UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

 

Preliminary Copy

THE SERVICEMASTER COMPANY

860 Ridge Lake Boulevard

Memphis, Tennessee 38120

 

May [  ], 2007

Dear Stockholder:

On March 18, 2007, The ServiceMaster Company entered into a merger agreement providing for the acquisition of ServiceMaster by CDRSVM Topco, Inc., a corporation formed by investors led by a private investment fund managed by Clayton, Dubilier & Rice, Inc. If the acquisition is completed, you will be entitled to receive $15.625 in cash, without interest, for each share of ServiceMaster common stock you own. The ServiceMaster Board of Directors has determined that the merger agreement and transactions contemplated are advisable to, fair to and in the best interests of stockholders.

An affirmative vote of the majority of shares of our common stock outstanding on the record date is required to adopt the merger agreement. Our board of directors unanimously recommends that ServiceMaster’s stockholders vote “FOR” the adoption of the merger agreement.

A special meeting of stockholders has been called for the purpose of considering and voting on a proposal to adopt the merger agreement. The meeting will be held on June 28, 2007 at [•] a.m., Central Daylight Savings Time, at [•] ..

The accompanying proxy statement provides you with detailed information about the merger agreement and the proposed merger. We urge you to read the entire proxy statement carefully.

Your vote is important to us, regardless of the number of shares you own. Your cooperation in voting your shares will be greatly appreciated. The enclosed proxy card contains instructions regarding voting. Whether or not you plan to attend the special meeting, we request that you authorize your proxy by either completing and returning the enclosed proxy card or submitting your proxy by telephone or through the Internet.

Our Board of Directors and management appreciate your support of the company and we hope you will support this transaction.

J. Patrick Spainhour

Chairman of the Board of Directors and Chief Executive Officer

 

The proxy statement, dated May  [•] , 2007, is first being mailed to stockholders on or about May [•],  2007.

THE SERVICEMASTER COMPANY

860 Ridge Lake Boulevard

Memphis, Tennessee 38120

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 28, 2007

Notice is hereby given that a special meeting of the stockholders of The ServiceMaster Company, a Delaware corporation (“ServiceMaster”), will be held at [·] on Thursday, June 28, 2007 at [·]:00 a.m., Central Daylight Savings Time, for the following purposes:

1.                To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of March 18, 2007, among ServiceMaster, CDRSVM Topco, Inc. (“CDRSVM Parent”) and CDRSVM Acquisition Co., Inc. (“Merger Sub”), which provides for the merger of Merger Sub, an indirect wholly-owned subsidiary of CDRSVM Parent, with and into ServiceMaster, with ServiceMaster continuing as the surviving corporation, and the conversion of each outstanding share of common stock of ServiceMaster (other than shares held by ServiceMaster, CDRSVM Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries and shares held by stockholders who validly perfect their appraisal rights under Delaware law) into the right to receive $15.625 in cash.

2.                To consider and vote upon a proposal to adjourn the special meeting if necessary or appropriate to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the Agreement and Plan of Merger referred to in Item 1.

3.                To transact such other business as may properly come before the special meeting or any adjournments of the special meeting.

Stockholders of record at the close of business on May 22, 2007 are entitled to notice of, and to vote at, the special meeting or any adjournments thereof.

The merger agreement and the merger are described in the accompanying proxy statement and a copy of the merger agreement is attached to the proxy statement as Appendix A. We urge you to read the entire proxy statement and the merger agreement carefully.

We hope you will be able to attend the meeting in person, and you are cordially invited to attend.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. It is important that all stockholders complete, sign, date and return the proxy using the enclosed envelope to which no postage need be affixed if mailed in the United States.

 

May [•] ,2007

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

PLEASE DO NOT SEND YOUR SERVICEMASTER COMMON STOCK CERTIFICATES TO US AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING SURRENDER OF YOUR CERTIFICATES.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE. EVEN IF YOU HAVE VOTED BY PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. ANY PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED BY FOLLOWING THE INSTRUCTIONS SET FORTH ON PAGE 9 OF THE ACCOMPANYING PROXY STATEMENT. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THAT RECORD HOLDER.

SUMMARY TERM SHEET

This summary term sheet briefly summarizes the most material terms of the transaction detailed in this proxy statement. You are urged to read carefully this proxy statement, including the appendices, and the documents referred to or incorporated by reference in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where Stockholders Can Find More Information” beginning on page 84.

In this proxy statement, the terms “we,” “us,” “our,” “ServiceMaster” and the “company” refer to The ServiceMaster Company and, where appropriate, its subsidiaries. We refer to:

·        Clayton, Dubilier & Rice, Inc. as “CD&R,”

·        CDRSVM Topco, Inc. as “CDRSVM Parent,”

·        CDRSVM Acquisition Co., Inc. as “Merger Sub,”

·        Morgan Stanley & Co. Incorporated as “Morgan Stanley,”

·        Goldman, Sachs & Co. as “Goldman Sachs,”

·        Greenhill & Co., LLC as “Greenhill,”

·        Clayton, Dubilier & Rice Fund VII, L.P.; Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P.; BAS Capital Funding Corporation; Citigroup Capital Partners II 2007 Citigroup Investment, L.P.; Citigroup Capital Partners II Employee Master Fund, L.P.; Citigroup Capital Partners II Onshore, L.P.; Citigroup Capital Partners II Cayman Holdings, L.P. CGI CPE LLC; and J.P. Morgan Ventures Corporation, collectively, as the “Initial Equity Sponsors,” and

·        The Initial Equity Sponsors and Banc of America Capital Investors V, L.P., upon the expected assignment to it of a portion of the equity commitment by BAS Capital Funding Corporation, collectively as the “Equity Sponsors.”

·      The Proposed Transaction (Page 59)

The proposed transaction is the acquisition of ServiceMaster by CDRSVM Parent pursuant to the Agreement and Plan of Merger, dated as of March 18, 2007, among ServiceMaster, CDRSVM Parent and Merger Sub. We refer to that Agreement and Plan of Merger as the merger agreement. The acquisition will be effected by the merger of Merger Sub, an indirect wholly-owned subsidiary of CDRSVM Parent, with and into ServiceMaster, with ServiceMaster being the surviving corporation and an indirect wholly-owned subsidiary of CDRSVM Parent. We refer to that merger as the merger.  The parties currently expect to complete the merger early in the third quarter of 2007 subject to satisfaction of the conditions described under “Terms of the Merger Agreement—Conditions to the Merger” beginning on page 74.

·       ServiceMaster Will Hold a Special Meeting of its Stockholders to Consider Adoption of the Merger Agreement and the Meeting Adjournment Proposal (Page 7)

Date, Time and Place (Page 7). The special meeting will be held at [·] on June 28, 2007 at [·]:00 a.m., Central Daylight Savings Time, or CDT. At the special meeting, you will be asked to consider and vote upon proposals to (i) adopt the merger agreement; (ii) adjourn the special meeting if necessary or appropriate to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement (we refer to this proposal in this proxy statement as the meeting adjournment proposal); and (iii) transact such other business as may properly come before the special meeting or any adjournments of the special meeting.

