OPTION AGREEMENT
This Option Agreement is made as of this 31st day of December,
1995, among WMI URBAN SERVICES, INC. ("WMUS"), SERVICEMASTER
LIMITED PARTNERSHIP, a Delaware limited partnership ("SMLP") and
SERVICEMASTER INCORPORATED OF DELAWARE, a Delaware corporation
("SMI").
RECITALS:
A. WMUS presently owns 308,078 limited partner
shares in ServiceMaster Consumer Services Limited
Partnership, a Delaware limited partnership (the "WMUS
Consumer Services Shares");
B. SMLP is a limited partnership whose limited
partner shares are publicly traded on the New York Stock
Exchange; and
C. Pursuant to a Contribution Agreement (the
"Contribution Agreement") between SMLP, WMUS and WMX
Technologies, Inc. ("WMX"), dated as of the date hereof,
WMUS shall contribute the WMX Consumer Services Shares to
SMLP in exchange for 18,107,143 limited partner shares of
SMLP and the execution and delivery to WMUS by SMLP of
this Option Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
terms and conditions set forth below, the parties agree as follows.
1. THE OPTION
1.1 Grant of Option. In partial consideration for the
contribution made by WMUS of the WMUS Consumer Services Shares
pursuant to the Contribution Agreement, SMLP hereby issues to WMUS
an option (the "Option") to acquire 1,250,000 shares (the
"ServiceMaster Shares") of the limited partner interest in SMLP
(i.e., the equity security issued by SMLP which is listed on the
New York Stock Exchange on the date hereof on the terms and subject
to the limitations specified herein. Equity Securities of the type
to be issued pursuant hereto are referred to herein as the
"ServiceMaster Shares."
1.2 Exercise Price. The contribution to be made by WMUS or if
WMUS is not the holder of the Option at such time, the holder of
the Option, to SMLP for the acquisition of ServiceMaster Shares
upon exercise of the Option shall be $33.00 per ServiceMaster
Share, subject to the adjustment as provided in Section 5, (the
"Exercise Price").
1.3 Term. The term of the Option shall be the period January
1, 1996 to December 31, 2000. The Option may be exercised at any
time, in whole or in part, during the period (herein called the
"Exercise Period") from and including January 1, 1997, to and
including December 31, 2000. In no event may the Option be
exercised prior to January 1, 1997 or after December 31, 2000.
1.4 Procedure for Exercising the Option.
(a) If WMUS contemplates exercising the Option (in whole or
in part), WMUS and SMLP shall proceed as follows:
(i) WMUS shall notify SMLP, in writing, that WMUS
proposes to exercise the Option for the number of
ServiceMaster Shares set forth in such notice subject to
the satisfaction of the conditions set forth in this
Section 1.4 (the "Preliminary Exercise Notice").
(ii) Within ten business days after the receipt of
the Preliminary Exercise Notice, SMLP shall provide WMUS
with: (1) a copy of SMLP's most recently filed Annual
Report on Form 10-K, (2) copies of each Quarterly Report
on Form 10-Q filed by SMLP since the date of item (1),
(3) copies of each Report on Form 8-K filed by SMLP since
the date of item (1), (4) a copy of SMLP's most recent
annual report to shareholders (5) a copy of each
quarterly statement to shareholders as sent since the
date of such annual report and (6) a certificate of SMLP
containing the representations set forth in paragraph (b)
below (the "Review Materials").
(iii) WMUS shall have five business days after
the receipt of the Review Materials to review the Review
Materials (the "Review Period"). During the Review
Period, representatives of SMLP shall remain reasonably
available to respond to any reasonable inquiries WMUS
may make with respect to the Review Materials or with
respect to the business and condition of SMLP. If WMUS
fails to act prior to the end of the Review Period, WMUS
shall have no liability and WMUS's rights with respect to
the Option shall not be prejudiced in any way.
(iv) Prior to the close of the Review Period, WMUS
shall notify SMLP, in writing, whether WMUS will proceed
to exercise the Option in accordance with the Preliminary
Exercise Notice (subject to satisfaction of the
conditions to closing as set forth below) or whether WMUS
has determined not to exercise the Option at this time
(the "Final Exercise Notice"). If, in the Final Exercise
Notice, WMUS elects to exercise the Option, the parties
shall proceed to a closing of the transaction as provided
in paragraphs (d) and (e) below. If WMUS elects not to
exercise the Option in accordance with the Preliminary
Exercise Notice, WMUS's rights with respect to the
Option shall not be prejudiced in any way.
