-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OfLhaZhN+JCaV5zp5wED5nBtkeTAt2jyOivY1s2NWX/HCFjvidQsfRjBcKPQU+wn kSgOD+wuAZtIpm9B79YHRA== 0000950131-97-000255.txt : 19970120 0000950131-97-000255.hdr.sgml : 19970120 ACCESSION NUMBER: 0000950131-97-000255 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970117 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BAREFOOT INC /DE CENTRAL INDEX KEY: 0000878944 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 311265715 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-41802 FILM NUMBER: 97507395 BUSINESS ADDRESS: STREET 1: 450 W WILSON BRIDGE RD STREET 2: STE 160 CITY: WORTHINGTON STATE: OH ZIP: 43085 BUSINESS PHONE: 6148461800 MAIL ADDRESS: STREET 2: 450 WILSON BRIDGE RD CITY: WORTHINGTON STATE: OH ZIP: 43085 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SERVICEMASTER LTD PARTNERSHIP CENTRAL INDEX KEY: 0000806027 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 363497008 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: ONE SERVICEMASTER WAY CITY: DOWNERS GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 7089641300 SC 14D1 1 SCHEDULE 14D-1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- BAREFOOT INC. (NAME OF SUBJECT COMPANY) SERVICEMASTER LIMITED PARTNERSHIP (BIDDER) COMMON STOCK, $.01 PAR VALUE 067512 10 3 (Title of Class of Securities) (CUSIP Number of Class of Securities) VERNON T. SQUIRES SENIOR VICE PRESIDENT AND GENERAL COUNSEL ONE SERVICEMASTER WAY DOWNERS GROVE, ILLINOIS 60515-9869 TELEPHONE: (630) 271-1300 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER) Copies to: ROBERT H. KINDERMAN KIRKLAND & ELLIS 200 E. RANDOLPH DRIVE CHICAGO, ILLINOIS 60601 ---------------- CALCULATION OF FILING FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TRANSACTION AMOUNT OF VALUATION* FILING FEE - --------------------------------------------------------------------------- $232,000,000 $46,400 - ---------------------------------------------------------------------------
- ------------------------------------------------------------------------------- * Estimated solely for the purposes of determining the filing fee only. The amount assumes the purchase of 14,519,760 Barefoot Shares (as defined herein) at $16.00 per share. The amount of the filing fee is calculated in accordance with Rule 0-11(d) under the Securities Exchange Act of 1934. [X]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. $46,400 Amount Previously Paid: _________________________________ S-4 REGISTRATION STATEMENT (FILE NO. 333-17759) Form or Registration No.: _______________________________ SERVICEMASTER LIMITED PARTNERSHIP Filing Party: ___________________________________________ DECEMBER 12, 1996 AND JANUARY 16, 1997 (AMENDMENT NO. 1) Date Filed: _____________________________________________ - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CUSIP No. 067512103 14D-1 NAME OF REPORTING PERSON 1 ServiceMaster Limited Partnership S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 36-3497008 - ------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) (b) - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- SOURCE OF FUNDS* 4 BK, WC - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) - ------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------- 7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 289,000 - ------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES* 8 - ------------------------------------------------------------------------------- 9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 2.0% - ------------------------------------------------------------------------------- 10 TYPE OF REPORTING PERSON* PN * SEE INSTRUCTIONS BEFORE FILLING OUT! ITEM 1. SECURITY AND SUBJECT COMPANY (a) The name of the subject company is Barefoot Inc., a Delaware corporation ("Barefoot"), and the address of its principal executive offices is 450 West Wilson Bridge Road, Worthington, Ohio 43085. (b) This Statement relates to the offer by ServiceMaster Limited Partnership (the "Offer"), a Delaware limited partnership ("ServiceMaster"), to acquire all of the 14,519,760 outstanding shares of common stock, par value $.01 ("Barefoot Shares"), of Barefoot, together with the associated Series A Junior Participating Preferred Stock Purchase Rights (the "Stock Purchase Rights"), not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion Fraction") of a validly issued, fully paid and nonassessable share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date (as defined in the Offering Circular/Prospectus) and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration" and collectively with the Cash Consideration, the "Offer Consideration"). Pursuant to the Offer, Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. There is no limit on the percentage of the Offer Consideration which may be received as cash or as ServiceMaster Shares. The Offer is made on the terms and subject to the conditions set forth in the Offering Circular/Prospectus and in the related Letter of Transmittal/Form of Election, copies of which are attached hereto as Exhibits (a)(1) and (a)(2). The information set forth in the sections of the Offering Circular/Prospectus entitled "SUMMARY--The Offer", "SUMMARY--Barefoot" and "THE OFFER" is incorporated herein by reference. (c) The information set forth in the section of the Offering Circular/Prospectus entitled "SUMMARY--Market Price Data And Distributions" is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND (a)-(d) and (g) This Statement is filed by ServiceMaster. The information set forth in the sections of the Offering Circular/Prospectus entitled "SUMMARY--ServiceMaster" and Schedule I is incorporated herein by reference. (e)-(f) Neither ServiceMaster, nor, to the best knowledge of ServiceMaster, any of the persons listed in Schedule I of the Offering Circular/Prospectus, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY (a)-(b) The information set forth in the sections of the Offering Circular/Prospectus entitled "THE OFFER--History of the Negotiations" and "CERTAIN RELATIONSHIPS" is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION (a) The information set forth in the section of the Offering Circular/Prospectus entitled "THE OFFER--Source and Amount of Funds" is incorporated herein by reference. (b)-(c) ServiceMaster intends to use cash on hand and, to the extent necessary, borrowings under its existing revolving credit agreement to pay the Cash Consideration. ServiceMaster's revolving credit agreement is Exhibit (b) to this Schedule 14D-1, and is incorporated herein by reference. 3 ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER (a)-(e) The Offer is being made by ServiceMaster pursuant to an Acquisition Agreement (the "Acquisition Agreement") dated as of December 5, 1996, among ServiceMaster, ServiceMaster Acquisition Corporation ("Merger Sub"), a Delaware corporation and wholly owned subsidiary of ServiceMaster, and Barefoot. To complete its acquisition of Barefoot, ServiceMaster has agreed to effect as promptly as possible after consummation of the Offer a cash-out merger (the "Merger") of Merger Sub with and into Barefoot for $16.00 in cash per Share without interest thereon (the "Merger Consideration") and upon the terms and subject to the conditions set forth in a Plan and Agreement of Merger executed simultaneously with the Acquisition Agreement (the "Merger Agreement"). The information set forth in the sections of the Offering Circular/Prospectus entitled "SUMMARY--The Offer"; "SUMMARY--The Merger," "DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT," "SUMMARY--Post- Acquisition Operations," ANNEX A-I and ANNEX A-II is incorporated herein by reference. (f)-(g) Upon consummation of the Merger, ServiceMaster intends to discontinue the quotation of the Barefoot Shares on the Nasdaq National Market and to terminate registration of Barefoot Shares with the Securities and Exchange Commission pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934. The information set forth in the sections of the Offering Circular/Prospectus entitled "DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT" and "THE OFFER--Certain Effects of the Offer Pending Consummation of the Merger" is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY (a)-(b) The information set forth in the section of the Offering Circular/Prospectus entitled "CERTAIN RELATIONSHIPS" is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES The information set forth in the section of Offering Circular/Prospectus entitled "DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT" is hereby incorporated by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED The information set forth in the sections of the Offering Circular/Prospectus entitled "THE OFFER--Fees and Expenses" and "THE OFFER-- Miscellaneous" is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS The information set forth in the sections of the Offering Circular/Prospectus entitled "SUMMARY--SELECTED HISTORICAL FINANCIAL INFORMATION; Selected Historical Financial Information of ServiceMaster," "INCORPORATION OF DOCUMENTS BY REFERENCE," "SUMMARY--SELECTED PRO FORMA FINANCIAL INFORMATION," "SUMMARY--UNAUDITED COMPARATIVE PER SHARE DATA" and "UNAUDITED PRO FORMA FINANCIAL INFORMATION," is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION (a) None. (b) The information set forth in the section of the Offering Circular/Prospectus entitled "SUMMARY--The Offer; Regulatory Approvals" and "THE OFFER--Certain Legal Matters; Regulatory Approvals" is incorporated herein by reference. 4 (c) The information set forth in the section of the Offering Circular/Prospectus entitled "SUMMARY--The Offer; Regulatory Approvals" and "THE OFFER--Certain Legal Matters; Regulatory Approvals" is incorporated herein by reference (d) The information set forth in the sections of the Offering Circular/Prospectus entitled "SUMMARY--The Offer; Effects of the Offer" and "THE OFFER--Certain Effects of the Offer Pending Consummation of the Merger" is incorporated herein by reference. (e) None. (f) The information set forth in the Offering Circular/Prospectus and the Letter of Transmittal/Form of Election is incorporated herein by reference in its entirety. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS (a)(1) Offering Circular/Prospectus dated January 17, 1997. (a)(2) Letter of Transmittal/Form of Election. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Text of press releases issued by ServiceMaster and Barefoot dated December 5, 1996 and January 17, 1997. (a)(8) Form of summary advertisement dated January 17, 1997. (b) Revolving Credit Agreement between ServiceMaster and certain Lenders. (c) The Acquisition Agreement and the Merger Agreement are set forth as Annex A-I and Annex A-II, respectively, to the Offering Circular/Prospectus. See Exhibit (a)(1). (d)(1) Opinion of Kirkland & Ellis set forth as Annex C-II to the Offering Circular/Prospectus. See Exhibit (a)(1). (d)(2) Opinion of Vorys, Sater, Seymour and Pease set forth as Annex C- I to the Offering Circular/ Prospectus. See Exhibit (a)(1). (e) See Exhibit (a)(1).
5 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DATED: January 17, 1997 Servicemaster Limited Partnership Vernon T. Squires By: _________________________________ Name: Vernon T. Squires Title: Senior Vice President and General Counsel 6 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION ------- ------------------- (a)(1) Offering Circular/Prospectus dated January 17, 1997. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Text of press releases issued by ServiceMaster dated December 5, 1996 and January 17, 1997. (a)(8) Form of summary advertisement dated January 17, 1997. (b) Revolving Credit Agreement between ServiceMaster and certain Lenders. (c) The Acquisition Agreement and the Merger Agreement are set forth as Annex A-I and Annex A-II, respectively, to the Offering Circular/Prospectus. See Exhibit (a)(1). (d)(1) Opinion of Kirkland & Ellis set forth as Annex C-II to the Offering Circular/Prospectus. See Exhibit (a)(1). (d)(2) Opinion of Vorys, Sater, Seymour & Pease set forth as Annex C-I to the Offering Circular/ Prospectus. See Exhibit (a)(1). (e) See Exhibit (a)(1).
7 EX-99.(A)(1) 2 OFFERING CIRCULAR/PROSPECTUS FILED PURSUANT TO RULE 424(b)(4) REG. NO. 333-17759 OFFERING CIRCULAR/PROSPECTUS LOGO OFFER BY SERVICEMASTER LIMITED PARTNERSHIP TO ACQUIRE EACH OUTSTANDING SHARE OF COMMON STOCK OF BAREFOOT INC. FOR, AT THE ELECTION OF THE HOLDER, (I) $16.00 IN CASH, OR (II) A FRACTION OF A SHARE OF SERVICEMASTER LIMITED PARTNERSHIP THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997 UNLESS EXTENDED. ServiceMaster Limited Partnership ("ServiceMaster"), a Delaware limited partnership, hereby offers, upon the terms and subject to the conditions set forth in this Offering Circular/Prospectus and the accompanying Letter of Transmittal/Form of Election (the "Letter of Transmittal," together with the Offering Circular/Prospectus, as they may be amended or supplemented from time to time, the "Offer"), to acquire each outstanding share ("Share" or "Barefoot Share") of common stock, par value $0.01 per share, of Barefoot Inc. ("Barefoot" or the "Company"), a Delaware corporation, together with the associated Series A Junior Participating Preferred Stock Purchase Rights (the "Stock Purchase Rights") not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date (as defined) and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration" and collectively with the Cash Consideration, the "Offer Consideration"). Pursuant to the Offer, Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. There is no limit on the percentage of the Offer Consideration which may be received as cash or as ServiceMaster Shares. The Offer is conditioned on a minimum number (the "Minimum Number") of the outstanding Barefoot Shares being tendered for either cash or ServiceMaster Shares pursuant to the Offer such that, when added to all Barefoot Shares owned by ServiceMaster prior to consummation of the Offer, ServiceMaster will own at least 75.0% of the Barefoot Shares which shall be outstanding at the Closing Time (as defined). ServiceMaster, as of the date of this Offering Circular/Prospectus, beneficially owns 289,000 Barefoot Shares or approximately 2.0% of the outstanding Barefoot Shares. The Offer is also subject to certain other conditions, any or all of which may be waived by ServiceMaster. See "The Offer--Conditions to the Offer." The Offer is being made by ServiceMaster pursuant to an Acquisition Agreement (the "Acquisition Agreement") dated as of December 5, 1996, among ServiceMaster, ServiceMaster Acquisition Corporation ("Merger Sub"), a Delaware corporation and wholly-owned subsidiary of ServiceMaster, and Barefoot. To complete its acquisition of Barefoot, ServiceMaster has agreed to effect as promptly as possible after consummation of the Offer a cash-out merger (the "Merger" and collectively with the Offer, the "Transaction") of Merger Sub with and into the Company for $16.00 in cash per Barefoot Share without interest thereon (the "Merger Consideration") and upon the terms and subject to the conditions set forth in a Plan and Agreement of Merger executed simultaneously with the Acquisition Agreement (the "Merger Agreement"). See "The Offer" and "Description of Acquisition Agreement and Merger Agreement." (Continued on next page) --------------- THE SERVICEMASTER SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO. --------------- The date of this Offering Circular/Prospectus is January 17, 1997. (Cover page continued) ServiceMaster and the Company believe that, for United States federal income tax purposes: (i) the Cash Consideration received by any holder of Barefoot Shares tendered and accepted by ServiceMaster pursuant to the Offer will be treated as the receipt of cash in a taxable sale of the Shares, and (ii) for United States persons who hold Barefoot Shares as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code ("Code"), the exchange of Barefoot Shares for ServiceMaster Shares pursuant to the Offer as provided for herein will qualify as a tax free contribution of property to ServiceMaster within the meaning of Section 721 of the Code. The foregoing is based upon the laws, regulations, rulings and decisions currently in effect, all of which are subject to change. Barefoot stockholders should consult their own tax advisors to determine the federal, state, local and other tax consequences of participating in the Offer or the Merger. Stockholders should note that no rulings have been or will be sought from the Internal Revenue Service (the "IRS") with respect to the federal income tax consequences of the Offer or the Merger, and no assurance can be given that the IRS will not take contrary positions. See "Certain Federal Income Tax Consequences." Upon the terms and subject to the conditions of the Offer, ServiceMaster will accept pursuant to the Offer any and all Shares validly tendered and not withdrawn prior to 12:00 midnight, New York City time, on Friday, February 21, 1997, unless extended by ServiceMaster (such date, or such later date to which the Offer may be extended, the "Expiration Date"), on the next business day following the Expiration Date. Tenders of Shares may be withdrawn pursuant to the procedures for withdrawal set forth herein. See "The Offer--Withdrawal Rights." The Cash Consideration will be paid and the ServiceMaster Shares will be delivered as promptly as practicable after acceptance of the Shares by ServiceMaster. See "The Offer--Acceptance of Shares; Delivery of the Offer Consideration." Any Shares not accepted pursuant to the Offer for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Offer. Any holder desiring to tender Barefoot Shares should either (i) complete and sign the Letter of Transmittal in accordance with the instructions in the Letter of Transmittal and deliver it with such certificates representing Shares and all other required documents to the Exchange Agent or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such holder. A holder of Shares having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such holder desires to tender such Shares. Any holder who desires to tender Shares and cannot deliver such Shares and all other required documents to the Exchange Agent by 12:00 midnight, New York City time, on the Expiration Date must tender such Shares pursuant to the guaranteed delivery procedures set forth under "The Offer-- Procedure for Tendering Shares." The Acquisition Agreement provides that ServiceMaster shall cause ServiceMaster Shares issued pursuant to the Offer to be approved for listing on the NYSE prior to the Closing (as defined). BAREFOOT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE CASH CONSIDERATION AVAILABLE IN THE OFFER AND THE MERGER CONSIDERATION ARE FAIR TO THE BAREFOOT STOCKHOLDERS AND IN THEIR BEST INTERESTS. THE BAREFOOT BOARD HAS ALSO DETERMINED THAT THE SHARE CONSIDERATION WHICH THE STOCKHOLDERS HAVE THE RIGHT TO CHOOSE AS AN ALTERNATIVE TO RECEIVING $16.00 PER SHARE IN CASH IS FAIR TO STOCKHOLDERS AND IN THEIR BEST INTERESTS, PROVIDED THAT THE BAREFOOT BOARD EXPRESSES NO OPINION AS TO THE FAIRNESS OF THE SHARE CONSIDERATION IF THE AVERAGE SERVICEMASTER SHARE PRICE (AS DEFINED IN THE FIRST PARAGRAPH OF THE COVER PAGE TO THIS OFFERING CIRCULAR/ PROSPECTUS) TURNS OUT TO BE LESS THAN $23.00. SUBJECT TO THIS PROVISO, THE BAREFOOT BOARD HAS CONCLUDED THAT THE OFFER AND THE MERGER ARE IN THE BEST INTERESTS OF BAREFOOT AND ITS STOCKHOLDERS AND THAT SUCH TRANSACTIONS ARE FAIR TO THE STOCKHOLDERS OF BAREFOOT, AND IT RECOMMENDS THAT BAREFOOT STOCKHOLDERS ACCEPT THE OFFER, TENDER THEIR SHARES PURSUANT TO THE OFFER AND, IF REQUIRED BY APPLICABLE LAW, APPROVE AND ADOPT THE MERGER AGREEMENT. SEE "THE OFFER--RECOMMENDATION OF THE BAREFOOT DIRECTORS." ii (Cover page continued) Because the market price for ServiceMaster Shares will fluctuate, the market price for the fraction of a ServiceMaster Share issuable in exchange for each Share at any time on or after the Closing Date is likely to be higher or lower than $16.00. Each Barefoot stockholder has the right to decide whether to receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot stockholder may wish to consider in connection with such decision include: the value to the Barefoot stockholder of the ability to defer recognition of any capital gain for federal income tax purposes by electing to receive ServiceMaster Shares; the inclination of such stockholder to continue to hold the ServiceMaster Shares received in the Offer (since a capital gain tax may be imposed when the ServiceMaster Shares are sold); the stockholder's willingness to assume the risk inherent in holding ServiceMaster equity securities with a view to possibly realizing future gains (as to which no assurance can be given); and the stockholder's evaluation of the attractiveness of alternative investments which the stockholder would be able to make with the net after tax proceeds which the stockholder would receive if the stockholder elected to receive the Cash Consideration. A stockholder who would be subject to little or no tax upon the disposition of Shares will likely give little or no weight to the tax related factors identified above and may accordingly evaluate the relative attractiveness of the Share Consideration and Cash Consideration differently from a stockholder who is in a taxable situation. The foregoing does not purport to be a complete list of all of the factors which may be relevant to a stockholder's decision to receive cash or ServiceMaster Shares. See "Certain Federal Income Tax Consequences." In addition, if, and to the extent, the Average ServiceMaster Share Price (determined as described in the first paragraph on the cover of this Offering Circular/Prospectus) should turn out to be below $23.00, the risk that the market value on the Closing Date of the Share Consideration will be less than the $16.00 Cash Consideration available to Barefoot stockholders would increase. ServiceMaster will issue a press release and file an amendment to its Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share Price is determined disclosing the amount of that price. In addition, on or after the fourth NYSE trading day immediately preceding the Expiration Date, each Barefoot stockholder can call the Information Agent at (800) 848-3410 to obtain the Average ServiceMaster Share Price. Since Barefoot stockholders have the ability to switch their elections between Share Consideration and Cash Consideration until midnight on the Expiration Date of the Offer, Barefoot stockholders should review this ServiceMaster announcement so that their final election can take into account the Average ServiceMaster Share Price as well as the market price for ServiceMaster Shares on or near the Expiration Date. Patrick J. Norton (Barefoot's Chief Executive Officer) has advised ServiceMaster that it is his present intention to tender all of his Barefoot Shares (which represent approximately 9.5% of all outstanding Barefoot Shares) and to elect the Share Consideration for substantially all of such Tendered Shares. Mr. Norton's action is not intended to constitute advice or a recommendation as to whether or not any other Barefoot stockholder should tender or how any other Barefoot stockholder should choose between the Cash Consideration and Share Consideration alternatives. NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR OWN DECISION WITH RESPECT TO SUCH ELECTION. On December 4, 1996, the last full trading day prior to the announcement by ServiceMaster and Barefoot that they had entered into the Acquisition Agreement, the closing price of ServiceMaster Shares as reported by the NYSE Composite Tape, was $24.625 per ServiceMaster Share and the closing price of the Barefoot Shares, as reported on the Nasdaq National Market, was $12.75 per Barefoot Share. The closing prices of ServiceMaster Shares and the Barefoot Shares on January 15, 1997, the most recent date prior to the printing of this Offering Circular/Prospectus, as reported by the NYSE Composite Tape and the Nasdaq National Market, respectively, were $26.125 per ServiceMaster Share and $15.75 per Barefoot Share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. iii (Cover page continued) THIS OFFERING CIRCULAR/PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance or additional copies of this Offering Circular/Prospectus and the Letter of Transmittal may be directed to the Exchange Agent or the Information Agent at their respective addresses and telephone numbers set forth on the back cover of this Offering Circular/Prospectus. This Offering Circular/Prospectus, together with the Letter of Transmittal, is being sent to holders of Shares on or about January 17, 1997. ---------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS OFFERING CIRCULAR/PROSPECTUS IN CONNECTION WITH THE OFFER, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SERVICEMASTER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SERVICEMASTER SHARES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT BE LEGALLY MADE. THE DELIVERY OF THIS OFFERING CIRCULAR/PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. NO ACTION HAS BEEN OR WILL BE TAKEN BY SERVICEMASTER THAT WOULD PERMIT A PUBLIC OFFERING OF THE SERVICEMASTER SHARES OR THE CIRCULATION OR DISTRIBUTION OF THIS OFFERING CIRCULAR/PROSPECTUS OR ANY OFFERING MATERIAL IN RELATION TO SERVICEMASTER OR THE SERVICEMASTER SHARES IN ANY COUNTRY OR JURISDICTION OTHER THAN THE UNITED STATES WHERE ACTION FOR THAT PURPOSE IS REQUIRED. IN ACCORDANCE WITH VARIOUS STATE SECURITIES LAWS APPLICABLE TO THE OFFER WHICH REQUIRE THE OFFER TO BE MADE TO THE PUBLIC BY A LICENSED BROKER OR DEALER, THE OFFER IS HEREBY MADE TO HOLDERS OF SHARES RESIDING IN EACH SUCH STATE BY GOLDMAN, SACHS & CO. ON BEHALF OF SERVICEMASTER. iv TABLE OF CONTENTS AVAILABLE INFORMATION....................................................... 3 INCORPORATION OF DOCUMENTS BY REFERENCE..................................... 3 SUMMARY..................................................................... 5 THE OFFER................................................................... 20 DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT................... 44 CERTAIN RELATIONSHIPS....................................................... 53 DESCRIPTION OF SERVICEMASTER SHARES......................................... 53 DESCRIPTION OF THE BAREFOOT SHARES.......................................... 54 COMPARISON OF SERVICEMASTER SHARES AND THE SHARES........................... 56 UNAUDITED PRO FORMA FINANCIAL INFORMATION................................... 57 CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................... 64 VALIDITY OF THE SERVICEMASTER SHARES........................................ 65 EXPERTS..................................................................... 66 ANNEX A-I--THE ACQUISITION AGREEMENT ANNEX A-II--THE MERGER AGREEMENT ANNEX B--OPINION OF ROBERT W. BAIRD & CO. INCORPORATED ANNEX C-I--OPINION OF VORYS, SATER, SEYMOUR AND PEASE ANNEX C-II--OPINION OF KIRKLAND & ELLIS ANNEX D--CERTAIN PORTIONS OF SERVICEMASTER'S 1995 FORM 10-K SCHEDULE I--DIRECTORS AND EXECUTIVE OFFICERS OF SERVICEMASTER
2 AVAILABLE INFORMATION ServiceMaster has filed with the Securities and Exchange Commission (the "Commission" or the "SEC") a Registration Statement on Form S-4 (the "Registration Statement") (which term shall encompass all amendments, exhibits and schedules thereto) under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities being offered hereby. This Offering Circular/Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. Such additional information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices of the Commission: Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661; and 75 Park Place, New York, New York 1007. Copies of such material can be obtained by mail from the public reference section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a WEB site that contains reports, proxy information statements and other information regarding registrants that file electronically with the Commission. The address of such WEB site is http://www.sec.gov. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete but are complete in all material respects for the purposes made herein. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. ServiceMaster is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files periodic reports and other information with the Commission. Such reports and other information filed with the Commission, as well as the Registration Statement, can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 75 Park Place, New York, New York 10007. Copies of such material can also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or by accessing the Commission's WEB site. Such reports and other information with respect to ServiceMaster are available for inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents previously filed with the Commission by ServiceMaster (File No. 1-9378) pursuant to the Exchange Act are specifically incorporated herein by reference: 1. ServiceMaster's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 ("ServiceMaster 1995 10-K"); 2. ServiceMaster's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1996, June 30, 1996 and September 30, 1996; and 3. ServiceMaster's Current Report on Form 8-K dated January 15, 1996. The following documents previously filed with the Commission by Barefoot (File No. 1-9602) pursuant to the Exchange Act are specifically incorporated herein by reference: 1. Barefoot's Transition Report on Form 10-K for the nine month period ended December 31, 1995 ("Barefoot 1995 10-K"); 3 2. Barefoot's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1996, June 30, 1996 and September 30, 1996; and 3. Barefoot's Current Report on Form 8-K dated December 11, 1996. All documents filed by ServiceMaster or Barefoot with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination or completion of the Offer shall be deemed to be incorporated by reference in this Offering Circular/Prospectus and to be part of this Offering Circular/Prospectus from the date of the filing of such document. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Offering Circular/Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offering Circular/Prospectus. ServiceMaster and Barefoot each hereby undertake to provide without charge to each person, including a beneficial owner, to whom a copy of this Offering Circular/Prospectus has been delivered, upon the written or oral request of such person, a copy of any or all of the information filed by it that has been incorporated by reference in this Offering Circular/Prospectus (not including exhibits to the information that is incorporated by reference herein unless such exhibits are specifically incorporated by reference in such information). Requests for such information should be directed to ServiceMaster at One ServiceMaster Way, Downers Grove, Illinois 60515-9969, Attention: Investor Relations (telephone number: (630) 271-1300) and to Barefoot at 450 West Wilson Bridge Road, Worthington, Ohio 43085, Attention: Investor Relations (telephone number: (614) 846-1800). 4 SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements (including the notes thereto) contained elsewhere (including the Annexes and Schedules), or incorporated by reference in, this Offering Circular/Prospectus. Certain capitalized terms used in this summary are defined elsewhere in this Offering Circular/Prospectus. Unless the context otherwise requires, references to "ServiceMaster" mean ServiceMaster Limited Partnership, a Delaware limited partnership, and its subsidiaries. Unless the context otherwise requires, references to "Barefoot" or the "Company" mean Barefoot Inc., a Delaware corporation and its subsidiaries. Prospective investors are urged to read this Offering Circular/Prospectus (including the Annexes and Schedule I) in its entirety. SERVICEMASTER BUSINESS ServiceMaster, and its subsidiary, The ServiceMaster Company Limited Partnership ("SMCLP"), were formed in December 1986 as limited partnerships to succeed to the business and assets of ServiceMaster Industries Inc., which began its operation in 1947. ServiceMaster is a holding company whose limited partnership shares are listed on the New York Stock Exchange and whose principal asset consists of all of the common limited partner interest of SMCLP. ServiceMaster, through its subsidiaries, provides a range of services to individual consumers, businesses and institutions in the United States and 30 other countries throughout the world. ServiceMaster is divided into four operating groups: Consumer Services, Management Services, Diversified Health Services and International. Consumer Services and Management Services are the principal operating groups. ServiceMaster Consumer Services L.P. provides services to over 6,000,000 residential and commercial customers through seven market leading companies: TruGreen L.P., which provides lawn care, tree and shrub services and indoor plant maintenance under the "TruGreen", "ChemLawn" and "TruGreen-ChemLawn" service marks; The Terminix International Company L.P., which provides termite, pest control and radon testing services under the "Terminix" service mark; ServiceMaster Residential/Commercial Services L.P., which provides residential and commercial cleaning and disaster restoration services under the "ServiceMaster" service mark; Merry Maids L.P., which provides domestic housekeeping services under the "Merry Maids" service mark; American Home Shield Corporation, which provides home system and appliance warranty contracts and home inspection services under the "American Home Shield" and "AmeriSpec" service marks; and Furniture Medic L.P., which provides in-home furniture repair and restoration services under the "Furniture Medic" service mark. These services are part of the "ServiceMaster Quality Network" and may be accessed by calling a single toll-free telephone number: 1-800-WE SERVE. ServiceMaster Management Services L.P. is organized into three discrete operating units: ServiceMaster Healthcare Management Services, Education Management Services and Business and Industry Management Services. Each of these three units provides to their respective customers a variety of supportive management services, including the management of housekeeping, plant operations and maintenance, clinical equipment maintenance, laundry and linen, grounds and landscaping, energy management services and food service. The business of ServiceMaster and its organizational structure are discussed in further detail in the ServiceMaster 1995 10-K. Such portions of the ServiceMaster 1995 10-K are set forth in Annex D and are specifically incorporated by reference in this Offering Circular/Prospectus. See "Incorporation of Documents by Reference." 5 THE 1992 REORGANIZATION; THE REINCORPORATING MERGER ServiceMaster, as a publicly traded limited partnership, is currently treated as a partnership for tax purposes. This means that ServiceMaster is not directly subject to Federal and most state income taxes; instead, its taxable income is allocated to its partners. However, the Internal Revenue Code provides that after December 31, 1997, publicly traded partnerships such as ServiceMaster will be taxed as if they were corporations. As a result, ServiceMaster can expect that after the year 1997, its taxable income will be subject to the corporate tax rate and that its dividends will be taxed to its stockholders. Recognizing that the tax benefits of the partnership form of organization were likely to expire at the end of 1997, on January 13, 1992 the shareholders of ServiceMaster approved a "Reorganization Package" consisting of a comprehensive amendment and restatement of ServiceMaster's partnership agreement and a merger by which ServiceMaster can convert to corporate form. Such conversion is planned to occur at the end of December 1997; however, pursuant to the Reorganization Package, the Board of Directors of ServiceMaster Management Corporation (the "ServiceMaster Board"), ServiceMaster's general partner (the "Corporate General Partner"), has the authority to accelerate the conversion date to a date prior to December 31, 1997. The best interests of the holders of a majority of ServiceMaster's Shares will be the determinative consideration in whether or not to accelerate the conversion date. No such acceleration is currently anticipated. The merger agreement which was approved as part of the Reorganization Package provides for the merger by which ServiceMaster expects to return to corporate form (the "Reincorporating Merger"). ServiceMaster Incorporated of Delaware has been organized to become the successor entity through which the public will invest in ServiceMaster after the Reincorporating Merger. UPON CONSUMMATION OF THE REINCORPORATING MERGER, ALL OF THE SERVICEMASTER SHARES, INCLUDING THE SERVICEMASTER SHARES ISSUED PURSUANT TO THE OFFER, WILL BE CONVERTED ON A NON- TAXABLE ONE-FOR-ONE BASIS INTO NEW SHARES OF COMMON STOCK OF SERVICEMASTER INCORPORATED. As a result of these conversions, ServiceMaster Incorporated will be entirely owned by the persons who, collectively, owned all of the limited partner shares of ServiceMaster immediately prior to the Reincorporating Merger. The Reincorporating Merger is not expected to cause any change in ServiceMaster's dividend payment policy which, for the past 26 years, has been to increase the dividend each year. For further information concerning the changes effected by the 1992 Reorganization, see the discussion captioned "Description of the Structure of the ServiceMaster Enterprise" beginning on page 11 of the ServiceMaster 1995 10-K, which is specifically incorporated by reference in this Offering Circular/Prospectus and set forth in Annex D hereof. See "Incorporation of Documents by Reference" and "Description of ServiceMaster Shares." MISCELLANEOUS As of December 31, 1996, (i) approximately 142,400,000 ServiceMaster Shares were issued and outstanding, (ii) not more than 11,000,000 ServiceMaster Shares were reserved for option and employee benefit plans of ServiceMaster, and (iii) the number of additional shares which ServiceMaster may be required to issue as a result of convertible debt and other outstanding rights (in addition to the rights cited in clause (ii)) did not exceed 3,000,000 shares. The name, citizenship, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of ServiceMaster are set forth in Schedule I hereto. 6 ServiceMaster's principal executive offices are located at One ServiceMaster Way, Downers Grove, Illinois 60515-9969. Its telephone number at that address is (630) 271-1300. BAREFOOT Barefoot, operating through its subsidiaries, is the second largest professional residential lawn care service company in the United States. The Company provides periodic applications of fertilizer and as-needed applications of weed and insect controls for residential and commercial customers. Barefoot's standard lawn care program consists of five to eight applications per year depending on the climate of the service area. The Company exclusively uses dry granular fertilizer, which it believes enables it to more readily tailor its lawn care treatments to the specific needs of customers' lawns. The Company also provides its lawn care customers with additional service options, such as tree and shrub care, lawn aeration, liming and seeding. The Company's services are provided to customers in 103 metropolitan markets, primarily in the central and eastern United States. Of these markets, 53 are served by Company-owned branches, 47 are served by franchises and three are served by "branchises", which are franchises managed by the Company under management agreements, with the Company retaining a purchase option at a specified price. The business of Barefoot is discussed in further detail in the Barefoot 1995 10-K, which is specifically incorporated by reference in this Offering Circular/Prospectus. See "Incorporation of Documents by Reference." The authorized capital stock of Barefoot consists of 40,000,000 Shares and 5,000,000 shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). As of the date hereof, 14,519,760 Shares are issued and outstanding and 2,277,000 Shares are held in the treasury of Barefoot. As of the date hereof, ServiceMaster beneficially owns 289,000 Shares or approximately 2.0% of the outstanding Shares. As of the date hereof, no shares of Preferred Stock are issued and outstanding and 400,000 shares of Preferred Stock have been designated as Series A Junior Participating Preferred Stock issuable upon exercise of the Stock Purchase Rights. As of the date hereof, options to acquire an aggregate of 412,550 Shares have been issued pursuant to stock options. See "Description of the Barefoot Shares," and "Comparison of ServiceMaster Shares and the Shares." Barefoot's principal executive offices are located at 450 West Wilson Bridge Road, Worthington, Ohio 43085. Its telephone number at that address is (614) 846-1800. MERGER SUB Merger Sub is a Delaware corporation organized in December 1996. Merger Sub has no operations and has not engaged in any significant activities other than in connection with the Acquisition Agreement, the Merger Agreement and the transactions contemplated thereby. Merger Sub's principal executive offices are located at One ServiceMaster Way, Downers Grove, Illinois 60515-9969. Its telephone number at that address is (630) 271-1300. POST-ACQUISITION OPERATIONS Upon completion of the Transaction, ServiceMaster expects to combine the operations of Barefoot with the operations of ServiceMaster's TruGreen-ChemLawn subsidiary ("TruGreen-ChemLawn"). The objective in combining the operations of the two companies is to expand market opportunities, enhance economies of scale and achieve productivity improvements. Because the branch networks of Barefoot overlap substantially with the branch networks of TruGreen-ChemLawn, ServiceMaster expects to consolidate a number of locations, increase route density and reduce overheads. 7 ServiceMaster also expects to add Barefoot's over 500,000 customers to ServiceMaster's over 6,000,000 Consumer Services customers. ServiceMaster will be able, through its Consumer Services subsidiaries, to offer these Barefoot customers the full array of high quality consumer services which are available through ServiceMaster's Quality Service Network. Upon the completion of the Transaction, Barefoot will exist as a wholly owned subsidiary of ServiceMaster. ServiceMaster may transfer the business and assets of such subsidiary to ServiceMaster's TruGreen Limited Partnership or another limited partnership subsidiary in exchange for a partnership interest in such transferee, or ServiceMaster may decide to retain the business and assets of Barefoot within the separate Barefoot structure. In either case, ServiceMaster expects that changes will be made in Barefoot's business and in the composition of its management and personnel. THE OFFER HISTORY OF THE NEGOTIATIONS For a complete description of the events leading up to the approval of the Acquisition Agreement and the Merger Agreement by the Board of Directors of Barefoot (the "Barefoot Board"), see "The Offer--History of the Negotiations." RECOMMENDATION OF THE BAREFOOT BOARD BAREFOOT'S BOARD HAS DETERMINED THAT THE CASH CONSIDERATION AVAILABLE IN THE OFFER AND THE MERGER CONSIDERATION ARE FAIR TO THE BAREFOOT STOCKHOLDERS AND IN THEIR BEST INTERESTS. THE BAREFOOT BOARD HAS ALSO DETERMINED THAT THE SHARE CONSIDERATION WHICH THE STOCKHOLDERS HAVE THE RIGHT TO CHOOSE AS AN ALTERNATIVE TO RECEIVING $16.00 PER SHARE IN CASH IS FAIR TO STOCKHOLDERS AND IN THEIR BEST INTERESTS, PROVIDED THAT THE BAREFOOT BOARD EXPRESSES NO OPINION AS TO THE FAIRNESS OF THE SHARE CONSIDERATION IF THE AVERAGE SERVICEMASTER SHARE PRICE TURNS OUT TO BE LESS THAN $23.00. SUBJECT TO THIS PROVISO, THE BAREFOOT BOARD HAS CONCLUDED THAT THE OFFER AND THE MERGER ARE IN THE BEST INTERESTS OF BAREFOOT AND ITS STOCKHOLDERS AND THAT SUCH TRANSACTIONS ARE FAIR TO THE STOCKHOLDERS OF BAREFOOT, AND IT RECOMMENDS THAT THE BAREFOOT STOCKHOLDERS ACCEPT THE OFFER, TENDER THEIR SHARES PURSUANT TO THE OFFER AND IF REQUIRED BY APPLICABLE LAW, APPROVE AND ADOPT THE MERGER AGREEMENT. SEE "THE OFFER-- RECOMMENDATION OF THE BAREFOOT DIRECTORS." In determining to recommend that the stockholders of Barefoot accept the Offer and approve the Merger, the Board considered a number of factors, including among others: . the current and historical market prices of the Shares and that the Offer Consideration and the Merger Consideration (collectively, the "Consideration") represent a premium over recent market prices; . the opinion of its financial advisor regarding the fairness of the Consideration from a financial point of view; and . the terms and conditions of the Acquisition Agreement. See "The Offer--Recommendation of the Barefoot Board," and "--Reasons for the Transaction" and "--Opinion of Barefoot Financial Advisor." OPINION OF BAREFOOT FINANCIAL ADVISOR The Company has retained Robert W. Baird & Co. Incorporated ("Baird") as its financial advisor. On December 4, 1996, Baird rendered its opinion to the Barefoot Board to the effect that, as of such 8 date the Cash Consideration and the Merger Consideration are fair, from a financial point of view, to the Barefoot stockholders. Baird has also rendered its opinion to the Barefoot Board to the effect that, as of December 4, 1996 the Share Consideration is fair, from a financial point of view, to the Barefoot stockholders subject to the proviso that because the Barefoot stockholders can elect to receive cash pursuant to the Offer at any time prior to the expiration of the Offer, Baird expresses no opinion as to the fairness of the Share Consideration if the Average ServiceMaster Share Price (calculated as described in the first paragraph on the cover of this Offering Circular/Prospectus) is less than $23.00. See "The Offer--Opinion of Barefoot Financial Advisor." TERMS OF THE OFFER; OFFER CONSIDERATION ServiceMaster is offering to acquire each outstanding Barefoot Share, together with the associated Series A Junior Participating Preferred Stock Purchase Rights, not already owned by ServiceMaster, for, at the election of the holder, either (i) $16.00 in cash, without any interest thereon or (ii) a fraction of a ServiceMaster Share determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price of ServiceMaster Shares on the NYSE as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date and rounding the result to the nearest one one-hundred thousandth of a share. To be eligible to receive cash or ServiceMaster Shares pursuant to the Offer, a holder of Barefoot Shares must validly tender and not withdraw Shares on or prior to the Expiration Date. Pursuant to the Offer, Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. There is no limit on the percentage of the Offer Consideration which may be received as cash or as ServiceMaster Shares. Barefoot stockholders that validly tender Shares but do not make an election will receive the Cash Consideration. See "The Offer--Terms of the Offer" and "--Offer Consideration." Because the market price for ServiceMaster Shares will fluctuate, the market price for the fraction of a ServiceMaster Share issuable in exchange for each Share at any time on or after the Closing Date is likely to be higher or lower than $16.00. Each Barefoot stockholder has the right to decide whether to receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot stockholder may wish to consider in connection with such decision include: the value to the Barefoot stockholder of the ability to defer recognition of any capital gain for federal income tax purposes by electing to receive ServiceMaster Shares; the inclination of such stockholder to continue to hold the ServiceMaster Shares received in the Offer (since a capital gain tax may be imposed when the ServiceMaster Shares are sold); the stockholder's willingness to assume the risk inherent in holding ServiceMaster equity securities with a view to possibly realizing future gains (as to which no assurance can be given); and the stockholder's evaluation of the attractiveness of alternative investments which the stockholder would be able to make with the net after tax proceeds which the stockholder would receive if the stockholder elected to receive the Cash Consideration. A stockholder who would be subject to little or no tax upon the disposition of Shares will likely give little or no weight to the tax related factors identified above and may accordingly evaluate the relative attractiveness of the Share Consideration and Cash Consideration differently from a stockholder who is in a taxable situation. The foregoing does not purport to be a complete list of all of the factors which may be relevant to a stockholder's decision to receive cash or ServiceMaster Shares. See "Certain Federal Income Tax Consequences." In addition, if, and to the extent, the Average ServiceMaster Share Price (determined as described in the first paragraph on the cover of this Offering Circular/Prospectus) should turn out to be below $23.00, the risk that the market value on the Closing Date of the Share Consideration will be less than the $16.00 Cash Consideration available to Barefoot stockholders would increase. ServiceMaster will issue a press release and file an amendment to its Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share Price is determined disclosing the amount of that price. In addition, on or after the fourth NYSE trading day immediately preceding the Expiration Date, each Barefoot 9 stockholder can call the Information Agent at (800) 848-3410 to obtain the Average ServiceMaster Share Price. Since Barefoot stockholders have the ability to switch their elections between Share Consideration and Cash Consideration until midnight on the Expiration Date of the Offer, Barefoot stockholders should review this ServiceMaster announcement so that their final election can take into account the Average ServiceMaster Share Price as well as the market price for ServiceMaster Shares on or near the Expiration Date. Patrick J. Norton (Barefoot's Chief Executive Officer) has advised ServiceMaster that it is his present intention to tender all of his Barefoot Shares (which represent approximately 9.5% of all outstanding Barefoot Shares) and to elect the Share Consideration for substantially all of such Tendered Shares. Mr. Norton's action is not intended to constitute advice or a recommendation as to whether or not any other Barefoot stockholder should tender or how any other Barefoot stockholder should choose between the Cash Consideration and Share Consideration alternatives. NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR OWN DECISION WITH RESPECT TO SUCH ELECTION. On December 4, 1996, the last full trading day prior to the announcement by ServiceMaster and Barefoot that they had entered into the Acquisition Agreement, the closing price of ServiceMaster Shares as reported by the NYSE Composite Tape, was $24.625 per share and the closing price of the Shares, as reported on the Nasdaq National Market, was $12.75 per share. The closing prices of ServiceMaster Shares and the Shares on January 15, 1997, the most recent date prior to the printing of this Offering Circular/Prospectus, as reported by the NYSE Composite Tape and the Nasdaq National Market, respectively, were $26.125 per share and $15.75 per share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. THE EXPIRATION DATE 12:00 midnight, New York City time, on Friday, February 21, 1997, unless ServiceMaster in its sole discretion extends the Offer, in which case the term "Expiration Date" shall refer to the latest time and date at which the Offer, as extended by ServiceMaster, shall expire. See "The Offer--Terms of the Offer." CONDITIONS OF THE OFFER The Offer is conditioned on a minimum number (the "Minimum Number") of the outstanding Shares being tendered for either cash or ServiceMaster Shares pursuant to the Offer such that, when added to all Shares owned by ServiceMaster prior to consummation of the Offer, ServiceMaster will own at least 75.0% of the Shares which shall be outstanding at the Closing Time. ServiceMaster, as of the date of this Offering Circular/Prospectus, beneficially owns 289,000 Shares or approximately 2.0% of the outstanding Shares. The Offer is also subject to certain other conditions, and all such conditions may be waived in the sole discretion of ServiceMaster. See "The Offer--Conditions to the Offer." ELECTION PROCEDURES Each holder of Shares which have been properly tendered and not withdrawn pursuant to the Offer by 12:00 midnight New York City time on the Expiration Date ("Tendered Shares"), shall have the right, subject to the limitations set forth under the caption "The Offer--Election Procedures," to specify the number of Tendered Shares that such holder desires to have exchanged into the Share Consideration pursuant to the Offer and the number of Tendered Shares that such holder desires to have exchanged for the Cash Consideration pursuant to the Offer (an "Election"). Any Election shall 10 have been made properly only if the Exchange Agent shall have received, by 12:00 midnight New York City time on the Expiration Date, a Letter of Transmittal, or a Notice of Guaranteed Delivery if the guaranteed delivery procedure is followed, in either case, properly completed and signed. Any Company stockholder may at any time prior to 12:00 midnight New York City time on the Expiration Date, change his or her Election only by written notice, signed and dated by the stockholder, to the Exchange Agent. Such written notice must identify the name of the holder of record of the Barefoot Shares subject to such notice and the certificate number shown on the Certificate(s) representing such Barefoot Shares. The written notice must be received by the Exchange Agent prior to 12:00 midnight New York City time on the Expiration Date. Each Tendered Share for which a Cash Election has been received and each Tendered Share as to which an Election is not in effect at 12:00 midnight New York City time on the Expiration Date, (a "Non-Electing Share") shall be, at the Closing, exchanged for the Cash Consideration in the Offer. See "The Offer- Election Procedures." PROCEDURE FOR TENDERING Holders of Shares desiring to accept the Offer must complete and sign the Letter of Transmittal, with any required signature guarantees and any other required documents, and forward or hand deliver it to the Exchange Agent, accompanied or preceded by certificates for the Shares to which such Letter of Transmittal relates (or by compliance with the specified procedures for guaranteed delivery of such certificates). Certain financial institutions may also effect tenders by book-entry delivery. Holders of Shares having such Shares registered in the name of a broker, dealer, commercial bank, trust company or nominee are urged to contact such person promptly if they wish to tender any Shares pursuant to the Offer. See "The Offer--Procedures for Tendering Shares." WITHDRAWAL RIGHTS Subject to the conditions set forth herein, tenders of Shares may be withdrawn at any time on or prior to the Expiration Date, and, unless accepted for exchange, after March 17, 1997. See "The Offer--Withdrawal Rights." NO FRACTIONAL SHARES No fractional ServiceMaster Shares will be distributed. Holders of Shares who would otherwise be entitled to receive a fractional ServiceMaster Share will be paid cash in lieu of such fraction. See "The Offer--Election Procedures." DELIVERY OF CASH OR SERVICEMASTER SHARES ServiceMaster will deliver cash or ServiceMaster Shares in accordance with the Election made by each holder of Tendered Shares, or cash if no Election is made, as soon as practicable after acceptance of such Tendered Shares. See "The Offer--Offer Consideration," "The Offer--Election Procedures" and "The Offer-- Acceptance of Shares; Delivery of the Offer Consideration." EXCHANGE AGENT The Exchange Agent for the Offer is Harris Trust Company of New York. 11 DEALER MANAGER The Dealer Managers for the Offer are Goldman, Sachs & Co. INFORMATION AGENT The Information Agent for the Offer is D. F. King & Co., Inc. CERTAIN FEDERAL INCOME TAX CONSEQUENCES ServiceMaster and the Company believe that, for United States federal income tax purposes: (i) the Cash Consideration received pursuant to the Offer will be treated as the receipt of cash in a taxable sale of the Barefoot Shares, and (ii) for United States persons who hold Barefoot Shares as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Code, the exchange of Barefoot Shares for ServiceMaster Shares pursuant to the Offer as provided for herein will qualify as a tax free contribution of property to ServiceMaster within the meaning of Section 721 of the Code. The foregoing is based upon the laws, regulations, rulings and decisions currently in effect, all of which are subject to change. Barefoot stockholders should consult their own tax advisors to determine the federal, state, local and other tax consequences of participating in the Offer or the Merger. Barefoot stockholders should note that no rulings have been or will be sought from the IRS with respect to the federal income tax consequences of the Offer or the Merger, and no assurance can be given that the IRS will not take contrary positions. See "Certain Federal Income Tax Consequences." The discussion contained in "Certain Federal Income Tax Consequences--The Offer" constitutes the opinions of Vorys, Sater, Seymour and Pease and Kirkland & Ellis, subject to the qualifications stated therein. Copies of such opinions have been included as Annex C-I and Annex C-II, respectively, to this Offering Circular/Prospectus. Such opinions, however, have no binding effect on the IRS or the courts. REGULATORY APPROVALS In addition to required compliance with federal and state securities laws and state corporate laws, the Offer is subject to Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), which provides that certain acquisition transactions may not be consummated unless certain required information is filed with the Antitrust Division of the Department of Justice and the Federal Trade Commission, and certain waiting period requirements have been satisfied. The waiting period requirements under the HSR Act expired on January 5, 1997 without a request for additional information. See "The Offer-- Certain Legal Matters; Regulatory Approvals." EFFECTS OF THE OFFER The purchase of Barefoot Shares pursuant to the Offer will reduce the number of Barefoot Shares that might otherwise trade publicly and the number of holders of Barefoot Shares, which could adversely affect the liquidity and market value of the remaining Barefoot Shares held by the public pending completion of the Merger. The Barefoot Shares are currently traded on the Nasdaq National Market, and depending on the number of Barefoot Shares acquired pursuant to the Offer, the Barefoot Shares may no longer meet the requirements for listing on the Nasdaq National Market, and the Barefoot Shares may no longer constitute "margin securities" for purposes of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. If the Barefoot Shares are no longer listed on a national securities exchange and there are fewer than 300 record holders of the Barefoot Shares, registration of the Barefoot Shares under the Exchange Act may be terminated, which would reduce the amount of publicly available information about Barefoot and would make certain provisions of the Exchange Act inapplicable to Barefoot. See "The Offer--Certain Effects of the Offer Pending Consummation of the Merger." 12 THE MERGER The Acquisition Agreement and the Merger Agreement provide that, following the completion of the Offer, the approval and adoption of the Merger Agreement by the holders of Barefoot Shares, if required by applicable law, and the satisfaction or waiver of certain other conditions, Merger Sub will be merged with and into Barefoot with Barefoot as the surviving corporation, and the separate existence of Merger Sub shall cease. As a result of the Merger, Barefoot will become a wholly owned subsidiary of ServiceMaster. Pursuant to the Merger, each outstanding Barefoot Share (other than Barefoot Shares held by ServiceMaster or any subsidiary of ServiceMaster and any Barefoot stockholders who perfect their appraisal rights under Delaware law) will be converted into the right to receive the Merger Consideration ($16.00 per Barefoot Share in cash without interest thereon). See "The Offer--The Merger." 13 SELECTED HISTORICAL FINANCIAL INFORMATION SELECTED HISTORICAL FINANCIAL INFORMATION OF SERVICEMASTER The summary of selected historical financial information set forth below as of and for each of the years in the five year period ended December 31, 1995 has been derived from the consolidated financial statements of ServiceMaster and its subsidiaries, which statements have been audited by Arthur Andersen LLP, independent public accountants for ServiceMaster. The historical data as of and for the nine months ended September 30, 1995 and 1996 are derived from unaudited financial statements which, in the opinion of ServiceMaster management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for such dates and for such periods. Historical results for the interim periods ended September 30 are not necessarily indicative of the results for the full year. (IN MILLIONS, EXCEPT FOR PER SHARE DATA)(1)
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- ------------- 1991 1992 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ ------ ------ (UNAUDITED) OPERATING RESULTS Operating revenue............. $2,110 $2,489 $2,759 $2,985 $3,203 $2,415 $2,584 Cost of services rendered and products sold................ 1,763 2,030 2,193 2,350 2,486 1,881 2,002 Selling and administrative expenses..................... 226 326 393 421 465 347 367 Restructuring charges......... -- 70 -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Operating income (2).......... 121 63 173 214 252 187 215 Non-operating expense......... 40 37 55 71 74 56 29 Realized gain on issuance of subsidiary shares............ (6) (105) (30) -- -- -- -- Provision for income taxes.... 1 1 2 3 6 4 5 Cumulative effect of change in accounting for postretirement medical benefits............. -- 8 -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income (2)................ $ 86 $ 122 $ 146 $ 140 $ 172 $ 127 $ 181 ====== ====== ====== ====== ====== ====== ====== Net income per share (2)...... $ 0.79 $ 1.08 $ 1.27 $ 1.20 $ 1.45 $ 1.07 $ 1.25 Cash distributions per share to shareholders.............. $ 0.57 $ 0.58 $ 0.59 $ 0.61 $ 0.63 $ 0.47 $ 0.49 FINANCIAL POSITION AT PERIOD END Current assets................ $ 218 $ 258 $ 291 $ 331 $ 393 $ 424 $ 493 Current liabilities........... 158 207 244 304 373 346 402 Working capital............... 60 51 47 27 20 78 91 Total assets.................. 844 1,006 1,122 1,231 1,650 1,424 1,828 Non-current liabilities....... 377 511 471 484 518 544 624 Minority interest............. 78 78 118 135 13 134 15 Deferred gain................. 109 -- -- -- -- -- -- Shareholders' equity.......... 122 210 289 307 747 400 787 Book value per share.......... $ 1.12 $ 1.85 $ 2.51 $ 2.65 $ 6.28 $ 3.36 $ 5.44 - -------- (1) All per share data reflect the three-for-two share splits in 1992, 1993 and 1996. (2) Operating results on a basis which excludes restructuring and unusual charges, gains on issuance of subsidiary shares and the change in accounting for postretirement benefits in prior years are as follows (there were no such unusual items in 1994, 1995 or 1996): NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- ------------- 1991 1992 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ ------ ------ (UNAUDITED) Operating income............ $ 121 $ 141 $ 173 $ 214 $ 252 $ 187 $ 215 Net income.................. 80 94 116 140 172 127 181 Net income per share........ $ 0.73 $ 0.83 $ 1.01 $ 1.20 $ 1.45 $ 1.07 $ 1.25
14 SELECTED HISTORICAL FINANCIAL INFORMATION OF BAREFOOT In 1995, Barefoot elected to change its fiscal year end to December 31 from March 31. The following table presents selected consolidated financial information of Barefoot for each of the four fiscal years ended March 31, 1995, the nine month period ended December 31, 1995, and for each of the nine month periods ended September 30, 1995 and 1996. (In light of the change in the fiscal year end, the financial information as of and for the nine months ended September 30, 1995 was prepared by Barefoot to provide comparative data in the September 30, 1996 Form 10-Q). The results of operations for the nine months ended December 31, 1995 are not necessarily indicative of the results for the full year. The selected information for each of the periods in the four fiscal years ended March 31, 1995 and the period ended December 31, 1995 have been derived from financial statements which have been audited by Arthur Andersen LLP, independent public accountants of Barefoot. The information for the nine month periods ended September 30, 1995 and 1996 is unaudited but, in the opinion of Barefoot management, reflects all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of such data. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year. (IN MILLIONS, EXCEPT FOR PER SHARE DATA)(1)
NINE MONTHS YEAR ENDED MARCH 31, NINE MONTHS ENDED (2) ENDED SEPTEMBER 30, ------------------------ DECEMBER 31, ------------- 1992 1993 1994 1995 1995 1995 1996 ----- ----- ----- ----- ------------ ------ ------ (UNAUDITED) OPERATING RESULTS Total revenue............. $ 41 $ 51 $ 74 $ 95 $ 93 $ 82 $ 83 Income before interest, income taxes and extraordinary item....... 11 13 19 23 21 21 19 Interest expense (income), net...................... 3 1 -- -- -- -- -- Income taxes.............. 3 5 7 9 8 8 7 Extraordinary item........ 1 -- -- -- -- -- -- ----- ----- ----- ----- ----- ------ ------ Net income................ $ 4 $ 7 $ 12 $ 14 $ 13 $ 13 $ 12 ===== ===== ===== ===== ===== ====== ====== Per share: Income before extraordinary item...... $0.38 $0.47 $0.69 $0.82 $0.84 $ 0.79 $ 0.83 Extraordinary item....... (0.05) -- -- -- -- -- -- ----- ----- ----- ----- ----- ------ ------ Net income............... $0.33 $0.47 $0.69 $0.82 $0.84 $ 0.79 $ 0.83 ===== ===== ===== ===== ===== ====== ====== Cash dividends per share to stockholders.......... $ -- $ -- $ -- $0.10 $0.12 $ 0.11 $ 0.15 FINANCIAL POSITION AT PERIOD END Working capital........... $ (2) $ 2 $ 8 $ 12 $ 6 $ 15 $ 6 Total assets.............. 35 49 65 93 66 79 81 Non-current obligations... 14 6 7 11 8 9 10 Stockholders' equity...... 5 24 38 51 39 46 45 Book value per share...... $0.37 $1.56 $2.28 $3.02 $2.55 $ 2.89 $ 3.09
- -------- (1) All per share data reflect the two-for-one share split in July 1994. (2) In 1995, Barefoot elected to change its fiscal year end to December 31 from March 31. 15 SELECTED PRO FORMA FINANCIAL INFORMATION The unaudited selected pro forma financial information set forth below has been prepared based upon the historical consolidated financial statements of ServiceMaster and its subsidiaries and of Barefoot and its subsidiaries, adjusted for transactions described in the Notes to the pro forma financial information of ServiceMaster included under "Unaudited Pro Forma Financial Information--Selected Pro Forma Financial Data of ServiceMaster." For purposes of the unaudited selected pro forma financial information set forth below, ServiceMaster has assumed that holders of 30% of the Shares will elect to receive the Share Consideration. If all the Barefoot stockholders were to elect to receive the Cash Consideration, pro forma net income per share for the nine months ended September 30, 1996 and year ended December 31, 1995 would total $1.29 and $1.40, respectively, and pro forma non-current liabilities at September 30, 1996 would total $867 million. If all the Barefoot stockholders were to elect to receive the Share Consideration, pro forma net income per share for the nine months ended September 30, 1996 and year ended December 31, 1995 would total $1.26 and $1.39, respectively, and pro forma non-current liabilities at September 30, 1996 would total $635 million. THE PRO FORMA FINANCIAL INFORMATION DOES NOT PURPORT TO REPRESENT WHAT SERVICEMASTER'S FINANCIAL POSITION AS OF SEPTEMBER 30, 1996 OR RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 OR THE YEAR ENDED DECEMBER 31, 1995 WOULD ACTUALLY HAVE BEEN HAD THE MERGER IN FACT OCCURRED ON THAT DATE OR AT THE BEGINNING OF THE PERIODS INDICATED OR TO PROJECT SERVICEMASTER'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD. (IN MILLIONS, EXCEPT FOR PER SHARE DATA) (1)
PRO FORMA FINANCIAL INFORMATION ----------------------------------------- YEAR NINE MONTHS ENDED ENDED HISTORICAL SERVICEMASTER DECEMBER 31, SEPTEMBER 30, FINANCIAL INFORMATION 1995 1996 -------------------------- --------------------------- ------------- NINE YEAR MONTHS (UNAUDITED) (UNAUDITED) ENDED ENDED WMX BAREFOOT DECEMBER 31, SEPTEMBER 30, TRANSACTION & WMX BAREFOOT 1995 1996 ONLY (2) TRANSACTION (2) TRANSACTION ------------ ------------- ----------- --------------- ------------- (UNAUDITED) OPERATING RESULTS Operating revenue....... $3,203 $2,584 $3,203 $3,306 $2,668 Cost of services rendered and products sold................... 2,486 2,002 2,486 2,527 2,034 Selling and administrative expenses............... 465 367 471 510 395 ------ ------ ------ ------ ------ Operating income........ 252 215 246 269 239 Non-operating expense... 74 29 37 50 39 Provision for income taxes.................. 6 5 6 11 11 ------ ------ ------ ------ ------ Net income.............. $ 172 $ 181 $ 203 $ 208 $ 189 ====== ====== ====== ====== ====== Net income per share.... $ 1.45 $ 1.25 $ 1.39 $ 1.40 $ 1.28 Cash distributions per share to shareholders.. $ 0.63 $ 0.49 $ 0.63 $ 0.63 $ 0.49 FINANCIAL POSITION AT PERIOD END Current assets.......... $ 393 $ 493 $ 524 Current liabilities..... 373 402 446 Working capital......... 20 91 78 Total assets............ 1,650 1,828 2,115 Non-current liabilities. 518 624 797 Minority interest....... 13 15 15 Shareholders' equity.... 747 787 856 Book value per share.... $ 6.28 $ 5.44 $ 5.82
- -------- (1) All per share data reflect the three-for-two share split in June 1996. (2) On December 31, 1995, ServiceMaster acquired WMX Technologies, Inc.'s 27.76% minority ownership interest in ServiceMaster Consumer Services L.P. (the "WMX Transaction"). The pro forma information above presents the pro forma impact of the WMX Transaction only, as well as the combined pro forma effects of both the Barefoot and WMX transactions. Since the WMX Transaction occurred on December 31, 1995, its impact is already included in the historical results for the nine months ended September 30, 1996. See "Unaudited Pro Forma Financial Information--Transaction with WMX Technologies, Inc." for a discussion of the WMX Transaction and the impact of restrictions designed to help ensure that any disposition of WMX's ServiceMaster Shares would occur in an orderly manner. 16 UNAUDITED COMPARATIVE PER SHARE DATA The following table sets forth for Barefoot and ServiceMaster certain historical and pro forma equivalent per share data at and for the nine months ended September 30, 1996 and at and for the year ended December 31, 1995. All per share data reflect ServiceMaster's three-for-two share split in June 1996. The information presented herein should be read in conjunction with the selected historical financial information and the unaudited pro forma financial information appearing elsewhere in this Offering Circular/Prospectus. See "Incorporation of Documents by Reference," "Selected Historical Financial Information" and "Unaudited Pro Forma Financial Information."
AT OR FOR THE AT OR FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1996 DECEMBER 31, 1995 (1) ------------------ --------------------- SERVICEMASTER Income from continuing operations per share: Historical.......................... $1.25 $1.45 Pro forma combined (2).............. 1.28 1.40 (3) Book value per share: Historical.......................... 5.44 6.28 Pro forma combined (2).............. 5.82 -- Cash dividends per share: Historical.......................... 0.49 0.63 Pro forma combined.................. 0.49 0.63 BAREFOOT Income from continuing operations per share: Historical.......................... $0.83 $0.66 Pro forma equivalent for the fraction of a ServiceMaster Share available in exchange for any Barefoot Share (4)................. 0.78 0.86 Book value per share: Historical.......................... 3.09 2.55 Pro forma equivalent for the fraction of a ServiceMaster Share available in exchange for any Barefoot Share (4)................. 3.56 -- Cash dividends per share: Historical.......................... 0.15 0.15 Pro forma equivalent for the fraction of a ServiceMaster Share available in exchange for any Barefoot Share (4)................. 0.30 0.39
- -------- (1) In 1995, Barefoot elected to change its fiscal year end to December 31 from March 31. Barefoot's historical income and book value per share were computed using the unaudited financial information for the year ended December 31, 1995 presented in Barefoot 1995 10-K. The cash dividends per share data for the year end December 31, 1995 were derived by summing the data for the quarter ended March 31, 1995 and the dividends per share for the nine months ended December 31, 1995. (2) The pro forma combined income per share and book value per share amounts have been computed under the assumption that holders of 30% of the Barefoot Shares will elect to receive the Share Consideration. If all the Barefoot stockholders were to elect to receive the Cash Consideration, pro forma net income per share for the nine months ended September 30, 1996 and year ended December 31, 1995 would total $1.29 and $1.40, respectively. If all the Barefoot stockholders were to elect to receive the Share Consideration, pro forma net income per share for the nine months ended September 30, 1996 and year ended December 31, 1995 would total $1.26 and $1.39, respectively. (3) ServiceMaster's pro forma information for the year ended December 31, 1995 includes the pro forma impact of the December 31, 1995 WMX Transaction. The pro forma adjustments related to the WMX Transaction resulted in a pro forma decrease in earnings per share of $.06. The Transaction results in a pro forma increase in earnings per share of $.01, after giving effect to the WMX Transaction. See "Unaudited Pro Forma Financial Information-- Transaction with WMX Technologies, Inc." for a description of the WMX Transaction and the impact of restrictions designed to help ensure that any disposition of WMX's ServiceMaster Shares would occur in an orderly manner. (4) The pro forma equivalent share data is calculated by multiplying 0.6124, which is an assumed exchange ratio for the conversion of Shares into ServiceMaster Shares (determined by dividing $16.00 by $26.125, which was the closing ServiceMaster Share price on January 15, 1997), by ServiceMaster's pro forma income per share, book value per share and cash distributions per share, which have been prepared using adjustments included in the Unaudited Pro Forma Financial Information contained elsewhere in this Offering Circular/Prospectus. The actual number of ServiceMaster Shares to be received with respect to each Share by stockholders of Barefoot who elect Share Consideration will be determined by dividing $16.00 by the greater of the Average ServiceMaster Share Price or $23.00. The Average ServiceMaster Share Price is defined as the 15-day average closing price as reported on the NYSE Composite Tape for the period ending five NYSE trading days prior to the expiration of the Offer. 17 MARKET PRICE DATA AND DISTRIBUTIONS ServiceMaster Shares are listed and traded on the NYSE under the symbol "SVM." The Shares are listed and traded on the Nasdaq National Market under the symbol "BARE." The table below sets forth, for the quarters indicated, (i) the high and low prices of ServiceMaster Shares as reported by the NYSE Composite Tape, (ii) the high and low prices of Shares, as reported on the Nasdaq National Market, (iii) the quarterly per share cash distributions paid to holders of ServiceMaster Shares, and (iv) the quarterly per share cash dividends paid to the holders of Shares. In 1995, Barefoot elected to change its fiscal year end to December 31 from March 31. All per share data reflect ServiceMaster's three-for-two share split in June 1996 and Barefoot's two-for- one share split in July 1994.