Record Date and Voting (Page 7). Only stockholders who hold shares of ServiceMaster common stock at the close of business on May 22, 2007, the record date for the special meeting,

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will be entitled to vote at the special meeting. Each share of ServiceMaster common stock outstanding on the record date will be entitled to one vote on each matter submitted to stockholders for adoption at the special meeting. As of the record date, there were [·] shares of ServiceMaster common stock outstanding.

Vote Required (Page 8). Adoption of the merger agreement requires the affirmative vote of [·] shares of ServiceMaster common stock, being a majority of the shares of ServiceMaster common stock outstanding on the record date. Adoption of the meeting adjournment proposal requires the affirmative vote of stockholders holding a majority of the shares of ServiceMaster common stock present and entitled to vote at the special meeting.

Share Ownership of Directors and Executive Officers (Page 8). As of May 22, 2007, the record date, our directors and executive officers beneficially owned and are entitled to vote, in the aggregate, [·] shares of ServiceMaster common stock, representing approximately [·]% of the outstanding shares of ServiceMaster common stock. The directors and executive officers have informed us that they intend to vote all of their shares “FOR” the adoption of the merger agreement and “FOR” the meeting adjournment proposal.

·      If the Merger Is Completed, ServiceMaster’s Stockholders Will Receive $15.625 in Cash For Each Share of ServiceMaster Common Stock They Own (Page 60)

If the merger is completed, each issued and outstanding share of ServiceMaster common stock, other than shares held by ServiceMaster, CDRSVM Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries and shares held by stockholders who validly perfect their appraisal rights under Delaware law, will be converted into the right to receive $15.625 in cash (which we refer to in this proxy statement as the merger consideration). The total merger consideration that is expected to be paid to holders of ServiceMaster common stock in the merger is approximately $4.7 billion.

·      How Outstanding Options, Stock Appreciation Rights and Restricted Stock Units Will Be Treated (Page 60)

Options to acquire shares of ServiceMaster common stock granted under various ServiceMaster stock incentive plans that are outstanding immediately prior to the effective time of the merger, vested or unvested, will be cancelled as of the effective time of the merger and converted into the right to receive a cash payment equal to the excess (if any) of $15.625 per share over the exercise price per share of the option times the number of shares subject to the option, less any applicable withholding taxes.

Stock appreciation rights granted under ServiceMaster stock incentive plans that are outstanding immediately prior to the effective time of the merger, vested or unvested, will be cancelled as of the effective time of the merger and converted into the right to receive a cash payment equal to the excess (if any) of $15.625 per share over the base price per share of the stock appreciation right times the number of shares subject to the stock appreciation rights award, less any applicable withholding taxes.

Restricted stock units granted under ServiceMaster stock incentive plans that are outstanding immediately prior to the effective time of the merger, vested or unvested, will be cancelled as of the effective time of the merger and converted into the right to receive a cash payment equal to $15.625 per share times the number of units, less any applicable withholding taxes.

The total amount expected to be paid in respect of options, stock appreciation rights and restricted stock units is approximately $61.9 million.

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·      Recommendation of Our Board of Directors (Page 22)

Our board of directors has unanimously (with one director absent) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable to, fair to and in the best interests of the holders of ServiceMaster common stock and has approved the merger agreement and the transactions contemplated thereby, including the merger. Our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement. Our board of directors reached its determination based on various factors, as more fully described in this proxy statement.

·      Opinions of ServiceMaster’s Financial Advisors (Page 22)

Morgan Stanley delivered its opinion to our board of directors that, as of March 18, 2007 and based upon and subject to the various considerations set forth in the opinion, the $15.625 per share in cash to be received by the holders of ServiceMaster common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

Goldman Sachs delivered its opinion to our board of directors that, as of March 18, 2007, and based upon and subject to the assumptions, procedures, factors, limitations and qualifications set forth in such opinion, the $15.625 per share in cash to be received by the holders of ServiceMaster common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinions of Morgan Stanley and Goldman Sachs, each dated March 18, 2007, which set forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the respective opinions, are attached as Appendix B and Appendix C, respectively. ServiceMaster has agreed to pay Morgan Stanley and Goldman Sachs an aggregate fee of approximately $35 million, substantially all of which is payable only upon completion of the merger. In addition, affiliates of Morgan Stanley and Goldman Sachs will be entitled to receive fees from Merger Sub pursuant to debt commitment letters delivered by them to Merger Sub in April, 2007 as described under “The Merger—Financing—Debt Financing” beginning on page 45 of this proxy statement. Morgan Stanley and Goldman Sachs provided their opinions for the information and assistance of the ServiceMaster board of directors in connection with its consideration of the merger. Neither the Morgan Stanley opinion nor the Goldman Sachs opinion is a recommendation as to how any holder of ServiceMaster common stock should vote with respect to the merger. We encourage you to read each of these opinions carefully and in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken.

·      Opinion of Greenhill (Page 33)

In connection with the merger agreement, our board of directors also received a written opinion from Greenhill that, as of March 18, 2007 and based upon and subject to the assumptions, qualifications and limitations set forth in its opinion, the merger consideration provided for in the merger agreement was fair from a financial point of view to holders of shares of ServiceMaster common stock. The full text of the written opinion of Greenhill, dated March 18, 2007, is attached to this proxy statement as Appendix D. Greenhill has been paid a fee of $1,000,000 in connection with the proposed transaction. Greenhill’s compensation was not contingent upon the closing of the transaction. The opinion of Greenhill was provided to ServiceMaster’s board of directors in its evaluation of the merger consideration from a financial point of view, does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger.  We encourage you to read this opinion carefully and in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken.

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·       Financing (Page 43)

The Equity Sponsors estimate that the total amount of funds necessary to complete the merger and the related transactions to be approximately $5.2 billion, which includes approximately $4.8 billion to be paid to our stockholders and holders of other equity-based interests in ServiceMaster, with the remainder to be applied to pay related fees and expenses in connection with the merger, the financing arrangements and the related transactions, including a one-time transaction fee of approximately $54.5 million upon consummation of the merger, payable to the Equity Sponsors or their affiliates in connection with their roles in arranging and structuring the transactions. These payments are expected to be funded by a combination of equity contributions to CDRSVM Parent and debt financing, which we refer to collectively in this proxy statement as the financing, as well as our available cash.

The Initial Equity Sponsors have given commitments to CDRSVM Parent to provide an aggregate of approximately $1.4 billion in equity financing.

In addition, Merger Sub has obtained commitments to provide up to $4.5 billion in debt financing.

The closing of the merger is not conditioned on the receipt of the debt financing.

·      Our Directors and Executive Officers Have Interests in the Transaction that Are Different From, or in Addition to, Interests of ServiceMaster’s Stockholders Generally (Page 46)

In considering the recommendation of our board of directors, you should be aware that our directors and executive officers have interests in the merger that are different from your interests as a stockholder and that may present actual or potential conflicts of interest. Our board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated thereby, including the merger, and in determining to recommend that ServiceMaster’s stockholders vote “FOR” the adoption of the merger agreement. You should consider these and other interests of our directors and executive officers that are described in this proxy statement.