(b) The representations referred to in item (ii) of paragraph
(a) shall be the following:
(i) if the representations are made prior to the
Reincorporating Merger (as defined in Section 4 hereof),
SMLP is duly organized, validly existing and is in good
standing as a limited partnership in the state of its
organization; and if the representations are made after
the Reincorporating Merger, SMI (as defined in Section 4
hereof), is duly organized, validly existing and is in
good standing as a corporation in the state of its
organization;
(ii) the issuance of the ServiceMaster Shares
issuable in response to WMUS's exercise of the Option
does not contravene: (A) any provision in SMLP's
certificate of limited partnership or SMLP's agreement of
limited partnership if SMLP is then a limited partnership
or any provision in SMLP's certificate of incorporation
or bylaws if SMLP is then a corporation; (B) any
agreement to which SMLP is a party; or (C) any provision
of any law or regulation;
(iii) the ServiceMaster Shares issuable in
response to WMUS's exercise of the Option will, upon
issuance, have been duly authorized by SMLP's governing
authority;
(iv) the ServiceMaster Shares as issued in response
to WMUS's exercise of the Option will be free and clear
of all liens, claims, encumbrances and restrictions
(except for securities laws restrictions described in
paragraph (c) below and the restrictions under the
Relationship Agreement between WMX, WMUS, SMLP and SMI
dated as of the date hereof, as amended from time to
time, the "Relationship Agreement");
(v) Upon payment of the Exercise Price for the
ServiceMaster Shares issued in response to WMUS's
exercise of the Option, such ServiceMaster Shares will be
fully paid and non-assessable;
(vi) The financial statements of SMLP which have
been included in its Annual Report on Form 10-K and
SMLP's Quarterly Reports on Form 10-Q delivered to WMUS
in connection with the Preliminary Exercise Notice were
prepared in accordance with generally accepted accounting
principles applied on a consistent basis and present
fairly the financial condition and results of operations
of SMLP for the dates and as of the periods stated
therein except that the financial statements included in
SMLP's Quarterly Reports on Form 10-Q omit footnotes and
condense information as permitted by the rules applicable
to the preparation of 10-Q reports and are subject to
adjustments to be made in the course of the preparation
of SMLP's annual financial statements;
(vii) SMLP is not aware of any fact or set of
facts or trend or known uncertainty which has materially
and adversely affected or may reasonably be expected to
materially and adversely affect SMLP's business,
financial condition or results of operations (whether
actual or prospective) which are not disclosed in the
Review Materials or by information either publicly
disclosed by SMLP or otherwise communicated in writing by
SMLP to a senior officer of WMX; and
(viii) a statement of the capitalization of SMLP
as at the date of the Preliminary Exercise Notice which
shall include a listing of all options, warrants or other
rights to acquire equity interests in SMLP which are then
outstanding.
(c) WMUS acknowledges that the ServiceMaster Shares to be
issued by SMLP in response to the Preliminary Exercise Notice and
the Final Exercise Notice will not be registered securities under
state or federal securities laws and that the certificate(s)
representing such ServiceMaster Shares will have a legend to such
effect. WMUS will deliver a certificate to SMLP at the Option
Closing (hereinafter defined) to the effect that WMUS is acquiring
such ServiceMaster Shares for investment and not with a view to the
distribution or resale, except in compliance with federal and state
securities laws.
(d) If WMUS elects to exercise the Option as set forth above,
the closing of the transaction (the "Option Closing") shall occur
within ten business days after the Final Exercise Notice has been
received by SMLP.
(e) At the Option Closing:
(i) as a condition to the obligation of WMUS to pay
the Exercise Price for the ServiceMaster Shares for which
the Option is being exercised, SMLP shall deliver to WMUS
a letter or certificate which restates, as at the date of
the Option Closing, the representations set forth in
paragraph (b) above;
(ii) as a condition to the obligation of SMLP to
deliver the certificate(s) for the ServiceMaster Shares
to be purchased by WMUS, WMUS shall deliver to SMLP a
letter or certificate which makes the investment
representation set forth in paragraph (c) above; and
(iii) upon satisfaction of the condition in
clause (ii), SMLP shall deliver one or more certificates
for the ServiceMaster Shares to be issued to WMUS and
upon satisfaction of the condition in clause (i), WMUS
shall pay to SMLP the Exercise Price therefor by wire
transfer of immediately available funds.