PRICE OF DISTRIBUTIONS SERVICEMASTER SHARES DECLARED PER --------------------- SERVICE- HIGH LOW MASTER SHARE ---------- ---------- ------------- SERVICEMASTER Year ended December 31, 1994: First Quarter............................. $ 18.92 $ 14.67 $0.15 Second Quarter............................ 17.59 15.09 0.15 Third Quarter............................. 17.67 16.00 0.15 Fourth Quarter............................ 16.92 14.33 0.15 Year ended December 31, 1995: First Quarter............................. 16.67 14.33 0.15 Second Quarter............................ 18.17 15.75 0.16 Third Quarter............................. 19.25 17.67 0.16 Fourth Quarter............................ 20.25 18.42 0.16 Year ended December 31, 1996: First Quarter............................. 22.33 19.42 0.16 Second Quarter............................ 23.50 20.63 0.16 Third Quarter............................. 24.75 21.50 0.17 Fourth Quarter............................ 26.63 23.75 0.17
PRICE OF BAREFOOT DIVIDENDS SHARES DECLARED PER -------------- BAREFOOT HIGH LOW SHARE ------- ------ ------------ BAREFOOT Year ended March 31, 1995: First Quarter..................................... $18.88 $16.38 $0.02 Second Quarter.................................... 18.25 14.63 0.02 Third Quarter..................................... 16.00 12.25 0.03 Fourth Quarter.................................... 16.50 9.00 0.03 Nine months ended December 31, 1995: Quarter Ended June 30, 1995....................... 13.88 9.75 0.04 Quarter Ended September 30, 1995.................. 15.00 12.50 0.04 Quarter Ended December 31, 1995................... 13.00 10.13 0.04 Year ended December 31, 1996: First Quarter..................................... 12.13 10.13 0.05 Second Quarter.................................... 12.63 10.50 0.05 Third Quarter..................................... 10.94 9.13 0.05 Fourth Quarter.................................... 15.875 10.00 0.05
18 On December 4, 1996, the last full trading day prior to the announcement by ServiceMaster and Barefoot that they had entered into the Acquisition Agreement, the closing price of ServiceMaster Shares, as reported by the NYSE Composite Tape, was $24.625 per share and the closing price of the Shares, as reported on the Nasdaq National Market, was $12.75 per share. The closing prices of the ServiceMaster Shares and the Barefoot Shares on January 15, 1997, the most recent date prior to the printing of this Offering Circular/Prospectus, as reported by the NYSE Composite Tape and the Nasdaq National Market, respectively, were $26.125 per share and $15.75 per share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. As of December 31, 1996, there were approximately 22,500 holders of record of ServiceMaster Shares and approximately 170 holders of record of Barefoot Shares. In December 1995, ServiceMaster's Board of Directors authorized a share repurchase program in the amount of $150,000,000 under which ServiceMaster has been repurchasing ServiceMaster Shares. ServiceMaster's financial officers have discretion as to the price and volume under which such repurchases are made, subject to an overall average repurchase price, provided that repurchases under the program are conducted within the limitations of SEC Rules 10b-6 and 10b-18. The volume of ServiceMaster Shares repurchased under the program during 1996 amounted to 1,281,586 ServiceMaster Shares during the first quarter, 875,744 ServiceMaster Shares during the second quarter, 639,427 ServiceMaster Shares during the third quarter and 679,635 ServiceMaster Shares during the fourth quarter. ServiceMaster intends to continue to make repurchases under this program up to the beginning of the 15 NYSE trading days during which the Average ServiceMaster Share Price will be determined for purposes of the Offer but will not make purchases during such 15 NYSE trading days. 19 THE OFFER HISTORY OF THE NEGOTIATIONS On October 9, 1996, the President of ServiceMaster telephoned the President of Barefoot and requested an opportunity to meet to discuss maximizing stockholder value of their respective companies. The Presidents of Barefoot and ServiceMaster met on October 16, 1996, at which time the President of ServiceMaster expressed ServiceMaster's interest in combining the lawn care operations of the two companies. The President of ServiceMaster presented a proposal in which the stockholders of Barefoot would have the opportunity to obtain cash or ServiceMaster Shares in exchange for their Shares, and that on a preliminary basis and without conducting any due diligence, ServiceMaster believed that it could pay a price for the outstanding Shares within a range of $13.00 to $15.00 per share. The President of ServiceMaster also stated that the proposal for the acquisition of Barefoot had not been approved by the ServiceMaster Board and that it should be considered as a preliminary expression of interest on the part of ServiceMaster. The closing price of the Barefoot Shares on October 16, 1996, as reported on the Nasdaq National Market was $10.75 per share. The Barefoot Board met on October 23, 1996 to review the ServiceMaster proposal. At that meeting, the directors discussed whether or not Barefoot should continue its discussions with ServiceMaster with respect to a possible acquisition by ServiceMaster. The directors also discussed with Barefoot's investment bankers the reasonableness of the range of prices for Barefoot proposed by ServiceMaster. The directors concluded that it was in the best interest of the Barefoot stockholders to continue discussions with representatives of ServiceMaster with regard to a possible business combination. The directors concluded, however, that Barefoot should seek a price above the proposed price range of $13.00 to $15.00 per Share. ServiceMaster advised Barefoot that it could not submit a more formal acquisition proposal unless it first conducted preliminary due diligence with respect to Barefoot. On November 11, 1996, Barefoot and ServiceMaster entered into a Confidentiality Agreement (the "Confidentiality Agreement"). Barefoot agreed that for a period ending on December 12, 1996, it would not solicit any prospective purchasers of all or substantially all of the assets of Barefoot or of equity interests in Barefoot. ServiceMaster agreed that for a period of two years from the date of the Confidentiality Agreement it would not, without the prior consent of Barefoot, acquire, directly or indirectly, any additional Barefoot Shares or take certain other actions in regard to Barefoot. Following the execution of the Confidentiality Agreement, ServiceMaster conducted a preliminary due diligence investigation. The President of Barefoot continued to discuss a possible acquisition with representatives of ServiceMaster and members of the Barefoot Board following the October 23, 1996 meeting of the Barefoot Board. On November 15, 1996, the President of Barefoot and representatives of Baird met with ServiceMaster financial executives in Downers Grove, Illinois and presented arguments and analyses in support of their position that the value per Share to ServiceMaster was in excess of $15.00. They were advised that ServiceMaster considered $15.00 per Share to be the maximum amount that ServiceMaster was willing to pay. Both the President of Barefoot and the ServiceMaster representatives agreed that, if discussions were to continue, the discussions would have to progress quickly because of the seasonal nature of the lawn care business. On November 22, 1996, ServiceMaster submitted to Barefoot a letter from the President of ServiceMaster in which he stated that he was prepared to recommend to the ServiceMaster Board an acquisition by ServiceMaster of all of the outstanding Shares at a price of $15.00 per Share. The ServiceMaster proposal stated that each Barefoot stockholder would have the right to take cash or ServiceMaster Shares in exchange for such stockholder's Barefoot Shares. The ServiceMaster proposal also addressed severance payments and employment continuation bonuses to Barefoot employees and issues relating to Barefoot's franchisees. 20 The Barefoot Board held a telephonic meeting later that day to discuss the proposal from ServiceMaster. The directors discussed the proposed price and reviewed possible structures for accomplishing the acquisition. The directors discussed the potential benefit to the Barefoot stockholders of a transaction in which such stockholders could elect to receive cash or ServiceMaster Shares. The Barefoot Board concluded that it could not fully evaluate the ServiceMaster proposal until it had an opportunity to review in detail the terms of the proposed transaction. The Barefoot Board requested that the President of Barefoot obtain from ServiceMaster a more detailed explanation of the acquisition proposal or a draft of an acquisition agreement. The Barefoot Board also instructed the President of Barefoot to continue to seek an increase in the proposed purchase price. On November 26, 1996, Barefoot received from ServiceMaster an initial draft of an acquisition agreement. The President of Barefoot discussed the principal terms of the proposed transaction as set forth in the draft of the acquisition agreement with a majority of the members of the Barefoot Board. The directors with whom the Barefoot President spoke recommended that the President continue to seek an increase in the proposed purchase price and concessions on other terms of the acquisition agreement. On November 27, 1996, the President of Barefoot advised the President of ServiceMaster by telephone that the Barefoot Board could not accept a price of $15.00 per Share. The President of ServiceMaster responded that he was not prepared to recommend to the ServiceMaster Board a price in excess of $15.00 per Share. However, the President of ServiceMaster suggested that he might be willing to consider a price greater than $15.00 per Share if Barefoot were willing to consider committing to pay a termination fee if ServiceMaster's Offer failed to attract enough Shares to give ServiceMaster ownership of at least 75.0% of the outstanding Shares. The President of Barefoot agreed to take that idea under consideration and, on that basis, the two officers agreed to keep in touch with each other over the forthcoming holiday. Later that day, the President of Barefoot discussed the proposal with the members of the Barefoot Board and received their oral authorization to proceed with further discussions. On November 28, 1996 (Thanksgiving Day), the President of ServiceMaster called the President of Barefoot and indicated that he might be able to support a price greater than $15.00 per Share if Barefoot agreed to pay a termination fee in the event that the requisite 75.0% Share ownership were not obtained as a result of the Offer and that he would state his position to the President of Barefoot during the next day. On November 29, 1996, the President of ServiceMaster advised the President of Barefoot in a telephone call that he (the President of ServiceMaster) would support an increase in the acquisition price from $15.00 per Share to $16.00 per Share if the key terms and conditions set forth in the initial draft of the acquisition agreement were satisfactory to Barefoot and if such terms and conditions were expanded to include the payment of a termination fee in the event that the requisite 75.0% Share ownership by ServiceMaster was not attained as a result of the Offer and provided, as to all of the foregoing, that the transaction was approved by the ServiceMaster Board. Following this telephone conversation, the President of Barefoot communicated with the directors of Barefoot and they authorized him to proceed with the negotiation of the final terms of the acquisition agreement and to authorize Baird to consider whether the proposed acquisition was fair to the stockholders of Barefoot from a financial point of view. From November 30, 1996 through December 4, 1996, Barefoot and ServiceMaster conducted extensive negotiations of the terms and conditions of the acquisition agreement. The principal points at issue were the duration of the Offer, the circumstances in which the termination fee would be payable and the amount of the termination fee. With respect to the tender offer, ServiceMaster considered that, because of the seasonality of the lawn care business and the resulting need to commence combined operations as soon as possible, the Offer should remain open no longer than the time legally required, i.e., 20 business days. Barefoot, on the other hand, insisted on a longer 21 period. On December 4, 1996, the two sides agreed on a period of 25 business days. With respect to the termination fee, ServiceMaster considered that a fee of approximately $9,300,000 was appropriate in all circumstances in which a fee was payable. Barefoot sought a lower fee. On December 4, 1996, the two sides agreed on a two-tier termination fee: $9,300,000 if the Barefoot Board ceased to support ServiceMaster's Offer and $7,000,000 if, as a result of the Offer, with Barefoot's support, ServiceMaster failed to attain the requisite 75.0% Share ownership. On December 3, 1996, the directors of Barefoot met to review the status of the negotiations between Barefoot and ServiceMaster and to review and discuss in detail the terms and conditions of the proposed transactions contemplated by the Acquisition Agreement. The directors also discussed with Baird the procedures being taken to evaluate the fairness, from a financial point of view, of the transactions provided for in the Acquisition Agreement. In a telephonic meeting on December 4, 1996, the Barefoot Board unanimously approved the terms and conditions of the Acquisition Agreement and the related Merger Agreement. During such meeting, the directors reviewed in detail the Acquisition Agreement and received the opinion of Baird to the effect that as of such date the Cash Consideration and the Merger Consideration are fair, from a financial point of view, to Barefoot stockholders. Baird has also rendered its opinion to the Barefoot Board to the effect that, as of December 4, 1996, the Share Consideration is fair, from a financial point of view, to the Barefoot stockholders subject to the proviso that, because the Barefoot stockholders can elect to receive cash pursuant to the Offer at any time prior to the expiration of the Offer, Baird expresses no opinion as to the fairness of the Share Consideration if the Average ServiceMaster Share Price (calculated as described in the first paragraph on the cover of this Offering Circular/Prospectus) is less than $23.00. In a telephonic meeting on December 4, 1996, the ServiceMaster Board, by a vote of 16-0 with one abstention and one absence, and the Board of Directors of Merger Sub by a unanimous written consent, approved the terms and provisions of the Acquisition Agreement and the Merger Agreement on December 4, 1996. After the foregoing actions by the Board of Directors of Barefoot, the ServiceMaster Board and the Board of Directors of Merger Sub, Barefoot, ServiceMaster and Merger Sub executed the Acquisition Agreement and the Merger Agreement and publicly announced the transaction before the United States trading markets opened on December 5, 1996. RECOMMENDATION OF THE BAREFOOT BOARD Barefoot's Board has determined that the Cash Consideration available in the Offer and the Merger Consideration are fair to the Barefoot stockholders and in their best interests. The Barefoot Board has also determined that the Share Consideration which the stockholders have the right to choose as an alternative to receiving $16.00 per Share in cash is also fair to stockholders and in their best interests, provided that the Barefoot Board expresses no opinion as to the fairness of the Share Consideration if the Average ServiceMaster Share Price (as defined in the first paragraph of the cover page to this Offering Circular/Prospectus) turns out to be less than $23.00. Subject to this proviso, the Barefoot Board has concluded that the Offer and the Merger are in the best interests of Barefoot and its stockholders and that such transactions are fair to the stockholders of Barefoot, and it recommends that Barefoot stockholders accept the Offer, tender their Shares pursuant to the Offer and, if required by applicable law, approve and adopt the Merger Agreement. REASONS FOR THE TRANSACTION The Barefoot Board determined to approve the Acquisition Agreement, the Merger Agreement and the transactions contemplated thereby for a number of reasons, including: . (a) the results of operations of the Company, (b) the businesses and prospects of the Company, with emphasis upon the uncertainties inherent in the seasonal nature of such businesses, and (c) the dependence of management's business strategy upon successfully completing acquisitions; 22 . the Barefoot Board's belief that the market price of the Barefoot Shares would not reach $16.00 in the reasonably foreseeable future; . $16.00 per Barefoot Share represents a 25.5% premium over the $12.75 per Barefoot Share closing price on the Nasdaq National Market on December 4, 1996, the last full trading day prior to the public announcement of the execution of the Acquisition Agreement, and a 48.8% premium over the $10.75 per Barefoot Share closing price on the Nasdaq National Market on October 23, 1996, the date on which the Barefoot Board first met to consider the ServiceMaster acquisition proposal; . the Shares had not traded at a price higher than $13.00 during the preceding twelve months; . the opinion of Baird regarding the fairness of the Consideration to be provided in the Offer and the Merger from a financial point of view; . the Acquisition Agreement is structured to accommodate certain unsolicited third-party proposals to acquire Barefoot and specifically permits Barefoot to provide information to and negotiate or discuss such proposals if the Barefoot Board concludes, after having received the advice of Barefoot's financial advisor and legal counsel, that such proposals are reasonably likely to result in consideration per Share in excess of the Consideration and that the failure of the Board to provide such information or to engage in such negotiations or discussions or to accept such proposals are reasonably likely to result in a breach of the Barefoot Board's fiduciary duties under applicable law (although Barefoot's ability to accept competing proposals is subject, in certain cases, to the obligation to pay a termination fee of $9,300,000 to ServiceMaster). See "Description of Acquisition Agreement and Merger Agreement--No Solicitation" and "--Termination Fees"; . the time period between the public announcement of the Transaction and the expiration of the Offer is expected to be in excess of 60 days, which could allow for third party offers to be made; . the other terms and conditions of the Acquisition Agreement, including specifically the right of Barefoot stockholders to elect to receive cash on a taxable basis in exchange for their Shares in the Offer or to receive ServiceMaster Shares on a tax-free basis; . the representation and warranty of ServiceMaster to Barefoot in the Acquisition Agreement that ServiceMaster has sufficient financial resources to enable it to make all cash payments for the Shares in the Offer and the Merger and ServiceMaster's willingness not to impose any limitation on the proportion of Barefoot Shares which could be converted into cash or ServiceMaster Shares; . the presentations by Baird with respect to other potential acquirers of Barefoot and the range of prices that such acquirers would likely be willing to pay, and the likelihood that a strategic buyer such as ServiceMaster is in a position to pay a higher price than a financial buyer due among other things to cost savings resulting from consolidation of the businesses; . the Offer gives the Barefoot stockholders who elect to receive ServiceMaster Shares the opportunity to participate in a more diversified company which is expected to have a greater potential for growth than Barefoot would have alone, and there are a number of benefits that could reasonably be expected to be realized by former stockholders of Barefoot from their continuing interest in the combined company, including but not limited to (a) the future stock value and earnings per share prospects of the combined company, (b) the potential for growth in the business of the combined company as the result of the possibility of cross-marketing of services, (d) the opportunity to diversify earnings, and (e) the business synergies that might be realized, with consequent cost savings; 23 . ServiceMaster had agreed that Barefoot would implement a severance and employee continuation bonus plan for Barefoot employees and would accelerate vesting of all outstanding employee stock options; and . ServiceMaster had agreed that, as soon as practicable after the Closing Time, ServiceMaster would make every effort to provide to each Barefoot franchisee the option to do any of the following: (i) to sell such franchise to Barefoot on terms and conditions as the franchisee and ServiceMaster may agree; (ii) to continue to operate its Barefoot franchise in accordance with existing agreements between the franchisee and Barefoot; or (iii) to terminate the existing agreement between the franchisee and Barefoot and to operate its business independently without use of Barefoot trade names, service marks or similar rights. OPINION OF BAREFOOT FINANCIAL ADVISOR The Barefoot Board retained Baird on October 16, 1996 as financial advisor and in that connection Baird agreed, upon request, to render its opinion as to whether or not the $16.00 per Share proposed to be paid by ServiceMaster in the Offer and the Merger is fair, from a financial point of view, to the holders of Barefoot Shares. Each holder of Barefoot Shares may elect to receive the Cash Consideration or the Share Consideration. On December 4, 1996, Baird rendered its opinion to the Barefoot Board to the effect that, as of such date, the Cash Consideration and the Merger Consideration are fair, from a financial point of view, to Barefoot stockholders. Baird has also rendered its opinion to the Barefoot Board to the effect that, as of December 4, 1996, the Share Consideration is fair, from a financial point of view, to Barefoot stockholders subject to the proviso that, because the Barefoot stockholders can elect to receive cash pursuant to the Offer at any time prior to the expiration of the Offer, Baird expresses no opinion as to the fairness of the Share Consideration if the Average ServiceMaster Share Price (calculated as described in the first paragraph on the cover of this Offering Circular/Prospectus) is less than $23.00. THE FULL TEXT OF BAIRD'S OPINION, DATED DECEMBER 4, 1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO THIS OFFERING CIRCULAR/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. BAIRD'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, AS OF DECEMBER 4, 1996 AND FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO THE HOLDERS OF SHARES AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY BAREFOOT STOCKHOLDER AS TO (I) WHETHER ANY SUCH STOCKHOLDER SHOULD TENDER SHARES PURSUANT TO THE OFFER, (II) WHETHER ANY SUCH STOCKHOLDER ELECTING TO TENDER SHARES SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE CONSIDERATION, OR (III) HOW ANY SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. BAIRD DID NOT RECOMMEND TO BAREFOOT THE AMOUNT OF CONSIDERATION TO BE PAID TO BAREFOOT'S STOCKHOLDERS. THE SUMMARY OF BAIRD'S OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS ANNEX B. STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY. In conducting its investigation and analysis and in arriving at its opinion attached as Annex B, Baird reviewed such information and took into account such financial and economic factors as it deemed relevant under the circumstances. In that connection, Baird among other things (i) reviewed certain internal information, primarily financial in nature, including projections, concerning the business and operations of Barefoot and ServiceMaster furnished to Baird for purposes of its analysis, as well as publicly available information including but not limited to, Barefoot's and ServiceMaster's recent filings with the SEC, and equity analyst research reports prepared by various investment banking firms including, in the case of Barefoot, Baird; (ii) reviewed the Acquisition Agreement in the form presented 24 to the Barefoot Board; (iii) compared the historical market prices and trading activity of the Shares and ServiceMaster Shares with those of certain other publicly traded companies Baird deemed relevant; (iv) compared the financial position and operating results of Barefoot and ServiceMaster with those of other publicly traded companies Baird deemed relevant; and (v) compared the proposed financial terms of the Offer and Merger (together, the "Transaction") with the financial terms of certain other business combinations Baird deemed relevant. Baird held discussions with members of Barefoot's and ServiceMaster's respective senior management concerning Barefoot's and ServiceMaster's historical and current financial condition and operating results as well as the future prospects of Barefoot and ServiceMaster, respectively. Baird also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which it deemed relevant for the preparation of its opinion. The Consideration was determined by Barefoot and ServiceMaster in arms-length negotiations. Barefoot did not place any limitation upon Baird with respect to the procedures followed or factors considered by Baird in rendering its opinion. In arriving at its opinion, Baird assumed and relied upon the accuracy and completeness of all of the financial and other information provided to it by or on behalf of Barefoot and ServiceMaster, or publicly available, and assumed no responsibility to verify any such information. Baird also assumed, with Barefoot's consent, that (i) the Merger will be accounted for under the purchase method; (ii) there has been no material change in the assets or liabilities of Barefoot or ServiceMaster from those set forth in the most recent consolidated financial statements of Barefoot or ServiceMaster, respectively; and (iii) the Transaction would be consummated in accordance with the terms of the Acquisition Agreement in the form presented to Barefoot's Board. The senior management of Barefoot and ServiceMaster have represented to Baird, and Baird assumed, that the financial forecasts examined by it had been reasonably prepared on bases reflecting the best available estimates and good faith judgments of Barefoot's and ServiceMaster's senior management as to the future performance of their respective companies. In conducting its review, Baird did not undertake nor obtain an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Barefoot or ServiceMaster, nor did Baird make a physical inspection of the properties or facilities of Barefoot or ServiceMaster. Baird's opinion was based upon economic, monetary and market conditions as they existed on and to the extent that they could be evaluated as of the date of such opinion and did not predict or take into account any changes which may occur thereafter or information which may become available thereafter. Baird's opinion does not imply any conclusion as to the likely trading range for ServiceMaster Shares following the consummation of the Merger, which may vary depending upon, among other factors, changes in interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. Baird's opinion does not address Barefoot's underlying business decision to effect the Transaction. Baird was not asked to, and did not, solicit third party indications of interest in acquiring all or any part of Barefoot. In connection with preparing its opinion dated December 4, 1996, Baird conducted a variety of financial analyses summarized below with respect to Barefoot and ServiceMaster. Analysis of Barefoot Valuation Multiples. Baird calculated multiples of the "Equity Value" of Barefoot represented by the Consideration (i.e., $234.9 million, obtained by multiplying the Consideration by the total number of fully diluted Shares, including Shares from the assumed exercise of options, less net proceeds from such stock options) to Barefoot's latest twelve months ("LTM") net income without giving effect to non-recurring items and its projected net income for calendar years 1996 and 1997 (based on Barefoot's senior management estimates), and multiples of Barefoot's "Enterprise Value" (defined as the Equity Value plus forecasted debt less forecasted cash and cash equivalents as of December 31, 1996 as Barefoot's senior management's best approximation of average annual net debt) to its LTM revenue, its LTM operating income before depreciation and amortization, interest and taxes and without giving effect to non-recurring items ("EBITDA") and its LTM operating income before interest and taxes without giving effect to non-recurring items ("EBIT"). 25 For this purpose, LTM represents the twelve month period ended September 30, 1996. The calculations resulted in ratios of the Equity Value to net income ("P/E Ratios") of 20.6x based on LTM results; 18.1x based on projected 1996 results; and 15.5x based on projected 1997 results. The ratio of Enterprise Value to LTM revenue was 2.3x, the ratio of Enterprise Value to LTM EBITDA was 9.8x and the ratio of Enterprise Value to LTM EBIT was 13.2x. Analysis of Selected Publicly Traded Barefoot Comparable Companies. Baird reviewed certain publicly available financial information as of the most recently reported period and stock market information as of November 29, 1996 for certain selected publicly traded companies which Baird deemed relevant. Such comparable companies consisted of: LESCO, Inc., Rollins, Inc., The Scotts Company, ServiceMaster and The Toro Company. For each comparable company, Baird calculated multiples as of November 29, 1996 of enterprise value to LTM revenue, LTM EBITDA and LTM EBIT. An analysis of the multiples of Barefoot's Enterprise Value to LTM revenue, LTM EBITDA and LTM EBIT yielded 2.3x, 9.8x and 13.2x, respectively, for Barefoot compared to medians of 0.9x, 11.1x and 15.0x, respectively, for the Barefoot comparable companies. For each comparable company, Baird calculated p/e ratios as of November 29, 1996 based on market stock prices as of such date and LTM earnings per share and estimated earnings per share (derived from information provided by First Call and ServiceMaster senior management which included an assumed normalized corporate tax rate with respect to the ServiceMaster information) for calendar years 1996 and 1997. An analysis of these ratios based on earnings per share for LTM, 1996 and 1997 yielded P/E Ratios of 20.6x, 18.1x and 15.5x, respectively, for Barefoot, compared to median p/e ratios of 21.8x, 21.8x and 14.9x, respectively, for the Barefoot comparable companies. In rendering its opinion, Baird noted, among other items, the fact that the Barefoot multiples were generally similar to corresponding multiples of the comparable companies. Analysis of Selected Publicly Traded ServiceMaster Comparable Companies. In order to assess the relative public market valuation of the ServiceMaster Shares which the holders of Shares may elect to receive in the Offer, Baird reviewed certain publicly available financial information as of the most recently reported period and stock market information as of November 29, 1996 for certain selected publicly traded companies which Baird deemed relevant. Such comparable companies consisted of: Cintas Corporation, Marriott International, Inc., Ogden Corporation, Rollins, Inc. and Service Corporation International. For each comparable company, Baird calculated multiples as of November 29, 1996 of enterprise value to LTM revenue, LTM EBITDA and LTM EBIT. An analysis of the multiples of ServiceMaster's enterprise value to LTM revenue, LTM EBITDA and LTM EBIT yielded 1.3x, 11.9x and 15.1x, respectively, for ServiceMaster compared to medians of 1.3x, 12.9x and 18.5x, respectively, for the ServiceMaster comparable companies. For ServiceMaster and each comparable company, Baird also calculated p/e ratios as of November 29, 1996 based on market stock prices as of such date and LTM earnings per share and estimated earnings per share (derived from information provided by First Call and ServiceMaster senior management which included an assumed normalized corporate tax rate with respect to the ServiceMaster information) for calendar years 1996 and 1997. An analysis of the p/e ratios based on earnings per share for LTM, 1996 and 1997 yielded 25.4x, 24.8x and 20.8x, respectively, for ServiceMaster compared to medians of 27.6x, 27.8x and 23.3x, respectively, for the ServiceMaster comparable companies. In rendering its opinion, Baird noted, among other items, the fact that the ServiceMaster multiples were generally modestly lower than or similar to the corresponding multiples of the comparable companies. Analysis of Selected Comparable Acquisition Transactions. Baird reviewed selected acquisition transactions which it deemed relevant based on a review of acquired companies which possessed general business, operating and financial characteristics representative of companies in the industry in which Barefoot operates. Baird noted that none of the selected transactions were identical to the Transaction and that, accordingly, the analysis of comparable transactions necessarily involves complex considerations and judgments concerning differences in financial and operating 26 characteristics of Barefoot and other factors that would affect the acquisition value of comparable transactions. For each comparable transaction, Baird calculated multiples of enterprise value to LTM revenue, LTM EBITDA and LTM EBIT; calculated p/e ratios based on LTM earnings per share; and calculated the premium paid for the equity in these transactions over the public market value of the equity at various times prior to the announcement of such transaction. Baird then compared those multiples and premiums to the relevant Barefoot multiples and premiums based on the Consideration. These calculations yielded multiples of Enterprise Value to LTM revenue, LTM EBITDA and LTM EBIT of 2.3x, 9.8x and 13.2x, respectively, for Barefoot compared to median enterprise value multiples of 1.2x, 9.0x and 12.1x, respectively, and means of 1.2x, 9.0x and 12.0x, respectively, for the comparable acquisition transactions selected. An analysis of the p/e ratios based on LTM earnings per share yielded a 20.6x P/E Ratio for Barefoot compared to a median p/e ratio of 19.3x and a mean p/e ratio of 18.0x for the comparable transactions. An analysis of the Consideration to the market value of Shares as of 1 day, 30 days and 90 days prior to December 2, 1996, compared to the prices paid for the equity in such comparable acquisition transactions relative to the market value of equity 1 day, 30 days and 90 days prior to the announcement date of such transactions, yielded premiums of 25.5%, 47.1% and 60.0% respectively, for Barefoot, compared to median premiums of 45.9%, 46.3% and 55.3% respectively, and means of 36.7%, 43.1% and 50.7%, respectively, for the comparable acquisition transactions. Baird noted, among other items, the fact that the Barefoot multiples were modestly higher and price premiums generally similar to the corresponding premiums of the comparable acquisition transactions. Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF") methodology, Baird valued each of Barefoot and ServiceMaster by estimating the present value of future free cash flows available to their respective equity holders if each of Barefoot and ServiceMaster were to continue on a stand- alone basis (without giving effect to the Transaction or possible related savings). Baird valued Barefoot and ServiceMaster in accordance with the respective forecasts of Barefoot and ServiceMaster senior management. In such analysis, Baird assumed terminal value multiples ranging from 7.0x to 9.0x for Barefoot and 9.0x to 11.0x for ServiceMaster applied to each entity's EBIT for the final year of the forecast period. As part of the DCF analysis, Baird used discount rates reflecting each entity's specific financial characteristics, ranging from 12.0% to 14.0% and 11.0% to 13.0% for Barefoot and ServiceMaster, respectively. This DCF analysis resulted in values ranging from $14.31 to $19.10 per Share and $23.52 to $30.79 per ServiceMaster Share. Contribution Analysis. Baird analyzed Barefoot's and ServiceMaster's relative contribution to the combined company resulting from the Transaction with respect to revenue, EBITDA, EBIT and net income. As a result of the Transaction and assuming (i) Barefoot stockholders elect to receive 100% of the Offer Consideration in the form of ServiceMaster Shares and (ii) a Conversion Fraction of 0.621 based on the NYSE closing price of ServiceMaster Shares on November 29, 1996, Barefoot stockholders would own approximately 5.8% of the outstanding ServiceMaster Shares, which compares to Barefoot's contribution (based on Barefoot's and ServiceMaster's LTM and estimated results for fiscal years 1996 and 1997 as provided by Barefoot's and ServiceMaster's respective senior management) of approximately 3.0% of revenue, 6.4% to 6.9% of EBITDA, 6.1% to 6.6% of EBIT and 7.5% to 7.9% of net income. Pro Forma Merger Analysis. Based on the management forecasts for Barefoot and ServiceMaster, excluding any potential cost savings related to the combined company and assuming (i) Barefoot stockholders elect to receive the Offer Consideration in various combinations of cash and ServiceMaster Shares and (ii) the closing price of ServiceMaster Shares on November 29, 1996, Baird examined the pro forma impact of the Transaction on ServiceMaster earnings per share in 1996, 1997 and 1998. Historical Trading Ratio Analysis. Baird reviewed the history of trading prices for the Barefoot Shares and the ServiceMaster Shares in relation to each other over various time periods. From 27 November 29, 1995 to November 29, 1996, this review showed the average closing, trading high and trading low prices of the Barefoot Shares to be $10.86, $13.00 and $8.75, respectively, per Barefoot Share. Baird noted that the price of Shares exhibited greater volatility over the period than the price of ServiceMaster Shares. Baird performed an analysis of the historical trading ratio between the Shares and the ServiceMaster Shares based on the closing market price per Share relative to the closing market price per ServiceMaster Share for each trading day during the period from November 29, 1994 through November 29, 1996. This analysis yielded a historical trading ratio during the two-year period averaging 0.609x and averaging 0.445x over the past six months. The foregoing summary does not purport to be a complete description of the analyses performed by Baird or of its presentations to the Barefoot Board. The preparation of financial analyses and a fairness opinion is a complex process and is not necessarily susceptible to partial analyses or summary description. Baird believes that its analyses (and the summary set forth above) must be considered as a whole, and that selecting portions of such analyses and of the factors considered by Baird, without considering all of such analyses and factors, could create an incomplete view of the processes underlying the analyses conducted by Baird and its opinion. Baird did not attempt to assign specific weights to particular analyses. Any estimates contained in Baird's analyses are not necessarily indicative of actual values, which may be significantly more or less favorable than as set forth therein. Estimates of values of companies do not purport to be appraisals or necessarily to reflect the prices at which companies may actually be sold. Because such estimates are inherently subject to uncertainty, Baird does not assume responsibility for their accuracy. Baird, as part of its investment banking business, is continually engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. In the ordinary course of business, Baird may from time to time trade the securities of Barefoot or ServiceMaster for its own account and for accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. Compensation. Pursuant to an engagement letter agreement dated October 16, 1996 between Barefoot and Baird, Barefoot agreed to pay Baird a retainer fee of $50,000 (such fee to be creditable against the transaction fee described below), a fee of $150,000, payable upon delivery of its opinion, regardless of the conclusions reached by Baird in such opinion (such fee to be creditable against the transaction fee described below), and a transaction fee, payable upon consummation of the Transaction, equal to 0.625 percent of the aggregate consideration paid or payable in connection with the Transaction. Barefoot has also agreed to reimburse Baird for its reasonable out-of-pocket expenses, including fees and disbursements of counsel. Barefoot has also agreed to indemnify Baird, its affiliates and their respective directors, officers, employees and agents and controlling persons against certain liabilities relating to or arising out of its engagement, including liabilities under the federal securities laws. In the past, Baird has provided investment banking services to Barefoot, for which it received agreed upon compensation. TERMS OF THE OFFER Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), ServiceMaster will accept for payment and pay for all Shares which are validly tendered prior to the Expiration Date and not withdrawn in accordance with the procedures for withdrawal set forth under the caption "Withdrawal Rights." The term "Expiration Date" means 12:00 midnight, New York City time, on Friday, February 21, 1997, unless and until ServiceMaster, in its sole discretion (but subject to the terms of the Acquisition Agreement), shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by ServiceMaster, shall expire. 28 The Offer is conditioned on a minimum number (the "Minimum Number") of the outstanding Shares being tendered for either cash or ServiceMaster Shares pursuant to the Offer such that, when added to all Barefoot Shares owned by ServiceMaster prior to consummation of the Offer, will provide ServiceMaster with ownership of at least 75.0% of the Shares which are outstanding at the Closing Time. ServiceMaster, as of the date of this Offering Circular/Prospectus, beneficially owns 289,000 Shares or approximately 2.0% of the outstanding Shares. The Offer is also subject to certain other conditions. See "--Conditions to the Offer." If any condition to ServiceMaster's obligation to purchase Shares under the Offer is not satisfied prior to the Expiration Date, ServiceMaster reserves the right (but shall not be obligated) to (i) decline to purchase any of the Shares tendered and terminate the Offer, (ii) waive such unsatisfied condition, subject to the Acquisition Agreement and to complying with applicable rules and regulations of the Commission, purchase all Shares validly tendered, (iii) extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares which have been tendered during the period or periods for which the Offer is extended, or (iv) subject to the terms of the Acquisition Agreement, amend the Offer. ServiceMaster expressly reserves the right, in its sole discretion, at any time or from time to time, subject to the terms of the Acquisition Agreement and regardless of whether or not any of the events set forth under "-- Conditions to the Offer" shall have occurred or shall have been reasonably determined by ServiceMaster to have occurred, (i) to extend the period of time during which the Offer is open and thereby delay acceptance for payment of, and the payment for, any Shares, by giving oral or written notice of such extension to the Exchange Agent and (ii) to amend the Offer in any respect by giving oral or written notice of such amendment to the Exchange Agent. The rights so reserved by ServiceMaster are in addition to ServiceMaster's rights to terminate the Offer described under "--Conditions to the Offer." Any extension, amendment or termination will be followed as promptly as practicable by public announcement thereof, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Without limiting the obligation of ServiceMaster under such Rule or the manner in which ServiceMaster may choose to make any public announcement, ServiceMaster currently intends to make announcements by issuing a release to the Dow Jones News Service. If ServiceMaster extends the Offer, or if ServiceMaster (whether before or after its acceptance for payment of Shares) is delayed in its purchase of or payment for Shares or is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to ServiceMaster's rights under the Offer, the Exchange Agent may retain tendered Shares on behalf of ServiceMaster, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described under "Withdrawal Rights." However, the ability of ServiceMaster to delay the payment for Shares which ServiceMaster has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of the Offer. If ServiceMaster makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including that the Minimum Number of all outstanding Shares are validly tendered and not withdrawn prior to 12:00 midnight, New York City Time on the Expiration Date), subject to the Acquisition Agreement, ServiceMaster will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information. With respect to a change in price or a change in percentage of securities sought, a minimum ten business day period is required to allow for adequate dissemination to stockholders and investor response. If prior to the Expiration Date, 29 ServiceMaster should decide to increase the Offer Consideration, such increase will be applicable to all stockholders whose Shares are accepted for payment pursuant to the Offer. As used in this Offering Circular/Prospectus, "business day" has the meaning set forth in Rule 14d-1 under the Exchange Act. The Company has provided to ServiceMaster its list of stockholders and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offering Circular/Prospectus and the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares and furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. OFFER CONSIDERATION ServiceMaster hereby pursuant to the Offer, offers, upon the terms and subject to the conditions set forth in this Offering Circular/Prospectus and the accompanying Letter of Transmittal, to acquire each outstanding Share, together with the associated Stock Purchase Rights, not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon; or (ii) a fraction (the "Conversion Fraction") of a validly issued, fully paid and nonassessable ServiceMaster Share, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the NYSE as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date and rounding the result to the nearest one one-hundred thousandth of a share. Pursuant to the Offer, Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. There is no limit on the percentage of the Offer Consideration which may be received as cash or as ServiceMaster Shares. Because the market price for ServiceMaster Shares will fluctuate, the market price for the fraction of a ServiceMaster Share issuable in exchange for each Share at any time on or after the Closing Date is likely to be higher or lower than $16.00. Each Barefoot stockholder has the right to decide whether to receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot stockholder may wish to consider in connection with such decision include: the value to the Barefoot stockholder of the ability to defer recognition of any capital gain for federal income tax purposes by electing to receive ServiceMaster Shares; the inclination of such stockholder to continue to hold the ServiceMaster Shares received in the Offer (since a capital gain tax may be imposed when the ServiceMaster Shares are sold); the stockholder's willingness to assume the risk inherent in holding ServiceMaster equity securities with a view to possibly realizing realizing future gains (as to which no assurance can be given); and the stockholder's evaluation of the attractiveness of alternative investments which the stockholder would be able to make with the net after tax proceeds which the stockholder would receive if the stockholder elected to receive the Cash Consideration. A stockholder who would be subject to little or no tax upon the disposition of Shares will likely give little or no weight to the tax related factors identified above and may accordingly evaluate the relative attractiveness of the Share Consideration and Cash Consideration differently from a stockholder who is in a taxable situation. The foregoing does not purport to be a complete list of all of the factors which may be relevant to a stockholder's decision to receive cash or ServiceMaster Shares. See "Certain Federal Income Tax Consequences." In addition, if, and to the extent, the Average ServiceMaster Share Price (determined as described in the first paragraph on the cover of this Offering Circular/Prospectus) should turn out to be below $23.00, the risk that the market value on the Closing Date of the Share Consideration will be less than 30 the $16.00 Cash Consideration available to Barefoot stockholders would increase. ServiceMaster will issue a press release and file an amendment to its Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share Price is determined disclosing the amount of that price. In addition, on or after the fourth NYSE trading day immediately preceding the Expiration Date, each Barefoot stockholder can call the Information Agent at (800) 848-3410 to obtain the Average ServiceMaster Share Price. Since Barefoot stockholders have the ability to switch their elections between Share Consideration and Cash Consideration until midnight on the Expiration Date of the Offer, Barefoot stockholders should review this ServiceMaster announcement so that their final election can take into account the Average ServiceMaster Share Price as well as the market price for ServiceMaster Shares on or near the Expiration Date. Patrick J. Norton (Barefoot's Chief Executive Officer) has advised ServiceMaster that it is his present intention to tender all of his Barefoot Shares (which represent approximately 9.5% of all outstanding Barefoot Shares) and to elect the Share Consideration for substantially all of such Tendered Shares. Mr. Norton's action is not intended to constitute advice or a recommendation as to whether or not any other Barefoot stockholder should tender or how any other Barefoot stockholder should choose between the Cash Consideration and Share Consideration alternatives. NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR OWN DECISION WITH RESPECT TO SUCH ELECTION. On December 4, 1996, the last full trading day prior to the announcement by ServiceMaster and Barefoot that they had entered into the Acquisition Agreement, the closing price of ServiceMaster Shares, as reported by the NYSE Composite Tape, was $24.625 per share and the closing price of the Barefoot Shares, as reported on the Nasdaq National Market, was $12.75 per share. The closing price of ServiceMaster Shares and the Barefoot Shares on January 15, 1997, the most recent date prior to the printing of this Offering Circular/Prospectus, as reported by the NYSE Composite Tape and the Nasdaq National Market, respectively, were $26.125 per share and $15.75 per share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. ELECTION PROCEDURES Each holder of Barefoot Shares which have been properly tendered and not withdrawn pursuant to the Offer by 12:00 midnight New York City time on the Expiration Date ("Tendered Shares"), shall have the right, subject to the limitations set forth below, to specify the number of Tendered Shares that such holder desires to have exchanged into the Share Consideration pursuant to the Offer and the number of Tendered Shares that such holder desires to have exchanged for the Cash Consideration pursuant to the Offer in accordance with the following procedures: Each holder of Tendered Shares may specify in a Letter of Transmittal (or in a Notice of Guaranteed Delivery if the guaranteed delivery procedure is followed), (an "Election") (i) the number of Tendered Shares owned by such holder that such holder desires to exchange for the Share Consideration pursuant to the Offer (a "Share Election") and (ii) the number of Shares owned by such holder that such holder desires to have exchanged for the Cash Consideration pursuant to the Offer (a "Cash Election"). Any Election shall have been made properly only if the Exchange Agent shall have received, by 12:00 midnight New York City time on the Expiration Date, a Letter of Transmittal (or in a Notice of Guaranteed Delivery if the guaranteed delivery procedure is followed), properly completed and signed. A copy of each of the Letter of Transmittal and the Notice of Guaranteed Delivery is being mailed simultaneously with this Offering Circular/Prospectus. See "-- Procedures for Tendering Shares." 31 Any holder of Shares may at any time prior to 12:00 midnight New York City time on the Expiration Date, change his or her Election only by written notice, signed and dated by such Stockholder, to the Exchange Agent. Such written notice must identify the name of the holder of record of the Barefoot Shares subject to such notice and the certificate number shown on the certificate(s) representing such Barefoot Shares. The written notice must be received by the Exchange Agent prior to 12:00 midnight New York City time on the Expiration Date. Each Tendered Share for which a Share Election has been received shall be, at the Closing Time, exchanged for the Share Consideration in the Offer; provided, however, no certificates or scrip representing fractional ServiceMaster Shares shall be issued upon the exchange for such Tendered Shares. In lieu of any such fractional ServiceMaster Share, ServiceMaster shall pay to each such Barefoot stockholder who otherwise would be entitled to receive a fractional ServiceMaster Share an amount in cash determined by multiplying (i) the greater of $23.00 or the Average ServiceMaster Share Price by (ii) the fractional interest in a ServiceMaster Share to which such holder would otherwise be entitled. Each Tendered Share for which a Cash Election has been received and each Tendered Share as to which an Election is not in effect at 12:00 midnight New York City time on the Expiration Date, (a "Non-Electing Share") shall be, at the Closing, exchanged for the Cash Consideration in the Offer. All Cash Elections and Share Elections must be made on the Letter of Transmittal (or, a Notice of Guaranteed Delivery if the guaranteed delivery procedure is followed) and must be received and accepted by 12:00 midnight New York City time on the Expiration Date. Additional copies of the Letter of Transmittal will be available upon request from the Exchange Agent or the Information Agent at their respective addresses and telephone numbers set forth on the back cover of this Offering Circular/Prospectus. If ServiceMaster shall determine that any Election is not properly made with respect to any Tendered Shares, such Election shall be deemed to be not in effect, and the Tendered Shares covered by such Election shall, for purposes of the Offer, be deemed to be Non-Electing Shares. In the event that, between the date of this Agreement and the Closing Time, the issued and outstanding ServiceMaster Shares shall have been affected or changed into a different number of shares or a different class of shares as a result of a share split, reverse share split, share distribution, spin-off, extraordinary distribution, recapitalization, reclassification or other similar transaction with a record date within such period, the Conversion Fraction shall be equitably adjusted by ServiceMaster in a manner reasonably satisfactory to the Company. ServiceMaster has the right to make rules, not inconsistent with the terms of the Acquisition Agreement and reasonably acceptable to the Company, governing the validity of any Letter of Transmittal, the manner and extent to which Elections are to be taken into account in making the determinations required by the Acquisition Agreement, the issuance and delivery of certificates for ServiceMaster Shares exchanged for Shares pursuant to the Offer and the payment of cash for Shares exchanged for the Cash Consideration pursuant to the Offer. ACCEPTANCE OF SHARES; DELIVERY OF THE OFFER CONSIDERATION Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), at the earliest time permitted under the Exchange Act and the earliest time as of which: (i) the Minimum Number of Shares shall have been properly tendered and not withdrawn and shall be available for purchase under the terms of the Offer and applicable law and (ii) all conditions to ServiceMaster's obligation to consummate the 32 Offer shall have been satisfied or waived by ServiceMaster, ServiceMaster will acquire, by accepting pursuant to the Offer and will pay the Cash Consideration or issue the Share Consideration for all Shares validly tendered prior to the Expiration Date promptly after the Expiration Date; provided, that ServiceMaster may allow the Offer to remain open for an additional period of time but no later than 20 business days after the Minimum Number of Shares shall have been properly tendered (the "Closing"). The "Closing Time" shall be the time at which ServiceMaster shall acquire Shares by means of the Offer. ServiceMaster expressly reserves the right to delay acceptance of, or, subject to Rule 14e-1(c) under the Exchange Act, payment for, Shares in order to comply, in whole or in part, with any applicable law. See "--Regulatory Approvals." For purposes of the Offer, ServiceMaster will be deemed to have accepted (and thereby acquired pursuant to the Offer) Tendered Shares, if, as and when ServiceMaster gives oral or written notice to the Exchange Agent of ServiceMaster's acceptance of such Shares for payment pursuant to the Offer. At the Closing, ServiceMaster shall deliver, in trust, to the Exchange Agent, for the benefit of the holders of Shares, certificates representing an aggregate number of ServiceMaster Shares as nearly as practicable equal to the product of the Conversion Fraction and the number of Tendered Shares to be converted into ServiceMaster Shares. As soon as practicable after the Closing Time, each holder of Tendered Shares exchanged for ServiceMaster Shares pursuant to the Offer, shall, only after timely receipt by the Exchange Agent of (i) certificates for such Shares, or timely confirmation of a book-entry transfer (a "Book Entry Confirmation") of such Shares into the Exchange Agent's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility") pursuant to the procedures set forth under "--Procedures for Tendering Shares," (ii) a properly completed and duly executed Letter of Transmittal (or, in the case of a book-entry transfer, an Agent's Message) and (iii) any other documents required by the Letter of Transmittal, receive certificates representing the number of ServiceMaster Shares for which such Tendered Shares shall have been exchanged as determined in accordance with the terms of the Offer (or, in the case of Shares tendered by book-entry transfer into the Exchange Agent's account at a Book-Entry Transfer Facility pursuant to the procedures set forth under "--Procedures for Tendering Shares", such Shares will be credited to an account maintained at such Book-Entry Transfer Facility). If any certificate for such ServiceMaster Shares is to be issued in a name other than that in which the certificate for Tendered Shares surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of issuance of certificates for such ServiceMaster Shares in a name other than the registered holder of the certificate surrendered, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not applicable. At the Closing, ServiceMaster shall deposit in trust with the Exchange Agent, for the benefit of the holders of Tendered Shares, cash in an amount equal to the Cash Consideration multiplied by the number of Tendered Shares to be exchanged for the Cash Consideration. As soon as practicable after the Closing Time, the Exchange Agent shall distribute to such holders of Tendered Shares, only after timely receipt by the Exchange Agent of (i) certificates for such Shares, or timely confirmation of a book-entry transfer (a "Book Entry Confirmation") of such Shares into the Exchange Agent's account at a Book-Entry Transfer Facility pursuant to the procedures set forth under "-- Procedures for Tendering Shares," (ii) a properly completed and duly executed Letter of Transmittal (or, in the case of a book-entry transfer, an Agent's Message) and (iii) any other documents required by the Letter of Transmittal, the Cash Consideration in the form of a bank check for an amount equal to the Cash Consideration times the number of Tendered Shares so exchanged. In no event shall the holder of any such surrendered certificates be entitled to receive interest on any of the Cash Consideration to be received in the Offer. If such check is to be issued in the name of a person other than the person in whose name the certificates for the Tendered Shares surrendered for exchange therefor are registered, it shall be a condition of the exchange that the person requesting such exchange shall pay 33 to the Exchange Agent any transfer or other taxes required by reason of issuance of such check to a person other than the registered holder of the certificates surrendered, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not applicable. If any Tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates submitted represent more Shares than are tendered, certificates for such Shares not accepted or tendered will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Exchange Agent's account at a Book- Entry Transfer Facility pursuant to the procedures set forth under "-- Procedures for Tendering Shares", such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), promptly after the expiration or termination of the Offer. PROCEDURES FOR TENDERING SHARES. Valid Tender. For Shares to be validly tendered pursuant to the Offer, a properly completed and duly executed Letter of Transmittal, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other required documents, must be received by the Exchange Agent at one of its addresses set forth on the back cover of this Offering Circular/Prospectus prior to the Expiration Date. In addition, either (i) the certificates for Shares must be received by the Exchange Agent along with the Letter of Transmittal or Shares must be tendered pursuant to the procedures for book-entry transfer described below and a Book-Entry Confirmation must be received by the Exchange Agent, in each case prior to the Expiration Date, or (ii) the tendering stockholder must comply with the guaranteed delivery procedures described below. Book Entry Transfer. The Exchange Agent will establish an account with respect to the Shares at each Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offering Circular/Prospectus. Any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make book-entry delivery of Shares by causing a Book-Entry Transfer Facility to transfer such Shares into the Exchange Agent's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. Signature Guarantees. Signatures on all Letters of Transmittal must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal, or (ii) for the account of an Eligible Institution. See Instructions H-3 and H-4 of the Letter of Transmittal. If the certificates are registered in the name of a person other than the signer of the Letter of Transmittal or if payment is to be made or certificates for ServiceMaster Shares or certificates for Shares not accepted for payment or not tendered are to be issued or returned to a person other than the registered holder, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instructions H-2, H-3 and H-4 of the Letter of Transmittal. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or time will not permit all required 34 documents to reach the Exchange Agent on or prior to the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by ServiceMaster herewith, is received by the Exchange Agent, as provided below, on or prior to the Expiration Date as provided below; and (iii) the certificates for all Tendered Shares, in proper form for transfer (or a Book-Entry Confirmation), together with a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal, are received by the Exchange Agent within three Nasdaq National Market ("NNM") trading days after the date of execution of the Notice of Guaranteed Delivery. THE NOTICE OF GUARANTEED DELIVERY MAY BE SENT BY HAND DELIVERY, FACSIMILE TRANSMISSION, OVERNIGHT COURIER OR MAIL TO THE EXCHANGE AGENT AND MUST INCLUDE A GUARANTEE BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN THE NOTICE OF GUARANTEED DELIVERY. THE ELECTION MADE IN ANY NOTICE OF GUARANTEED DELIVERY MAY NOT BE CHANGED AFTER 12:00 MIDNIGHT ON THE EXPIRATION DATE INCLUDING BY A LETTER OF TRANSMITTAL RECEIVED BY THE EXCHANGE AGENT AFTER SUCH TIME. Notwithstanding any other provision hereof, consideration for Shares acquired pursuant to the Offer will in all cases be made only after timely receipt by the Exchange Agent of certificates for the Shares or a Book-Entry Confirmation of the delivery of such Shares, and a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal. Backup Federal Income Tax Withholding. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT OF THE CASH CONSIDERATION FOR SHARES PURCHASED PURSUANT TO THE OFFER, A TENDERING STOCKHOLDER MUST PROVIDE THE EXCHANGE AGENT WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any Tendered Shares pursuant to any of the procedures described above will be determined by ServiceMaster, in its sole discretion, whose determination shall be final and binding. ServiceMaster reserves the absolute right to reject any or all tenders of any Shares determined by it not to be in proper form or if the acceptance for payment of, or payment for, such Shares may, in the opinion of ServiceMaster's counsel, be unlawful. ServiceMaster also reserves the absolute right, in its sole discretion, subject to the Acquisition Agreement, to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. ServiceMaster's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the Instructions thereto) will be final and binding. None of ServiceMaster, the Company, the Exchange Agent, the Information Agent, the Dealer Managers or any other person will be under any duty to give notification of any defects or irregularities in tenders or the Election or will incur any liability for failure to give any such notification. 35 Other Requirements. By executing a Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of ServiceMaster as the stockholder's attorneys-in-fact and proxy, in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of the stockholder's rights with respect to the Shares tendered by the stockholder and accepted for payment by ServiceMaster (and any and all other Shares or other securities issued or issuable in respect of such Tendered Shares on or after the date of the Acquisition Agreement). All such proxies shall be considered coupled with an interest in the Tendered Shares. This appointment will be effective when, and only to the extent that, ServiceMaster accepts Shares for payment. Upon acceptance for payment, all prior proxies given by the stockholder with respect to the Shares or other securities will, without further action, be revoked, and no subsequent proxies may be given nor any subsequent written consent executed by such stockholder (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of ServiceMaster will, with respect to the Shares and other securities, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual, special or adjourned meeting of the Company's stockholders, by written consent or otherwise. ServiceMaster reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon ServiceMaster's acceptance for payment of such Shares, ServiceMaster must be able to exercise full voting and other rights of a record and beneficial holder, including rights in respect of acting by written consent, with respect to such Shares. A TENDER OF SHARES PURSUANT TO ANY ONE OF THE PROCEDURES DESCRIBED ABOVE WILL CONSTITUTE THE TENDERING STOCKHOLDER'S ACCEPTANCE OF THE TERMS AND CONDITIONS OF THE OFFER. SERVICEMASTER'S ACCEPTANCE FOR PAYMENT OF SHARES TENDERED PURSUANT TO THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN THE TENDERING STOCKHOLDER AND SERVICEMASTER UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER. WITHDRAWAL RIGHTS Except as otherwise provided below, tenders of Shares made pursuant to the Offer are irrevocable, provided that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by ServiceMaster pursuant to the Offer, may also be withdrawn at any time after March 17, 1997. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth on the back cover of this Offering Circular/Prospectus. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If certificates for Shares have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the serial numbers of the particular certificates evidencing the Shares to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, except in the case of Shares tendered for the account of an Eligible Institution, must also be furnished to the Exchange Agent as described above. If Shares have been tendered pursuant to the procedures for book-entry transfer, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by ServiceMaster, in its sole discretion, whose determination will be final and binding. None of ServiceMaster, the Company, the Dealer Managers, the Exchange Agent, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 36 ANY SHARES PROPERLY WITHDRAWN WILL BE DEEMED TO BE NOT VALIDLY TENDERED FOR PURPOSES OF THE OFFER. However, withdrawn Shares may be retendered by again following one of the procedures described under "Procedures for Tendering" at any time prior to the Expiration Date. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. ServiceMaster and the Company believe that, for United States federal income tax purposes: (i) the Cash Consideration received by any holder of Shares tendered and accepted by ServiceMaster pursuant to the Offer will be treated as the receipt of cash in a taxable sale of the Shares, and (ii) for United States persons who hold Shares as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Code, the exchange of Shares for ServiceMaster Shares pursuant to the Offer as provided for herein will qualify as a tax free contribution of property to ServiceMaster within the meaning of Section 721 of the Code. The foregoing is based upon the laws, regulations, rulings and decisions currently in effect, all of which are subject to change. Holders of Shares should consult their own tax advisors to determine the federal, state, local and other tax consequences of participating in the Offer or the Merger. Holders of Shares should note that no rulings have been or will be sought from the IRS with respect to the federal income tax consequences of the Offer or the Merger, and no assurance can be given that the IRS will not take contrary positions. See "Certain Federal Income Tax Consequences." The discussion contained in "Certain Federal Income Tax Consequences--The Offer" constitutes the opinions of Vorys, Sater, Seymour and Pease and Kirkland & Ellis, each subject to the qualifications stated therein. A copy of the opinion of Vorys, Sater, Seymour and Pease has been included as Annex C-I to this Offering Circular/Prospectus. A copy of the opinion of Kirkland & Ellis has been included as Annex C-II to this Offering Circular/Prospectus. Such opinions, however, have no binding effect on the IRS or the courts. CERTAIN EFFECTS OF THE OFFER PENDING CONSUMMATION OF THE MERGER. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and the number of holders of Shares and could adversely affect the liquidity and market value of the remaining Shares held by the public pending consummation of the Merger. Depending upon the aggregate market value and per share price of any Shares not purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion in the Nasdaq National Market, which require that an issuer have at least 200,000 publicly held shares with a market value of $1,000,000 million. If these standards were not met, quotations might continue to be published in the over-the-counter "additional list" or in one of the "local lists," but if the number of holders of Shares falls below 300, or if the number of publicly held Shares falls below 100,000, or there are not at least two market makers for the Shares, NASD rules provide that the securities would no longer be "authorized" for reporting on the National Association of Securities Dealers Automated Quotation System ("Nasdaq") and Nasdaq would cease to provide any quotations. Shares held directly or indirectly by an officer or director of the Company, or by any beneficial owner of more than 10% of the Shares, ordinarily will not be considered as being publicly held for this purpose. In the event the Shares were no longer eligible for Nasdaq quotation, quotations might still be available from other sources. The extent of the public market for the Shares and availability of such quotations would, however, depend upon the number of holders of Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act, as described below, and other factors. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to 37 those described above regarding listing and market quotations, following the Offer it is possible that the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. Termination of registration of the Shares under the Exchange Act would reduce substantially the information required to be furnished by the Company to its stockholders and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a) and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions no longer applicable to the Company. Furthermore, if ServiceMaster acquires a substantial number of Shares or the registration of the Shares under the Exchange Act were to be terminated, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 under the Securities Act of 1933 may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated prior to the consummation of the Merger, the Shares would no longer be "margin securities" or be eligible for Nasdaq reporting. SOURCE AND AMOUNT OF FUNDS Assuming all Shares were tendered pursuant to the Offer and the Cash Consideration was elected for all of the Shares, the total amount of funds required by ServiceMaster to acquire all of the Shares pursuant to the Offer and to pay related fees and expenses is estimated to be approximately $239,000,000. ServiceMaster has sufficient financial resources (including available cash on hand and, to the extent necessary, borrowing capacity available under its existing credit facilities) to enable ServiceMaster to make all cash payments for the Shares in the Offer and the Merger and to pay related fees and expenses. DIVIDENDS AND DISTRIBUTIONS If, on or after the date of the Acquisition Agreement, the Company should (i) split, combine or otherwise change the Shares or its capitalization, (ii) issue or sell any additional securities of the Company or otherwise cause an increase in the number of outstanding securities of the Company (except for Shares issuable upon the exercise of stock options outstanding on the date of the Acquisition Agreement) or (iii) acquire currently outstanding Shares or otherwise cause a reduction in the number of outstanding Shares, then, without prejudice to ServiceMaster's rights described under "--Terms of the Offer" and "--Conditions to the Offer," ServiceMaster may in a manner reasonably satisfactory to the Company make such adjustments as it deems appropriate in the Offer Consideration and other terms of the Offer and the Merger, including, without limitation, the amount and type of securities offered to be purchased. CONDITIONS TO THE OFFER Notwithstanding any other provision of the Acquisition Agreement or the Offer, and except as expressly limited below, ServiceMaster shall not be required to purchase any Shares tendered, if, prior to or on the Expiration Date, any of the following events (each, an "Event") shall have occurred, (each of paragraphs (a) through (n) providing a separate and independent condition to ServiceMaster's 38 obligations pursuant to the Acquisition Agreement and the Offer) which in the reasonable judgment of ServiceMaster, in any such case and regardless of the circumstances (including any action or inaction by ServiceMaster or any of its affiliates) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment or payment for the Shares: (a) fewer than the Minimum Number of all outstanding Shares are validly tendered and not withdrawn prior to 12:00 midnight, New York City Time on the Expiration Date; (b) except as contemplated by the provisions of the Acquisition Agreement, the Company or any subsidiary of the Company shall have authorized or recommended, or shall have announced an intention to authorize or recommend, or shall have entered into an agreement in principle with respect to, any merger, consolidation or business combination, any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any material change in its capitalization or any release or relinquishment of any material contract rights not in the ordinary course of business; (c) an injunction or other order shall have been entered and remain in effect in any action or proceeding before any court or governmental agency or other regulatory or administrative agency or commission, domestic or foreign, based upon any provision of the Offer (i) making the acceptance for payment of, or purchase or payment for, the Shares pursuant to the Offer or the Merger illegal, or resulting in a material delay in the ability of ServiceMaster to accept for payment or pay for some or all of the Shares, (ii) imposing material limitations on the ability of ServiceMaster effectively to acquire or hold or to exercise full rights of ownership of the Shares acquired by it, including, but not limited to, the right to vote the Shares purchased by it on all matters properly presented to the stockholders of the Company, (iii) imposing material limitations on the ability of either ServiceMaster (so long as such injunction or other order is related to the Offer or the Merger) or the Company to continue effectively all or any material portion of its respective business as heretofore conducted or to continue to own or operate effectively all or any material portion of its respective assets as heretofore owned or operated or (iv) to the effect that the Offer or the Merger is violative of any applicable law; (d) there shall have been any law, statute, rule or regulation, domestic or foreign, promulgated or proposed after the date of the Acquisition Agreement that, directly or indirectly, results or may be reasonably anticipated to result in any of the consequences referred to in paragraph (c) above (other than any state law, statute, rule or regulation whose applicability can be avoided by not extending the Offer to residents of such state provided that in the aggregate not more than 2% of the outstanding Shares on the date of the Closing shall be owned of record by residents of any such state); (e) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the NYSE or in the over- the-counter market, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) the commencement of war involving the United States, or (iv) any limitation not in existence as of the date of the Acquisition Agreement by any governmental authority, or any other event not in existence as of the date of the Acquisition Agreement, which will materially limit the extension of credit by banks or other lending institutions in the United States; (f) the representations and warranties of the Company contained in the Acquisition Agreement shall not be true and correct at and as of the time of each purchase under the Offer as if made at and as of such time except for matters which, individually or in the aggregate, do not and will not have a material adverse effect on the business, operation or financial condition of the Company and its subsidiaries taken as a whole and the ability of the Company to perform its obligations under the Merger Agreement; (g) all material terms, agreements and conditions of the Acquisition Agreement and the Merger Agreement to be complied with or performed or fulfilled by the Company at or prior to any 39 purchase pursuant to the Offer shall not have been complied with, performed and fulfilled in all material respects; (h) the Company's Board of Directors shall have modified or amended in any respect its recommendation of the Offer and the Merger to the stockholders of the Company in any manner not approved by ServiceMaster or shall have resolved to do so by formal action; (i) the Company and ServiceMaster shall have reached an agreement that the Offer shall be terminated; (j) any waiting period (and any extension thereof) applicable to the consummation of the Offer under the HSR Act shall not have expired or been terminated; (k) the rights under the Rights Agreement shall not have been redeemed or made inapplicable to the Offer, the separation of outstanding Stock Purchase Rights from the Shares shall have occurred, or the Stock Purchase Rights shall have become exercisable; (l) any director of the Company or its Subsidiaries (as requested by ServiceMaster) shall have failed to resign effective as of the consummation of the Offer; or (m) the conditions precedent specified in Section 1.6 or 1.8 of the Acquisition Agreement shall not be satisfied; or (n) a stop order suspending effectiveness of the Registration Statement shall have been issued or a proceeding for that purpose shall have been initiated or threatened by the SEC; The foregoing conditions are for the benefit of ServiceMaster and may be asserted by ServiceMaster regardless of the circumstances giving rise to any such condition and, subject to the terms and conditions of the Acquisition Agreement, may be waived by ServiceMaster, in whole or in part, at any time and from time to time, in the sole discretion of ServiceMaster. The failure by ServiceMaster at any time to exercise any of the foregoing rights will not be deemed a waiver of any other right and each right will be deemed an ongoing right which may be asserted at any time and from time to time. Notwithstanding the fact that ServiceMaster reserves the right to assert the occurrence of a condition following acceptance for payment but prior to payment in order to delay or cancel its obligation to pay for properly tendered Shares, ServiceMaster will either promptly pay for such Shares or promptly return such Shares. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS Except as described below, based on a review of publicly available filings by the Company with the Commission and other publicly available information concerning the Company, ServiceMaster is not aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the acquisition of Shares by ServiceMaster pursuant to the Offer and the Merger or, except as set forth below, of any approval or other action by any governmental, administrative or regulatory agency or authority, domestic or foreign, that would be required prior to the acquisition of Shares by ServiceMaster pursuant to the Offer or the Merger. Should any such approval or other action be required, ServiceMaster currently contemplates that it will be sought. While ServiceMaster does not currently intend to delay the acceptance for payment of Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that adverse consequences might not result to the Company's business or that certain parts of the Company's business might not have to be disposed of in the event that such approvals were not obtained or any other actions were not taken. ServiceMaster's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed herein. See "--Conditions to the Offer." 40 State Takeover Statutes. A number of states have adopted "takeover" statutes that purport to apply to attempts to acquire corporations that are incorporated in such states, or whose business operations have substantial economic effects in such states, or which have substantial assets, security holders, employees, principal executive offices or principal places of business in such states. In Edgar v. MITE Corporation, the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Act, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable under certain conditions, in particular, that the corporation has a substantial number of stockholders in the state and is incorporated there. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted "takeover" statutes. ServiceMaster does not know whether any of these statutes will, by their terms, apply to the Offer or the Merger, and has not complied with any such statutes except with respect to the Ohio Take-Over Act as discussed below. To the extent that certain provisions of these statutes purport to apply to the Offer, ServiceMaster believes that there are reasonable bases for contesting such statutes. If any person should seek to apply any state takeover statute, ServiceMaster would take such action as then appears desirable, which action may include challenging the validity or applicability of any such statute in appropriate court proceedings. If it is asserted that one or more takeover statutes apply to the Offer, and it is not determined by an appropriate court that such statute or statutes do not apply or are invalid as applied to the Offer, ServiceMaster might be required to file certain information with, or receive approvals from, the relevant state authorities, and ServiceMaster might be unable to purchase or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer. In such case, ServiceMaster may not be obligated to accept the Shares tendered pursuant to the Offer. See "--Conditions to the Offer." Section 203 of the Delaware General Corporation Law. Section 203 of the Delaware General Corporation Law (the "DGCL") contains certain provisions that may make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase, proxy fight or otherwise. The Restated Certificate of Incorporation of the Company provides that Section 203 of DGCL does not apply to the Company. Ohio Take-Over Act. Sections 1707.041, 1707.042, 1707.23 and 1707.26 of the Ohio Revised Code (collectively, the "Ohio Take-Over Act") regulate tender offers. The Ohio Take-Over Act applies to the purchase of or offer to purchase any equity security of a subject company from a resident of Ohio if, after the purchase, the offeror would directly or indirectly be the beneficial owner of more than 10% of any class of issued and outstanding equity securities of the company (a "Control Bid"). A subject company includes an issuer, such as the Company, that either has its principal place of business or principal executive offices located in Ohio or owns or controls assets located in Ohio that have a fair market value of at least one million dollars, and that has more than one thousand beneficial or record equity security holders who reside in Ohio. A subject company, however, need not be incorporated in Ohio. Notwithstanding the definition of subject company contained in the Ohio Take- Over Act, the Ohio Division of Securities (the "Ohio Division"), by rule or an adjudicatory proceeding, may make a determination that an issuer does not constitute a subject company if appropriate review of Control Bids involving the issuer is to be made by any regulatory authority of another jurisdiction. The Ohio Division has not adopted any rules under this provision. The Ohio Take-Over Act prohibits an offeror from making a Control Bid for securities of a subject company pursuant to a tender offer until the offeror has filed specified information with the Ohio 41 Division. In addition, the offeror is required to deliver a copy of such information to the subject company not later than the offeror's filing with the Ohio Division and to send or deliver such information and the material terms of this proposed offer to all offerees in Ohio as soon as practicable after the offeror's filing with the Ohio Division. Within three calendar days of such filing, the Ohio Division may by order summarily suspend the continuation of the Control Bid if it determines that the offeror has not provided all of the specified information or that the Control Bid materials provided to offerees do not provide full disclosure of all material information concerning the Control Bid. If the Ohio Division summarily suspends a Control Bid, it must schedule and hold a hearing within ten calendar days of the date on which the suspension is imposed and must make its determination within three calendar days after the hearing has been completed but no later than sixteen calendar days after the date on which the suspension is imposed. The Ohio Division may maintain its suspension of the continuation of the Control Bid if, based upon the hearing, it determines that all of the information required to be provided by the Ohio Take-Over Act has not been provided by the offeror, that the Control Bid materials provided to offerees do not provide full disclosure of all material information concerning the Control Bid, or that the Control Bid is in material violation of any provision of the Ohio securities laws. If, after the hearing, the Ohio Division maintains the suspension, the offeror has the right to correct the disclosure and other deficiencies identified by the Ohio Division and to reinstitute the Control Bid by filing new or amended information pursuant to the Ohio Take-Over Act. ServiceMaster believes that the Company is a subject company pursuant to the Ohio Take-Over Act and that the Offer constitutes a Control Bid for securities of the Company pursuant to a tender offer. On January 16, 1997, ServiceMaster filed the specified information with the Ohio Division and intends to otherwise comply with the Ohio Take-Over Act. Antitrust. The Offer and the Merger are subject to the HSR Act, which provides that certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the Federal Trade Commission ("FTC") and certain waiting period requirements have been satisfied. On December 6, 1996, ServiceMaster filed a Notification and Report Form with respect to the Offer and the Merger. The waiting period requirements under the HSR Act expired on January 5, 1997 without a request for additional information. FEES AND EXPENSES Goldman, Sachs & Co. have been engaged by ServiceMaster to perform financial advisory services in connection with the Offer and the acquisition of the Company and to act as Dealer Managers in connection with the Offer. In connection therewith, ServiceMaster has agreed to pay $100,000 to Goldman, Sachs & Co. and, if the Offer is consummated, has agreed to pay Goldman, Sachs & Co. an additional fee to be mutually agreed, but in no event shall such additional fee be less than $1,150,000 or greater than $1,650,000. In addition, in the event the Offer is terminated or otherwise not consummated ServiceMaster has agreed to pay to Goldman, Sachs & Co. an additional fee of $700,000 if ServiceMaster is paid a termination fee by Barefoot pursuant to the Acquisition Agreement. In addition, ServiceMaster has agreed to reimburse Goldman, Sachs & Co. for their reasonable out-of-pocket expenses, including reasonable fees and expenses of their counsel. ServiceMaster also has agreed to indemnify Goldman, Sachs & Co. and certain related persons against certain liabilities and expenses in connection with their services, including certain liabilities under the federal securities laws. Goldman, Sachs & Co. have from time to time, and are expected to continue to, render various investment banking services to ServiceMaster, for which they are paid customary fees. ServiceMaster has retained D.F. King & Co., Inc. to act as the Information Agent and Harris Trust Company of New York to act as the Exchange Agent in connection with the Offer. The Information 42 Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers, commercial banks, trust companies and other nominees to forward the Offer material to beneficial owners. The Information Agent and the Exchange Agent each will receive reasonable and customary compensation for their services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Neither the Information Agent nor the Exchange Agent has been retained to make solicitations or recommendations in connection with the Offer. ServiceMaster will not pay any fees or commissions to any broker or dealer or other person for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will be reimbursed by ServiceMaster for reasonable expenses incurred by them in forwarding material to their customers. MISCELLANEOUS ServiceMaster is not aware of any jurisdiction in which the making of the Offer is not in compliance with applicable law. If ServiceMaster becomes aware of any jurisdiction in which the making of the Offer would not be in compliance with applicable law, ServiceMaster will make a good faith effort to comply with any such law. If, after such good faith effort, ServiceMaster cannot comply with any such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of ServiceMaster by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. No person has been authorized to give any information or make any representation on behalf of ServiceMaster not contained in this Offering Circular/Prospectus or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. ServiceMaster has filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule 14D-1 and any amendments thereto, including exhibits, may be inspected and copies may be obtained at the same places and in the same manner as set forth under "Available Information" (except that they will not be available at the regional offices of the Commission). 43 DESCRIPTION OF THE ACQUISITION AGREEMENT AND THE MERGER AGREEMENT The following is a summary of the material provisions of the Acquisition Agreement and the Merger Agreement not summarized elsewhere in this Offering Circular / Prospectus. This summary does not purport to be complete and is qualified in its entirely by reference to the Acquisition Agreement and the Merger Agreement, a copy of each is attached hereto as Annex A-I and Annex A- II, and each incorporated herein by reference. Capitalized terms used in the following summary shall have the meanings set forth in the Acquisition Agreement. GENERAL The Acquisition Agreement provides that ServiceMaster shall consummate the Offer and acquire all Shares properly tendered and not withdrawn (the "Closing") at the earliest time permitted under the Exchange Act and the earliest time as of which: (i) the Minimum Number of Shares (as defined below) shall have been properly tendered and not withdrawn and shall be available for purchase under the terms of the Offer and applicable law and (ii) all conditions to ServiceMaster's obligation to consummate the Offer contained in Annex 1 to the Acquisition Agreement shall have been satisfied or waived by ServiceMaster; provided, that ServiceMaster may allow the Offer to remain open for an additional period of time but no later than 20 business days after the Minimum Number of Shares shall have been properly tendered. The "Closing Time" shall be the time at which ServiceMaster shall acquire Shares by means of the Offer. The Minimum Number shall be such number that when added to all Shares owned by ServiceMaster and its affiliates prior to consummation of the Offer will provide ServiceMaster and its affiliates with ownership of 75% of the Shares which shall be outstanding at the Closing Time. TREATMENT OF STOCK OPTIONS The Acquisition Agreement provides that at the Closing, Barefoot shall pay to each Barefoot employee or director who holds any option to acquire Shares ("Barefoot Stock Option"), an amount of cash equal to the number of shares subject to that option at the Closing (whether or not then vested) times the remainder derived by subtracting the exercise price per share from $16. Barefoot shall obtain an agreement in a form reasonably satisfactory to ServiceMaster from each holder of every Barefoot Stock Option to accept such payment in exchange for a surrender of all rights of such holder under or by reason of such Barefoot Stock Option including but not limited to the termination of the holder's rights to purchase any shares with such Barefoot Stock Option after the Closing. The obtaining of such an agreement from each holder of a Barefoot Stock Option is a condition to ServiceMaster's obligation to consummate the Closing. REPRESENTATIONS AND WARRANTIES In the Acquisition Agreement, Barefoot has made certain representations and warranties to ServiceMaster and Merger Sub with respect to, among other things, its organization, capitalization, corporate power and authority, corporate actions, validity of the Acquisition Agreement and the Merger Agreement, consents and approvals, absence of violations, filings with the Commission, financial statements, absence of certain changes, absence of undisclosed liabilities, employee benefit plans, litigation, compliance with laws, absence of defaults, tax matters, contracts, absence of agreements not to compete, transactions with affiliates, receipt of an opinion from Barefoot's financial advisor, and the absence of brokers who are entitled to fees in connection with the Offer or the Merger other than as disclosed therein. In the Acquisition Agreement, each of ServiceMaster and Merger Sub have made certain representations and warranties to Barefoot with respect to, among other things, its organization, capitalization, partnership and corporate power and authority, partnership and corporate actions, validity of the Acquisition Agreement and the Merger Agreement, consents and approvals, absence of violations, filings with the Commission, financial statements, absence of certain changes, absence of 44 undisclosed liabilities, litigation, compliance with laws, absence of defaults, availability of sufficient financing to fund the maximum Cash Consideration that could be paid in the Offer and the Merger, and receipt of an opinion from ServiceMaster's financial advisor. INTERIM OPERATIONS OF THE COMPANY In the Acquisition Agreement, Barefoot has agreed that, except (i) as expressly provided in the Acquisition Agreement or the Merger Agreement, (ii) with the prior written consent of ServiceMaster or (iii) as set forth on Section 5.1 of the Disclosure Schedule to the Acquisition Agreement, after the date of the Acquisition Agreement and prior to the Closing Time: (i) the business of Barefoot and its subsidiaries, including, without limitation, investment practices and policies, shall be conducted only in the ordinary course of business consistent with past practice and, each of Barefoot and its subsidiaries shall use all reasonable efforts to preserve its business organization intact and maintain its existing relations with material customers, suppliers, franchisees, employees, creditors and business partners; (ii) Barefoot will not, directly or indirectly, split, combine or reclassify the outstanding Shares, or any outstanding capital stock of any of the subsidiaries of Barefoot; (iii) neither Barefoot nor any of its subsidiaries shall: (a) amend its certificate of incorporation or by-laws or similar organizational documents; (b) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock other than dividends paid by Barefoot's wholly-owned subsidiaries to Barefoot or its wholly-owned subsidiaries and other than ordinary quarterly cash dividends by Barefoot not to exceed $0.05 per share per quarter and other than an expenditure of not more than an additional $.01 per share to redeem outstanding stock purchase rights; (c) issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class of Barefoot or its subsidiaries, other than issuances pursuant to exercise of stock-based awards outstanding on the date hereof as disclosed in Section 1.6 of the Acquisition Agreement; (d) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any assets that are in the aggregate material to Barefoot and its subsidiaries taken as a whole other than sales of investment assets in the ordinary course of business consistent with past practice; or (e) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (iv) neither Barefoot nor any of its subsidiaries shall: (a) grant any increase in the compensation payable or to become payable by Barefoot or any of its subsidiaries to any officer or employee other than scheduled annual increases in the ordinary course of business consistent with past practice; (b) adopt any new, or amend or otherwise increase, or accelerate the payment or vesting of the amounts payable or to become payable under any existing, bonus, incentive compensation, deferred compensation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employee benefit plan agreement or arrangement; (c) enter into any, or amend any existing, employment, consulting or severance agreement with or, except in accordance with the existing written policies of Barefoot, grant any severance or termination pay to any officer, director or employee of Barefoot or any of its subsidiaries; (d) make any additional contributions to any grantor trust created by Barefoot to provide funding for non-tax-qualified employee benefits or compensation; or (e) provide any severance program to any subsidiary which does not have a severance program as of the date of the Acquisition Agreement; (v) neither Barefoot nor any of its subsidiaries shall modify, amend or terminate any of the material Barefoot Agreements or waive, release or assign any material rights or claims, except in the ordinary course of business consistent with past practice; (vi) neither Barefoot nor any of its subsidiaries shall permit any material insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated, except in the ordinary course of business consistent with past practice; 45 (vii) neither Barefoot nor any of its subsidiaries shall: (a) incur or assume any debt except for borrowings under existing credit facilities and except for vehicle financing in each case in the ordinary course of business and in amounts consistent with past practice; (b) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary course of business consistent with past practice; (c) make any loans, advances or capital contributions to, or investments in, any other person (other than to wholly owned subsidiaries of Barefoot or customary loans or advances to employees in accordance with past practice and other than as to such matters related to Barefoot's or any of its subsidiaries' investment portfolios in the ordinary course of business consistent with past practice); or (d) enter into any material commitment (including, but not limited to, any capital expenditure or purchase of assets) other than in the ordinary course of business consistent with past practice; (viii) neither Barefoot nor any of its subsidiaries shall change any of the accounting principles used by it unless required by GAAP; (ix) neither Barefoot nor any of its subsidiaries shall pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of any such claims, liabilities or obligations, (a) reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of Barefoot and its consolidated subsidiaries, (b) incurred in the ordinary course of business consistent with past practice or (c) which are legally required to be paid, discharged or satisfied; (x) subject to the rights of Barefoot to terminate the Acquisition Agreement pursuant to Section 6.1(c)(i) thereof and the obligation of Barefoot to pay ServiceMaster the fees and expenses required by Section 7.1(b) thereof, neither Barefoot nor any of its subsidiaries will adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization of Barefoot or any of its subsidiaries or any agreement relating to a Takeover Proposal (other than the Offer or the Merger) other than confidentiality agreements as provided in Section 5.5(a) of the Acquisition Agreement; (xi) neither Barefoot nor any of its subsidiaries will engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any of Barefoot's affiliates, including, without limitation, any transactions, agreements, arrangements or understandings with any affiliate or other Person covered under Item 404 of Regulation S-K under the Securities Act that would be required to be disclosed under such Item 404 other than such transactions of the same general nature, scope and magnitude as are disclosed in Barefoot SEC Documents; (xii) except upon the prior written consent of ServiceMaster, Barefoot shall not make any Tax election; and (xiii) neither Barefoot nor any of its subsidiaries will enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. SEVERANCE AND STAY PROTECTION PLAN The Acquisition Agreement provides that, at or before the Closing Time, Barefoot shall adopt a severance and stay protection plan, the substantive terms of which are set forth on Annex 2 of the Acquisition Agreement. From and after the Closing Time, ServiceMaster and Merger Sub shall honor such plan in accordance with the terms thereof. Except to the extent otherwise permitted by Barefoot's chief executive officer or chief financial officer, ServiceMaster shall not communicate with any employees of Barefoot or any Barefoot subsidiary about future employment relationships or terms prior to the Closing. 