·      How the Merger Agreement May Be Terminated (Page 76)

CDRSVM Parent and ServiceMaster may mutually agree to terminate the merger agreement at any time upon the mutual written consent of the parties. Other circumstances under which CDRSVM Parent or ServiceMaster may terminate the merger agreement are described under “Terms of the Merger Agreement—Termination of the Merger Agreement” beginning on page 75. Under certain circumstances resulting in the termination of the merger agreement, we will be required to pay a termination fee of $100 million (which we refer to as the Company termination fee) to CDRSVM Parent. In the event the merger is not consummated due to a failure to obtain the financing necessary to pay the aggregate merger consideration and consummate the merger within the applicable time period, we may terminate the merger agreement and CDRSVM Parent will be required to pay us a termination fee of $100 million (which we refer to as the CDRSVM Parent termination fee).

·      U.S. Tax Considerations For ServiceMaster’s Stockholders (Page 53)

Generally, merger consideration paid to our stockholders will be taxable to our stockholders for U.S. federal income tax purposes. A holder of ServiceMaster common stock receiving cash in the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received and the holder’s adjusted tax basis in the ServiceMaster common stock surrendered.

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·      ServiceMaster’s Stockholders Will Have Appraisal Rights (Page 55)

You have the right under Delaware law to dissent from the adoption of the merger agreement and to exercise appraisal rights and receive payment in cash for the fair value of your shares of ServiceMaster common stock in the event the merger is completed. The fair value of your shares of ServiceMaster common stock as determined in accordance with Delaware law may be more or less than the merger consideration to be paid to non-dissenting stockholders in the merger. To preserve your appraisal rights, you must not vote “FOR” adoption of the merger agreement, you must not return a proxy card that is signed but not voted, and you must follow specific procedures required under Delaware law. You must follow these procedures precisely in order to exercise your appraisal rights, or you may lose them. These procedures are described in this proxy statement, and the provisions of Delaware law that grant appraisal rights and govern those procedures are attached as Appendix E. We encourage you to read these provisions carefully and in their entirety and consult your legal advisor.

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Proxy Statement

Table of Contents

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

Q:             Why am I receiving these materials?

A:             You are receiving this proxy statement and proxy card because you own shares of ServiceMaster common stock. Our board of directors is providing these proxy materials to give you information for use in determining how to vote in connection with the special meeting of stockholders.

Q:             What is the proposed transaction?

A:             Under the terms of the merger agreement, upon completion of the merger, Merger Sub will be merged with and into ServiceMaster, with ServiceMaster being the surviving corporation and an indirect wholly-owned subsidiary of CDRSVM Parent. After the merger is completed, our common stock will cease to be traded on the New York Stock Exchange.

Q:             What will I receive if the merger is completed?

A:             You will have the right to receive $15.625 in cash, without interest, for each share of your ServiceMaster common stock, unless you are a dissenting stockholder and you perfect your appraisal rights under Delaware law.

Q:             What vote is required to approve the merger?

A:             Adoption of the merger agreement requires the affirmative vote of a majority of the shares of ServiceMaster common stock outstanding on the record date. As of the record date, there were [•] shares outstanding, of which the directors and executive officers of ServiceMaster beneficially owned and are entitled to vote, in the aggregate, [•] shares, representing [•]% of the outstanding shares. The directors and executive officers have informed ServiceMaster that they intend to vote all of their shares of ServiceMaster common stock “FOR” the adoption of the merger agreement.

Q:             How does the board of directors of ServiceMaster recommend that I vote?

A:             After careful consideration, our board of directors recommends that our stockholders vote “FOR” the adoption of the merger agreement.

Q:             When and where is the special meeting?

A:             The special meeting will take place held at [•]on Thursday, June 28, 2007 at [•]:00 a.m., CDT.

Q:             How do I vote my shares of ServiceMaster common stock?

A:             Before you vote, you should carefully read and consider the information contained in or incorporated by reference in this proxy statement, including the appendices. You should also determine whether you hold your shares of ServiceMaster common stock directly in your name as a registered stockholder (which would mean that you are a “stockholder of record”) or through a broker or other nominee, because this will determine the procedure that you must follow in order to vote. You are a registered holder of ServiceMaster common stock if you hold your ServiceMaster common stock as a stockholder of record in certificate form or if you hold your ServiceMaster common stock in your name directly with our transfer agent, Computershare, which includes shares purchased and held through the ServiceMaster Employee Stock Purchase Plan, the ServiceMaster Franchisee Share Purchase Plan and the ServiceMaster Dividend Reinvestment Plan. If you are a registered holder of ServiceMaster common stock, you may vote in any of the following ways:

·       in person at the special meeting — complete, date and sign the enclosed proxy card and bring it to the special meeting;

·       by mail — complete, date and sign the enclosed proxy card and return it to Computershare Proxy Services in the enclosed postage paid return envelope as soon as possible; or

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·       by telephone or through the Internet — follow the instructions included with the enclosed proxy card. Registered shareholders can transmit their voting instructions by telephone by calling, toll-free, 800-652-VOTE (8683) or through the Internet at http://www.investorvote.com. Telephone and Internet voting are available 24 hours a day until [·] a.m., CDT, on May [•], 2007. If you vote by telephone or through the Internet, you do not need to return the enclosed proxy card.

If you are a non-registered holder of shares of common stock of ServiceMaster (which for purposes of this proxy statement means that your shares are held in “street name”), you should instruct your broker or other nominee to vote your shares by following the instructions provided by your broker or other nominee. You may vote in person at the special meeting if you obtain written authorization in your name from your broker or other nominee and bring evidence of your stock ownership from your broker or other nominee. Please contact your broker or other nominee to determine how to vote by mail and whether you will be able to vote by telephone or through the Internet.

If you are an employee of ServiceMaster, any shares in your 401(k) plan account will be voted in accordance with your instructions, if indicated. To allow sufficient time for the 401(k) plan trustee to vote, the trustee must receive your voting instructions by [·] p.m., CDT, on May [•], [·], 2007. If your proxy card is signed but does not indicate your voting preferences, or the 401(k) plan trustee does not receive your instructions by that date, the trustee will vote your shares in the same proportion of votes that the trustee receives from other 401(k) plan participants.

Q:             What happens if I return my proxy card but I do not indicate how to vote?

A:             Except for any shares held in the 401(k) plan as described in the preceding paragraph, if you properly return your proxy card, but do not include instructions on how to vote, your shares of ServiceMaster common stock will be voted “FOR” the adoption of the merger agreement and “FOR” the adoption of the meeting adjournment proposal. ServiceMaster’s management does not currently intend to bring any other proposals to the special meeting. If other proposals requiring a vote of stockholders are brought before the special meeting in a proper manner, the persons named in the enclosed proxy card intend to vote the shares they represent in accordance with their best judgment.

Q:             What happens if I abstain from voting on a proposal?

A:             If you return your proxy card with instructions to abstain from voting on either proposal, your shares will be counted for determining whether a quorum is present at the special meeting. An abstention with respect to either proposal has the legal effect of a vote “AGAINST” the proposal.

Q:             What happens if I do not return a proxy card or otherwise do not vote?