(f) If an Option Closing fails to occur within ten business
days after the Final Exercise Notice has been received by SMLP
because of a failure of SMLP to satisfy a condition precedent to
WMUS's obligation to close and WMUS does not waive such condition,
then WMUS may elect not to close, provided, however, that WMUS
shall have no liability and WMUS's rights with respect to the
Option shall not be prejudiced in any way.
(g) Notwithstanding the foregoing provisions of this Section
1.4, if a Final Exercise Notice is given and if, after giving
effect to an issuance of ServiceMaster Shares pursuant to such
Final Exercise Notice, WMX would beneficially own more than 21% of
the ServiceMaster Shares outstanding determined on a fully diluted
basis in accordance with generally accepted accounting principles,
then to the extent that such 21% figure is exceeded, ServiceMaster
may, at its election, substitute the Cash Out Amount (defined
below) for that number of ServiceMaster Shares which produces such
excess over 21% (the "Excess Shares"). Such election shall be
made, if at all, by delivery of a notice to WMUS by not later than
the fifth business day after the Final Exercise Notice has been
received by SMLP. The Cash Out Amount shall be equal to the value
of the "spread" on the Excess Shares, i.e., the amount determined
by multiplying the number of Excess Shares by the excess (if any)
of (i) the average Market Price Per Share (as defined in Section
6.3(b) of the Relationship Agreement) of the ServiceMaster Shares
during the forty New York Stock Exchange trading days period
immediately preceding the final Exercise Notice over (ii) the
Exercise Price. Upon payment by SMLP of the Cash Out Amount, WMUS
shall have no further rights under this Option Agreement or
pursuant to the Option with respect to such Excess Shares. If SMLP
makes the election described above, WMUS shall not be required to
pay the Exercise Price in respect of the Excess Shares.
1.5 No Rights as a Limited Partner or Stockholder. This
Option does not entitle WMUS to any voting rights or other rights
as a limited partner of SMLP prior to an effective exercise of the
Option and the payment of the Exercise Price in respect of the
ServiceMaster Shares thereby acquired, all in accordance herewith.
1.6 Non-Transferable. Except to an Affiliate (as defined in
Section 12.1 of the Relationship Agreement) of WMUS and subject to
compliance with all of the provisions of Section 5.2 of the
Relationship Agreement, the Option or any other rights of WMUS
under this Option Agreement may not be transferred to any person or
entity without the prior written consent of SMLP.
1.7 Authorized ServiceMaster Shares. SMLP covenants that
during the period in which the Option is outstanding, SMLP shall at
all times have a sufficient number of authorized but unissued
limited partner shares to enable it to issue limited partner shares
upon each exercise of the Option.
2. SMLP CALL RIGHT
2.1 If at any time after the date hereof, the Market Price
Per Share (as defined in Section 6.3(b) of the Relationship
Agreement) of the ServiceMaster Shares is greater than or equal to
$39.00 per share, subject to adjustment as provided in Section 4
hereof, (the "Call Trigger Price") for forty consecutive, New York
Stock Exchange trading days commencing on or after November 4,
1997, SMLP may request WMUS or if WMUS is not the holder of the
Option at such time, the holder of the Option, to exercise the
Option in whole (the "Option Call Notice"), by giving notice to
WMUS or such holder, which notice shall also include the Review
Materials under Section 1.4(a)(ii), at any time during the thirty
calendar day period (the "Call Period") which immediately follows
such forty NYSE trading day period. If SMLP fails to give the
Option Call Notice prior to the expiration of such thirty calendar
day period, then SMLP shall have no further rights under this
Section 2 and the Option shall remain in full force and effect.
2.2 If SMLP delivers the Option Call Notice within the Call
Period to WMUS, WMUS (or such other holder) shall then have thirty
calendar days from the date of receipt by WMUS of the Option Call
Notice to exercise the Option as provided in Section 1.4. If WMUS
or such other holder does not exercise the Option within such
thirty-day period, SMLP shall within ten business days after the
expiration of such thirty-day period purchase the Option at a price
(the "Call Price") equal to the number of ServiceMaster Shares
which are then obtainable for acquisition upon exercise of the
Option multiplied by excess of the (i) the average Market Price Per
Share of the ServiceMaster Shares during the forty NYSE trading day
period referred to in Section 2.1, over (ii) the Exercise Price.