46 NO SOLICITATION The Acquisition Agreement provides that Barefoot (and its subsidiaries and affiliates) shall not, and Barefoot (and its subsidiaries and affiliates) will use their best efforts to ensure that their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents do not, directly or indirectly: (i) initiate, solicit or encourage, or (except to the extent permitted by clause (ii) below) take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Takeover Proposal of Barefoot or any subsidiary or an inquiry with respect thereto, or, (ii) in the event of an unsolicited bona fide Takeover Proposal for Barefoot or any subsidiary of Barefoot, engage in negotiations or discussions with, or provide any information or data to, any corporation, partnership, person or other entity or group (other than ServiceMaster or any of its affiliates or representatives) ("Person") relating to any Takeover Proposal; except in the case of clause (ii) above, to the extent that Barefoot's Board of Directors reasonably concludes, after having received the advice of outside legal counsel to Barefoot and the advice of Barefoot's financial advisor, and after having had the opportunity to discuss the Takeover Proposal with such person making the Takeover Proposal (which discussions shall not be deemed to be a violation of the Acquisition Agreement) that such Takeover Proposal is reasonably likely to result in consideration per Share in excess of the Offer Consideration and the failure to engage in such negotiations or discussions or provide such information is reasonably likely to result in a breach of the Board of Directors' fiduciary duties under applicable law; provided, however, that notwithstanding the foregoing, Barefoot's Board of Directors may take, and disclose to Barefoot's stockholders a position contemplated by Rules for 14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender offer for shares of capital stock of Barefoot. Prior to furnishing any information to any such Person making a Takeover Proposal, Barefoot shall have obtained a confidentiality agreement from such Person containing confidentiality provisions substantially similar to the confidentiality provisions in the Confidentiality Agreement between ServiceMaster and the Company. Barefoot shall notify ServiceMaster of any such offers, proposals, inquiries or Takeover Proposals (including, without limitation, the material terms and conditions thereof and the identity of the Person making it), within 24 hours of the receipt thereof, and shall provide ServiceMaster with a copy of any written Takeover Proposal or amendments or supplements thereto, and shall thereafter inform ServiceMaster on a reasonable basis of the status of any discussions or negotiations with such a third party, and any material changes to the terms and conditions of such Takeover Proposal, and shall promptly give ServiceMaster a copy of any information delivered to such Person which has not previously been reviewed by ServiceMaster. In the Acquisition Agreement Barefoot represented and warranted to ServiceMaster that Barefoot, its subsidiaries and affiliates, and their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents, were not as of the date of the Acquisition Agreement, and have not since November 1, 1996, engaged in or participated in any discussions or negotiations whatsoever with any person, entity or "group" (as that term is defined in Section 13(d)(3) of the Exchange Act) with respect to any Takeover Proposal relating to Barefoot. As used in the Acquisition Agreement, "Takeover Proposal" means any tender or exchange offer involving the capital stock of Barefoot, any proposal for a merger, consolidation or other business combination involving Barefoot, any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the business or assets of, Barefoot or any subsidiary of Barefoot, any proposal or offer with respect to any recapitalization or restructuring with respect to Barefoot or any subsidiary of Barefoot or any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to Barefoot or any subsidiary of Barefoot other than pursuant to the transactions to be effected pursuant to the Acquisition Agreement. BAREFOOT FRANCHISES The Acquisition Agreement provides that as soon as practicable after the Closing Time ServiceMaster shall make every effort to provide to each Barefoot franchisee the option to do any of 47 the following: (i) to sell such franchise to Barefoot on terms and conditions as the franchisee and ServiceMaster may agree; (ii) to continue to operate its Barefoot franchise in accordance with existing agreements between the franchisee and Barefoot (very likely to be in competition with other affiliates of ServiceMaster engaged in the lawn care business); or (iii) to terminate the existing agreement between the franchisee and Barefoot and to operate its business independently without use of Barefoot trade names, service marks or similar rights. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION The Acquisition Agreement provides that, at all times after the Closing Time, ServiceMaster shall indemnify (and advance expenses to) each person who is now, or has been at any time prior to the date of the Acquisition Agreement, a director or officer of Barefoot or of any of Barefoot's subsidiaries (individually an "Indemnified Party" and collectively the "Indemnified Parties"), to the same extent and in the same manner as is now provided in the respective charters or by-laws of Barefoot and such subsidiaries or otherwise in effect on the date of the Acquisition Agreement, with respect to any claim, liability, loss, damage, cost or expense (whenever asserted or claimed) ("Indemnified Liability") based in whole or in part on, or arising in whole or in part out of, any matter existing or occurring at or prior to the Closing Time. ServiceMaster shall, or shall cause Barefoot to, maintain in effect for not less than six (6) years after the Closing the current policies of directors' and officers' liability insurance maintained by Barefoot and its subsidiaries on the date of the Acquisition Agreement with respect to matters existing or occurring at or prior to the Closing Time (provided that ServiceMaster may substitute therefor policies having at least the same coverage and containing terms and conditions which are no less advantageous to the persons currently covered by such policies and with carriers reasonably comparable to Barefoot's existing carriers in terms of creditworthiness). The insurance required by the preceding sentence shall be in an amount at any particular time equal to the greater of (i) the amount of coverage provided by Barefoot's insurance on the date hereof or (ii) the amount of coverage provided to ServiceMaster's own directors at the particular time. Promptly after receipt by an Indemnified Party of notice of the assertion (an "Assertion") of any claim or the commencement of any action against him or her in respect to which indemnity or reimbursement may be sought against ServiceMaster, Barefoot, the Surviving Corporation or a subsidiary of Barefoot or the Surviving Corporation ("Indemnitors") hereunder, such Indemnified Party shall notify any Indemnitor in writing of the Assertion, but the failure to so notify any Indemnitor shall not relieve any Indemnitor of any liability it may have to such Indemnified Party hereunder except where such failure shall have materially prejudiced Indemnitor in defending against such Assertion. No Indemnified Party shall settle any Assertion without the prior written consent of ServiceMaster. The foregoing provisions are intended for the benefit of, and shall be enforceable by, the respective Indemnified Parties. EXISTING STOCKHOLDER AGREEMENTS AND REGISTRATION RIGHTS AGREEMENTS The Acquisition Agreement provides that Barefoot will use it best efforts to terminate or cause to be terminated, prior to the Closing Time, any stockholder agreements or registration rights agreements with or among any of its security holders. Barefoot will suspend all sales under any shelf registration statement at least two business days prior to the Expiration Date and will cause any registration rights agreement not to have any application to any securities of ServiceMaster or its subsidiaries following the Closing Time. NYSE LISTING The Acquisition Agreement provides that ServiceMaster shall cause ServiceMaster Shares issued pursuant to the Offer to be approved for listing on the NYSE prior to the Closing. BAREFOOT STOCK PURCHASE RIGHTS As of the date of the Acquisition Agreement there were outstanding a number of Stock Purchase Rights equal to the aggregate number of Shares issued and outstanding, which rights are exercisable 48 for shares of the Company's Series A Junior Participating Preferred Stock pursuant to the terms of the Rights Agreement dated as of April 11, 1995 between the Company and National City Bank (the "Rights Agreement"). The Stock Purchase Rights generally become exercisable upon authorization by the Board of Directors if any person acquires control of 15% or more of the Shares. The Company has represented and agreed in the Acquisition Agreement that the Board of Directors of the Company has taken such action and will take such additional action as is required to prevent the Stock Purchase Rights from becoming exercisable by reason of the Offer or the Merger. TERMINATION The Acquisition Agreement may be terminated and the Merger abandoned at any time prior to the Closing Time: (i) by the mutual consent of the Board of Directors of ServiceMaster and the Board of Directors of Barefoot; (ii) by either of the Board of Directors of Barefoot or the Board of Directors of ServiceMaster; (a) if the Offer shall not have been commenced by February 15, 1997; provided, however, that the right to terminate the Acquisition Agreement under this clause (ii)(a) shall not be available to any party whose failure to fulfill any obligation under the Acquisition Agreement has been the primary and but-for cause of the failure of the Offer to have been commenced by February 15, 1997; or (b) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties hereto shall use their diligent efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger or any material aspect of the Offer or the Merger and such order, decree, ruling or other action shall have become final and non-appealable; (iii) by the Board of Directors of Barefoot: (a) if the Board of Directors of Barefoot shall have (I) withdrawn, or modified or changed in a manner adverse to ServiceMaster its approval or recommendation of the Acquisition Agreement, the Offer or the Merger as a result of a Takeover Proposal (other than the Offer or the Merger), in order to approve a Takeover Proposal (other than the Offer or the Merger), or to permit Barefoot to execute a definitive agreement relating to a Takeover Proposal, and (II) determined, after having received the advice of outside legal counsel to Barefoot and the advice of Barefoot's financial advisor, that such Takeover Proposal is for consideration per Share in excess of the Offer Consideration and the failure to take such action as set forth in the preceding clause (II) would result in a breach of the Board of Directors' fiduciary duties under applicable law; provided, however, that Barefoot shall have given ServiceMaster forty-eight (48) hours advance notice of any termination pursuant to this clause (a) and that Barefoot shall have paid ServiceMaster the fees and expenses required by Section 7.1(b) of the Acquisition Agreement; (b) if ServiceMaster or Merger Sub breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained in the Acquisition Agreement; provided, however, that if any such breach is curable by the breaching party through the exercise of the breaching party's diligent efforts and for so long as the breaching party shall be so using diligent efforts to cure such breach, Barefoot may not terminate the Acquisition Agreement pursuant to this clause (iii)(b); or (c) if ServiceMaster breaches any of its representations or warranties in the Acquisition Agreement and such breach (I) is reasonably likely to have a material adverse effect upon ServiceMaster and its subsidiaries taken as a whole and (II) has not been incorporated into this Offering Circular / Prospectus. 49 (iv) by the Board of Directors of ServiceMaster: (a) if Barefoot (I) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained in the Acquisition Agreement or (II) breaches its representations and warranties in any material respect and such breach would have or would be reasonably likely to have a material adverse effect on Barefoot and its subsidiaries or create a situation in which any of the conditions set forth in Annex 1 to the Acquisition Agreement would not reasonably be expected to be satisfied prior to Closing; provided, however, that if any such breach is curable by Barefoot through the exercise of Barefoot's diligent efforts and for so long as Barefoot shall be so using diligent efforts to cure such breach, ServiceMaster may not terminate the Acquisition Agreement pursuant to this clause (iv)(a); or (b) if the Board of Directors of Barefoot shall have withdrawn, or modified or changed in a manner adverse to ServiceMaster its approval or recommendation of the Acquisition Agreement, the Offer or the Merger or shall have recommended a Takeover Proposal or other business combination, or Barefoot shall have entered into an agreement in principle (or similar agreement) or definitive agreement providing for a Takeover Proposal or other business combination with a person or entity other than ServiceMaster, Merger Sub or their subsidiaries (or the Board of Directors of Barefoot resolves to do any of the foregoing by formal action); or (c) by ServiceMaster if the Offer shall have expired or been terminated without any Shares being purchased thereunder as a result of the occurrence of any event that would result in the failure to satisfy any of the conditions set forth in Annex 1 to the Acquisition Agreement; or (d) as provided in Annex 3 to the Acquisition Agreement. If the Acquisition Agreement is validly terminated by Barefoot or ServiceMaster as set forth above, the Acquisition Agreement and the Merger Agreement will forthwith become null and void and there will be no liability or obligation on the part of either Barefoot, ServiceMaster or Merger Sub (or any of their respective representatives or affiliates) in respect of the Acquisition Agreement or the Merger Agreement, except that the provisions of this paragraph and Section 7.1 of the Acquisition Agreement which, among other things, provides for a termination fee, shall continue to apply after such termination. Without limiting by implication the generality of the preceding sentence, ServiceMaster shall not be obligated to continue the Offer after any termination of the Acquisition Agreement. No termination of the Acquisition Agreement or the Merger Agreement shall impair or terminate the rights or obligations of ServiceMaster or Barefoot under the Confidentiality Agreement (as hereinafter defined) to which they are parties. TERMINATION FEE The Acquisition Agreement provides that in the event the Board of Directors of Barefoot shall terminate the Acquisition Agreement pursuant to clause (iii)(a) under "--Termination", or the Board of Directors of ServiceMaster shall terminate the Acquisition Agreement pursuant to clause (iv)(b) under "-- Termination", then Barefoot shall pay $9,300,000 in cash to ServiceMaster. The Acquisition Agreement also provides that in the event ServiceMaster shall not consummate the Offer and shall be entitled to take such action because of the failure of any of the conditions specified in clause (a), (b), (h), (k), or (l) in Annex 1 to the Acquisition Agreement or because rights to purchase Shares representing more than 1% of Barefoot's outstanding common stock would remain outstanding after the Closing, then Barefoot shall pay $7,000,000 in cash to ServiceMaster. Payment of the termination fee would become due on the date (the "due date") upon which Barefoot received written request from ServiceMaster for such payment after the occurrence of the 50 event entitling ServiceMaster to the fee. If Barefoot should for any reason fail to make such termination payment on its due date, then Barefoot would be obligated to pay ServiceMaster on demand interest at 300 basis points in excess of the prime rate (as reported in the Wall Street Journal) on the amount remaining unpaid from that due date until such payment is received by ServiceMaster and would also be required to reimburse ServiceMaster for all attorney's fees and other expenses which ServiceMaster reasonably incurred to enforce its rights to such payment. THE MERGER The Acquisition Agreement and the Merger Agreement provide that following the completion of the Offer, the approval and adoption of the Merger Agreement by the stockholders of the Company, if required by applicable law, and the satisfaction or waiver of certain other conditions, the Merger Sub will be merged with and into the Company with the Company as the surviving corporation (the "Surviving Corporation"), and the separate existence of the Merger Sub shall cease. As a result of the Merger, the Company will become a wholly owned subsidiary of ServiceMaster. Pursuant to the Merger, each outstanding Share (other than Shares held by ServiceMaster or any subsidiary of ServiceMaster and other than Shares held by stockholders who perfect their appraisal rights under Delaware law) will be converted into the right to receive the Merger Consideration ($16.00 in cash per Barefoot Share without interest thereon). The obligations of the parties to effect the Merger are subject to the satisfaction or waiver of the following conditions: (i) if ServiceMaster and its affiliates shall own less than 90% of all Shares outstanding at the conclusion of the Offer, the Merger and the Merger Agreement shall have been approved and adopted by the requisite vote or consent of stockholders of the Company in accordance with the Company's Restated Certificate of Incorporation and By-Laws and applicable Delaware law, (ii) the Offer shall have been consummated pursuant to the terms of the Acquisition Agreement and (iii) no injunction or other order, degree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority shall be in effect, which would make the acquisition or holding by ServiceMaster or any of its subsidiaries or affiliates of the Shares or shares of common stock of the Surviving Corporation illegal or otherwise prevent consummation of the Merger. If necessary, following the expiration of the Offer, the Company shall take all action necessary in accordance with applicable law, its Restated Certificate of Incorporation and its By-Laws to (i) distribute a proxy statement and convene a meeting of its stockholders as promptly as practicable to consider and vote upon the approval of the Merger and the Merger Agreement or (ii) submit the Merger and the Merger Agreement for approval by written consent in lieu of a meeting of stockholders. The Acquisition Agreement also provides that the Company's Board of Directors will recommend that stockholders of the Company approve the Merger and the Merger Agreement, and that the Company will use its best efforts to solicit such approval. At any such meeting, or in response to any solicitation of proxies or consents, ServiceMaster and its affiliates shall vote all Shares held by them in favor of the Merger and the Merger Agreement, and the Company shall vote all Shares with respect to which proxies in the form distributed by the Company shall have been given in favor of the Merger and the Merger Agreement. Under the Company's Restated Certificate of Incorporation, the affirmative vote of 75% of all votes represented by all issued and outstanding voting securities of the Company is required to approve the Merger. If ServiceMaster purchases the Minimum Number of Shares pursuant to the Offer, it would have sufficient voting power to effect the Merger without the vote of any other stockholder of the Company. The DGCL also provides that if a company owns at least 90% of each class of stock of a subsidiary, the company can effect a merger with the subsidiary without the authorization of the other stockholders of the subsidiary. Accordingly, if, as a result of the Offer or otherwise, ServiceMaster 51 acquires at least 90% of the outstanding Shares, ServiceMaster could, and intends to, effect the Merger without approval of any other stockholder of the Company. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders of the Company may have certain rights under the DGCL to dissent and demand appraisal of, and payment in cash of the fair value of, their Shares. Such rights, if the statutory procedures are complied with, could lead to a judicial determination of the fair value (excluding any element of value arising from the accomplishment or expectation of the Merger) required to be paid in cash to such dissenting holders for their Shares. Any such judicial determination of the fair value of Shares could be based upon considerations other than or in addition to the price paid in the Offer and the market value of the Shares, including asset values and the investment value of the Shares. The value so determined could be more or less than the Cash Consideration pursuant to the Offer or the Merger Consideration. In addition, several decisions by Delaware courts have held that, in certain instances, a controlling stockholder of a corporation involved in a merger has a fiduciary duty to the other stockholders that requires the merger to be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, the Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there were fair dealings among the parties. The Delaware Supreme Court has indicated in recent decisions that in most cases the remedy available in a merger that is found not to be "fair" to minority stockholders is the right to appraisal described above or a damages remedy based on essentially the same principles. Section 203 of the DGCL prohibits business combination transactions involving a Delaware corporation and an "interested stockholder" (defined generally as any person that directly or indirectly beneficially owns 15 percent or more of the outstanding voting stock of the subject corporation) for three years following the date such person became an "interested stockholder," unless certain exceptions apply, including that prior to such date the Board of Directors of the Company approved either the business combination or the transaction which resulted in such person being an interested stockholder. The Restated Certificate of Incorporation of the Company provides that Section 203 of the DGCL does not apply to the Company. The Merger is also subject to compliance with any applicable federal law operative at the time. Rule 13e-3 under the Exchange Act is applicable to certain "going private" transactions. ServiceMaster does not believe that Rule 13e-3 will be applicable to the Merger. Rule 13e-3 requires, among other things, that certain financial information concerning the Company, and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction, be filed with the Commission and disclosed to minority stockholders prior to consummation of the transaction. MISCELLANEOUS ServiceMaster, or an affiliate of ServiceMaster, may following the consummation of the Offer, seek to acquire additional Shares through open market purchases, privately negotiated transactions, a tender offer or exchange offer or otherwise, upon such terms and at such prices as it shall determine, which may be more or less than the price to be paid pursuant to the Offer. ServiceMaster and its affiliates also reserve the right to dispose of any or all Shares acquired by them. The Company and ServiceMaster have entered into a Confidentiality Agreement dated November 11, 1996 (the "Confidentiality Agreement"). The Confidentiality Agreement provides that ServiceMaster will keep confidential any confidential information furnished to it by the Company and restricts ServiceMaster's right to, among other things, acquire Shares, enter into an acquisition agreement with the Company or propose either of the foregoing, for a period of two years. The foregoing description 52 of the terms of the Confidentiality Agreement is qualified in its entirety by reference to the text of such agreement, which has been filed as an exhibit to the S-4 Registration Statement of which this Offering Circular/Prospectus is a part. CERTAIN RELATIONSHIPS Except as set forth in this Offering Circular/Prospectus, neither ServiceMaster nor any of its subsidiaries or, to the best knowledge of ServiceMaster, any of the persons listed on Schedule I, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. Except as set forth in this Offering Circular/Prospectus, neither ServiceMaster nor any of its subsidiaries, or, to the best knowledge of ServiceMaster, any of the persons listed on Schedule I, has had, since January 1, 1993, any material business relationships or transactions with the Company or any of its executive officers, directors or affiliates that would require reporting under the rules of the Commission. Except as set forth in this Offering Circular/Prospectus, since January 1, 1993, there have been no contacts, negotiations or transactions between ServiceMaster or its subsidiaries or, to the best knowledge of ServiceMaster, any of the persons listed on Schedule I, and the Company or its affiliates, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, election of directors or a sale or other transfer of a material amount of assets. Neither ServiceMaster nor any of its subsidiaries or, to the best knowledge of ServiceMaster, any of the persons listed on Schedule I, beneficially owns any Shares or has effected any transactions in the Shares in the past 60 days, except, as of the date hereof, ServiceMaster beneficially owns 289,000 Shares or approximately 2.0% of the outstanding Shares and certain directors and officers of ServiceMaster listed on Schedule I, in the aggregate, beneficially own 17,000 Shares. DESCRIPTION OF SERVICEMASTER SHARES SERVICEMASTER SHARES As of December 31, 1996, (i) approximately 142,400,000 ServiceMaster Shares were issued and outstanding, (ii) not more than 11,000,000 ServiceMaster Shares were reserved for option and employee benefit plans of ServiceMaster, and (iii) the number of additional ServiceMaster Shares which ServiceMaster may be required to issue as a result of convertible debt and other outstanding rights (in addition to the rights cited in clause (ii)) does not exceed 3,000,000 ServiceMaster Shares. The ServiceMaster Board is authorized to cause ServiceMaster to issue additional ServiceMaster Shares. The ServiceMaster Board has the sole and complete discretion in considering the consideration and terms and conditions with respect to any future issuance of ServiceMaster Shares. The ServiceMaster Board has sole and complete discretion to cause ServiceMaster to issue shares in one or more classes, or one or more series of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to existing classes and series of outstanding ServiceMaster Shares. ServiceMaster Shares are listed on the NYSE under the symbol "SVM." Harris Trust Company of New York is the registrar and transfer agent for ServiceMaster Shares. Pursuant to the Reincorporating Merger, the ServiceMaster Shares will be converted to SMI Shares and will have the characteristics of traditional corporate shares. For further information concerning the changes effected by the 1992 Reorganization and the Reincorporating Merger, see the discussion captioned "Description of the Structure of the ServiceMaster Enterprise" beginning on page 11 of the 53 ServiceMaster 1995 10-K, which is specifically incorporated by reference in this Offering Circular/Prospectus and set forth in Annex D hereof. See "Summary--The 1992 Reorganization; The Reincorporating Merger" and "Incorporation of Documents by Reference." The following summary description does not purport to be complete and is qualified in its entirety by reference to the ServiceMaster Limited Partnership Agreement of Limited Partnership. DISTRIBUTIONS The ServiceMaster Board has sole and complete discretion to cause ServiceMaster to distribute cash, ServiceMaster Shares and/or property to General and Limited Partners in accordance with their percentage interests in ServiceMaster. Distributions for the year ending December 31, 1995 were $0.95 per ServiceMaster Share ($0.63 per ServiceMaster Share on a post June 1996 split basis). LIMITED VOTING Holders of outstanding ServiceMaster Shares have limited voting rights on certain matters affecting ServiceMaster, but are not entitled to vote in the election of members of the ServiceMaster Board. The Corporate General Partner may be removed by the affirmative vote of two-thirds of those ServiceMaster Shares which are not held by a Dominant Owner (as defined in The ServiceMaster Limited Partnership Agreement). (After the Reincorporating Merger, holders of the outstanding stock of ServiceMaster Incorporated will have customary corporate voting rights.) MISCELLANEOUS Upon liquidation of ServiceMaster, the holders of ServiceMaster Shares are entitled to share pro rata in any assets distributable in liquidation after payment of the creditors of ServiceMaster and repayments to partners of their capital contributions. The ServiceMaster Shares are not generally subject to mandatory redemption and are not subject to any sinking funds provisions. The ServiceMaster Shares to be issued in connection with the Offer will be fully paid and non-assessable, and will be issued together with rights as described above. DESCRIPTION OF THE BAREFOOT SHARES The authorized capital stock of Barefoot consists of 45,000,000 shares consisting of 40,000,000 Shares and 5,000,000 shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). As of the date hereof, 14,519,760 Shares are issued and outstanding and 2,277,000 Shares are held in the treasury of Barefoot. As of the date hereof, no shares of Preferred Stock are issued and outstanding and 400,000 shares of Preferred Stock have been designated as Series A Junior Participating Preferred Stock issuable upon exercise of the Stock Purchase Rights. As of the date hereof, options to acquire an aggregate of 412,550 Shares have been issued pursuant to stock options. See "Comparison of ServiceMaster Shares and the Shares." The Barefoot Board may issue Preferred Stock from time to time, in one or more series and fix, by resolution, the number of shares in each series and the designations, powers, preferences and rights, and the qualifications, limitations and restrictions, of such series, to the fullest extent now or hereafter permitted by Delaware law. Of the Preferred Stock, 400,000 shares have been designated Series A Junior Participating Preferred Stock (the "Series A Preferred Stock") and all of such shares are reserved for issuance pursuant to the Rights Agreement described below. 54 The Shares are listed on Nasdaq National Market under the symbol "BARE". National City Bank is the registrar and transfer agent for the Shares. The following summary description does not purport to be complete and is qualified in its entirety by reference to the Restated Certificate of Incorporation ("Certificate") and Bylaws of the Company. DIVIDEND RIGHTS The Barefoot Board may declare and pay dividends on the Shares out of funds legally available therefor. The rights of holders of the Shares are subject to such preferential rights as may be fixed by the Barefoot Board in connection with future issuances of Preferred Stock. See "Summary--Market Price Data and Distributions." VOTING RIGHTS Each holder of Shares is entitled to one vote for each share held of record on the applicable record date on all matters presented to a vote of stockholders, including the election of directors. Holders of Shares have no cumulative voting rights. MISCELLANEOUS Upon liquidation of the Company, the holders of Shares are entitled to share pro rata in any distribution of the Company's assets after payment or provision for payment of liabilities and the liquidation preference of any shares of Preferred Stock which may be outstanding. There are no preemptive rights to purchase or subscribe for any stock or other securities, and there are no conversion rights or redemption or sinking fund provisions with respect to the Shares. All outstanding Shares are fully paid and nonassessable. In April, 1995, pursuant to the Rights Agreement, the Company declared a dividend of one preferred share purchase right (the "Rights") on each outstanding Share. Under certain conditions, each Right may be exercised to purchase 1/100 of a share of Series A Preferred Stock at a price of $55.00, subject to adjustment in certain circumstances. The Rights may not be exercised until the earlier of 10 business days after a public announcement that a person or group has acquired, without the consent of the Company's directors, 15% or more of the Shares ("Share Acquisition Date"), or 10 business days (unless extended by the directors) after the commencement of (or a public commencement of an intention to commence) a tender offer or exchange offer that would result in a person or group owning 30% or more of the Shares. If at any time following the Share Acquisition Date, the Company is acquired in a merger or other business combination or 50% or more of the Company's assets or earnings power is sold or transferred, each holder of a Right will be entitled to buy the number of shares of stock of the acquiring company which, at the time of such transaction, will have a market value of two times the exercise price of the Right. If a person or group acquires 15% or more of the Shares under certain circumstances, then each holder of a Right will be entitled to buy Shares having a market value equal to two times the exercise price of the Right. The Rights will expire on April 24, 2005, and may be redeemed by the Company at a price of $0.01 per Right under certain circumstances. The Company has agreed in the Acquisition Agreement to cause the Rights not to separate or become exercisable and to redeem the Rights prior to the Closing Time. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BY-LAWS In addition to the Rights, certain provisions of the Certificate and Bylaws of the Company may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the Shares. 55 Supermajority Voting Provisions. The Certificate requires a vote of the holders of not less than 75% of the total voting power of the Company to approve or authorize (a) any merger, consolidation or share exchange of the Company or any subsidiary into or with any person in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's voting stock would be converted into cash, securities or other property, other than a transaction in which the holders of the Company's voting stock have the same proportionate ownership of voting securities of the surviving corporation immediately after such transaction; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all of the assets of the Company, and (c) any agreement providing for any of the foregoing transactions. In addition, the affirmative vote of the holders of at least 85% of the total voting power of the Company and a majority of the voting power of the Company held by stockholders other than an interested stockholder (generally, an entity which owns or controls 20% of the voting power of the Company) is required for the approval or authorization of certain business combinations (e.g. merger or consolidation, sale or other disposition of assets having a fair market value in excess of 10% of the Company's total assets, dissolution of the Company, etc.) involving such "interested stockholder" unless the "business combination" has been approved by a majority of the "disinterested directors" or the "business combination" satisfies certain "fair price" requirements. Anti-Greenmail. The acquisition by the Company of voting stock from any interested security holder (generally, an entity which owns or controls 5% of the voting power of the Company) which has beneficially owned such securities for less than two years requires the affirmative vote of the holders of at least a majority of the voting power of the Company, excluding Shares beneficially owned by such "interested security holder." Advance Notice Requirements for Director Nominations. The Bylaws provide that stockholders seeking to nominate candidates for election as directors at an annual or special meeting of stockholders must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. The Bylaws also specify certain requirements for a stockholder's notice to be in proper written form. This provision may preclude some stockholders from making nominations for directors at an annual or special meeting. Anti-Takeover Effects of Delaware Law. Section 203 of the DGCL contains certain provisions that may make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase, proxy fight or otherwise. The Certificate provides that Section 203 of the DGCL does not apply to the Company. COMPARISON OF SERVICEMASTER SHARES AND THE SHARES DIVIDENDS AND DISTRIBUTIONS Both holders of ServiceMaster Shares and holders of the Shares receive dividends and distributions at the discretion of their respective Board of Directors. See "Summary--Market Price Data and Distributions." VOTING RIGHTS Holders of ServiceMaster Shares are only entitled to vote on limited matters affecting ServiceMaster, and are not entitled to vote in the election of directors. Holders of Shares are entitled 56 to one vote per share on all matters presented to a vote of stockholders, including the election of directors. MISCELLANEOUS ServiceMaster Shares represent an interest in the ServiceMaster Limited Partnership, while the Shares are traditional corporate shares. Thus, the earnings of ServiceMaster are taxed only once, at the shareholder level, while the earnings of Barefoot are taxed at the corporate level and dividends are taxed at the stockholder level. The Barefoot Board currently has the authority to issue up to a total of 40,000,000 Shares and 5,000,000 shares of Preferred Stock whereas ServiceMaster may issue as many shares, with whatever rights, the ServiceMaster Board may deem appropriate. Barefoot has adopted the Rights Plan discussed above, while ServiceMaster does not have a stockholder rights plan. ServiceMaster has announced that it intends to adopt a shareholder rights plan prior to the consummation of the Reincorporating Merger. UNAUDITED PRO FORMA FINANCIAL INFORMATION SELECTED PRO FORMA FINANCIAL DATA OF SERVICEMASTER The following tables set forth ServiceMaster's pro forma consolidated summaries of operations for the nine months ended September 30, 1996 and the year ended December 31, 1995 and the pro forma condensed consolidated balance sheet as of September 30, 1996. "Pro Forma Merger Adjustments" reflected in the tables give effect to the Merger and the related purchase accounting adjustments as if the Merger had occurred at September 30, 1996 for purposes of the Pro Forma Condensed Consolidated Balance Sheet, and on January 1, 1995 and 1996, respectively for purposes of the Pro Forma Consolidated Summaries of Operations. THE PRO FORMA FINANCIAL DATA DOES NOT PURPORT TO REPRESENT WHAT SERVICEMASTER'S FINANCIAL POSITION AS OF SEPTEMBER 30, 1996 OR RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 OR THE YEAR ENDED DECEMBER 31, 1995 WOULD ACTUALLY HAVE BEEN HAD THE MERGER IN FACT OCCURRED ON THAT DATE OR AT THE BEGINNING OF THE PERIODS INDICATED OR TO PROJECT SERVICEMASTER'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD. The unaudited selected pro forma financial information set forth below has been prepared under the assumption that holders of 30% of the Barefoot Shares will elect to receive the Share Consideration. If all the Barefoot stockholders were to elect to receive the Cash Consideration, pro forma net income per share for the nine months ended September 30, 1996 and the year ended December 31, 1995, would total $1.29 and $1.40, respectively, and pro forma non-current liabilities at September 30, 1996 would total $867 million. If all the Barefoot stockholders were to elect to receive the Share Consideration, pro forma net income per share for the nine months ended September 30, 1996 and the year ended December 31, 1995 would total $1.26 and $1.39, respectively, and pro forma non-current liabilities at September 30, 1996 would total $635 million. The Merger will be accounted for under the "purchase" method of accounting, whereby the purchase price will be allocated based upon the fair value of the assets acquired and the liabilities assumed. The pro forma merger adjustments are based upon currently available information and certain assumptions which ServiceMaster believes are reasonable in the circumstances. These adjustments include additional interest cost, amortization expense and estimated cost savings. The actual acquisition adjustments are subject to the completion of due diligence and will be based upon more precise appraisals, evaluations and estimates of fair value, which are not currently available, and 57 may differ substantially from the pro forma merger adjustments. Financial effects of potential operating synergies attainable upon the combination of Barefoot and ServiceMaster are not reflected. The tables and accompanying notes should be read in conjunction with ServiceMaster's and Barefoot's historical financial statements and the related notes thereto. TRANSACTION WITH WMX TECHNOLOGIES, INC. The following pro forma summary of operations for the year ended December 31, 1995 includes pro forma adjustments (the "Pro Forma WMX Adjustments") related to a transaction with WMX Technologies, Inc. ("WMX"). On December 31, 1995, ServiceMaster issued 27,160,715 (adjusted for the three-for-two share split in June 1996) unregistered and restricted ServiceMaster Shares, representing approximately 19% of the adjusted total number of ServiceMaster Shares outstanding, in exchange for WMX's 27.76% minority ownership interest in ServiceMaster Consumer Services L.P. The unregistered ServiceMaster Shares also include a number of voting and trading restrictions, including significant limitations on both the timing and magnitude of open market sales and underwritten offerings, with ServiceMaster retaining a right of first refusal with respect to any proposed sales thereof. The Pro Forma WMX Adjustments reflected in the following Pro Forma Consolidated Summary Of Operations for the year ended December 31, 1995 give effect to the transaction with WMX and the related purchase accounting adjustments as if the transaction had occurred on January 1, 1995. Since the transaction occurred on December 31, 1995, the historical results of operations for the nine months ended September 30, 1996 already include the impacts of this transaction, and hence no pro forma adjustments are necessary for this period. For further information related to this transaction, see ServiceMaster's Report on Form 8-K dated January 15, 1996. See "Incorporation of Documents by Reference, and pages 2-3 of Annex D." Over the past year, WMX has publicly articulated broad operating strategies which include divesting "non core" assets and increasing returns on investment. WMX has not advised ServiceMaster that WMX intends to sell or otherwise dispose of their ServiceMaster Shares which, as stated above, are subject to a number of significant voting and trading restrictions. However, the parties have from time to time discussed the feasibility of various alternative disposition mechanisms which take these restrictions into account. No specific disposition mechanism has been agreed to, and no conversations between the companies on these matters are currently taking place. ServiceMaster believes that these restrictions help ensure that any disposition of WMX's ServiceMaster Shares would occur in an orderly manner. 58 SERVICEMASTER LIMITED PARTNERSHIP PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) NINE MONTHS ENDED SEPTEMBER 30, 1996
PRO FORMA SERVICEMASTER BAREFOOT MERGER SERVICEMASTER HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------- ----------- ----------- ------------- OPERATING REVENUE....... $2,584,457 $83,427 $ $2,667,884 Operating Costs and Expenses: Cost of services rendered and products sold................. 2,001,709 32,109 2,033,818 Selling and administrative expenses............. 367,470 31,934 (4,671)(A),(B) 394,733 ---------- ------- ------- ---------- Total operating costs and expenses........... 2,369,179 64,043 (4,671) 2,428,551 ---------- ------- ------- ---------- OPERATING INCOME........ 215,278 19,384 4,671 239,333 Non-operating Expense (Income): Interest expense...... 28,658 826 9,361 (C) 38,845 Interest and investment income.... (7,465) (274) (7,739) Minority interest..... 8,221 -- 164 (F) 8,385 ---------- ------- ------- ---------- INCOME BEFORE INCOME TAXES.................. 185,864 18,832 (4,854) 199,842 Provision for (benefit of) income taxes....... 5,287 6,636 (726)(D) 11,197 ---------- ------- ------- ---------- Net Income.............. $ 180,577 $12,196 $(4,128) $ 188,645 ========== ======= ======= ========== ServiceMaster Shares outstanding............ 144,529 2,668 (E) 147,197 Net Income Per Share.... $ 1.25 $ 1.28 ========== ==========
59 SERVICEMASTER LIMITED PARTNERSHIP PRO FORMA CONSOLIDATED SUMMARY OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) YEAR ENDED DECEMBER 31, 1995
BAREFOOT THREE BAREFOOT MONTHS NINE PRO FORMA ENDED MONTHS PRO FORMA WMX SERVICEMASTER 3/31/95 ENDED MERGER SERVICEMASTER SERVICEMASTER ADJUSTMENTS PRO FORMA HISTORICAL 12/31/95 ADJUSTMENTS PRO FORMA HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED) ------------- ----------- ------------- ---------- ---------- ----------- ------------- OPERATING REVENUE....... $3,202,504 $ $3,202,504 $ 9,585 $93,431 $ $3,305,520 Operating Costs and Expenses: Cost of services rendered and products sold.................. 2,486,292 2,486,292 6,288 33,877 2,526,457 Selling and administrative expenses.............. 464,345 5,875 (1) 470,220 7,705 38,222 (6,281)(A),(B) 509,866 ---------- ------- ---------- ------- ------- ------- ---------- Total operating costs and expenses........... 2,950,637 5,875 2,956,512 13,993 72,099 (6,281) 3,036,323 ---------- ------- ---------- ------- ------- ------- ---------- OPERATING INCOME........ 251,867 (5,875) 245,992 (4,408) 21,332 6,281 269,197 Non-operating Expense (Income): Interest expense....... 35,855 205 (2) 36,060 261 778 12,563 (C) 49,662 Interest and investment income................ (7,310) (7,310) (277) (543) (8,130) Minority interest...... 45,715 (37,099)(3) 8,616 -- -- 97 (F) 8,713 ---------- ------- ---------- ------- ------- ------- ---------- INCOME BEFORE INCOME TAXES.................. 177,607 31,019 208,626 (4,392) 21,097 (6,379) 218,952 Provision for (benefit of) income taxes....... 5,588 5,588 (1,688) 8,216 (1,000)(D) 11,116 ---------- ------- ---------- ------- ------- ------- ---------- Net Income.............. $ 172,019 $31,019 $ 203,038 $(2,704) $12,881 $(5,379) $ 207,836 ========== ======= ========== ======= ======= ======= ========== ServiceMaster Shares outstanding............ 118,970 27,161 (4) 146,131 2,668 (E) 148,799 Net Income Per Share.... $ 1.45 $ 1.39 $ 1.40 ========== ========== ==========
ServiceMaster's per share data reflect the three-for-two share split in June 1996. 60 NOTES TO PRO FORMA CONSOLIDATED SUMMARIES OF OPERATIONS PERIODS ENDED SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 Pro forma merger adjustments reflect the assumed impact of the consummation of the Offer and the Merger upon ServiceMaster's existing operations for the periods presented. Pro forma adjustments consist of: (A) The reduction of salary and overhead expenses that is expected to result from the closing of certain of Barefoot's branch, regional and corporate administrative facilities. (B) Amortization of intangible assets are increased based upon the preliminary allocation of purchase price as shown in note (M) to the ServiceMaster Limited Partnership Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996. The allocation is preliminary and subject to change during 1997 as due diligence is completed and additional information is obtained. The pro forma merger adjustment represents the incremental amortization in excess of amounts previously recognized by Barefoot. Acquisition Intangible Assets, which are expected to consist primarily of tradenames and goodwill, are amortized over 40 years. (C) The acquisition debt bears interest at an estimated long term annual rate of 7 1/4%. The pro forma Merger adjustment includes interest on the acquisition debt as well as interest on cash flows from the merger adjustments. These cash flows consist of the costs discussed in note (L) and the increased interest and dividend payments partially offset by the expected cost savings. (D) Federal and state income taxes are reduced due to the tax deductibility of interest expense related to financing the Merger, which is significantly offset by increased taxes due on the expected annual cost savings discussed in note (A). (E) Represents the number of ServiceMaster Shares estimated to be issued in the Merger. See note (K) regarding the number of ServiceMaster Shares estimated to be issued. (F) Reflects additional general partners' minority interest expense that is expected to result from the Merger and resulting pro forma adjustments. PRO FORMA ADJUSTMENTS RELATED TO THE WMX TECHNOLOGIES TRANSACTION The following are the pro forma adjustments related to the WMX transaction described in "Selected Pro Forma Financial Data of ServiceMaster--Transaction With WMX Technologies, Inc." As this transaction occurred on December 31, 1995, its related pro forma adjustments impact only results of operations for the year ended December 31, 1995. The historical results of operations for the nine months ended September 30, 1996 already include the impact of this transaction. (1) The ServiceMaster Shares issued in the WMX transaction, which are unregistered and restricted, were valued based upon the average market price of the registered and freely transferable ServiceMaster Shares at the time the transaction was agreed to and announced, adjusted to reflect the significant voting and trading restrictions on the ServiceMaster Shares and other considerations. The valuation of the unregistered and restricted ServiceMaster Shares issued to WMX was determined in part based on a review performed by an international investment banking firm. The transaction resulted in approximately $235,000,000 of intangible assets, primarily tradenames and goodwill, which are being amortized on a straight-line basis over forty years. (2) Interest expense consists of the interest cost related to the dividends that would have been paid on the ServiceMaster Shares issued in the transaction. This expense is partially offset by the fact that other distributions that would have been made to WMX had it retained its minority interest in Consumer Services are no longer required. Interest expense is computed at an average short term borrowing rate of 6.2%. (3) Reflects the elimination of minority interest expense associated with WMX's prior status as a 27.76% minority partner in Consumer Services. (4) Reflects the 27,160,715 unregistered and restricted ServiceMaster Shares issued to WMX in exchange for its minority ownership interest in Consumer Services. 61 SERVICEMASTER LIMITED PARTNERSHIP PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS) SEPTEMBER 30, 1996
PRO FORMA SERVICEMASTER BAREFOOT MERGER SERVICEMASTER HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ASSETS (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------ ------------- ----------- ----------- ------------- Current Assets: Cash and marketable securities............ $ 85,980 $ 6,799 $ $ 92,779 Accounts and notes receivable, net....... 283,508 16,587 300,095 Inventories and other current assets........ 123,386 7,349 130,735 ---------- ------- -------- ---------- Total current assets. 492,874 30,735 -- 523,609 ---------- ------- -------- ---------- Intangible assets, primarily trade names and goodwill, net....... 1,070,839 31,909 (31,909)(J) 1,308,636 237,797 (M) Property and equipment, net..................... 151,948 13,164 165,112 Notes receivable, long- term securities, and other assets............ 112,775 4,813 117,588 ---------- ------- -------- ---------- Total assets......... $1,828,436 $80,621 $205,888 $2,114,945 ========== ======= ======== ========== LIABILITIES AND EQUITY ---------------------- Current liabilities...... $ 402,249 $25,052 $ 18,800 (L) $ 446,101 Long-term debt........... 501,140 1,737 162,622 (K) 665,499 Other long-term obligations............. 123,300 8,603 131,903 Minority and general partners' interest...... 15,226 -- 15,226 Limited partners' equity. 786,521 69,695 (K) 856,216 Common stock............. 168 (168)(J) -- Additional paid-in capital................. 50,040 (50,040)(J) -- Treasury stock, at cost.. (26,868) 26,868 (J) -- Excess purchase price.... (5,286) 5,286 (J) -- Retained earnings........ 27,175 (27,175)(J) -- ---------- ------- -------- ---------- Shareholders' equity..... 786,521 45,229 24,466 856,216 ---------- ------- -------- ---------- Total liabilities and shareholders' equity.............. $1,828,436 $80,621 $205,888 $2,114,945 ========== ======= ======== ==========
62 NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION) Pro forma merger adjustments to the consolidated balance sheet reflect the acquisition of all the Shares at the time the Merger is consummated in exchange for cash and shares of ServiceMaster; payment of legal and investment banking fees, lease termination fees and severance costs related to the anticipated closing of certain Barefoot branch and administrative locations and other fees associated with the Merger. Specific descriptions of the pro forma transaction adjustments follow: (J) The existing stockholders' equity and intangible asset balance of Barefoot are eliminated as a result of the Merger. (K) For purposes of the unaudited selected proforma financial information, ServiceMaster has assumed that holders of 30% of the Barefoot Shares will elect to receive the Share Consideration pursuant to the Offer. The value of the ServiceMaster Shares issued is based on the closing price of ServiceMaster Shares ($26.125) on January 15, 1997. For purposes hereof, the following is the assumed value of the Share Consideration and the Cash Consideration to be received upon consummation of the Offer: Cash Consideration............................................... $162,622 Share Consideration.............................................. 69,695 -------- $232,317 ========
(L) Represents estimated legal, investment banking fees and other costs related to the transaction, the anticipated costs associated with the planned closing of certain Barefoot branch, regional and corporate administrative facilities, the estimated severance costs to be paid to Barefoot employees not retained by ServiceMaster, and the estimated cost of refurbishing certain operating equipment. (M) The Merger will be accounted for as a purchase; therefore, an allocation of the purchase price to the assets and liabilities of Barefoot is required to reflect fair values. The pro forma adjustments to reflect a preliminary allocation of purchase price is summarized below. The preliminary allocation is subject to change as due diligence is completed and additional information is obtained. Purchase price................................................... $232,317 Transaction costs--see Note (L).................................. 5,000 Lease termination, severance and other--see Note (L)............. 13,800 -------- Purchase price to be allocated................................... 251,117 Net tangible assets acquired..................................... 13,320 -------- Acquired intangible assets, primarily trademarks and goodwill.... $237,797 ========
63 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of the anticipated federal income tax consequences of the Offer and the Merger to the holders of Shares. This summary is based upon the laws, regulations, rulings and decisions currently in effect, all of which are subject to change. The discussion below addresses the material federal income tax consequences of participating in either the Offer or the Merger generally applicable to a holder of Shares. This summary is generally limited to United States persons who hold Shares as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Code. However, this discussion does not purport to deal with all aspects of federal income taxation that may be relevant to the holders of Shares in light of their personal investment circumstances nor to certain types of holders subject to special treatment under the federal income tax laws (e.g., financial institutions, broker-dealers, life insurance companies and tax-exempt organizations). No information is provided below with respect to foreign, state or local laws or estate and gift tax considerations. Holders of Shares should consult their own tax advisors to determine the federal, state, local and other tax consequences of participating in the Offer or the Merger. Holders of Shares should note that no rulings have been or will be sought from the IRS with respect to the federal income tax consequences of the Offer or the Merger as discussed below, and no assurance can be given that the IRS will not take contrary positions. THE OFFER The following discussion of certain federal income tax consequences relevant to the Offer constitutes the opinions of Kirkland & Ellis and of Vorys, Sater, Seymour and Pease, subject to the qualifications stated herein. Such opinions are set forth in Annex C-I and C-II hereof. Such opinions, however, have no binding effect on the IRS or the courts. Exchange of Shares Solely for ServiceMaster Shares. The exchange of Shares solely for ServiceMaster Shares will be a tax-free exchange. In such event, (i) no income, gain or loss will be recognized by holders of Shares upon the receipt of ServiceMaster Shares for their Shares, (ii) the tax basis of the ServiceMaster Shares received by the holders of Shares will be equal to their basis in their Shares surrendered in exchange therefor, (iii) the holding period of the ServiceMaster Shares received by a holder of Shares will include the period for which each holder of Shares has held the Shares surrendered in exchange therefor, and (iv) no income, gain or loss will be recognized by ServiceMaster or the Company. To the extent that holders of Shares receive cash in lieu of fractional ServiceMaster Shares, such holders will be treated as if they had received fractional ServiceMaster Shares and then sold those fractional shares for cash. In such event, (i) holders of fractional ServiceMaster Shares will recognize capital gain or loss equal to the difference between the amount of cash received and the basis of their fractional ServiceMaster Shares, (ii) such capital gain or loss will be long-term with respect to fractional ServiceMaster Shares sold that the holder has held for more than one year (including the time the holder held the Shares which were exchanged for the fractional ServiceMaster Shares) and otherwise will be short-term, (iii) long- term capital gains are taxable at a maximum federal rate of 28% and short-term capital gains rates are taxable at a maximum federal rate of 39.6%, (iv) capital losses generally may be used by a corporate taxpayer only to offset capital gains and may be used by an individual taxpayer only to offset capital gains plus $3,000 of other income, and (v) no income, gain or loss will be recognized by ServiceMaster or Company. Exchange of Shares Solely for Cash. The exchange of Shares solely for cash will be a taxable sale. In such event, (i) holders of Shares who exchange Shares solely for cash will recognize capital gain or loss equal to the difference between the amount of cash received and the basis of their Shares, (ii) such capital gain or loss will be long-term with respect to Shares sold that the holder has held for 64 more than one year and otherwise will be short-term, (iii) long-term capital gains are taxable at a maximum federal rate of 28% and short-term capital gains rates are taxable at a maximum federal rate of 39.6%, (iv) capital losses generally may be used by a corporate taxpayer only to offset capital gains and may be used by an individual taxpayer only to offset capital gains plus $3,000 of other income, and (v) no income, gain or loss will be recognized by ServiceMaster or Company. Exchange of Shares for a Combination of ServiceMaster Shares and Cash. The exchange of Shares for a combination of ServiceMaster Shares and cash will be treated, in effect, as two separate exchanges. One exchange will be an exchange of Shares for solely ServiceMaster Shares and will be treated in the manner described above in Exchange of Shares Solely for ServiceMaster Shares. The other exchange will be an exchange of Shares for solely cash and will be treated in the manner described above in Exchange of Shares Solely for Cash. Holders of Shares may be able to specifically designate the particular Shares sold for cash or exchanged for ServiceMaster Shares, which, in the case of holders who have a different tax basis or holding period in different Shares, could affect the amount or character of gain or loss recognized as a result of the Offer. Holders of Shares should consult their tax advisor regarding the possibility of making such a specific designation of Shares. THE MERGER If the Offer is consummated, ServiceMaster has agreed to merge Merger Sub into Barefoot in order to obtain the remaining Shares. Those holders of Shares participating in the Merger will receive the Merger Consideration in exchange for their Shares. The transitory existence of Merger Sub will be disregarded for federal income tax purposes, and the Merger will be treated as a taxable sale of the Shares for cash. This taxable sale will be treated in the manner described above in Exchange of Shares Solely for Cash. TAX CONSEQUENCES OF OWNING AN INTEREST IN SERVICEMASTER Certain of the federal income tax consequences of owning an interest in ServiceMaster, a partnership for federal income tax purposes, are described in the ServiceMaster 1995 10-K under the caption "Federal Income Tax Considerations," which is set forth in Annex D and specifically incorporated by reference in this Offering Circular/Prospectus. See "Incorporation of Documents by Reference." ServiceMaster is treated as a partnership for federal income tax purposes because of the grandfather provisions in the publicly- traded partnership rules. Because these grandfather provisions are due to expire in 1997, ServiceMaster expects to convert to corporate status in 1997. This conversion will be tax-free to the shareholders of ServiceMaster. BACKUP WITHHOLDING Certain holders of Shares may be subject to backup withholding at a rate of 31% on payments of cash made to them upon the sale of their Shares. In order to avoid such backup withholding, each holder of Shares must provide the Exchange Agent with such holder's correct taxpayer identification number and certify that such holder is not subject to backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. Special backup withholding rules may apply when a payment is made through one or more financial institutions or by a custodian, nominee, broker or other agent of the beneficial owner of the Shares. VALIDITY OF SERVICEMASTER SHARES The validity of the issuance of the ServiceMaster Shares to be issued pursuant to the Offer will be passed upon for ServiceMaster by Kirkland & Ellis, Chicago, IL. 65 EXPERTS The consolidated balance sheets of ServiceMaster as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995, incorporated by reference from the ServiceMaster 1995 10-K into this Offering Circular/Prospectus and Registration Statement, which are referred to and made a part hereof, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon in the ServiceMaster 1995 10-K and incorporated herein. Such consolidated financial statements are included herein in reliance upon such report given upon the authority of said firm as experts in accounting and auditing in giving said reports. The audited consolidated balance sheets of Barefoot Inc. and subsidiaries as of December 31, 1995 and March 31, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for the nine months ended December 31, 1995 and for the years ended March 31, 1995 and 1994, incorporated by reference from the Barefoot 1995 10-K into this Offering Circular/Prospectus and Registration Statement, which are referred to and made a part hereof, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon in the Barefoot 1995 10-K and incorporated herein. Such consolidated financial statements are included herein in reliance upon such report given upon the authority of said firm as experts in accounting and auditing in giving said report. 66 ANNEX A-I--THE ACQUISITION AGREEMENT ACQUISITION AGREEMENT BY AND AMONG SERVICEMASTER LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP) SERVICEMASTER ACQUISITION CORPORATION (A DELAWARE CORPORATION) AND BAREFOOT INC. (A DELAWARE CORPORATION) DECEMBER 5, 1996 ACQUISITION AGREEMENT This ACQUISITION AGREEMENT, dated December 5, 1996, is entered into by and among ServiceMaster Limited Partnership ("ServiceMaster"), a Delaware limited partnership, ServiceMaster Acquisition Corporation (the "MergerSub"), a Delaware corporation and wholly-owned subsidiary of ServiceMaster and Barefoot Inc. ("Barefoot"), a Delaware corporation. WHEREAS: ServiceMaster desires to make a tender offer to acquire all of the outstanding shares of common stock, par value $0.01 per share, of Barefoot (the "Barefoot Common Stock") together with the associated Series A Junior Participating Preferred Stock Purchase Rights (the "Stock Purchase Rights"), in accordance with the terms and subject to the conditions provided for herein. The term "Share" whenever it is used in this Agreement means a share of Barefoot Common Stock issued or issuable by Barefoot. Unless the context otherwise requires, all references in this Agreement to Barefoot Common Stock or the Shares shall include the associated Stock Purchase Rights. WHEREAS: The parties intend that, for United States federal income tax purposes, the exchange of Shares for ServiceMaster Shares pursuant to the Offer as provided for herein will qualify as a tax free contribution to ServiceMaster within the meaning of Section 721 of the Internal Revenue Code ("Code"). WHEREAS: To complete its acquisition of Barefoot, ServiceMaster desires to effect as promptly as possible after consummation of the Offer a cash-out merger of MergerSub with and into Barefoot upon the terms and subject to the conditions set forth in a Merger Agreement executed simultaneously with this Agreement (the "Merger Agreement"). WHEREAS: The Board of Directors of Barefoot, has, in light of and subject to the terms and conditions set forth herein, (i) determined that each of the Offer and the Merger (as defined in Section 2.1) is fair to the stockholders of Barefoot and in the best interests of such stockholders and (ii) approved and adopted this Agreement and the Merger Agreement and the transactions contemplated hereby and thereby and resolved to recommend acceptance of the Offer and approval and adoption by the stockholders of Barefoot of the Merger Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Barefoot, ServiceMaster and MergerSub hereby agree as follows: ARTICLE 1.0 THE OFFER 1.1 Commitment to Make the Offer. (a) All Shares Offer. Subject to the terms and conditions set forth in this Agreement, ServiceMaster shall make a tender offer (herein called the "Offer") to acquire all of the outstanding Shares on the terms specified in this Article 1, subject to the conditions prescribed in Annex 1 to this Agreement and on such other terms as shall be approved by ServiceMaster and Barefoot. Subject to the terms and conditions of the Offer, at the Closing Time (as defined in Section 1.7) ServiceMaster shall accept all Shares which have been properly tendered and not withdrawn pursuant to the Offer by 12:00 midnight New York City time on the Expiration Date (as defined in subsection 1.1(b)). The Offer shall be conducted in accordance with all applicable requirements of the Securities Act of 1933 (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act") and all other applicable legal and regulatory requirements. Annex A-I-1 (b) Consideration for Shares. Upon the terms and subject to the conditions of the Offer, the Offer shall commit ServiceMaster to acquire each Share for, at the election of the holder as provided in and subject to the limitations set forth in this Article 1, either: (i) a fraction (the "Conversion Fraction") of a validly issued, fully paid and nonassessable share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the date that the Offer expires (the "Expiration Date") and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration"); or (ii) $16 in cash, without any interest thereon (the "Cash Consideration" and collectively with the Share Consideration, the "Offer Consideration"). (c) Commencement Date. ServiceMaster shall commence the Offer not later than the fifth business day after the Registration Statement (as defined in Section 1.4(a) hereof) is declared effective pursuant to the Securities Act by the Securities and Exchange Commission (the "SEC"). ServiceMaster shall not be obligated to commence the Offer if any state of facts shall exist which would entitle ServiceMaster not to acquire the Shares tendered in response to the Offer under the conditions expressly set forth in paragraphs (b), (c), (d), (e), (f), (g), (h), (i) and (n) of Annex 1, provided that the condition in clause (f) shall be applied as of the date on which ServiceMaster would otherwise be obligated to commence the Offer and that the condition in (g) shall apply only with respect to the terms, agreements and conditions which this Agreement contemplates would be satisfied or performed prior to the time the Offer commences. (d) 25 Business Day Minimum Duration. If ServiceMaster shall commence the Offer, then (except as otherwise provided in Section 1.7 or Section 6.2) ServiceMaster shall keep the Offer open for at least 25 business days after the Commencement Date. (e) Tax-Free Contributions of Shares. The parties intend that, for United States federal income tax purposes, the exchange of Shares for ServiceMaster Shares pursuant to the Offer as provided for herein will qualify as a tax free contribution to ServiceMaster within the meaning of Section 721 of the Code. 1.2 Election Procedure. Each holder of Shares which have been properly tendered and not withdrawn pursuant to the Offer by 12:00 midnight New York City time on the Expiration Date ("Tendered Shares"), shall have the right, subject to the limitations set forth in this Article 1, to submit a request specifying the number of Tendered Shares that such holder desires to have exchanged into the Share Consideration pursuant to the Offer and the number of Tendered Shares that such holder desires to have exchanged for the Cash Consideration pursuant to the Offer in accordance with the following procedures: (a) Each holder of Tendered Shares may specify in a request made in accordance with the provisions of this Section 1.2 (herein called an "Election") (i) the number of Tendered Shares owned by such holder that such holder desires to exchange for the Share Consideration in the Offer (a "Share Election") and (ii) the number of Shares owned by such holder that such holder desires to have exchanged for the Cash Consideration in the Offer (a "Cash Election"). Annex A-I-2 (b) ServiceMaster shall prepare a form reasonably acceptable to Barefoot (the "Form of Election") which shall upon commencement of the Offer be mailed to Barefoot's stockholders as part of the Offer Documents (as defined in Section 1.4(b)) so as to permit Barefoot's stockholders to exercise their right to make an Election on or prior to the Expiration Date. (c) Any Election shall have been made properly only if the person authorized to receive Elections and to act as exchange agent pursuant to the Offer, which person shall be designated by ServiceMaster and shall be reasonably satisfactory to Barefoot (the "Exchange Agent"), shall have received, by 12:00 midnight New York City time on the Expiration Date, a Form of Election properly completed and signed and accompanied or preceded by certificates for the Shares to which such Form of Election relates (or by an appropriate guarantee of delivery of such certificates, as set forth in the notice of guaranteed delivery, from a member of any registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States provided such certificates are in fact delivered to the Exchange Agent by the time required in such guarantee of delivery). (d) Any Barefoot stockholder may at any time prior to 12:00 midnight New York City time on the Expiration Date, change his or her Election by written notice received by the Exchange Agent prior to 12:00 midnight New York City time on the Expiration Date, accompanied by a properly completed and signed, revised Form of Election. A revised Form of Election shall be deemed to invalidate any previously submitted Form of Election. (e) Any Barefoot stockholder may, at any time prior to 12:00 midnight New York City time on the Expiration Date, revoke such stockholder's Election by written notice received by the Exchange Agent prior to 12:00 midnight New York City time on the Expiration Date, or by withdrawal prior to 12:00 midnight New York City time on the Expiration Date of such stockholder's certificates for Shares, or of the guarantee of delivery of such certificates, previously deposited with the Exchange Agent pursuant to the procedures for withdrawal set forth in the Offer Documents. (f) ServiceMaster shall have the right to make rules (which shall be not inconsistent with the terms of this Agreement and shall be reasonably acceptable to Barefoot) governing the validity of the Forms of Election, the manner and extent to which Elections are to be taken into account in making the determinations prescribed by Sections 1.2 and 1.3, the issuance and delivery of certificates for ServiceMaster Shares into which Tendered Shares are to be exchanged pursuant to the Offer and the payment of Cash Consideration pursuant to the Offer. 1.3 Issuance of ServiceMaster Shares and Payment of Cash Consideration at the Closing Time. The manner in which each Tendered Share shall be exchanged for either the Share Consideration or the Cash Consideration pursuant to the Offer shall be as set forth in this Section 1.3. (a) Each Tendered Share for which a Share Election has been received shall be, at the Closing (as defined in Section 1.7), exchanged for the Share Consideration in the Offer; provided, however, no certificates or scrip representing fractional ServiceMaster Shares shall be issued upon the exchange for such Tendered Shares. In lieu of any such fractional ServiceMaster Share, ServiceMaster shall pay to each such stockholder of Barefoot who otherwise would be entitled to receive a fractional ServiceMaster Share an amount in cash determined by multiplying (i) the greater of $23.00 or the Average ServiceMaster Share Price by (ii) the fractional interest in a ServiceMaster Share to which such holder would otherwise be entitled. Annex A-I-3 (b) Each Tendered Share for which a Cash Election has been received and each Tendered Share as to which an Election is not in effect at 12:00 midnight New York City time on the Expiration Date, (a "Non-Electing Share") shall be, at the Closing, exchanged for the Cash Consideration in the Offer. (c) If ServiceMaster shall determine that any Election is not properly made with respect to any Tendered Shares, such Election shall be deemed to be not in effect, and the Tendered Shares covered by such Election shall, for purposes hereof and the Offer, be deemed to be Non-Electing Shares. (d) In the event that, between the date of this Agreement and the Closing Time, the issued and outstanding ServiceMaster Shares shall have been affected or changed into a different number of shares or a different class of shares as a result of a share split, reverse share split, share distribution, spin-off, extraordinary distribution, recapitalization, reclassification or other similar transaction with a record date within such period, the Conversion Fraction shall be equitably adjusted by ServiceMaster in a manner reasonably satisfactory to Barefoot. 1.4 ServiceMaster Action. (a) In connection with the registration pursuant to the Securities Act of ServiceMaster Shares to be issued by ServiceMaster as the Share Consideration pursuant to the Offer, ServiceMaster shall as soon as practicable after execution of this Agreement file with the SEC a Registration Statement on Form S-4 (together with all amendments, schedules, and exhibits thereto, the "Registration Statement"). ServiceMaster shall use reasonable efforts to have the Registration Statement declared effective by the SEC at the earliest practicable date. Barefoot shall reasonably assist and cooperate with ServiceMaster in the preparation of the Registration Statement and shall use reasonable efforts to assist ServiceMaster to have the Registration Statement declared effective by the SEC at the earliest practicable date. (b) Subject to Section 1.1(c), as soon as practicable after the Registration Statement is declared effective by the SEC, ServiceMaster shall commence the Offer. As soon as practicable on the date of commencement of the Offer, ServiceMaster shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer which will contain the offer to purchase and form of the related letter of transmittal (together with any supplements or amendments thereto, collectively the "Offer Documents"). The Offer Documents shall comply with the provisions of the applicable securities laws. 1.5 Barefoot Actions. (a) Approvals. Barefoot hereby approves of and consents to the Offer and represents and warrants that Barefoot's Board of Directors (the "Board"), at a meeting duly called and held took all of the following actions in the manner and to the extent indicated in Annex 4: (i) determined that this Agreement and the Merger Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to, and in the best interests of, the stockholders of Barefoot, (ii) approved this Agreement and the Merger Agreement and the transactions contemplated hereby and thereby, including the Offer and the Merger, in all respects and determined that such approval constitutes approval of the Offer, this Agreement, the Merger Agreement and the Merger for purposes of Section 251(b) of the Delaware General Corporation Law (the "DGCL") and (iii) resolved to recommend that the stockholders of Barefoot accept the Offer, tender their Shares thereunder to ServiceMaster (subject to the reservation with respect to the Share Election contained in Annex 4) and to recommend that the stockholders of Barefoot approve and adopt the Merger Agreement and the Merger. Barefoot consents to the inclusion of such recommendation and approval in the Offer Annex A-I-4 Documents. Barefoot warrants to ServiceMaster that a complete an accurate copy of the resolution by its Board taking the actions specified in the preceding sentence is attached to this Agreement as Annex 4. Barefoot's Board shall not withdraw, modify or amend its recommendation specified in Annex 4 unless and until either (i) prior to the consummation of the Offer another offer to acquire Barefoot shall be made and the Board of Directors of Barefoot determines, after having received the advice of outside legal counsel to Barefoot and the advice of Barefoot's financial advisor, that such offer is for consideration per Share in excess of the Offer Consideration and the Board is required in the exercise of its fiduciary duties under applicable law to withdraw, modify or amend its recommendation specified in Annex 4 and (ii) all conditions specified in Section 6.1(c)(1) of this Agreement as requisite to Barefoot's termination of this Agreement have been satisfied, or (ii) this Agreement shall have been terminated in accordance with the terms specified in Section 6.1 and any amount due from Barefoot under Section 7.1 shall have been paid to ServiceMaster. (b) 14D-9 SEC Filing. Contemporaneously with the commencement of the Offer, Barefoot shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which shall reflect the recommendation of the Offer and of the Merger by Barefoot's Board of Directors, provided that if Barefoot shall become entitled to withdraw its recommendation of the Offer or the Merger under the provisions of Section 1.5(a), then neither such withdrawal nor the modification of the Schedule 14D-9 to reflect such withdrawal and any position taken by the Board subsequent to such withdrawal shall constitute a breach by Barefoot of this Agreement. The Schedule 14D-9 shall contain the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder with respect to ServiceMaster's designees for election to Barefoot's Board of Directors pursuant to Section 1.7(e) hereof. ServiceMaster shall supply any information with respect to itself or its designees which may be required for inclusion therein. The Schedule 14D-9, together with any supplements or amendments thereto, shall comply with the provisions of the applicable federal securities laws. (c) Stockholder Lists. In connection with the Offer, Barefoot shall within two business days after a request from ServiceMaster furnish ServiceMaster with mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the Shares as of the latest practicable date and shall furnish ServiceMaster with such additional information and assistance (including, without limitation, updated lists of stockholders, mailing labels and lists of securities positions) as ServiceMaster or its agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, ServiceMaster and its affiliates and associates shall use the information contained in any such labels, listings and files only in connection with and for the purpose of the Offer and the Merger, and if this Agreement shall be terminated ServiceMaster will deliver to Barefoot or destroy all copies of such information then in the possession of ServiceMaster or any of ServiceMaster's affiliates or associates. 1.6 Treatment of Barefoot Stock Options. Barefoot warrants to ServiceMaster that Section 1.6 of the Disclosure Schedule accurately shows the number of shares subject to issuance under each outstanding option granted under Barefoot's stock option program for officers and other employees (and all options outstanding under such programs are herein called "Barefoot Stock Options") and the exercise price per share of each such option. At the Closing, Barefoot shall pay to each person who Annex A-I-5 holds any Barefoot Stock Option an amount of cash equal to the number of shares subject to that Option at the Closing (whether or not then vested) times the remainder derived by subtracting the exercise price per share from $16. Barefoot shall obtain an agreement in a form reasonably satisfactory to ServiceMaster from each holder of every Barefoot Stock Option to accept such payment in exchange for a surrender of all rights of such holder under or by reason of such Option including but not limited to the termination of the holder's rights to purchase any shares with such Option after the Closing. The obtaining of such an agreement from each Option holder shall be a condition to ServiceMaster's obligation to consummate the Closing. ServiceMaster consents to Barefoot's actions prescribed by this Section 1.6. 1.7 The Closing; Minimum Number of Shares. ServiceMaster shall consummate the Offer and acquire all Shares properly tendered and not withdrawn (the "Closing") at the earliest time permitted under the Exchange Act and the earliest time as of which: (i) the Minimum Number of Shares shall have been properly tendered and not withdrawn and shall be available for purchase under the terms of the Offer and applicable law and (ii) all conditions to ServiceMaster's obligation to consummate the Offer contained in Annex 1 shall have been satisfied or waived by ServiceMaster; provided, that ServiceMaster may allow the Offer to remain open for an additional period of time but no later than 20 business days after the Minimum Number of Shares shall have been properly tendered. For purposes of this Agreement, the "Closing Time" shall be the time at which ServiceMaster shall acquire Shares by means of the Offer. The Minimum Number shall be such number that when added to all Shares owned by ServiceMaster and its affiliates prior to consummation of the Offer will provide ServiceMaster and its affiliates with ownership of 75% of the Shares which shall be outstanding at the Closing Time. The Closing shall take place in the offices of Kirkland & Ellis in Chicago, Illinois at the Closing Time. At the Closing: (a) ServiceMaster shall deliver, in trust, to the Exchange Agent, for the benefit of the holders of Shares, certificates representing an aggregate number of ServiceMaster Shares as nearly as practicable equal to the product of the Conversion Fraction and the number of Tendered Shares to be converted into ServiceMaster Shares as determined in subsections 1.1(b)(i) and 1.3(a). As soon as practicable after the Closing Time, each holder of Tendered Shares exchanged into ServiceMaster Shares pursuant to the Offer, shall be, upon such holder's compliance with the Offer Documents regarding the delivery of certificates representing Tendered Shares not previously delivered), entitled to receive certificates representing the number of ServiceMaster Shares for which such Tendered Shares shall have been exchanged as determined in subsections 1.1(b)(i) and 1.3(a). If any certificate for such ServiceMaster Shares is to be issued in a name other than that in which the certificate for Tendered Shares surrendered in exchange therefor is registered, it shall be a condition of such exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of issuance of certificates for such ServiceMaster Shares in a name other than the registered holder of the certificate surrendered, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not applicable. (b) ServiceMaster shall deposit in trust with the Exchange Agent, for the benefit of the holders of Tendered Shares, an amount in cash equal to the Cash Consideration multiplied by the number of Tendered Shares to be exchanged for the Cash Consideration as determined in subsections 1.1(b)(ii) and 1.3(b). As soon as practicable after the Closing Time, the Exchange Agent shall distribute to such holders of Tendered Shares, upon such holder's compliance with the Offer Documents regarding the delivery of certificates representing Tendered Shares not previously delivered), the Cash Consideration in the form of a bank check for an amount equal to the Cash Consideration times the number of Tendered Shares so exchanged. In no event shall the holder of any such surrendered certificates be entitled to receive interest on Annex A-I-6 any of the Cash Consideration to be received in the Offer. If such check is to be issued in the name of a person other than the person in whose name the certificates for the Tendered Shares surrendered for exchange therefor are registered, it shall be a condition of the exchange that the person requesting such exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of issuance of such check to a person other than the registered holder of the certificates surrendered, or shall establish to the reasonable satisfaction of the Exchange Agent that such tax has been paid or is not applicable. (c) The Exchange Agent shall deliver to ServiceMaster such stock certificates representing Tendered Shares as the Exchange Agent shall have received by the Closing Time against receipt of the Offer Consideration therefor. The Exchange Agent shall promptly deliver to ServiceMaster stock certificates representing Tendered Shares not previously delivered as the Exchange Agent shall receive after the Closing Time. (d) Barefoot shall deliver to ServiceMaster the agreement from the holder of every Barefoot Stock Option required by Section 1.6. (e) The incumbent directors of Barefoot shall appoint designees of ServiceMaster to the Board of Directors of Barefoot and all incumbent directors of Barefoot shall resign. 1.8 It shall be a condition to ServiceMaster's obligation to consummate the Closing that Barefoot shall deliver, or caused to be delivered, to ServiceMaster all of the following: (i) a certificate executed on its behalf by its Chief Executive Officer and its Chief Financial Officer in their corporate capacity to the effect that: (A) the representations and warranties of Barefoot set forth in this Agreement are true and accurate as of the Closing Time as if made at and as of such time (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and accurate as of such date or with respect to such period), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "material adverse effect" set forth therein), would not have, and is not reasonably likely to have, individually or in the aggregate, a material adverse effect on Barefoot and its subsidiaries taken as a whole; (B) Barefoot shall have performed in all material respects its obligations hereunder required to be performed by it at or prior to the Closing Time; and (C) since September 30, 1996, there shall not have occurred any event, change or effect having, or which would be reasonably likely to have, in the aggregate, a material adverse effect on Barefoot and its subsidiaries, taken as a whole; (ii) a certificate of good standing from the Secretary of State of each state in which Barefoot and its subsidiaries are incorporated or qualified to do business stating that each is a validly existing corporation in good standing; (iii) duly adopted resolutions of the Board of Directors of Barefoot approving the execution, delivery and performance of this Agreement and the instruments contemplated hereby, certified by the Secretary of Barefoot; (iv) a true and complete copy of the Restated Certificate of Incorporation, as amended, of Barefoot and each of Barefoot's subsidiaries certified by the Delaware Secretary of State, and a true and complete copy of the Bylaws, as amended, of Barefoot and each of Barefoot's subsidiaries certified by the Secretary thereof; (v) the duly executed Director and Officer Actions (as defined in Section 5.13); and (vi) such other documents and instruments as ServiceMaster reasonably may request. Annex A-I-7 ARTICLE 2.0 THE MERGER 2.1 The Merger. As soon as practicable after the purchase of Shares pursuant to the Offer and receipt of requisite approval by the holders of not less than 75% of the outstanding Shares, ServiceMaster, MergerSub and Barefoot shall engage in a merger (herein called the "Merger") pursuant to which (i) MergerSub shall be merged with and into Barefoot, (ii) the separate existence of MergerSub (except as may be continued by operation of law) shall cease, (iii) Barefoot shall continue as the surviving corporation, (iv) each Share outstanding immediately prior to the Merger (other than Shares owned by ServiceMaster and its affiliates) shall be converted into cash in an amount per share equal to the Cash Consideration, and (v) Barefoot shall become a wholly owned subsidiary of ServiceMaster. Contemporaneously with the execution of this Agreement, ServiceMaster, MergerSub and Barefoot shall enter into a Plan and Agreement of Merger (the "Merger Agreement"), providing for the Merger in accordance with this Agreement, the Merger Agreement, and the DGCL. Barefoot, in its capacity as the corporation surviving the Merger, sometimes is referred to as the "Surviving Corporation." 2.2 Proxy Statement. As soon as practicable after execution of this Agreement, Barefoot shall file with the SEC under the Exchange Act, and all parties hereto shall use all reasonable efforts to have cleared by the SEC by the Closing Time, a proxy statement or information statement, as Barefoot shall designate (the "Proxy Statement"), with respect to the approval by Barefoot's stockholders of the Merger Agreement and the Merger. The Proxy Statement shall be in form and substance reasonably satisfactory to Barefoot and ServiceMaster. The information provided and to be provided by ServiceMaster, MergerSub and Barefoot, respectively, for use in the Proxy Statement shall be true and correct in all material respects and shall not omit to state any material fact necessary in order to make such information and the Proxy Statement not misleading as of the date of mailing of the Proxy Statement. The Proxy Statement shall comply in all material respects with the Exchange Act and the rules and regulations thereunder. The Proxy Statement shall contain the recommendation of the Board of Directors of Barefoot that stockholders approve the Merger. 2.3 Short Form Merger. In the event that after consummation of the Offer, ServiceMaster and its affiliates shall own at least 90% of the outstanding Shares, then as soon as practicable after the Closing Time, MergerSub and appropriate officers of MergerSub shall execute a certificate of ownership and merger and shall cause such certificate to be filed with the Delaware Secretary of State. Barefoot and MergerSub shall also take any other actions which shall be necessary to cause the Merger to occur in accordance with Section 253 of the Delaware Law and shall provide all notices to stockholders and take such other actions as shall be required by the Delaware Law or other applicable governmental requirements by reason of the consummation of the Merger. 2.4 Stockholder Approval. In the event that ServiceMaster and its affiliates after consummation of the Offer, do not own at least 90% of all Shares outstanding at that time, then as soon as practicable after the Closing Time, Barefoot shall take all action necessary in accordance with the Delaware Law and other applicable governmental requirements and its Restated Certificate of Incorporation and By-Laws either (at Barefoot's election) to (a) distribute the Proxy Statement and convene a meeting of its stockholders as promptly as possible after the Closing Time to consider and vote upon the Merger Agreement and the Merger or (b) submit the Merger Agreement and the Merger for approval by written consent in lieu of a meeting of stockholders. If a stockholders' meeting is convened or consents are to be solicited, the Board of Directors of Barefoot shall recommend that the stockholders of Barefoot vote to adopt and approve the Merger Agreement and the Merger. Barefoot shall use its best efforts to solicit from stockholders of Barefoot proxies or consents in favor of such adoption and approval to the extent such consents or approvals are required and shall take all other action necessary or helpful to secure a vote or consent of stockholders in favor of the Merger. At any such meeting ServiceMaster Annex A-I-8 and its affiliates shall vote all Shares held by them in favor of the Merger, and Barefoot shall vote all Shares with respect to which proxies in the form distributed by Barefoot shall have been given in favor of the Merger. In connection with any such vote or consent, ServiceMaster and its affiliates shall vote in favor of or consent to the Merger Agreement and the Merger with respect to all Shares any of them have the power to vote and Barefoot shall give any such consents which it is authorized to give by stockholder consent. As soon as is practicable after the satisfaction or waiver of the conditions set forth in Section 2.5 below, and in no event later than five business days after such satisfaction or waiver, MergerSub will cause a Certificate of Merger to be filed with the Secretary of State of the State of Delaware. Notwithstanding the foregoing, in lieu of holding a stockholders' meeting or seeking consents for approval of the Merger Agreement and the Merger, the Merger Agreement and the Merger may be approved by ServiceMaster and its affiliates if they shall own at least 75% of all outstanding Shares upon consummation of the Offer, in which event proxies need not be solicited from other stockholders but all required statements and information shall be furnished to such stockholders in accordance with all applicable laws and regulations. 2.5 Conditions to the Obligations of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver of each of the conditions set forth below: (a) If ServiceMaster and its affiliates shall own less than 90% of all Shares outstanding at the conclusion of the Offer, the Merger and the Merger Agreement shall have been approved and adopted by the requisite vote or consent of stockholders of Barefoot in accordance with Barefoot's Restated Certificate of Incorporation and By-laws and the Delaware Law; (b) The Offer shall have been consummated pursuant to the terms of this Agreement; and (c) No injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority shall be in effect, which would make the acquisition or holding by ServiceMaster or its subsidiaries of the Shares or shares of common stock of the Surviving Corporation illegal or otherwise prevent the consummation of the Merger. 2.6 Dissenters' Rights. Barefoot shall not settle or compromise any claim for dissenters' rights without the prior written consent of ServiceMaster. ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF BAREFOOT Barefoot represents and warrants to ServiceMaster and MergerSub as follows: 3.1 Organization. Each of Barefoot and its subsidiaries (as defined below) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and has all requisite corporate or other power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals would not have a material adverse effect (as defined below) on Barefoot and its subsidiaries taken as a whole. Each of Barefoot and its subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly Annex A-I-9 qualified or licensed and in good standing would not, in the aggregate, have a material adverse effect on Barefoot and its subsidiaries taken as a whole. As used in this Agreement, the word "subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other subsidiary of such party is a general partner (excluding such partnerships where such party or any subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries. As used in this Agreement, any reference to any event, change or effect having a material adverse effect on or with respect to any entity (or group of entities taken as a whole) means such event, change or effect, in the aggregate with such other events, changes, or effects, which is materially adverse to the financial condition, results of operations or business of such entity. Section 3.1 of the Disclosure Schedule delivered by Barefoot to ServiceMaster on or prior to the date hereof (the "Disclosure Schedule") sets forth a complete list of Barefoot's subsidiaries. 