A:             Except for any shares held in the 401(k) plan as described above, your failure to return a proxy card or otherwise vote will mean that your shares will not be counted toward determining whether a quorum is present at the special meeting and will have the legal effect of a vote “AGAINST” the proposal to adopt the merger agreement. Such failure will have no legal effect with respect to the vote on the meeting adjournment proposal.

Q:             May I change my vote after I have mailed my signed proxy card or otherwise submitted my vote?

A:             Yes. You can change your vote at any time before your shares are voted at the special meeting. If you are a registered holder of ServiceMaster common stock, you can do this in any of the following ways:

·       by sending a written notice to Computershare Proxy Services at the address specified below stating that you would like to revoke your proxy;

·       by completing and delivering a later-dated proxy card by mail to Computershare Proxy Services at the address specified below;

·       by providing subsequent telephone or Internet voting instructions; or

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·       by attending the special meeting and voting in person. Your attendance at the special meeting alone will not revoke your proxy. You must also vote at the special meeting in order to revoke your previously submitted proxy.

You should send any notice of revocation or your completed new, later-dated proxy card, as the case may be, to Computershare Proxy Services in care of Computershare Investor Services at P.O. Box 43102, Providence, RI 02940-5068.

If your shares are held in “street name,” you must contact your broker or other nominee and follow the directions provided to you in order to change your vote.

Q:             If my broker or other nominee holds my shares in “street name,” will my broker or other nominee vote my shares for me?

A:             Your broker or other nominee will not be able to vote your shares of ServiceMaster common stock unless you have properly instructed your broker or other nominee on how to vote. If you do not provide your broker or other nominee with voting instructions, your shares may be considered present at the special meeting for purposes of determining a quorum, but will have the legal effect of a vote “AGAINST” the proposal to adopt the merger agreement and the meeting adjournment proposal.

Q:             What does it mean if I receive more than one set of materials?

A:             This means you own shares of ServiceMaster common stock that are registered under different names. For example, you may own some shares directly as a stockholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must complete, sign, date and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive in order to vote all of the shares you own. Each proxy card you receive comes with its own prepaid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.

Q:             When do you expect the merger to be completed?

A:             The parties to the merger agreement are working toward completing the merger as quickly as possible. If the merger agreement is adopted and the other conditions to the merger are satisfied or waived, the merger is expected to be completed promptly after the special meeting. The parties currently expect to complete the merger early in the third quarter of 2007, although there can be no assurance that the parties will be able to do so.

Q:             If the merger is completed, how will I receive the cash for my shares?

A:             If the merger is completed, you will receive a letter of transmittal with instructions on how to send your shares of ServiceMaster common stock to the paying agent in connection with the merger. You will receive cash for your shares from the paying agent after you comply with these instructions. If your shares of ServiceMaster common stock are held for you in “street name” by your broker or other nominee, you will receive instructions from your broker or other nominee as to how to effect the surrender of your “street name” shares and receive cash for such shares.

Q:             What happens if the merger is not completed?

A:             If the merger agreement is not adopted by the stockholders or if the merger is not completed for any other reason, stockholders will not receive any payment for their shares in connection with the merger. Instead, ServiceMaster common stock will continue to be listed and traded on the New York Stock Exchange. ServiceMaster may be required to pay a termination fee or reimburse certain out-of-pocket expenses as described under “The Merger Agreement — Effects of Terminating the Merger Agreement.”

Q:             Should I send in my stock certificates now?

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A:             No. If the merger is completed, you will receive shortly thereafter the letter of transmittal instructing you to send your stock certificates to the paying agent in order to receive the cash payment of the merger consideration for each share of ServiceMaster common stock represented by the stock certificates. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your stock certificates with your proxy card.

Q:             Who can help answer my questions?

A:             If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger agreement or the merger, including the procedures for voting your shares, you should contact D. F. King & Co., Inc., our proxy solicitor, toll-free at (800) 967-7858.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Any statements in this proxy statement about future results of operations, expectations, plans and prospects, including statements regarding completion of the proposed merger, constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” “plans,” “targets” and/or similar expressions. These forward-looking statements are based on ServiceMaster’s current estimates and assumptions and, as such, involve uncertainty and risk. For each of these statements, we claim the protection contained in Section 21E of the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act” in this proxy statement.

The forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by these forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement, or, in the case of documents incorporated by reference or attached to this proxy statement, as of the respective dates of such documents. These and other factors are discussed in the documents that are incorporated by reference in this proxy statement, including ServiceMaster’s annual report on Form 10-K for the fiscal year ended December 31, 2006, as amended. In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

·       failure to obtain stockholder approval of the merger agreement or the failure to satisfy other closing conditions, including regulatory approvals, with respect to the proposed merger;

·       failure of CDRSVM Parent to obtain the necessary financing arrangements to pay the aggregate merger consideration;

·       the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

·       the failure of the proposed merger to close for any other reason;

·       the amount of the costs, fees, expenses and charges relating to the merger and the actual terms of financings that will need to be obtained for the merger;

·       the impact of substantial indebtedness that will need to be incurred to finance the consummation of the merger;

·       future weather conditions and seasonality that affect demand for our services;

·       general economic conditions;

·       the ability to effectively implement and transition any acquisitions we make;

·       future levels of competing services; and

·       compliance with laws and regulations, including those relating to environmental matters.

Except to the extent required under the federal securities laws, ServiceMaster does not intend to update or revise the forward-looking statements. In the event of any material change in any of the information previously disclosed, we will, where relevant and if required under applicable law, update such information through a supplement to this proxy statement to the extent necessary.

All information contained in this proxy statement exclusively concerning CDRSVM Parent, Merger Sub and their affiliates and designees has been supplied by CDRSVM Parent and has not been independently verified by ServiceMaster.

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PARTIES INVOLVED IN THE PROPOSED TRANSACTION

The ServiceMaster Company

The ServiceMaster Company

860 Ridge Lake Boulevard

Memphis, Tennessee 38120

Telephone: (901) 597-1400

The ServiceMaster Company, a Delaware corporation, provides the following services to residential and commercial customers in the United States:  lawn care, landscape maintenance, termite and pest control, home warranty, disaster response and reconstruction, cleaning and disaster restoration, house cleaning, furniture repair and home inspection. It provides such services through a network of company-owned locations and franchise licenses operating under the following leading brands:  TruGreen Lawncare, TruGreen LandCare, Terminix, American Home Shield, InStar, Merry Maids, ServiceMaster Clean, Furniture Medic and AmeriSpec.

Detailed descriptions about ServiceMaster’s business and financial results are contained in its annual report on Form 10-K for the fiscal year ended December 31, 2006, as amended, which is incorporated in this proxy statement by reference. See “Where Stockholders Can Find More Information” beginning on page 83 of this proxy statement.

CDRSVM Topco, Inc.

CDRSVM Topco, Inc.

c/o Clayton, Dubilier & Rice Fund VII, L.P.