SMLP shall pay to WMUS or such other holder, the Call Price for the
Option by wire transfer of immediately available funds. Upon the
closing of such sale and purchase of the Option, WMUS shall have no
further rights under this Option Agreement or with respect to the
Option.
3. LEGEND REQUIRED
Each certificate representing ServiceMaster Shares
obtainable upon exercise of the Option shall bear the legends as
required under Section 10 of the Relationship Agreement which
legends shall be removed as provided in Section 10 of the
Relationship Agreement.
4. ADJUSTMENT IN SHARES AND SHARE PRICES IN CERTAIN CASES
4.1 Effect of Distributions in ServiceMaster Shares. If any
dividends or distributions on the ServiceMaster Shares payable in
ServiceMaster Shares are declared or issued by ServiceMaster, the
Exercise Price shall be adjusted by multiplying the Exercise Price
then in effect by a fraction, the numerator of which is the number
of ServiceMaster Shares outstanding immediately prior to such
dividend or distribution and the denominator of which is the number
of ServiceMaster Shares outstanding immediately after such dividend
or distribution. Upon each such adjustment of the Exercise Price
hereunder, the number of ServiceMaster Shares acquirable upon
exercise of this Option shall be adjusted to the number of
ServiceMaster Shares determined by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of
ServiceMaster Shares acquirable upon exercise of this Option
immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
4.2 Subdivision, Combination, Reclassification of
ServiceMaster Shares. Other than in connection with the
Reincorporating Merger, if at any time after the date hereof the
ServiceMaster Shares shall, by subdivision, combination or
reclassification or through merger or consolidation or otherwise,
change into a different number or kind or class of ServiceMaster
Shares, or into other securities, cash or other property, then at
the same time the equity interests issuable under this Option
Agreement immediately prior to such change shall be changed into
the securities, cash or other property which WMUS would have
received if WMUS had exercised the Option immediately prior to such
subdivision, combination, reclassification, merger or consolidation
or other action (or any record date applicable thereto), and SMLP
shall reserve for issuance upon exercise of the Option the same
type of and amount of securities, cash or other property which
would have been received by WMUS if it had exercised the Option
immediately prior to such subdivision, combination,
reclassification, merger or consolidation or other action (or any
record date applicable thereto). The purpose of the foregoing
provision is to entitle WMUS to receive such securities, cash or
property for the same capital contribution to SMLP as would have
occurred if WMUS had fully exercised the Option immediately prior
to such subdivision, combination, reclassification, merger or
consolidation or other action (or any record date applicable
thereto).
4.3 Conversion of SMLP to a Corporation. SMLP is presently
organized as a Delaware limited partnership. However, SMLP expects
to convert to a Delaware corporation pursuant to a merger (the
"Reincorporating Merger") into ServiceMaster Incorporated of
Delaware ("SMI") by not later than December 31, 1997 under a Merger
and Reorganization Agreement which was approved by SMLP's limited
partners on January 13, 1992 (the "Reincorporating Merger
Agreement"). SMLP and SMI hereby covenant and agree that from and
after the effective date of the Reincorporating Merger: (i) each
and every obligation of SMLP which is set forth in this Option
Agreement shall become the obligation of SMI (ii) "ServiceMaster
Shares" shall mean shares of common stock issued or issuable by SMI
pursuant to the Reincorporating Merger. SMI, although not on the
date hereof an active company, has nonetheless executed this Option
Agreement to record its commitment to the foregoing provision.
4.4 Substitution of Successor. If an entity other than SMLP
or SMI shall be the issuer of any securities to be held for the
benefit of WMUS pursuant to Section 4.1 or 4.2 above or 5 below,
then such entity shall be deemed to be bound by all the provisions
of this Agreement applicable to SMLP or SMI in respect of any WMUS
exercise of the Option with respect to such securities. SMLP and
SMI shall continue to be bound if the Option shall also be
exercisable for ServiceMaster Shares or SMI Shares. This
Section 4.4 shall apply to each entity which shall issue any
securities to be held for the benefit of WMUS pursuant to
Section 4.1 or 4.2 above or 5 below.