3.2 Capitalization. (a) The authorized capital stock of Barefoot consists of 45,000,000 shares consisting of 40,000,000 shares of Barefoot Common Stock and 5,000,000 shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). As of the date hereof, 14,519,760 shares of Barefoot Common Stock are issued and outstanding and 2,277,000 shares of Barefoot Common Stock are held in the treasury of Barefoot. As of the date hereof, no shares of Preferred Stock are issued and outstanding and 400,000 shares of Preferred Stock has been designated as Series A Junior Participating Preferred Stock issuable upon exercise of the Stock Purchase Rights. As of the date hereof, options to acquire an aggregate of 412,550 shares of Barefoot Common Stock have been issued pursuant to Barefoot Stock Options. All the outstanding shares of Barefoot's capital stock are duly authorized, validly issued, fully paid and non-assessable. (b) There are no bonds, debentures, notes or other indebtedness having voting rights (or convertible into securities having such rights) ("Voting Debt") of Barefoot or any of its subsidiaries issued and outstanding. Except as set forth above and for the transactions contemplated by this Agreement which will result in issuance of shares to ServiceMaster, (i) there are no shares of capital stock of Barefoot authorized, issued or outstanding and (ii) there are no existing options, warrants, calls, preemptive rights, subscriptions or other rights, convertible securities, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of Barefoot or any of its subsidiaries, obligating Barefoot or any of its subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock or Voting Debt of, or other equity interest in, Barefoot or any of its subsidiaries or securities convertible into or exchangeable for such shares or equity interests or obligations of Barefoot or any of its subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, convertible security, agreement, arrangement or commitment. (c) There are no outstanding contractual obligations of Barefoot or any of its subsidiaries to repurchase, redeem or otherwise acquire any Shares or the capital stock of Barefoot or any subsidiary or affiliate of Barefoot or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any subsidiary or any other entity. None of Barefoot or its subsidiaries is required to redeem, repurchase or otherwise acquire shares of capital stock of Barefoot, or any of its subsidiaries, respectively, as a result of the transactions contemplated by this Agreement. Annex A-I-10 (d) All of the outstanding shares of capital stock of each of the subsidiaries are beneficially owned by Barefoot, directly or indirectly, and all such shares have been validly issued and are fully paid and nonassessable and are owned by either Barefoot or one of its subsidiaries free and clear of all liens, charges, security interests, options, claims or encumbrances of any nature whatsoever. (e) There are no voting trusts or other agreements or understandings to which Barefoot or any of its subsidiaries is a party with respect to the voting of the capital stock of Barefoot or any of the subsidiaries. (f) At the Closing Time, the number of shares of Barefoot Common Stock outstanding shall not exceed 14,982,310. At and after the Closing Time, neither Barefoot nor any of its subsidiaries will have any obligation to issue, transfer or sell any shares of its capital stock to anyone other than ServiceMaster. 3.3 Corporate Authorization; Validity of Agreement; Barefoot Action. (a) Barefoot has full corporate power and authority to execute and deliver this Agreement and, subject to obtaining any necessary approval of its stockholders as contemplated by Section 2.2 hereof with respect to the Merger, to consummate the transactions contemplated hereby. The execution, delivery and performance by Barefoot of this Agreement, and the consummation by it of the transactions contemplated hereby, have been duly and validly authorized by its Board of Directors and, except for obtaining the approval of its stockholders as contemplated by Section 2.2 hereof with respect to the Merger, no other corporate action or proceedings on the part of Barefoot is necessary to authorize the execution and delivery by Barefoot of this Agreement, and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Barefoot and, assuming this Agreement constitutes a valid and binding obligation of ServiceMaster and MergerSub, constitutes a valid and binding obligation of Barefoot enforceable against Barefoot in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (b) The Board of Directors of Barefoot has duly and validly approved and taken all corporate action required to be taken by the Board of Directors for the consummation of the transactions contemplated by this Agreement. The affirmative vote of the holders of 75% of the Shares is the only vote of the holders of any class or series of Barefoot capital stock necessary to approve the Merger. (c) A complete and accurate copy of the resolutions adopted by Barefoot's Board of Directors with respect to the Offer and the Merger is attached to this Agreement as Annex 5. 3.4 Consents and Approvals; No Violations. Except as set forth in Section 3.4 of the Disclosure Schedule and for all filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act (as defined herein), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the state securities or "blue sky" laws, state takeover laws, and for the approval of the Merger by Barefoot's stockholders and the filing and recordation of the Certificate of Merger as required by the DGCL, neither the execution, delivery or performance of this Agreement nor the consummation by Barefoot of the transactions contemplated hereby nor compliance by Barefoot with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or by-laws or similar organizational Annex A-I-11 documents of Barefoot or of any of its subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority, commission or agency (a "Governmental Entity"), except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on Barefoot and its subsidiaries taken as a whole and would not, or would not be reasonably likely to, materially impair the ability of Barefoot, ServiceMaster or MergerSub to consummate the Offer, the Merger or the other transactions contemplated hereby, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, guarantee, other evidence of indebtedness (collectively, the "Debt Instruments"), lease, license, contract, agreement or other instrument or obligation to which Barefoot or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound (a "Barefoot Agreement") or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Barefoot, any of its subsidiaries or any of their properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches or defaults which would not have a material adverse effect on Barefoot and its subsidiaries taken as a whole. 3.5 SEC Reports and Financial Statements. Barefoot has filed with the SEC and has heretofore made available to ServiceMaster true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by it and its subsidiaries since January 1, 1994 under the Exchange Act and the Securities Act (as such documents have been amended since the time of their filing, collectively, the "Barefoot SEC Documents"). As of their respective dates or, if amended, as of the date of the last such amendment, Barefoot SEC Documents, including, without limitation, any financial statements or schedules included therein (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Each of the consolidated financial statements included in Barefoot SEC Documents have been prepared from, and are in accordance with, the books and records of Barefoot and/or its consolidated subsidiaries, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of Barefoot and its consolidated subsidiaries as at the dates thereof or for the periods presented therein (subject, in the case of unaudited interim financial statements, to normal year end adjustments and lack of footnote disclosures). 3.6 Absence of Certain Changes. Except as disclosed in Barefoot SEC Documents filed with the SEC prior to the date hereof, since January 1, 1996, Barefoot and its subsidiaries have conducted their respective businesses and operations in the ordinary course of business consistent with past practice. Since September 30, 1996, there has not occurred (i) any events, changes, or effects (including the incurrence of any liabilities of any nature, whether or not accrued, contingent or otherwise) having or, which would be reasonably likely to have, in the aggregate, a material adverse effect on Barefoot and its subsidiaries taken as a whole; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the equity interests of Barefoot or of any of its subsidiaries, other than regular quarterly cash dividends or dividends paid by wholly owned subsidiaries; or (iii) any change by Barefoot or any of its subsidiaries in accounting principles or methods. Annex A-I-12 3.7 No Undisclosed Liabilities. Except (a) as disclosed in Section 3.7 of the Disclosure Schedule, (b) to the extent disclosed in Barefoot SEC Documents filed prior to the date of this Agreement and (c) for liabilities and obligations incurred in the ordinary course of business consistent with past practice, since January 1, 1996, neither Barefoot nor any of its subsidiaries has incurred any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that have, or would be reasonably likely to have, a material adverse effect on Barefoot and its subsidiaries. Section 3.7 of the Disclosure Schedule sets forth each instrument evidencing indebtedness of Barefoot and its subsidiaries which will accelerate or become due or payable, or result in a right of redemption or repurchase on the part of the holder of such indebtedness, or with respect to which any other payment or amount will become due or payable, in any such case with or without due notice or lapse of time, as a result of this Agreement, the Offer, the Merger or the other transactions contemplated hereby. 3.8 Employee Benefit Plans; ERISA. As of the date of this Agreement and as of the Closing Time: (a) There are no material employee or director benefit plans, arrangements, practices, contracts or agreements (including, without limitation, employment agreements, change of control employment agreements and severance agreements, incentive compensation, bonus, stock option, stock appreciation rights and stock purchase plans) of any type (including but not limited to plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), maintained by Barefoot, any of its subsidiaries or any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with Barefoot would be deemed a "controlled group" within the meaning of Section 4001(a)(14) of ERISA, or with respect to which Barefoot or any of its subsidiaries has or may have a liability, other than those listed on Section 3.8(a) of the Disclosure Schedule (the "Benefit Plans"). Except as disclosed in Section 3.8(a) of the Disclosure Schedule (or as otherwise permitted by this Agreement) neither Barefoot nor any ERISA Affiliate has any formal plan or commitment, whether legally binding or not, to create any additional Benefit Plan or modify or change any existing Benefit Plan that would affect any employee or terminated employee of Barefoot or any ERISA Affiliate. (b) With respect to any Benefit Plan, there are no material amounts accrued but unpaid as of the most recent balance sheet date that are not reflected on that balance sheet prepared in accordance with GAAP. (c) With respect to each Benefit Plan: (i) if intended to qualify under Section 401(a), 401(k) or 403(a) of the Code, such plan has received, or an application is pending for, a determination letter from the Service that the Plan so qualifies, and its trust is exempt from taxation under Section 501(a) of the Code and Barefoot knows of no event that would prevent such qualification; (ii) such plan has been administered in all material respects in accordance with its terms and applicable law; (iii) no breaches of fiduciary duty have occurred; (iv) no material disputes are pending, or, to the knowledge of Barefoot, threatened; (v) no prohibited transaction (within the meaning of Section 406 of ERISA) has occurred; (vi) all contributions and premiums due (including any extensions for such contributions and premiums) have been made in full; (vii) no such Plan has incurred or will incur any "accumulated funding deficiency," as such term is defined in Section 412 of the Code, whether or not waived; (viii) no such Plan provides medical or death benefits with respect to current or former employees of Barefoot or any of its subsidiaries beyond their termination of employment, other than on an employee-pay-all basis; and (ix) no Plan is a "multiemployer plan," as such term is defined in Section 3(37) of ERISA, or is covered by Section 4063 or 4064 of ERISA. (d) Neither Barefoot nor any ERISA Affiliate has incurred any material liability under Title IV of ERISA since the effective date of ERISA that has not been satisfied in full (including sections Annex A-I-13 4063-4064 and 4069 of ERISA) and, to the knowledge of Barefoot, no basis for any such liability exists. Neither Barefoot nor any ERISA Affiliate maintains (or contributes to), or has maintained (or has contributed to) within the last six years, any employee benefit plan that is subject to Title IV of ERISA (other than a Benefit Plan). (e) Except as set forth in Section 3.8(e) of the Disclosure Schedule or to the extent disclosed in Barefoot SEC Documents, the consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay or accelerate the time of payment or vesting, or increase the amount, of compensation or benefits due to any individual with respect to any Benefit Plan. As a result of the transactions described herein, either alone or together with another event such as termination of employment, except as set forth in Section 3.8(e) of the Disclosure Schedule, no party will be required to make a "parachute payment" to a "disqualified individual" within the meaning of Section 280G of the Code. (f) Barefoot has delivered or made available to ServiceMaster accurate and complete copies of all plan texts, summary plan descriptions, trust agreements and other related agreements including all amendments to the foregoing; the two most recent annual reports; the most recent annual and periodic accounting of plan assets; the most recent determination letter received from the United States Internal Revenue Service (the "Service"); and the two most recent actuarial reports, to the extent any of the foregoing may be applicable to a particular Benefit Plan. 3.9 Litigation; Compliance with Law. (a) Except to the extent disclosed in Barefoot SEC Documents filed prior to the date of this Agreement, there is no suit, claim, action, proceeding, review or investigation pending or, to the knowledge of Barefoot, threatened against or affecting, Barefoot or any of its subsidiaries which, individually or in the aggregate, is reasonably likely to have a material adverse effect on Barefoot and its subsidiaries taken as a whole, or would, or would be reasonably likely to, materially impair the ability of ServiceMaster to consummate the Offer or Barefoot and MergerSub to consummate the Merger or the other transactions contemplated hereby. (b) Barefoot and its subsidiaries have complied with all laws, statutes, regulations, rules, ordinances, and judgments, decrees, orders, writs and injunctions, of any court or Governmental Entity relating to any of the property owned, leased or used by them, or applicable to their business, including, but not limited to, equal employment opportunity, discrimination, occupational safety and health, environmental, insurance regulatory, antitrust laws, ERISA and laws relating to Taxes (as defined in Section 3.11) except to the extent that any such non- compliance would not have a material adverse effect on Barefoot and its subsidiaries taken as a whole. 3.10 No Default. Except as disclosed in Barefoot SEC Documents, the business of Barefoot and each of its subsidiaries is not being conducted in default or violation of any term, condition or provision of (a) its respective certificate of incorporation or by-laws or similar organizational documents, or (b) any Barefoot Agreement, excluding from the foregoing clause (b), defaults or violations that would not have a material adverse effect on Barefoot and its subsidiaries taken as a whole or would not, or would not be reasonably likely to, materially impair the ability of Barefoot or ServiceMaster to consummate the Offer, the Merger or the other transactions contemplated hereby. 3.11 Taxes. (a) Tax Filings and Payments. (1) All Returns required to be filed on or before the date hereof and the date of the Closing by or on behalf of Barefoot have been duly filed on a timely basis and such Returns are, Annex A-I-14 to Barefoot's knowledge, true, correct and complete in all respects except that such returns may contain inadvertent errors and omissions which are not material. (2) Barefoot will timely file all of its Returns for the year ending March 31, 1996 no later than December 15, 1996. Barefoot's final federal income tax return for the taxable year ended March 31, 1996 will be essentially consistent with the proforma return which was furnished to ServiceMaster prior to the date hereof. (3) Barefoot has timely paid all Taxes that have been shown as due and payable on the Returns that have been filed in all respects, and, to Barefoot's knowledge, no other Taxes are payable by Barefoot with respect to items or periods covered by such Returns (whether or not shown on or reportable on such Returns). (4) Barefoot has made or will make adequate provision for all Taxes payable for any periods that end on or before the Closing for which no Returns have yet been filed and for any periods that begin before the Closing and end after the Closing to the extent such Taxes are attributable to the portion of any such period ending at the Closing. (5) The charges, accruals and reserves for current Taxes (excluding reserves for deferred Taxes) reflected on the books of Barefoot are not materially less than the Tax liabilities accruing or payable by Barefoot in respect of periods prior to the date hereof and such charges, accruals and reserves are reflected on Barefoot's most recent financial statements. (6) Barefoot is not delinquent in the payment of any Taxes or has requested any extension of time within which to file or send any Return, which Return has not since been filed or sent and which Taxes have not been paid. (7) No deficiencies exist for any Taxes or any penalties, interest or assessments nor have any been proposed, asserted, or assessed against Barefoot that are not adequately reserved for. (8) There is no dispute or claim concerning any Tax liability of Barefoot either (A) claimed or raised by any authority in writing or (B) as to which Barefoot has knowledge based upon personal contact with any agent of such authority. (9) There is no pending audit, examination, or, to Barefoot's knowledge, any investigation of any Return by any authority nor has Barefoot received any notice of such audit, examination, or investigation. (10) Except as identified in Section 3.11 (a)(10) of the Disclosure Schedule, Barefoot has not waived any statute of limitations in respect of Taxes or granted any extension of the limitations period applicable to any claim of Taxes. (11) Barefoot is not subject to liability for Taxes of any person (other than Barefoot or any other member of the affiliated group of corporations that files a consolidated federal income tax return, of which Barefoot is the common parent), including, without limitation, liability arising from the application of U.S. Treasury Regulation section 1.1502-6 or any analogous provision of state, local or foreign law (12) Barefoot is not nor has it ever been a party to any tax sharing agreement with any entity. (13) To Barefoot's knowledge, no claim has ever been made by an authority in a jurisdiction where Barefoot does not file Returns that it is or may be subject to taxation by that jurisdiction. Annex A-I-15 (14) There are no liens on any of the assets of Barefoot that arose in connection with any failure (or alleged failure) to pay any Taxes. (15) Barefoot has withheld and paid over and complied with all material information reporting and backup withholding requirements, including, without limitation, maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (16) Barefoot does not expect any authority to assess any additional Taxes for any period for which Returns have been filed except to an extent consistent with Barefoot's past experience as reflected in its publicly released financial statements. (17) Barefoot has delivered to ServiceMaster correct and complete copies of all Returns, examination reports, and statements of deficiencies assessed against or agreed to by Barefoot. (18) Barefoot is not a party to any safe harbor lease within the meaning of Section 168(f)(8) of the Code, as in effect prior to the amendment by the Tax Equity and Fiscal Responsibility Act of 1982. (19) All material net operating losses, credits and other tax attributes utilized by Barefoot during any taxable year ending on or prior to the Closing were fully and properly available to Barefoot under all applicable tax laws, regulations and administrative interpretations thereof. (b) Tax Characteristics of Barefoot. (1) To Barefoot's knowledge, no stockholder of Barefoot who owns (A) more than 5% of any class of Barefoot's stock that is regularly traded on an established securities market, within the meaning of Section 897(c)(3) of the Code, or (B) any amount of any other class of Barefoot's stock is a "foreign person" (as that term is defined in Section 1445(f)(3) of the Code). (2) Barefoot is not a "consenting corporation" under Section 341(f) of the Code. (3) Barefoot has not entered into any compensatory agreement with respect to the performance of services which payment thereunder would result in a nondeductible expense to Barefoot pursuant to Sections 162(m) or 280G of the Code or an excise tax to the recipient of such payment pursuant to Section 4999 of the Code. (4) Barefoot has not agreed, nor is it required to make, any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. (5) To Barefoot's knowledge, Barefoot will not be required as a result of any "closing agreement" described in Section 7121 of the Code (or any corresponding provision of state, local or foreign income Tax law), to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing. (6) Barefoot will not be required as a result of any deferred intercompany gain described in Treasury Regulation Section 1.1502- 13 or any excess loss account described in Treasury Regulation Section 1.1502-19 (or any corresponding or similar provision or administrative rule of federal, state, local or foreign income tax law), to include any item of income in taxable income for any period (or portion thereof) ending after the Closing Date. Annex A-I-16 (7) Section 3.11(b)(7) of the Disclosure Schedule sets forth the following information with respect to Barefoot as of March 31, 1996; (A) the amount of any net operating loss, net capital loss, unused credits, unused foreign tax, or excess charitable contribution; and (B) the amount of any deferred gain or loss arising out of any deferred intercompany transaction. (c) Definitions. For purposes of all of Section 3.11: (1) The term "Barefoot" includes Barefoot and each subsidiary of Barefoot. (2) The term "Tax" means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing. (3) The term "Return" means any returns, declarations, reports, claims for refund, amended returns, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax, or the administration of any laws, regulations or administrative requirements relating to any Tax. 3.12 Contracts. Each material Barefoot Agreement is valid, binding and enforceable and in full force and effect, except where failure to be valid, binding and enforceable and in full force and effect would not have a material adverse effect on Barefoot and its subsidiaries taken as a whole, and there are no defaults thereunder, except those defaults that would not have a material adverse effect on Barefoot and its subsidiaries taken as a whole. Neither Barefoot nor any subsidiary is a party to any agreement that expressly and materially limits the ability of Barefoot or any subsidiary to compete in or conduct any line of business or compete with any person or in any geographic area or during any period of time except that Barefoot is subject to the agreement restricting its ability to compete with Tru-Green in the Louisville Kentucky area identified in Section 3.12 of the Disclosure Schedule. 3.13 Transactions with Affiliates. Except to the extent disclosed in Barefoot SEC Documents filed prior to the date of this Agreement, since January 1, 1994 there have been no material transactions, agreements, arrangements or understandings between Barefoot or its subsidiaries, on the one hand, and Barefoot's affiliates (other than wholly-owned subsidiaries of Barefoot) or other Persons, on the other hand, that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act. 3.14 Environmental Matters. Except as set forth in the Barefoot SEC Documents: (a) Barefoot and its subsidiaries are in compliance with all applicable Environmental Laws (as defined below), except for any noncompliance that would not, in the aggregate, have a material adverse effect on Barefoot and its subsidiaries taken as a whole. Except as set forth in Barefoot SEC Documents or as previously disclosed to ServiceMaster, neither Barefoot nor any of its subsidiaries has received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that Barefoot or any of its subsidiaries is not in such compliance and, to Barefoot's best knowledge, there are no circumstances that would prevent or interfere with such compliance in the future and which would, in the aggregate, have a material adverse effect on Barefoot and its subsidiaries taken as a whole. Annex A-I-17 (b) Except as set forth in Barefoot SEC Documents, there is no Environmental Claim (as defined below) pending or, to the best knowledge of Barefoot, threatened against Barefoot or any of its subsidiaries or, to Barefoot's best knowledge, against any person or entity whose liability for any Environmental Claim Barefoot or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law, except for any Environmental Claim or Claims that would not, in the aggregate, have a material adverse effect on Barefoot and its subsidiaries taken as a whole. (c) Except as set forth in Barefoot SEC Documents, there are no past or present actions, activities, circumstances conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern (as defined below), that would form the basis of any Environmental Claim against Barefoot or any of its subsidiaries or, to Barefoot's best knowledge, against any person or entity whose liability for any Environmental Claim Barefoot or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law, except for any Environmental Claim or Claims that would not, in the aggregate, have a material adverse effect on Barefoot and its subsidiaries taken as a whole. (d) For purposes of this Agreement, "Environmental Claim" means any claim, action, or cause of action, of any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by Barefoot or any of its subsidiaries or (b) any violation or alleged violation of any Environmental Law. (e) For purposes of this Agreement, "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strats), including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. (f) For purposes of this Agreement, "Materials of Environmental Concern" means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products. 3.15 Year End Cash. Based on information known to Barefoot's management on the date hereof, it is the expectation of Barefoot's management on the date hereof that Barefoot will have at least $8 million in cash at December 31, 1996 and that this $8 million cash balance will be achieved without any special actions (such as borrowings or extension of payables) outside of the normal course or which would not have been taken other than to produce such result, provided that Barefoot makes no representation or warranty that such expectation will be achieved. 3.16 Opinion of Financial Advisor. Barefoot has received an opinion from Robert W. Baird & Co. ("Baird") with respect to the fairness to the stockholders of Barefoot of the consideration to be received pursuant to the Offer and the Merger. 3.17 Finders and Investment Bankers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission, or to the reimbursement of any of its expenses, in connection with the Offer, or the Merger or any similar transaction based upon arrangements made by or on behalf of Barefoot, except for the arrangements between Barefoot and Baird, the terms and provisions of which have been disclosed in writing to ServiceMaster by Barefoot on or prior to the date hereof. Annex A-I-18 ARTICLE 4.0 REPRESENTATIONS AND WARRANTIES OF SERVICEMASTER AND MERGERSUB ServiceMaster and MergerSub represent and warrant to Barefoot as follows: 4.1 Organization. ServiceMaster is a limited partnership duly organized, validly existing and in good standing under the laws of Delaware. MergerSub is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Each of ServiceMaster and its subsidiaries has all requisite partnership, corporate or other power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and governmental approvals would not have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole. ServiceMaster and each of its subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole. MergerSub has not heretofore conducted any business other than in connection with this Agreement and the transactions contemplated hereby. 4.2 Capitalization. As of November 30, 1996, (i) approximately 144 million ServiceMaster Shares are issued and outstanding, (ii) not more than 11 million ServiceMaster Shares are reserved for option and employee benefit plans of ServiceMaster, and (iii) the number of additional shares which ServiceMaster may be required to issue as a result of convertible debt and other outstanding rights (in addition to the rights cited in clause (ii)) does not exceed three million shares. All of the outstanding ServiceMaster Shares are duly authorized, validly issued, fully paid and non-assessable. 4.3 Partnership/Corporate Authorization; Validity of Agreement; Necessary Action. Service-Master has full partnership power and authority and MergerSub has full corporate power and authority, to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by ServiceMaster and MergerSub of this Agreement and the consummation by ServiceMaster and MergerSub of the transactions contemplated hereby have been duly and validly authorized by their respective Boards of Directors and no other partnership or corporate action or proceedings on the part of ServiceMaster and MergerSub are necessary to authorize the execution and delivery by ServiceMaster and MergerSub of this Agreement, and the consummation by ServiceMaster and MergerSub of the transactions contemplated hereby. This Agreement has been duly executed and delivered by ServiceMaster and MergerSub, and, assuming this Agreement constitutes a valid and binding obligation of Barefoot, constitutes a valid and binding obligation of each of ServiceMaster and MergerSub, enforceable against each of them in accordance with their terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. ServiceMaster Shares to be issued pursuant to the Offer will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. No vote of the holders of ServiceMaster Shares is necessary for ServiceMaster to consummate the Offer or for MergerSub to consummate the Merger. 4.4 Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the Securities Act, the DGCL, the HSR Act, state blue sky laws and any applicable state takeover laws, neither the execution, delivery or performance of this Agreement by ServiceMaster and MergerSub nor Annex A-I-19 the consummation by ServiceMaster and MergerSub of the transactions contemplated hereby nor compliance by ServiceMaster and MergerSub with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the Partnership Agreement of ServiceMaster or the Certificate of Incorporation or by-laws of MergerSub or any other subsidiary, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole or would not, or would not be reasonably likely to, materially impair the ability of ServiceMaster and MergerSub to consummate the Offer or the Merger or the other transactions contemplated hereby), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, guarantee, other evidence of indebtedness, lease, license, contract, agreement or other instrument or obligation to which ServiceMaster or any of its subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to ServiceMaster, any of its subsidiaries or any of their properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches or defaults which would not have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole. 4.5 Opinion of Financial Advisor. ServiceMaster has received an opinion from Goldman, Sachs & Co. ("Goldman, Sachs") dated the date of this Agreement to the effect that, as of such date, the consideration to be paid by ServiceMaster in the Offer and the Merger is fair to ServiceMaster from a financial point of view. 4.6 Financial Resources. ServiceMaster has sufficient financial resources to enable ServiceMaster to make all cash payments for the Shares in the Offer and the Merger. 4.7 SEC Reports and Financial Statements. ServiceMaster has filed with the SEC and has heretofore made available to Barefoot true and complete copies of, all forms, reports, schedules, statements and other documents required to be filed by ServiceMaster since January 1, 1994 under the Exchange Act and the Securities Act (as such documents have been amended since the time of their filing, collectively, the "ServiceMaster SEC Documents"). As of their respective dates or, if amended, as of the date of the last such amendment, the ServiceMaster SEC Documents, including, without limitation, any financial statements or schedules included therein (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Each of the consolidated financial statements included in the ServiceMaster SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of ServiceMaster and its consolidated subsidiaries as at the dates thereof or for the periods presented therein (subject, in the case of unaudited interim financial statements, to normal year end adjustments and lack of footnote disclosures). 4.8 Absence of Certain Changes. Except as disclosed in the ServiceMaster SEC Documents, since January 1, 1996, ServiceMaster and its subsidiaries have conducted their respective businesses and operations in the ordinary course of business consistent with past practice. Since September 30, 1996, there has not occurred (i) any events, changes, or effects (including the incurrence of any Annex A-I-20 liabilities of any nature, whether or not accrued, contingent or otherwise) having or, which would be reasonably likely to have, in the aggregate, a material adverse effect on ServiceMaster and its subsidiaries taken as a whole; (ii) any declaration, setting aside or payment of any distribution (whether in cash, shares or property) with respect to the equity interests of ServiceMaster other than regular quarterly cash distributions paid by ServiceMaster; or (iii) any change by ServiceMaster or any of its subsidiaries in accounting principles or methods. Since January 1, 1996 ServiceMaster and its subsidiaries have conducted their respective businesses in the ordinary course consistent with past practice. 4.9 No Undisclosed Liabilities. Except to the extent disclosed in the ServiceMaster SEC Documents filed prior to the date of this Agreement and except for liabilities and obligations incurred in the ordinary course of business consistent with past practice, since January 1, 1996, neither ServiceMaster nor any of its subsidiaries has incurred any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that have, or would be reasonably likely to have, a material adverse effect on ServiceMaster and its subsidiaries. 4.10 Litigation; Compliance with Law. (a) Except to the extent disclosed in the ServiceMaster SEC Documents filed prior to the date of this Agreement, there is no suit, claim, action, proceeding, review or investigation pending or, to the knowledge of ServiceMaster, threatened against or affecting, ServiceMaster or any of its subsidiaries which, individually or in the aggregate, is reasonably likely to have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole, or would, or would be reasonably likely to, materially impair the ability of ServiceMaster to consummate the Offer or ServiceMaster and MergerSub to consummate the Merger or the other transactions contemplated hereby. (b) ServiceMaster and its subsidiaries have complied with all laws, statutes, regulations, rules, ordinances, and judgments, decrees, orders, writs and injunctions, of any court or Governmental Entity relating to any of the property owned, leased or used by them, or applicable to their business, including, but not limited to, equal employment opportunity, discrimination, occupational safety and health, environmental, insurance, regulatory, antitrust laws, ERISA and laws relating to Taxes (as defined in Section 3.11) except to the extent that any such non-compliance would not have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole. 4.11 No Default. Except as disclosed in the ServiceMaster SEC Documents, the business of ServiceMaster and each of its subsidiaries is not being conducted in default or violation of any term, condition or provision of (a) its respective partnership agreement, certificate of incorporation or by-laws or similar organizational documents, or (b) agreements to which ServiceMaster and its subsidiaries are parties, excluding from the foregoing clause (b), defaults or violations that would not have a material adverse effect on ServiceMaster and its subsidiaries taken as a whole or would not, or would not be reasonably likely to, materially impair the ability of ServiceMaster or Barefoot to consummate the Offer, the Merger or the other transactions contemplated hereby. ARTICLE 5.0 COVENANTS 5.1 Interim Operations of Barefoot. Barefoot covenants and agrees that, except (i) as expressly provided in this Agreement or the Merger Agreement, (ii) with the prior written consent of ServiceMaster or (iii) as set forth on Section 5.1 of the Disclosure Schedule, after the date hereof and prior to the Closing Time: Annex A-I-21 (a) the business of Barefoot and its subsidiaries, including, without limitation, investment practices and policies, shall be conducted only in the ordinary course of business consistent with past practice and, each of Barefoot and its subsidiaries shall use all reasonable efforts to preserve its business organization intact and maintain its existing relations with material customers, suppliers, franchisees, employees, creditors and business partners; (b) Barefoot will not, directly or indirectly, split, combine or reclassify the outstanding Barefoot Common Stock, or any outstanding capital stock of any of the subsidiaries of Barefoot; (c) neither Barefoot nor any of its subsidiaries shall: (i) amend its certificate of incorporation or by-laws or similar organizational documents; (ii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to its capital stock other than dividends paid by Barefoot's wholly-owned subsidiaries to Barefoot or its wholly-owned subsidiaries and other than ordinary quarterly cash dividends by Barefoot not to exceed $0.05 per share per quarter and other than an expenditure of not more than an additional $.01 per share to redeem outstanding stock purchase rights; (iii) issue, sell, transfer, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock of any class of Barefoot or its subsidiaries, other than issuances pursuant to exercise of Barefoot Stock Options outstanding on the date hereof as disclosed in Section 1.6 hereof; (iv) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any assets that are in the aggregate material to Barefoot and its subsidiaries taken as a whole other than sales of investment assets in the ordinary course of business consistent with past practice; or (v) redeem, purchase or otherwise acquire directly or indirectly any of its capital stock; (d) neither Barefoot nor any of its subsidiaries shall: (i) grant any increase in the compensation payable or to become payable by Barefoot or any of its subsidiaries to any officer or employee other than scheduled annual increases in the ordinary course of business consistent with past practice; (ii) adopt any new, or amend or otherwise increase, or accelerate the payment or vesting of the amounts payable or to become payable under any existing, bonus, incentive compensation, deferred compensation, severance, profit sharing, stock option, stock purchase, insurance, pension, retirement or other employee benefit plan agreement or arrangement; (iii) enter into any, or amend any existing, employment, consulting or severance agreement with or, except in accordance with the existing written policies of Barefoot, grant any severance or termination pay to any officer, director or employee of Barefoot or any of its subsidiaries; (iv) make any additional contributions to any grantor trust created by Barefoot to provide funding for non-tax-qualified employee benefits or compensation; or (v) provide any severance program to any subsidiary which does not have a severance program as of the date of this Agreement; (e) neither Barefoot nor any of its subsidiaries shall modify, amend or terminate any of the material Barefoot Agreements or waive, release or assign any material rights or claims, except in the ordinary course of business consistent with past practice; (f) neither Barefoot nor any of its subsidiaries shall permit any material insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated, except in the ordinary course of business consistent with past practice; (g) neither Barefoot nor any of its subsidiaries shall: (i) incur or assume any debt except for borrowings under existing credit facilities and except for vehicle financing in each case in the ordinary course of business and in amounts consistent with past practice; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary course of business Annex A-I-22 consistent with past practice; (iii) make any loans, advances or capital contributions to, or investments in, any other person (other than to wholly owned subsidiaries of Barefoot or customary loans or advances to employees in accordance with past practice and other than as to such matters related to Barefoot's or any of its subsidiaries' investment portfolios in the ordinary course of business consistent with past practice); or (iv) enter into any material commitment (including, but not limited to, any capital expenditure or purchase of assets) other than in the ordinary course of business consistent with past practice; (h) neither Barefoot nor any of its subsidiaries shall change any of the accounting principles used by it unless required by GAAP; (i) neither Barefoot nor any of its subsidiaries shall pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of any such claims, liabilities or obligations, (x) reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of Barefoot and its consolidated subsidiaries, (y) incurred in the ordinary course of business consistent with past practice or (z) which are legally required to be paid, discharged or satisfied; (j) subject to the rights of Barefoot to terminate this Agreement pursuant to Section 6.1(c)(1) and the obligation of Barefoot to pay ServiceMaster the fees and expenses required by Section 7.1(b) hereof, neither Barefoot nor any of its subsidiaries will adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization of Barefoot or any of its subsidiaries or any agreement relating to a Takeover Proposal (as defined in Section 5.5(c)) (other than the Offer or the Merger) other than confidentiality agreements as provided in Section 5.5(a); (k) neither Barefoot nor any of its subsidiaries will engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any of Barefoot's affiliates, including, without limitation, any transactions, agreements, arrangements or understandings with any affiliate or other Person covered under Item 404 of Regulation S-K under the Securities Act that would be required to be disclosed under such Item 404 other than such transactions of the same general nature, scope and magnitude as are disclosed in Barefoot SEC Documents; (l) except upon the prior written consent of ServiceMaster, Barefoot shall not make any Tax election; and (m) neither Barefoot nor any of its subsidiaries will enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing. 5.2 Access to Information. (a) Barefoot shall (and shall cause each of its subsidiaries to) afford to the officers, employees, accountants, counsel, financing sources and other representatives of ServiceMaster, reasonable access during the period prior to the Closing Time, to all of its and its subsidiaries' properties, books, contracts, commitments and records (including any Tax Returns or other Tax related information pertaining to Barefoot and its subsidiaries) and, during such period, Barefoot shall (and shall cause each of its subsidiaries to) furnish promptly to ServiceMaster (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of the federal securities laws and (b) all other information concerning its business, properties and personnel as Annex A-I-23 ServiceMaster may reasonably request (including any Tax Returns or other Tax related information pertaining to Barefoot and its subsidiaries). ServiceMaster shall access such information in a manner reasonably calculated not to cause any unnecessary disruption in the Company's business. ServiceMaster will use such information only for purposes of the Offer and the Merger and shall disclose such information only to the extent ServiceMaster reasonably concludes such disclosure should be made in connection with such purposes or for such other purposes as are permitted by the Confidentiality Agreement dated November 11, 1996 between ServiceMaster and Barefoot. (b) ServiceMaster shall afford Barefoot and its advisors such access to information about ServiceMaster as Barefoot and its advisors reasonably deem necessary for purposes of due diligence investigations relating to the transactions contemplated by this Agreement and for disclosures to Barefoot's stockholders relating to such transactions. Barefoot shall not use or disclose any nonpublic information obtained from ServiceMaster except for the purposes indicated in the preceding sentence. 5.3 Consents and Approvals. Each of Barefoot, ServiceMaster and MergerSub will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on it with respect to this Agreement and the transactions contemplated hereby which actions shall include, without limitation, furnishing all information in connection with approvals of or filings with any Governmental Entity, including, without limitation, any schedule, or reports required to be filed with the SEC, and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their subsidiaries in connection with this Agreement and the transactions contemplated hereby. Each of Barefoot, ServiceMaster and MergerSub will, and will cause its subsidiaries to, take all reasonable actions necessary to obtain any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party, required to be obtained or made by ServiceMaster, MergerSub, Barefoot or any of their subsidiaries in connection with the Offer or the Merger or the taking of any action contemplated thereby or by this Agreement. 5.4 Severance and Stay Protection Plan. At or before the Closing Time, Barefoot shall adopt a severance and stay protection plan, the substantive terms of which are set forth on Annex 2 hereof. From and after the Closing Time, ServiceMaster and MergerSub shall honor such plan in accordance the terms thereof. Except to the extent otherwise permitted by Barefoot's chief executive officer or chief financial officer, ServiceMaster shall not communicate with any employees of Barefoot or any Barefoot subsidiary about future employment relationships or terms prior to the Closing. 5.5 No Solicitation. (a) Barefoot (and its subsidiaries and affiliates) shall not, and Barefoot (and its subsidiaries and affiliates) will use their best efforts to ensure that their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents do not, directly or indirectly: (i) initiate, solicit or encourage, or (except to the extent permitted by clause (ii) below) take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Takeover Proposal (as defined below) of Barefoot or any subsidiary or an inquiry with respect thereto, or, (ii) in the event of an unsolicited bona fide Takeover Proposal for Barefoot or any subsidiary of Barefoot, engage in negotiations or discussions with, or provide any information or data to, any corporation, partnership, person or other entity or group (other than ServiceMaster or any of its affiliates or representatives) ("Person") relating to any Takeover Proposal; except in the case of clause (ii) above, to the extent that Barefoot's Board of Directors reasonably concludes, after having received the advice of outside legal counsel to Barefoot and the advice of Barefoot's financial advisor, and after having had the opportunity to discuss the Takeover Proposal with such person making Annex A-I-24 the Takeover Proposal (which discussions shall not be deemed to be a violation of this Agreement) that such Takeover Proposal is reasonably likely to result in consideration per Share in excess of the Offer Consideration and the failure to engage in such negotiations or discussions or provide such information is reasonably likely to result in a breach of the Board of Directors' fiduciary duties under applicable law; provided, however, that notwithstanding the foregoing, Barefoot's Board of Directors may take, and disclose to Barefoot's stockholders a position contemplated by Rules for 14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender offer for shares of capital stock of Barefoot. Prior to furnishing any information to any such Person making a Takeover Proposal, Barefoot shall have obtained a confidentiality agreement from such Person containing confidentiality provisions substantially similar to the confidentiality provisions in the Confidentiality Agreement. Barefoot shall notify ServiceMaster of any such offers, proposals, inquiries or Takeover Proposals (including, without limitation, the material terms and conditions thereof and the identity of the Person making it), within 24 hours of the receipt thereof, and shall provide ServiceMaster with a copy of any written Takeover Proposal or amendments or supplements thereto, and shall thereafter inform ServiceMaster on a reasonable basis of the status of any discussions or negotiations with such a third party, and any material changes to the terms and conditions of such Takeover Proposal, and shall promptly give ServiceMaster a copy of any information delivered to such Person which has not previously been reviewed by ServiceMaster. (b) Barefoot hereby represents and warrants to ServiceMaster that Barefoot, its subsidiaries and affiliates, and their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents, are not presently, and have not since November 1, 1996, engaged in or participated in any discussions or negotiations whatsoever with any person, entity or "group" (as that term is defined in Section 13(d)(3) of the Exchange Act) with respect to any Takeover Proposal relating to Barefoot. (c) As used in this Agreement, "Takeover Proposal" shall mean any tender or exchange offer involving the capital stock of Barefoot, any proposal for a merger, consolidation or other business combination involving Barefoot, any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the business or assets of, Barefoot or any subsidiary of Barefoot, any proposal or offer with respect to any recapitalization or restructuring with respect to Barefoot or any subsidiary of Barefoot or any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to Barefoot or any subsidiary of Barefoot other than pursuant to the transactions to be effected pursuant to this Agreement. 5.6 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its diligent efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable, whether under applicable laws and regulations or otherwise, or to remove any injunctions or other impediments or delays, legal or otherwise, to consummate and make effective the Offer and the Merger and the other transactions contemplated by this Agreement; provided however, the foregoing shall not require any party to waive or modify any condition or provision hereof. 5.7 Barefoot Franchises. As soon as practicable after the Closing Time ServiceMaster shall make every effort to provide to each Barefoot franchisee the option to do any of the following: (i) to sell such franchise to Barefoot on terms and conditions as the franchisee and ServiceMaster may agree; (ii) to continue to operate Barefoot franchise in accordance with existing agreements between the franchisee and Barefoot (very likely to be in competition with other affiliates of ServiceMaster engaged in the lawn care business); or (iii) to terminate the existing agreement between the franchisee and Barefoot and to operate its business independently without use of Barefoot trade names, service marks or similar rights. Annex A-I-25 5.8 Publicity. So long as this Agreement is in effect, neither Barefoot nor ServiceMaster nor their affiliates shall issue or cause the publication of any press release or other public statement or announcement with respect to this Agreement or the transactions contemplated hereby without prior consultation with the other party, except as may be reasonably required by law, reasonably necessary for compliance with the Securities Act or Exchange Act or by obligations pursuant to any listing agreement with a national securities exchange, and in such case shall use all reasonable efforts to consult with the other party prior to such release or announcement being issued. 5.9 Notification of Certain Matters. Barefoot shall give prompt notice to ServiceMaster and MergerSub, and ServiceMaster and MergerSub shall give prompt notice to Barefoot, of (a) the occurrence, or non-occurrence of any event the occurrence or non-occurrence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing Date and (b) any material failure of Barefoot, MergerSub or ServiceMaster, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. 5.10 Directors' and Officers' Insurance and Indemnification. ServiceMaster agrees that at all times after the Closing Time, it shall indemnify (and advance expenses to) each person who is now, or has been at any time prior to the date hereof, a director or officer of Barefoot or of any of Barefoot's subsidiaries (individually an "Indemnified Party" and collectively the "Indemnified Parties"), to the same extent and in the same manner as is now provided in the respective charters or by-laws of Barefoot and such subsidiaries or otherwise in effect on the date hereof, with respect to any claim, liability, loss, damage, cost or expense (whenever asserted or claimed) ("Indemnified Liability") based in whole or in part on, or arising in whole or in part out of, any matter existing or occurring at or prior to the Closing Time. ServiceMaster shall, or shall cause Barefoot to, maintain in effect for not less than six (6) years after the Closing the current policies of directors' and officers' liability insurance maintained by Barefoot and its subsidiaries on the date hereof with respect to matters existing or occurring at or prior to the Closing Time (provided that ServiceMaster may substitute therefor policies having at least the same coverage and containing terms and conditions which are no less advantageous to the persons currently covered by such policies and with carriers reasonably comparable to Barefoot's existing carriers in terms of creditworthiness). The insurance required by the preceding sentence shall be in an amount at any particular time equal to the greater of (i) the amount of coverage provided by Barefoot's insurance on the date hereof or (ii) the amount of coverage provided to ServiceMaster's own directors at the particular time. Promptly after receipt by an Indemnified Party of notice of the assertion (an "Assertion") of any claim or the commencement of any action against him or her in respect to which indemnity or reimbursement may be sought against ServiceMaster, Barefoot, the Surviving Corporation or a subsidiary of Barefoot or the Surviving Corporation ("Indemnitors") hereunder, such Indemnified Party shall notify any Indemnitor in writing of the Assertion, but the failure to so notify any Indemnitor shall not relieve any Indemnitor of any liability it may have to such Indemnified Party hereunder except where such failure shall have materially prejudiced Indemnitor in defending against such Assertion. No Indemnified Party shall settle any Assertion without the prior written consent of ServiceMaster. The provisions of this Section 5.10 are intended for the benefit of, and shall be enforceable by, the respective Indemnified Parties. 5.11 Existing Stockholder Agreements and Registration Rights Agreements. Barefoot will use its best efforts to terminate or cause to be terminated, prior to the Closing Time, any stockholder agreements or registration rights agreements with or among any of its security holders. Barefoot will suspend all sales under any shelf registration statement at least two business days prior to the Expiration Date and will cause any registration rights agreement not to have any application to any securities of ServiceMaster or its subsidiaries following the Closing Time. Annex A-I-26 5.12 Stock Exchange Listing. ServiceMaster shall cause ServiceMaster Shares issued pursuant to the Offer to be approved for listing on the NYSE prior to the Closing. 5.13 Resignations/Replacement of Directors and Officers. Barefoot shall cause such officers and directors of Barefoot and its subsidiaries as ServiceMaster may request to resign their positions as such at the Closing Time and/or shall arrange for the election or appointment as officers and directors of Barefoot and its subsidiaries, at the Closing Time, of the persons designated by ServiceMaster. The instruments effecting the foregoing resignations, appointments and/or elections to act are herein referred to as the "Director and Officer Actions." 5.14 HSR. Each of Barefoot and ServiceMaster shall as soon as practicable, file Notification and Report Forms under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") and shall use its best efforts to cooperate and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. 5.15 Material Consents. Between the date of this Agreement and the Closing Date, Barefoot and ServiceMaster and each of their respective subsidiaries shall in good faith use their reasonable best efforts to obtain all consents and approvals of all lenders, lessors, franchisees, vendors, customers, and other persons necessary to permit the Offer and the Merger and other transactions contemplated by this Agreement to be consummated without violating any loan agreement, lease or other material contract to which Barefoot, ServiceMaster, or any of their respective subsidiaries is a party or by which Barefoot, ServiceMaster, or any of their respective subsidiaries is bound. 5.16 Stock Purchase Rights. As of the date of this Agreement there are outstanding a number of Stock Purchase Rights equal to the aggregate number of Shares issued and outstanding, which rights are exercisable for shares of Barefoot's Series A Junior Participating Preferred Stock pursuant to the terms of the Rights Agreement dated as of April 11, 1995 between Barefoot and National City Bank (the "Rights Agreement"). The Board of Directors of Barefoot has taken such action, and will take such additional action, as is required to prevent the Stock Purchase Rights from becoming exercisable by reason of this Agreement, the Merger Agreement, the Offer or the Merger. 5.17 Reasonable Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to cooperate with each other and to use its reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, in each case consistent with the fiduciary duties of their respective Boards of Directors, all things necessary, proper or advisable (i) under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as reasonably practicable, including to obtain all necessary waivers, consents and approvals and to effect all necessary registrations and filings and all actions necessary to comply with and to permit the Offer and Merger to proceed under Section 1707.041 of the Ohio Revised Code and (ii) to lift any injunction or other legal bar to the Offer or the Merger as soon as reasonably practicable; provided, however, that nothing in this Section or elsewhere in this Agreement shall require any party hereto to incur any expense or make any commitment in connection with the transactions contemplated hereby which in its reasonable judgement is not warranted under the circumstances (including but not limited to any divestiture of a significant asset or acceptance of any material restriction on the operations of any party in order to obtain any waiver, consent or approval required by this Agreement). The preceding proviso shall not limit Barefoot's obligation under this paragraph with respect to any expense, commitment or action which would only apply or become effective if the Offer is closed and which shall be approved by ServiceMaster. Annex A-I-27 ARTICLE 6.0 TERMINATION 6.1 Termination. Anything herein or elsewhere to the contrary notwithstanding, this Agreement and the Merger Agreement may be terminated and Offer and the Merger contemplated herein may be abandoned at any time prior to the Closing: (a) By the mutual consent of the Board of Directors of ServiceMaster and the Board of Directors of Barefoot; (b) By either of the Board of Directors of Barefoot or the Board of Directors of ServiceMaster: (1) if the Offer shall not have been commenced by February 15, 1997; provided, however, that the right to terminate this Agreement under this Section 6.1(b)(1) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the primary and but-for cause of the failure of the Offer to have been commenced by February 15, 1997; or (2) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties hereto shall use their diligent efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger or any material aspect of Offer or the Merger and such order, decree, ruling or other action shall have become final and non-appealable; (c) By the Board of Directors of Barefoot: (1) if the Board of Directors of Barefoot shall have (A) withdrawn, or modified or changed in a manner adverse to ServiceMaster its approval or recommendation of this Agreement, the Offer or the Merger as a result of a Takeover Proposal (other than the Offer or the Merger), in order to approve a Takeover Proposal (other than the Offer or the Merger), or to permit Barefoot to execute a definitive agreement relating to a Takeover Proposal, and (B) determined, after having received the advice of outside legal counsel to Barefoot and the advice of Barefoot's financial advisor, that such Takeover Proposal is for consideration per Share in excess of the Offer Consideration and the failure to take such action as set forth in the preceding clause (A) would result in a breach of the Board of Directors' fiduciary duties under applicable law; provided, however, that Barefoot shall have given ServiceMaster forty-eight (48) hours advance notice of any termination pursuant to this Section 6.1(c)(1) and that Barefoot shall have paid ServiceMaster the fees and expenses required by Section 7.1(b) hereof; (2) if ServiceMaster or MergerSub breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein; provided, however, that if any such breach is curable by the breaching party through the exercise of the breaching party's diligent efforts and for so long as the breaching party shall be so using diligent efforts to cure such breach, Barefoot may not terminate this Agreement pursuant to this Section 6.1(c)(2); or (3) if ServiceMaster breaches any of its representations or warranties and such breach (i) is reasonably likely to have a material adverse effect upon ServiceMaster and its subsidiaries taken as a whole and (ii) has not been incorporated into the prospectus provided to Barefoot shareholders. Annex A-I-28 (d) By the Board of Directors of ServiceMaster: (1) if Barefoot (x) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein or (y) breaches its representations and warranties in any material respect and such breach would have or would be reasonably likely to have a material adverse effect on Barefoot and its subsidiaries or create a situation in which any of the conditions set forth in Annex 1 would not reasonably be expected to be satisfied prior to Closing; provided, however, that if any such breach is curable by Barefoot through the exercise of Barefoot's diligent efforts and for so long as Barefoot shall be so using diligent efforts to cure such breach, ServiceMaster may not terminate this Agreement pursuant to this Section 6.1(d)(1); or (2) if the Board of Directors of Barefoot shall have withdrawn, or modified or changed in a manner adverse to ServiceMaster its approval or recommendation of this Agreement, the Offer or the Merger or shall have recommended a Takeover Proposal or other business combination, or Barefoot shall have entered into an agreement in principle (or similar agreement) or definitive agreement providing for a Takeover Proposal or other business combination with a person or entity other than ServiceMaster, MergerSub or their subsidiaries (or the Board of Directors of Barefoot resolves to do any of the foregoing by formal action); or (3) by ServiceMaster if the Offer shall have expired or been terminated without any Shares being purchased thereunder as a result of the occurrence of any event that would result in the failure to satisfy any of the conditions set forth in Annex 1; or (4) as provided in Annex 3. Such right of termination shall be exercised by written notice of termination given by the terminating party to the other parties hereto in the manner hereinafter provided. 6.2 Effect of Termination. If this Agreement is validly terminated by Barefoot or ServiceMaster pursuant to Section 6.1, this Agreement and the Merger Agreement will forthwith become null and void and there will be no liability or obligation on the part of either Barefoot, ServiceMaster or MergerSub (or any of their respective representatives or affiliates) in respect of this Agreement or the Merger Agreement, except that this Section 6.2 and Section 7.1 shall continue to apply after such termination. Without limiting by implication the generality of the preceding sentence, ServiceMaster shall not be obligated to continue the Offer after any termination of this Agreement pursuant to any provision in Section 6.1. No termination of this Agreement or the Merger Agreement shall impair or terminate the rights or obligations of ServiceMaster or Barefoot under the Confidentiality Agreement to which they are parties. ARTICLE 7.0 MISCELLANEOUS 7.1 Fees and Expenses. (a) Except as otherwise set forth in this Section 7.1, all costs and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such expenses. All legal fees and accounting fees incurred by Barefoot shall be based upon actual time spent on the transactions contemplated by this Agreement and on hourly rates consistent with past practices. Annex A-I-29 (b) In the event (1) the Board of Directors of Barefoot shall terminate this Agreement pursuant to subsection 6.1(c)(1) hereof, or (2) the Board of Directors of ServiceMaster shall terminate this Agreement pursuant to subsection 6.1(d)(2), then Barefoot shall pay $9.3 million in cash to ServiceMaster. (c) In the event ServiceMaster shall not consummate the offer and shall be entitled to take such action because of the failure of any of the conditions specified in clause (a), (b), (h), (k), or (l) in Annex 1 or because rights to purchase Barefoot shares representing more than 1% of Barefoot's outstanding common stock would remain outstanding after the Closing then Barefoot shall pay $7 million in cash to ServiceMaster. (d) In the event ServiceMaster shall be entitled payment under the provisions of both 7.1(b) and Section 7.1(c), then the amount of the payment owed by Barefoot to ServiceMaster shall be the amount specified in Section 7.1(b) and ServiceMaster shall not have the right to obtain any additional payment under Section 7.1(c). (e) The payment specified under Section 7.1(b) or Section 7.1(c) shall be due on the date (the "due date") upon which Barefoot shall receive written request from ServiceMaster for such payment after the occurrence of the event specified in such Section. If Barefoot shall for any reason fail to make the payment specified under Section 7.1(b) or Section 7.1(c) on its due date, then Barefoot shall pay ServiceMaster on demand interest at 300 basis points in excess of the prime rate (as reported in the Wall Street Journal) on the amount remaining unpaid from that due date until such payment shall be received by ServiceMaster and shall also reimburse ServiceMaster for all attorney's fees and other expenses which ServiceMaster shall reasonably incur to enforce its rights to such payment. 7.2 ServiceMaster Reincorporating Merger. Barefoot understands that: (i) ServiceMaster's shareholders have previously approved a merger described in a proxy statement/prospectus dated December 11, 1991 (the "Reincorporation Proxy Statement") pursuant to which (i) ServiceMaster will be replaced as the parent company for the ServiceMaster enterprise by ServiceMaster Incorporated of Delaware ("ServiceMaster Incorporated") and each ServiceMaster partnership share outstanding immediately prior to the merger will be converted into a share of common stock issued by ServiceMaster Incorporated. Barefoot understands that to the extent that Barefoot Stockholders acquire any ServiceMaster Shares pursuant to the Offer that such ServiceMaster Shares shall be subject to the pre-approval of the Reincorporating Merger by ServiceMaster's shareholders pursuant to the Reincorporation Proxy Statement. 7.3 Amendment and Modification. This Agreement may not be amended except by an instrument in writing approved by the parties to this Agreement and signed on behalf of each of the parties hereto. 7.4 Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any schedule, instrument or other document delivered pursuant to this Agreement shall survive the consummation of the Merger. 7.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by an overnight courier Annex A-I-30 service, such as Federal Express, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to ServiceMaster or MergerSub, to: ServiceMaster Limited Partnership One ServiceMaster Way Downers Grove, Illinois 60515 Attention: Chief Financial Officer Fax: 630 271-5870 with a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attention: Robert H. Kinderman Fax: 312 861-2200 (b) if to Barefoot, to: Barefoot Inc. 450 West Wilson Bridge Road Worthington, Ohio 43085 Attention: Patrick Norton Fax: 614 846-5142 with a copy to: Vorys, Sater, Seymour and Pease 52 East Gay Street Columbus, Ohio 43215 Attention: Roger E. Lautzenhiser Fax: 614 464-6350 Either party may change the address to which notices and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. 7.6 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words "include", "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation". The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases "the date of this Agreement", "the date hereof", and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date written in the first paragraph of this Agreement. As used in this Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule 12b-2 of the Exchange Act. 7.7 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 7.8 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership. This Agreement, the Merger Agreement and the Confidentiality Agreement (including the exhibits hereto and the documents Annex A-I-31 and the instruments referred to herein and therein): (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Section 5.10 are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 7.9 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 7.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that ServiceMaster may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to ServiceMaster or to any direct or indirect wholly owned subsidiary of ServiceMaster; provided, however, that no such assignment shall relieve ServiceMaster from any of its obligations hereunder. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 7.11 No Strict Construction. No rule of strict construction, rule resolving ambiguities against the person who drafted the provision giving rise to such ambiguities, or other such rule of interpretation shall be applied against any party with respect to this Agreement. 7.12 Specific Performance. Each party to this Agreement shall have the right to enforce each obligation of the other party under this Agreement by specific performance or by injunctive relief. 7.13 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. * * * * IN WITNESS WHEREOF, ServiceMaster, MergerSub and Barefoot have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. SERVICEMASTER LIMITED PARTNERSHIP By ServiceMaster Management Corporation Managing General Partner /s/ Carlos H. Cantu By: _____________________________ Carlos H. Cantu Name: ___________________________ President and Chief Executive Officer Title: __________________________ SERVICEMASTER ACQUISITION CORPORATION /s/ Carlos H. Cantu By: _________________________________ Carlos H. Cantu Name: _______________________________ President Title: ______________________________ BAREFOOT INC. /s/ Patrick J. Norton By: _________________________________ Patrick J. Norton Name: _______________________________ Chief Executive Officer Title: ______________________________ Annex A-I-32 ANNEX 1 TO THE ACQUISITION AGREEMENT CONDITIONS TO THE OFFER Notwithstanding any other provision of the Agreement or the Offer, and except as expressly limited below, ServiceMaster shall not be required to purchase any Shares tendered, if, prior to the time of purchase of any such Shares, any of the following events (each, an "Event") shall have occurred, (each of paragraphs (a) through (n) providing a separate and independent condition to ServiceMaster's obligations pursuant to the Agreement and the Offer): (a) fewer than the Minimum Number of all outstanding Shares are validly tendered and not withdrawn prior to 12:00 midnight, New York City Time on the Expiration Date; (b) except as contemplated by the provisions of this Agreement Barefoot or any subsidiary of Barefoot shall have authorized or recommended, or shall have announced an intention to authorize or, recommend, or shall have entered into an agreement in principle with respect to, any merger, consolidation or business combination, any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any material change in its capitalization or any release or relinquishment of any material contract rights not in the ordinary course of business; (c) an injunction or other order shall have been entered and remain in effect in any action or proceeding before any court or governmental agency or other regulatory or administrative agency or commission, domestic or foreign, based upon any provision of the Offer (i) making the acceptance for payment of, or purchase or payment for, the Shares pursuant to the Offer or the Merger illegal, or resulting in a material delay in the ability of ServiceMaster to accept for payment or pay for some or all of the Shares, (ii) imposing material limitations on the ability of ServiceMaster effectively to acquire or hold or to exercise full rights of ownership of the Shares acquired by it, including, but not limited to, the right to vote the Shares purchased by it on all matters properly presented to the stockholders of Barefoot, (iii) imposing material limitations on the ability of either ServiceMaster (so long as such injunction or other order is related to the Offer or the Merger) or Barefoot to continue effectively all or any material portion of its respective business as heretofore conducted or to continue to own or operate effectively all or any material portion of its respective assets as heretofore owned or operated or (iv) to the effect that the Offer or the Merger is violative of any applicable law; (d) there shall have been any law, statute, rule or regulation, domestic or foreign, promulgated or proposed after the date hereof that, directly or indirectly, results or may be reasonably anticipated to result in any of the consequences referred to in paragraph (c) above (other than any state law, statute, rule or regulation whose applicability can be avoided by not extending the Offer to residents of such state provided that in the aggregate not more than 2% of the outstanding Shares on the date of the Closing shall be owned of record by residents of any such state); (e) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange or in the over-the-counter market, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) the commencement of war involving the United States, or (iv) any limitation not in existence as of the date of the Agreement by any governmental authority, or any other event not in existence as of the date of the Agreement, which will materially limit the extension of credit by banks or other lending institutions in the United States; Annex A-I-33 (f) the representations and warranties of Barefoot contained herein shall not be true and correct at and as of the time of each purchase under the Offer as if made at and as of such time except for matters which, individually or in the aggregate, do not and will not have a material adverse effect on the business, operation or financial condition of Barefoot and its subsidiaries taken as a whole and the ability of Barefoot to perform its obligations under the Merger Agreement; (g) all material terms, agreements and conditions of the Agreement and the Merger Agreement to be complied with or performed or fulfilled by Barefoot at or prior to any purchase pursuant to the Offer shall not have been complied with, performed and fulfilled in all material respects; (h) Barefoot's Board of Directors shall have modified or amended in any respect its recommendation of the Offer and the Merger to the stockholders of Barefoot in any manner not approved by ServiceMaster or shall have resolved to do so by formal action; (i) Barefoot and ServiceMaster shall have reached an agreement that the Offer shall be terminated; (j) any waiting period (and any extension thereof) applicable to the consummation of the Offer under the HSR Act shall not have expired or been terminated; (k) the rights under the Rights Agreement shall not have been redeemed or made inapplicable to the Offer, the separation of outstanding Stock Purchase Rights from the Shares shall have occurred, or the Stock Purchase Rights shall have become exercisable; (l) any director of Barefoot or its subsidiaries (as requested by ServiceMaster) shall have failed to resign effective as of the consummation of the Offer; (m) the conditions precedent specified in Section 1.6 or 1.8 of the Acquisition Agreement shall not be satisfied; or (n) a stop order suspending effectiveness of the Registration Statement shall have been issued or a proceeding for that purpose shall have been initiated or threatened by the SEC; which in the reasonable judgment of ServiceMaster, in any such case and regardless of the circumstances (including any action or inaction by ServiceMaster or any of its affiliates) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment or payment for the Shares. The foregoing conditions are for the benefit of ServiceMaster and may be asserted by ServiceMaster regardless of the circumstances giving rise to any such condition and, subject to the terms and conditions of the Acquisition Agreement, may be waived by ServiceMaster, in whole or in part, at any time and from time to time, in the sole discretion of ServiceMaster. The failure by ServiceMaster at any time to exercise any of the foregoing rights will not be deemed a waiver of any other right and each right will be deemed an ongoing right which may be asserted at any time and from time to time. Notwithstanding the fact that ServiceMaster reserves the right to assert the occurrence of a condition following acceptance for payment but prior to payment in order to delay or cancel its obligation to pay for properly tendered Shares, ServiceMaster will either promptly pay for such Shares or promptly return such Shares. Each term which is defined in the Acquisition Agreement has the same meaning whenever it is used in this Annex 1 as the meaning it is given in the Acquisition Agreement. Annex A-I-34 ANNEX 2 TO THE ACQUISITION AGREEMENT SEVERANCE AND STAY PAY BENEFITS The severance and stay protection plan benefits as adopted by Barefoot shall be as follows: A. Severance: one week of compensation for each year of service with Barefoot, provided that the employee leaves in good standing. B. Stay pay: additional compensation of four, six or eight weeks, as applicable, to employees who are scheduled to remain for extended periods to assist with the transaction. The specific amount of stay pay for an employee shall be determined by the employee's position. These benefits may be modified based on individual circumstances and/or critical value. C. Vacation: vested vacation shall be paid in addition to items A and B. Annex A-I-35 ANNEX 3 TO THE ACQUISITION AGREEMENT COMPLETION OF DUE DILIGENCE 1. ServiceMaster shall have the right to continue its due diligence investigation of Barefoot after the date hereof. Such investigation may include (but is not limited to) on-site inspections and environmental audits of any and all branch facilities and access to branch records; access to Barefoot branch and key home office personnel; access to legal counsel for review of pending or threatened litigation (if any); review of accounting and financial records (including all detail profit and cost center statements for 1995 and 1996 and detailed balance sheets); and review of outstanding contractual commitments in excess of $10,000 (including chemical and supply purchases, capital expenditures, software development, franchise sales, direct mail and other advertising expenditures). 2. Subject to paragraphs 3 and 4, ServiceMaster shall have the right to terminate this Agreement at any time on or before December 31, 1996 if the due diligence investigation conducted pursuant to paragraph 1 discloses any one or more of the following conditions: (a) Unreserved environmental exposures (whether or not Superfund-related) at sites of current or former Barefoot facilities or unreserved exposures attributable to other activities of Barefoot (for example, improper chemical disposal activities); (b) Other unrecorded or understated liabilities or overstated assets; (c) Material differences between the customer base (after allowing for normal year end cancellations) as reflected in branch records compared to the reported revenue base of Barefoot. 3. Notwithstanding the disclosure of facts of a nature described in items (a), (b) and/or (c) in paragraph 2, such facts shall give ServiceMaster the right to terminate this Agreement only if-- In the case of Item (a) and Item (b) (taken together), the probable loss exposure, net of recorded reserves, and the extent of the under recording of liabilities and the overstatement of assets is, in ServiceMaster's reasonable judgment, likely to exceed $2,000,000 in total. The basis for such reasonable judgment shall be set forth in a written statement which shall be submitted to Barefoot on or before December 19, 1996 and which shall set forth the amount of the expected loss, under recording and/or overstatement, as the case may be, and the reasons why such matters are expected to be of such magnitude. In the case of Item (c), differences between the customer base as reflected in branch records and Barefoot's reported revenue base will be considered "material" only if the difference would have an aggregate adverse impact on the annual pre-tax profits of Barefoot of more than $1,000,000. The details of such adverse impact shall be set forth in a written statement which shall be submitted to Barefoot on or before December 19, 1996. 4. If ServiceMaster submits one or more statements to Barefoot pursuant to paragraph 3, Barefoot shall have five business days to respond to such statement(s) before ServiceMaster's right to terminate this Agreement shall become final. During such period, senior executives of ServiceMaster and Barefoot shall mutually review such statements with a view to determining the correctness thereof and whether the basis or bases for ServiceMaster's termination right under this Annex 3 in fact exists. If, by the end of such period, ServiceMaster is not in good faith satisfied that such basis or bases do not in fact exist, then ServiceMaster shall have the right to terminate this Agreement without any obligation to commence the Offering and without liability of any kind to Barefoot, provided that such right of termination shall expire and shall not be exercisable unless ServiceMaster shall provide Barefoot with written notice of ServiceMaster's exercise of such right on or before December 31, 1996. Annex A-I-36 ANNEX 4 TO THE ACQUISITION AGREEMENT EXCERPTS FROM BAREFOOT BOARD RESOLUTIONS APPROVING THE OFFER AND THE MERGER BOARD OF DIRECTORS OF BAREFOOT INC. RESOLVED, that the Transactions, as reflected in the Acquisition Agreement and the Merger Agreement, are deemed, in the opinion of this Board of Directors, to be in the best interests of the Corporation and its stockholders and to be fair to the stockholders of the Corporation; and that the Board of Directors does hereby recommend that the stockholders of the Corporation accept the Offer, tender their shares of common stock of the Corporation pursuant to the Offer and, if required by applicable law, approve, adopt and accept the Merger Agreement; provided, however, that the Board's determination that the Transactions are in the best interests of the Corporation's stockholders and are fair to the stockholders of the Corporation, and its recommendation that the stockholders of the Corporation accept the Offer and tender their shares of common stock of the Corporation pursuant to the Offer are based on and subject to the assumptions and limitations regarding the ServiceMaster Share price contained in the opinion of Robert W. Baird & Co. Incorporated dated December 4, 1996. Annex A-I-37 ANNEX A-II--THE MERGER AGREEMENT PLAN AND AGREEMENT OF MERGER BY AND AMONG SERVICEMASTER LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP) SERVICEMASTER ACQUISITION CORPORATION (A DELAWARE CORPORATION) AND BAREFOOT INC. (A DELAWARE CORPORATION) DECEMBER 5, 1996 PLAN AND AGREEMENT OF MERGER This PLAN AND AGREEMENT OF MERGER, dated as of December 5, 1996, is entered into by and among ServiceMaster Limited Partnership ("ServiceMaster"), a Delaware limited Partnership, ServiceMaster Acquisition Corporation (the "Merger Sub"), a Delaware corporation and wholly-owned indirect subsidiary of ServiceMaster and Barefoot Inc. ("Barefoot"), a Delaware corporation. RECITALS Simultaneous with the execution of this Agreement, the parties hereto have entered into an Acquisition Agreement which provides subject to the terms and conditions specified therein that ServiceMaster will make a tender offer (the "Offer") for all of the issued and outstanding shares of Barefoot in which ServiceMaster will pay the Offer Consideration (as defined in Acquisition Agreement) for each Share tendered. The term "Share" as used in this Agreement means a share of Barefoot's common stock as constituted prior to the consummation of the Merger provided for by this Agreement. The respective boards of directors of ServiceMaster, MergerSub and Barefoot have determined that it is advisable for MergerSub to be merged with and into Barefoot (the "Merger") on the terms prescribed in this Agreement. The Merger is intended to (i) convert all Shares not tendered in the Offer into an amount of cash (herein called the "Merger Price") exactly equal to the Cash Consideration paid under the Acquisition Agreement for the Shares acquired by means of the Offer and (ii) convert Barefoot into a wholly-owned subsidiary of ServiceMaster. The parties have entered into this Agreement to prescribe terms for the Merger. Each term which is defined in the Acquisition Agreement and is not given a different meaning in this Agreement has the same meaning in this Agreement as the term is given in the Acquisition Agreement. ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.3), in accordance with this Agreement and the Delaware General Corporation Law, as amended (the "Delaware Law"), MergerSub shall be merged with and into Barefoot, the separate existence of MergerSub (except as may be continued by operation of law) shall cease, and Barefoot shall continue as the surviving corporation. Barefoot, in its capacity as the surviving corporation in the Merger, is hereinafter sometimes referred to as the "Surviving Corporation." Barefoot and MergerSub are sometimes referred to collectively as the "Constituent Corporations", or individually as a "Constituent Corporation." 1.2 Effect of the Merger. The Surviving Corporation shall at and after the Effective Time possess all the rights, privileges, immunities, and franchises, as well of a public and of a private nature, of the Constituent Corporations and all property, real, personal and mixed, and all debts due on whatever account, and all other causes of action, and all and every other interest, or belonging to or due to each of the Constituent Corporations, shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed, and the title to any real estate, or any interest thereto, vested in any of the Constituent Corporations, shall not revert or be in any way impaired by reason of the Merger; and the Surviving Corporation shall henceforth be responsible and liable for all the obligations and liabilities of each of the Constituent Corporations, and any claim existing or action or proceeding pending by or against any of the Constituent Corporations may be prosecuted to judgment as if the Merger had not taken place, or the Surviving Corporation may be substituted in its place, all with the effect set forth in Sections 259, 260 and 261 of the Delaware Law. Annex A-II-1 The authority of the officers of MergerSub shall continue with respect to the due execution thereof or conveyance and other documents where the execution thereof is required or convenient to comply with any provision of the Delaware Law, of any contract to which MergerSub was a party or the plan of merger contained herein. 1.3 Effective Time. As soon as is reasonably practicable after the stockholders of Barefoot have approved the Merger or ServiceMaster shall have acquired at least 90% of then outstanding Shares (whichever shall first occur), the parties hereto shall cause the Merger to be consummated by filing with the Secretary of State of Delaware in accordance with Section 251 or Section 253 of the Delaware Law three duplicate original certificates of merger with respect to the Merger (the "Certificates of Merger"), in the form and executed and acknowledged as required by Section 103 of the Delaware Law. The Merger shall become effective at the time of such filing or at such other subsequent time specified in the Certificate of Merger. The time and date on which the Merger shall become effective is referred to as the "Effective Time." 1.4 Certificate of Incorporation and Bylaws. (a) The Certificate of Incorporation of MergerSub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation as amended by the Certificate of Merger, and thereafter shall continue to be its Certificate of Incorporation until amended as provided therein and under the Delaware Law, except that the name of the Surviving Corporation shall be "Barefoot Inc." (b) The Bylaws of MergerSub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation and thereafter shall continue to be its Bylaws until amended as provided therein and under the Delaware Law. 1.5 Directors and Officers. Unless otherwise determined by ServiceMaster prior to the Effective Time, the officers of Barefoot holding office immediately prior to the Effective Time shall be the officers (holding the same positions as they held with Barefoot) of the Surviving Corporation immediately after the Effective Time, to hold office until their successors have been elected and shall qualify or as otherwise provided by the Bylaws of the Surviving Corporation. Unless otherwise determined by ServiceMaster prior to the Effective Time, the directors of MergerSub holding office immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately after the Effective Time, to hold office until their successors have been elected and shall qualify or as otherwise provided by the Bylaws of the Surviving Corporation. ARTICLE II CONVERSION OF SHARES 2.1 Conversion of MergerSub Common Stock. Each of the shares of common stock of MergerSub ("MergerSub Common Stock") issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and represent the right to receive one fully paid and non-assessable share of common stock of the Surviving Corporation ("Surviving Corporation Common Stock"). From and after the Effective Time, each outstanding certificate theretofore representing shares of MergerSub Common Stock shall be deemed for all purposes to evidence ownership of and to represent the number of shares of Surviving Corporation Common Stock into which such shares of MergerSub Common Stock shall have been converted. Promptly after the Effective Time, the Surviving Corporation shall issue a stock certificate or certificates representing shares of Surviving Corporation Common Stock in exchange for the certificate or certificates which formerly represented the shares of MergerSub Common Stock, which shall be canceled. Annex A-II-2 2.2 Conversion of Barefoot Securities. Each Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive an amount, in cash, without interest, equal to the Merger Price except that each of the following Shares shall not be so converted: (i) every Barefoot Share held by ServiceMaster shall be canceled and shall cease to be outstanding; (ii) Dissenting Shares (as defined in Section 2.4) in respect of which appraisal rights are perfected (which shall be treated as prescribed in Section 2.4); and (iii) every Share held in the treasury of Barefoot or by any direct or indirect subsidiary of Barefoot (which shall be canceled and retired at the Effective Time). 2.3 Surrender of Certificates. (a) As soon as practicable after the Effective Time, a person appointed by ServiceMaster to act as exchange agent to effect the exchange of certificates (the "Exchange Agent") shall mail to each holder of record of a certificate or certificates (the "Certificates") that immediately prior to the Effective Time represented outstanding Shares (other than Shares excluded from conversion under clauses (i) - (iii) in Section 2.2) a form letter of transmittal for return to the Exchange Agent (which form shall specify that delivery of Certificates shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the certificates in exchange for the Merger Price. From time to time at or following the Effective time, ServiceMaster shall deposit with the Exchange Agent in trust for the benefit of the holders immediately available funds in an amount necessary to make the payments contemplated by Section 2.2 hereof on a timely basis (such amount being hereinafter referred to as the "Payment Fund"). Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by ServiceMaster and Barefoot, together with such letter of transmittal and such documentation as shall be necessary effectively to transmit the Certificate for cancellation, duly executed, the holder of such Certificates shall be entitled to receive in exchange therefor the Merger Price, and the Certificate so surrendered shall forthwith be canceled. The Exchange Agent shall, pursuant to irrevocable instructions, make the payments referred to in the preceding sentence out of the Payment Fund. The Payment Fund shall not be used for any other purpose except as described herein. Until surrendered and exchanged, each such certificate shall represent solely the right to receive the Merger Price for each Share previously represented by that certificate, and ServiceMaster shall not be required to pay the holder thereof any property, stock or cash to which such holder otherwise would be entitled as a holder of Barefoot Common Stock, provided that customary and appropriate procedures allowing for the surrender and exchange of former Shares represented by lost or destroyed certificates shall be provided. (b) Any cash in respect of the Merger Price delivered or made available to the Exchange Agent pursuant to this Section 2.3 and not exchanged for Certificates within one year after the Effective Time pursuant to this Section 2.3 shall be returned by the Exchange Agent to ServiceMaster, after which time persons entitled thereto may look only to ServiceMaster for payment thereof, subject to the rights of holders of unsurrendered Certificates under this Article II and subject to any applicable abandoned property, escheat or similar law. (c) If the Merger Price is to be issued to a person whose name is other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, and that the person requesting such exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of the payment of the Merger Price to a person whose name is other than that of the registered holder of the Certificate so surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to a holder of any Certificate for any amount paid to or deposited with a public official pursuant to any applicable abandoned property, escheat or similar law. Annex A-II-3 (d) After the Effective Time, there shall be no transfers on the stock transfer books for the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent or to the Surviving Corporation, they shall be canceled and exchanged for the Merger Price. 2.4 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, but only in the circumstances and to the extent provided by the Delaware Law, Shares that are issued and outstanding immediately prior to the Effective Time and that are held by stockholders who have not voted such Shares in favor of the approval and adoption of the Merger Agreement and shall have delivered a written demand for appraisal of such Shares in the manner (including the time of delivery) provided in Section 262 of the Delaware Law (the "Dissenting Shares") shall not be converted into or be exchangeable for the right to receive the Merger Price, but shall be entitled to receive such consideration as shall be determined pursuant to Section 262 of the Delaware Law; provided, however, that, if such holder shall have failed to perfect or shall have effectively withdrawn or lost such holder's right to appraisal and payment under the Delaware Law, such holder's Shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Price, without any interest thereon, in accordance with Section 2.2, and such Shares shall no longer be Dissenting Shares. ARTICLE III AMENDMENT AND TERMINATION 3.1 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. The respective boards of directors of each of the parties hereto shall have the right to amend this Agreement without approval of their respective stockholders to the extent permitted by (S)251(d) of the Delaware Law. 3.2 Termination. At any time prior to the Effective Time, whether before or after approval by the stockholders of the Constituent Corporations, this Agreement may (subject to the provisions in Section 6.1 of the Acquisition Agreement) be terminated and the Merger abandoned by mutual agreement of the boards of directors of Barefoot and ServiceMaster. This Agreement shall be automatically terminated if the Acquisition Agreement is validly terminated pursuant to the provisions of Section 6.1 thereof. The filing of the Certificate of Merger with the Secretary of State of Delaware pursuant to Section 1.3 hereof shall constitute certification that this Agreement has not theretofore been terminated. If terminated as provided in this Section 3.2, this Agreement shall forthwith become wholly void and of no further force and effect. ARTICLE IV MISCELLANEOUS 4.1 Counterparts. This Agreement may be executed in one or more counterparts, each of which together shall constitute one agreement. 4.2 Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Delaware. * * * * Annex A-II-4 IN WITNESS WHEREOF, ServiceMaster, MergerSub and Barefoot have caused this Agreement to be executed on the date first written above by their duly authorized officers. SERVICEMASTER LIMITED PARTNERSHIP By ServiceMaster Management Corporation Managing General Partner /s/ Carlos H. Cantu By: ____________________________________ Carlos H. Cantu Name: __________________________________ President and Chief Executive Officer Title: _________________________________ SERVICEMASTER ACQUISITION CORPORATION /s/ Carlos H. Cantu By: ______________________________________ Carlos H. Cantu Name: ____________________________________ President Title: ___________________________________ BAREFOOT INC. /s/ Patrick J. Norton By: ______________________________________ Patrick J. Norton Name: ____________________________________ Chief Executive Officer Title: ___________________________________ Annex A-II-5 ANNEX B -- OPINION OF ROBERT W. BAIRD & CO. INCORPORATED [LETTERHEAD OF ROBERT W. BAIRD] December 4, 1996 Board of Directors Barefoot Inc. 450 West Wilson Bridge Road Worthington, Ohio 43085 Gentlemen: Barefoot Inc., a Delaware corporation (the "Company"), proposes to enter into an Acquisition Agreement (the "Agreement") with ServiceMaster Limited Partnership, a Delaware limited partnership ("Parent"), and ServiceMaster Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent ("Sub"). Pursuant to the Agreement, Parent would make a tender offer (the "Offer") to acquire all of the outstanding shares of common stock, par value $.01 per share (the "Company Common Stock"), together with the associated Series A Junior Participating Preferred Stock Purchase Rights of the Company, at the price of $16.00 per share (the "Consideration"). Each holder of Company Common Stock may elect to receive the Consideration in cash or in limited partnership interests of Parent. With respect to holders of Company Common Stock electing to receive limited partnership interests, the Consideration of $16.00 per share assumes that the Average ServiceMaster Share Price (as defined in the Agreement) is at least equal to $23.00 per share. As soon as practicable after the purchase of not less than the Minimum Number (as defined in the Agreement) of shares of Company Common Stock pursuant to the Offer, Sub would be merged (the "Merger") with and into the Company and each share of Company Common Stock not owned by Parent would be converted into the right to receive the Consideration in cash. The Offer and the Merger are referred to herein as the "Transaction." You have requested our opinion as to the fairness, from a financial point of view, to the holders of Company Common Stock of the Consideration in the Transaction. Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment banking business, is engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. In conducting our investigation and analysis and in arriving at our opinion herein, we have reviewed such information and taken into account such financial and economic factors as we have deemed relevant under the circumstances. In that connection, we have, among other things: (i) reviewed certain internal information, primarily financial in nature, including projections, concerning the business and operations of the Company and Parent furnished to us for purposes of our analysis, as well as publicly available information including but not limited to the Company's and Parent's recent filings with the Securities and Exchange Commission (the "SEC") and equity analyst research reports prepared by various investment banking firms including, in the case of the Company, Baird; (ii) reviewed the Agreement in the form presented to the Company's Board of Directors; (iii) compared the historical market prices and trading activity of the Company Common Stock and limited partnership interests of LOGO 1 Parent with those of certain other publicly traded companies we deemed relevant; (iv) compared the financial position and operating results of the Company and Parent with those of other publicly traded companies we deemed relevant; and (v) compared the proposed financial terms of the Transaction with the financial terms of certain other business combinations we deemed relevant. We have held discussions with certain members of the Company's and Parent's senior management concerning the Company's and Parent's respective historical and current financial conditions and operating results as well as the future prospects of the Company and Parent, respectively. We have not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company. We have also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which we deemed relevant for the preparation of this opinion. In arriving at our opinion, we have assumed and relied upon the accuracy and completeness of all of the financial and other information provided to us by or on behalf of the Company and Parent, or publicly available, and have not assumed any responsibility to verify any such information independently. We have also assumed, with your consent, that (i) the Merger will be accounted for under the purchase method; (ii) there has been no material change in the assets or liabilities of the Company or Parent from those set forth in the most recent consolidated financial statements of the Company and Parent, respectively; and (iii) the Transaction will be consummated in accordance with the terms of the Agreement in the form presented to the Company's Board of Directors. Management of the Company and Parent have represented to us, and we have assumed, that the financial forecasts examined by us were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the Company's and Parent's senior management as to future performance of the Company and Parent, respectively. In conducting our review, we have not undertaken nor obtained an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or Parent nor have we made a physical inspection of the properties or facilities of the Company or Parent. Our opinion necessarily is based upon economic, monetary and market conditions as they exist and as can be evaluated on the date hereof, and does not predict or take into account any changes which may occur, or information which may become available, after the date hereof. Our opinion has been prepared solely for the information of the Company's Board of Directors, and shall not be used for any other purpose or disclosed to any other party without the prior written consent of Baird; provided, however, that this letter may be reproduced in full as required for any filing with the SEC required to be made by the Company or Parent in connection with the Transaction. This opinion does not address the relative merits of the Transaction and any other potential transactions or business strategies considered by the Company's Board of Directors, and does not constitute a recommendation to any stockholder of the Company as to (i) whether any such stockholder should tender shares pursuant to the Offer, (ii) whether any such stockholder electing to tender shares should elect to receive cash or limited partnership interests of Parent, or (iii) how any such stockholder should vote with respect to the Merger. Baird has acted as financial advisor to the Company in connection with the Transaction and will receive a fee for its services, part of which is payable upon delivery of this opinion and part of which is contingent upon consummation of the Transaction. In the past, we have provided investment banking services to the Company, for which we received agreed upon compensation. In the ordinary course of our business, we may from time to time trade the securities of the Company or Parent for our own account or accounts of our customers and, accordingly, may at any time hold long or short positions in such securities. Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration is fair, from a financial point of view, to the holders of Company Common Stock; provided, however, that because holders of Company Common Stock can elect to receive cash 2 pursuant to the Offer at any time prior to expiration of the Offer, no opinion is given as to the fairness of the Consideration to such holders who receive limited partnership interests of Parent if the Average ServiceMaster Share Price is less than $23.00 per share. Sincerely yours, Robert W. Baird & Co. Incorporated 3 ANNEX C-I [VORYS, SATER, SEYMOUR AND PEASE LETTERHEAD] December 12, 1996 Barefoot Inc. 450 West Wilson Bridge Road Worthington, Ohio 43085 Re: Tender Offer for Shares of Barefoot Inc. Ladies and Gentlemen: In connection with (i) the proposed tender offer by ServiceMaster Limited Partnership, a Delaware limited partnership ("ServiceMaster"), to acquire each outstanding share of common stock, par value $0.01 per share, of Barefoot Inc., a Delaware corporation ("Barefoot"), together with the associated Series A Junior Participating Preferred Stock Purchase Rights, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon; or (ii) a fraction (the "Conversion Fraction") of a validly issued, fully paid and nonassessable share of limited partnership interest in ServiceMaster ("ServiceMaster Share"), determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the date that the Expiration Date (as defined) and rounding the result to the nearest one one-hundred thousandth of a share (the "Offer") pursuant to an Acquisition Agreement by and among ServiceMaster, ServiceMaster Acquisition Corporation and Barefoot (the "Acquisition Agreement") and (ii) the proposed cash-out merger of Merger Sub with and into Barefoot for $16.00 per Share upon the terms and subject to the conditions set forth in a Merger Agreement executed simultaneously with the Acquisition Agreement (the "Merger Agreement") as described in the Offering Circular/Prospectus contained in the Form S-4 Registration Statement relating to the Offer to be filed with the Securities and Exchange Commission (the "Commission"), you have requested our legal opinion concerning certain United States federal income tax consequences of the Offer. We are familiar with the corporate proceedings taken to date with respect to the Offer and have examined the form of the Acquisition Agreement and the Merger Agreement and such other records and documents as we considered necessary for the purpose of rendering the opinion set forth herein. Annex C-I-1 Barefoot, Inc. December 12, 1996 Page 2 The opinion set forth herein is based on relevant provisions of the Internal Revenue Code of 1986, as amended through the date hereof, Treasury regulations promulgated thereunder, and interpretations thereof by the courts and the Internal Revenue Service, all as they exist at the date of this letter (the "Existing Law"). No tax rulings will be sought from the Internal Revenue Service with respect to any of the matters discussed herein. The Existing Law is subject to change at any time and, in some circumstances, with retroactive effect. Any such change could affect any or all of the conclusions set forth in this opinion. Based on the foregoing and assuming that the documents to be delivered in connection with the Offer are, to the extent applicable, executed and delivered in substantially the form we have examined, we are of the opinion that the statements in this Offering Circular/Prospectus under the caption "Certain Federal Income Tax Consequences--The Offer" fairly describe the material United States federal tax consequences of the Offer. There can be no assurance, however, that such discussion will not be successfully challenged by the Internal Revenue Service, or significantly altered by new legislation, changes in Internal Revenue Service positions or judicial decisions, any of which challenges or alterations may be applied retroactively with respect to completed transactions. We hereby consent to the disclosure of this opinion in the Offering Circular/Prospectus and as an exhibit to the Registration Statement. Very truly yours, VORYS, SATER, SEYMOUR AND PEASE Annex C-I-2 ANNEX C-II ANNEX C-II [LETTERHEAD OF KIRKLAND & ELLIS] To Call Writer Direct: Facsimile: 312 861-2000 312 861-2200 December 12, 1996 ServiceMaster Limited Partnership One ServiceMaster Way Downers Grove, Illinois 60515 Re: TENDER OFFER FOR SHARES OF BAREFOOT INC. Dear Ladies and Gentlemen: In connection with (i) the proposed tender offer by ServiceMaster Limited Partnership to acquire each outstanding share of common stock, par value $0.01 per share of Barefoot Inc., a Delaware corporation, together with the associated Series A Junior Participating Preferred Stock Purchase Rights not already owned by ServiceMaster, for, at the election of the holder, either: (A) $16.00 in cash, without any interest thereon; or (B) a fraction (the "Conversion Fraction") of a validly issued, fully paid and nonassessable share of limited partnership interest in ServiceMaster ("ServiceMaster Share"), determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the date that the Expiration Date (as defined) and rounding the result to the nearest one one-hundred thousandth of a share (the "Offer") pursuant to an Acquisition Agreement by and among ServiceMaster Limited Partnership, ServiceMaster Acquisition Corporation and Barefoot Inc. (the "Acquisition Agreement") and (ii) the proposed cash-out merger of Merger Sub with and into the Company for $16.00 per Share upon the terms and subject to the conditions set forth in a Merger Agreement executed simultaneously with the Acquisition Agreement (the "Merger Agreement") as described in this Offering Circular/Prospectus contained in the Form S-4 Registration Statement relating to the Offer to be filed with the Securities and Exchange Commission (the "Commission"), you have requested our legal opinion concerning certain United States federal income tax consequences of the Offer. We are familiar with the corporate proceedings to date with respect to the Offer and have examined the form of the Acquisition Agreement and the Merger Agreement and such other records and documents as we considered necessary. We have also examined a representation letter from ServiceMaster Limited Partnership dated December 9, 1996 (the "Representation Letter"). LOGO [LETTERHEAD OF KIRKLAND & ELLIS] The opinion set forth herein is based on relevant provisions of the Internal Revenue Code of 1986, as amended through the date hereof (the "Code"), Treasury regulations promulgated thereunder (the "Regulations"), and interpretations thereof by the courts and the Internal Revenue Service, all as they exist at the date of this letter. No tax rulings will be sought from the Internal Revenue Service with respect to any of the matters discussed herein. All such provisions of the Code, Regulations, judicial decisions, and administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect. Any such change could affect any or all of the conclusions set forth in this opinion. Based on the foregoing authorities and the representation of ServiceMaster Limited Partnership in the Representation Letter and assuming that the documents to be delivered in connection with the Offer are, to the extent applicable, executed and delivered in substantially the form we have examined, we are of the opinion that the statements in this Offering Circular/Prospectus under the caption "Certain Federal Income Tax Consequences" fairly describe the material United States federal tax consequences of the Offer. There can be no assurance, however, that such discussion will not be successfully challenged by the Internal Revenue Service, or significantly altered by new legislation, changes in Internal Revenue Service positions or judicial decisions, any of which challenges or alterations may be applied retroactively with respect to completed transactions. We hereby consent to the disclosure of this opinion in the Offering Circular/Prospectus and the Registration Statement. Sincerely, Kirkland & Ellis ANNEX D--CERTAIN PORTIONS OF THE SERVICEMASTER 1995 10-K ALL INFORMATION IN ANNEX D IS FROM THE SERVICEMASTER 1995 10-K WHICH WAS FILED ON MARCH 15, 1996, AND HAS NOT BEEN UPDATED OR SUPPLEMENTED. - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995. Commission File number 1-9378 SERVICEMASTER LIMITED PARTNERSHIP (Exact Name of Registrant as Specified in its Certificate) Delaware 36-3497008 -------- ---------- (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) One ServiceMaster Way, Downers Grove, Illinois 60515-9969 ---------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (708) 271-1300 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered ------------------- --------------------- Partnership Shares New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by Check Mark Whether the Registrant (1) Has Filed All Reports Required to Be Filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such Shorter Period That the Registrant Was Required to File Such Reports), and (2) Has Been Subject to Such Filing Requirements for the Past 90 Days. Yes X No --- --- The Aggregate Market Value of Shares Held by Non-Affiliates of the Registrant As of February 6, 1996 was $3,032,880,000. DOCUMENTS INCORPORATED BY REFERENCE Certain parts of the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 are incorporated into Part I, Part II and Part IV of this Form 10-K. - -------------------------------------------------------------------------------- PART I Item 1. Business The Company This annual report on Form 10-K is filed by ServiceMaster Limited Partnership (hereinafter sometimes called the "Registrant"). The Registrant and its immediate subsidiary, The ServiceMaster Company Limited Partnership, were formed in December 1986 as limited partnerships under the laws of the State of Delaware to succeed to the business and assets of ServiceMaster Industries Inc. The Registrant and The ServiceMaster Company, together with all other entities affiliated with these two limited partnerships and the Registrant's predecessor organization, are hereinafter referred to as "ServiceMaster" or the "Company" or the "ServiceMaster enterprise". The Registrant is a holding company whose limited partner shares are listed on the New York Stock Exchange and whose principal asset consists of all of the common limited partner interest in The ServiceMaster Company. Until January 31, 1992, the Registrant had both individual general partners and one corporate general partner. In January 1992, the shareholders of the Registrant approved an amendment of the Registrant's agreement of limited partnership under which the structure of the Registrant was changed by the withdrawal of the three individual general partners and the admission of ServiceMaster Corporation as a special general partner. These changes are described further under the caption "The 1992 Reorganization". The two principal operating groups of the ServiceMaster business are Consumer Services and Management Services, each of which is organized as a separate limited partnership. ServiceMaster Consumer Services Limited Partnership was formed in the summer of 1990, and ServiceMaster Management Services Limited Partnership was formed in December 1991. All subsidiaries of The ServiceMaster Company (which for purposes of this paragraph are limited to first-tier subsidiaries) are wholly owned except for the following: ServiceMaster Management Services L.P., as to which senior management owns a 10% equity interest (determined after giving effect to intercompany debt), and LTCS Investment L.P. (the immediate parent of ServiceMaster Diversified Health Services), as to which senior management of ServiceMaster Diversified Health Services owns an 11% equity interest. All subsidiaries of ServiceMaster Consumer Services L.P. are wholly owned. The 15% interest in TruGreen Limited Partnership which was owned by senior management of TruGreen Limited Partnership was acquired by the Registrant in January 1995. See Note I, page 15, for further information regarding this transaction. All subsidiaries of ServiceMaster Management Services L.P. are wholly owned. The 1992 Reorganization On January 13, 1992, the shareholders of the Registrant approved a "Reorganization Package" consisting of a comprehensive amendment and restatement of the Registrant's partnership agreement and a merger by which the Registrant can convert to corporate form. Current tax law effectively requires such conversion to occur at the end of December 1997; however, pursuant to the Reorganization Package, the board of directors of the Registrant's general partner has the authority to decide to accelerate the conversion date to a date prior to December 31, 1997. The best interests of the Registrant's shareholders will be the determinative consideration in selecting a conversion date. As a result of the approval of the Reorganization Package, ServiceMaster Corporation was admitted as a Special General Partner of the Registrant to serve as a vehicle through which institutional investors could be offered 1 opportunities to invest in ServiceMaster through the acquisition of a corporate security. If shares of stock were to be issued by ServiceMaster Corporation ("Corporate Shares"), the Corporate Shares would indirectly represent the same percentage interest in the Registrant as was then represented by each limited partner share in ServiceMaster. At the present time there are no plans to issue stock of ServiceMaster Corporation. The merger agreement which was approved as part of the Reorganization Package provides for the merger by which ServiceMaster expects to return to corporate form (the "Reincorporating Merger"). ServiceMaster Incorporated of Delaware has been organized to become the successor entity through which the public will invest in ServiceMaster after the Reincorporating Merger. The limited partner shares of the Registrant will be converted on a one-for-one basis into new shares of common stock of ServiceMaster Incorporated. As a result of these conversions, ServiceMaster Incorporated will be entirely owned by the persons who, collectively, owned all of the limited partner shares of the Registrant immediately prior to the Reincorporating Merger. The Reorganization Package included certain changes in the identity of and the capital contribution requirements for the general partners of the Registrant. These changes were effected on January 31, 1992. On that date, ServiceMaster Management Corporation became the sole general partner of the Registrant and of The ServiceMaster Company with sole management authority with respect to these partnerships and the amount of independent capital required to be maintained by ServiceMaster Management Corporation was reduced to $15 million. For further information concerning the changes effected by the 1992 Reorganization, see the discussion captioned "Description of the Structure of the ServiceMaster Enterprise" beginning on page 11. 1995 Transaction with WMX Technologies, Inc. On December 31, 1995, the Registrant completed a transaction with WMI Urban Services, Inc. ("WMUS"), a wholly owned subsidiary of WMX Technologies, Inc. ("WMX") in which WMUS contributed its 27.76% interest in ServiceMaster Consumer Services L.P. to the Registrant and, in exchange therefor, the Registrant issued to WMUS 18,107,143 unregistered limited partner shares of the Registrant and an option to purchase an additional 1,250,000 shares of the Registrant's limited partner shares at a price of $33.00 per share at any time and from time to time during the period January 1, 1997 to December 31, 2000. This issuance of limited partner shares to WMUS increased the Registrant's total shares outstanding to approximately 95,200,000. The shares held by WMX (through WMUS) immediately after the foregoing exchange transaction constituted approximately 19% of the Registrant's total shares outstanding. Concurrently with the foregoing exchange transaction, the Registrant and WMX entered into an agreement under which WMX committed not to increase its ownership interest in the Registrant to more than 21% through purchases of the Registrant's shares. To the extent that an exercise of the option would result in WMX owning more than a 21% interest in the Registrant, the Registrant may at its sole option pay WMX cash in the amount of the spread between the value of the shares not issued and the option exercise price for such shares. The shares which WMUS received on December 31, 1995 together with the shares which WMUS can acquire under the option are subject to certain restrictions, including among other things, commitments by WMX and WMUS: not to sell at any one time any of such shares in public market transactions in a number in excess of 15% of the average daily trading volume of the Registrant's shares over the preceding four calendar weeks; not to sell such shares to anyone who is or would become, as a result of the sale, an owner of more than 5% of the Registrant's outstanding shares; not to attempt to or propose or endorse a takeover of the Registrant; not to vote such shares in favor of a takeover which is opposed by the Registrant's board of directors; and not to oppose candidates for the Registrant's board of directors who are nominated by a majority of the incumbent ServiceMaster directors. In addition, the Registrant has a first refusal right, at then current market prices, by which the Registrant can elect to acquire any shares that WMX or WMUS may desire to sell. 2 The shares which WMUS received on December 31, 1995 and the shares which WMUS can acquire under the option were not and will not be registered under the Securities Act of 1933, but WMUS may demand up to four registrations of such shares after December 31, 1997, with each registration being subject to specified minimum and maximum amounts. WMX also has piggyback registration rights with respect to such shares. The foregoing is a brief summary of the major provisions of the agreements entered into among the Registrant, WMX and WMUS on December 31, 1995. Such agreements are described in further detail in the Registrant's Form 8-K dated January 15, 1996 and filed with the Securities and Exchange Commission on that date. The contents of such Form 8-K and the exhibits thereto are incorporated herein by reference. Principal Business Groups ServiceMaster is functionally divided into four operating groups: Consumer Services, Management Services, Diversified Health Services and International. Consumer Services and Management Services are the two principal operating groups. Reference is made to the information under the caption "Business Unit Reporting" on page 39 of the ServiceMaster Annual Report to Shareholders for 1995 (the "1995 Annual Report") for detailed financial information on these two groups. Trademarks and Service Marks; Franchises The Company's trademarks and service marks are important for all elements of the Company's business, although such marks are particularly important in the advertising and franchising activities conducted by the operating subsidiaries of ServiceMaster Consumer Services L.P. Such marks are registered and are renewed at each registration expiration date. Within ServiceMaster Consumer Services, franchises are important for the TruGreen-ChemLawn, Terminix, ServiceMaster Residential/Commercial, and Merry Maids businesses. Nevertheless, revenues and profits derived from franchise- related activities constitute less than 10% of the revenue and profits of the consolidated ServiceMaster enterprise. Franchise agreements made in the course of these businesses are generally for a term of five years. ServiceMaster's renewal history is that most of the franchise agreements which expire in any given year are renewed. Consumer Services ServiceMaster Consumer Services provides specialty services to homeowners and commercial facilities through five companies: TruGreen L.P. ("TruGreen-ChemLawn"); The Terminix International Company L.P. ("Terminix"); ServiceMaster Residential/Commercial Services L.P. ("Res/Com"); Merry Maids L.P. ("Merry Maids"); and American Home Shield Corporation ("American Home Shield" or "AHS"). The services provided by these companies include: lawn care, tree and shrub services and indoor plant maintenance services under the "TruGreen" and "ChemLawn" service marks; termite, pest control and radon testing services under the "Terminix" service mark; residential and commercial cleaning and disaster restoration services under the "ServiceMaster" service mark; domestic housekeeping services under the "Merry Maids" service mark; and home systems and appliance warranty contracts under the "American Home Shield" service mark. The services provided by the five Consumer Services companies are part of the ServiceMaster "Quality Service Network" and are accessed by calling a single toll-free telephone number: 1-800-WE SERVE. ServiceMaster focuses on establishing relationships to provide one or more of these services on a repetitive basis to customers. Since 1986, the number of customers served by ServiceMaster Consumer Services has increased from fewer than one million customers to more than 7.7 million customers (including international operations). 3 The International Group is responsible for overseeing the Consumer Services which are provided in foreign markets. TruGreen-ChemLawn. Until January 1, 1995, TruGreen-ChemLawn was an 85% owned subsidiary of ServiceMaster Consumer Services Limited Partnership with senior management of TruGreen-ChemLawn holding the remaining 15% interest. However, effective January 1, 1995, all of the holders of the 15% minority interest contributed their interests to the Registrant in exchange for shares of the Registrant. See Note I, page 15 for further information regarding this transaction. With over 2.5 million residential and commercial customers, TruGreen-ChemLawn is the leading provider of lawn care services in the United States. As of December 31, 1995, TruGreen-ChemLawn had 182 company-owned branches and 76 franchised branches. TruGreen-ChemLawn also provides lawn, tree and shrub care services in some parts of the Middle East through a licensing arrangement. The TruGreen-ChemLawn business is seasonal in nature. Terminix. Terminix is a wholly owned subsidiary of ServiceMaster Consumer Services L.P. With approximately 2.1 million residential and commercial customers, Terminix, through its company-owned branches and through franchisees, is the leading provider of termite and pest control services in the United States. As of December 1995, Terminix was providing these services through 327 company-owned branches in 40 states and Mexico and through 234 franchised branches in 27 states. Terminix also provides termite and pest control services in Japan, Taiwan, Indonesia, Turkey, Lebanon, Saudi Arabia, Oman, the Bahamas, Dominican Republic, Jamaica, and Puerto Rico through licensing arrangements with local partners. It provides the same services through subsidiaries in Belgium, the Netherlands, Norway, Sweden, the Republic of Ireland, the United Kingdom, and Mexico. The Terminix business is seasonal in nature. Res/Com. Res/Com is a wholly owned subsidiary of ServiceMaster Consumer Services L.P. ServiceMaster, through Res/Com, is the leading franchisor in the residential and commercial cleaning field. Res/Com provides carpet and upholstery cleaning and janitorial services, disaster restoration services and window cleaning services to over 1.4 million residential and commercial customers worldwide through a network of over 4,400 independent franchisees. Res/Com provides its services through subsidiaries in Germany, Ireland and the United Kingdom, through an affiliate in Canada, and through licensees in Australia, New Zealand, Austria, Brazil, Canada, Finland, Spain, Turkey, Saudi Arabia, Korea, and Japan. Merry Maids. Merry Maids is a wholly owned subsidiary of ServiceMaster Consumer Services Limited Partnership. Merry Maids is the organization through which ServiceMaster provides domestic house cleaning services. With approximately 217,000 customers, Merry Maids is the leading provider of domestic house cleaning services in the United States. As of December 31, 1995, these services were provided through 14 company-owned branches in 13 states and through 820 licensees operating in 49 states. Merry Maids also provides domestic housecleaning services in the United Kingdom through a subsidiary, in Canada through an affiliate and in Japan, Saudi Arabia, Denmark and Australia through licensing arrangements with local service providers. American Home Shield. AHS is a wholly owned subsidiary of SVM Holding Corp., a wholly owned subsidiary of ServiceMaster Consumer Services L.P. AHS is a leading provider of home service warranty contracts in the United States, providing homeowners with contracts covering the repair or replacement of built- in appliances, hot water heaters and electrical, plumbing, central heating, and central air conditioning systems which malfunction by reason of normal wear and tear. Service contracts are presently sold principally through participating real estate brokerage offices in conjunction with resales of single-family residences to homeowners. AHS also sells service warranty contracts directly to non-moving homeowners through various other distribution channels which are currently being expanded. As of December 31, 1995, AHS was providing services to approximately 387,000 homes through approximately 10,000 independent repair maintenance contractors in 47 states and the District of Columbia, with operations in California, Texas and Arizona accounting for 26%, 23% and 8%, respectively, of AHS' gross contracts written. AHS also provides home service warranty contracts in Japan and Saudi Arabia through licensing arrangements with local service providers. 4 Management Services ServiceMaster pioneered the providing of supportive management services to health care facilities by instituting housekeeping management services in 1962. Since then, ServiceMaster has expanded its management services business such that it now provides a variety of supportive management services to health care, education and commercial customers (including the management of housekeeping, plant operations and maintenance, laundry and linen, grounds and landscaping, clinical equipment maintenance, energy management services and food service). ServiceMaster's general programs and systems free the customer to focus on its core business activity with confidence that the support services are being managed and performed in an efficient manner. At the end of 1994, Management Services was reorganized into three discrete operating units each providing a separate functional service on a nationwide basis. These units are: Healthcare Management Services; Education Management Services; and Business and Industry Management Services. Effective January 1, 1996, the services provided by the Healthcare Management Services unit and the services provided by ServiceMaster Diversified Health Services Group (described below) were integrated so as to provide a coordinated range of services to the health care market. As of December 31, 1995, ServiceMaster was providing supportive management services to more than 2,500 health care, educational and commercial facilities. These services were being provided in all 50 states and the District of Columbia and in 16 foreign countries. Outside of the United States, ServiceMaster was providing management services through a subsidiary in Japan, through affiliated companies in Canada, Japan, Italy, Mexico, and the United Kingdom, and through licensees in Korea, Australia, New Zealand, Singapore, Taiwan, Hong Kong, Czech Republic, Chile, Japan, Malaysia, Spain and and several countries in the Middle East. The International and New Business Development Group is responsible for overseeing the management services which are provided in foreign markets. In February 1995, Management Services formed a joint venture with DAKA International in which the latter, in effect, acquired 80% of Management Services' education food service management business. As of December 31, 1995, the DAKA/ServiceMaster joint venture was serving approximately 57 customers. ServiceMaster Healthcare Services The integration of ServiceMaster Healthcare Management Services and ServiceMaster Diversified Health Services under the name "ServiceMaster Healthcare Services" is expected to increase the ability of the Registrant to deliver services across the broad spectrum of customer needs in the various segments of the healthcare market. These segments include acute care hospitals, long-term care, assisted living facilities, hospice and home health care. As of January 1, 1996, ServiceMaster Healthcare Services was serving more than 1,600 customers. Diversified Health Services The Diversified Health Services Group was organized in 1993. It consists of the ServiceMaster Diversified Health Services companies and ServiceMaster Home Health Care Services. The Diversified Health Services companies were acquired by ServiceMaster in August 1993, at which time they were known as VHA Long Term Care. ServiceMaster Diversified Health Services. ServiceMaster Diversified Health Services, Inc., ServiceMaster Diversified Health Services L.P. and their respective subsidiaries and ServiceMaster Home Health Care Services (collectively, the "ServiceMaster Diversified Health Services Companies") form a comprehensive health services organization which provides: management services to freestanding, hospital based, and government owned nursing homes, skilled nursing facilities, and assisted living facilities; management services to hospital-based home health 5 care agencies (as well as the direct operation of freestanding home health care agencies); design, development, refurbishing and construction consulting services to long-term care facilities; hospice services; rehabilitation services and the sale of various medical products and supplies. As of December 31, 1995, the ServiceMaster Diversified Health Services Companies had management services contracts with over 130 facilities in 28 states with a total of approximately 15,000 beds. Effective January 1, 1996, the services provided by Diversified Health Services Companies and the services provided by the Healthcare Management Services unit were integrated so as to provide a coordinated range of services to the health care market. International and New Business Development International. The International unit oversees the performance of supportive management services and consumer services in international markets either through the arrangements described above or through ownership of foreign operating companies acquired by ServiceMaster. In the Spring of 1994, ServiceMaster made a strategic decision to expand its pest control business into Europe through the acquisition of existing pest control companies. In August 1994, International organized TMX-Europe B.V., a Netherlands limited company ("TMX-Europe") as a subsidiary of The ServiceMaster Company to serve as a holding company for acquisitions of pest control businesses in the United Kingdom and Europe. As a result of acquisitions made during 1994, TMX-Europe owned controlling interests in Peter Cox Ltd., a leading pest control and wood preservation company in the United Kingdom; Protekta B.V. and Riwa B.V., each a leading pest control company in the Netherlands; and Anticimex Development AB, a holding company for the leading pest control company in Sweden. In October 1995, Peter Cox Ltd. acquired two pest control companies in the Republic of Ireland and Northern Ireland, and in January 1996, TMX-Europe acquired the Stenglein group of pest control companies in Germany. New Business Development. ServiceMaster Child Care Services, Inc., was part of the New Business Development Group until November 30, 1995. This company operated employer or developer sponsored child care centers under the "GreenTree" service mark. The company was sold to Bright Horizons Children's Centers, Inc. effective December 1, 1995 for cash, a promissory note and a warrant to purchase common stock of the buyer. This transaction was not material to the Registrant's financial statements. Other Activities Supporting Departments. ServiceMaster has various departments responsible for technical, engineering, management information, planning and market services, and product and process development activities. Various administrative support departments provide personnel, public relations, administrative, education, accounting, financial and legal services. Manufacturing Division. ServiceMaster has a manufacturing division which formulates, combines and distributes supplies, products and equipment that are used internally in providing management services to customers and which are sold to licensees for use in the operation of their businesses. ServiceMaster has an insignificant share of the market for the manufacture and distribution of cleaning equipment, chemicals and supplies. Venture Capital Fund. In August 1995, the Registrant established the ServiceMaster Venture Fund (the "Fund") with the objective of establishing a mechanism within the ServiceMaster enterprise which would invest in emerging growth companies which show an ability to provide innovative service technologies to the Registrant's current and new customers. The Fund is to be managed so as not to be intrusive to the ongoing operations of the Registrant's operating units. 6 Industry Position, Competition and Customers The following information is based solely upon estimates made by the management of ServiceMaster and cannot be verified. In considering ServiceMaster's industry and competitive positions, it should be recognized that ServiceMaster competes with many other companies in the sale of its services, franchises and products and that some of these competitors are larger or have greater financial and marketing strength than ServiceMaster. The principal methods of competition employed by ServiceMaster in the Consumer Services business are name recognition, assurance of customer satisfaction and history of providing quality services to homeowners. The principal methods of competition employed by ServiceMaster in each of the operating units in the Management Services business are price, quality of service and history of providing management services. The principal methods of competition employed by ServiceMaster in the Diversified Health Services business are name recognition, price, quality of services and history of providing management services. Consumer Services Consumer Services subsidiaries provide a variety of residential and commercial services under their respective names on the basis of their and ServiceMaster's reputation, the strength of their service marks, their size and financial capability, and their training and technical support services. The markets served by Terminix and TruGreen/ChemLawn are seasonal in nature. Lawn Care Services. TruGreen-ChemLawn, both directly and through franchisees, provides lawn care services to residential and commercial customers. Competition within the lawn care market is strong, coming mainly from regional and local, independently owned firms and from homeowners who elect to care for their lawns through their own personal efforts. TruGreen-ChemLawn is the leading national lawn care company within this market. In 1995, TruGreen- ChemLawn initiated a business to provide indoor plant maintenance to commercial customers. Lawn care services are regulated by law in most of the states in which TruGreen-ChemLawn provides such services. These laws require licensing which is conditional on a showing of technical competence and adequate bonding and insurance. The lawn care industry is regulated at the federal level under the Federal Insecticide, Fungicide and Rodenticide Act, and lawn care companies (such as TruGreen-ChemLawn) which apply herbicides and pesticides are regulated under the Federal Environmental Pesticide Control Act of 1972. Such laws, together with a variety of state and local laws and regulations, may limit or prohibit the use of certain herbicides and pesticides, and such restrictions may adversely affect the business of TruGreen-ChemLawn. Termite and Pest Control Services. The market for termite and pest control services to commercial and residential customers includes many competitors. Terminix is the leading national termite and pest control company within this market. Competition within the termite and pest control market is strong, coming mainly from regional and local, independently owned firms throughout the United States and from one other large company which operates on a national basis. Termite and pest control services are regulated by law in most of the states in which Terminix provides such services. These laws require licensing which is conditional on a showing of technical competence and adequate bonding and insurance. The extermination industry is regulated at the federal level under the Federal Insecticide, Fungicide and Rodenticide Act, and pesticide applicators (such as Terminix) are regulated under the Federal Environmental Pesticide Control Act of 1972. Such laws, together with a variety of state and local laws and regulations, may limit or prohibit the use of certain pesticides, and such restrictions may adversely affect the business of Terminix. 7 House Cleaning Services. The market for domestic house cleaning services is highly competitive. In urban areas the market involves numerous local companies and a few national companies. ServiceMaster believes that its share of the total potential market for such services is small and that there is a significant potential for further expansion of its housecleaning business through continued internal expansion and greater penetration of the housecleaning market. Through its franchisees, ServiceMaster has a small share of the market for the cleaning of residential and commercial buildings. Home Systems and Appliance Warranty Contracts. The market for home systems and appliance warranty contracts is relatively new. ServiceMaster believes that AHS maintains a favorable position in its industry due to the system developed and used by AHS for accepting, dispatching and fulfilling service calls from homeowners through a nationwide network of independent contractors. AHS also has a computerized information system developed and owned by AHS, and an electronic digital voice communication system through which AHS handled more than 5.2 million calls in 1995. Management Services Health Care. Within the market consisting of general health care facilities having 50 or more beds, ServiceMaster is the leading supplier of plant operations and maintenance, housekeeping, clinical equipment maintenance, and laundry and linen management services. As of December 31, 1995, ServiceMaster was serving in approximately 1,500 health care facilities. The majority of health care facilities within this market not currently served by ServiceMaster assume direct responsibility for managing their own non-medical support functions. ServiceMaster believes that its management services for health care facilities may expand by the addition of facilities not presently served, by initiating additional services at facilities which use only a portion of the services now offered, by the development of new services and by growth in the size of facilities served. At the same time, industry consolidation, changes in use and methods of health care delivery and payment for services continue to affect the health care environment. As described on page 5, effective January 1, 1996, ServiceMaster Healthcare Management Services was integrated with ServiceMaster Diversified Health Services to form ServiceMaster Healthcare Services. Education. ServiceMaster is a leading provider to the education market of maintenance, custodial and grounds services, and, through the DAKA/ServiceMaster joint venture, food management services. The facilities which comprise the education market served by ServiceMaster include primary schools, secondary schools and school districts, private specialty schools and colleges and universities. As of December 31, 1995, ServiceMaster was serving in approximately 400 educational facilities. ServiceMaster believes there is significant potential for expansion in the education market due to its current relatively low penetration of that market and the trend of educational facilities to consider outsourcing more of their service requirements. However, a majority of the educational facilities continue to assume direct responsibility for managing their support functions. Business and Industry. ServiceMaster is a leading provider of plant operations and maintenance, custodial and grounds management services to business and industrial customers. ServiceMaster believes that there is potential for expansion in those business and industrial markets which ServiceMaster has elected to emphasize due to ServiceMaster's low current penetration of those markets and the trend of business to consider outsourcing more of their service requirements and the trend of governmental units to privatize parts of their operations. The emphasized markets include the food processing, transportation, healthcare products, and automotive markets. As of December 31, 1995, ServiceMaster was serving in approximately 160 business or industrial facilities. 8 Diversified Health Services At December 31, 1995, the ServiceMaster Diversified Health Services Companies constituted the nation's twelfth largest long term care company based on the number of beds served and the largest company that was primarily a management services company (as distinguished from a real estate operator). It was also a major provider of planning and design services for long term care facilities and for acute care hospitals. At December 31, 1995, ServiceMaster Home Health Care Services was a provider of management services to hospital-affiliated home health care agencies. The number of free-standing home health care agencies operated by ServiceMaster Home Health Care Services represented a very small percentage of home health care agencies in the United States. As described on page 5, effective January 1, 1996, ServiceMaster Diversified Health Services was integrated with ServiceMaster Healthcare Management Services to form ServiceMaster Healthcare Services. International The pest control companies acquired by ServiceMaster through its European holding company (TMX-Europe) are each leaders in the pest control business in the countries in which they operate. ServiceMaster believes that there is potential for expansion of these businesses in both the United Kingdom and elsewhere on the European continent. Major Customers. ServiceMaster has no single customer which accounts for more than 10% of its total revenues. No part of the Company's business is dependent on a single customer or a few customers the loss of which would have a material adverse effect on the Company as a whole. Revenues from governmental sources are not material. Employees On December 31, 1995, ServiceMaster had a total of approximately 34,000 employees. ServiceMaster provides its employees with annual vacation, medical, hospital and life insurance benefits and the right to participate in additional benefit plans which are described in the Notes to Financial Statements included in the 1995 Annual Report. 9
STRUCTURE OF SERVICEMASTER (March 15, 1996) Public Investors Note A, page 13 | | 99% ________________________ ___________|____________ | | | | | ServiceMaster | | ServiceMaster | | Management |_____ | Limited Partnership | | Corporation | | | | | | | 1% | | | | |__________| | | Note D, page 13 | | | Note B, page 13 | |______________________| | |______________________| | | | | | | 99% | ___________|____________ | | | | | The | | 1% | ServiceMaster Company| |__________| Limited Partnership | | | | | | Note C, page 13 | |______________________| | __________________________|_________________________________________________________________ | 100% | 90% | | | (Note E) | (Note F) | | ___________|____________ ___________|____________ __ __ __ __|__ __ __ ___ __ __ __ __|__ __ __ ___ | | | | | | | | | ServiceMaster | | ServiceMaster | ServiceMaster International and |Consumer Services L.P.| | Management | | Diversified | | New Business | | | | Services L.P. | Health Services Development | | | | | | | | | | | | | | | | | | | | | Note E, page 14 | | Note F, page 15 | Note G, page 15 Note H, page 15 |______________________| |______________________| |_ __ __ __ __ __ __ __| |_ __ __ __ __ __ __ __| | | | _____________|_____________ _____________|_____________ | | | | 89% | | | | | (Note G) | | ___________|____________ ___________|____________ ___________|____________ ___________|____________ ___________|____________ | | | | | | | | | | | TruGreen/ | | Merry Maids L.P. | | ServiceMaster | | ServiceMaster | | TMX-Europe B.V. | | ChemLawn L.P. | | | | Diversified | | Home Health Care | | | | | | | | Health Services | | Services Inc. | | | | | | | | Companies | | | | | | | | | | | | | | | | | | | | | | | | | | Note I, page 15 | | Note L, page 16 | | Note N, page 16 | | Note O, page 16 | | Note P, page 16 | |______________________| |______________________| |______________________| |______________________| |______________________| | | | | | |__Peter Cox ___________|____________ ___________|____________ | | | | | |__Protekta/Riwa | Terminix Int'l L.P. | | American Home | | | | | Shield Corp. | |__Anticimex | | | | | | | | | |__Stenglein | | | | | Note J, page 16 | | Note M, page 16 | |______________________| |______________________| | | ___________|____________ | | | Res/Com L.P. | | | | | | Note K, page 16 | |______________________|
Solid lines show a legal entity. Dotted lines show a division of The ServiceMaster Company. 10 DESCRIPTION OF THE STRUCTURE OF THE SERVICEMASTER ENTERPRISE Organization and Structure of the Parent Companies Until December 30, 1986, the ServiceMaster business was conducted by ServiceMaster Industries Inc. On December 30, 1986, ServiceMaster was reorganized into a limited partnership with the following results, among others: ServiceMaster Limited Partnership became the parent unit in the ServiceMaster enterprise, with one limited partnership share in ServiceMaster Limited Partnership being issued to replace every then outstanding share of common stock issued by ServiceMaster Industries Inc., and The ServiceMaster Company Limited Partnership was established as the principal operating subsidiary of ServiceMaster Limited Partnership. Until January 31, 1992, the general partners in ServiceMaster Limited Partnership and The ServiceMaster Company were ServiceMaster Management Corporation, which served as the managing general partner, and three individual general partners. On January 31, 1992, the three individual general partners withdrew and became stockholders of ServiceMaster Management Corporation, leaving ServiceMaster Management Corporation as the sole general partner having management authority in the two principal partnerships and, as further discussed below, the sole general partner having an interest in the 1% carried interest reserved to the general partners of the two partnerships. Since January 1, 1987, the general partners have collectively held a 1% interest in all profits and losses of ServiceMaster Limited Partnership and of The ServiceMaster Company, in each case limited to profits and losses generated since that date. Following the withdrawal of the individual general partners on January 31, 1992, the entire 1% interest in the profits and losses of each of ServiceMaster Limited Partnership and The ServiceMaster Company has been held by ServiceMaster Management Corporation. These separate interests constitute an aggregate interest of approximately 2% of the consolidated income and losses of the ServiceMaster business (determined after allowing for minority interests in subsidiaries, where applicable). The Board of Directors of ServiceMaster Management Corporation has the ultimate power to govern the ServiceMaster business. A majority of the positions on the Board are reserved for independent directors. Although the stock of ServiceMaster Management Corporation is owned by members of ServiceMaster management, the stockholders have entered into voting trust arrangements under which the incumbent members of the Board have the right to determine the persons who will be elected to the Board each year. These arrangements were not altered by the 1992 Reorganization. Although the owners of the outstanding limited partner shares issued by ServiceMaster Limited Partnership do not have the right to vote directly for the directors of ServiceMaster Management Corporation, they do have the right to replace ServiceMaster Management Corporation as the managing general partner by voting the percentages of their shares prescribed in the Partnership Agreement in favor of such replacement (provided, however, that certain opinions of counsel are obtained). The holders of the outstanding shares of ServiceMaster Limited Partnership accordingly retain the ultimate right to select ServiceMaster management. The 1992 Reorganization (ServiceMaster Corporation) Reference is made to the discussion on page 1 for the background of the 1992 Reorganization. As a result of the approval of the Reorganization Package on January 13, 1992, ServiceMaster Corporation was admitted as a Special General Partner of the Registrant on January 31, 1992. As of March 15, 1996, no shares of stock of ServiceMaster Corporation had been issued and the corporation remains dormant. 11 Organization and Structure of Consumer Services ServiceMaster Consumer Services Limited Partnership ("SMCS") provides a separate identity for the Consumer Services business. SMCS is a holding company for all of the operating groups which comprise such business, i.e., TruGreen-ChemLawn, Terminix, ServiceMaster Residential/Commercial Services, Merry Maids, and American Home Shield. SMCS has two general partners, ServiceMaster Consumer Services, Inc. and The ServiceMaster Company. As a result of the transaction with WMX Technologies, Inc. on December 31, 1995 (described on pages 2 and 3), The ServiceMaster Company is the sole limited partner of SMCS. The controlling interest in ServiceMaster Consumer Services, Inc., is held by ServiceMaster Management Corporation. Organization and Structure of Management Services ServiceMaster Management Services Limited Partnership ("SMMS") provides a separate identity for the Management Services business. This business is primarily carried out through three divisions of SMMS, with a small amount of specialized business conducted through a wholly owned subsidiary. SMMS has two general partners, ServiceMaster Management Services, Inc., and The ServiceMaster Company and 53 limited partners in two classes: Class A and Class B. The general partners together hold a 1% interest in SMMS. The Class A limited partners, all of whom are senior members of SMMS management, collectively own 10% of the equity of SMMS (with equity determined for this purpose after allowing for $505.6 million of intercompany debt to The ServiceMaster Company). The Class B limited partner is The ServiceMaster Company, which holds the remaining equity interest in SMMS. Organization and Structure of Diversified Health Services The ServiceMaster Company holds the controlling interests in the following organizations which, together, comprise the ServiceMaster Diversified Health Services group: the ServiceMaster Diversified Health Services Companies and ServiceMaster Home Health Care Services Inc. The ServiceMaster Diversified Health Services Companies consist of a limited partnership and its general partner and their respective subsidiaries. The ServiceMaster Company owns 89% of the equity of the ServiceMaster Diversified Health Services Companies, with members of senior management owning the remaining 11% of such equity. ServiceMaster Home Health Care Services Inc. is wholly owned by The ServiceMaster Company. Organization and Structure of the International and New Business Development Group International operations of the Company are carried out through subsidiaries, licensing or joint venture arrangements, all of which are coordinated and supervised by the International component of the International and New Business Development Group. As previously noted, in 1994, the Company, through its Netherlands subsidiary, TMX-Europe B.V., acquired pest control businesses in the United Kingdom, the Netherlands and Sweden. On December 1, 1995, The ServiceMaster Company sold all of its equity interest in ServiceMaster Child Care Services, Inc. to Bright Horizons Children's Centers, Inc. 12 Notes to Organizational Structure Chart The following Notes are intended to be read in conjunction with the organizational structure chart on page 10. Note A--Public Investors The public investors in the Registrant collectively hold a 99% interest in the profits, losses and distributions of the Registrant through their ownership of the limited partner interests in the Registrant ("Partnership Shares"). The Partnership Shares are listed on the New York Stock Exchange under the symbol "SVM". For the reasons indicated in Note D below, the public investors' 99% interest in the Registrant entitles the public investors to an approximately 98% interest in the consolidated profits, losses and distributions of ServiceMaster. Note B--ServiceMaster Limited Partnership The Registrant (ServiceMaster Limited Partnership) serves as the holding company for the ServiceMaster business. It does not conduct any significant business operations or own any significant property except for its 99% common equity interest in the profits, losses and distributions of The ServiceMaster Company Limited Partnership. Note C--The ServiceMaster Company Limited Partnership The ServiceMaster Company Limited Partnership supervises the Company's international operations and serves as a holding company for the Consumer Services, Management Services, and Diversified Health Services groups. All of the common limited partner interests of The ServiceMaster Company are held by the Registrant. On January 1, 1993, the ServiceMaster SGP Trust became a special general partner of The ServiceMaster Company and has remained a special general partner of The ServiceMaster Company since that date--see Note R. Note D--ServiceMaster Management Corporation (Managing General Partner) ServiceMaster Management Corporation is the managing general partner of ServiceMaster Limited Partnership and The ServiceMaster Company Limited Partnership (collectively referred to in this Note D as the "Partnerships"). ServiceMaster Management Corporation has the ultimate authority to control each entity in the ServiceMaster enterprise. The certificate of incorporation of ServiceMaster Management Corporation requires that a majority of the positions on its board of directors must be comprised of independent directors. The certificate of incorporation further provides that this requirement may not be amended without the consent of the holders of a majority of the outstanding shares of ServiceMaster Limited Partnership. During the year 1995, the stock of ServiceMaster Management Corporation was owned by persons who were past or present senior members of the ServiceMaster management. The stockholders of this corporation have deposited their stock in a voting trust of which the directors themselves are trustees with discretionary power to vote the stock. These arrangements enable the incumbent members of the Board of Directors to choose the persons elected to the Board each year. On January 31, 1992, as contemplated by the 1992 Reorganization, all individuals who were then serving as general partners of the Partnership withdrew as general partners and became stockholders of ServiceMaster Management Corporation with stock interests therein which indirectly represented their former general partner carried interests. Their general partner carried interests were transferred to ServiceMaster Management Corporation as part of these adjustments. 13 ServiceMaster Management Corporation does not employ any significant number of persons or own any office space or other equipment used to conduct the day-to-day management of ServiceMaster; rather, the employees and assets necessary to manage the ServiceMaster business are based within The ServiceMaster Company or the operating entities. The applicable partnership agreements as adopted in 1986 and as amended since then provide that the general partners of the Partnerships are entitled to a 1% interest in each of the two Partnerships. Since January 31, 1992, the sole holder of the 1% interest in each of the two Partnerships has been ServiceMaster Management Corporation. These interests are "carried interests" which means that ServiceMaster Management Corporation is not required to contribute to the capital of the Partnerships except as may be necessary to pay liabilities for which provision cannot otherwise be made. These carried interests remain at a constant 1% in each of the two Partnerships at all times regardless of the extent to which additional investments in the Partnerships are made by others and regardless of the extent to which the Partnerships redeem other interests. These 1% interests provide ServiceMaster Management Corporation with approximately 1.99% of the profits and losses of the entire ServiceMaster enterprise, that is, ServiceMaster Management Corporation is entitled to 1% of the profits of The ServiceMaster Company Limited Partnership and, because that partnership is 99% owned by ServiceMaster Limited Partnership, it is entitled to an additional 1% of the 99% of The ServiceMaster Company Limited Partnership's profits which are allocated to ServiceMaster Limited Partnership. For the year 1995, each of the Partnerships made cash distributions equal to 1% of its net income to ServiceMaster Management Corporation. The total of the distributions made with respect to the year 1995 was $3,717,268. From that amount the corporation paid state corporate taxes and, on behalf of its stockholders but subject to reimbursement by them, the letter of credit fees charged with respect to the promissory notes described in the next paragraph. The balance, $3,514,856, was distributed by ServiceMaster Management Corporation to those past and present officers of ServiceMaster who constituted the stockholders of ServiceMaster Management Corporation. At December 31, 1995, such persons included Messrs. Cantu, Erickson, Keith, Mrozek and Oxley, whose participations within the 1.99% total carried interest of ServiceMaster Management Corporation at the end of 1995 were, respectively, 14.79%, 10.85%, 5.44%, 3.20%, and 5.44%. At December 31, 1995, the stock of ServiceMaster Management Corporation was owned by 34 ServiceMaster executives, each of whom has signed a promissory note payable to the corporation in the amount of the purchase price of his or her stock. Such notes total approximately $15,000,000 in the aggregate and are payable upon demand. The payment of each such note is secured by a letter of credit from the Bank of America (Illinois). The fees for such letters of credit are borne entirely by the makers of the notes and not by ServiceMaster. Note E--ServiceMaster Consumer Services Limited Partnership and ServiceMaster Consumer Services, Inc. ServiceMaster Consumer Services Limited Partnership ("SMCS") is the holding company for the Consumer Services business. ServiceMaster Consumer Services, Inc. is one of the two general partners of SMCS. The second general partner is The ServiceMaster Company. The ServiceMaster Company, through its direct and indirect ownership of the 1% interest held by the general partners and as the sole limited partner, holds a 100% equity interest in SMCS. Note F--ServiceMaster Management Services Limited Partnership and ServiceMaster Management Services, Inc. ServiceMaster Management Services Limited Partnership ("SMMS") is the holding company for the Management Services business. ServiceMaster Management Services, Inc. is one of the two general partners of SMMS. The second general partner is The ServiceMaster Company. The general partners collectively hold a 1% 14 interest in SMMS, and The ServiceMaster Company, as the Class B limited partner, and members of senior management of Management Services, as Class A limited partners, hold the remaining 99% interest. In January 1994, members of senior SMMS management purchased a 10% interest in SMMS as Class A limited partners. The equity of SMMS is determined, for purposes of such 10% interest, after allowing for intercompany debt to The ServiceMaster Company. Such intercompany debt is offset and eliminated in preparing the consolidated financial statements of the Registrant. SMMS has the right (the "call right") to purchase this minority interest and each Class A limited partner has the right (the "put right") to require SMMS to purchase his or her interest at any time after the end of the year 1997. The purchase price for all transactions involving the purchase of a Class A limited partner interest is the then current fair market value of the interest as confirmed by an independent appraisal. Note G--ServiceMaster Diversified Health Services ServiceMaster Diversified Health Services is a division of The ServiceMaster Company. It is comprised of the ServiceMaster Diversified Health Services Companies ("DHS") and ServiceMaster Home Health Care Services. The former is 89% owned by The ServiceMaster Company (see Note N) while the latter is 100% owned by The ServiceMaster Company. The ServiceMaster Diversified Health Services Companies include a parent limited partnership and its general partner, and a number of subsidiary companies. Note H--International and New Business Development International and New Business Development is a division of The ServiceMaster Company. It consists of the International unit and New Business Development. The International unit oversees and provides administrative support for ServiceMaster's international operations. It owns all of the shares of TMX- Europe B.V., the Netherlands holding company for all pest control businesses acquired in Europe. The New Business Development component oversees and provides administrative support for businesses which are in their formative stages. At December 31, 1995, there were no such businesses in operation. Note I--TruGreen Limited Partnership TruGreen Limited Partnership ("TruGreen") has two general partners: TruGreen, Inc., which is the managing general partner, and TSSGP Limited Partnership, a Delaware limited partnership ("TSSGP"). Until January 1, 1995, members of TruGreen management owned a 15% minority interest in TruGreen. Effective January 1, 1995, all of the holders of the minority interest contributed their limited partner units in TruGreen to the Registrant in exchange for 2,824,062 shares of the Registrant and a contingent right to receive an additional payment in 1997 depending upon the magnitude of TruGreen's earnings and the performance of the Registrant's shares in 1995 and 1996. As a result of this transaction, the Registrant and Consumer Services together became the owners of 100% of the equity interests in TruGreen. Note J--The Terminix International Company Limited Partnership The Terminix International Company Limited Partnership ("Terminix") has two general partners: Terminix International, Inc., the managing general partner, and TSSGP. Terminix is a wholly owned subsidiary of SMCS. 15 Note K--Res/Com Limited Partnership ServiceMaster Residential/Commercial Services Limited Partnership ("Res/Com") has two general partners: ServiceMaster Residential/Commercial Services Management Corporation, which is the managing general partner, and TSSGP. Res/Com is a wholly owned subsidiary of SMCS. Note L--Merry Maids Limited Partnership Merry Maids Limited Partnership ("Merry Maids") has two general partners: Merry Maids, Inc., which is the managing general partner, and TSSGP. Merry Maids is a wholly owned subsidiary of SMCS. Note M--American Home Shield Corporation American Home Shield Corporation ("AHS") is a wholly-owned subsidiary of SVM Holding Corp. ("Holding"). Holding is a wholly owned subsidiary of SMCS. Note N--ServiceMaster Diversified Health Services Companies The ServiceMaster Diversified Health Services Companies (formerly VHA Long Term Care) are wholly owned subsidiaries of LTCS Investment L.P. ("LTCS"). LTCS is 89% owned by The ServiceMaster Company and 11% by members of senior management of the ServiceMaster Diversified Health Services Companies. LTCS has the right (the "call right") to purchase this 11% minority interest, and each person who holds a part of the minority interest has the right (the "put right") to require LTCS to purchase his or her minority interest in LTCS. The call right and the put right may be exercised at any time during the period beginning on January 1, 1999, and ending on January 31, 2004. The purchase price for all transactions involving a minority interest purchase is the then current fair market value as confirmed by an independent appraisal. Note O--Home Health Care Services ServiceMaster Home Health Care Services Inc. is a wholly owned subsidiary of The ServiceMaster Company and is a part of the ServiceMaster Diversified Health Services group. Note P--TMX-Europe TMX-Europe B.V., a Netherlands limited company, is a wholly owned subsidiary of The ServiceMaster Company. TMX-Europe serves as the holding company for ServiceMaster's European pest control companies. Note Q--Other Subsidiaries Other subsidiaries include CMI Group, Inc., a subsidiary of ServiceMaster Management Services L.P., and miscellaneous operating and name protection entities. Reference is made to Exhibit 21 for a complete list of the subsidiaries of the Registrant. 16 NOTE R--SERVICEMASTER SGP TRUST On January 1, 1993, the limited partnership agreement of The ServiceMaster Company was amended to admit a trust as a Special General Partner of The ServiceMaster Company (the "SGP Trust"). The beneficiaries of the SGP Trust are the limited partners of the Registrant as constituted from time to time. The SGP Trust receives each year an allocation of taxable income equal to the amount by which the aggregate taxable income of The ServiceMaster Company exceeds the cash distributions made by the Registrant directly to its limited partners. As a result of this allocation of taxable income, the cash distributions made by the Registrant directly to its limited partners will equal or exceed the taxable income of the Registrant which is directly allocated to its limited partners. The ServiceMaster Company makes cash distributions to the SGP Trust in the amounts required by the trust for the payment of its federal and state income tax liabilities. This arrangement prevents taxable income as allocated to the public shareholders from exceeding their cash distributions from the Registrant and thereby solves the "crossover problem" as described in earlier annual reports and in the Registrant's Proxy Statement dated December 11, 1991. * * * (THE NEXT PAGE IS PAGE #41) 17 FEDERAL INCOME TAX CONSIDERATIONS The following discussion of Federal income tax matters describes the material consequences to the non-corporate U.S. shareholders of ServiceMaster Limited Partnership (the "Public Partnership") and to the Public Partnership as sole common limited partner of The ServiceMaster Company Limited Partnership (the "Principal Subsidiary Partnership"). (These two partnerships are together referred to as the "Principal Partnerships".) This discussion does not consider state, local and foreign tax issues, nor does it separately describe (except where noted) the consequences to shareholders who received their shares as a form of compensation (or in exchange for ServiceMaster stock issued in prior years as compensation), or which are corporations, tax-exempt entities, or non-resident alien individuals. THIS DISCUSSION MAY NOT BE DIRECTLY APPLICABLE TO ANY PARTICULAR SHARE-HOLDER, DEPENDING ON THAT SHAREHOLDER'S UNIQUE CIRCUMSTANCES. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE FEDERAL INCOME TAX TREATMENT IN THEIR SPECIFIC TAX SITUATIONS, INCLUDING THE APPLICATION AND EFFECT OF THE STATE, LOCAL AND FOREIGN LAWS WHICH MIGHT APPLY TO A SPECIFIC SHAREHOLDER. The following discussion is based on provisions of the Internal Revenue Code of 1986 (the "Code"), as amended, existing and proposed regulations promulgated thereunder, judicial decisions, legislative history, and current administrative rulings and practices. For a number of Code sections the Internal Revenue Service (the "IRS") has been directed or authorized by statute to issue regulations that may materially affect the tax consequences of holding an interest in ServiceMaster. As of the date hereof, certain of these regulations have not yet been promulgated. Moreover, any of the statutes, regulations, rulings, practices, or judicial precedents upon which this discussion is based could be changed, perhaps retroactively, with adverse tax consequences. The Federal income tax treatment of shareholders, as described below, depends in some instances on interpretation by ServiceMaster Management Corporation (the "Managing General Partner") of complex provisions of the Federal income tax law for which no clear precedent or authority may be available. In determining basis adjustments, allocations, asset valuations and taxable income of the Principal Partnerships, the Managing General Partner must make determinations that will affect a shareholder in various ways depending on such factors as the date a shareholder purchased shares of the Public Partnership. Possible Legislative Changes. Congress is considering the possible enactment of proposals to revise in certain respects the federal income taxation of widely held partnerships (such as the Public Partnership). These proposals would, among other changes, simplify the rules under which the partners report their share of partnership income or loss and change the rules relating to the auditing of, and the collection of deficiencies with respect to, such partnerships. Tax Status of the Principal Partnerships Significance of "Partnership" Status. Except as otherwise provided by Code Section 7704, a partnership incurs no Federal income tax liability unless the partnership is classified as an association taxable as a corporation. Instead, each partner in a partnership is required to take into account in computing his or her Federal income tax liability his or her allocable share of the income, gains, losses, deductions and credits of the partnership. The Federal income tax treatment contemplated for shareholders of the Public Partnership will be available only if the Public Partnership is not classified as an association taxable as a corporation. If either of the Principal Partnerships were classified as an association taxable as a corporation in any year, such partnership's income, gains, losses, deductions and credits would be reflected on its own tax return, rather than being passed through to shareholders, and its net income would be taxed at corporate rates (with the maximum rate 41 for regular tax currently equal to 35%, and the rate for alternative minimum tax equal to 20%). In addition, distributions made to shareholders would be treated as (a) taxable dividend income (to the extent of such partnership's current and accumulated earnings and profits) or, to the extent distributions exceed the partnership's earnings and profits, (b) a non-taxable return of capital (to the extent of a shareholder's basis for his or her shares) or (c) taxable capital gain. In sum, classification of either of the Principal Partnerships as an association taxable as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to shareholders from holding Public Partnership shares. Classification of the Principal Partnerships. The Principal Partnerships received an opinion of counsel that, as of their formation in December, 1986, the Principal Partnerships would be classified as partnerships for Federal income tax purposes. The Principal Partnerships believe that, since that date, nothing has occurred which changes the conclusion that each of these entities is to be classified as a partnership for Federal income tax purposes. This conclusion is based upon the following factors, among other things: (a) ServiceMaster Management Corporation has acted as a general partner in each of the Principal Partnerships and has maintained and will continue to maintain a net worth, on a fair market value basis, of at least $15.0 million (apart from direct or indirect interests in either of the Principal Partnerships or in any subsidiaries of the Principal Partnerships) in the form of (i) cash or cash equivalents; (ii) marketable obligations issued or guaranteed by the United States government or any agency or political subdivision thereof or issued by any state of the United States or any agency or political subdivision thereof; (iii) commercial paper; (iv) certificates of deposit; (v) bankers' acceptances; (vi) securities regularly traded on an established market; and/or (vii) notes receivable secured by bank letters of credit; (b) Each of the Principal Partnerships has operated at all times in accordance with applicable provisions of the Delaware Revised Uniform Limited Partnership Act, the terms and conditions of their respective partnership agreements, and the statements and representations made in ServiceMaster's December 11, 1991, proxy statement/prospectus; (c) Except as required by Section 704(c) of the Code or as the result of a temporary allocation required under Section 704(b) of the Code (for example, a qualified income offset or a minimum gain chargeback), the aggregate interest of the Managing General Partner in each material item of gain, loss, deduction or credit of each of the Principal Partnerships has always been equal to at least 1% of each such item; (d) The partnership agreement governing each of the Principal Partnerships has provided, and continues to provide, in accordance with IRS Revenue Procedure 89-12, that upon dissolution of the respective partnerships the general partners of that partnership will contribute to the partnership an amount equal to the deficit balance, if any, in their capital accounts; and (e) The general partners of each of the Principal Partnerships have always held their respective interests in each of the Principal Partnerships for their own accounts and, in managing each of the Principal Partnerships, have not acted under the direction of or as agents for the limited partners of the Public Partnership. If the Managing General Partner were to withdraw as a partner at a time when there is no successor managing general partner, or if the successor managing general partner could not satisfy the applicable net worth requirement and other restrictions, then the IRS might attempt to classify one or both of the Principal Partnerships as associations taxable as corporations. 42 The Managing General Partner and the Principal Partnerships intend to contest any material adverse determination by the IRS classifying either of the Principal Partnerships as an association taxable as a corporation. Shareholders should be aware that the Principal Partnerships, and hence indirectly the shareholders, may incur substantial legal expenses in the event of such a contest, and there can be no assurance that such a contest would be successful. At the same time, however, such an adverse determination is not expected to occur. Publicly Traded Partnerships Treated as Corporations. Section 7704 of the Code provides that a publicly traded partnership (i.e., any partnership if interests in the partnership are traded on an established securities market or are readily tradeable on a secondary market or the substantial equivalent thereof) will generally be treated as a corporation for Federal income tax purposes with respect to taxable years beginning after 1987. However, Section 7704 also provides that a partnership whose interests were publicly traded on December 17, 1987 will not be treated as a corporation under Section 7704 until the partnership's first taxable year beginning after 1997. This "grandfather status" is lost, however, if the partnership adds a substantial new line of business after December 17, 1987; in that event, the partnership may be treated as a corporation as of the day after the date on which such substantial new line of business is added. The Public Partnership is a publicly traded partnership for purposes of Section 7704 but ServiceMaster currently intends to operate its businesses in a manner so as to continue to qualify under this exception to the general rule of Section 7704 and to thereby retain its partnership tax status for Federal income tax purposes for all tax years beginning before 1998. In accordance with shareholder approval granted on January 13, 1992, ServiceMaster currently intends to engage in a reincorporating merger on December 31, 1997, immediately prior to the time when Code Section 7704 would otherwise automatically treat the Public Partnership as a corporation for Federal income tax purposes. The reincorporating merger should provide certain benefits which might not be available if ServiceMaster remained in partnership form subject to the application of Code Section 7704. As discussed more fully in ServiceMaster's December 11, 1991 proxy statement/prospectus, no Federal income tax will be imposed on shareholders in the Public Partnership by reason of the reincorporating merger, assuming that Federal income tax laws remain as now constituted. The board of directors of the Managing General Partner may accelerate the effective date of the reincorporating merger to a date earlier than December 31, 1997 if either changes in tax laws or other developments cause more than 51% of ServiceMaster's income to be subject to corporate income tax prior to 1998 or the board of directors, in its sole discretion, determines that the advantages of such acceleration to ServiceMaster and the holders of a majority of its outstanding shares outweigh the disadvantages. It is possible that an acceleration of the effective date of the reincorporating merger could adversely impact some shareholders in the Public Partnership. THE DISCUSSION THAT FOLLOWS IS BASED ON THE ASSUMPTION THAT THE PRINCIPAL PARTNERSHIPS ARE NOT CLASSIFIED FOR FEDERAL INCOME TAX PURPOSES AS ASSOCIATIONS TAXABLE AS CORPORATIONS, AND THAT THE PUBLIC PARTNERSHIP IS NOT TREATED AS A CORPORATION PURSUANT TO CODE SECTION 7704. Tax Consequences of Partnership Share Ownership General. The Public Partnership is not subject to Federal income tax as an entity. Rather, subject to the limitations prescribed in Code Section 469, each partner is required to report on his or her Federal and state income tax returns his or her allocable share of the income, gains, losses, deductions and credits (and, for alternative minimum tax purposes, tax preference items) of the Public Partnership for the taxable year of the Public Partnership ending with or within his or her taxable year and will be taxable directly on his or her allocable share of the Public Partnership's taxable income. The Public Partnership's taxable income includes its allocable share of the income, gains, losses, deductions and credits (and, for alternative minimum tax purposes, tax preference items) of the Principal Subsidiary Partnership which, in turn, includes its allocable share of such items of subsidiary partnerships. The beneficial owners of Partnership Shares are treated as partners of the Public Partnership for Federal income 43 tax purposes. Thus, if Partnership Shares are held by a nominee, the beneficial owner of the Partnership Shares will be taxed on income and loss of the Public Partnership. Subject to the discussion set forth in the next five paragraphs, because shareholders are required to include Public Partnership income in their income for tax purposes without regard to whether they receive cash distributions of that income, shareholders may be liable for Federal income taxes with respect to Public Partnership income even though they have not received cash distributions from the Public Partnership sufficient to pay such taxes. However, throughout the period from January 1, 1987 to December 31, 1995, the Public Partnership's cash distributions to its shareholders have been substantially in excess of the taxes payable in respect of the taxable income allocated to such shareholders. The Public Partnership has no reason to expect that this situation will not continue through the end of the year 1997. ServiceMaster SGP Trust. In recognition of the fact that in 1993 (for the first time in the Public Partnership's history) taxable income was likely to exceed cash distributions to many shareholders of the Public Partnership, the Principal Subsidiary Partnership admitted the ServiceMaster T Trust as a special general partner of the Principal Subsidiary Partnership effective January 1, 1993. On September 30, 1993, the ServiceMaster T Trust was replaced by the ServiceMaster A Trust. Each of these trusts is hereinafter referred to as the "SGP Trust". The interest held by the SGP Trust is denominated in the Principal Subsidiary Partnership's partnership agreement as a Class T Partnership Interest. (See Note R, page 17). As stated in Note R, the beneficiaries of the SGP Trust are the limited partners of the Public Partnership as constituted from time to time. On the date on which ServiceMaster converts back to corporate form pursuant to the Reincorporating Merger approved on January 16, 1992, the SGP Trust will be assimilated into ServiceMaster Incorporated of Delaware, the successor corporate holding company for the ServiceMaster enterprise. The beneficial interests held by the beneficiaries of the SGP Trust are not assignable or transferable separately, but only by and in connection with the transfer of shares in the Public Partnership. Every assignment, sale or transfer of any interest in shares in the Public Partnership prior to the date on which the SGP Trust terminates will include a proportional undivided beneficial interest in the SGP Trust. Since January 1, 1993 the SGP Trust has been allocated that amount of the taxable income (determined without regard to section 743(b) adjustments) of the Principal Subsidiary Partnership which exceeds the aggregate cash distributions made by the Public Partnership to its limited partners. The effect of this arrangement is that the cash distributions made by the Public Partnership to its limited partners will always equal or exceed the taxable income of the Public Partnership which is directly allocated to its limited partners. With respect to the additional taxable income which is allocated to the SGP Trust, the Principal Subsidiary Partnership makes cash distributions to the SGP Trust from time to time in the amounts required by the SGP Trust to discharge its federal and state income tax liabilities. The SGP Trust does not receive any other allocations of income or cash distributions. The formation of the SGP Trust was not a taxable event to the Principal Partnerships or the shareholders, and the creation of the Class T Partnership Interest was not a taxable event to either the SGP Trust or the Principal Subsidiary Partnership or to the Public Partnership. The distribution of funds to the SGP Trust by the Principal Subsidiary Partnership is not a taxable event to either party. The SGP Trust includes in its taxable income its allocable share of the income of the Principal Subsidiary Partnership. If the SGP Trust were to distribute its income to its beneficiaries, such distributions would be taxable to the beneficiaries. However, because it is not anticipated that the SGP Trust will make any distributions to its beneficiaries, the shareholders of the Public Partnership will not recognize any taxable income on account of the establishment of, and the allocations to, the SGP Trust. Accounting Method and Tax Information. The Public Partnership uses the accrual method of accounting in reporting income and computes income on the basis of a taxable year ending on December 31. The Public Partnership will prepare and furnish to each shareholder of record during any taxable year the information necessary 44 for the preparation of the shareholder's Federal, state and other tax returns required as a result of the operations of the Public Partnership for that year. Tax Basis of Partnership Shares. The tax basis of a shareholder in his or her Partnership Shares is significant because (i) basis is used in measuring the gain or loss recognized for tax purposes either upon the receipt of cash distributions from the Public Partnership or upon a partial or complete disposition of Partnership Shares by the shareholder and (ii) a shareholder may deduct his or her allocable share of Public Partnership losses only to the extent of his or her tax basis in his or her shares. See "Tax Consequences of Partnership Share Ownership -- Taxation of Partners on Public Partnership Distributions" and "Sale or Other Disposition of Shares." Taxation of Partners on Public Partnership Distributions. If the cash distributions to a shareholder by the Public Partnership in any year exceed his or her allocable share of the Public Partnership's taxable income for that year, the excess will constitute a return of capital to the shareholder to the extent of the shareholder's basis in his or her Partnership Shares. This situation is expected to occur for shareholders whose taxable income is determined by reference to the Section 754 election (see "Section 754 Election", page 50). A return of capital will not be reportable as taxable income by a shareholder for Federal income tax purposes, but will reduce the tax basis of his or her Partnership Shares. If a shareholder's tax basis were reduced to zero, then any further cash distribution to the shareholder for any year in excess of his or her allocable share of the Public Partnership's tax-able income for that year would be taxable to him or her as though it were gain on the sale or exchange of his or her Partnership Shares. All or a portion of such excess cash distribution could be treated as ordinary income as the result of the application of the recapture provisions of the Code. See "Sale or Other Disposition of Shares." Limitation on Losses. No investor should invest in the Public Partnership with the expectation that an investment in the Public Partnership will result in tax losses that may be applied to offset an investor's income from other sources. To the extent that the Principal Partnerships' operations result in losses for tax purposes in any calendar year, a shareholder generally will be entitled to use his or her allocable share of such losses to the extent of his or her tax basis in his or her Partnership Shares at the end of the year, subject to the limitations prescribed in Code Section 469. Code Section 469 limits a taxpayer's ability to use losses or credits generated by limited partnerships and other business activities in which such taxpayer does not materially participate ("passive activities"). In general, losses from passive activities will not offset earned income (salary and bonus) or portfolio income (interest, dividends and royalties). Such losses will generally only offset income from other passive activities. Similarly, tax credits from passive activities will only reduce income tax attributable to income from passive activities. Losses and credits from a passive activity which cannot be used in a given year are generally carried forward. These deferred losses and credits, if not usable sooner, will generally be allowed in full when the taxpayer disposes of his or her entire interest in the activity. Section 469 applies separately to each publicly traded partnership. Thus, passive activity losses and credits attributable to a limited partner's interest in a publicly traded partnership (such as the Public Partnership) cannot be applied against the limited partner's other income, even if such income is treated as passive under Section 469. Such losses and credits are suspended and carried forward for applications against income from the publicly traded partnership in future years. Upon a complete disposition of the limited partner's interest in the publicly traded partnership in a fully taxable transaction, any of the limited partner's remaining suspended losses generally may be applied against other income. Income attributable to a limited partner's interest in a publicly traded partnership (such as the Public Part-nership) cannot be offset by losses or credits from the limited partner's other passive activities. Substantially all of any losses or credits generated by the Public Partnership will likely be subject to the limitations prescribed in Section 469. The limitations prescribed in Section 469 generally apply to individuals, estates, trusts, personal service corporations and, with certain modifications, closely-held corporations. 45 Under current law, a partner who is subject to the "at-risk" limitations of Code Section 465 may not deduct his or her allocable share of partnership losses for a taxable year to the extent they exceed the aggregate amount for which he or she is considered to be "at-risk" with respect to the partnership activities giving rise to those losses as of the end of its taxable year in which the losses occur. Because it is not anticipated that the Principal Partnerships will incur losses that exceed either the shareholders' aggregate basis in their Partnership Shares or amounts "at-risk" with respect to the Principal Partnerships' activities, the "at-risk" limitations under current law should generally not affect shareholders adversely. Federal Income Tax Allocations General. In general, items of income, gain, loss, deduction and credit for the Principal Partnerships are allocated for both accounting and Federal income tax purposes in accordance with the percentage interests of the general and limited partners. However, as discussed in greater detail below, the Managing General Partner is empowered by the limited partnership agreements for the Principal Partnerships (the "Principal Partnership Agreements") to specially allocate various Principal Partnership tax items other than in accordance with percentage interests when, in the judgment of the Managing General Partner, such special allocations are necessary to comply with applicable provisions of the Code and the regulations or, to the extent permissible under the Code and the regulations, to preserve the uniformity of the shares in the Public Partnership, i.e., to ensure that all Partnership Shares will have identical attributes. These allocation provisions will be recognized for Federal income tax purposes if they are considered to have "substantial economic effect" within the meaning of Code Section 704(b). If any allocation fails to satisfy the "substantial economic effect" requirement, the allocated items will be reallocated among the shareholders based on their respective "interests in the partnership," determined on the basis of all of the relevant facts and circumstances. Pursuant to regulations issued under Section 704(b), a partnership allocation will be considered to have "substantial economic effect" if it is determined that the allocation has "economic effect" and the economic effect is "substantial." An allocation to partners (other than an allocation of loss, deduction or certain other items attributable to nonrecourse liabilities ("nonrecourse deductions")) will be considered to have "economic effect" if (i) the partnership maintains capital accounts in accordance with specific rules set forth in the regulations and the allocation is reflected through an increase or decrease in the partners' capital accounts, (ii) liquidating distributions are required to be made in accordance with the partners' respective positive capital account balances by the end of the taxable year (or, if later, within 90 days after the date of liquidation), and (iii) any partner with a deficit in his or her capital account following the distribution of liquidation proceeds would be unconditionally required to restore the amount of such deficit to the partnership. If the first two of these requirements are met but the partner to whom an allocation is made is not obligated to restore the full amount of any deficit balance in his or her capital account, the allocation still will be considered to have "economic effect" to the extent the allocation does not cause or increase a deficit balance in the partner's capital account (determined after reducing that account for certain "expected" adjustments, allocations, and distributions specified by the regulations) if the partnership agreement contains a "qualified income offset" provision. A qualified income offset requires that in the event of any unexpected distribution (or specified adjustments or allocations) to a partner that results in a deficit balance in such partner's capital account, there must be an allocation of income or gain to the dis- tributee that eliminates the resulting capital account deficit as quickly as possible. In order for the "economic effect" of an allocation to be considered "substantial," the regulations require that the allocation must have a "reasonable possibility" of "substantially" affecting the dollar amounts to be received by the partners, independent of tax consequences. The regulations provide that the "economic effect" of an allocation will be presumed to be insubstantial if it merely shifts tax consequences within a partnership taxable year or is transitory, i.e., likely to be offset by other allocations in subsequent taxable years. The regulations state, however, that adjustments to the tax basis in property will be presumed to be matched by corresponding changes in the fair market value of the property. Thus, the regulations conclude that there will not be a strong likelihood 46 that an allocation of deductions attributable to depreciation will be transitory due to a provision for a subsequent corresponding allocation of gain attributable to the disposition of that property. In addition to the regulations described above, the Treasury has issued regulations which address the effect of nonrecourse liabilities upon partnership allocations. Under the regulations, if (i) the partnership maintains capital accounts in accordance with specific rules set forth in the regulations and allocations are reflected through an increase or decrease in partners' capital accounts and (ii) liquidating distributions are required to be made in accordance with partners' respective positive capital account balances by the end of the taxable year (or, if later, within 90 days after the date of liquidation), then a partner may be allocated nonrecourse deductions that cause his or her capital account to fall below zero, provided (among other requirements) that the deficit produced by the allocation is not in excess of the minimum gain that would be allocated to the partner in the event the partnership property securing the nonrecourse liability were disposed of in a taxable transaction in full satisfaction of such liability. The regulations further provide that in the event there is a decrease in such partnership's minimum gain for a partnership taxable year, the partners must be allocated items of partnership income and gain for such year (and, if necessary, for subsequent years) in proportion to, and to the extent of, an amount equal to such partner's share of the net decrease in partnership minimum gain during such year. The Principal Partnership Agreements provide that a capital account is to be maintained for each partner, that the capital accounts are to be maintained in accordance with applicable principles set forth in the regulations, and that all allocations to a partner are to be reflected in the partner's capital account. In addition, distributions upon liquidation of the Principal Partnerships are to be made in accordance with respective capital account balances. The Principal Partnership Agreements do not require the limited partners to restore any deficit balance in their capital accounts upon liquidation of the Principal Partnerships. However, the Principal Partnership Agreements contain a "minimum gain" allocation for nonrecourse deductions and a "qualified income offset" provision. Pursuant to the Principal Partnership Agreements, tax income and gain will be allocated in a manner consistent with the book income and gain allocations associated with the minimum gain and qualified income offset provisions. The manner of allocation of items of income, gain, loss, deduction and credit for both book and Federal income tax purposes is set forth in the Principal Partnership Agreements. In general, the Principal Partnerships' income, gains, losses, deductions and credits are allocated pursuant to the Principal Partnership Agreements among the partners pro rata in accordance with their percentage interests, except that the allocation of taxable income of the Principal Subsidiary Partnership to the ServiceMaster SGP Trust is determined in the manner described above and in Note T, page [16]. The Principal Partnership Agreements contain special allocations of book income and gain for the qualified income offset and minimum gain provisions (discussed above) and special allocations of income and deduction to preserve the uniformity of shares. The Principal Partnership Agreements further provide exceptions to the pro rata allocations for Federal income tax purposes of (i) income, gain, loss and deductions attributable to properties contributed to the Principal Partnerships in exchange for shares ("Contributed Property"), (ii) income, gain, loss and deductions attributable to the Principal Partnerships' properties where the Principal Partnerships have adjusted the book value of such properties upon the Public Partnership's issuance of additional shares to reflect unrealized appreciation or depreciation in value from the later of the Principal Partnerships' acquisition date for such properties or the latest date of a prior issuance of shares ("Adjusted Property"), (iii) curative allocations of gross income and deductions to preserve the uniformity of shares issued or sold from time to time, (iv) recapture income resulting from the sale or disposition of Principal Subsidiary Partnership assets ("Recapture Income"), (v) income and gain in a manner consistent with the allocation of book income and gain pursuant to a qualified income offset, and (vi) income and gain attributable to nonrecourse debt in a manner consistent with the allocation of book income and gain under a minimum gain provision. With respect to property contributed by a shareholder to the Principal Partnerships, the Principal Partnership Agreements provide that, for Federal income tax purposes, partnership income, gain, loss and deductions shall first be allocated among the partners in a manner consistent with Code Section 704(c). In addition, the Principal Partnership Agreements provide that partnership income, gain, loss and deductions attributable to Adjusted Property shall be allocated for Federal income tax purposes in accordance with Section 704(c) principles. 