1403 Foulk Road, Suite 106

Wilmington, Delaware 19803

Fax: (302) 427-7398

CDRSVM Topco, Inc., or CDRSVM Parent, is a Delaware corporation organized for the purpose of effecting the merger. CDRSVM Parent was organized by Clayton, Dubilier & Rice Fund VII, L.P., which we refer to in this proxy statement as CD&R Fund VII, a private investment fund managed by CD&R. CDRSVM Parent has not engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the merger agreement, including the arrangement of equity investment in CDRSVM Parent by the following parties, in addition to CD&R Fund VII, which we refer to in this proxy statement collectively as the Equity Sponsors:

·       Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., a private investment fund managed by CD&R;

·       BAS Capital Funding Corporation and, following its intended assignment of a portion of its equity commitment, Banc of America Capital Investors V, L.P., each an affiliate of Bank of America Corporation;

·       Citigroup Capital Partners II 2007 Citigroup Investment, L.P.; Citigroup Capital Partners II Employee Master Fund, L.P.; Citigroup Capital Partners II Onshore, L.P.; Citigroup Capital Partners II Cayman Holding, L.P.; and CGI CPE LLC, each affiliates of Citigroup Inc.; and

·       J.P. Morgan Ventures Corporation, an affiliate of JPMorgan Chase & Co.

CDRSVM Acquisition Co., Inc.

CDRSVM Acquisition Co., Inc.

c/o Clayton, Dubilier & Rice Fund VII, L.P.

1403 Foulk Road, Suite 106

Wilmington, Delaware 19803

Fax: (302) 427-7398

CDRSVM Acquisition Co., Inc., or Merger Sub, is a Delaware corporation and indirect wholly-owned subsidiary of CDRSVM Parent formed for the purpose of effecting the merger. Merger Sub has not engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

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THE SPECIAL MEETING

General

The enclosed proxy is solicited on behalf of our board of directors for use at a special meeting of stockholders to be held on Thursday, June 28, 2007, at [·]:00 a.m., CDT, or at any adjournments of the special meeting, for the purposes set forth in this proxy statement and in the accompanying notice of special meeting. The special meeting will be held at [·]. ServiceMaster intends to mail this proxy statement and the accompanying proxy card on or about May 24, 2007 to all stockholders entitled to vote at the special meeting.

At the special meeting, stockholders will be asked to consider and vote upon proposals to:

·       adopt the merger agreement, which provides for the merger of Merger Sub with and into ServiceMaster, with ServiceMaster continuing as the surviving corporation, and the conversion of each outstanding share of ServiceMaster common stock (other than shares held by ServiceMaster, CDRSVM Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries and shares held by stockholders who validly perfect their appraisal rights under Delaware law) into the right to receive $15.625 in cash;

·       adjourn the special meeting if necessary or appropriate to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement; and

·       transact such other business as may properly come before the special meeting or any adjournments of the special meeting.

ServiceMaster does not expect a vote to be taken on any other matters at the special meeting. If any other matters are properly presented at the special meeting for consideration, however, the holders of the proxies, if properly authorized, will have discretion to vote on these matters in accordance with their best judgment.

Record Date and Voting Information

Stockholders of record of ServiceMaster common stock at the close of business on May 22, 2007, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any adjournments thereof. At the close of business on the record date, [·] shares of ServiceMaster common stock were outstanding and entitled to vote. A list of stockholders will be available for review at ServiceMaster’s executive offices located at 860 Ridge Lake Boulevard, Memphis, Tennessee 38120 during ordinary business hours for a period of ten days prior to the date of the special meeting and will be available for review at the special meeting or any adjournment thereof. Each holder of record of ServiceMaster common stock on the record date will be entitled to one vote on each matter submitted to stockholders for adoption at the special meeting for each share held. If you sell or transfer your shares of ServiceMaster common stock after the record date but before the special meeting, you will transfer the right to receive the per share merger consideration, if the merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote at the special meeting.

All votes will be tabulated by the inspector of election appointed for the special meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Brokers who hold shares in “street name” for clients typically have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. Absent specific instructions from the beneficial owner of the shares, however, brokers are not allowed to exercise their voting discretion with respect to the adoption of non-routine matters, such as adoption of the merger agreement. Proxies submitted without a vote by brokers on these matters are referred to as “broker non-votes.”

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Quorum

Shares entitled to vote at the special meeting may take action on a matter at the special meeting only if a quorum of those shares exists with respect to that matter. Accordingly, the presence in person or by proxy of the holders of shares of stock having a majority of the votes that could be cast by the holders of all outstanding shares of ServiceMaster common stock entitled to vote at the special meeting is necessary and sufficient to constitute a quorum for the transaction of business at the special meeting. If a share is represented for any purpose at the special meeting, other than for the purpose of objecting to the special meeting or the transacting of business at the special meeting, it will be deemed present for purposes of determining whether a quorum exists.

Any shares of ServiceMaster common stock held in treasury by ServiceMaster are not considered to be outstanding on the record date or otherwise entitled to vote at the special meeting for purposes of determining a quorum.

Shares represented by proxies reflecting abstentions and properly executed broker non-votes are counted for purposes of determining whether a quorum exists at the special meeting.

Required Vote; Effect of Abstentions and Broker Non-Votes

The affirmative vote of [·] shares of ServiceMaster common stock, being a majority of the shares of ServiceMaster common stock outstanding on the record date, is required to adopt the merger agreement and the transactions contemplated thereby, including the merger. Adoption of the meeting adjournment proposal requires the affirmative vote of a majority of the shares of ServiceMaster common stock present and entitled to vote at the special meeting.

As of May 22, 2007, the record date, the directors and current executive officers of ServiceMaster beneficially owned and are entitled to vote, in the aggregate, [·] shares of ServiceMaster common stock, representing approximately [·]% of the outstanding shares of ServiceMaster common stock. The directors and current executive officers have informed ServiceMaster that they intend to vote all of their shares of ServiceMaster common stock “FOR” the adoption of the merger agreement and “FOR” the meeting adjournment proposal.

Proxies that reflect abstentions and broker non-votes, as well as proxies that are not returned, will have the same effect as a vote against adoption of the merger agreement. In the case of the meeting adjournment proposal, a vote to abstain will have the same effect as a vote against the meeting adjournment proposal. A failure to vote, including a broker non-vote, will have no effect on the outcome of the meeting adjournment proposal.

If the special meeting is adjourned or postponed for any reason, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the meeting, except for any proxies that have been revoked or withdrawn.

Voting by Proxy; Revocation of Proxies

After carefully reading and considering the information contained in this proxy statement, each stockholder of record of ServiceMaster common stock should either complete, date and sign the enclosed proxy card and mail the proxy card in the enclosed postage pre-paid return envelope, or submit a proxy by telephone or through the Internet by following the instructions included with the enclosed proxy card, in each case, as soon as possible so that those shares of ServiceMaster common stock may be voted at the special meeting, even if such holder plans to attend the special meeting in person. Submitting a proxy now will not limit your right to vote at the special meeting if you decide to attend in person. If your shares are held of record in “street name” by a broker or other nominee and you wish to vote in person at the special meeting, you must obtain from the record holder a proxy issued in your name. Your broker or other

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nominee may also permit proxy submission by telephone or through the Internet. Please contact your broker or nominee to determine how to vote your proxy.

Proxies received at any time before the special meeting and not revoked or superseded before being voted will be voted at the special meeting. If the proxy indicates a specification, it will be voted in accordance with the specification. If no specification is indicated, the proxy will be voted “FOR” adoption of the merger agreement and “FOR” the meeting adjournment proposal. A properly executed proxy gives the persons named as proxies on the proxy card authority to vote in their discretion with respect to any other business that may properly come before the meeting or any adjournment of the meeting.

