delaware
ServiceMaster Aviation Services Limited Partnership........................................................Delaware
ServiceMaster Aviation Management Corporation..............................................................Delaware
ServiceMaster Aviation L.L.C. ............................................................................Illinois
CMI Group, Inc. .........................................................................................Wisconsin
Halliwell Engineering Associates L.L.C. ..................................................................Delaware
ServiceMaster Employer Services, Inc. 4....................................................................Delaware
The ServiceMaster Acceptance Company Limited Partnership...................................................Delaware
ServiceMaster AM Limited Partnership.......................................................................Delaware
ServiceMaster Acceptance Corporation.......................................................................Delaware
ServiceMaster Holding Corporation..........................................................................Delaware
ServiceMaster Strategic Limited Partnership................................................................Delaware
1
<PAGE>
The ServiceMaster Company Limited Partnership..............................................................Delaware
ServiceMaster Management Corporation.......................................................................Delaware
Steward Insurance Company...................................................................................Vermont
ServiceMaster Limited................................................................................United Kingdom
ServiceMaster Operations Germany GmbH.......................................................................Germany
ServiceMaster Japan, Inc. ...................................................................................Japan
TMX-Europe B.V. ...................................................................................The Netherlands
Terminix Ltd. 5 .....................................................................................United Kingdom
Terminix B.V. .....................................................................................The Netherlands
Riwa B.V. .........................................................................................The Netherlands
Anticimex Development AB 6...................................................................................Sweden
Terminix GmbH & Co. KG......................................................................................Germany
LTCS Investment Limited Partnership........................................................................Delaware
ServiceMaster Home Health Care Services Inc. .............................................................Delaware
We Serve America, Inc. ...................................................................................Delaware
WeServeHomes.com, Inc. ...................................................................................Delaware
</TABLE>
- --------
1 TruGreen LandCare L.L.C. has 17 subsidiaries.
2 American Home Shield Corporation has 17 subsidiaries through which it carries
on its business in the various states in which it markets its products.
3 American Residential Services L.L.C. has 35 subsidiaries.
4 ServiceMaster Employer Services has 4 subsidiaries.
5 Terminix Ltd. has 35 subsidiaries.
6 Anticimex Development AB has 5 subsidiaries.
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K and in The ServiceMaster Company's
previously filed Registration Statement File Nos. 333-53142, 333-50886,
333-42680, 333-33580, 333-78239, 333-74781, 033-55761, 033-39148 on Form S-8,
No. 333-91381 on Form S-3, and 333-75069 on Form S-4 of our report dated January
23, 2001 of The ServiceMaster Company's Annual Report to Shareholders for the
year ended December 31, 2000. It should be noted that we have not audited any
financial statements of ServiceMaster subsequent to December 31, 2000, or
performed any audit procedures subsequent to the date of our report.
Arthur Andersen LLP
Chicago, Illinois
March 23, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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