47 Pursuant to Section 704(c), items of partnership income, gain, loss and deduction with respect to Contributed Property are to be shared among the partners pursuant to regulations so as to take account of the differences between the Principal Subsidiary Partnership's basis for the property and the fair market value of the property at the time of the contribution (i.e., a Book- Tax Disparity). The IRS has issued final regulations under Section 704(c) which provide that these allocations of partnership income, gain, loss and deduction to account for the Book-Tax Disparity can be made by any reasonable method. The final regulations set forth three non-exclusive allocation methods which are generally considered to be reasonable. The Principal Subsidiary Partnership makes every effort to comply with these regulations. As discussed below, the Code Section 754 election permits an adjustment in the basis in the assets of the Principal Subsidiary Partnership and subsidiary partnerships pursuant to Code Section 743(b) to reflect the price at which Partnership Shares are purchased from a shareholder as if such purchaser had acquired a direct interest in such assets. See "Section 754 Election." Such Section 743(b) adjustment is attributed solely to such purchaser of shares and is not added to the bases of the assets of the Principal Subsidiary Partnership and subsidiary partnerships associated with all of the shareholders ("common bases"). With respect to Section 743(b) adjustments, proposed regulations relating to ACRS depreciation appear to require the acquiring partner to use a depreciation method and useful life for the increase in basis which is different from the method and useful life generally used to depreciate the Public Partnership's common bases in the assets of the Principal Subsidiary Partnerships and subsidiary partnerships. The Managing General Partner has the authority under the Principal Partnership Agreements to specially allocate items of income and deductions in a manner that will preserve the uniformity among all shares, so long as such allocations are consistent with and supportable under the principles of Code Section 704. The Managing General Partner may use a "depreciation convention method" or any other convention to preserve the uniformity of shares. If no allowable or workable convention is available to preserve the uniformity of Partnership Shares or the Managing General Partner in its discretion so elects, the Partnership Shares may be separately identified as distinct classes to reflect differences in tax consequences. The Managing General Partner has adopted conventions and allocations to achieve uniformity among all Partnership Shares. The Principal Partnership Agreements also require that gain from the sale of Principal Subsidiary Partnership properties, to the extent characterized as Recapture Income, be allocated (to the extent such allocation does not alter the allocation of gain otherwise provided for in the Principal Partnership Agreements) among the partners (or their successors) in the same manner in which such partners were allocated the deductions giving rise to such Recapture Income. The Section 704(b) regulations and Sections 1.1245-1(e) and 1.1250- 1(f) of the regulations tend to support a special allocation of Recapture Income. However, such regulations do not specifically address a special allocation based on the allocation of the deductions giving rise to such Recapture Income as stated in the Principal Partnership Agreements. Therefore, it is not clear that the allocation of Recapture Income will be given effect for Federal income tax purposes. If it is not, such Recapture Income will be allocated to all shareholders and the general partners. Transferor/Transferee Allocations. The Principal Partnerships will allocate their taxable income and losses among the shareholders of record in proportion to the number of Partnership Shares owned by them based on the number of months during the year for which each shareholder was record owner of the shares. The Principal Partnerships' taxable income and loss allocable to each month will be determined by allocating such income or loss pro rata to each month in the year. With respect to any Partnership Share that is transferred during any calendar month, the Principal Partnerships will treat a shareholder who becomes the record owner of such share on or before the close of business on the fifteenth day of the month as having been the owner of such share for the entire month if he or she holds such share for the remainder of such month. Conversely, a shareholder who becomes the record 48 owner of a Partnership Share during such month but after the fifteenth day of a calendar month will be allocated the taxable income and losses attributable to the second half of such month if he or she holds such share for the remainder of such month. Depreciation; Amortization; Recapture General. The Principal Partnerships claim depreciation, cost recovery and amortization deductions with respect to the purchase price (or other tax basis) of the various properties of the Principal Partnerships and subsidiary partnerships and related improvements to the extent permitted by the applicable Code provisions. Land is not subject to depreciation, cost recovery or amortization deductions. Until the enactment of Code section 197 in 1993, the general rule was that if an intangible asset has a determinable useful life, then the cost of the asset may be amortized over that useful life using a straight-line method. If, however, the useful life of an intangible asset is not determinable, then the cost of the intangible asset may not be amortized or deducted. In 1993, Congress enacted Code Section 197. This section allows for the amortization of certain intangibles over a 15-year period. This 15-year amortization period must be used even if the intangible asset has a useful life of less than 15 years. The types of intangible assets covered by Code Section 197 include goodwill, going concern value, work force in place, licenses, permits, covenants not to compete, franchises, trademarks, trade names, customer - -based intangible assets (e.g., favorable sale contracts) and supplier-based intangible assets (e.g., favorable supply contracts). Interests in partnerships are specifically excluded from Code Section 197, among other types of intangible assets. Code Section 197 applies to intangible assets acquired after August 10, 1993 unless an election is made to apply Code Section 197 retroactively starting after July 25, 1991. The Principal Partnerships elected to have the provisions of Code Section 197 apply retroactively to an increase in basis for property acquired by the Principal Partnerships after that date. This election can be expected to increase the amount of intangible amortization of the Principal Partnerships. Various components of the Principal Partnerships' properties fall into each of the categories discussed in the preceding paragraphs. A portion of the cost of certain Principal Partnership properties is allocable to (i) nondepreciable, nonamortizable land, (ii) tangible property, some of which is real property (i.e., buildings and structural components) or tangible personal property that may qualify for depreciation deductions, and (iii) intangible property that may or may not qualify for amortization. For shareholders who purchased shares in the Public Partnership after August 18, 1993, the amortization on the intangible assets acquired by the Principal Partnerships before July 26, 1991 allowed by Section 197 will apply only to the increase in basis resulting from the Code Section 754 election. In other words, no amortization under Code Section 197 will be allowed on the Principal Partnerships' original basis in intangible assets, unless those assets were acquired by the Principal Partnerships after July 25, 1991. Deductions for depreciation, cost recovery and amortization claimed by the Principal Partnerships with respect to assets of the Principal Partnerships and subsidiary partnerships reduce the partnerships' adjusted basis for the properties, thereby increasing the potential gain (or decreasing the potential loss) to the Principal Partnerships upon the ultimate disposition of the properties. These deductions also have the effect of reducing the shareholders' adjusted basis for their Partnership Shares (by reducing taxable income or increasing tax losses), thereby affecting the potential gain or loss to be realized upon a subsequent sale of the shares. See "Sale or Other Disposition of Shares." 49 Sale or Other Disposition of Shares General. In the event of a sale or disposition of Partnership Shares, a shareholder will recognize gain or loss, as the case may be, on the disposition in an amount equal to the difference between the amount realized by the shareholder on the disposition and his adjusted tax basis for his Partnership Shares. See "Tax Consequences of Partnership Share Ownership" --"Tax Basis of Partnership Shares." For these purposes, a shareholder's share (as determined for purposes of Code Section 752) of any Principal Partnership indebtedness attributable to the transferred Partnership Shares will be included in the amount realized on the disposition. Generally, under current law, gain recognized by a shareholder on the sale or exchange of shares that have been held for more than twelve months will be taxable as long-term capital gain, taxable at a maximum rate of 28% in the case of taxpayers other than corporations. However, that portion of the gain attributable to "substantially appreciated inventory items" and "unrealized receivables" of the Principal Partnerships, as those terms are defined in the Code, will be treated as ordinary income. Ordinary income attributable to unrealized receivables and inventory items may exceed the net taxable gain realized upon the sale and may be recognized even if there is a net tax loss realized upon the sale. "Unrealized receivables" include, among other things, the shareholder's proportionate share of the amounts that would be recaptured as ordinary income if the Principal Partnerships were to have sold their assets at fair market value at the time the shareholder transferred his shares. See "Depreciation; Amortization; Recapture". Any loss recognized upon the sale of shares generally will be treated as a capital loss. A shareholder will not ordinarily recognize any gain or loss upon making a gift of Partnership Shares. However, a shareholder making a gift of Partnership Shares more likely than not will include as an amount realized the share (as determined for purposes of Code Section 752) of any of the Partnerships' indebtedness allocable to the transferred Partnership Shares. See "Tax Consequences of Partnership Share Ownership" -- "Tax Basis of Partnership Shares." Such shareholder would therefore recognize gain (but not loss) on making a gift of Partnership Shares if the shareholder's basis had declined so that it were less than such amount deemed realized. In the case of a deductible gift to a charitable organization the donor's basis is apportioned between the value deemed contributed and the deemed sale price. Any gain recognized more likely than not would be subject to the same rules (described above) which apply to gain recognized on a sale of a Partnership Share, so that some portion could be treated as ordinary income. The IRS has ruled that a partner must maintain an aggregate adjusted tax basis in his entire partnership interest (consisting of all interests in a given partnership acquired in separate transactions). Upon the sale of a portion of such aggregate interest, such partner would be required to allocate his aggregate tax basis between the portion of the interest sold and the portion of the interest retained according to some equitable apportionment method. (The IRS ruling requires that the apportionment be based on the relative fair market values of such interests on the date of sale.) This requirement, if applicable to the Public Partnership, effectively would preclude a shareholder owning shares that were purchased at different prices on different dates from controlling the timing of the recognition of the inherent gain or loss in his shares by selecting the specific shares that he will sell. However, the application of this ruling in the context of a publicly traded limited partnership such as the Public Partnership is not clear. The ruling does not address whether this aggregation requirement, if applicable, results in the tacking of the holding period of older shares onto the holding period of more recently acquired shares. Transferor/Transferee Allocations. The manner in which the Principal Partnerships intend to allocate their taxable income and losses between transferors and transferees of shares is described above under "Federal Income Tax Allocations" -- "Transferor/Transferee Allocations." Shareholders contemplating a transfer of shares should note that cash distributions to which they are entitled may not correspond to the Principal Partnerships' taxable income and loss which shall be allocated between the transferor and transferee of such shares. Information Return Filing Requirements. The Public Partnership is required to notify the IRS of any sale or exchange (of which the Public Partnership has notice) of a share and to report to the IRS the name, address, and 50 taxpayer identification number of the transferee and the transferor who were parties to such transaction and of the Public Partnership, the date of the transaction and any additional information required by the applicable information return or its instructions. The Public Partnership also must provide this information to the transferor and the transferee. If the Public Partnership fails to furnish the required information to the IRS, the Public Partnership may be subject to a penalty of up to $50 per failure, up to an annual maximum penalty of $250,000, unless the failure is due to an intentional disregard of the requirement, in which case a penalty of $100 per failure or if greater, 5% of the amount required to be reported, would apply, without limit. Penalties could also be asserted against the Public Partnership if it fails to furnish the required information to the transferor and the transferee. Any person who directly or indirectly holds an interest in the Public Partnership as a nominee on behalf of another person during a Public Partnership taxable year must furnish the Public Partnership with a written statement for such taxable year identifying the name, address and taxpayer identification number of the nominee and such other person and providing information regarding acquisitions and transfers of Partnership Shares (including information regarding acquisition cost and net sale proceeds) made by the nominee on behalf of such other person during such taxable year. Section 754 Election Effect of the Election. The Principal Partnerships have made and expect to continue to make the election permitted by Section 754 of the Code which allows adjustments to the basis of partnership property under Section 743 of the Code upon certain transfers of a partnership interest. Such election, once made, is irrevocable absent the consent of the IRS. The general effect of such an election upon a transfer of shares is to permit the purchaser of such shares to adjust the basis of the Principal Partnerships' properties for purposes of his tax return to reflect the price at which his shares are purchased, as if such purchaser had acquired a direct interest in the Principal Partnerships' assets. Effect of the Interplay Between the Section 754 Election, Section 197 and the SGP Trust. As discussed on page 44, the existence of the SGP Trust means that the taxable income of ServiceMaster Limited Partnership as allocated to each of its shareholders will not be greater than the cash distributions made to that shareholder. For many shareholders, however, taxable income will be less than their cash distributions due to the effect of the Section 754 election. The principal effect of the Section 754 election is to cause the calculation of a partner's share of taxable income to reflect amortization and depreciation deductions which are determined by using a higher basis (reflecting the partner's purchase price) in the underlying assets than the partnership's own internal, historical basis for those assets. In this connection, the provision in the Revenue Reconciliation Act of 1993 which permits the amortization of intangible assets over a 15-year period has important consequences to those persons who purchased ServiceMaster shares on August 10, 1993 or thereafter. If their purchase price for such shares is at least $22 per share ($33 per share before the June 7, 1993 3-for-2 share split), their proportionate interest in the assets of ServiceMaster, including goodwill and other intangible assets on which amortization is now being taken over a 15-year period, will cause the calculation of their share of ServiceMaster's taxable income to include deductions which are expected to leave such persons with an allocation of no taxable income on such ServiceMaster shares or with negative taxable income on those shares. (If a limited partner is allocated negative taxable income on his or her ServiceMaster shares, it can be used to offset a like amount of positive taxable income on other ServiceMaster shares or gain upon the sale of ServiceMaster shares; however, it can not be used to offset taxable income from other sources). Under these circumstances, cash distributions on such shares will decrease the tax basis of those shares by the amount of cash distributed and without an offsetting increase in basis attributable to the allocation of taxable income to those shares. Accordingly, the amount of gain realized upon a taxable disposition of the shares will be greater than would be the case if the Section 754 election had not been made. Tax exempt organizations such as pension plans, profit sharing plans, IRAs, Keoghs, private foundations and other charitable organizations will benefit from the interplay among the Section 754 election, the SGP Trust and the amortization of intangibles in another way. Such entities are subject to the unrelated business income tax 51 on their share of the taxable income of a publicly traded partnership (such as ServiceMaster). However, since their ServiceMaster taxable income is expected to be zero or less (for the reasons discussed above), such entities should not be subject to any unrelated business income tax liability or tax return filing requirement. Other Section 754-Related Matters. If a shareholder's adjusted basis in his or her Partnership Shares is less than his or her proportionate share of adjusted basis of the Principal Partnerships' property at the time of acquisition of such Partnership Shares, such shareholder's share of adjusted basis of the Principal Partnerships' property must be reduced to equal his or her basis in the Partnership Shares, resulting in adverse consequences to such shareholder. A proper allocation of the adjustment among the various assets deemed purchased for purposes of Section 743(b) requires a determination of the relative value of the Principal Partnerships' assets at such time. The IRS may challenge any such allocations. Should the IRS require a different basis adjustment to be made, and should, in the Corporate General Partner's opinion, the expense of compliance exceed the benefit of the election, the Corporate General Partner may seek permission from the IRS to revoke the Section 754 elections for the Principal Partnerships. If such permission is granted, a purchaser of Partnership Shares probably will incur increased tax liability. Termination of the Principal Partnerships for Tax Purposes Code Section 708 provides that if 50% or more of the capital and profits interests in a partnership are sold or exchanged within a single 12- month period, the partnership will be considered to have terminated for tax purposes. Because of the structure of the Principal Partnerships, it is likely that a Code Section 708 termination of the Public Partnership would result in a Code Section 708 termination of the Principal Subsidiary Partnership as well. In view of the fact that Partnership Shares will be publicly traded, it is possible that shares representing 50% or more of the Public Partnership's capital and profits interests might be sold or exchanged within a single 12-month period. However, a share that changes hands several times during a 12-month period would only be counted once for purposes of determining whether a termination has occurred. If the Principal Partnerships should terminate for tax purposes, they would be deemed to have distributed their assets to their partners, who would then be deemed to have contributed the assets to new partnerships. The Principal Partnerships would have a new basis in their non-cash assets equal to the aggregate basis of the shareholders in their Partnership Shares prior to the termination plus any gain recognized by the shareholders in the termination, less any cash deemed distributed to the shareholders in connection with the termination. Accordingly, if the basis of the shareholders in their Partnership Shares is more or less than the Principal Partnerships' aggregate basis in their assets immediately prior to the termination, the Principal Partnerships' basis in their non-cash assets following the termination might have to be reallocated among those assets to reflect the relative fair market values of those assets at the time of termination. Such a reallocation may be favorable or unfavorable, depending on the circumstances. Generally, a shareholder would not recognize any taxable gain or loss as a result of the deemed pro rata distribution of Principal Partnership assets incident to a termination of the Principal Partnerships. A shareholder, however, would recognize gain to the extent, if any, that the shareholder's pro rata share of the Principal Partnerships' cash (and the reduction, if any in the shareholder's share of the Principal Partnerships' indebtedness as determined for purposes of Code Section 752) at the date of termination exceeded the adjusted tax basis of his Partnership Shares. Also, the Principal Partnerships' taxable years would terminate. If the shareholder's taxable year were other than the calendar year, the inclusion of more than one year of the Principal Partnerships' income in a single taxable year of the shareholder could result. Also, new tax elections would be required to be made by the reconstituted partnerships. Finally, a termination of the Principal Partnerships may cause the Principal Partnerships or their assets to become subject to unfavorable statutory or regulatory changes enacted prior to the termination but previously not applicable to the Principal Partnerships or their assets because of protective "transitional" rules. However, a constructive termination under Code Section 708 should not cause the Partnership 52 to lose the benefits of the up-to-10-year grace period during which the application of new Code Section 7704 is postponed. See "Tax Status of the Principal Partnerships" and "Publicly Traded Partnerships Treated as Corporations." In order to preserve maximum liquidity for the Partnership Shares, the Public Partnership has not adopted procedures designed to prevent a deemed termination of the Principal Partnerships from occurring. An actual dissolution of the Principal Partnerships will result in the distribution to the shareholders of record of any assets remaining after payment of, or provision for, the Principal Partnerships' debts and liabilities. To the extent that a shareholder is deemed to receive money (including any reduction in his share of Principal Partnership liabilities as determined for purposes of Code Section 752) in excess of the basis of his Partnership Shares, such excess generally will be taxed as a capital gain, except to the extent of any unrealized receivables or substantially appreciated inventory items, as described above. See "Sale or Other Disposition of Shares." A shareholder will recognize a loss upon dissolution only if the liquidating distribution consists solely of cash, or of cash and unrealized receivables and appreciated inventory items, and then only to the extent that the adjusted basis of his Partnership Shares exceeds the amount of money received and his basis in such unrealized receivables and inventory items. Minimum Tax on Tax Preference Items The Code provides for an alternative minimum tax on the excess of alternative minimum taxable income over an exemption amount. Although these rules are applicable to the shareholders of the Public Partnership, in fact the Public Partnership has had no preference items since inception and does not anticipate generating any preference items in the future. Investment Interest Each individual shareholder's distributive share of the Public Partnership's portfolio income (i.e., income from interest, dividends, annuities and royalties not derived in the ordinary course of a trade or business) will be treated as investment income under Code Section 163(d) and may be offset by the shareholder's investment interest expense. Code section 163(d) has been amended to exclude capital gains on the disposition of investment property from the computation of investment income unless a shareholder elects to include such gains in his or her taxable income at ordinary rates. A portion of the interest incurred by a shareholder to finance the acquisition of Partnership Shares will generally be treated as investment interest expense if the Principal Partnerships hold investment property. The IRS has announced that forthcoming Regulations will also treat an individual shareholder's net passive income from a publicly traded partnership (such as the Public Partnership) as investment income under Code Section 163(d). Accordingly, the amount of an individual shareholder's net passive income if any from the Public Partnership will be treated as investment income for purposes of Code Section 163(d). For this purpose, the computation of the amount of a shareholder's net passive income from the Public Partnership will take into account any passive activity deductions attributable to expenses of the shareholder that are incurred outside the Public Partnership and are properly allocable to the interest in passive activities that the shareholder holds through Partnership Shares. Thus, the amount of a shareholder's net passive income, if any, from the Public Partnership generally will be reduced on account of a portion of any interest incurred by the shareholder to finance the acquisition of Partnership Shares. Noncorporate shareholders are urged to consult their tax advisors with regard to the specific effect that limitations on the deduction of investment interest would have on their investment in the Public Partnership. 53 Tax-Exempt Entities, Individual Retirement Accounts and Regulated Investment Companies Unrelated Business Taxable Income. Tax-exempt entities (including IRAs and trusts that hold assets of employee benefit or retirement plans) are subject to tax on certain income derived from a business regularly carried on by the entity that is unrelated to its exempt activities (i.e., "unrelated business taxable income" ("UBTI")). It is anticipated that nearly all of any tax-exempt entity's share (whether or not distributed) of the Principal Partnerships' gross income will be treated as gross income from an unrelated business, and the tax- exempt entity's share of nearly all of the Principal Partnerships' deductions will be allowed in computing the tax-exempt entity's UBTI. Tax-exempt shareholders other than those who benefit from the interplay between the Section 754 Election, Section 197 and the SGP Trust as described on page 51 would be subject to tax on any UBTI to the extent that the sum of such UBTI (i.e., gross income net of deductions), if any, from their Partnership Shares and from other sources were to exceed $1,000 in any particular year. Moreover, even if their UBTI does not exceed $1,000 so that tax-exempt shareholders do not incur a Federal income tax liability, they nevertheless will be required to file income tax returns if their gross income included in computing such UBTI is $1,000 or more for any tax year. Investment Company Income. For purposes of determining whether a shareholder is a regulated investment company (within the meaning of Code Section 851), the shareholder's income derived from the Principal Partnerships will be treated as income from dividends, interest and gains from the sale or other disposition of securities only to the extent the shareholder's income is attributable to such dividends, interest and gains realized by the Principal Partnerships. Administrative Matters Information to Shareholders and Assignees. In addition to the required Schedule K1 to be furnished by the Public Partnership to holders of Partnership Shares during a particular taxable year, the Public Partnership intends to furnish detailed instructions and explanations advising recipients of the Schedule K1 as to how to fill out their own income tax returns. The information will be provided within 90 days after the end of the Public Partnership's taxable year. Partnership Tax Returns and Possible Audit. Although a partnership is not required to pay any Federal income tax, tax audits are conducted, and the tax treatment of partnership income, loss, deduction and credit is determined, at the partnership level in a unified proceeding. In audits of partnerships, the IRS ordinarily will provide notice of the commencement of administrative proceedings and final adjustment only to each partner with an interest in profits of 1% or more. The Corporate General Partner is designated the "tax matters partner" ("TMP") to receive notice on behalf of and to provide notice to those shareholders with interests of less than 1% in the Public Partnership ("non-notice shareholders"). The TMP may extend the statutory period of limitations for assessment of adjustments attributable to "partnership items" for all shareholders and may enter into a binding settlement on behalf of non-notice shareholders, except for any group of such shareholders with an aggregate interest of 5% or more in Public Partnership profits that elects to form a separate notice group or shareholders who otherwise properly notify the IRS that the TMP is not authorized to act on their behalf. If the IRS and the TMP fail to settle an audit proceeding, then the TMP may choose to litigate the matter. In that event, the TMP would select the court in which such litigation would occur (including, perhaps, a court where prepayment of the tax may be required). All shareholders would have the right to participate in such litigation and, regardless of participation, would be bound by the outcome of the litigation. Because shareholders will be affected by the outcome of any administrative or court proceedings with respect to both the Public Partnership and the Principal Subsidiary Partnership, the Corporate General Partner intends to provide shareholders with appropriate notices of Federal income tax proceedings with respect to both Principal Partnerships. 54 Shareholders will be required to treat Public Partnership items on their individual returns in a manner consistent with the treatment of those items on the Public Partnership's return, unless the shareholders file with the IRS a statement identifying the inconsistency. Examination of the Principal Partnerships' tax returns could result in an adjustment to the tax liability of a shareholder without any examination of the shareholder's tax return. In addition, any such audit could result in an audit of a shareholder's entire tax return and in adjustments to non-partnership related items on that return. Tax Shelter Registration. The Code requires a tax shelter organizer to register a "tax shelter" with the IRS by the first date on which interests in the tax shelter are offered for sale. Such registration does not indicate approval by the IRS and could result in an audit. The registration provisions require the tax shelter organizer to maintain a list containing information on each investor, would require the shareholders to report the Public Partnership's tax registration number on their separate Federal income tax returns, and would require the Public Partnership to maintain a list of each person to whom it transfers an interest in a "tax shelter." Penalties may be imposed if registration is required and not made. A "tax shelter" for purposes of the registration requirement is one in which a person could reasonably infer, from the representations made in connection with any offer for sale of any interest in the investment, that the "tax shelter ratio" for any investor may be greater than two to one as of the close of any of the first five years ending after the date on which the investment is offered for sale. The term "tax shelter ratio" is the ratio that the aggregate amount of gross deductions plus 350% of the credits that are potentially allowable to an investor bears to the partner's investment base for the year. The Public Partnership has not been registered as a "tax shelter" because it expects that no shareholder's tax shelter ratio will exceed two to one. Accuracy-Related Penalties. The Code provides for a penalty to be assessed in the event of a tax underpayment attributable to a substantial overstatement of the value or adjusted basis of property claimed on a tax return. This penalty will apply if (i) the claimed value or adjusted basis of the property equals or exceeds 200% of the correct value or adjusted basis, and (ii) the amount of the tax underpayment for the taxable year attributable to substantial valuation overstatements exceeds $5,000 ($10,000 in the case of a corporation other than an S corporation or a personal holding company). The amount of the penalty generally is 20% of the tax underpayment attributable to substantial valuation overstatements where the claimed value or adjusted basis is less than 400% of the correct value of adjusted basis, and 40% of the tax underpayment attributable to substantial valuation overstatements where the claimed value or adjusted basis equals or exceeds 400% of the correct value or adjusted basis. The penalty will likely be potentially applicable to partners in cases where the partnership has made a substantial valuation overstatement. The penalty generally will not apply with respect to any portion of a tax underpayment attributable to a substantial valuation overstatement (with respect to property other than charitable deduction property) if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion. The Code provides for a penalty in the amount of 20% of any underpayment of tax attributable to a "substantial understatement of income tax." A "substantial understatement of income tax" is the amount of the understatement of tax on a taxpayer's return for a particular taxable year that exceeds the greater of $5,000 ($10,000 if the taxpayer is a corporation other than an S corporation or a personal holding company) or 10% of the tax required to be shown on the return for the year. As a general rule, the penalty will not be imposed with respect to underpayments attributable to items for which (i) there is or was substantial authority for the tax treatment afforded such items by the taxpayer, or (ii) the relevant facts affecting the treatment of such items are adequately disclosed in the taxpayer's return or in a statement attached to the return and there was a reasonable basis for the position. The penalty will not apply with respect to any portion of a tax underpayment attributable to a substantial understatement of income tax if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion. There can be no assurance that a shareholder will not have a substantial understatement of income tax as a result of the treatment of items of income, gain, loss, deduction and credit resulting from his investment in the Public Partnership or that the IRS will not contend that there is not 55 substantial authority for the treatment on the shareholder's return of certain items of income, gain, loss, deduction and credit. If the IRS should challenge the treatment by the Principal Partnerships for tax purposes of the various items of income, gain, loss, deduction and credit, and if a shareholder should fail to meet the substantial authority and adequate disclosure tests, a shareholder could incur a penalty for a substantial underpayment of taxes resulting from his investment in the Public Partnership. Interest on Deficiencies. The Code provides that interest accrues on all tax deficiencies at a rate based on the Federal short-term rate plus 3 percentage points (5 percentage points in certain cases involving underpayment by a C corporation of tax amounting to more than $100,000) and compounded daily. This interest applies to penalties as well as tax deficiencies. Backup Withholding. Distributions to shareholders whose Partnership Shares are held on their behalf by a broker may constitute reportable payments subject to backup withholding. Backup withholding, however, would apply only if the shareholder (i) failed to furnish his Social Security number or other taxpayer identification number to the person subject to the backup withholding requirement (e.g., the broker) or (ii) furnished an incorrect Social Security number or taxpayer identification number. If backup withholding were applicable to a shareholder, the person subject to the backup withholding requirement would be required to withhold 31% of each distribution to such shareholder and to pay such amount to the IRS on behalf of such shareholder. Amounts withheld under the backup withholding provisions are allowable as a refundable credit against a taxpayer's Federal income tax. Tax Considerations for Foreign Investors General. A nonresident alien or foreign corporation, trust or estate ("foreign person") which is a partner in a partnership which is engaged in a business in the United States will be considered to be engaged in such business, even though the foreign person is only a limited partner. The activities of the Principal Partnerships will constitute a United States business for this purpose, and such activities likely will be deemed to be conducted through a permanent establishment within the meaning of the Code and applicable tax treaties. Therefore, a foreign person who becomes a shareholder in the Public Partnership will be required to file a United States tax return on which he must report his distributive share of the Principal Partnerships' items of income, gain, loss, deduction and credit, and to pay United States taxes at regular United States rates on his share of any of the Principal Partnerships' net income, whether ordinary income or capital gains. Code Section 1446 generally requires partnerships which have taxable income effectively connected with a trade or business in the United States to withhold tax with respect to the portion of such income allocable to foreign partners. This withholding tax generally is imposed at the rate of 39.6% with respect to effectively connected income (as computed for purposes of Section 1446) allocable to foreign individuals, and 35% with respect to effectively connected income (as computed for purposes of Section 1446) allocable to foreign corporations and withholding may be required under Section 1446 even if no actual distribution has been made to partners. However, pursuant to an IRS Revenue Procedure, in the case of a publicly traded partnership (such as the Public Partnership) the Code Section 1446 withholding tax will be imposed in an alternative manner unless the publicly traded partnership elects not to have such alternative treatment apply. Under this alternative approach, the Code Section 1446 withholding tax is imposed on distributions made to individual or corporate foreign partners. The Treasury is authorized to issue such regulations applying Section 1446 to publicly traded partnerships as may be necessary to carry out the purposes of Section 1446, but such regulations have not yet been issued. Although foreign shareholders would be entitled to a United States tax credit for amounts withheld by Principal Partnerships under Section 1446, either Section 1446 or the regulations (not yet issued) applying Section 1446 to publicly traded partnerships could under some circumstances adversely affect the Principal Partnerships and the foreign shareholders. Branch Profits Tax. Code Section 884 imposes a branch profits tax at the rate of 30 percent (or lower to the extent provided by any applicable income tax treaty) on the earnings and profits (after certain adjustments) of a U.S. branch of a foreign corporation, if such earnings and profits are attributable to income effectively connected 56 with a U.S. trade or business. The legislative history of Code Section 884 indicates that the branch prose tax is intended to apply to foreign corporations that are partners in partnerships which have a U.S. trade or business. Thus, foreign corporations which own shares in the Public Part- nership may be subject to the branch profits tax on earnings and profits attributable to the Principal Partnerships' income as well as federal income tax on their share of Partnership income. The earnings and profits (which are subject to branch profits tax) attributable to Partnership Shares held by a foreign corporation will, of course, reflect a reduction for Federal income taxes paid by the foreign corporate shareholder on its share of Partnership income. FIRPTA. The Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), as amended by subsequent legislation, provides that gain or loss on the disposition of a United States Real Property Interest ("USRPI") is taxable in the United States as if effectively connected with a U.S. business and imposes withholding requirements on such sales and on distributions of USRPIs by partnerships to foreign persons. USRPIs include (i) United States real estate and (ii) interest in certain entities (including publicly traded partnerships) holding United States real estate. The shares will not be USRPIs unless the value of the Principal Partnerships' United States real estate equals or exceeds 50% of the value of all its business assets. Furthermore, the FIRPTA rules generally do not apply to any foreign person which owns 5% or less of the publicly traded Partnership Shares. FIRPTA also imposes certain withholding obligations with respect to dispositions of USRPIs by a partnership that are includable in a foreign person's share of partnership income. Foreign Taxes. A foreign person may be subject to tax on his share of the Principal Partnerships' income and gain in his country of nationality or residence, or elsewhere. The method of taxation in such jurisdictions, if any, may differ considerably from the United States tax system described previously, and may be affected by the United States characterization of the Principal Partnerships and their income. Prospective investors who are foreign persons should consult their own tax advisors with respect to the potential tax effects of these and other items related to an investment in the Public Partnership. State and Local Income Taxes In addition to the Federal income tax consequences described above, prospective investors should consider state and local tax consequences of an investment in the Public Partnership. A shareholder's share of the taxable income or loss of the Principal Partnerships generally will be required to be included in determining his reportable income for state or local tax purposes. If the Public Partnership is treated as a corporation under Code Section 7704, as described above under "Tax Status of the Partnerships" -- "Publicly Traded Partnerships Treated as Corporations," the Public Partnership may also be treated as a corporation for state tax purposes in those states which base state income taxes on Federal income tax laws. Management has been successful in filing a composite return on behalf of its individual shareholders in all states where the Principal Partnerships do business. The Public Partnership will provide information each year to the shareholders as to the share of income and taxes paid on their behalf in each state. For those entities not included in the composite state return (corpo- rations, partnerships and certain other entities), the Public Partnership will provide the applicable state information. Certain tax benefits which are available to shareholders for Federal income tax purposes may not be available to shareholders for state or local tax purposes and, in this regard, investors are urged to consult their own tax advisors. The Public Partnership intends to supply shareholders with information regarding their income, if any, derived from various jurisdictions in which the Principal Subsidiary Partnership operates. 57 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATE GENERAL PARTNER, SERVICEMASTER AND MERGER SUB 1. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATE GENERAL PARTNER AND SERVICEMASTER. The following table sets forth, as of the date hereof, the name, business address and present principal occupation or employment, and material occupations, positions, offices or employments for the last five years of each director and executive officer of the Corporate General Partner and ServiceMaster. Each person is a citizen of the United States of America, and, unless otherwise indicated below, the business address of each such person is c/o The ServiceMaster Company, One ServiceMaster Way, Downers Grove, Illinois 60515-9969.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS - ------------------------- ---------------------------------------------------------------- C. William Pollard...... Director since December 1977. Since May 1990, he has been the Chairman of the Board of Directors and Chairman of the Executive Committee. He is a member of the Consumer Services and International and New Business Development Committee, the Management Services and Diversified Health Services Committee, the Finance Committee and the Nominating Committee. From May 1983 to December 31, 1993, Mr. Pollard served as the Chief Executive Officer of ServiceMaster. He served as President of ServiceMaster from 1981 to May 1990. Mr. Pollard is a director of Herman Miller, Inc., Zeeland, Michigan, an office furniture manufacturer, and a director of Provident Companies, Inc., Chattanooga, Tennessee. Carlos H. Cantu......... Director since 1988. He is a member of the Executive Committee, the Consumer Services and International and New Business Development Committee, the Management Services and Diversified Health Services Committee, the Finance Committee and the Nominating Committee. On January 1, 1994, Mr. Cantu became the President and Chief Executive Officer of ServiceMaster. He served as the President and Chief Executive Officer of ServiceMaster Consumer Services from May 1991 to August 1994, as Executive Vice President and Chief Operating Officer, Consumer Services, from October 1988 to May 1990 and as President and Chief Operating Officer of ServiceMaster Consumer Services from June 1, 1990 to May 1991. He served as President and Chief Executive Officer of The Terminix International Company Limited Partnership from December 18, 1986 to December 31, 1992. He has been a director of Haggar Corporation, a clothing manufacturing company in Dallas, Texas, since February 9, 1995 and a director of First Tennessee National Corporation, a bank holding company, since April 16, 1996. Charles W. Stair........ Director since December 1986. He previously served as a director from 1976 to 1983. On December 10, 1994 he was elected Vice Chairman of the Board of Directors. He is a member of the Management Services and Diversified Health Services Committee. Mr. Stair is a member of the Profit Sharing, Savings and Retirement Plan Administrative Committee. He served as the President and Chief Executive Officer of ServiceMaster Management Services from May 1991 to December 31, 1994, as President and Chief Operating Officer, Management Services, from June 1990 to April 1991, and as Executive Vice President and Chief Operating Officer, Management Services, from October 1, 1988 to May 1990.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS - ------------------------- ---------------------------------------------------------------- Paul W. Berezny......... Director since October 7, 1995. He is a member of the Management Services and Diversified Health Services Committee. He is President of Berezny Investments, Inc., a real estate development and management company. Sidney E. Harris........ Director since December 10, 1994. He is a member of the Management Services and Diversified Health Services Committee. He has been the Dean of the Peter F. Drucker Graduate Management Center at the Claremont Graduate School, Claremont, California since 1991. He is a cofounder of the Institute for the Study of U.S./Japan Relations in the World Economy. Dr. Harris is a director of Transamerica Investors, Inc., Los Angeles, California, a mutual funds investment company. Herbert P. Hess......... Director since 1981. He is a member of the Executive Committee, the Consumer Services and International and New Business Development Committee, the Finance Committee, the Nominating Committee, the Compensation Committee and the Share Option Committee. Mr. Hess is a Managing Director of Berents & Hess Capital Management, Inc., an investment management firm. He is the past President and Chief Executive Officer of State Street Research & Management Company, an investment management firm. Mr. Hess was Chairman of MetLife-State Street Investment Services, Inc. from 1988 to April 1, 1990. Kay A. Orr.............. Director since January 1, 1994. She is a member of the Consumer Services and International and New Business Development Committee. Mrs. Orr was Governor of Nebraska from 1987 to 1991 and served as the State Treasurer of Nebraska from 1981 to 1986. From 1979 to 1981, she served as Chief of Staff to the Governor of Nebraska. Mrs. Orr is a director of The Williams Companies, Inc., Tulsa, Oklahoma, a pipeline company. Phillip B. Rooney....... Director since January 1, 1994. He is a member of the Executive Committee, the Consumer Services and International and New Business Development Committee and the Compensation Committee. Mr. Rooney is a director and the President and Chief Operating Officer of WMX Technologies, Inc., Oak Brook, Illinois, the Chairman of the Board and Chief Executive Officer of Wheelabrator Technologies Inc., Hampton, New Hampshire, and a director of Waste Management International, plc, London, England. He is also a director of Illinois Tool Works, Inc., Caremark International. Inc. and Urban Shopping Centers, Inc. Lord Brian Griffiths of Fforestfach............ Director since August 1992. He is a member of the Executive Committee, the Nominating Committee and the Compensation Committee. Since 1991, he has been an international advisor to Goldman, Sachs & Co. concerned with strategic issues related to their United Kingdom and European operations and business development activities worldwide. During the period 1985 to 1990, he served at No. 10 Downing Street as Head of the Prime Minister's Policy Unit. He was made a life peer at the conclusion of his service to the Prime Minister. Lord Griffiths is a director of THORN EMI plc, a music recording company, Times Newspapers Holding Ltd., London, England, a newspaper company, Herman Miller, Inc., Zeeland, Michigan, an office furniture manufacturer, and Telewest, London, England, a television company.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS - ------------------------- ---------------------------------------------------------------- Michele M. Hunt......... Director since October 7, 1995. She is a member of the Management Services and Diversified Health Services Committee. Since July 1995, Ms. Hunt has been a private business consultant. She was appointed by President Clinton as Director of the Federal Quality Institute and served in such role from August 1993 to June 1995. From 1980 to July 1993, she served as Corporate Vice President for People and Quality with Herman Miller, Inc., an office furniture manufacturer. Gunther H. Knoedler..... Director since 1979. He is a member of the Executive Committee, the Management Services and Diversified Health Services Committee, the Audit Committee (of which he is the Chairman), the Compensation Committee and the Share Option Committee. Mr. Knoedler is a retired Executive Vice President and Director Emeritus of Bell Federal Savings & Loan Association, Chicago, Illinois. Vincent C. Nelson....... Director since 1978. Mr. Nelson is a member of the Executive Committee, the Consumer Services and International and New Business Development Committee, the Nominating Committee, the Compensation Committee, the Audit Committee, the Employee Share Purchase Plan Administrative Committee and the Share Option Committee. Mr. Nelson is a business investor. Dallen W. Peterson...... Director since October 7, 1995. Mr. Peterson served as the Chairman of Merry Maids, Inc. until the acquisition of that company's assets by Merry Maids Limited Partnership in July 1988. He is presently the Chairman of Merry Maids Limited Partnership. He is a member of the Consumer Services and International and New Business Development Committee. Henry O. Boswell........ Director since 1985. He is a member of the Executive Committee, the Consumer Services and International and New Business Development Committee, the Finance Committee, the Nominating Committee and the Compensation Committee. From 1983 until his retirement in October 1987, Mr. Boswell was President of Amoco Production Company. During the same time period, he was Chairman of the Board of Amoco Canada and a director of Amoco Corporation. Mr. Boswell is a director of Rowan Companies, Inc., Houston, Texas, an offshore oil drilling company, and Cabot Oil & Gas Corp., Houston, Texas, an oil and gas production company. James D. McLennan....... Director since May 1986. He is a member of the Management Services and Diversified Health Services Committee and the Audit Committee. Mr. McLennan joined McLennan Company, a full service real estate company, in 1958. He was named partner in 1968 and became President in 1981. Mr. McLennan is also a director of The Loewen Group Inc., a provider of funeral services, Burnaby, B.C., Canada. Burton E. Sorensen...... Director since May 1984. He is a member of the Executive Committee, the Finance Committee and the Compensation Committee. He is the Chairman and Chief Executive Officer of Lord Securities Corporation. He served as President and Chief Executive Officer of the corporation from December 1984 to December 1992. Mr. Sorensen is also a director of Provident Companies, Inc., Chattanooga, Tennessee.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS - ------------------------- ---------------------------------------------------------------- David K. Wessner........ Director since March 1987. He is a member of the Executive Committee, the Management Services and Diversified Health Services Committee and the Compensation Committee. Mr. Wessner is Executive Vice President, HealthSystem Minnesota. Previously, he was Senior Vice President, Program and Process Improvement, Geisinger Health System, from November 1992 to August 1994 and Senior Vice President and Administrative Director from 1982 to November 1992. Ernest J. Mrozek........ Chief Financial Officer and, since January 1, 1997, President and Chief Operating Officer, Consumer Services. He served as Vice President and Chief Financial Officer from May 1994 to December 1994, as Vice President, Treasurer and Chief Financial Officer from November 1, 1992 to April 30, 1994, as Vice President and Chief Accounting Officer, from January 1, 1990 to October 31, 1992 and as Vice President, Accounting, from December 1987 to December 1989. He practiced public accounting as a manager with Arthur Andersen LLP from 1981 to December 1987. Robert D. Erickson...... Director from May 1987 to May 1993. He previously served as a director from May 1981 through May 1984. He is a non-director member of the Consumer Services and international and New Business Development Committee. Mr. Erickson also is a member of the Profit Sharing, Savings and Retirement Plan Administrative Committee, the Employee Share Purchase Plan Administrative Committee, and the Employee Benefits Plan Committee. He is President and Chief Operating Officer, International and New Business Development. He served as Executive Vice President and Chief Operating Officer of this division from November 1992 to October 1993. He served as Executive Vice President and Chief Operating Officer, People Services, from January 1990 to October 1992. Brian D. Oxley.......... Executive Vice President since January 1, 1997. From January 1, 1994 to December 31, 1996, he served as President and Chief Operating Officer of ServiceMaster Management Services and ServiceMaster Healthcare Services. From November 1992 to December 31, 1993, he served as the President and Chief Executive Officer of the International and New Business Development Group. He served as Executive Vice President, New Business Development from January 1991 to November 11, 1992 and as President of International Services from January 1, 1988 to November 11, 1992. He is a non-director member of the Management Services and Diversified Health Services Committee. Jerry D. Mooney......... President and Chief Executive Officer of ServiceMaster Diversified Health Services, Inc. until December 31, 1995, and now serves as President, Healthcare New Business Initiatives. He has held the positions with Diversified Health Services since the acquisition of the business by the Registrant in August 1993. He is a non-director member of the Management Services and Diversified Health Services Committee of the Board of Directors. He is also a director, chairman of the audit committee and member of the compensation committee of Concord EFS, Inc., Memphis, Tennessee, involved primarily in the electronic processing of debit and credit card transactions. He also serves as a director of Thompco Medical, Inc., and on an Advisory Board for SouthTrust Corporation.
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PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS NAME AND BUSINESS ADDRESS HELD DURING THE PAST FIVE YEARS - ------------------------- ---------------------------------------------------------------- Robert F. Keith......... President and Chief Operating Officer of ServiceMaster Management Services since January 1, 1997. He served as President and Chief Operating Officer, ServiceMaster Consumer Services from July 1994 to December 31, 1996, Group President, ServiceMaster Consumer Services, from November 1992 to July 1994. He had been Vice President, Treasurer and Chief Financial Officer from November 1989 to October 1992. He is a non-director member of the Consumer Services and International and New Business Development Committee. Vernon T. Squires....... Senior Vice President and General Counsel effective January 1, 1988. He served as Vice President and General Counsel from April 1, 1987 until December 31, 1987. He served as an associate and partner with the law firm of Wilson & McIlvaine in Chicago, specializing in corporate and tax law, from 1960 to April 1, 1987. He is presently Of Counsel to that firm. Eric R. Zarnikow........ Vice President and Treasurer effective May 1, 1994. He is a member of all ServiceMaster employee benefit plan committees. From August 1991 to April 1994, he served as Vice President and Treasurer of Gaylord Container Corporation. He was Treasurer of Gaylord Container Corporation from June 1987 to July 1991. Deborah A. O'Connor..... Vice President and Controller effective January 1, 1993. From July 1991 to December 1992, she was Manager of Financial Projects. She previously had practiced public accounting with Arthur Andersen LLP since 1984. She is a member of the Profit Sharing, Savings and Retirement Plan Administrative Committee.
2. DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB
NAME POSITION WITH MERGER SUB ---- ------------------------ Carlos H. Cantu President Ernest J. Mrozek Director and Vice President Vernon T. Squires Director, Vice President and Secretary Eric R. Zarnikow Director and Treasurer
I-5 Facsimile copies of the Letter of Transmittal will not be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent by each holder of Shares to the Exchange Agent as follows: Exchange Agent: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand: By Overnight Courier: Harris Trust Company Harris Trust Harris Trust of New York Company Company Wall Street Station of New York of New York P.O. Box 1023 Receive Window 77 Water Street New York, New York 10268- 5th Floor New York, New York 1023 77 Water Street 10005 New York, New York Delivery of this Letter of Transmittal to an address other than as set forth above will not constitute a valid delivery. Any questions or requests for assistance or additional copies of the Offering Circular / Prospectus and the Letter of Transmittal may be directed to either the Exchange Agent by calling (212) 701-7624 (collect) or the Information Agent at its telephone number and location listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. ---------------- Information Agent: D. F. KING & CO., INC. 77 Water Street New York, New York 10005 (212) 269-5550 (Collect) Toll Free (800) 848-3410 ---------------- The Dealer Managers are: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 (212) 902-1000 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL/ FORM OF ELECTION TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF BAREFOOT INC. PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED JANUARY 17, 1997 BY SERVICEMASTER LIMITED PARTNERSHIP THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED. The Exchange Agent for the Offer is HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand: By Overnight Courier: Harris Trust Company Harris Trust Company Harris Trust Company of New York of New York of New York Wall Street Station Receive Window 4th Floor P.O. Box 1023 5th Floor 77 Water Street New York, New York 10268- 77 Water Street New York, New York 1023 New York, New York 10005 This Letter of Transmittal/Form of Election is to be completed by holders of shares of common stock, par value $.01 per share ("Barefoot Share"), of Barefoot Inc., a Delaware corporation ("Barefoot"), if certificates representing Barefoot Shares, including the associated Series A Junior Participating Preferred Stock Purchase Rights ("Certificate(s)") are to be forwarded herewith. Holders of Barefoot Shares whose certificates are not immediately available, or who are unable to deliver their certificates or a confirmation of a book-entry transfer of their Barefoot Shares into the Exchange Agent's account at a Book-Entry Transfer Facility (a "Book Entry Confirmation") and all other documents required by this Letter of Transmittal/Form of Election to the Exchange Agent on or prior to the Expiration Date (as defined in the section of the Offering Circular/Prospectus entitled "The OFFER--Terms of the Offer"), must tender their Barefoot Shares according to the guaranteed delivery procedure set forth in the section of the Offering Circular/Prospectus entitled "The OFFER--Procedures for Tendering Shares." See Instruction B. Facsimile copies of this Letter of Transmittal/Form of Election will not be accepted. This Letter of Transmittal/Form of Election, Certificates and any other required documents should be sent by each holder of Barefoot Shares to the Exchange Agent at one of the addresses set forth above. Delivery of this Letter of Transmittal/Form of Election to an address other than as set forth above will not constitute a valid delivery. If you have any questions regarding this Letter of Transmittal/Form of Election, please call the Exchange Agent collect at (212) 701-7624. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. Ladies and Gentlemen: In connection with the offer by ServiceMaster Limited Partnership ("ServiceMaster") to acquire each outstanding share ("Barefoot Share") of common stock, par value $0.01 per share, of Barefoot Inc. ("Barefoot"), a Delaware corporation, together with the associated Series A Junior Participating Preferred Stock Purchase Rights (the "Rights") not already owned by ServiceMaster, the undersigned hereby submits the Certificates evidencing Barefoot Shares referred to below and directs (the "Election") that each such Barefoot Share be exchanged for (i) $16.00 in cash, without any interest thereon (the "Cash Consideration") pursuant to a "Cash Election"; or (ii) a fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration") pursuant to a "Share Election." It is understood that a tender of Barefoot Shares is subject to (i) the terms, conditions and limitations set forth in the Offering Circular/Prospectus, dated January 17, 1997, receipt of which is hereby acknowledged by the undersigned, (ii) the terms of the Acquisition Agreement, dated as of December 5, 1996 (the "Acquisition Agreement"), attached as Annex A-I to the Offering Circular/Prospectus and (iii) the accompanying instructions. The undersigned understands that tenders of Barefoot Shares pursuant to any of the procedures described below or in the Offering Circular/Prospectus will constitute the undersigned's acceptance of the terms and conditions described herein. Unless the Barefoot Shares tendered with this Letter of Transmittal/Form of Election have been properly withdrawn in accordance with the instructions found below and in the Offering Circular/Prospectus, ServiceMaster's acceptance of Barefoot Shares delivered pursuant to this Form of Election/Letter of Transmittal will constitute a binding agreement between the undersigned and ServiceMaster upon the terms and subject to the conditions of (i), (ii) and (iii) listed above. The Offering Circular/Prospectus and this Letter of Transmittal/Form of Election together form, and are referred to herein as, the "Offer." Capitalized terms used but not defined herein shall have the meanings set forth in the Offering Circular/Prospectus. Unless Rights certificates are issued, a tender of Barefoot Shares pursuant to the Offer will constitute a tender of the associated Rights evidenced by the certificates for such Barefoot Shares. All references to Barefoot Shares shall include the associated Rights. NONE OF SERVICEMASTER, BAREFOOT, THE BAREFOOT BOARD OF DIRECTORS OR THE SERVICEMASTER BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR OWN DECISION WITH RESPECT TO SUCH ELECTION. The undersigned authorizes and instructs you, as Exchange Agent, to deliver the Certificates listed below and to receive on behalf of the undersigned, in exchange for the Barefoot Shares represented thereby, any check for the cash or any certificate for the ServiceMaster Shares issuable pursuant to the Offer. The undersigned represents and warrants that the undersigned has full power and authority to surrender the Certificate(s) surrendered herewith or covered by a guarantee of delivery, free and clear of any liens, claims, charges or encumbrances whatsoever. The undersigned understands and acknowledges that the method of delivery of the Certificate(s) and all other required documents is at the option and risk of the undersigned and that the risk of loss of such Certificate(s) shall pass only after the Exchange Agent has actually received the 2 Certificate(s). All questions as to the validity, form and eligibility of any Election and surrender of Certificates hereunder shall be determined by ServiceMaster (which may delegate such authority in whole or in part to the Exchange Agent), and such determination shall be final and binding. The undersigned, upon request, shall execute and deliver all additional documents deemed by the Exchange Agent or ServiceMaster to be necessary or desirable to complete the sale, assignment, transfer, cancellation and retirement of the Barefoot Shares delivered herewith. No authority hereby conferred or agreed to be conferred hereby shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. By executing this Letter of Transmittal/Form of Election, the undersigned irrevocably appoints designees of ServiceMaster as the undersigned's attorneys-in-fact and proxies, each with full power of substitution, to the full extent of the undersigned's rights with respect to the Barefoot Shares tendered by the undersigned and accepted for payment by ServiceMaster (and any and all other Barefoot Shares or other securities issued or issuable in respect of such Tendered Shares on or after the date of the Acquisition Agreement). All such proxies shall be considered coupled with an interest in the Tendered Shares. This appointment will be effective when, and only to the extent that, ServiceMaster accepts Barefoot Shares for payment. Upon acceptance for payment, all prior proxies given by the undersigned with respect to the Barefoot Shares or other securities will, without further action, be revoked, and no subsequent proxies may be given nor any subsequent written consent executed by the undersigned (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of ServiceMaster will, with respect to the Barefoot Shares and other securities, be empowered to exercise all voting and other rights of the undersigned as they in their sole discretion may deem proper at any annual, special or adjourned meeting of Barefoot's stockholders, by written consent or otherwise. ServiceMaster reserves the right to require that, in order for Barefoot Shares to be deemed validly tendered, immediately upon ServiceMaster's acceptance for payment of such Barefoot Shares, ServiceMaster must be able to exercise full voting and other rights of a record and beneficial holder, including rights in respect of acting by written consent, with respect to such Barefoot Shares. The undersigned understands that, in lieu of any fractional ServiceMaster Share, ServiceMaster will pay to each former stockholder of Barefoot who otherwise would be entitled to receive a fractional ServiceMaster Share an amount in cash determined by multiplying (i) the greater of $23.00 or the Average ServiceMaster Share Price by (ii) the fractional interest in a ServiceMaster Share to which such holder would otherwise be entitled. Unless otherwise indicated in the box entitled "Special Payment Instructions," please issue any check and register any certificate for ServiceMaster Shares in the name of the registered holder(s) of the Barefoot Shares appearing below. Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail any check and any certificate for ServiceMaster Shares to the registered holder(s) of the Barefoot Shares at the addresses of the registered holder(s) appearing below under the box entitled "Certificates Surrendered." In the event that the box entitled "Special Payment Instructions" and the box entitled "Special Delivery Instructions" both are completed, please issue any check and any certificate for ServiceMaster Shares in the name(s) of, and mail such check and such certificate to, the person(s) so indicated. 3 Enclosed are the following Certificates representing Barefoot Shares, which are tendered pursuant to the Offer: BOX A: CERTIFICATES SURRENDERED Please list in Box A all the Certificates that you are tendering regardless of which Election you make. If there is not enough space below to list all of your Certificates, please attach a separate sheet. Use Box B to specify how many shares, if any, are covered by each Election. A separate Letter of Transmittal/Form of Election should be submitted for shares registered in different names (see General Instruction H-2). - -------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS OF REGISTERED HOLDER(S) (PLEASE FILL IN OR MAKE CORRECTIONS NEEDED IF LABEL IS CERTIFICATES AFFIXED) ENCLOSED - ------------------------------------------------------------------------------------------------- NUMBER OF CERTIFICATE BAREFOOT NUMBER OF BAREFOOT NUMBER(S) SHARES SHARES TENDERED* ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- TOTAL TOTAL - -------------------------------------------------------------------------------------------------
*Unless otherwise indicated, it will be assumed that all Barefoot Shares being delivered to the Exchange Agent are being tendered. 4 BOX B: ELECTION FORM PLEASE READ CAREFULLY INSTRUCTIONS A THROUGH G PRIOR TO COMPLETING THIS FORM. CHECK ONLY ONE OF THE BOXES BELOW. You may make a Cash Election or a Share Election as to any Barefoot Share or combination of Barefoot Shares that you hold. If you wish to make multiple elections, check the "Multiple Election" box below and indicate in the space provided below the number of Barefoot Shares represented by the Certificate(s) submitted for which a Cash Election or a Share Election is being made. IF YOU FAIL TO MAKE AN EFFECTIVE ELECTION, YOU WILL BE DEEMED TO HAVE MADE A CASH ELECTION. [_] The CASH ELECTION ($16.00 in cash per share) is made as to all of the Barefoot Shares represented by the Certificate(s) submitted with this Letter of Transmittal/Form of Election. [_] The SHARE ELECTION (The fraction of a ServiceMaster Share per Barefoot Share determined by dividing $16.00 by the greater of (i) $23.00 or (ii) the Average ServiceMaster Share Price) is made as to all of the Barefoot Shares represented by the Certificate(s) submitted with this Letter of Transmittal/Form of Election. [_] Multiple Elections are made as to the Barefoot Shares represented by the Certificate(s) submitted with this Letter of Transmittal/Form of Election, in the following proportions:
NUMBER OF SHARES AS NUMBER OF SHARES AS TO WHICH A CASH TO WHICH A SHARE ELECTION IS MADE ELECTION IS MADE ------------------- ------------------- ------------------- -------------------
If a Multiple Election has been made, the total number of Barefoot Shares subject to the Multiple Election must equal the total number of Barefoot Shares being tendered hereby as reflected in Box A. For information as to certain Federal income tax consequences of an Election, see the section of the Offering Circular/Prospectus entitled "CERTAIN FEDERAL INCOME TAX CONSEQUENCES". NOTE: IF YOU HAVE SUBMITTED A NOTICE OF GUARANTEED DELIVERY FOR THE BAREFOOT SHARES DELIVERED WITH THIS LETTER OF TRANSMITTAL/FORM OF ELECTION AND THE OFFER HAS EXPIRED PRIOR TO DELIVERY HEREOF, THEN THE ELECTION MADE IN SUCH NOTICE OF GUARANTEED DELIVERY MAY NOT BE CHANGED BY THIS LETTER OF TRANSMITTAL /FORM OF ELECTION. --------------- Except as otherwise requested in the "Special Payment Instructions" or the "Special Delivery Instructions" boxes below, the undersigned requests that the check for any cash payment and the certificate for any ServiceMaster Shares to which the undersigned is entitled be made payable to the order of and registered in the name of, and be delivered to, the registered holder(s) set forth in Box A above at the address set forth in Box A above. 5 BOX C: SPECIAL PAYMENT INSTRUCTIONS Fill in ONLY if the check and/or certificate(s) are to be issued in a name OTHER than the name appearing in Box A above. (If this Box C is filled in, then unless otherwise indicated in Box D, any check or certificates issued in exchange for Barefoot Shares will be mailed to the address indicated in this Box C.) Issue check and/or certificates to: Name: ___________________________________________________ (PLEASE PRINT) Address: ________________________________________________ -------------------------------------------------- (ZIP CODE) --------------------------------------------------------- SOCIAL SECURITY OR IRS IDENTIFICATION NUMBER OF PERSON NAMED ABOVE BOX D: SPECIAL DELIVERY INSTRUCTIONS Fill in ONLY if the check and/or certificate(s) are to be sent to an address OTHER than the address appearing in Box A above, or if Box C is filled in, to an address OTHER than the address appearing in Box C. Mail check and/or certificates to: Name: ___________________________________________________ (PLEASE PRINT) Address: ________________________________________________ -------------------------------------------------- (ZIP CODE) BOX E: GUARANTEE OF DELIVERY [_] CHECK THIS BOX IF THE BAREFOOT SHARES WHICH ARE THE SUBJECT OF THIS LETTER OF TRANSMITTAL/FORM OF ELECTION HAVE BEEN PREVIOUSLY TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENDORSED BY AN ELIGIBLE INSTITUTION. Name of Registered Holder: ___________________________________________________ Name of Eligible Institution Guaranteeing Delivery: __________________________ 6 SIGNATURES Dated: _____________, 1997 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) or by persons authorized to become registered holders by certificates and documents transmitted herewith. If signature is by an officer of a corporation, attorney-in-fact, executor, administrator, trustee, guardian or other persons acting in a fiduciary or representative capacity, please set forth full title and see General Instructions H-2, 4 and 5.) Name: _____________________________ (PLEASE PRINT) Signature: ________________________ Capacity (full title): ____________ Address: __________________________ ---------------------------- (ZIP CODE) Area Code and Tel. No.: _________________________ ----------------------------------- (IRS Identification or Social Security No.) (Also complete Substitute Form W-9 below) Name: _____________________________ (PLEASE PRINT) Signature: ________________________ Capacity (full title): ____________ Address: __________________________ ---------------------------- (ZIP CODE) Area Code and Tel. No.: _________________________ ----------------------------------- (IRS Identification or Social Security No.) (Also complete Substitute Form W-9 below) GUARANTEE OF SIGNATURES (IF REQUIRED--SEE GENERAL INSTRUCTIONS H-3 AND H-4) Authorized Signature of Guarantor's Representative: ___________________________ Name: _________________________________________________ (PLEASE PRINT) Name of Firm: _________________________________________ Address: ______________________________________________ ------------------------------------------------- (ZIP CODE) Area Code and Tel. No.: _____________________________________________ Dated: _____________, 1997 7 PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK SUBSTITUTE PART 1--PLEASE Social security number(s) or IRS PROVIDE YOUR TIN IN Identification Number(s) THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. FORM W-9 DEPARTMENT -------------------------- OF THE (If awaiting TIN write "Applied For") TREASURY INTERNAL ---------------------------------------------------------------- REVENUE SERVICE PART 2--Certificates--Under penalties of perjury, I certify that: PAYER'S (1) The number shown on this form is my correct taxpayer REQUEST FOR identification number (or I am waiting for a number to be TAXPAYER issued for me), and IDENTIFICATION (2) I am not subject to backup withholding because: (a) I am NUMBER exempt from backup withholding, or (b) I have not been ("TIN") notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax return. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. ---------------------------------------------------------------- PART 3-- SIGNATURE: DATE: Awaiting TIN ^ [_] CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me thereafter will be withheld until I provide a number. Signature: __________________________________________ Date: ________________ 8 INSTRUCTIONS FOR COMPLETION OF LETTER OF TRANSMITTAL/FORM OF ELECTION This Letter of Transmittal/Form of Election should be properly filled in, dated, signed and delivered, together with the Certificates representing the Barefoot Shares currently held by you, to the Exchange Agent. This Letter of Transmittal/Form of Election and the Election you make herein, are subject to the terms and conditions set forth herein, in the Offering Circular/Prospectus which has been enclosed herewith and in the Acquisition Agreement which is attached as Annex A-I thereto. EACH HOLDER OF BAREFOOT SHARES IS STRONGLY ENCOURAGED TO READ THE OFFERING CIRCULAR/PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE CONTENTS THEREOF AND THIS LETTER OF TRANSMITTAL/FORM OF ELECTION WITH HIS OR HER FINANCIAL AND TAX ADVISORS PRIOR TO DECIDING UPON AN ELECTION. A. ELECTIONS This Letter of Transmittal/Form of Election provides for your Election as to the form of consideration to be received by you in exchange for your Barefoot Shares. At your direction, subject to the terms and conditions set forth in this Letter of Transmittal/Form of Election and in the Offering Circular/Prospectus, each Barefoot Share will be converted into either: . $16.00 in cash (the "Cash Consideration") pursuant to a "CASH ELECTION;" or . The fraction of a ServiceMaster Share determined by dividing $16.00 by the greater of (i) $23.00 or (ii) the Average ServiceMaster Share Price (the "Share Consideration") pursuant to a "SHARE ELECTION". You may make a Cash Election or a Share Election as to any Barefoot Share or combination of Barefoot Shares that you hold. If you have previously submitted a Notice of Guaranteed Delivery for the Barefoot Shares which are the subject of this Letter of Transmittal/Form of Election and the Offer has expired, then the election made in such Notice of Guaranteed Delivery may not be changed by this Letter of Transmittal/Form of Election. B. TIME IN WHICH TO MAKE A TENDER AND AN ELECTION In order for a tender of Barefoot Shares and an Election to be effective, the Exchange Agent must receive a properly completed and executed Letter of Transmittal/Form of Election, accompanied by all Certificates (or a proper Guarantee of Delivery, as described below), NO LATER THAN 12:00 MIDNIGHT NEW YORK CITY TIME ON THE EXPIRATION DATE. HOLDERS WHOSE LETTER OF TRANSMITTAL/FORM OF ELECTION (OR GUARANTEE OF DELIVERY) DOES NOT CONTAIN A PROPERLY COMPLETED ELECTION WILL BE DEEMED TO HAVE MADE A CASH ELECTION. If your Certificates are not immediately available, you may also make an effective tender of Barefoot Shares if all of the following guaranteed delivery procedures are satisfied: (i) such tender is made by or through a member in good standing of the Securities Transfer Agents Medallion Program, the New York Stock Exchange, Inc. Medallion Signature Program or the Stock Exchanges' Medallion Program (an "Eligible Institution"), such as a commercial bank or trust company or a broker or dealer that is a member of the National Association of Securities Dealers, Inc., or by a member of the National Association of Securities Dealers, Inc.; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, in the form enclosed herewith, is received by the Exchange Agent no later than 12:00 midnight, New York City time on the Expiration Date; and (iii) the Certificates guaranteed by the Notice of Guaranteed Delivery (in proper form for transfer in accordance with General Instructions H-3 and H-4 below) (or a Book-Entry Confirmation) together with a 9 Letter of Transmittal/Form of Election, properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) are received by the Exchange Agent within three Nasdaq National Market trading days after the execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery must include an endorsement by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. C. FAILURE TO MAKE AN EFFECTIVE ELECTION If you fail to make an effective Election, or if your Election is deemed by ServiceMaster to be defective in any way, you will be deemed to have made a Cash Election. D. BAREFOOT SHARES AS TO WHICH AN ELECTION IS MADE You may make a CASH ELECTION or a SHARE ELECTION with respect to all or any portion of your Barefoot Shares by checking the appropriate box and, in the case of multiple elections, listing the number of shares for which you wish to make a specific Election, in the appropriate column on the Election Form (Box B) contained herein. If there is insufficient space to list all of your Certificates being submitted to the Exchange Agent or to respond to any other request for information, please attach a separate sheet. E. SPECIAL CONDITIONS 1. Change of Election You may change any Election or revoke or change any other instruction in this Letter of Transmittal/Form of Election only by written notice, signed and dated by you, to the Exchange Agent. Such written notice must identify the name of the holder of record of the Barefoot Shares subject to such notice and the Certificate number shown on the Certificate(s) representing such Barefoot Shares. The written notice must be received by the Exchange Agent prior to 12:00 midnight, New York City time on the Expiration Date. 2. Withdrawal of Tendered Barefoot Shares Barefoot Shares tendered pursuant to the Offer may be withdrawn only by a written, telegraphic or facsimile transmission notice of withdrawal, signed by you and received by the Exchange Agent by 12:00 midnight, New York City time on the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Barefoot Shares to be withdrawn, the number of Barefoot Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Barefoot Shares. If Certificates for Barefoot Shares have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such Certificates, the Certificate numbers of the particular Certificates evidencing the Barefoot Shares to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, except in the case of Barefoot Shares tendered for the account of an Eligible Institution, must also be furnished to the Exchange Agent as described above. If Barefoot Shares have been tendered pursuant to the procedures for book-entry transfer, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Barefoot Shares. If you withdraw your tender of Barefoot Shares in accordance with these procedures, the Certificate(s) for your Barefoot Shares shall be promptly returned to you. 3. Shares Held by Nominees, Trustees or other Representatives Holders of record of Barefoot Shares who hold such Barefoot Shares as nominees, trustees or in other representative or fiduciary capacities (each a "Representative") may submit one or more Letters of Transmittal/Forms of Election covering the aggregate number of Barefoot Shares held by such Representative for the beneficial owners for whom the Representative is making an Election. Any Representative who makes an 10 Election may be required to provide the Exchange Agent with such documents and/or additional certifications, if requested, in order to satisfy the Exchange Agent that such Representative holds such Barefoot Shares for a particular beneficial owner of such shares. F. NO FRACTIONAL SERVICEMASTER SHARES The undersigned understands that in lieu of the issuance of any fractional ServiceMaster Share pursuant to the Offer, ServiceMaster will pay to each former stockholder of Barefoot who otherwise would be entitled to receive a fractional ServiceMaster Share an amount in cash determined by multiplying (i) the greater of $23.00 or the Average ServiceMaster Share Price by (ii) the fractional interest in a ServiceMaster Share to which such holder would otherwise be entitled. G. PARTIAL TENDERS If fewer than all of the Barefoot Shares evidenced by the Certificates submitted are to be tendered, fill in the number of Barefoot Shares that are to be tendered in Box A entitled "Certificates Surrendered." In such case, as soon as practicable after the Expiration Date, new certificates for the remainder of the Barefoot Shares that were evidenced by your old Certificates will be sent to you, unless otherwise provided in Box C or D on this Letter of Transmittal/Form of Election. ALL BAREFOOT SHARES REPRESENTED BY CERTIFICATES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. H. GENERAL INSTRUCTIONS 1. Execution and Delivery of Letter of Transmittal/Form of Election and Certificates. This Letter of Transmittal/Form of Election, or a photocopy of it, should be properly completed, dated and signed, and should be delivered, together with your Certificate(s) representing your Barefoot Shares (or a properly completed Notice of Guaranteed Delivery) to the Exchange Agent at the appropriate address set forth on the cover page to this Letter of Transmittal/Form of Election. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL/FORM OF ELECTION, THE CERTIFICATES FOR BAREFOOT SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED FOR SUCH DOCUMENTS TO REACH THE EXCHANGE AGENT. EXCEPT AS OTHERWISE PROVIDED, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. No alternative, conditional or contingent tenders will be accepted. All tendering stockholders, by execution of this Letter of Transmittal/Form of Election, waive any right to receive any notice of the acceptance of their Barefoot Shares for payment. 2. Signatures. The signature (or signatures, in the case of Certificate(s) owned by two or more joint holders) on this Letter of Transmittal/Form of Election must correspond exactly to the name as written on the face of the Certificate(s) sent to the Exchange Agent, unless the Barefoot Shares have been transferred by the holder of record. If there has been any such transfer, the signatures on this Letter of Transmittal/Form of Election should be signed in exactly the same form as the name of the last transferee indicated on the accompanying stock powers attached to or endorsed on the Certificate(s) (see General Instruction 4 below). If Barefoot Shares are registered in different names on several Certificates, it will be necessary to complete, sign and submit a separate Letter of Transmittal/Form of Election for each different registration of Certificates. For example, if some Certificates are registered solely in your name, some are registered solely in your spouse's name and some are registered jointly in the name of you and your spouse, three separate Letters of Transmittal/Forms of Election should be submitted. 11 3. Checks and/or Certificates in Same Name. If checks in payment of any cash and/or any new share certificates are to be payable to the order of and/or registered in exactly the same name as inscribed on the surrendered Certificate(s) (representing Barefoot Shares), you will not be required to endorse the old Certificates or make payment for transfer taxes or have your signature guaranteed. For corrections in name or changes in name not involving changes in ownership, see General Instruction 4(d) below. 4. Checks and/or Certificates in Different Names. (IGNORE THIS INSTRUCTION 4 IF THE FIRST SENTENCE OF INSTRUCTION 3 APPLIES) If checks in payment of any cash and/or any new share certificates are to be payable to the order and/or registered in a different name from exactly the registered name inscribed on the surrendered Certificate(s) (representing Barefoot Shares), please follow these instructions: (a) Endorsement and Stock Transfer Guarantee. The Certificate(s) surrendered must be properly endorsed or accompanied by appropriate stock power(s) properly executed by the record holder of such Certificate(s) to the person who is to receive the check or certificate representing ServiceMaster Shares. The signature of the record holder on the endorsement(s) or stock power(s) must correspond with the name that appears on the face of the Certificate(s) in every particular and must be guaranteed by an Eligible Institution. If this General Instruction 4 applies, please check with your financial institution or brokerage firm immediately to determine whether it is an Eligible Institution or will need to help you locate an Eligible Institution. The criteria to identify Eligible Institutions are set forth in Instruction B. NOTARIES PUBLIC CANNOT EXECUTE ACCEPTABLE GUARANTEES OF SIGNATURES. (b) Transferee's Signature. If a certificate has previously been properly transferred but the transfer has not yet been recorded on the books of Barefoot, this Letter of Transmittal/Form of Election must be signed by the transferee or by his agent and should not be signed by the transferor. The signature of such transferee or agent on this Letter of Transmittal/Form of Election must be guaranteed by an Eligible Institution. (c) Transfer Taxes. In the event that any transfer or other tax becomes payable by reason of the issuance of a check in payment of any Cash Consideration and/or the issuance of any share certificates representing ServiceMaster Shares in any name other than that of the record holder, the transferee or assignee must pay such tax to the Exchange Agent or must establish to the satisfaction of the Exchange Agent that such tax has been paid. You should consult your own tax advisor as to any possible tax consequences resulting from the issuance of shares or cash in a name different from that of the holder of record of the surrendered Certificate. (d) Correction of or Change in Name. For a correction in name which does not involve a change in ownership, the surrendered Certificate(s) should be appropriately endorsed; for example, "John A. Doe, incorrectly inscribed as John B. Doe," with the signature guaranteed by an Eligible Institution. For a change in name by marriage, etc., the surrendered Certificate(s) should be appropriately endorsed; for example, "Mary Doe, now by marriage Mrs. Mary Jones," with the signature guaranteed by an Eligible Institution. 5. Supporting Evidence. If this Letter of Transmittal/Form of Election or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in- fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to ServiceMaster of such person's authority to so act must be submitted. 6. Notice of Defects; Resolution of Disputes. NONE OF SERVICEMASTER, BAREFOOT AND THE EXCHANGE AGENT WILL BE UNDER ANY OBLIGATION TO NOTIFY YOU OR ANYONE ELSE THAT THE EXCHANGE AGENT HAS NOT RECEIVED A PROPERLY COMPLETED LETTER OF TRANSMITTAL/FORM OF ELECTION OR THAT THE LETTER OF TRANSMITTAL/FORM OF ELECTION SUBMITTED BY YOU IS DEFECTIVE IN ANY WAY. 12 Any and all disputes with respect to Letters of Transmittal/Forms of Elections and Elections made in respect of Barefoot Shares (including but not limited to matters relating to the Expiration Date, time limits, defects or irregularities in the surrender of any Certificate and effectiveness of any Election) will be resolved by ServiceMaster and its decision will be final and binding on all parties concerned. ServiceMaster will have the absolute right in its sole discretion to reject any and all Letters of Transmittal/Forms of Election, Notices of Guaranteed Delivery and surrenders of Certificates which are deemed by it to be not in proper form or to waive any immaterial irregularities in any Letter of Transmittal/Form of Election or Notice of Guaranteed Delivery or in the surrender of any Certificate. Surrenders of Certificates will not be deemed to have been made until all defects or irregularities that have not been waived have been cured. 7. Federal Tax Withholding/Substitute Form W-9. Under federal income tax law, the Exchange Agent is required to file a report with the Internal Revenue Service (IRS) disclosing the cash payments being made to you as an exchanging stockholder. Federal law also required each stockholder to provide the Exchange Agent with such stockholder's current Taxpayer Identification Number ("TIN") on a Substitute Form W-9 set forth above. If such stockholder is an individual, the TIN is his social security number. If the Exchange Agent is not provided with the correct TIN, the stockholder or other payee may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, cash payments that are made to such stockholder or other payee with respect to Barefoot Shares acquired pursuant to the Offer may be subject to 31% backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit to the Exchange Agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that individuals exempt status. A form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies the Exchange Agent is required to withhold 31% of any cash payment made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. If the box in Part 3 of the Substitute Form W-9 is checked and the Exchange Agent is not provided with a TIN by the time of payment the Exchange Agent will withhold 31% on all such cash payments to be made to you until a TIN is provided to the Exchange Agent. You must also complete the Certificate of Awaiting Taxpayer Identification Number. The stockholder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Barefoot Shares. If the Barefoot Shares are registered in more than one name or are not registered in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9," for additional guidance on which number to report. 8. Special Payment and Delivery Instructions. Any checks representing Cash Consideration, any certificates representing ServiceMaster Shares, or any Certificates representing untendered Barefoot Shares will be mailed to the address of the holder of record as indicated in Box A or to the person identified in Box C (if completed), unless instructions to the contrary are given in Box D. 9. Lost Stock Certificates. If you are unable to locate the Certificate(s) representing your Barefoot Shares, contact the Exchange Agent by a collect call at (212) 701-7624. The Exchange Agent will instruct you on the procedures to follow. In order to make an effective Election with respect to the lost Certificate(s) and receive the Cash Consideration or the Share 13 Consideration, you will be required to complete certain additional documentation and pay for an indemnity bond covering the lost Certificate(s). The cost of the bond will be based on the value of the Barefoot Shares represented by the lost Certificates. 10. Miscellaneous. As soon as practicable after acceptance of tendered Barefoot Shares by ServiceMaster, the Exchange Agent will begin mailing and delivering checks and share certificates for ServiceMaster Shares in exchange for Certificates representing Barefoot Shares that have been received by the Exchange Agent. There will be a delay, however, if backup withholding pursuant to General Instruction 7 applies. Requests for assistance may be directed to the Exchange Agent at the address set forth on the first page of this Letter of Transmittal/Form of Election. Additional copies of the Offering Circular/Prospectus or this Letter of Transmittal/Form of Election may be obtained from the Exchange Agent at the address set forth on the cover page of this Letter of Transmittal/Form of Election or from the Information Agent at the address set forth below. IMPORTANT: THIS LETTER OF TRANSMITTAL/FORM OF ELECTION, TOGETHER WITH CERTIFICATES (OR A NOTICE OF GUARANTEED DELIVERY, OR A FACSIMILE THEREOF), MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE AS SET FORTH ON THE COVER PAGE HERETO. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Toll Free (800) 848-3410 The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 (212) 902-1000 14 EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEES) TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF BAREFOOT INC. PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED JANUARY 17, 1997 BY SERVICEMASTER LIMITED PARTNERSHIP THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED. As set forth in the Offering Circular/Prospectus, this form, or one substantially equivalent hereto, must be used to accept the Offer if certificates for shares of the common stock, par value $.01 per share ("Barefoot Share"), including the associated Series A Junior Participating Preferred Stock Purchase Rights, of Barefoot Inc., a Delaware corporation ("Barefoot"), are not immediately available or if the procedures for delivery by book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Exchange Agent on or prior to the Expiration Date (as defined in the section of the Offering Circular/Prospectus entitled "THE OFFER--Terms of the Offer"). Such form may be delivered by hand or transmitted by telegram, facsimile transmission or mail to Harris Trust Company of New York (the "Exchange Agent"). See the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares". The Exchange Agent for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Facsimile: By Hand: By Overnight Courier: Harris Trust (212) 701-7636 Harris Trust Company of (212) 701-7640 Company of Harris Trust New York New York Company of Wall Street Confirm by Receive Window New York Station Telephone: 5th Floor 4th Floor P.O. Box 1023 (212) 701-7624 77 Water Street 77 Water Street New York, New York New York, New York New York, New York 10268-1023 10005 ---------------- Capitalized terms used but not defined herein shall have the meanings set forth in the enclosed Letter of Transmittal/Form of Election. DELIVERY OF THIS FORM TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL/FORM OF ELECTION IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE BOX ENTITLED "SIGNATURES" ON THE LETTER OF TRANSMITTAL/FORM OF ELECTION. Ladies and Gentlemen: The undersigned hereby tenders to ServiceMaster Limited Partnership, a Delaware limited partnership, upon the terms and subject to the conditions set forth in its Offering Circular/Prospectus dated January 17, 1997 (the "Offering Circular/Prospectus") and the related Letter of Transmittal/Form of Election (the "Letter of Transmittal/Form of Election", together with the Offering Circular/Prospectus, the "Offer"), receipt of each of which is hereby acknowledged, the number of shares of common stock par value $.01 per share ("Barefoot Share") of Barefoot Inc., a Delaware corporation, indicated below: Number of Barefoot Shares: Name(s) of Record Holder(s): - ------------------------------------- ------------------------------------- Certificate Number for Barefoot ------------------------------------- Shares Please Type or Print (if available) Address(es): ________________________ - ------------------------------------- ------------------------------------- - ------------------------------------- (Zip Code) If Shares will be delivered by book- ------------------------------------- entry transfer, check one box and Area Code and Telephone Number provide account number. Signature(s): ______________________ [_] The Depository Trust Company ------------------------------------- [_] Philadelphia Depository Trust Company With the express understanding that the Election made in this Notice of Guaranteed Delivery may not be changed after 12:00 midnight, New York City time on the Expiration Date, including by a Letter of Transmittal/Form of Election submitted after 12:00 midnight, New York City time on the Expiration Date, the undersigned hereby makes the following elections with respect to the Barefoot Shares listed above: Account Number: _____________________ CHECK ONLY ONE OF THE BOXES BELOW. You may make a Cash Election or a Share Election as to any Barefoot Share or combination of Barefoot Shares that you hold. If you wish to make multiple elections, check the "Multiple Election" box below and indicate in the space provided below the number of Barefoot Shares represented by the Certificate(s) submitted for which a Cash Election or a Share Election is being made. IF YOU FAIL TO MAKE AN EFFECTIVE ELECTION, YOU WILL BE DEEMED TO HAVE MADE A CASH ELECTION. [_]The CASH ELECTION ($16.00 in cash per share) is made as to all of the Barefoot Shares listed above. [_]The SHARE ELECTION (The fraction of a ServiceMaster Share per Barefoot Share determined by dividing $16.00 by the greater of (i) $23.00 or (ii) The Average ServiceMaster Share Price) is made as to all of the Barefoot Shares listed above. [_]Multiple Elections are made as to the Barefoot Shares listed above, in the following amounts: 2 Number of Shares Number of Shares As As To Which a Cash To Which a Share Election Is Made Election Is Made ----------------- ----------------- ----------------- ----------------- If a Multiple Election is made, the total number of Barefoot Shares subject to the Multiple Election must equal the total number of Barefoot Shares being tendered hereby as reflected above. GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member in good standing of the Securities Transfer Agents Medallion Program, the New York Stock Exchange, Inc. Medallion Signature Program, the Stock Exchanges' Medallion Program (an "Eligible Institution") or a member of the National Association of Securities Dealers, Inc., hereby (i) represents that the above-named persons are deemed to own the shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (ii) represents that such tender of Barefoot Shares complies with Rule 14e-4 and (iii) guarantees that either the certificates representing the Barefoot Shares tendered hereby in proper form for transfer or timely confirmation of the book entry transfer of such Barefoot Shares into the Exchange Agent's account at The Depository Trust Company or the Philadelphia Depository Trust Company (pursuant to the procedures set forth in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares"), together with a properly completed and duly executed Letter of Transmittal/Form of Election with any required signature guarantee (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal/Form of Election, will be received by the Exchange Agent at one of its addresses set forth above within three Nasdaq National Market trading days after the date of execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the Exchange Agent and must deliver the Letter of Transmittal/Form of Election and certificates for the Barefoot Shares listed herein to the Exchange Agent within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: _______________________ Title: ______________________________ Authorized Signature: Address: ____________________________ (Zip Code) - ------------------------------------- Area Code and Telephone Number: ------------------------------------- Date: ________________________ ,1997 DO NOT SEND CERTIFICATES WITH THIS NOTICE. CERTIFICATES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL/FORM OF ELECTION. 3 EX-99.(A)(4) 5 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS, ETC GOLDMAN, SACHS & CO. 85 BROAD STREET NEW YORK, NEW YORK 10004 OFFER TO ACQUIRE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF BAREFOOT INC. BY SERVICEMASTER LIMITED PARTNERSHIP FOR, AT THE ELECTION OF THE HOLDER, (I) $16.00 IN CASH, OR (II) A FRACTION OF A SHARE OF SERVICEMASTER LIMITED PARTNERSHIP THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED. January 17, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by ServiceMaster Limited Partnership, a Delaware limited partnership ("ServiceMaster"), to act as Dealer Managers in connection with ServiceMaster's offer to acquire each outstanding share of common stock, par value $.01 per share ("Barefoot Share"), of Barefoot Inc., a Delaware corporation ("Barefoot"), together with the associated Series A Junior Participating Preferred Stock Purchase Rights, not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date (as defined in the Offering Circular/Prospectus dated January 17, 1997, the "Offering Circular/Prospectus" ) and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration"). Pursuant to the Offer (as defined below), Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. The Offer is made upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and the related Letter of Transmittal/Form of Election (the "Letter of Transmittal", together with the Offering Circular/Prospectus, the "Offer") enclosed herewith. The Offer is being made pursuant to an Acquisition Agreement and a related Plan and Agreement of Merger, each dated as of December 5, 1996, by and among ServiceMaster, ServiceMaster Acquisition Corporation (a Delaware corporation and a wholly owned subsidiary of ServiceMaster) and Barefoot. For your information and for forwarding to your clients for whom you hold Barefoot Shares registered in your name or in the name of your nominee, or who hold Barefoot Shares registered in their own names, we are enclosing the following documents: 1. The Offering Circular/Prospectus; 2. The Letter of Transmittal/Form of Election to tender Barefoot Shares for your use and for the information of your clients; 3. A Notice of Guaranteed Delivery to be used to accept the Offer if certificates for Barefoot Shares are not immediately available or time will not permit certificates for Barefoot Shares and all other documents to reach the Exchange Agent prior to the Expiration Date (as defined in the Offering Circular/Prospectus) or if the procedures for book-entry transfer cannot be completed on a timely basis; 4. A form of letter which may be sent to your clients for whose accounts you hold Barefoot Shares in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. A return envelope addressed to Harris Trust Company of New York, the Exchange Agent. THE OFFER IS CONDITIONED ON A MINIMUM NUMBER (THE "MINIMUM NUMBER") OF THE OUTSTANDING BAREFOOT SHARES BEING TENDERED FOR EITHER CASH OR SERVICEMASTER SHARES PURSUANT TO THE OFFER SUCH THAT, WHEN ADDED TO ALL BAREFOOT SHARES OWNED BY SERVICEMASTER PRIOR TO CONSUMMATION OF THE OFFER, SERVICEMASTER WILL OWN AT LEAST 75.0% OF THE BAREFOOT SHARES WHICH SHALL BE OUTSTANDING AS OF THE CONSUMMATION OF THE OFFER. SERVICEMASTER, AS OF THE DATE HEREOF, BENEFICIALLY OWNS 289,000 BAREFOOT SHARES OR APPROXIMATELY 2.0% OF THE OUTSTANDING BAREFOOT SHARES. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THE OFFERING CIRCULAR/PROSPECTUS. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extensions or amendment), ServiceMaster will be deemed to have accepted for payment or exchange (and thereby purchased or exchanged), and will pay for or exchange for ServiceMaster Shares, all Barefoot Shares validly tendered prior to the Expiration Date and not properly withdrawn if, as and when ServiceMaster gives oral or written notice to the Exchange Agent of ServiceMaster's acceptance of such Barefoot Shares for payment or exchange pursuant to the Offer. In all cases, payment for, or exchange of, Barefoot Shares purchased or exchanged pursuant to the Offer will be made only after timely receipt by the Exchange Agent of a properly completed and duly executed Letter of Transmittal/Form of Election (or, in the case of a book-entry transfer, an Agent's Message) and certificates evidencing such Barefoot Shares (or a properly completed Notice of Guaranteed Delivery) or a timely confirmation of a book-entry transfer of such Barefoot Shares into the Exchange Agent's account at The Depository Trust Company or the Philadelphia Depository Trust Company, pursuant to the procedures described in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares" and accompanied by any other documents required by the Letter of Transmittal/Form of Election. In order to properly tender Barefoot Shares in the Offer, a duly executed and properly completed Letter of Transmittal/Form of Election, with any required signature guarantees and any other required documents, should be sent to the Exchange Agent, and certificates representing the tendered Barefoot Shares should be delivered, all in accordance with the instructions set forth in the Letter of Transmittal/Form of Election and the Offering Circular/Prospectus. If holders of Barefoot Shares wish to tender their Barefoot Shares, but it is impracticable for them to tender their certificates on or prior to the Expiration Date or to comply with the book-entry transfer 2 procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares". ServiceMaster will not pay any fee or commission to any broker or dealer or any other person (other than the Dealer Managers, as described in the Offering Circular/Prospectus) in connection with the solicitation of tenders of Barefoot Shares pursuant to the Offer. ServiceMaster will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Offering Circular/Prospectus and the related documents to the beneficial owners of Barefoot Shares held by them as nominee or in a fiduciary capacity. ServiceMaster will pay or cause to be paid all stock transfer taxes applicable to the purchase of Barefoot Shares pursuant to the Offer, except as set forth in General Instruction H-4 of the Letter of Transmittal/Form of Election. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED. Any inquiries you have with respect to the Offer should be addressed to the Dealer Managers or the Information Agent, at their addresses and telephone numbers set forth on the back cover of the Offering Circular/Prospectus. Additional copies of the enclosed material may be obtained from the Information Agent or the Exchange Agent or from brokers, dealers, commercial banks or trust companies. Very truly yours, GOLDMAN, SACHS & CO. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS THE AGENT OF SERVICEMASTER, ANY AFFILIATE OF SERVICEMASTER, THE DEALER MANAGERS, THE EXCHANGE AGENT OR THE INFORMATION AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL/FORM OF ELECTION. 3 EX-99.(A)(5) 6 LETTER TO CLIENTS OFFER TO ACQUIRE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF BAREFOOT INC. BY SERVICEMASTER LIMITED PARTNERSHIP FOR, AT THE ELECTION OF THE HOLDER, (I) $16.00 IN CASH, OR (II) A FRACTION OF A SHARE OF SERVICEMASTER LIMITED PARTNERSHIP THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED. January 17, 1997 To Our Clients: Enclosed for your consideration is the Offering Circular/Prospectus, dated January 17, 1997 (the "Offering Circular/Prospectus"), and the related Letter of Transmittal/Form of Election (the "Letter of Transmittal/Form of Election", together with the Offering Circular/Prospectus, the "Offer") relating to the offer by ServiceMaster Limited Partnership, a Delaware limited partnership ("ServiceMaster"), to acquire each outstanding share of common stock, par value $.01 per share ("Barefoot Share"), of Barefoot Inc., a Delaware corporation ("Barefoot"), together with the associated Series A Junior Participating Preferred Stock Purchase Rights, not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date (as defined in the Offering Circular/Prospectus) and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration" and collectively with the Cash Consideration, the "Offer Consideration"). Pursuant to the Offer, Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. There is no limit on the percentage of the Offer Consideration which may be received as cash or as ServiceMaster Shares. The Offer is made upon the terms and subject to the conditions set forth in the Offer. This material is being sent to you as the beneficial owner of Barefoot Shares held by us for your account but not registered in your name. A TENDER OF SUCH BAREFOOT SHARES MAY ONLY BE MADE BY US PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL/FORM OF ELECTION IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER BAREFOOT SHARES HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to whether you wish to have us tender on your behalf any or all of the Barefoot Shares held by us for your account, pursuant to the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The Offer Consideration for each Barefoot Share is, at your election, either (i) $16.00 in cash or (ii) a fraction of a ServiceMaster Share determined by dividing $16.00 by the greater of (x) $23.00 or (y) the Average ServiceMaster Share Price. 2. The Offer is being made pursuant to an Acquisition Agreement and a related Plan and Agreement of Merger, each dated as of December 5, 1996, by and among ServiceMaster, ServiceMaster Acquisition Corporation (a wholly owned subsidiary of ServiceMaster) and Barefoot. The Acquisition Agreement is attached to the Offering Circular/Prospectus as Annex A-I and the Plan and Agreement of Merger is attached to the Offering Circular/Prospectus as Annex A-II. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Friday, February 21, 1997, unless the Offer is extended. 4. The Offer is being made for all outstanding Barefoot Shares. The Offer is conditioned upon, among other things, a minimum number of the outstanding Barefoot Shares being tendered for either cash or ServiceMaster Shares pursuant to the Offer such that, when added to all Barefoot Shares owned by ServiceMaster prior to consummation of the Offer, ServiceMaster will own at least 75.0% of the Barefoot Shares which shall be outstanding as of the consummation of the Offer. ServiceMaster, as of the date hereof, beneficially owns 289,000 Barefoot Shares or approximately 2.0% of the outstanding Barefoot Shares. The Offer is also subject to other terms and conditions set forth in the section of the Offering Circular/Prospectus entitled "THE OFFER--Conditions to the Offer" (all such conditions are referred to as the "Offer Conditions"). 5. In addition to the Offer, pursuant to the Plan and Agreement of Merger, assuming the satisfaction of the Offer Conditions, ServiceMaster Acquisition Corporation will be merged, as promptly as possible after the consummation of the Offer, with and into Barefoot for $16.00 in cash per Barefoot Share without interest thereon and upon the terms and conditions set forth in the Plan and Agreement of Merger. 6. Stockholders who tender Barefoot Shares will not be obligated to pay brokerage fees or commissions or, except as set forth in General Instruction H-4 of the Letter of Transmittal/Form of Election, stock transfer taxes on the acquisition of Barefoot Shares by ServiceMaster pursuant to the Offer. The Offer is being made to all holders of Barefoot Shares. ServiceMaster is not aware of any jurisdiction where the making of the Offer is not in compliance with the laws of such jurisdiction. If ServiceMaster becomes aware of any jurisdiction where the making of the Offer would not be in compliance with such laws, ServiceMaster will make a reasonable good faith effort to comply with any such laws or seek to have such laws declared inapplicable to the Offer. If, after such reasonable good faith effort, ServiceMaster cannot comply with any applicable law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) holders of Barefoot Shares residing in such jurisdiction. In those jurisdictions where the securities, blue sky or other laws of which require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of ServiceMaster by Goldman, Sachs & Co. or one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Barefoot Shares held by us for your account, please so instruct us by completing, executing and returning to us the instruction form set forth below. An envelope to return your instructions to us is enclosed. Please forward your instructions to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. If you authorize the tender of your Barefoot Shares, all such Barefoot Shares will be tendered unless otherwise specified on the instruction form set forth below. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO ACQUIRE FOR CASH OR EXCHANGE FOR SERVICEMASTER SHARES ALL OUTSTANDING SHARES OF COMMON STOCK OF BAREFOOT INC. The undersigned acknowledge receipt of your letter and the enclosed Offering Circular/Prospectus, dated January 17, 1997, and the related Letter of Transmittal/Form of Election (which together constitute the "Offer") relating to the offer by ServiceMaster Limited Partnership, a Delaware limited partnership ("ServiceMaster"), to acquire all of the outstanding shares of common stock, par value $.01 per share ("Barefoot Share"), of Barefoot Inc., a Delaware corporation, together with the associated Series A Junior Participating Preferred Stock Purchase Rights, not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date (as defined) and rounding the result to the nearest one one-hundred thousandth of a share (the "Share Consideration"). This will instruct you to (i) tender to ServiceMaster the number of Barefoot Shares indicated below (or if no number is indicated below, all Barefoot Shares) that are held by you for the account of the undersigned and (ii) elect the Cash Consideration or the Share Consideration for such tendered Barefoot Shares as is indicated below, upon the terms and subject to the conditions set forth in the Offer. Dated: _________________ , 1997 ------------------------------------- ------------------------------------- Total Number of Barefoot Signature(s) Shares to be Tendered:* ------------------------------------- ------------------------------------- Number of Tendered Barefoot Print name(s) Shares as to which Cash ------------------------------------- Consideration is elected: ------------------------------------- Shares Address(es) ------------------------------------- Number of Tendered Barefoot Area Code and Telephone Number Shares as to which Share ------------------------------------- Consideration is elected: IRS Identification or Social Shares Security Number - -------- *I understand that if I sign this instruction form without indicating a lesser number of Barefoot Shares in the space above, all Barefoot Shares held by you for my account will be tendered to ServiceMaster and that if I do not specify which type of consideration is elected for any Barefoot Share(s), I will receive the Cash Consideration for such Barefoot Share(s). 3 EX-99.(A)(6) 7 GUIDELINES FOR SUBSTITUTE FORM W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------- ---------------------------------------
GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - ------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if account) the minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, guardian or committee for a or incompetent designated ward, minor, or person(3) incompetent person 7. a.The usual revocable The grantor- savings trust account trustee(1) (grantor is also trustee) b.So-called trust account The actual that is not a legal or valid owner(1) trust under State law 8. Sole proprietorship The owner(4) account
GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- ---------------------------------------------------- 9. A valid trust, estate, or The legal entity pension trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: .A corporation. .A financial institution. . An organization exempt from tax under section 501(a), or an individual retirement plan. . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a) . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not pro- vided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends un- der section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, inter- est, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification pur- poses. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penal- ties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are sub- ject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or pat- ronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under- payment attributable to that failure unless there is clear and convincing evi- dence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or im- prisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.(A)(7) 8 PRESS RELEASES NEWS RELEASE - -------------------------------------------------------------------------------- [LOGO OF SERVICEMASTER] The ServiceMaster Company L.P. One ServiceMaster Way Downers Grove, IL 60515-1700 708/964-1300 EXHIBIT (a)(7) For further information contact: Service Master Ernest J. Mrozek, CFO, 630-271-2637 Clair Buchan, VP Comm., 630-271-2150 Barefoot Mike Goodrich, CFO, 614-846-1800 FOR IMMEDIATE RELEASE - --------------------- January 17, 1997 COMMENCEMENT OF SERVICEMASTER'S OFFER TO ACQUIRE SHARES OF BAREFOOT ----------------------------- DOWNERS GROVE, Illinois and COLUMBUS, Ohio -- ServiceMaster (NYSE:SVM) and Barefoot Inc. (NASDAQ:BARE) announced that, pursuant to their previously announced December 5, 1996 agreement, ServiceMaster has commenced today its tender offer for all shares of common stock of Barefoot. As previously announced, ServiceMaster will offer $16.00 for each Barefoot share in either cash or an equivalent amount of ServiceMaster shares, at the election of the Barefoot stockholder. The transaction has an aggregate value of approximately $232 million. The consummation of the transaction is contingent upon participation in the tender offer by the shareholders of at least 75% of Barefoot's 14.5 million outstanding shares. For purposes of the offer, ServiceMaster shares will be valued at the 15-day average NYSE composite tape closing price for the period ending February 13, 1997, unless the offer is extended, but not less than $23.00 per share. ServiceMaster shares to be issued in the transaction have been registered with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- [LOGO OF SERVICEMASTER] The tender offer and withdrawal rights expire at midnight Eastern Standard Time on February 21, 1997 unless extended. If the tender offer is completed, ServiceMaster intends to cause Barefoot to consummate a merger in which each remaining outstanding share of common stock of Barefoot is converted into cash in the amount of $16.00 per share. Barefoot is the nation's second largest lawn care company, with over 500,000 system-wide customers, spanning 103 metropolitan markets, with 53 company owned markets, 50 franchises, and annualized customer level revenues in excess of $125 million. For the nine months ended September 30, 1996, the company had operating income before amortization of $21 million. TruGreen-ChemLawn is the nation's largest lawn care company, with customer level revenues of over $630 million, serving 2.5 million customers through over 260 service centers across the country. ServiceMaster serves more than 6 million customers in the United States and in 30 countries around the world, with annual customer level revenue of more than $4.5 billion. ServiceMaster is a network of quality service companies with two major operating segments, ServiceMaster Consumer Services and ServiceMaster Management Services, and two emerging business units, ServiceMaster Diversified Health Services and International. SERVICEMASTER ServiceMaster Consumer Services includes seven market-leading companies -- TruGreen-ChemLawn, Terminix, ServiceMaster Residential and Commercial Services, Merry Maids, American Home Shield, Amerispec and Furniture Medic -- which operate through the ServiceMaster Quality Service Network of over 5,500 U.S. company-owned and franchised businesses. ServiceMaster Management Services has over 2,500 customers and is the leading facilities management company serving education, healthcare and business and industrial facilities with management of plant operations and maintenance, housekeeping, clinical equipment maintenance, food service, laundry, grounds and energy. ServiceMaster Diversified Health Services provides a broad range of services to home care, assisted living, subacute and long-term care markets, with more than 145 health care facilities under contract. ServiceMaster International includes both direct operations and a variety of license agreements in 30 foreign countries, which provide the broad range of the company's services. The offering will be made only by means of a prospectus which is part of a registration statement declared effective pursuant to the 1933 Securities Acts. NEWS RELEASE - -------------------------------------------------------------------------------- The ServiceMaster Company L.P. One ServiceMaster Way Downers Grove, IL 60515-1700 630/271-1300 ServiceMaster ------------- Ernie Mrozek, CFO, 630-271-2637 Claire Buchan, VP Comm., 630-271-2150 Barefoot -------- Mike Goodrich, CFO, 614-846-1800 FOR IMMEDIATE RELEASE - --------------------- December 5, 1996 SERVICEMASTER AGREES TO ACQUIRE BAREFOOT INC. ---------------------------------------------- DOWNERS GROVE, Illinois and COLUMBUS, Ohio -- ServiceMaster (NYSE:SVM) and Barefoot Inc. (NASDAQ:BARE) today announced that their Boards of Directors have reached a definitive agreement on a business combination. The transaction is to be carried out through a tender offer in which ServiceMaster will offer Barefoot stockholders $16 per share in either cash or an equivalent amount of ServiceMaster shares, at their election. The transaction has an aggregate value of approximately $230 million. After the transaction, Barefoot operations will be merged with those of TruGreen-ChemLawn, the nation's largest lawn care company and a subsidiary of ServiceMaster. The consummation of the transaction will require, among other things, registration of ServiceMaster shares with the Securities and Exchange Commission, receipt of Hart-Scott-Rodino anti-trust approval, and successful completion of final due diligence by [LOGO] ServiceMaster. The tender offer will begin upon fulfillment of these requirements. Closing of the transaction is contingent upon participation in the tender offer by the holders of at least 75 percent of Barefoot's 14.5 million outstanding shares. For purposes of the offer, ServiceMaster shares will be valued at the 15-day average closing price for the period ending five trading days prior to the expiration of the tender offer, but at not less than $23 per share. ServiceMaster shares closed yesterday at $24.625 and Barefoot shares closed at $12.75. "We are excited about combining the nation's two largest lawn care companies with the objective of creating expanded market opportunity, economies of scale, and productivity improvements. The experience we have had in successfully assimilating a number of other companies in recent years will help us accomplish these objectives. We also look forward to offering Barefoot's 500,000 customers the additional high-quality services that are currently enjoyed by the 6 million customers of the ServiceMaster Quality Service Network," said ServiceMaster Chief Executive Officer Carlos H. Cantu. "Barefoot is joining with the nation's largest lawn care company and one of the leading service companies in the country," said Patrick Norton, Barefoot Chief Executive Officer. "ServiceMaster has a reputation for outstanding customer service, with an emphasis on training and developing people." Barefoot is the nation's second largest lawn care company, with over 500,000 system-wide customers, spanning 103 metropolitan markets, with 53 company owned markets, 50 [LOGO] franchises, and annualized customer level revenues in excess of $125 million. For the nine months ended September 30, 1996, the company had operating income before amortization of $21 million. TruGreen-ChemLawn is the nation's largest lawn care company, with customer level revenues of over $630 million, serving 2.5 million customers through over 260 service centers across the country. ServiceMaster serves more than 6 million customers in the United States and in 30 countries around the world, with annual customer level revenue of more than $4.5 billion. ServiceMaster is a network of quality service companies with two major operating segments, ServiceMaster Consumer Services and ServiceMaster Management Services, and two emerging business units, ServiceMaster Diversified Health Services and International. ServiceMaster Consumer Services includes seven market-leading companies -- TruGreen-ChemLawn, Terminix, ServiceMaster Residential and Commercial Services, Merry Maids, American Home Shield, Amerispec and Furniture Medic -- which operate through the ServiceMaster Quality Service Network of over 5,500 U.S. company-owned and franchised businesses. ServiceMaster Management Services has over 2,500 customers and is the leading facilities management company serving education, healthcare and business and industrial facilities [LOGO] ServiceMaster with management of plant operations and maintenance, housekeeping, clinical equipment maintenance, food service, laundry, grounds and energy. ServiceMaster Diversified Health Services provides a broad range of services to home care, assisted living, subacute and long-term care markets, with more than 145 health care facilities under contract. ServiceMaster International includes both direct operations and a variety of license agreements in 30 foreign countries, which provide the broad range of the company's services. The offering will be made only by means of a prospectus which is part of a registration statement declared effective pursuant to the 1933 Securities Acts. ServiceMaster is expected to file the registration statement with the securities and Exchange Commission next week. [LOGO] EX-99.(A)(8) 9 FORM OF SUMMARY ADVERTISEMENT - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ------------------------------------------------------------------------------ This announcement is neither an offer to purchase nor a solicitation of an offer to sell shares. The Offer is made solely by the Offering Circular/Prospectus dated January 17, 1997, and the related Letter of Transmittal/Form of Election and any amendments or supplements thereto and is being made to all holders of Barefoot Shares. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Barefoot Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of ServiceMaster by the Dealer Managers or one or more registered brokers or dealers that are licensed under the laws of such jurisdiction NOTICE OF OFFER TO ACQUIRE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS) OF BAREFOOT INC. BY SERVICEMASTER LIMITED PARTNERSHIP FOR, AT THE ELECTION OF THE HOLDER, (I) $16.00 IN CASH OR (II) A FRACTION OF A SHARE OF SERVICEMASTER LIMITED PARTNERSHIP ServiceMaster Limited Partnership, a Delaware limited partnership ( "ServiceMaster"), is offering to acquire each outstanding share of common stock, par value $0.01 per share ("Share" or "Barefoot Share"), of Barefoot Inc., a Delaware corporation ("Barefoot"), together with the associated Series A Junior Participating Preferred Stock Purchase Rights, not already owned by ServiceMaster, for, at the election of the holder, either: (i) $16.00 in cash, without any interest thereon (the "Cash Consideration"); or (ii) a fraction (the "Conversion Fraction") of a share ("ServiceMaster Share") of limited partnership interest in ServiceMaster, determined by dividing $16.00 by the greater of (x) $23.00 or (y) the average (without rounding) of the closing price (the "Average ServiceMaster Share Price") of ServiceMaster Shares on the New York Stock Exchange ("NYSE") as reported on the NYSE Composite Tape for the 15 consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the Expiration Date (as defined in the Offering Circular/Prospectus) and rounding the result to the nearest one one hundred thousandth of a share (the "Share Consideration" and collectively with the Cash Consideration, the "Offer Consideration"). Pursuant to the Offer (as defined below), Barefoot stockholders may elect to receive all cash or all ServiceMaster Shares or any combination thereof. There is no limit on the percentage of the Offer Consideration which may be received as cash or as ServiceMaster Shares. The Offer is made upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus, dated January 17, 1997 (the "Offering Circular/Prospectus"), and in the related Letter of Transmittal/Form of Election (the "Letter of Transmittal/Form of Election", together with the Offering Circular/Prospectus, the "Offer"). The purpose of the Offer is to acquire as many outstanding Barefoot Shares as possible and thereafter ServiceMaster intends to effect the merger described below. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 21, 1997, UNLESS EXTENDED. The Offer is conditioned on a minimum number of the outstanding Barefoot Shares being tendered for either cash or ServiceMaster Shares pursuant to the Offer such that, when added to all Barefoot Shares owned by ServiceMaster prior to consummation of the Offer, ServiceMaster will own at least 75.0% of the Barefoot Shares which shall be outstanding as of the consummation of the Offer. ServiceMaster, as of the date hereof, beneficially owns 289,000 Barefoot Shares or approximately 2.0% of the outstanding Barefoot Shares. The Offer is also subject to certain other conditions, any or all of which may be waived by ServiceMaster. The Offer is being made pursuant to an Acquisition Agreement (the "Acquisition Agreement") and Plan and Agreement of Merger (the "Merger Agreement"), both dated as of December 5, 1996, among ServiceMaster, ServiceMaster Acquisition Corporation ("Merger Sub", a wholly owned subsidiary of ServiceMaster) and Barefoot, pursuant to which, as promptly as possible after the completion of the Offer, Merger Sub will be merged with and into Barefoot (the "Merger"). On the effective date of the Merger, each outstanding Barefoot Share, other than Barefoot Shares owned by ServiceMaster or any subsidiary of ServiceMaster and Barefoot Shares which are held by stockholders exercising appraisal rights pursuant to Section 262 of the Delaware General Corporation Law, will be converted into and represent the right to receive $16.00 in cash, without interest thereon (the "Merger Consideration"). The Acquisition Agreement and the Merger Agreement are more fully described in the section of the Offering Circular/Prospectus entitled "DESCRIPTION OF ACQUISITION AGREEMENT AND MERGER AGREEMENT". ServiceMaster and Barefoot believe that, for United States federal income tax purposes: (i) the Cash Consideration received by any holder of Barefoot Shares tendered and accepted by ServiceMaster pursuant to the Offer will be treated as the receipt of cash in a taxable sale of the Shares, and (ii) for United States persons who hold Barefoot Shares as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code ("Code"), the exchange of Barefoot Shares for ServiceMaster Shares pursuant to the Offer as provided for herein will qualify as a tax free contribution of property to ServiceMaster within the meaning of Section 721 of the Code. The foregoing is based upon the laws, regulations, rulings and decisions currently in effect, all of which are subject to change. Barefoot stockholders should consult their own tax advisors to determine the federal, state, local and other tax consequences of participating in the Offer or the Merger. Stockholders should note that no rulings have been or will be sought from the Internal Revenue Service (the "IRS") with respect to the federal income tax consequences of the Offer or the Merger, and no assurance can be given that the IRS will not take contrary positions. BAREFOOT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE CASH CONSIDERATION AVAILABLE IN THE OFFER AND THE MERGER CONSIDERATION ARE FAIR TO THE BAREFOOT STOCKHOLDERS AND IN THEIR BEST INTERESTS. THE BAREFOOT BOARD HAS ALSO DETERMINED THAT THE SHARE CONSIDERATION WHICH THE STOCKHOLDERS HAVE THE RIGHT TO CHOOSE AS AN ALTERNATIVE TO RECEIVING $16.00 PER SHARE IN CASH IS FAIR TO STOCKHOLDERS AND IN THEIR BEST INTERESTS, PROVIDED THAT THE BAREFOOT BOARD EXPRESSES NO OPINION AS TO THE FAIRNESS OF THE SHARE CONSIDERATION IF THE AVERAGE SERVICEMASTER SHARE PRICE TURNS OUT TO BE LESS THAN $23.00. SUBJECT TO THIS PROVISO, THE BAREFOOT BOARD HAS CONCLUDED THAT THE OFFER AND THE MERGER ARE IN THE BEST INTERESTS OF BAREFOOT AND ITS STOCKHOLDERS AND THAT SUCH TRANSACTIONS ARE FAIR TO THE STOCKHOLDERS OF BAREFOOT, AND IT RECOMMENDS THAT BAREFOOT STOCKHOLDERS ACCEPT THE OFFER, TENDER THEIR SHARES PURSUANT TO THE OFFER AND, IF REQUIRED BY APPLICABLE LAW, APPROVE AND ADOPT THE MERGER AGREEMENT. Because the market price for ServiceMaster Shares will fluctuate, the market price for the fraction of a ServiceMaster Share issuable in exchange for each Share at any time on or after the consummation of the Offer is likely to be higher or lower than $16.00. Each Barefoot stockholder has the right to decide whether to receive ServiceMaster Shares or cash in the Offer. Factors a Barefoot stockholder may wish to consider in connection with such decision include: the value to the Barefoot stockholder of the ability to defer recognition of any capital gain for federal income tax purposes by electing to receive ServiceMaster Shares; the inclination of such stockholder to continue to hold the ServiceMaster Shares received in the Offer (since a capital ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- gain tax may be imposed when the ServiceMaster Shares are sold); the stockholder's willingness to assume the risk inherent in holding ServiceMaster equity securities with a view to possibly realizing future gains (as to which no assurance can be given); and the stockholder's evaluation of the attractiveness of alternative investments which the stockholder would be able to make with the net after-tax proceeds which the stockholder would receive if the stockholder elected to receive the Cash Consideration. A stockholder who would be subject to little or no tax upon the disposition of Shares will likely give little or no weight to the tax related factors identified above and may accordingly evaluate the relative attractiveness of the Share Consideration and Cash Consideration differently from a stockholder who is in a taxable situation. The foregoing does not purport to be a complete list of all of the factors which may be relevant to a stockholder's decision to receive cash or ServiceMaster Shares. In addition, if, and to the extent, the Average ServiceMaster Share Price should turn out to be below $23.00, the risk that the market value of the Share Consideration at the time the Offer is consummated will be less than the $16.00 Cash Consideration available to Barefoot stockholders would increase. ServiceMaster will issue a press release and file an amendment to its Schedule 14D-1 with the SEC promptly after the Average ServiceMaster Share Price is determined disclosing the amount of that price. Since Barefoot stockholders have the ability to switch their elections between Share Consideration and Cash Consideration until midnight on the Expiration Date of the Offer, Barefoot stockholders should review this ServiceMaster announcement so that their final election can take into account the Average ServiceMaster Share Price as well as the market price for ServiceMaster Shares on or near the Expiration Date. Patrick J. Norton (Barefoot's Chief Executive Officer) has advised ServiceMaster that it is his present intention to tender all of his Barefoot Shares (which represent approximately 9.5% of all outstanding Barefoot Shares) and to elect the Share Consideration for substantially all of such tendered Shares. Mr. Norton's action is not intended to constitute advice or a recommendation as to whether or not any stockholder should tender or how any other Barefoot stockholder should choose between the Cash Consideration and Share Consideration alternatives. NEITHER BAREFOOT NOR SERVICEMASTER MAKES ANY RECOMMENDATION AS TO WHETHER STOCKHOLDERS SHOULD ELECT TO RECEIVE THE CASH CONSIDERATION OR THE SHARE CONSIDERATION PURSUANT TO THE OFFER. EACH BAREFOOT STOCKHOLDER MUST MAKE THEIR OWN DECISION WITH RESPECT TO SUCH ELECTION. On December 4, 1996, the last full trading day prior to the announcement by ServiceMaster and Barefoot that they had entered into the Acquisition Agreement, the closing price of ServiceMaster Shares as reported by the NYSE Composite Tape, was $24.625 per ServiceMaster Share and the closing price of the Barefoot Shares, as reported on the Nasdaq National Market, was $12.75 per Barefoot Share. The closing prices of ServiceMaster Shares and the Barefoot Shares on January 15, 1997, the most recent date prior to the printing of this Summary Advertisement, as reported by the NYSE Composite Tape and the Nasdaq National Market, respectively, were $26.125 per ServiceMaster Share and $15.75 per Barefoot Share, respectively. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. For purposes of the Offer, ServiceMaster will be deemed to have accepted for payment and/or exchange Barefoot Shares validly tendered and not withdrawn as, if and when ServiceMaster gives oral or written notice to Harris Trust Company of New York (the "Exchange Agent") of its acceptance for payment and/or exchange of such Barefoot Shares pursuant to the Offer. Payment for, or exchange of, Barefoot Shares accepted for payment or exchange pursuant to the Offer will be made by deposit of the Cash Consideration or certificates representing ServiceMaster Shares therefore with the Exchange Agent, which will act as agent for the tendering stockholders for the purpose of receiving payments or share certificates from ServiceMaster and transmitting such payments or certificates to the tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PAYMENT OF THE CASH CONSIDERATION FOR BAREFOOT SHARES BE PAID, REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT. In all cases, payment for and/or exchange of Barefoot Shares tendered and accepted pursuant to the Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for such Barefoot Shares or timely confirmation of the book-entry transfer of such Barefoot Shares into the Exchange Agent's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") pursuant to the procedures set forth in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares," (ii) the Letter of Transmittal/Form of Election, properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares")) and (iii) any other documents required by such Letter of Transmittal/Form of Election. Subject to the terms of the Acquisition Agreement, the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission, ServiceMaster expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Exchange Agent. Any such extension will also be publicly announced by press release issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date of the Offer. Tenders of Barefoot Shares made pursuant to the Offer are irrevocable except that Barefoot Shares tendered pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offer and, unless theretofore accepted for payment by ServiceMaster pursuant to the Offer, may also be withdrawn at any time after March 17, 1997. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth on the back cover of the Offering Circular/Prospectus. Any such notice of withdrawal must specify the name of the person having tendered the Barefoot Shares to be withdrawn, the number of Barefoot Shares to be withdrawn and the names in which the certificate(s) evidencing the Barefoot Shares to be withdrawn are registered, if different from that of the person who tendered such Barefoot Shares. If certificates for Barefoot Shares to be withdrawn have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such certificates, the certificate numbers of the particular certificates evidencing the Barefoot Shares to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (as defined in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedure for Tendering Shares"), except in the case of Barefoot Shares tendered for the account of an Eligible Institution, must also be furnished to the Exchange Agent as described above. If Barefoot Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares," any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Barefoot Shares. All Barefoot Shares properly withdrawn will be deemed to be not validly tendered for the purposes of the Offer. However, withdrawn Barefoot Shares may be retendered by again following one of the procedures described in the section of the Offering Circular/Prospectus entitled "THE OFFER--Procedures for Tendering Shares" at any time prior to the Expiration Date. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offering Circular/Prospectus and is incorporated herein by reference. Barefoot has provided ServiceMaster with Barefoot's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Barefoot Shares. The Offering Circular/Prospectus and the Letter of Transmittal/Form of Election and, if required, other relevant materials, will be mailed by ServiceMaster to record holders of Barefoot Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on Barefoot's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Barefoot Shares. THE OFFERING CIRCULAR/PROSPECTUS AND LETTER OF TRANSMITTAL/FORM OF ELECTION CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Information Agent or to the Dealer Managers at their respective addresses and telephone numbers set forth below. Requests for additional copies of the Offering Circular/Prospectus, the Letter of Transmittal/Form of Election and other tender offer materials may be directed to the Information Agent or to brokers, dealers, commercial banks or trust companies. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by ServiceMaster, in its sole discretion, which determination shall be final and binding. THE INFORMATION AGENT FOR THE OFFER IS: D. F. KING & CO., INC. 77 WATER STREET NEW YORK, NEW YORK 10005 TOLL FREE (800) 848-3410 THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 (212) 902-1000 January 17, 1997 EX-99.(B) 10 REVOLVING CREDIT AGREEMENT - -------------------------------------------------------------------------------- $300,000,000 CREDIT AGREEMENT dated as of August 31, 1995 among THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP, THE LENDERS and THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent - -------------------------------------------------------------------------------- J.P. MORGAN SECURITIES INC., Arranger TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS ----------- 1.1 Defined Terms...........................................................1 1.2 Accounting Terms and Determinations....................................17 1.3 Rules of Construction..................................................17 1.4. Rounding...............................................................17 ARTICLE II THE FACILITY ------------ 2.1. The Facility...........................................................17 2.1.1. Description of Facility........................................17 2.1.2. Availability of Facility; Required Payments....................18 2.2. Committed Advances.....................................................18 2.2.1. Committed Advances.............................................18 2.2.2. Types of Committed Advances....................................18 2.2.3. Method of Selecting Types and Interest Periods for New Committed Advances.............................................18 2.2.4. Conversion and Continuation of Outstanding Committed Advances.......................................................19 2.3. Competitive Bid Advances...............................................20 2.3.1. Competitive Bid Option; Repayment of Competitive Bid Advances.......................................................20 2.3.2. Competitive Bid Quote Request..................................20 2.3.3. Submission and Contents of Competitive Bid Quotes..............21 2.3.4. Acceptance and Notice by the Borrower..........................22 2.3.5. Allocation by the Borrower.....................................23 2.3.6. Notice by the Borrower to the Administrative Agent.............23 2.4. Facility Fees..........................................................23 2.5. General Facility Terms.........................................24 2.5.1. Method of Borrowing............................................24 2.5.2. Minimum Amount of Each Committed Advance.......................24 2.5.3. Optional Principal Payments....................................24 2.5.4. Interest Periods...............................................25 2.5.5. Rate after Maturity............................................25 2.5.6. Interest Payment Dates; Interest Basis.........................25 2.5.7. Method of Payment..............................................26 2.5.8. Notes..........................................................26
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Page ---- 2.5.9. Notification of Advances, Interest Rates and Prepayments......26 2.5.10. Non-Receipt of Funds by the Administrative Agent..............26 2.5.11. Cancellation..................................................27 2.5.12. Lending Installations.........................................27 2.5.13. Currency Equivalents..........................................27 2.5.14. Taxes.........................................................28 2.5.15. Regulation D Compensation.....................................30 ARTICLE III CHANGE IN CIRCUMSTANCES ----------------------- 3.1. Yield Protection.......................................................30 3.2. Changes in Capital Adequacy Regulations................................31 3.3. Availability of Types of Advances......................................31 3.4. Funding Indemnification................................................32 3.5. Lender Statements; Limit on Retroactivity; Survival of Indemnity.......32 3.6. Foreign Subsidiary Costs...............................................33 3.7. Replacement of Lenders.................................................33 ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1. Initial Advance........................................................34 4.2. Initial Advance to each Eligible Subsidiary............................35 4.3. Each Advance...........................................................35 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- 5.1. Organization and Authority.............................................36 5.2. Organization and Authority of Subsidiaries.............................37 5.3. Organization and Authority of Corporate General Partner................37 5.4. Business and Property..................................................37 5.5. Financial Statements...................................................38 5.6. Full Disclosure........................................................38 5.7. Pending Litigation.....................................................38 5.8. Loan Documents are Legal, Valid, Binding and Authorized................38 5.9. Governmental Consent...................................................39
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Page ---- 5.10. Taxes...........................................................39 5.11. Employee Retirement Income Security Act of 1974.................39 5.12. Investment Company Act..........................................40 5.13. Compliance with Environmental Laws..............................40 5.14. Regulations U and X.............................................40 ARTICLE VI COVENANTS --------- 6.1.1. Information............................................40 6.1.2. Use of Parent Information..............................41 6.2. Use of Proceeds................................................42 6.3. Notice of Default..............................................42 6.4. Inspection.....................................................42 6.5. Legal Existence, Etc...........................................42 6.6. Insurance......................................................42 6.7. Taxes, Claims for Labor and Materials, Compliance with Laws....42 6.8. Maintenance, Etc...............................................43 6.9. Nature of Business.............................................43 6.10. Restricted Payments............................................43 6.11. Payment of Dividends by Subsidiaries...........................44 6.12. Transactions with Affiliates...................................44 6.13. Negative Pledge................................................44 6.14. Consolidations, Mergers and Sales of Assets....................46 6.15. Leverage Test..................................................46 6.16. Subsidiary Debt Limitation.....................................46 ARTICLE VII DEFAULTS -------- ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ---------------------------------------------- 8.1. Acceleration....................................................48 8.2. Amendments......................................................49 8.3. Preservation of Rights..........................................49
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Page ---- ARTICLE IX GENERAL PROVISIONS ------------------ 9.1. Survival of Representations.....................................50 9.2. Headings........................................................50 9.3. Entire Agreement................................................50 9.4. Several Obligations.............................................50 9.5. Expenses; Indemnification.......................................50 9.6. Numbers of Documents............................................51 9.7. Severability of Provisions......................................51 9.8. Nonliability of Lenders.........................................51 9.9. CHOICE OF LAW...................................................52 9.10. CONSENT TO JURISDICTION.........................................52 9.11. WAIVER OF JURY TRIAL............................................52 9.12. Confidentiality.................................................52 ARTICLE X THE AGENTS ---------- 10.1. Appointment.....................................................53 10.2. Powers..........................................................53 10.3. General Immunity................................................53 10.4. No Responsibility for Loans, Recitals, etc......................53 10.5. Action on Instructions of Lenders...............................53 10.6. Employment of Agents and Counsel................................54 10.7. Reliance on Documents; Counsel..................................54 10.8. Agent's Reimbursement and Indemnification.......................54 10.9. Rights as a Lender..............................................54 10.10. Lender Credit Decision..........................................54 10.11. Successor Agent.................................................55 10.12. Agents' Fees....................................................55 ARTICLE XI SETOFF RATABLE PAYMENTS ----------------------- 11.1. Setoff..........................................................55 11.2. Ratable Payments................................................55
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Page ---- ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS ------------------------------------------------- 12.1. Successors and Assigns..........................................56 12.2. Participations..................................................56 12.2.1. Permitted Participants; Effect.........................56 12.2.2. Voting Rights..........................................57 12.3. Assignments.....................................................57 12.3.1. Permitted Assignments..................................57 12.3.2. Effect; Effective Date.................................57 12.4. Dissemination of Information....................................57 12.5. Tax Treatment...................................................58 12.6. Increased Costs.................................................58 ARTICLE XIII NOTICES ------- 13.1. Giving Notice...................................................58 ARTICLE XIV REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES ------------------------------ 14.1. Existence and Power.............................................59 14.2. Corporate or Partnership and Governmental Authorization; Contravention...................................................59 14.3. Binding Effect..................................................59 14.4. Taxes...........................................................59 ARTICLE XV GUARANTY -------- 15.1. The Guaranty....................................................59 15.2. Guaranty Unconditional..........................................59 15.3. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances...................................................60 15.4. Waiver by the Company...........................................61 15.5. Subrogation.....................................................61
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Page ---- 15.6. Stay of Acceleration..........................................61
ARTICLE XVI COUNTERPARTS; EFFECTIVENESS --------------------------- PRICING SCHEDULE Schedule 6.11 Subsidiary Restrictions Exhibit "A" Note Exhibit "B-1" Form of Opinion of Kirkland & Ellis Exhibit "B-2" Form of Opinion of General Counsel Exhibit "C" Form of Competitive Bid Quote Request Exhibit "D" Form of Competitive Bid Quote Exhibit "E" Form of Assignment Agreement Exhibit "F" Form of Loan/Credit Related Money Transfer Instruction Exhibit "G" Form of Election to Participate Exhibit "H" Form of Election to Terminate Exhibit "I" Form of Opinion of Counsel for Eligible Subsidiary Exhibit "J" Form of Opinion of Counsel for the Agents -vi- CREDIT AGREEMENT This Agreement, dated as of August 31, 1995, is among The ServiceMaster Company Limited Partnership, the Lenders, The First National Bank of Chicago, as Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. Defined Terms. As used in this Agreement: "Absolute Rate" means, with respect to a Loan made by a given Lender for the relevant Absolute Rate Interest Period, the rate of interest per annum (rounded to the nearest 1/100 of 1%) offered by such Lender and accepted by the Borrower pursuant to Section 2.3.4. "Absolute Rate Advance" means a borrowing hereunder consisting of the aggregate amount of the several Absolute Rate Loans made by some or all of the Lenders to the Borrower at the same time and for the same Absolute Rate Interest Period. "Absolute Rate Auction" means a solicitation of Competitive Bid Quotes setting forth Absolute Rates pursuant to Section 2.3. "Absolute Rate Interest Period" means, with respect to an Absolute Rate Advance or an Absolute Rate Loan, a period of not less than 7 days commencing on a Business Day selected by the Borrower pursuant to this Agreement. If such Absolute Rate Interest Period would end on a day which is not a Business Day, such Absolute Rate Interest Period shall end on the next succeeding Business Day. "Absolute Rate Loan" means a Loan which bears interest at an Absolute Rate. "Acquiring Person" means any Person (other than the Parent, the Surviving Parent and the Surviving Company) or group of two or more Persons acting as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of Equity Interests of the Company, the Surviving Company, the Parent or the surviving Parent, together with all affiliates and associates (as defined in Rule 12b-2 under the Securities and Exchange Act of 1934, as amended) of such Person or Persons. "Administrative Agent" means The First National Bank of Chicago in its capacity as contractual representative for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. "Administrative Questionnaire" means, with respect to each Lender, an administrative questionnaire in a form satisfactory to the Administrative Agent and submitted to the Administrative Agent (with a copy to the Company) duly completed by each Lender. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by some or all of the Lenders to the Borrower of the same Type (or on the same interest basis in the case of Competitive Bid Advances) and, in the case of Fixed Rate Advances, for the same Interest Period and includes a Competitive Bid Advance. "Affected Lender" is defined in Section 3.7. "Affiliate" means any Person (other than a Subsidiary) which directly or indirectly controls, or is controlled by, or is under common control with, the Company. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Equity Interest, by contract or otherwise. "Agent" means the Administrative Agent or the Documentation Agent and "Agents" means both of the foregoing. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders hereunder, as reduced from time to time pursuant to the terms hereof. "Agreement" means this Credit Agreement, as it may be amended or modified and in effect from time to time. "Alternate Base Rate" means, on any date and with respect to all Floating Rate Advances, a fluctuating rate of interest per annum equal to the higher of (i) the Federal Funds Effective Rate most recently determined by the Administrative Agent plus 1/2% per annum and (ii) the Corporate Base Rate. Changes in the rate of interest on each Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrowers and the Lenders of changes in the Alternate Base Rate, provided, however, that the Administrative Agent's failure to give any such notice will not affect any Borrower's obligation to pay interest to the Lenders on Floating Rate Advances at the then effective Alternate Base Rate. "Alternative Currency" means British Sterling, German Marks, French Francs, Japanese Yen, Dutch Guilders, Swedish Kronor and any other currency (other than Dollars) which is freely transferable and convertible into Dollars in the London interbank market which has been expressly approved in writing as an Alternative Currency for purposes hereof by all Lenders. -2- "Applicable Margin" means the respective margin percentages for each Committed Fixed Rate Advance determined in accordance with the Pricing Schedule. "Approved Multiple" means (a) in respect of any borrowing or prepayment of a Floating Rate Advance, $1,000,000 or any larger integral multiple of $1,000,000, (b) in the case of any other Advance denominated in Dollars, $5,000,000 or any larger integral multiple of $1,000,000 and (c) in the case of any Advance denominated in an Alternative Currency, such multiples of such currency as the Administrative Agent deems appropriate and reasonably comparable to a $3,000,000 minimum Dollar Amount. "Article" means an article of this Agreement unless another document is specifically referenced. "Assessment Rate" means, for any CD Interest Period, the net assessment rate per annum payable to the Federal Deposit Insurance Corporation (or any successor) for the insurance of domestic deposits of the Administrative Agent during the calendar year in which the first day of such CD Interest Period falls, as estimated by the Administrative Agent on the first day of such CD Interest Period. "Board of Directors" prior to the Effective Date of the Reorganization means the Board of Directors of the Corporate General Partner and on or after the Effective Date of the Reorganization means the Board of Directors of the Company. "Borrower" means any obligor in its capacity as borrower of a Loan or Advance hereunder, and "Borrowers" means all such borrowers. References to "the Borrower" in relation to any Loan or Advance are to the Borrower which has borrowed or which proposes to borrow such Loan or Advance. "Borrowing Date" means a date on which an Advance is made or to be made hereunder. "British Sterling" means the lawful currency of the United Kingdom. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurocurrency Committed Advances or Eurocurrency Bid Rate Advances, a day other than Saturday or Sunday on which banks are open for business in Chicago and New York City and on which dealings in the relevant currency are carried on in the London interbank market and, where funds are to be paid or made available in an Alternative Currency, on which commercial banks are open for domestic and international business in the place where such funds are paid or made available and (ii) for all other purposes, a day other than Saturday or Sunday on which banks are open for business in Chicago and New York City. -3- "CD Interest Period" means, with respect to a Fixed CD Rate Advance or a Fixed CD Rate Loan, a period of 30, 60, 90 or 180 days commencing on a Business Day selected by the Borrower pursuant to this Agreement. if such CD Interest Period would end on a day which is not a Business Day, such CD Interest Period shall end on the next succeeding Business Day. "Change of Control" shall be deemed to have occurred: (a) prior to the Effective Date of the Reorganization, on the date on which: (i) the Corporate General Partner ceases to have a Controlling General Partnership Interest in both the Company and the Parent; or (ii) Voting Stock of the Corporate General Partner sufficient to elect at least a majority of its board of directors ceases to be subject to the voting trust arrangement described in the Form 10-K; or (iii) Continuing Directors cease to constitute a majority of the board of directors of the Corporate General Partner; or (iv) an Acquiring Person shall have acquired beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 30% (or if such Acquiring Person is WMX Technologies, Inc. or one of its subsidiaries, 40%) of the Limited Partnership Interests in the Company or the Parent; and (b) on and after the Effective Date of the Reorganization, on the date on which: (i) Continuing Directors cease to constitute a majority of the board of directors of the Surviving Parent or, if the Surviving Parent and the Surviving Company shall have merged or consolidated, of the Surviving Company; or (ii) the Surviving Company shall cease to be a subsidiary of the Surviving Parent (except by reason of a merger or consolidation between them); or (iii) an Acquiring Person shall have acquired beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 30% (or if such Acquiring Person is WMX Technologies, Inc. or one of its subsidiaries, 40%) of the Voting Stock in the Surviving Company or the Surviving Parent. For avoidance of doubt, the Reorganization and related transactions described in the Proxy Statement do not in and of themselves give rise to a Change of Control. -4- "Commitment" means, for each Lender, the obligation of the Lender to make Loans to the Borrowers not exceeding the amount set forth opposite its signature below or as set forth in an applicable Assignment Agreement substantially in the form of Exhibit 'IF" hereto received by the Administrative Agent under the terms of Section 12.3, as such amount may be modified from time to time pursuant to the terms of this Agreement. "Committed Advance" means a borrowing hereunder consisting of the aggregate amount of the several Committed Loans made by the Lenders to the Borrower at the same time, of the same Type and, in the case of Fixed Rate Advances, for the same Interest Period. "Committed Borrowing Notice" is defined in Section 2.2.3. "Committed Fixed Rate Advance" means a Fixed CD Rate Advance or a Eurocurrency Committed Advance. "Committed Loan" means a Loan made by a Lender pursuant to Section 2.2. "Company" means The ServiceMaster Company Limited Partnership, a Delaware limited partnership and its permitted successors and assigns including the Surviving Company following the assumption of the obligations of the Company hereunder pursuant to Section 6.14. "Competitive Bid Advance" means a borrowing hereunder consisting of the aggregate amount of the several Competitive Bid Loans made by some or all of the Lenders to the Borrower at the same time, at the same interest basis, and for the same Interest Period. "Competitive Bid Borrowing Notice" is defined in Section 2.3.4. "Competitive Bid Loan" means a Eurocurrency Bid Rate Loan or an Absolute Rate Loan, as the case may be. "Competitive Bid Margin" means the margin above or below the applicable Eurocurrency Base Rate offered for a Eurocurrency Bid Rate Loan, expressed as a percentage (rounded to the nearest 1/100 of 1%) to be added or subtracted from such Eurocurrency Base Rate. "Competitive Bid Quote" means a Competitive Bid Quote substantially in the form of Exhibit I'D" hereto completed and delivered by a Lender to the Borrower in accordance with Section 2.3.3 "Competitive Bid Quote Request" means a Competitive Bid Quote Request substantially in the form of Exhibit 'IC" hereto completed and delivered by the Borrower in accordance with Section 2.3.3. -5- "Consolidated Debt" means at any date, without duplication, the Debt of the Company and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBIT" means, for any fiscal period, without duplication, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Expense and (ii) income tax expense. "Consolidated EBITDA" means, for any fiscal period, without duplication, Consolidated EBIT for such period plus to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of depreciation and amortization. In the event of a purchase by the Company or a Consolidated Subsidiary of all or any portion of the minority interest in SMCS, Consolidated EBITDA for any period of four consecutive fiscal quarters ending on or after the date of such purchase and prior to the first anniversary thereof shall be determined as if such purchase had been made on the first day of such four-quarter period. "Consolidated Interest Expense" means, for any fiscal period, without duplication, the interest expense of the Company and its Consolidated Subsidiaries plus dividends accrued on preferred stock of the Company or a Consolidated Subsidiary which constitutes Debt, all determined on a consolidated basis for such period. "Consolidated Net Income" means, for any fiscal period, without duplication, the net income of the Company and its Consolidated Subsidiaries (before dividends on preferred stock of the Company) determined on a consolidated basis for such period, exclusive of the effect of (i) any extraordinary or other unusual gain and (ii) any extraordinary or other unusual losses, write-offs or writedowns to the extent that such losses, write-offs or writedowns do not represent a cash expenditure in such period and will not represent a cash expenditure in any future period. "Consolidated Subsidiary" means at any date any Subsidiary or other entity which would be consolidated with the Company in its consolidated financial statements if such statements were prepared as of such date in accordance with GAAP. "Continuing Director" means (i) a director of the Corporate General Partner at the date of this Agreement and (ii) an individual who after the date of this Agreement becomes a director of the Corporate General Partner (including any successor Corporate General Partner) or, after the Effective Date of the Reorganization, of the Company and/or the Parent (x) in connection with the death, disability or retirement of an incumbent director, or otherwise in the ordinary course of the affairs of the corporation and (y) whose election was effected or recommended by a majority of the Continuing Directors then in office (or by a nominating committee appointed by such a majority of Continuing Directors). For avoidance of doubt, the foregoing definition contemplates that the same individuals would successively constitute the Continuing Directors of the Corporate General Partner, any successor Corporate General Partner -6- and, upon consummation of the Reorganization, the Parent and/or the Company, subject to normal turnover. "Controlling General Partner Interest" means a General Partnership Interest which permits the owner of such General Partnership Interest to direct the management of a general partnership or a limited partnership. "Conversion/Continuation Notice" is defined in Section 2.2.4. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by the Administrative Agent from time to time, changing when and as said corporate base rate changes. "Corporate General Partner" means ServiceMaster Management Corporation, a Delaware corporation, and its successors. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable or accrued expenses arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with GAAP, (v) all obligations (absolute or contingent) of such Person to reimburse any bank or other Person issuing a letter of credit or similar instrument, (vi) any preferred stock issued by such Person which is redeemable otherwise than at the sole option of such Person for consideration other than Equity Interests in such Person, in the Company or in the Parent, (vii) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (viii) all Guaranties by such Person of Debt of others. "Debt Limit" means, at any date, the product of (a) Consolidated EBITDA for the period of four consecutive fiscal quarters ending at the date of the balance sheet most recently delivered (or required to be delivered) on or prior to such date pursuant to section 5.5 or 6.1 and (b) the applicable Leverage Factor. "Default" means an event described in Article VII. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. Any determination of the amount -7- of Derivatives Obligations owing at any time shall be calculated net of offsets available at such time under any applicable netting agreement. "Disclosure Documents" is defined in Section 5.4. "Documentation Agent" means Morgan, in its capacity as the contractual representative for all of the Banks for purposes of this Agreement, as designated and appointed in accordance with Article X, any successor thereto as provided herein. "Dollar Amount" means (i) in relation to any Advance denominated in Dollars, the aggregate principal amount thereof and (ii) in relation to any Advance denominated in an Alternative Currency, the equivalent amount thereof in Dollars determined by the Administrative Agent pursuant to Section 2.5.13. The Dollar Amount of any Advance denominated in an Alternative Currency at any date is the Dollar Amount thereof determined as of such date or, if no Dollar Amount is determined as of such date in accordance with Section 2.5.13, then determined as of the then most recent date for which such a determination has been made. Each Advance denominated in an Alternative currency shall be deemed a utilization of the Commitments in an amount equal to the Dollar Amount thereof. "Dollars" and the sign "$" mean the lawful currency of the United States of America. "D&P" means Duff & Phelps, Inc. "Dutch Gilders" means the lawful currency of The Netherlands. "Effective Date of the Reorganization" means the date upon which the Reorganization shall be effective. "Election to Participate" means an Election to Participate substantially in the form of Exhibit "GI' hereto. "Election to Terminate" means an Election to Terminate substantially in the form of Exhibit "HI' hereto. "Eligible Subsidiary" means any Subsidiary of the Company as to which an Election to Participate shall have been delivered to the Agents and as to which an Election to Terminate shall not have been delivered to the Agents. Each such Election to Participate and Election to Terminate shall be duly executed on behalf of such Subsidiary and the Company. The delivery of an Election to Terminate with respect to an Eligible Subsidiary shall not affect any obligation of such Eligible Subsidiary theretofore incurred. The Administrative Agent shall promptly give notice to the Lenders of the receipt of any Election to Participate or Election to Terminate. -8- "Equity Interest" means, in the case of a corporation, stock of any class, and in the case of a partnership or a limited partnership, a General Partnership Interest or Limited Partnership Interest, but excluding preferred stock which constitutes Debt. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurocurrency Auction" means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Margins pursuant to Section 2.3. "Eurocurrency Base Rate" means, with respect to a Eurocurrency Committed Advance, a Eurocurrency Committed Loan, a Eurocurrency Bid Rate Advance or a Eurocurrency Bid Rate Loan for the relevant Eurocurrency Interest Period, the average of the respective rates per annum at which deposits in Dollars or, in the case of any Eurocurrency Loan denominated in an Alternative Currency, the relevant Alternative Currency are offered to each of the Reference Banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period (or, in the case of a Competitive Bid Advance, the amount which would have been the amount of the Loan of such Reference Bank if such Advance were a Committed Advance). "Eurocurrency Bid Rate" means, with respect to a Loan made by a given Lender for the relevant Eurocurrency Interest Period, the sum of (i) the Eurocurrency Base Rate and (ii) the Competitive Bid Margin offered by such Lender and accepted by the Borrower pursuant to Section 2.3.4(i). "Eurocurrency Bid Rate Advance" means a Competitive Bid Advance which bears interest at a Eurocurrency Bid Rate. "Eurocurrency Bid Rate Loan" means a competitive Bid Loan which bears interest at a Eurocurrency Bid Rate. "Eurocurrency Committed Advance" means an Advance which bears interest at a Eurocurrency Rate requested by the Borrower pursuant to Section 2.2. "Eurocurrency Committed Loan" means a Loan which bears interest at a Eurocurrency Rate requested by the Borrower pursuant to Section 2.2. "Eurocurrency Interest Period" means, with respect to a Eurocurrency Committed Advance, a Eurocurrency Committed Loan, a Eurocurrency Bid Rate Advance or a Eurocurrency Bid Rate Loan, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Eurocurrency Interest Period shall -9- end on the day which corresponds numerically to such date of commencement one, two, three or six months thereafter, provided, however, that any such period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such period) shall end on the last Business Day of a calendar month. If a Eurocurrency Interest Period would otherwise end on a day which is not a Business Day, such Eurocurrency Interest Period shall end on the next succeeding Business Day, provided, however, that if such next succeeding Business Day falls in a new month, such Eurocurrency Interest Period shall end on the immediately preceding Business Day. "Eurocurrency Loan" means a Eurocurrency committed Loan or a Eurocurrency Bid Rate Loan, as applicable. "Eurocurrency Rate" means, with respect to a Eurocurrency Committed Advance or a Eurocurrency Committed Loan for the relevant Eurocurrency Interest Period, the sum of (a) the Eurocurrency Base Rate applicable to such Eurocurrency Interest Period plus (b) the Applicable Margin. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York; or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. "Financial Officers" means with respect to the Company and any Eligible Subsidiary, prior to the Effective Date of the Reorganization, the Chief Financial Officer or Treasurer of the Corporate General Partner and subsequent to the Effective Date of the Reorganization, the Chief Financial Officer or Treasurer of the Company. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors and assigns (by merger or otherwise). "Fixed CD Base Rate" means, with respect to a Fixed CD Rate Advance or a Fixed CD Rate Loan for the relevant CD Interest Period, the rate determined by the Administrative Agent to be the arithmetic average of the rates reported to the Administrative Agent as the prevailing bid rate for the purchase at face value at or before 10:00 a.m. (Chicago time) on the first day of such CD Interest Period by three certificate of deposit dealers in New York or Chicago of recognized standing selected by the Administrative Agent of certificates of deposit of each Reference Bank in the approximate amount of such Reference Bank's relevant Fixed CD Rate Loan and having a maturity approximately equal to such CD Interest Period. -10- "Fixed CD Rate" means, with respect to a Fixed CD Rate Advance or Fixed CD Rate Loan for the relevant CD Interest Period, a rate per annum equal to the sum of (i) the quotient of (a) the Fixed CD Base Rate applicable to that CD Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to that CD Interest Period, plus (ii) the Assessment Rate applicable to that CD Interest Period, plus (iii) the Applicable Margin. "Fixed CD Rate Advance" means an Advance which bears interest at a Fixed CD Rate. "Fixed CD Rate Loan" means a Loan which bears interest at a Fixed CD Rate. "Fixed Rate" means the Fixed CD Rate, the Eurocurrency Rate, the Eurocurrency Bid Rate or the Absolute Rate. "Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate. "Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate. "Floating Rate" means, for any day, a rate per annum equal to the Alternate Base Rate. "Floating Rate Advance" means an Advance which bears interest at the Floating Rate. "Floating Rate Loan" means a Loan which bears interest at the Floating Rate. "Form 10-K" is defined in Section 5.4. "French Francs" means the lawful currency of France. "GAAP" means generally accepted accounting principles in effect from time to time in the United States of America. "General Partnership Interest" means the interest of a general partner in a general partnership and the interest of a general partner in a limited partnership. "German Marks" means the lawful currency of Germany. "Guaranties" by any Person means all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Debt of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred -11- through an agreement, contingent or otherwise, by such Person: (i) to purchase such Debt or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Debt, (y) to maintain income, working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Debt, or (iii) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Debt of the ability of the primary obligor to make payment of the Debt, or (iv) otherwise to assure the owner of the Debt of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Debt shall be deemed to be Debt equal to the principal amount of such Debt which has been guaranteed. "Interest Coverage Ratio" means, as at the last day of any fiscal quarter, the ratio of Consolidated EBIT for the period of four fiscal quarters then ended to Consolidated Interest Expense for such four-quarter period. "Interest Period" means a CD Interest Period, a Eurocurrency Interest Period or an Absolute Rate Interest Period. "Japanese Yen" means the lawful currency of Japan. "Lenders" means the financial institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means any office, branch, subsidiary or affiliate of any Lender or the Administrative Agent. "Leverage Factor" means, with respect to any period of four consecutive fiscal quarters, if such period ends (a) prior to the fiscal quarter in which the Effective Date of the Reorganization occurs, 4.5, (b) with the fiscal quarter in which the Effective Date of the Reorganization occurs, 4.275, (c) with the fiscal quarter immediately following the fiscal quarter in which the Effective Date of the Reorganization occurs, 4.05, (d) with the second fiscal quarter following the fiscal quarter in which the Effective Date of Reorganization occurs, 3.825 and (e) with any fiscal quarter thereafter, 3.6. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purpose of this Agreement, the Company or any Subsidiary shall be deemed to own subject to a Lien (i) any asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement or other title retention agreement relating to such asset or any capital lease or (ii) any account receivable transferred by it with recourse for collectibility (including any such transfer subject to a holdback or similar arrangement which effectively imposes the risk of collectibility upon the transferor). -12- "Limited Partnership Interest" means the interest of a limited partner in a limited partnership. "Loan" means, with respect to a Lender, such Lender's portion, if any, of any Advance. "Loan Documents" means this Agreement, the Notes and each Election to Participate and Election to Terminate. "Material Adverse Effect" means (i) a material adverse effect on the properties, business, operations or financial condition of the Company and its Subsidiaries taken as a whole, (ii) a material adverse effect on the ability of the Company to perform its obligations under the Loan Documents or (iii) any material impairment of the rights and remedies of the Agents and the Lenders against the obligors under the Loan Documents. "Material Commitment" means a legally binding commitment by one or more banks or other financial institutions to extend credit to the Company and/or its subsidiaries in an aggregate amount of $25,000,000 or more pursuant to a written agreement signed by the Company or a Subsidiary. "Material Subsidiary" means (i) any Eligible Subsidiary and (ii) any other Subsidiary which has consolidated assets or consolidated annual revenues of more than $10,000,000. "Moody's" means Moody's Investors Service, Inc. "Morgan" means Morgan Guaranty Trust Company of New York in its individual capacity, and its successors and assigns. "Note" means a promissory note in substantially the form of Exhibit "All hereto, duly executed and delivered to the Documentation Agent by the Borrower for the account of a Lender and payable to the order of such Lender, including any amendment, modification, renewal or replacement of such promissory note. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all other reimbursements, indemnities or other obligations of the obligors to any Lender or Agent arising under the Loan Documents. "Obligor" means the Company or any Eligible Subsidiary, and "Obligors" means all of them. -13- "Parent" means The ServiceMaster Limited Partnership, a Delaware limited partnership, and its successors, including any corporate successor resulting from the Reorganization. "Partnership Interest" means Limited Partnership Interests and General Partnership Interests. "Payment Date" means the fifteenth day of each March, June, September, and December. "Person" means any corporation, limited liability company, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "Plans" is defined in Section 5.11. "Pricing Level" is defined in the Pricing Schedule. "Pricing Schedule" means the Schedule hereto entitled "Pricing Schedule". "Proxy Statement" means the Proxy Statement/Prospectus dated December 11, 1991 of the Parent. "Reference Banks" means ABN AMRO Bank, First Chicago and Morgan. If any such Reference Bank ceases to be a Lender, the Company and the Agents shall designate another Lender as a replacement Reference Bank. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulations U and X" means Regulations U and X of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulations or official interpretations of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stock applicable to member banks of the Federal Reserve System. "Reorganization" means the change in the organizational structure of the ServiceMaster enterprise substantially as described in the Proxy Statement. "Replacement Lender" is defined in Section 3.7. -14- "Required Lenders" means Lenders in the aggregate having at least 66- 2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66-2/3% of the aggregate unpaid principal amount of the outstanding Advances. "Reserve Requirement" means, with respect to a Eurocurrency Interest Period or a CD Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on new non-personal time deposits of $100,000 or more with a maturity equal to that of the CD Interest Period (in the case of Fixed CD Rate Advances or Fixed CD Rate Loans) or on Eurocurrency liabilities (in the case of Eurocurrency Committed Advances or Eurocurrency Committed Loans). The Reserve Requirement shall be adjusted automatically on and as of the effective date of any change in the applicable reserve requirement. "Restricted Payments" means, without duplication: (a) the declaration or payment by the Company of any dividends or distributions, either in cash or property, on any Equity Interest of the Company (except dividends or other distributions to the extent payable solely in Partnership Interests of the Company or capital stock of the Company); (b) the purchase, acquisition, redemption or retirement by the Company directly or indirectly, or through any Subsidiary, of any Equity Interest of the Company or the Parent or any warrants, rights or options to purchase or acquire any Equity Interest of the Company or the Parent; and (c) to the extent not included in clause (a) or (b) above, any other payment or distribution by the Company, either directly or indirectly or through any Subsidiary, in respect of any Equity Interest of the Company or the Parent. "SMCS" means ServiceMaster Consumer Services Limited Partnership, a Delaware limited partnership. "SMMS" means ServiceMaster Management Services Limited Partnership, a Delaware limited partnership. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Security" shall have the same meaning as in Section (2)(1) of the Securities Act of 1933, as amended. "S&P" means Standard & Poor's Ratings Group. -15- The term "subsidiary" means, as to any particular parent business entity, any business entity of which such parent business entity and/or one or more business entities which are themselves subsidiaries of such parent business entity, (i) in the case of any corporation, own more than 50% of the Voting Stock, or (ii) in the case of any partnership other than SMCS and SMMS, own a Controlling General Partnership Interest and, if any such partnership is a limited partnership, own more than 50% of the Limited Partnership Interest; provided, however, SMCS and SMMS shall be deemed subsidiaries of the Company so long as (i) prior to the Effective Date of the Reorganization the Controlling General Partnership Interest shall be owned by the Corporate General Partner and (ii) the Company owns more than 50% of the Partnership Interests therein. The term "Subsidiary" means a subsidiary of the Company. "Surviving company" means ServiceMaster corporation, a Delaware corporation, which as part of the Reorganization, shall be a wholly-owned subsidiary of the Surviving Parent, and its successors. As part of the Reorganization the Parent and the Company will be liquidated into the Surviving Company and the Surviving Company will assume the obligations of the Company under the Loan Documents pursuant to Section 6.14. "Surviving Parent" means ServiceMaster Incorporated, a Delaware corporation, which shall own 100% of the outstanding Voting Stock of the Company following the consummation of the Reorganization, and its successors. The Surviving Company and the Surviving Parent may merge or consolidate as part of or following the Reorganization, in which case the resulting or surviving entity shall be the Surviving Company for purposes of this Agreement. "Swedish Kronor" means the lawful currency of the Kingdom of Sweden. "Termination Date" means August 31, 2000, unless the Commitments are earlier terminated pursuant to the terms hereof. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Loan or Advance, its nature as a Floating Rate Advance or Loan, Fixed CD Rate Advance or Loan, Eurocurrency Committed Advance or Loan in a particular currency, Eurocurrency Bid Rate Advance or Loan in a particular currency or Absolute Rate Advance or Loan. "Unmatured Default" means an event which, but for the lapse of time or the giving of notice, or both, would constitute a Default. "Voting Equity Interest" means Voting Stock and General Partnership Interests. -16- "Voting Stock" means securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Company notifies the Documentation Agent that the Company wishes to amend any covenant in Article VI to eliminate the fact of any change in GAAP on the operation of such covenant (or if the Documentation Agent notifies the Company that the Required Lenders wish to amend Article VI for such purpose), then the Company's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Required Lenders. 1.3. Rules of Construction. Any reference contained in any of the Loan Documents to "knowledge" or "awareness" of the Company or any Eligible Subsidiary shall be deemed limited to the "knowledge" or "awareness" of one or more Financial Officers. 1.4. Rounding. All determinations of rates per annum under this Agreement shall be rounded to the nearest 1/100th of 1% (with 0.0050% being rounded upward to 0.01%). ARTICLE II THE FACILITY ------------ 2.1. The Facility. 2.1.1. Description of Facility. The Lenders grant to the Borrowers a revolving credit facility pursuant to which, and upon the terms and subject to the conditions herein set out: (i) each Lender severally agrees to make Committed Loans in Dollars or (in the case of Eurocurrency Committed Loans) in Alternative Currencies to the Borrowers in accordance with Section 2.2; -17- (ii) each Lender may, in its sole discretion, make bids to make Competitive Bid Loans in Dollars or (in the case of Eurocurrency Bid Rate Loans) in Alternative Currencies to the Borrowers in accordance with Section 2.3; and (iii) in no event may the sum of the aggregate Dollar Amount of all outstanding Advances to all Borrowers (including both the Committed Advances and the Competitive Bid Advances) exceed the Aggregate Commitment. 2.1.2. Availability of Facility; Required Payments. Subject to the terms and conditions set forth in this Agreement, the facility is available from the date of this Agreement to the Termination Date, and the Borrowers may borrow, repay and reborrow at any time prior to the Termination Date. The Commitments to lend hereunder shall expire on the Termination Date and all outstanding Advances and all other unpaid Obligations shall be paid in full on the Termination Date. 2.2. Committed Advances. 2.2.1. Committed Advances. From and including the date of this Agreement and prior to the Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Committed Loans to the Borrowers from time to time in Dollar Amounts not to exceed in the aggregate at any one time outstanding to all Borrowers the amount of such Lender's Commitment. Each Committed Advance hereunder shall consist of borrowings made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. The Committed Advances shall be evidenced by the Notes and shall be repaid as provided by the terms of Section 2.1.2. 2.2.2. Types of Committed Advances. The Committed Advances may be Floating Rate Advances, Fixed CD Rate Advances or Eurocurrency Committed Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.2.3 and 2.2.4. 2.2.3. Method of Selecting Types and Interest Periods for New Committed Advances. The Borrower shall select the Type of Advance and, in the case of each Fixed Rate Advance, the Interest Period applicable to each Committed Advance from time to time. The Borrower shall give the Administrative Agent notice (a "Committed Borrowing Notice") not later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate Advance, two Business Days before the Borrowing Date of each Fixed CD Rate Advance, three Business Days before the Borrowing Date for each Eurocurrency Committed Advance denominated in Dollars and five Business Days before the Borrowing Date for each Eurocurrency Committed Advance denominated in an Alternative Currency. A Committed Borrowing Notice shall specify: (i) the Borrowing Date, which shall be a Business Day, of such Committed Advance; -18- (ii) the aggregate principal amount of such Committed Advance; (iii) the Type of Committed Advance selected (including, in the case of a Eurocurrency Committed Advance, the currency in which such Advance is to be denominated); and (iv) in the case of each Committed Fixed Rate Advance, the Interest Period applicable thereto. Subject to Section 3.3, each Committed Borrowing Notice shall be irrevocable. 2.2.4. Conversion and Continuation of Outstanding Committed Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are either prepaid in accordance with Section 2.5.3 or converted into Committed Fixed Rate Advances denominated in Dollars. Unless sooner prepaid in accordance with Section 2.5.3 or converted in accordance with this Section, each Committed Fixed Rate Advance of any Type shall continue as a Fixed Rate Advance of such Type until the end of the then applicable Interest Period therefor, at which time (x) if such Fixed Rate Advance is a Committed Fixed Rate Advance denominated in Dollars such Committed Fixed Rate Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Administrative Agent a timely notice of prepayment thereof pursuant to Section 2.5.3 or a timely Conversion/ Continuation Notice requesting that, at the end of such Interest Period, such Committed Fixed Rate Advance either continue as a Committed Fixed Rate Advance of such Type for the same or another Interest Period or be converted into an Advance of another Type denominated in Dollars and (y) subject to Section 2.5.13(b), if such Fixed Rate Advance is a Committed Fixed Rate Advance denominated in an Alternative Currency, such Committed Fixed Rate Advance shall be automatically continued as a Committed Fixed Rate Advance in the same Alternative Currency for an additional Interest Period of one month, unless the Borrower shall have given the Administrative Agent a timely notice of prepayment thereof pursuant to Section 2.5.3 or a timely Continuation Notice requesting that at the end of such Interest Period such Committed Fixed Rate Advance continue as a Committed Fixed Rate Advance for another Interest Period. If the Administrative Agent does not receive such timely notice of prepayment or Continuation Notice, it shall notify the Lenders to such effect on the date such notice is due. Subject to the terms of Section 2.5.2, the Borrower may elect from time to time to convert all or any part of a Committed Advance of any Type denominated in Dollars into any other Type or Types of Committed Advances denominated in Dollars; provided that any conversion of any Committed Fixed Rate Advance on any day other than the last day of the Interest Period applicable thereto shall be subject to Section 3.4. The Borrower shall give the Administrative Agent notice (a "Conversion/ Continuation Notice") of each conversion of a committed Advance or continuation of a Committed Fixed Rate Advance not later than 10:00 a.m. (Chicago time) on the date of, in the case of a conversion into a Floating Rate Advance, or two Business Days, in the case of a conversion into or continuation of a Fixed CD Rate Advance, three Business Days, in the case of a conversion into or continuation of a Eurocurrency Committed Advance denominated in Dollars -19- or five Business Days, in the case of a continuation of a Eurocurrency Committed Advance denominated in an Alternative Currency, prior to the date of, the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount and Type of the Committed Advance which is to be converted or continued; and (iii) the amount and Type(s) of Committed Advance(s) into which such Committed Advance is to be converted or continued and, in the case of a conversion into or continuation of a Committed Fixed Rate Advance, the duration of the Interest Period applicable thereto. Subject to Section 3.3, each Conversion/continuation Notice shall be irrevocable. Changes in the currency in which an Advance is denominated may not be effected by a conversion pursuant to this Section 2.2.4. 2.3. Competitive Bid Advances. 2.3.1. Competitive Bid Option; Repayment of Competitive Bid Advances. In addition to Committed Advances pursuant to Section 2.2, but subject to the terms and conditions set forth in this Agreement (including, without limitation, the limitation set forth in Section 2.1.1(iii) as to the maximum aggregate principal amount of all outstanding Advances hereunder and the limitation set forth in Section 4.3(iii) as to the minimum credit standing for Competitive Bid Advances), any Borrower may, as set forth in this Section 2.3, request the Lenders, prior to the Termination Date, to make offers to make Competitive Bid Advances to such Borrower. Each Lender may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.3. Competitive Bid Advances shall be evidenced by the Notes. Each Competitive Bid Advance shall be repaid in full by the Borrower on the last day of the Interest Period applicable thereto. 2.3.2. Competitive Bid Quote Request. When the Borrower wishes to request offers to make Competitive Bid Loans under Section 2.3, it shall transmit to each Lender by telex or telecopy a Competitive Bid Quote Request so as to be received no later than (i) 10:00 a.m. (Chicago time) at least five Business Days prior to the Borrowing Date proposed therein, in the case of a Eurocurrency Auction denominated in Dollars, (ii) 10:00 a.m. (Chicago time) at least seven Business Days prior to the Borrowing Date, in the case of a Eurocurrency Auction denominated in an Alternative Currency or (iii) 10:00 a.m. (Chicago time) at least one Business Day prior to the Borrowing Date proposed therein, in the case of an Absolute Rate Auction specifying: -20- (a) the proposed Borrowing Date, which shall be a Business Day, for the proposed Competitive Bid Advance; (b) the aggregate principal amount of such Competitive Bid Advance; (c) whether the Competitive Bid Quotes requested are to set forth a Competitive Bid Margin or an Absolute Rate, or both; (d) in the case of a Eurocurrency Auction, the currency in which the Loans are to be denominated; and (e) the Interest Period applicable thereto (which may not end after the Termination Date). The Borrower may request offers to make Competitive Bid Loans for more than one Interest Period and for a Eurocurrency Auction and an Absolute Rate Auction in a single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be given within 3 Business Days of any other Competitive Bid Quote Request. Each Competitive Bid Quote Request shall be in an Approved Multiple. 