Any person giving a proxy pursuant to this solicitation has the power to revoke and change it at any time before it is voted. If you have not voted through a broker or other nominee, you may revoke your proxy before it is voted by:

·       filing a written notice of revocation with Computershare Proxy Services in care of Computershare Investor Services at P.O. Box 43102, Providence, RI 02940-5068;

·       submitting in writing to Computershare Proxy Services at the address specified above a proxy bearing a later date;

·       providing subsequent telephone or Internet voting instructions; or

·       attending the special meeting and voting in person; however, attendance at the special meeting will not, by itself, revoke a proxy.

If you have given voting instructions to a broker or other nominee that holds your shares in “street name,” you may revoke those instructions by following the directions given by the broker or other nominee. If your broker or nominee allows you to submit a proxy by telephone or through the Internet, you may be able to change your vote by submitting a proxy again by telephone or through the Internet.

Please do not send in stock certificates at this time. If the merger is completed, you will receive instructions regarding the procedures for exchanging your existing ServiceMaster stock certificates for the payment of the per share merger consideration.

Expenses of Proxy Solicitation

This proxy statement is being furnished in connection with the solicitation of proxies by our board of directors. ServiceMaster will bear the entire expense of soliciting proxies, including the cost of preparing, printing and mailing this proxy statement, the notice of the special meeting of stockholders, the enclosed proxy card and any additional information furnished to stockholders. ServiceMaster has engaged the services of D.F. King & Co., Inc. to solicit proxies and to assist in the distribution of proxy materials. In connection with its retention by ServiceMaster, D.F. King & Co., Inc. has agreed to provide consulting and analytic services and to assist in the solicitation of proxies, primarily from banks, brokers, institutional investors and individual stockholders. ServiceMaster has agreed to pay D.F. King & Co., Inc. a fee of $[·] plus reasonable out-of-pocket expenses for its services. Copies of solicitation materials will also be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of ServiceMaster common stock beneficially owned by others to forward to these beneficial owners. ServiceMaster may reimburse persons representing beneficial owners of ServiceMaster common stock for their costs of forwarding solicitation materials to the beneficial owners. In addition to the solicitation of proxies by mail, solicitation may be made personally, by telephone and by fax, and we may pay persons holding shares for others their expenses for sending proxy materials to their principals. In addition to solicitation by the use of the mails, proxies may be solicited by our directors, officers and employees in person or by telephone, e-mail or other means of communication. No additional compensation will be paid to our directors, officers or employees for their services.

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Householding

Some brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. Accordingly, in some instances, only one copy of this proxy statement is being delivered to multiple stockholders sharing an address, unless we have received instructions from one or more of the stockholders to continue to deliver multiple copies. We will deliver promptly upon oral or written request a separate copy of this proxy statement, including the attached appendices, to any stockholder at your address. If you wish to receive a separate copy of this proxy statement, you can call Computershare at 888-834-0744 or send a written request to:

Computershare Proxy Services

c/o Computershare Investor Services

P.O. Box 43102

Providence, RI  02940-5068

Adjournments

If the special meeting is adjourned to a different place, date or time, ServiceMaster need not give notice of the new place, date or time if the new place, date or time is announced at the meeting before adjournment, unless the adjournment is for more than 30 days or a new record date is or must be set for the adjourned meeting.

Attending the Special Meeting

In order to attend the special meeting in person, you must be a stockholder of record on the record date, hold a valid proxy from a record holder or be an invited guest of ServiceMaster. You will be asked to provide proper identification at the registration desk on the day of the meeting or any adjournment of the meeting.

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THE MERGER

Background of the Merger

Our board of directors has periodically reviewed and considered strategic alternatives available to our company. This review has been undertaken both in response to inquiries from third parties as well as at the board’s own initiative.

In February, 2002, Jonathan P. Ward, our then chief executive officer, received a letter from the chief executive officer of a national retailer (referred to in this proxy statement as Company A) in which Company A expressed an interest in pursuing a business combination with our company at a valuation of between $15.00 and $17.00 per share. After discussions with our financial and legal advisors, our board of directors determined not to pursue a transaction with Company A.

In May 2005, Mr. Ward was again contacted by the chief executive officer of Company A, who again indicated an interest in pursuing a transaction with our company. On June 1, 2005, we engaged Morgan Stanley and Goldman Sachs to act as our financial advisors. The engagement letter provided for a fixed fee payable upon signing a definitive agreement with respect to a transaction and a fee payable upon completion of the transaction equal to a fixed percentage of the value of the transaction plus a higher percentage if the price obtained in the transaction was greater than a specified price.  The agreement fee would be credited against this fee. Our board of directors, after discussions with our financial advisors and Sidley Austin LLP (referred to in this proxy statement as Sidley) as our legal advisors, decided to explore a possible transaction with Company A as well as contact potential financial and other strategic buyers, including other national retailers. The primary reason for deciding to explore a transaction at this time with national retailers was to determine whether the retail channel offered us significant strategic marketing opportunities. CD&R and another private equity sponsor were contacted as part of this process primarily to ensure that the process was competitive and included the value perspective of private equity investors. We signed confidentiality agreements with Company A, with two other national retailers (referred to in this proxy statement as Company B and Company C) and with CD&R. We provided each of Company A, Company B, Company C and CD&R with access to information contained in an electronic data room and made our senior management available for presentations. Each of such companies was subsequently asked to provide us with an indication of interest setting forth the price or price range at or within which the company would be interested in pursuing a transaction with us. Company B and Company C decided not to submit an indication of interest. Company A stated orally that it would not be submitting an indication of interest as it was finding it difficult to reach a $14.00 per share offer price. The then market price per share of our common stock was in the mid-$13.00 range. CD&R submitted a letter indicating an interest in acquiring ServiceMaster at a price per share in the range of $15.00 to $16.00. Our board of directors, with the assistance of our financial and legal advisors, carefully considered the alternatives available to our company. Our board decided that we should remain independent and pursue our strategic business plan.

On April 11, 2006, we received a letter from a strategic buyer (referred to in this proxy statement as Company D) in which Company D proposed a transaction in which each share of ServiceMaster common stock would be converted into a fixed number of shares of Company D stock (having an indicative value of $6.26, based on the closing price of Company D stock on that date) and $7.76 in cash for a combined indicative value of $14.02. Mr. Ward indicated to the chief executive officer of Company D that the bid was unacceptable to him but that the proposal would be considered by our board of directors at its regularly scheduled meeting on May 5, 2006.

On April 27, 2006, we received a second letter from Company D in which it revised its proposal to provide for a transaction in which each share of ServiceMaster common stock would be converted into the same fixed number of shares of Company D stock set forth in the April 11, 2006 letter (having an indicative value of $6.38, based on the closing price of Company D stock on April 27, 2006) and $8.00 in cash for a combined indicative value of $14.38.