5. EXTRAORDINARY DISTRIBUTIONS
5.1 For purposes of this Agreement, an "Extraordinary
Distribution" shall be a distribution to shareholders by SMLP of
cash, property, or rights the value of which, when added to all
other distributions to shareholders issued or paid during the same
calendar year on a per share basis, exceeds 130% of the aggregate
distributions to shareholders of cash, property or rights per share
issued or paid by SMLP for the immediately preceding calendar year.
5.2 If on the date on which WMUS receives SMLP's
Extraordinary Distribution Notice (defined below) the Market Value
Per Share (as defined in Section 6.3(b) of the Relationship
Agreement) is less than the Exercise Price, SMLP shall reserve for
issuance upon exercise of the Option, property or rights which
would have been received by WMUS if WMUS had exercised the Option
immediately prior to such Extraordinary Distribution (or
immediately prior to any record date applicable thereto), provided
that if it is not reasonably feasible for SMLP to preserve any
property or rights for WMX, then SMLP may upon WMUS' exercise of
the Option pay the fair market value of such property or right to
WMUS in lieu of transferring such property or right to WMX. The
purpose of the foregoing provision is to entitle WMUS to receive
the cash, property or rights comprising the Extraordinary
Distribution for the same capital contribution to SMLP as would
have occurred if WMUS had fully exercised the Option immediately
prior to the Extraordinary Distribution (or immediately prior to
any record date applicable thereto). Upon WMUS's exercise of the
Option, the cash, property or rights issued or paid in the
Extraordinary Distribution shall be issued or paid to WMUS together
with the SMLP shares deliverable as a result of such Option
exercise.
5.3 SMLP agrees that, within five calendar days after its
Board of Directors has determined to make a distribution which
constitutes an Extraordinary Distribution, SMLP will deliver a
notice to WMUS which describes such Extraordinary Distribution (the
"Extraordinary Distribution Notice"). SMLP agrees that the date
which SMLP's board of directors establishes as the record date for
the Extraordinary Distribution shall not be earlier than the second
business day after the earliest day by which an exercise of the
Option could be closed pursuant to Section 1.4 if WMUS were to
deliver a Preliminary Exercise Notice on the fifth calendar day
after the receipt of the Extraordinary Distribution Notice. The
foregoing sentence shall be based on the assumption that each of
SMLP and WMUS uses the maximum time allowed by Section 1.4 to take
action.
5.4 If SMLP gives WMUS an Extraordinary Distribution Notice
during the year 1996, SMLP agrees to permit the Option to be
exercised by WMUS notwithstanding the provisions of Section 1.3
hereof.
6. GENERAL PROVISIONS
6.1 Amendments. No amendment of any provision of this Option
Agreement shall be valid unless the same is in writing and signed
by WMUS, ServiceMaster and SMI.
6.2 Waivers. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant shall be deemed
to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant.
6.3 Binding Effect. This Option Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
6.4 Notices. Section 8.4 of the Relationship Agreement is
incorporated into this Section 6.4 by reference.
6.5 Governing Law. This Option Agreement shall be governed
by and construed in accordance with the laws of the State of
Delaware.
6.6 Construction. The parties have participated jointly in
the negotiation and drafting of this Option Agreement. In the
event an ambiguity or question of intent or interpretation arise,
this Option Agreement shall be construed as if drafted jointly by
the parties and no presumption or burden of proof shall arise which
favors or disfavors either party by virtue of the authorship of any
of the provisions of this Option Agreement.
* * *
IN WITNESS WHEREOF, the parties have executed this Option
Agreement the day and year first above written.
WMX TECHNOLOGIES, INC.
By: /s/ Xxxxx X. Xxxxxx
Its Chief Financial Officer
WMI URBAN SERVICES, INC.
By: /s/ Xxxx X. Xxxxx
Its
SERVICEMASTER LIMITED PARTNERSHIP
By: ServiceMaster Management Corporation
(general partner)
By: /s/ Xxxxxx X. Xxxxxx
Its Sr. V.P. - C.F.O.
SERVICEMASTER INCORPORATED OF DELAWARE
By: /s/ Xxxxxx X. Xxxxxxx
Its Vice President