2.3.3. Submission and Contents of Competitive Bid Quotes. (i) Each Lender may, in its sole discretion, submit to the Borrower a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this Section 2.3.3 and must be submitted to the Borrower by telecopy at its address specified in or pursuant to Article XIII not later than (a) 1:00 p.m. (Chicago time) at least three Business Days prior to the proposed Borrowing Date, in the case of a Eurocurrency Auction denominated in Dollars, (b) 1:00 p.m. (Chicago time) at least five Business Days prior to the proposed Borrowing Date, in the case of a Eurocurrency Auction denominated in an Alternative Currency or (c) 9:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of an Absolute Rate Auction. Subject to Articles IV and VIII, any Competitive Bid Quote so made shall be irrevocable. (ii) Each Competitive Bid Quote shall in any case specify: (a) the proposed Borrowing Date, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Quotes; (b) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (1) may be greater than, less than or equal to the Commitment of the quoting Lender, (2) must be an Approved Multiple and (3) may not exceed the principal amount of Competitive Bid Loans for which offers were requested; -21- (c) in the case of a Eurocurrency Auction, the Competitive Bid Margin offered for each such Competitive Bid Loan; (d) the limit, if any, as to the aggregate principal amount of the Competitive Bid Loans from such Lender which may be accepted by the Borrower; (e) in the case of an Absolute Rate Auction, the Absolute Rate offered for each such Competitive Bid Loan; (f) the applicable Interest Period; and (g) the identity of the quoting Lender. (iii) The Borrower shall reject any Competitive Bid Quote that: (a) is not substantially in the form of Exhibit "D" hereto or does not specify all of the information required by Section 2.3.3(ii); (b) contains qualifying, conditional or similar language, other than any such language contained in Exhibit "D" hereto; (c) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or (d) arrives after the time set forth in Section 2.3.3(i). If any Competitive Bid Quote shall be rejected pursuant to this Section 2.3.3(iii), then the Borrower shall notify the relevant Lender of such rejection as soon as practical. 2.3.4. Acceptance and Notice by the Borrower. Not later than (a) 2:00 p.m. (Chicago time) at least three Business Days prior to the proposed Borrowing Date, in the case of a Eurocurrency Auction denominated in Dollars, (b) 2:00 p.m. (Chicago time) at least five Business Days prior to the proposed Borrowing Date, in the case of a Eurocurrency Auction denominated in an Alternative Currency or (c) 10:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of an Absolute Rate Auction, the Borrower shall notify each Lender of its acceptance or rejection of the offers so notified to it pursuant to Section 2.3.3; Provided, however, that the failure by the Borrower to give such notice to any Lender shall be deemed to be a rejection by the Borrower of all such offers made by such Lender. In the case of acceptance, such notice (a "Competitive Bid Borrowing Notice") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept or reject any Competitive Bid Quote in whole or in part (subject to the terms of Section 2.3.3(ii)(d)); provided that: -22- (a) the aggregate principal amount of each Competitive Bid Advance may not exceed the applicable amount set forth in the related Competitive Bid Quote Request; (b) acceptance of offers may only be made on the basis of ascending Competitive Bid Margins or Absolute Rates, as the case may be; and (c) the Borrower may not accept any offer of the type described in Section 2.3.3(iii) or that otherwise fails to comply with the requirements of this Agreement for the purpose of obtaining a Competitive Bid Loan under this Agreement. 2.3.5. Allocation by the Borrower. If offers are made by two or more Lenders with the same Competitive Bid Margins or Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are permitted to be accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Borrower among such Lenders as nearly as possible (in such multiples, not greater than $1,000,000 (or the equivalent in an Alternative Currency), as the Borrower may deem appropriate) in proportion to the aggregate principal amount of such offers. Allocations by the Borrower of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. The Borrower shall promptly, but in any event on the same Business Day in the case of Eurocurrency Bid Rate Advances, and by 11:00 a.m. (Chicago time) in the case of Absolute Rate Advances, notify each Lender that submitted a Competitive Bid Quote of its receipt of a Competitive Bid Borrowing Notice and the aggregate principal amount of such Competitive Bid Advance allocated to each participating Lender. 2.3.6. Notice by the Borrower to the Administrative Agent. Promptly, but in any event on the same Business Day that the Borrower issues any competitive Bid Borrowing Notice, the Borrower shall give the Administrative Agent notice of the amount, maturity, applicable interest rate and Lender for each Competitive Bid Loan accepted by the Borrower pursuant to such Competitive Bid Borrowing Notice. 2.4. Facility Fees. The company hereby agrees to pay to the Administrative Agent for the account of each Lender, ratably in the proportion that such Lender's Commitment bears to the Aggregate Commitment, a per annum facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule) on the daily amount of the Aggregate Commitment, payable quarterly in arrears on each Payment Date and on the Termination Date. All accrued facility fees hereunder shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder. 2.5. General Facility Terms. 2.5.1. Method of Borrowing. Not later than (i) 12:00 noon (Chicago time) on each Borrowing Date for each Advance denominated in Dollars and (ii) the funding deadline -23- designated by the Administrative Agent in the case of any Advance denominated in an Alternative Currency (which shall be no earlier than 10:00 a.m. local time in the place of payment and no later than 12:00 noon (Chicago time)), each Lender shall make available its Loan or Loans, if any, in immediately available funds, to the Administrative Agent at its address specified pursuant to Article XIII or at such other location as the Administrative Agent shall direct. The Administrative Agent shall promptly deposit the funds so received from the Lenders in the Borrower's account at the Administrative Agent's main office in Chicago or as otherwise directed by the Borrower. Notwithstanding the foregoing provisions of this Section 2.5.1, to the extent that a Loan made to a Borrower by a Lender matures on the Borrowing Date of a requested Loan to such Borrower in the same currency, such Lender shall apply the proceeds of the Loan it is then making to the repayment of principal of the maturing Loan. 2.5.2. Minimum Amount of Each Committed Advance. Each Committed Advance shall be in an Approved Multiple; provided, however, that any Floating Rate Advance may be in the aggregate amount of the unused Aggregate Commitment. 2.5.3. Optional Principal Payments. The Borrower may from time to time pay all of its outstanding Committed Advances, or, in an Approved Multiple, any portion of the outstanding Committed Advances upon (i) in the case of any Floating Rate Advance, notice to the Administrative Agent not later than 10:00 a.m. (Chicago time) on the date of prepayment, (ii) in the case of any Fixed CD Rate Advance, two Business Days' prior notice to the Administrative Agent, (iii) in the case of any Eurocurrency Committed Advance denominated in Dollars, three Business Days' prior notice to the Administrative Agent and (iv) in the case of any Eurocurrency Committed Advance denominated in an Alternative Currency, five Business Days' prior notice to the Administrative Agent. Any such notice of prepayment shall be irrevocable. All such payments shall be made in immediately available funds to the Administrative Agent at the Administrative Agent's address specified in Article XIII or at any other location specified by the Administrative Agent in accordance with Section 2.5.7 not later than (i) noon (Chicago time) on the date of payment for each Advance denominated in Dollars and (ii) the funding deadline designated by the Administrative Agent in the case of any Advance denominated in an Alternative Currency (which should be no earlier than 10:00 a.m. local time in the place of payment and no later than 12:00 noon (Chicago time)). Subject to Section 2.5.13(a), a Competitive Bid Advance may not be prepaid prior to the last day of its applicable Interest Period without the prior consent of the Lender which originally made such Loan, which consent may be given or withheld at the Lender's sole and absolute discretion, provided that no Competitive Bid Advance may be prepaid if there exists a Default. Any prepayment of a Fixed Rate Advance prior to the end of its applicable Interest Period shall be subject to the indemnity provisions of section 3.4. 2.5.4. Interest Periods. Subject to the provisions of Section 2.5.5, each Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the earlier of (i) the last day of such Interest Period or (ii) the date of any earlier -24- prepayment as permitted by Section 2.5.3, at the interest rate determined as applicable to such Advance, payable in the currency of such Advance. 2.5.5. Rate after Maturity. Except as provided in the next sentence, any Advance not paid at maturity, whether by acceleration or otherwise, shall bear interest until paid in full at a rate per annum equal to (i) in the case of an Advance denominated in Dollars, the Alternate Base Rate plus 2% per annum, payable upon demand and (ii) in the case of an Advance denominated in an Alternative Currency, the sum of 2% plus the Applicable Margin for Eurocurrency Committed Advances for such day plus the quotient obtained by dividing (x) the average of the respective rates per annum at which one day (or, if such amount due remains unpaid more than five Business Days, then for such other period of time not longer than three months as the Administrative Agent may select) deposits in such Alternative Currency in an amount approximately equal to such overdue payment due to each of the Reference Banks (or, in the case of a Competitive Bid Advance, the amount which would have been due to each Reference Bank if such Advance were a Committed Advance) are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Reserve Requirement. In the case of a Fixed Rate Advance the maturity of which is accelerated, such Fixed Rate Advance shall bear interest for the remainder of the applicable Interest Period (or until paid if paid prior to the end of such Interest Period), at the higher of the rate otherwise applicable to such Fixed Rate Advance for such Interest Period plus 2% per annum or the applicable rate specified in the preceding sentence. 2.5.6. Interest Payment Dates; Interest Basis. Interest accrued on each Fixed Rate Advance shall be payable on the last day of its applicable Interest Period, on any date on which such Fixed Rate Advance is prepaid or converted, and at the maturity of such Advance. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, on any date on which such Floating Rate Advance is prepaid, and at the maturity of such Advance. Interest accrued on each Fixed Rate Advance having an Interest Period longer than three months shall also be payable on the last day of each 90 day interval (in the case of Fixed CD Rate Advances or Absolute Rate Advances) or three-month interval (in the case of Eurocurrency Committed Advances or Eurocurrency Bid Rate Advances) during such Interest Period. Interest on Fixed Rate Loans and facility fees hereunder shall be calculated for actual days elapsed on the basis of a 360-day year. Interest on Floating Rate Loans shall be calculated for actual days elapsed on the basis of a 365-day year, or, when applicable, 366-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to the deadline specified pursuant to Section 2.5.7. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.5.7. Method of Payment. Subject to the last sentence of Section 2.5.1, all payments of principal, interest, and fees hereunder shall be made by (i) noon (local time) for each -25- payment in Dollars and (ii) the funding deadline designated by the Administrative Agent for each payment in an Alternative Currency (which shall be no earlier than 10:00 a.m. local time in the place of payment and no later than 12:00 noon (Chicago time)), on the date when due in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to Article XIII, or at any other location specified in writing by the Administrative Agent to the Borrower and shall be distributed by the Administrative Agent ratably among all Lenders in the case of fees and payments in respect of committed Advances and ratably among the applicable Lenders in respect of Competitive Bid Advances. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds which the Administrative Agent received at its address specified pursuant to Article XIII or at any location specified in a notice received by the Administrative Agent from such Lender. All payments of the principal of and interest on any Loan shall be made in the currency in which such Loan is denominated. 2.5.8. Notes. Each Lender is hereby authorized to record on the schedule attached to each of its Notes, or otherwise record in accordance with its usual practice, the date and amount of each of its Loans evidenced by such Note; Provided, however, that any failure to so record shall not affect the Obligors' obligations under any Loan Document. 2.5.9. Notification of Advances, Interest Rates and Prepayments. The Administrative Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Committed Borrowing Notice, Conversion/Continuation Notice and repayment notice received by it hereunder promptly and in any event before the close of business on the same Business Day of receipt thereof (or, in the case of borrowing notices with respect to Floating Rate Advances and Absolute Rate Advances, within one hour of receipt thereof). The Administrative Agent will notify each Lender of the interest rate applicable to each Fixed Rate Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.5.10. Non-Receipt of Funds by the Administrative Agent. Unless the Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such scheduled payment, the Administrative Agent may assume that such scheduled payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such scheduled payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such scheduled payment to the Administrative Agent, the recipient of such scheduled payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative -26- Agent recovers such amount at a rate per annum equal to (x) in the case of scheduled payment by a Lender, the Federal Funds Effective Rate for such day or (y) in the case of scheduled payment by the Borrower, the interest rate applicable to the relevant Loan. 2.5.11. Cancellation. The Company may at any time after the date hereof cancel the Aggregate Commitment, in whole, or in a minimum aggregate amount of $10,000,000 (and in integral multiples of $1,000,000 if in excess thereof) ratably among the Lenders upon written notice to the Administrative Agent not later than 10:00 a.m. (Chicago time) on the effective date of cancellation specified therein, which notice shall specify the amount of such reduction; provided, however, no such notice of cancellation shall be effective to the extent that it would reduce the Aggregate Commitment to an amount which would be less than the aggregate Dollar Amount of Loans outstanding at the time such cancellation is to take effect. Any notice of cancellation given pursuant to this Section 2.5.11 shall be irrevocable and shall specify the date upon which such cancellation is to take effect. 2.5.12. Lending Installations. Subject to Section 12.6, each Lender may, by written (including telex or telecopy) notice to the Administrative Agent and the Company, book its Loans at any Lending Installation selected by such Lender and may from time to time change its Lending Installation and for whose account Loan payments are to be made. Each Lender will notify the Administrative Agent and the Company on or prior to the date of this Agreement of the Lending Installation which it intends to utilize for each type of Loan hereunder. 2.5.13. Currency Equivalents. (a) The Administrative Agent shall determine the Dollar Amount of each Advance denominated in an Alternative Currency as of the first day of each Interest Period applicable thereto, and in the case of any such Interest Period of more than three months, at three month intervals after the first day thereof, and shall promptly notify the Borrower and the Lenders of each Dollar Amount so determined by it. Each such determination shall be based on the spot rate at which in accordance with normal banking procedures the Administrative Agent could purchase the Alternative Currency with Dollars in the interbank market in London at 11:00 a.m. (London time) two Business Days prior to the date as of which such Dollar Amount is to be determined. If after giving effect to any such determination of a Dollar Amount, the aggregate Dollar Amount of all outstanding Advances exceeds the Aggregate Commitment, the Borrowers shall within five Business Days prepay outstanding Advances (as selected by the Company) to the extent necessary to eliminate such excess; provided that such prepayment shall be applied to outstanding Committed Advances to the extent necessary to prepay such Advances in full before prepayment of any Competitive Bid Advances pursuant to this Section 2.5.13(a). (b) If for the purpose of obtaining judgment in any court it is necessary to convert a sum due from any Obligor hereunder or under any of the Notes in the currency expressed to be payable herein or under the Notes (the "specified currency") into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the -27- Administrative Agent could purchase the specified currency with such other currency at the Administrative Agent's London office at 11:00 a.m. (London time) on the Business Day preceding that on which final judgment is given. The obligations of each Obligor in respect of any sum due to any Lender or the Administrative Agent hereunder or under any Note shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Administrative Agent (as the case may be) of any sum adjudged to be so due in such other currency such Lender or the Administrative Agent (as the case may be) may in accordance with normal banking procedures purchase the specified currency with such other currency; if the amount of the specified currency so purchased is less than the sum originally due to such Lender or the Administrative Agent, as the case may be, in the specified currency, each Obligor agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Administrative Agent, as the case may be, against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Lender or the Administrative Agent, as the case may be, in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Article XI, such Lender or the Administrative Agent, as the case may be, agrees to remit such excess to the Company for the account of the Obligors. 2.5.14. Taxes. (a) Any and all payments by a Borrower hereunder or under the Notes shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto excluding, (i) in the case of each Lender and Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by the jurisdiction under the laws of which such Lender or Agent is organized or any political subdivision thereof and taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's applicable Lending Installation or any political subdivision thereof and (ii) in the case of each Lender, any United States withholding tax imposed on such payments but only to the extent not attributable to a change in law, regulation, treaty or interpretation after the time such Lender first becomes a party to this Agreement (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities arising out of or related to this Agreement being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.5.14) such Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and provide such Lender or Agent (as the case may be) with a receipt or other evidence of such payment. -28- (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery, enforcement or registration of, or otherwise with respect to, the Loan Documents (hereinafter referred to as "Other Taxes"). (c) Each Borrower will indemnify each Lender and Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.5.14) paid by such Lender or Agent and any liability including penalties, interest and expenses arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other governmental entity. This indemnification shall be made to the Administrative Agent for the account of such Lender or Agent (as the case may be) within 30 days from the date such Lender or Agent makes written demand therefor (with a copy, in the case of a demand by a Lender or the Documentation Agent, of such demand to the Administrative Agent). If a Lender or Agent shall become aware that it is entitled to receive a refund in respect of Taxes or other Taxes as to which it has been indemnified by a Borrower pursuant to this Section 2.5.14, it shall promptly notify such Borrower of the availability of such refund and, unless such Lender or Agent determines in good faith that it is not in its best interests to do so, shall apply for such refund. If any Lender or Agent receives a refund in respect of any Taxes or Other Taxes as to which it has been indemnified by a Borrower pursuant to this Section 2.5.14, it shall promptly notify such Borrower of such refund and shall promptly repay such refund to such Borrower (to the extent of amounts that have been paid by such Borrower under this Section 2.5.14 with respect to such refund), net of all out-of-pocket expenses of such Lender or Agent in obtaining such refund; provided that the Borrower, upon the request of such Lender or Agent agrees to return such refund (plus penalties, interest or other charges) to such Lender or Agent in the event such Lender or Agent is required to repay such refund. (d) Notwithstanding the foregoing, unless, prior to the initial Borrowing Date (in the case of a Lender listed on the signature pages hereto), and prior to the effective date of the Assignment and Acceptance by which it became a Lender (in the case of Lender that became a Lender pursuant to such Assignment and Acceptance), and in each case from time to time thereafter, if requested by the Company or the Administrative Agent, each Lender organized under the laws of a jurisdiction outside the United States shall have provided the Company and the Administrative Agent with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Lender's status for purposes of determining exemption from United States withholding taxes with respect to all payments of interest to be made to such Lender hereunder or other documents satisfactory to the Company which, in each case, shall indicate that all payments to be made to such Lender hereunder are not subject to United States withholding tax or are subject to such taxes at a rate reduced to zero by an applicable tax treaty, neither the Company nor any other Borrower shall have any obligation under the last sentence of Section 2.5.14(a) to make any payments to or for the benefit of such Lender in respect of Taxes -29- imposed by the United States of America unless such Lender is unable to provide such form as a result of a change in law or treaty after the time such Lender becomes a party to this Agreement. 2.5.15. Regulation D Compensation. For so long as any Lender maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which interest rate on Eurocurrency Committed Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Lender to United States residents), and as a result the cost to such Lender (or its Lending Installation) of making or maintaining any of its Eurocurrency Committed Loans is increased, then such Lender may require the Borrower to pay, contemporaneously with each payment of interest on such Loans, additional interest on the related Eurocurrency Committed Loan of such Lender at a rate per annum up to but not exceeding the excess of (i)(A) the applicable Eurocurrency Base Rate divided by (B) one minus the Reserve Requirement over (ii) the applicable Eurocurrency Base Rate. Any Lender wishing to require payment of such additional interest (x) shall so notify the Borrower and the Administrative Agent, in which case such additional interest on the Eurocurrency Committed Loans of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period which commences at least three Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Business Days prior to each date on which interest is payable on the Eurocurrency Committed Loans a certificate setting forth the amount to which such Lender is then entitled under this Section. ARTICLE III CHANGE IN CIRCUMSTANCES ----------------------- 3.1. Yield Protection. If, after the date of this Agreement, the adoption of any law or the application of any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change therein, or any change in the interpretation or administration thereof, or the compliance of any Lender therewith, (i) with respect to Committed Loans bearing interest at a Fixed Rate, imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Committed Advances bearing interest at a Fixed Rate or for which such Lender is compensated pursuant to Section 2.5.15), or (ii) with respect to Committed Loans bearing interest at a Fixed Rate, imposes any other condition, -30- the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining such Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with such Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of such Loans held or interest received by it, by an amount deemed material by such Lender, then, within 30 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender reasonably and in good faith determines is attributable to the making, funding and maintaining of such Loans by it. 3.2. Changes in Capital Adequacy Regulations. If a Lender reasonably and in good faith determines that the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender attributable to this Agreement, the Loans or its obligation to make Loans hereunder is increased as a result of a Change (as hereafter defined), then, within 15 days of demand by such Lender, the Company shall pay such Lender the amount which such Lender reasonably and in good faith determines is necessary to compensate it for any reduction in the rate of return on capital to an amount below that which such Lender could have achieved but for such Change and is attributable to this Agreement, the Loans or its obligation to make Loans hereunder, provided, however, that the effect of any Change shall be determined based on the effect on such Lender that would be applicable to such Lender if such Lender was maintaining the highest credit quality as determined by the applicable regulatory authorities at the time of such Change. "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi- governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) of general applicability after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk- based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 3.3. Availability of Types of Advances. If the Required Lenders reasonably and in good faith determine that (i) deposits of a type and maturity appropriate to match fund Committed Advances bearing interest at a Fixed Rate are not available or (ii) solely in the case of a Eurocurrency Committed Advance denominated in an Alternative Currency, the interest applicable to such Committed Advance does not accurately reflect the funding cost of such Committed Advance, then the Administrative Agent shall forthwith give notice thereof to the Company and the Lenders, whereupon until the Administrative Agent notifies the Company that the circumstances giving rise to such suspension no longer exist, the obligations of the Lenders -31- to make Fixed CD Rate Loans or Eurocurrency Loans (in the affected currency), or to convert outstanding Loans into such Loans or continue outstanding Loans as such Loans for an additional Interest Period, shall be suspended and (i) any affected outstanding Committed Advance denominated in Dollars shall be converted into a Floating Rate Advance on the last day of the then current Interest Period applicable thereto, (ii) any affected Committed Advance denominated in Dollars for which a Committed Borrowing Notice has previously been given shall instead be made as a Floating Rate Advance, unless the Borrower elects not to borrow such Advance by giving one Business Day's notice to the Administrative Agent to such effect, (iii) any affected outstanding Committed Advance denominated in an Alternative Currency shall mature and be due and payable on the last day of the then current Interest Period applicable thereto and (iv) any affected Eurocurrency Advance denominated in an Alternative Currency for which a Committed Borrowing Notice or a Competitive Bid Borrowing Notice has previously been given shall be canceled. Nothing in this Section 3.3 shall affect any right of the Borrower to borrow or convert outstanding Loans into Loans of a Type not affected by the circumstances described above under and in accordance with the other applicable provisions of this Agreement. If any Lender determines that maintenance of any of its Eurocurrency Loans would violate any applicable law, rule, regulation or directive, whether or not having the force of law, then such Lender may by notice to the Company, through the Administrative Agent, require that such Eurocurrency Loans be converted to an unaffected Type of Loan on the last day of the then current Interest Period applicable thereto, if such Lender may lawfully maintain such Loan to such date, or on such earlier date as such Lender may require if it is not able lawfully to maintain such Loan to such date. 3.4. Funding Indemnification. If any payment of a Fixed Rate Loan occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or other-wise, or any Fixed Rate Loan is converted to a Loan of a different Type on a date which is not the last day of the applicable Interest Period (except pursuant to the last sentence of Section 3.3), or the Borrower fails to prepay any Fixed Rate Loan after notice of prepayment has been given in accordance with Section 2.5.3, or a Fixed Rate Advance is not made, converted or continued on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Fixed Rate Advance. 3.5. Lender Statements; Limit on Retroactivity; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Fixed Rate Loans to reduce any liability of the Borrower or the Company to such Lender under Section 3.1, 3.2 or 3.6 or to avoid the unavailability of a Type of Committed Advance under Section 3.3, so long as such designation is not disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under Section 3.1, 3.2, 3.3, 3.4 or 3.6. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding in the absence of manifest error. Determination of amounts payable under such Sections -32- in connection with a Fixed ]Rate Loan shall be calculated as though each Lender funded its Fixed Rate Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Fixed Rate applicable to such Loan, whether in fact that is the case or not. The Borrower or the Company, as the case may be, shall only be obligated to compensate any Lender under Section 3.1, :3.2, 3.4 or 3.6 for any amount arising or accruing during (i) any time or period commencing not more than 90 days prior to the date on which such Lender notifies the Administrative Agent and the Company that it proposes to demand such compensation and identifies to the Administrative Agent and the Company the statute, regulation or other basis upon which the claimed compensation is or will be based and (ii) any time or period during which, because of the retroactive application of such statute, regulation or other such basis, such Lender did not know that such amount would arise or accrue. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower or the Company, as the case may be, of the written statement. The obligations of the Obligors under Sections 3.1, 3.2, 3.4 and 3.6 shall survive payment of any other of the Obligations and the termination of this Agreement. 3.6. Foreign Subsidiary Costs. If any Lender determines reasonably and in good faith that the cost to such Lender of making or maintaining any Loan to an Eligible Subsidiary is increased, or the amount of any sum received or receivable by any Lender (or its Lending Installation) is reduced by an amount deemed by such Lender to be material, by reason of the fact that such Eligible Subsidiary is incorporated in, or conducts business in, a jurisdiction outside the United States of America, the Company shall indemnify such Lender for such increased cost or reduction within 30 days after demand by such Lender (with a copy to the Administrative Agent). A certificate of such Lender claiming compensation under this Section 3.6 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. 3.7. Replacement of Lenders. In the event a Lender (an "Affected Lender") shall have: (i) failed to either fund its ratable share of any Committed Advance which such Lender is obligated to fund under the terms of Section 2.2 or its share of any Competitive Bid Advance which such Lender is obligated to fund under the terms of Section 2.3, and in either case such failure has not been cured within five Business Days, (ii) either repudiated its obligations under this Agreement or failed to reaffirm such obligations in writing within ten Business Days of a written request therefor from the Company (with a copy to each Agent), or (iii) made demand for additional amounts pursuant to Sections 2.5.14, 3.1, 3.2 or 3.6, as a result of any condition described in any such Section, then, unless such Affected Lender has theretofore taken steps to remove or cure, and has removed or cured within ten Business Days, such failure or the conditions creating the cause for such demand for such additional amounts, as the case may be, the Company may require the Affected Lender to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Sections 12.1, 12.2 and 12.3) all its interests, rights and obligations under this Agreement to a bank designated by the Company and which is reasonably acceptable to the Agents (such bank being herein called a "Replacement Lender"); provided, that (i) no such assignment shall conflict with any law, rule or regulation or -33- order of any state, federal or local govern-mental authority and (ii) the Replacement Lender shall pay to the Affected Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by it hereunder and all other amounts accrued for its account or owed to it hereunder (including, without limitation, any amount which would be payable pursuant to Section 3.4 in connection with a prepayment in full of the Loans of the Affected Lender on the date of such assignment). Each Lender agrees to use its best efforts to notify the Company as promptly as practicable upon such Lender's becoming aware that circumstances exist which would cause any obligor to become obligated to pay additional amounts to such Lender pursuant to Sections 2.5.14, 3.1, 3.2 or 3.6. ARTICLE IV CONDITIONS PRECEDENT -------------------- 4.1. Initial Advance. No Lender shall be required to make the initial Advance hereunder unless the Company has furnished or caused to be furnished to the Documentation Agent: (i) the Company, together with all amendments thereto, and the Company's Certificate of Limited Partnership, all as filed with the Secretary of State of Delaware, certified by a Financial officer or the President of the Company. (ii) Copies, certified by a Financial Officer, of the Corporate General Partner's Certificate of Incorporation, By-Laws and Board of Directors' resolutions authorizing the execution, delivery and performance of the Loan Documents on behalf of the Company. (iii) An incumbency certificate, executed by a Financial Officer, which shall identify by name and title and bear the signature of the Financial Officers authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Lenders shall be entitled to rely until informed of any change in writing by the Company. (iv) Copies of a long-form certificate of the Secretary of State of the State of Delaware, dated reasonably near the date hereof, listing the Certificate of Limited Partnership of the Company and each amendment, if any, thereto, on file in the office of the Secretary of State of the State of Delaware and stating that such documents are the only charter documents of the Company on file in the office of the Secretary of State of the State of Delaware and that the Company is a limited partnership in good standing in the State of Delaware. (v) A written opinion of the Company's special counsel, Kirkland & Ellis, in substantially the form of Exhibit "B-1" hereto. -34- (vi) A written opinion of the General Counsel to the Company, Vernon T. Squires, Esq., in substantially the form of Exhibit "B-2" hereto. (vii) The Notes of the Company payable to the order of each of the Lenders. (viii) A certificate, signed by a Financial Officer, stating that no Default or Unmatured Default has occurred and is continuing and (ii) setting forth a calculation of the Interest Coverage Ratio as at June 30, 1995 and the Pricing Level as at the date of delivery of such certificate. (ix) A duly completed Loan/Credit Related Money Transfer Instruction for the Company in substantially the form of Exhibit "F" hereto. (x) A written opinion of Davis Polk & Wardwell, special counsel for the Agents, in substantially the form of Exhibit "J" hereto. (xi) Such other documents as the Documentation Agent or its counsel may have reasonably requested. 4.2. Initial Advance to each Eligible Subsidiary. No Lender shall be required to make the initial Advance hereunder to any Eligible Subsidiary unless such Eligible Subsidiary has furnished or caused to be furnished to the Documentation Agent: (i) The Notes of such Eligible Subsidiary payable to the order of each Lender. (ii) An opinion of counsel for such Eligible subsidiary reasonably acceptable to the Documentation Agent, substantially in the form of Exhibit "I" hereto and covering such additional matters relating to the transactions contemplated hereby as the Documentation Agent or the Required Lenders may reasonably request. (iii) All documents which the Documentation Agent may reasonably request relating to the existence of such Eligible Subsidiary, the corporate or partnership authority for and the validity of the Election to Participate of such Eligible Subsidiary, this Agreement and the Notes of such Eligible Subsidiary, and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Documentation Agent. (iv) A duly completed Loan/Credit Related Money Transfer Instruction for such Eligible Subsidiary in substantially the form of Exhibit 'IF" hereto. 4.3. Each Advance. No Lender shall be required to make any Advance (including, without limitation, the initial Advance hereunder), unless on the applicable Borrowing Date: -35- (i) Prior to and after giving effect to such Advance there exists no Default or Unmatured Default. (ii) The representations and warranties of the Company and (if other than the Company) the Borrower contained in Articles V and XIV of this Agreement are true and correct in all material respects as of such Borrowing Date, other than (x) Sections 5.4, 5.5(a) and 5.6, which representations and warranties are made only as of the date of this Agreement and (y) in the case of any Committed Advance which does not result in an increase in the aggregate Dollar Amount of Committed Advances at the time outstanding, Sections 5.5(b) and 5.7. (iii) In the case of any Competitive Bid Advance, the Company's senior unsecured debt without third-party credit enhancement is rated at least BBB(Baa3) by at least one of S&P, Moody's or D&P. Each borrowing of an Advance shall constitute a representation and warranty by the Company and (if other than the Company) the Borrower that the conditions contained in Section 4.3(i) and (ii) have been satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Lenders that: 5.1. Organization and Authority. The Company (a) prior to the Effective Date of the Reorganization, is a limited partnership duly organized and validly existing under the laws of the State of Delaware and on and after the Effective Date of the Reorganization, will be duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted; (c) is duly licensed or qualified and is in good standing as a foreign limited partnership (to the extent qualification as a foreign limited partnership is permitted by statute), or, on and after the Reorganization, corporation, in each jurisdiction wherein the failure to be so qualified would reasonably be expected to have a Material Adverse Effect; and -36- (d) does not believe that the inability of the Company to qualify as a foreign limited partnership in any state in which such qualification is not permitted by law will have a Material Adverse Effect. 5.2. Organization and Authority of Subsidiaries. Each Material Subsidiary: (a) is a limited partnership, general partnership or corporation, duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of incorporation or the jurisdiction where organized, as the case may be; (b) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted; and (c) is duly licensed or qualified and is in good standing as a foreign corporation or partnership (to the extent qualification as a foreign partnership is permitted by statute), as the case may be, in each jurisdiction wherein the failure to be so qualified would reasonably be expected to have a Material Adverse Effect. The Company does not believe that the inability of any Subsidiary partnership to qualify as a foreign partnership in any state in which such qualification is not permitted by law will have a Material Adverse Effect. 5.3. Organization and Authority of Corporate General Partner. The Corporate General Partner: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted; and (c) is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction wherein the failure to be so qualified would reasonably be expected to have a Material Adverse Effect. 5.4. Business and Property. The Lenders have each heretofore been furnished with a copy of the Annual Report of the Parent on Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"), the Quarterly Report of the Parent on Form 10-Q for the fiscal quarter ended June 30, 1995 (the "Form 10-Q") and the Information Memorandum dated July 1995 (the "Information Memorandum") of the Company, which Information Memorandum generally sets forth the business conducted by the Company and its Subsidiaries and the principal properties of the Company and its Subsidiaries. The Form 10-K, the Form 10-Q, and the Information Memorandum are hereinafter referred to as the "Disclosure Documents." -37- 5.5. Financial Statements. (a) The consolidated balance sheets of the Parent and its subsidiaries as of December 31, 1994, and the statements of income and cash flows for the fiscal year ended on said date accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Parent and otherwise without qualification except as therein noted, by Arthur Andersen LLP, have been prepared in accordance with GAAP consistently applied except as therein noted, fairly present in all material respects the financial position of the Company and its Subsidiaries as of such date and the results of their operations and cash flows for such period. The unaudited consolidated balance sheet of the Parent and its subsidiaries as of June 30, 1995, and the unaudited statement of income and cash flows for the six-month period ended on said date prepared in accordance with GAAP consistently applied, fairly present in all material respects the financial position of the Company and its Subsidiaries as of such date and the results of their operations and changes in their cash flows for such period subject to year-end audit adjustments and the absence of footnotes. (b) Since December 31, 1994, no event or condition has occurred which has had or which would reasonably be expected to have a material adverse effect on the properties, business, operations or financial condition of the Company and its Subsidiaries taken as a whole. 5.6. Full Disclosure. The financial statements referred to in Section 5.5 do not, nor do the Disclosure Documents or any other written statement furnished by the Parent or any obligor to the Agents or the Lenders in connection with the negotiation of the Loan Documents, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading as of the dates thereof. There is no fact peculiar to the Company or its Subsidiaries which the Company has not disclosed to the Lenders in writing which materially affects adversely nor, so far as the Company can foresee, will materially affect adversely the properties, business, operations or financial condition of the Company and its Subsidiaries taken as a whole. 5.7. Pending Litigation. There are no proceedings pending or, to the knowledge of the Company threatened, against or affecting the Company, any of its General Partners, its Parent or any Subsidiary in any court or before any governmental authority or arbitration board or tribunal which would reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default with respect to any order of any court or governmental authority or arbitration board or tribunal which would reasonably be expected to have a Material Adverse Effect. 5.8. Loan Documents are Legal, Valid, Binding and Authorized. The execution and delivery of the Loan Documents by the Company and compliance by the Company with all of the provisions of the Loan Documents (a) are within the power of the Company and have been duly authorized by proper action on the part of the Company; and -38- (b) will not violate in any material respect any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the limited partnership agreement of the Company or any indenture or other agreement or instrument governing Debt or any other material agreement or instrument to which the Company is a party or by which it may be bound or result in the imposition of any liens or encumbrances on any property of the Company. The execution and delivery by the Company of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate and partnership proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors/ rights generally. 5.9. Governmental Consent. No approval, consent or withholding of objection on the part of any regulatory body, state, Federal or local, is necessary in connection with the execution, delivery and performance by the Company of the Loan Documents or compliance by the Company with any of the provisions of the Loan Documents. 5.10. Taxes. All United States Federal income tax returns and all other material tax returns required to be filed by the Parent, the Company or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, and all material assessments, fees and other governmental charges upon the Parent, the Company or any Subsidiary or upon any of their respective properties, income or franchises, which are shown to be due and payable in such returns have been paid. The Company does not know of any proposed additional tax assessment against the Parent, the Company or any Subsidiary for which adequate provision has not been made on its accounts. To the best of the Company's knowledge, the provisions for taxes on the books of the Parent, the Company and each Subsidiary are adequate for all open years, and for its current fiscal period. 5.11. Employee Retirement Income Security Act of 1974. The consummation of the transactions provided for in this Agreement and compliance by the Company with the provisions of the Loan Documents will not involve any prohibited transaction within the meaning of the ERISA or Section 4975 of the Code. No "employee pension benefit plans", as defined in ERISA ("Plans"), maintained by the Company or any Person which is under common control with the Company within the meaning of Section 4001(b) of ERISA, nor any trusts created thereunder, have incurred any "accumulated funding deficiency" as defined in Section 302 of ERISA. Neither the Company nor, to the best of the Company's knowledge, any Person which is under common control with the Company, within the meaning of section 4001(b) of ERISA, maintains any "qualified defined benefit plan" as defined in ERISA. -39- 5.12. Investment Company Act. Neither the Company nor any Subsidiary is an "investment company" or an "affiliated person" thereof or an "affiliated person" of such affiliated person as such terms are defined in the Investment Company Act of 1940, as amended. 5.13. Compliance with Environmental Laws. Neither the Company nor any Subsidiary is in violation of any applicable Federal, state, or local laws, statutes, rules, regulations or ordinances relating to public health, safety or the environment, including, without limitation, relating to releases, discharges, emissions or disposals to air, water, land or ground water, to the withdrawal or use of ground water, to the use, handling or disposal of polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or other controlled, prohibited or regulated substances which violation would reasonably be expected to have a Material Adverse Effect. 5.14. Regulations U and X. Margin stock (as defined in Regulations U and X) constitutes less than 25% of those assets of the Company and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. ARTICLE VI COVENANTS --------- 6.1. During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1.1. Information. The Company will deliver to each of the Lenders: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Company, consolidated and consolidating balance sheets of the Company and its Consolidated Subsidiaries (subject to Section 6.1.2) as of the end of such fiscal year and the related consolidated and consolidating statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, such consolidated statements to be reported on in a manner which satisfies the financial reporting requirements of the Securities and Exchange Commission by a firm of independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Company, the internally prepared consolidated and consolidating balance sheets of the Company and its Consolidated subsidiaries (subject to Section 6.1.2) as of the end of such quarter and the -40- related consolidated and consolidating statements of income and cash flows for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, setting forth in the case of such statements of income and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year, all certified (subject to normal year-end adjustments and the absence of footnotes) as to fairness of presentation, GAAP and consistency by a Financial Officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Company (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 6.10, 6.15 and 6.16 on the date of such financial statements, (ii) stating whether any Default or Unmatured Default exists on the date of such certificate and, if any Default or Unmatured Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto and (iii) setting forth the Interest Coverage Ratio as at the date of such financial statements and the Pricing Level as at the date of delivery of such certificate; (d) promptly upon the mailing thereof to the securityholders of the Company or the Parent generally, copies of all financial statements, reports and proxy statements so mailed; (e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company or the Parent shall have filed with the Securities and Exchange Commission; and (f) from time to time such additional information regarding the financial position or business of the Company and its Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request. 6.1.2. Use of Parent Information. If the certificate furnished pursuant to Section 6.1(c) shall state that (i) the financial statements of the Parent and its subsidiaries fairly present in all material respects the financial condition of the Company and its Consolidated Subsidiaries for the period in respect of which such certificate shall be given and (ii) the consolidated revenue of the Company and its Consolidated Subsidiaries constitutes at least 98% of the consolidated revenues of the Parent and its subsidiaries and that the combined assets of the Company and its Consolidated Subsidiaries constitute at least 98% of the consolidated assets of the Parent and its subsidiaries, then the Company may furnish consolidated financial statements of the Parent otherwise complying with the requirements of subsection (a) or (b) above, as applicable, in lieu of the consolidated financial statements of the Company specified therein. The consolidating -41- financial statements required by such subsections shall be prepared in substantially the same format as those set forth in the Information Memorandum. 6.2. Use of Proceeds. The Company will, and will cause each of its Subsidiaries to, use the proceeds of the Advances for general corporate purposes. The Company will not, nor will it permit any Subsidiary to, use the proceeds of any Advance in violation of Regulations U and X. 6.3. Notice of Default. Upon the obtaining of actual knowledge thereof by a Financial Officer, the Company will, and will cause each of its Subsidiaries to, give prompt notice in writing to the Administrative Agent of (i) the occurrence of any Default or Unmatured Default and what actions the Company proposes to take with respect thereto, if any, and (ii) any other development, financial or otherwise, which would reasonably be expected to have a material adverse effect on the properties, business, operations or financial condition of the Company and its Subsidiaries taken as a whole. 6.4. Inspection. The Company will, and will cause each Subsidiary to, permit the Lenders, by their respective representatives and agents, to inspect any of the properties, corporate books and financial records of the Company and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Company and each Subsidiary, and to discuss the affairs, finances and accounts of the Company and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may reasonably designate. 6.5. Legal Existence, Etc. The Company will preserve and keep in force and effect, and will cause each Material Subsidiary to preserve and keep in force and effect, its legal existence as a limited partnership, general partnership or as a corporation, as the case may be, and all licenses and permits necessary to the proper conduct of its business, provided that the foregoing shall not prevent (x) any transaction permitted by Section 6.14 (including without limitation the Reorganization), (y) the merger or consolidation of any Eligible Subsidiary with, or the liquidation of any Eligible Subsidiary into, any other Eligible Subsidiary or, subject to Section 6.14, the Company or (z) the merger or consolidation of any other Material Subsidiary with or the liquidation of any other Material Subsidiary into any other Subsidiary or, subject to Section 6.14, the Company. 6.6. Insurance. The Company will maintain, and will cause each Subsidiary to maintain, insurance coverage by financially sound and reputable insurers in such forms and amounts and against such risks as are customary for companies engaged in the same or similar business activities and owning and operating similar properties. 6.7. Taxes, Claims for Labor and Materials, Compliance with Laws. The Company will promptly pay and discharge, and will cause each Subsidiary promptly to pay and discharge all material lawful taxes, assessments and governmental charges or levies imposed -42- upon the Company or such Subsidiary, respectively, or upon or in respect of all or any material part of the property or business of the Company or such Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a lien or charge upon any material property of the Company or such Subsidiary, provided the Company or such Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any material property of the Company or such Subsidiary or any material interference with the use thereof by the Company or such Subsidiary, and (ii) the Company or such Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto. The Company will promptly comply, and will cause each Subsidiary to comply, in all material respects with all laws, ordinances or governmental rules and regulations to which it is subject, including without limitation, ERISA, the Occupational Safety and Health Act of 1970, Federal Insecticide, Fungicide and Rodenticide Act and Federal Environmental Pesticide Control Act of 1972 and all laws, ordinances, governmental rules and regulations relating to environmental protection in all applicable jurisdictions, the violation of which would reasonably be expected to have a Material Adverse Effect. 6.8. Maintenance, Etc. The Company will maintain, preserve and keep, and will cause each Subsidiary to maintain, preserve and keep, its properties which are used in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times (in the Company's reasonable judgment) the efficiency thereof shall be maintained, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 6.9. Nature of Business. Neither the Company nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries and described in the Annual Report of the Parent on Form 10-K for the fiscal year ended December 31, 1994. 6.10. Restricted Payments. The Company will not make any Restricted Payment if at the time of such Restricted Payment and after the giving effect thereto a Default shall have occurred and be continuing. In addition, the Company will not make any Restricted Payment if after giving effect thereto the aggregate amount of Restricted Payments made during the period from and after April 1, 1995 to and including the date of the making of the Restricted Payment in question would exceed the sum of (i) Consolidated Net Income for such period, computed on a cumulative basis for such entire period, (ii) the net proceeds (whether cash or other property, and in the case of other property, at a value determined by the Company reasonably and in good faith) to the Company from the issue or sale of Equity Interests in the Company or the Parent on or after April 1, 1995 and (iii) $100,000,000. -43- For the purposes of this Section 6.10 the amount of any Restricted Payment declared, paid or distributed in property of the Company shall be deemed to be the greater of the book value or fair market value (as determined in good faith by the Board of Directors) of such property at the time of the making of the Restricted Payment in question. 6.11. Payment of Dividends by Subsidiaries. The Company will not and will not permit any Subsidiary to enter into any agreement which restricts the ability of any Subsidiary to declare any dividend or to make any distribution on any Equity Interest of such Subsidiary, other than the restrictions set forth in Schedule 6.11. 6.12. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, enter into or be a party to, any material transaction or arrangement with any Affiliate (including without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would reasonably be expected to be obtained in a comparable arm's-length transaction with a Person other than an Affiliate; provided that the foregoing shall not prevent the transactions described in the Proxy Statement relating to the Reorganization. For the purposes of this Section 6.12, the incurrence of Debt which is payable to the Parent or the Surviving Parent shall not be prohibited so long as such Debt is permitted pursuant to Section 6.15 and shall have terms which are comparable to the terms which would reasonably be expected to be obtained in an arm's-length transaction with a Person other than an Affiliate. It is understood that the relationship between the Company and the Corporate General Partner established by the Company's agreement of limited partnership, and the performance of such agreement by the parties thereto, do not contravene this Section 6.12. 6.13. Negative Pledge. Neither the Company nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement; (b) any Lien existing on any asset of any corporation or other entity at the time such corporation or other entity becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation or other entity existing at the time such corporation or other entity is merged or consolidated with or into the Company -44- or a Subsidiary and not created in contemplation of such event, provided that such Lien does not extend to any additional assets; (e) any Lien existing on any asset prior to the acquisition thereof by the Company or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets; (g) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; (h) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent for an amount and for a period not resulting in a Default under Section 7.6 hereof; (i) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (j) deposits to secure the performance of bids, trade contracts (other than for Debt or Derivatives Obligations), leases, statutory obligations, surety bonds, appeal bonds with respect to judgments not exceeding $25,000,000, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (k) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto that, in the aggregate, are not material in amount ' and that do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company and its Subsidiaries; (l) other Liens arising in the ordinary course of its business which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in an amount exceeding $25,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; -45- (m) Liens arising from receivables financings accounted for as sales under generally accepted accounting principles; provided that the aggregate unrecovered investment of the purchasers shall at no time exceed $100,000,000 (plus accrued interest); (n) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $10,000,000; and (o) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed $25,000,000. 6.14. Consolidations, Mergers and Sales of Assets. (a) The Company will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person, provided that the foregoing provisions of this Section 6.14 shall not preclude (x) consummation of the Reorganization, (y) any merger or consolidation to which the Company is a party or (z) with the prior written consent of the Required Lenders, the sale or other transfer of all or substantially all of the assets of the Company so long as, in the case of each of (x), (y) and (z), (i) at the time the Surviving Company, in the case of the Reorganization, the surviving entity, in the case of a merger or consolidation, or the transferee, in the case of a sale of all or substantially all of the assets of the Company, is organized under the laws of the United States of America or a state thereof and (except in the case of a merger in which the Company is the surviving entity) expressly assumes all obligations of the Company under the Loan Documents pursuant to an instrument in form and substance reasonably satisfactory to the Required Lenders and (ii) after giving effect thereto, no Default or Unmatured Default shall have occurred and be continuing. (b) The Company will not sell, lease or otherwise transfer, directly or indirectly, in any period of four consecutive fiscal quarters assets having an aggregate net book value greater than 20% of the consolidated total assets of the Company and its Subsidiaries at the commencement of such period; provided that this subsection (b) shall not apply to sale or other disposition in the ordinary course of business of inventory or obsolete equipment. 6.15. Leverage Test. Consolidated Debt shall at no time exceed the Debt Limit. 6.16. Subsidiary Debt Limitation. The aggregate Debt of Subsidiaries, exclusive of (i) Debt under this Agreement and (ii) Debt owing to the Company or a Subsidiary, shall at no time exceed 20% of the Debt Limit. -46- ARTICLE VII DEFAULTS -------- The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made under Article IV by any Obligor to the Lenders or the Administrative Agent under or in connection with this Agreement or any certificate or other document delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made or deemed made. 7.2. Nonpayment of principal of any Note when due, or nonpayment of interest upon any Note or of any facility fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by the Company of any of the terms or provisions of Sections 6.10 through 6.16. 7.4. The breach by the Company (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within thirty days after the earlier of (a) any Financial Officer of the Company having knowledge of such breach or (b) written notice from the Administrative Agent or any Lender. 7.5. Default by the Company or any Subsidiary in the payment of the principal of or interest on any Debt and/or Derivatives Obligations in an aggregate amount of $25,000,000 or more, as and when the same shall become due and payable by the lapse of time, by declaration, by call for redemption or otherwise, and such default shall continue beyond the period of grace, if any, allowed with respect thereto. 7.6. Default or the happening of any event shall occur under any indenture, agreement, or other instrument under which any Material Commitment is made or any Debt of the Company or any subsidiary in an aggregate amount of $25,000,000 or more is outstanding and such default or event shall continue for a period of time sufficient to permit the acceleration of the maturity of any Debt of the Company or any subsidiary outstanding thereunder or to permit termination of any Material Commitment, provided any such default which exists solely on account of the Reorganization shall not constitute a Default or Unmatured Default under this Section 7.6 once such default shall have been waived by the holders of such Debt or the makers of such Material Commitment. -47- 7.7. The Corporate General Partner shall withdraw from the Company (except in connection with the Reorganization) and no successor Corporate General Partner shall have been elected prior thereto or substantially simultaneously therewith in accordance with Section 12.1 of the limited partnership agreement of the Company. 7.8. A custodian, trustee or receiver is appointed for the Company, the Corporate General Partner or any Material Subsidiary or for the major part of the property of any of the foregoing and is not discharged within 30 days after such appointment. 7.9. Final judgment or judgments for the payment of money aggregating in excess of $25,000,000 is or are outstanding against the Company or any Subsidiary and such judgments have remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 30 days. 7.10. The Company, the Corporate General Partner or any Material Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company, the Corporate General Partner or any Material Subsidiary causes or suffers an order for relief to be entered with respect to it under applicable Federal bankruptcy law or applies for or consents to the appointment of a custodian, trustee or receiver for the Company, the Corporate General Partner or such Material Subsidiary or for the major part of the property of any of the foregoing. 7.11. Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Company, the Corporate General Partner or any Material Subsidiary, and, if instituted against the Company, the Corporate General Partner or any Material Subsidiary, are consented to or are not dismissed within 60 days after such institution. 7.12. Any Change of Control shall occur. 7.13. The Guaranty of the Company under Article XV shall cease to be in full force and effect or the Company shall contest in any manner the validity, binding nature or enforceability of Article XV, in either case at a time when any Loans are outstanding hereunder to an Eligible Subsidiary. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ---------------------------------------------- 8.1. Acceleration. If any Default described in Section 7.8, 7.10 or 7.11 occurs with respect to the Company, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the obligations shall immediately become due and payable without -48- presentment, demand, protest or notice of any kind (all of which the Company hereby expressly waives) or any other election or action on the part of the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, in either case upon written notice to the Company, whereupon the obligations shall become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which each obligor hereby expressly waives. 8.2. Amendments. Subject to the provisions of this Article VIII, the Loan Documents may be amended to add or modify any provisions thereof or change in any manner the rights of the Lenders or the obligors thereunder or waive any Default thereunder, but only in a writing signed by the Required Lenders (or the Documentation Agent with the consent in writing of the Required Lenders) and the Company; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Extend the maturity of any Loan or Note or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon or fees under Section 2.4. (ii) Change the percentage of the Commitments or the aggregate unpaid principal amount, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section 8.2 or any other provision (including any definition) of this Agreement. (iii) Extend the Termination Date or increase the amount of the Commitment of any Lender hereunder, or permit any Borrower to assign its rights or obligations under this Agreement except in connection with the Reorganization and in compliance with the terms of Section 6.5 and 6.14. (iv) Amend Section 2.5.13(a), Section 8.1 or this Section 8.2. (v) Release the Company from its obligations under Article XV. No amendment of any provision of this Agreement relating to either Agent shall be effective without the written consent of such Agent. The Administrative Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of-any of the Lenders. No amendment shall, unless signed by an Eligible Subsidiary, (w) subject such Eligible Subsidiary to any additional obligation, (x) increase the principal of or rate of interest on any outstanding Loan of such Eligible Subsidiary, (y) accelerate the stated maturity of any outstanding Loan of such Eligible Subsidiary or (z) change this proviso. 8.3. Preservation of Rights. No delay or omission of any Lender or Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a -49- waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agents and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS ------------------ 9.1. Survival of Representations. All representations and warranties of the Obligors contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated. 9.2. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.3. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Obligors, the Agents and the Lenders and supersede all prior agreements and understandings among the Obligors, the Agents and the Lenders relating to the subject matter thereof except as contemplated in Section 10.12. 9.4. Several Obligations. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which either Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. No Lender shall have any liability for the failure of any other Lender to perform its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.5. Expenses; Indemnification. (a) The Company shall reimburse (i) the Agents for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees of Davis Polk & Wardwell, special counsel for the Agents) paid or incurred by either Agent in connection with the preparation, review, execution, delivery, amendment, modification and administration of the Loan Document and (ii) the Agents and the Lenders for any reasonable costs, internal charges and out-of-pocket expenses (including -50- reasonable attorneys' fees and allocated costs of inside counsel for the Agents and the Lenders) paid or incurred by either Agent or any Lender in connection with the collection and enforcement of the Loan Documents, any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or any insolvency or bankruptcy proceedings in respect of any Obligor. (b) The Company further agrees to indemnify each Agent and each Lender, their respective affiliates, and the respective directors, officers, employees and agents of the foregoing, against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Lender is a party thereto) (collectively, the "Indemnified Amounts") which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder; provided that it is understood that the Company shall not, in respect of the legal expenses of the Lenders in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Lenders designated by the Agents (except if and to the extent that, owing to existing or potential conflicts of interest among them, such counsel shall advise that representation of all Lenders by a single firm would not be appropriate); and provided, further, that the Company shall not be liable to any Lender for any Indemnified Amounts (x) resulting from the gross negligence or willful misconduct of such Lender, its affiliates or any of their respective officers, directors, employees and agents or (y) constituting the costs and expenses of prosecuting a suit or proceeding commenced by such Lender which is finally determined adversely to such Lender (any counterclaim asserted against such Lender being treated as a separate proceeding for this purpose). The obligations of the Company under this Section 9.5 shall survive the termination of this Agreement. 9.6. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agents may furnish one to each of the Lenders. 9.7. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid ir any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.8. Nonliability of Lenders. The relationship between the Obligors and the Lenders and the Agents shall be solely that of debtor and creditor. Neither Agent nor any Lender shall have any fiduciary responsibilities to any Obligor. Neither Agent nor any Lender undertakes any responsibility to any Obligor to review or inform any Obligor of any matter in connection with any phase of its business or operations. -51- 9.9. CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK. 9.10. CONSENT TO JURISDICTION. EACH OBLIGOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH OBLIGOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES TO THE EXTENT ALLOWED BY LAW ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF EITHER AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY OBLIGOR AGAINST EITHER AGENT OR ANY LENDER OR ANY AFFILIATE OF EITHER AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK CITY, UNLESS SUCH OBLIGOR IS UNABLE TO OBTAIN SUCH JURISDICTION. 9.11. WAIVER OF JURY TRIAL. EACH OBLIGOR, AGENT AND LENDER HEREBY WAIVES TO THE EXTENT ALLOWED BY LAW TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.12. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Parent, the Company or any of its Subsidiaries pursuant to this Agreement in confidence, except for disclosure (i) to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender, (iii) to regulatory officials upon their request or otherwise pursuant to law or regulation, (iv) as requested pursuant to or as required by law, regulation, or legal process, (v) in connection with any legal proceeding to which that Lender is a party, and (vi) permitted by Section 12.4. The restrictions in this Section 9.12 shall not apply to any information which is or becomes generally available to the public other than as a result of disclosure by a Lender or a Lender's representatives. -52- ARTICLE X THE AGENTS ---------- 10.1. Appointment. First Chicago and Morgan are hereby appointed Administrative Agent and Documentation Agent, respectively, hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes each such Agent to act as the contractual representative of such Lender. Each such Agent agrees to act as such upon the express conditions contained in this Article X. Neither Agent shall have a fiduciary relationship in respect of any Lender by reason of this Agreement. 10.2. Powers. Each Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to such Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Neither Agent shall have any implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by such Agent. 10.3. General Immunity. Neither Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable to any obligor or any Lender for any action taken or omitted to be taken by it or them in their respective agency capacities under or in connection with this Agreement except for its own gross negligence or willful misconduct. 10.4. No Responsibility for Loans, Recitals, etc. Neither Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any Obligor under any Loan Document; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to such Agent; or (iv) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith, except for the authority of such Agent's signatory to this Agreement. 10.5. Action on Instructions of Lenders. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders (or, where so specified herein, all the Lenders), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. Each Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action, provided that, such indemnity need not include liability, costs and expenses arising solely from the gross negligence or willful misconduct of the Agent. -53- 10.6. Employment of Agents and Counsel. Each Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Each Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. Each Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected in good faith by such Agent, which counsel may be employees of such Agent or may be counsel for an Obligor. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify each Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Company for which such Agent is entitled to reimbursement by the Company under the Loan Documents, (ii) for any other expenses not reimbursed by the Company incurred by such Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever and not reimbursed by the Company which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of such Agent. 10.9. Rights as a Lender. With respect to its Commitment, Loans made by it and the Notes issued to it, each Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not an Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include each Agent in its individual capacity. Each Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Subsidiaries. 10.10. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon either Agent or any other Lender and based on the financial statements submitted by the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and -54- without reliance upon either Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.11. Successor Agent. Each Agent may resign at any time by giving at least 30 days' prior written notice thereof to the Lenders and the Company and such resignation shall be effective upon the appointment of a successor agent. Upon any such resignation, the Company, with the approval of the Required Lenders, shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed and approved and shall have accepted such appointment within thirty days after the retiring Agent's giving notice of resignation, then the retiring Agent may appoint a successor Agent. Such successor Agent shall be a commercial bank with an office located in the United States of America having capital and retained earnings of at least $1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent. The retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents upon the effectiveness of its resignation hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent hereunder and under the other Loan Documents. 10.12. Agents' Fees. The Company hereby agrees to pay to each Agent for its sole account such fees as heretofore agreed upon by the Company and such Agent in writing. ARTICLE XI SETOFF RATABLE PAYMENTS ----------------------- 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Obligor becomes insolvent, however evidenced, or any Default occurs, any indebtedness from any Lender to any Obligor (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the obligations owing by such Obligor to such Lender, whether or not such Obligations, or any part hereof, shall then be due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its share of any Advance (other than payments received pursuant to Article III) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans comprising that Advance held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of the unpaid Loans comprising that Advance. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for -55- its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS ------------------------------------------------- 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Obligors, the Agents and the Lenders and their respective successors and assigns, except that (i) no Obligor shall have the right to assign its rights or obligations under the Loan Documents (except in a transaction expressly permitted by Section 6.5 or 6.14(a)) and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of any Obligor or either Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. Each Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with each Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2. Participations. 12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, the Commitment of such Lender, or any other interest of such Lender under the Loan Documents; provided, however, that, except in the case of a sale of a participation in a Competitive Bid Loan, such participations shall require the consent of the Company and shall each be in a minimum amount of $10,000,000. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Obligors under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Obligors -56- and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases any guarantor of any such Loan, if any, or releases any substantial portion of collateral, if any, securing any such Loan. 12.3. Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or a portion (in a minimum amount of $10,000,000) of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit "El' hereto. The consent of the Company and the Agents shall be required prior to an assignment becoming effective with respect to a Purchaser which is not both a financial institution and an affiliate of the transferor. Such consents shall be given in substantially the form attached as Exhibit 'III'' to Exhibit "El' hereto. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Company and the Agents of a notice of assignment, substantially in the form attached as Exhibit "I" to Exhibit "El' hereto (a "Notice of Assignment"), together with any consent required by Section 12.3.1, and (ii) payment of a $3,500 fee to the Administrative Agent by the assignee or assignor Lender for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Obligors, the Lenders or the Agents shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agents and the Obligors shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 12.4. Dissemination of Information. The Obligors authorize each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all -57- information in such Lender's possession concerning the creditworthiness of the Company and its Subsidiaries; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.12 of this Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Purchaser which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Purchaser, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.5.14. 12.6. Increased Costs. Subject to the applicable limitations set forth therein and to the further provisions of this Section 12.6, each Transferee shall be entitled to the benefits of Section 2.5.14 and 2.5.15 and Article III with respect to the rights transferred to it to the same extent as a Lender. No Transferee (including, for purposes of this Section 12.6, any successor Lending Installation) of any Lender's rights shall be entitled to receive any greater payment under Section 2.5.14 or Article III than such Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 3.4 requiring such Lender to designate a different Lending Installation under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. ARTICLE XIII NOTICES ------- 13.1. Giving Notice. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing (including telex or facsimile) and addressed or delivered to such party: (a) in the case of the Company or either Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (b) in the case of any Lender, at its address, facsimile number or telex number set forth in its Administrative Questionnaire, (c) in the case of any Eligible Subsidiary, to it care of the Company and (d) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agents and the Company. All such notices shall be effective when received at the address specified above. ARTICLE XIV REPRESENTATIONS AND WARRANTIES OF ELIGIBLE SUBSIDIARIES ------------------------------ Each Eligible Subsidiary shall be deemed by the execution and delivery of its Election to Participate to have represented and warranted that: -58- 14.1. Existence and Power. It is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is a Subsidiary of the Company. 14.2. Corporate or Partnership and Governmental Authorization; Contravention. The execution and delivery by it of its Election to Participate and its Notes, and the performance by it of this Agreement and its Notes, are within its legal powers, have been duly authorized by all necessary corporate, partnership or other legal action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, in any material respect any provision of applicable law or regulation or of its organizational documents or of any indenture or other agreement or instrument governing Debt or any other material agreement or instrument binding upon the Company or such Eligible Subsidiary or result in the creation or imposition of any liens or encumbrances on any asset of the Company or any of its Subsidiaries. 14.3. Binding Effect. This Agreement constitutes a legal, valid and binding agreement of such Eligible Subsidiary and each of its Notes, when executed and delivered in accordance with this Agreement, will constitute a legal, valid and binding obligation of such Eligible Subsidiary, in each case enforceable in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 14.4. Taxes. Except as disclosed in such Election to Participate, there is no income, stamp or other tax of any country, or any taxing authority thereof or therein, imposed by or in the nature of withholding or otherwise, which is imposed on any payment to be made by such Eligible Subsidiary pursuant hereto or on its Notes, or is imposed on or by virtue of the execution, delivery or enforcement of its Election to Participate or of its Notes. ARTICLE XV GUARANTY -------- 15.1. The Guaranty. The Company hereby unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by any Eligible Subsidiary pursuant to this Agreement, and the full and punctual payment of all other amounts payable by any Eligible Subsidiary under this Agreement. Upon failure by any Eligible Subsidiary to pay punctually any such amount, the Company shall forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement. 15.2. Guaranty Unconditional. The obligations of the Company hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: -59- (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any Eligible Subsidiary under this Agreement or any Note, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement or any Note; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of any Eligible Subsidiary under this Agreement or any Note; (iv) any change in the corporate existence, structure or ownership of any Eligible Subsidiary, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Eligible Subsidiary or its assets or any resulting release or discharge of any obligation of any Eligible Subsidiary contained in this Agreement or any Note; (v) the existence of any claim, set-off or other rights which the Company may have at any time against any Eligible Subsidiary, either Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against any Eligible Subsidiary for any reason of this Agreement or any Note, or any provision of applicable law or regulation purporting to prohibit the payment by any Eligible Subsidiary of the principal of or interest on any Note or any other amount payable by it under this Agreement; or (vii) any other act or omission to act or delay of any kind by any Eligible Subsidiary, either Agent, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Company's obligations hereunder. 15.3. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances. The Company's obligations hereunder shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the Company and each Eligible Subsidiary under this Agreement shall have been paid in full. If at any time any payment of principal of or interest on any Note or any other amount payable by any Eligible Subsidiary under this Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Eligible Subsidiary or otherwise, the Company's obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. -60- 15.4. Waiver by the Company. The Company irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Eligible Subsidiary or any other Person. 15.5. Subrogation. Upon making any payment with respect to any Eligible Subsidiary hereunder, the Company shall be subrogated to the rights of the payee against such Eligible Subsidiary with respect to such payment; provided that the Company shall not enforce any payment by way of subrogation until all amounts of principal of and interest on the Notes and all other amounts payable by such Eligible Subsidiary under this Agreement have been paid in full. 15.6. Stay of Acceleration. In the event that acceleration of the time for payment of any amount payable by any Eligible Subsidiary under this Agreement or its Notes is stayed upon insolvency, bankruptcy or reorganization of such Eligible Subsidiary, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Company hereunder forthwith on demand by the Required Lenders. ARTICLE XVI COUNTERPARTS; EFFECTIVENESS --------------------------- This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when the Documentation Agent shall have received evidence reasonably satisfactory to it that (i) this Agreement has been executed by the Company, the Agents and the Lenders and (ii) the commitments of the lenders parties to the Credit Agreement dated as of June 3, 1992 among the Company, such lenders and First Chicago, as agent (the "Prior Agreement") shall have terminated and all loans outstanding thereunder and all accrued interest and fees thereunder shall have been paid in full; provided that any "Competitive Bid Loan" made by a Lender pursuant to the Prior Agreement which is outstanding at the time the other conditions to the effectiveness hereof are satisfied shall remain outstanding on the terms applicable thereto under the Prior Agreement, and shall be deemed a Competitive Bid Loan made hereunder on such terms. -61- IN WITNESS WHEREOF, the Company, the Lenders and the Agents have executed this Agreement as of the date first above written. THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP By: ServiceMaster Management Corporation, its General Partner By:____________________________________________ Title:_________________________________________ Address: One ServiceMaster Way Downers Grove, IL 60515 Attention: Mr. Eric Zarnikow Telephone: (708) 964-1300 Facsimile: (708) 719-6878 -62- Commitment - ---------- $35,000,000 THE FIRST NATIONAL BANK OF CHICAGO, individually and as Agent By:______________________________________ Title:___________________________________ Address: One First National Plaza Suite 0324 Chicago, IL 60670 Attention: Margaret H. Harper Telephone: (312) 732-7703 Facsimile: (312) 732-5296 -63- $35,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Documentation Agent By:______________________________________ Title:___________________________________ Address: 60 Wall Street New York, NY 10260 Attention: Charles King Telephone: (212) 648-7138 Facsimile: (212) 648-5336 -64- $20,000,000 ABN AMRO Bank N.V. By:______________________________________ Title:___________________________________ By:______________________________________ Title:___________________________________ Address: 135 South LaSalle Street, Suite 425 Chicago, IL 60674-9135 Attention: James M. Minich Telephone: (312) 904-2767 Facsimile: (312) 606-8425 -65- $30,000,000 BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By:______________________________________ Title:___________________________________ Address: 231 S. LaSalle Street Chicago, Illinois 60697 Attention: William F. Sweeney Telephone: (312) 828-1843 Facsimile: (312) 987-1276 -66- $20,000,000 BANK OF MONTREAL By:______________________________________ Title:___________________________________ Address: 115 S. LaSalle Street, 12 West Chicago, Illinois 60603 Attention: Daniel A. Brown Telephone: (312) 750-4358 Facsimile: (312) 750-3783 -67- $20,000,000 THE BANK OF NEW YORK By:______________________________________ Title:___________________________________ Address: One Wall Street - 19th Floor New York, NY 10286 Attention: John M. Lokay Telephone: (212) 635-1172 Facsimile: (212) 635-1208/09 -68- $10,000,000 FIRST TENNESSEE BANK NATIONAL ASSOCIATION By:______________________________________ Title:___________________________________ Address: 165 Madison Avenue Memphis, TN 38103-2723 Telephone: (901) 523-4108 Facsimile: (901) 523-4267 -69- $20,000,000 MELLON BANK, N.A. By:______________________________________ Title:___________________________________ Address: Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258-0001 Telephone: (412) 234-2465 Facsimile: (412) 234-0110 -70- $30,000,000 NA TIONSBANK N.A. (CAROLINAS) By:______________________________________ Title:___________________________________ Address: 233 South Wacker Drive Suite 2800 Chicago, Illinois 60606 Telephone: (312) 234-5643 Facsimile: (312) 234-5601 -71- $20,000,000 THE SANWA BANK LIMITED By:______________________________________ Title:___________________________________ Address: 10 South Wacker Drive 31st Floor Chicago, Illinois 60603 Telephone: (312) 368-3006 Facsimile: (312) 346-6677 -72- $20,000,000 THE SUMITOMO BANK, LIMITED By:______________________________________ Title:___________________________________ Address: 233 South Wacker Drive Suite 4800 Chicago, Illinois 60603 Telephone: (312) 876-6406 Facsimile: (312) 876-6436 -73- $20,000,000 UNION BANK OF SWITZERLAND, CHICAGO BRANCH By:______________________________________ Title:___________________________________ Address: 30 South Wacker Drive Chicago, Illinois 60606 Attention: Denis Campbell Telephone: (312) 993-5604 Facsimile: (312) 993-5530 - ------------ $300,000,000 ============ -74- AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 15, 1996 among THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP, the LENDERS parties hereto, THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent. W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into a Credit Agreement dated as of August 31, 1995 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement as set forth herein and to restate the Agreement in its entirety to read as set forth in the Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended and restated hereby. SECTION 2. Amendment of the Agreement. (a) The date "August 31, 2000" in the definition of Termination Date in Section 1.1 of the Agreement is changed to "October 31, 2001." (b) The Pricing Schedule is amended to read in its entirety as the Pricing Schedule attached to this Amendment. (c) The following new Section 2.6 is added to the Agreement: 2.6 Optional Increase in Commitments. At any time, if no Default or Unmatured Default shall have occurred and be continuing, the Company may, if it so elects, increase the aggregate amount of the Commitments, either by designating one or more banks or other financial institutions not theretofore a Lender to become a Lender (such designation to be effective only with the prior written consent of the Administrative Agent, which consent will not be unreasonably withheld) or by agreeing with one or more existing Lenders that such Lender's Commitment shall be increased. Upon execution and delivery by the Company and each such Lender or bank or other financial institution of an instrument in form reasonably satisfactory to the Administrative Agent, such existing Lender shall have a Commitment as therein set forth or such bank or other financial institution shall become a Lender with a Commitment as therein set forth and all the rights and obligations of a Lender with such a Commitment hereunder; provided: (a) that the Company shall provide prompt notice of such increase to the Administrative Agent, who shall promptly notify the Lenders; (b) that the amount of such increase is not less than $10,000,000; and (c) that the amount of such increase, together with all other increases in the aggregate amount of the Commitments pursuant to this Section 2.6 since the date of this Agreement, does not exceed $75,000,000. Upon any increase in the aggregate amount of the Commitments pursuant to this Section 2.6, within five Business Days, in the case of each Floating Rate Advance then outstanding, and at the end of the then current Interest Period with respect thereto, in the case of each Committed Fixed Rate Advance then outstanding, the Borrower shall prepay or repay such Advance in its entirety and, to the extent the Borrower elects to do so and subject to the conditions specified in Article IV, the Borrower shall reborrow Committed Loans from the Lenders in proportion to their respective Commitments after giving effect to such increase, until such time as all outstanding Committed Loans are held by the Lenders in such proportion. (d) Section 5.4 is amended to read in its entirety as follows: 5.4 Business and Property: The Lenders have each heretofore been furnished with a copy of the Annual Report of the Parent on Form 10-K for the fiscal year ended December 31, 1995 (the "Form 10-K"), the Quarterly Report of the Parent on Form 10-Q for the fiscal quarter ended June 30, 1996 (the "Form 10-Q") and the Information Memorandum dated July 1995 (the "Information Memorandum") of the Company, which Information Memorandum generally sets forth the business conducted by the Company and its Subsidiaries and the principal properties of the Company and its Subsidiaries. The Form 10-K, the Form 10-Q and the Information Memorandum are hereinafter referred to as the "Disclosure Documents." (e) Section 5.5 is amended to read in its entirety as follows: 5.5 Financial Statements. (a) The consolidated balance sheets of the Parent and its subsidiaries as of December 31, 1995, and the statements of income and cash flows for the fiscal year ended on said date accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Parent and otherwise without qualification except as therein noted, by Arthur Andersen LLP have been prepared in accordance with GAAP consistently applied except as therein noted -2- fairly present in all material respects the financial position of the Company and its Subsidiaries as of such date and the results of their operations and cash flows for such period. The unaudited consolidated balance sheet of the Parent and its subsidiaries as of June 30, 1996 and the unaudited statement of income and cash flows for the six-month period ended on said date prepared in accordance with GAAP consistently applied fairly present in all material respects the financial position of the Company and its Subsidiaries as of such date and the results of their operations and changes in their cash flows for such period subject to year- end audit adjustments and the absence of footnotes. (b) Since December 31, 1995, no event or condition has occurred which has had or which would reasonably be expected to have a material adverse effect on the properties, business, operations or financial condition of the Company and its Subsidiaries taken as a whole. SECTION 3. Governing Law. This Amendment and Restatement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. Counterparts; Effectiveness. This Amendment and Restatement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and Restatement shall become effective as of the date hereof when (i) the Documentation Agent shall have received duly executed counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Documentation Agent shall have received facsimile or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) the Documentation Agent shall have received an opinion of the General Counsel of the Company, substantially to the effect of Exhibits B-1 and B-2 to the Agreement with reference to this Amendment and Restatement and the Agreement as amended and restated hereby; (iii) the Documentation Agent shall have received a certificate of a Financial Officer to the effect that (a) no Default or Unmatured Default has occurred and is continuing and (b) the representations and warranties contained in Articles V and XIV of the Agreement, as amended and restated hereby, are true in all material respects in each case on and as of the date on which this Amendment and Restatement becomes effective; and (iv) the Documentation Agent shall have received all documents it may reasonably request relating to the existence of the Company, the corporate authority for and the validity of this Amendment and Restatement and the Agreement as amended and -3- restated hereby, and any other matters relevant hereto, all in form and substance reasonably satisfactory to the Documentation Agent. -4- IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed by their respective authorized officers as of the day and year first above written. THE SERVICEMASTER COMPANY LIMITED PARTNERSHIP By: ServiceMaster Management Corporation, its General Partner By:___________________________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO, individually and as Administrative Agent By:___________________________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individualy and as Documentation Agent By:___________________________________________ Title: ABN AMRO BANK, N.V. By:___________________________________________ Title: By:___________________________________________ Title: -5- BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By:___________________________________________ Title: BANK OF MONTREAL By:___________________________________________ Title: THE BANK OF NEW YORK By:___________________________________________ Title: CREDIT AGRICOLE By:___________________________________________ Title: FIRST TENNESSEE BANK NATIONAL ASSOCIATION By:___________________________________________ Title: MELLON BANK, N.A. By:___________________________________________ Title: -6- NATIONSBANK N.A. (CAROLINAS) By:___________________________________________ Title: THE SANWA BANK LIMITED By:___________________________________________ Title: THE SUMITOMO BANK, LIMITED By:___________________________________________ Title: UNION BANK OF SWITZERLAND, CHICAGO BRANCH By:___________________________________________ Title: -7- -----END PRIVACY-ENHANCED MESSAGE-----