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On May 5, 2006, our board of directors met in person. The board of directors discussed the first quarter results of operations, as well as the April 2006 results. Following this discussion, representatives of Morgan Stanley and Sidley joined the meeting to review the proposal from Company D. The representatives of Sidley summarized the fiduciary duties of the directors applicable to their consideration of the proposal from Company D. The representatives of Morgan Stanley discussed the proposal from Company D as well as various strategic alternatives potentially available to our company. In addition, Mr. Ward asked for permission to contact CD&R to see if it would be interested in participating in a management-led buy-out of our company. Following a discussion by the directors of the proposal from Company D and the strategic alternatives with our financial and legal advisors, the outside directors met in executive session. The board denied Mr. Ward’s request and preliminarily concluded to authorize Morgan Stanley to inform Company D that our company was not interested in pursuing the proposal from Company D. In addition, the outside directors, who had developed concerns regarding the timely and effective execution of our business plan, communicated to Mr. Ward the fact that they were considering making a change in the chief executive officer.

On May 9, 2006, our board of directors met by teleconference. Representatives of Sidley and members of our senior management were present. Following a discussion of the matters discussed at the May 5, 2006 board meeting, the directors reaffirmed their opposition to the proposal from Company D and authorized Morgan Stanley to inform Company D of that decision. Later that day, a representative of Morgan Stanley informed the financial advisor of Company D of our board’s decision regarding Company D’s proposal. Thereafter, the chief executive officer of Company D contacted Mr. Ward and requested a meeting with him. After discussion with members of our board, a meeting with the chief executive officer of Company D was scheduled for May 19, 2006.

On May 15, 2006, our board of directors met by teleconference. Our board of directors accepted the resignation of Mr. Ward as chairman and chief executive officer and as a director of our company and appointed J. Patrick Spainhour, a member of our board of directors, as interim chairman and chief executive officer. A press release to that effect was issued on the morning of May 16, 2006.

On May 19, 2006, Mr. Spainhour, Sidney E. Harris, our presiding director, and a member of senior management met with the chief executive officer of Company D, a member of the board of directors of Company D and an advisor to Company D. The representatives of Company D discussed the strategy of Company D in pursuing a transaction with our company as outlined in its letter of April 27, 2006 and repeated its interest in pursuing such a transaction. Mr. Spainhour indicated that because he was recently appointed interim chief executive officer, he needed time to review our company’s business plan and projections so he would be in a position to express a view of the proposal, from the perspective of his new role, to our board of directors.

On May 23, 2006, we received another letter from Company D in which the chief executive officer reaffirmed the April 27, 2006 proposal and indicated his company’s willingness to commence due diligence immediately. Based upon the closing price of Company D stock on May 23, 2006, the proposal then had an indicative value of $13.92.

On June 1, 2006, our board of directors met by teleconference. Representatives of Morgan Stanley and Sidley and members of senior management were also present for portions of the meeting. At this meeting, representatives of Sidley again discussed the fiduciary duties of the directors applicable to their consideration of the proposal from Company D. Representatives of Morgan Stanley discussed the proposal from Company D as well as various strategic alternatives available to our company. Mr. Spainhour summarized recent conversations he had with the chief executive officer of Company D, including the request that the Company D chief executive officer be permitted to meet with our board of directors. Our board of directors decided to grant his request for a meeting.

On June 6, 2006, the chief executive officer of Company A called Mr. Spainhour. He indicated that Company A remained interested in a possible transaction with our company.

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On June 22, 2006, our board of directors met in person with the chief executive officer and two other representatives of Company D. The Company D chief executive officer discussed the strategic direction of Company D and the synergies he saw from a combination with our company. After the Company D representatives left the meeting, our board of directors discussed the presentation by the Company D representatives with representatives of Morgan Stanley and Sidley and members of senior management.

On June 23, 2006, our board of directors met in person. Representatives of Morgan Stanley and Sidley and members of senior management were also present for portions of the meeting. Shortly before the start of the meeting, our board received a letter from Company D in which the chief executive officer of Company D thanked our board for meeting with him the previous day and indicated that he looked forward to our board’s response to the Company D proposal by June 30, 2006. He also stated that it was his present intention to take the proposal directly to our stockholders if the proposal was rejected. At the meeting, Mr. Spainhour updated the board on his review of our company and our businesses. Representatives of Morgan Stanley again reviewed, and the directors discussed, the proposal from Company D and the various strategic alternatives available to our company.

On June 27, 2006, our board of directors met by teleconference. Representatives of Morgan Stanley and Sidley and members of senior management were also present for portions of the meeting. Our board of directors discussed further the proposal from Company D and how to respond to it.

On June 30, 2006, our board of directors met by teleconference. Representatives of Morgan Stanley and Sidley and members of senior management were also present for portions of the meeting. Following a review of matters discussed at earlier board meetings, our board of directors decided to reject the proposal from Company D and to pursue our existing strategic business plan and authorized Mr. Spainhour to inform Company D of that decision. In addition, our board of directors elected Mr. Spainhour as our chairman and chief executive officer. Our board of directors also directed Mr. Spainhour and senior management to prepare a detailed and updated strategic business plan. Later that day, we issued a press release announcing Mr. Spainhour’s appointment, and Mr. Spainhour communicated the decision of our board of directors regarding the proposal of Company D to the chief executive officer of Company D.

On July 26, 2006, we received a letter from a large stockholder of our company (referred to in this proxy statement as Stockholder A). In the letter, Stockholder A recommended that we “begin a process immediately of exploring strategic alternatives to maximize shareholder value.”  Stockholder A noted that it reserved the right to make this letter public, but it never did so.  From time to time during the summer of 2006, we received similar suggestions from other of our large stockholders.

On July 28, 2006, our board of directors met in person at a regular meeting of the board. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of senior management were also present for portions of the meeting. At this meeting, representatives of Sidley discussed the fiduciary duties of the directors applicable to their consideration of the letter from Stockholder A. Representatives of Morgan Stanley and Goldman Sachs discussed the letter as well as various strategic alternatives available to our company. Also at this meeting, our board declared the third quarter 2006 cash dividend on our common stock in an amount that represented a nine percent increase from the second quarter dividend, and approved an increase in targeted share repurchases for the second half of 2006 that was more than double the amount previously anticipated for that period.

On August 16, 2006, Mr. Spainhour, Mr. Harris and two other members of our board of directors, Roberto R. Herencia, chairman of our audit and finance committee, and Coleman H. Peterson, chairman of our compensation and leadership development committee, and Ernest J. Mrozek, then our president and chief financial officer and now our vice chairman and chief financial officer, met with representatives of Stockholder A. Mr. Spainhour reminded Stockholder A’s representatives that our company had previously publicly indicated that Mr. Spainhour was leading a detailed update of our strategic business plan and would be reporting on that update at an investor conference to be scheduled for the fourth

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quarter of 2006. He urged Stockholder A’s representatives to give management, under his new leadership, time to complete that update.

On September 20, 2006, the president and chief executive officer of CD&R met with Mr. Spainhour in Memphis and indicated that CD&R remained interested in pursuing a possible transaction with our company.

On October 11, 2006, we announced that, based on preliminary results, our 2006 third quarter and 2006 full year performance would fall short of management estimates. Our common stock price closed at $10.91 per share that day, down 4.7% from the close on the previous day.

On October 27, 2006, our board of directors met by teleconference at a regular meeting of the board. Our board of directors approved a proposal to consolidate our corporate headquarters located in Downers Grove, Illinois into our operations headquarters in Memphis, Tennessee. A press release announcing the consolidation was issued on October 30, 2006.

On November 15, 2006, The Wall Street Journal published an article indicating that private equity firms were interested in taking our company private.

On November 16, 2006, Mr. Spainhour met with a representative of Newcastle Partners, L.P., a stockholder of our company (referred to in this proxy statement as Newcastle). Newcastle delivered a letter demanding access to all of our records relating to strategic alternatives being considered by our company and any proposals, indications or offers received by our company relating to our common stock or assets in excess of $250 million. Newcastle made this demand public.

On November 18, 2006, our board of directors met in person. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of senior management were also present for portions of the meeting. Mr. Spainhour and other members of senior management discussed in detail the updated three-year strategic business plan. Representatives of Morgan Stanley and Goldman Sachs discussed the various strategic alternatives available to our company. Following discussion among our directors and their advisors, our board of directors determined that it was advisable and in the best interests of our company and our stockholders to explore strategic alternatives to maximize stockholder value, including a possible sale of our company. Among the alternatives considered was the possible sale of our business units in separate transactions.  However, given the significant income taxes that we would expect to incur upon completion of such sales, our board of directors decided not to pursue this alternative.  Other alternatives considered included various spin-off and recapitalization transactions but our board of directors believed that the strategic alternative most likely to bring the greatest value to our stockholders was a sale of the company in its entirety. Our board of directors authorized our financial advisors to contact specified private equity sponsors and discussed the timing of contacting potential strategic buyers, as well as whether to publicly announce the board’s decision to explore strategic alternatives. Our board of directors also directed that senior management not have any discussions with potential buyers concerning post-acquisition employment terms until authorized by our board. No such discussions were so authorized until after the execution and delivery of the merger agreement.

Following the November 18, 2006 board meeting, at the direction of our board of directors, representatives of Morgan Stanley and Goldman Sachs contacted 11 private equity sponsors, including CD&R, to determine whether they were interested in pursing an acquisition of our company. Each of the sponsors was told that following the execution of a confidentiality agreement, we would furnish them certain non-public information about our company and would give them the opportunity to have a two-hour meeting with members of our senior management. Each was told that it would be asked to deliver by December 20, 2006, a letter indicating its interest in acquiring our company and at what price per share. Nine of the 11 sponsors contacted, including CD&R, entered into confidentiality agreements with our company and received non-public information from us. In addition, we or our financial advisors had contact with a number of potentially interested strategic acquirers, including Company A, Company B,

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Company C and Company D, to see if any of them had interest in pursuing a transaction with the Company. We subsequently entered into a confidentiality agreement only with Company C and one other strategic buyer; Company A, Company B and Company D declined to do so as they were not interested in pursuing a transaction with our company.

On November 25, 2006, our board of directors met by teleconference. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of senior management were also present for portions of the meeting. At the meeting, our board of directors approved a form of press release announcing the board’s decision to explore strategic alternatives and authorized the issuance of the press release prior to the commencement of an investor conference on November 28, 2006 at which members of our senior management were scheduled to discuss our updated three-year strategic business plan. In addition, representatives of Morgan Stanley and Goldman Sachs discussed the contacts that had been made with potential buyers since the November 18, 2006 board meeting.

On November 28, 2006, we issued the press release approved by our board of directors. In the release, we announced that our board of directors had decided to explore strategic alternatives designed to maximize value for shareholders and that our board had retained Morgan Stanley and Goldman Sachs as its financial advisors and Sidley as its legal advisor to assist the board in the process. On the same day, we presented our updated three-year business plan at an investor conference that was also webcast. On November 27, 2006, the day before the issuance of the press release, our common stock closed at $11.90 per share.

At various times following the November 28, 2006 announcement, we or our financial advisors were contacted by other private equity sponsors or potential strategic acquirers. In total, we entered into confidentiality agreements with 12 private equity sponsors and two strategic acquirers. Given our board’s determination not to pursue a sale of our business units in separate transactions, we did not enter into confidentiality agreements with any of the private equity sponsors or strategic acquirers who had indicated interest in pursuing an acquisition of only parts of our company.

On December 8, 2006, our board of directors met in person at a regularly scheduled meeting of the board. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of senior management were also present for portions of the meeting. At the meeting, our board received an update on the events that had occurred since the most recent board meeting. In addition, our board discussed the request of the two financial advisors that they be authorized to offer debt financing to all potential acquirers of our company, often referred to as “staple-on financing,” including the potential advantages and disadvantages of such financing. It was noted that no potential acquirer would be required to use either financial advisor as a debt financing source. Representatives of Sidley discussed with our board the potential conflict of interest that could arise from Morgan Stanley and Goldman Sachs acting both as financial advisors to us and as possible financing sources to potential acquirers and the safeguards that our company could undertake with respect to such a conflict, including obtaining a fairness opinion from an investment bank that was not making financing available to potential acquirers, and the commitment of the financial advisors to maintain procedures that would separate the financing teams and the teams advising our board of directors.  Our board decided that the sale process would be enhanced by the offer of staple-on financing because all potential bidders would have committed financing available if they chose to use the financing rather than seek better terms from other financing sources.  As a result, our board authorized the financial advisors to make staple-on financing available and decided to proceed with a process to identify a third investment bank to render a fairness opinion should that become necessary or desirable. Our board also reviewed and approved the terms of a revised engagement letter with Morgan Stanley and Goldman Sachs to replace the engagement letter with them that had been in effect since June 1, 2005. The revised engagement letter eliminated the requirement that the company pay a fee at the time of signing a definitive agreement and provided for payment of a transaction fee only upon completion of a transaction that is a fixed percentage of the value of the transaction.  The fixed percentage in the revised engagement letter is 0.2 percentage points higher than in the earlier engagement letter.  In addition, the revised

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engagement letter provides that the transaction fee would be reduced, up to a specified maximum, by the expense incurred by the company in retaining a third investment bank to render a fairness opinion if the financial advisors provided staple-on financing. The revised engagement letter was subsequently signed on December 20, 2006.

On December 12, 13 and 14, 2006, members of our senior management met separately with nine of the private equity sponsors, including CD&R, who had signed confidentiality agreements and been offered the opportunity of receiving a presentation about our company.

On December 20, 2006, we received indication of interest letters from seven of the private equity sponsors who had signed confidentiality agreements and one who had not. In addition, one strategic buyer delivered an indication of interest letter on December 21, 2006. The indicated price ranges contained in the letters were between $13.00 per share and $15.00 per share, with the letter from CD&R indicating a price range of $14.50 to $15.00 per share.

On December 21, 2006, our board of directors met by teleconference. Representatives of Morgan Stanley, Goldman Sachs, and Sidley and members of our senior management were also present. Representatives of Sidley again reviewed the fiduciary duties of the directors. Representatives of Morgan Stanley and Goldman Sachs discussed the indication of interest letters received prior to the meeting. They further discussed the fact that several of the private equity sponsors had indicated either a need or a desire to have one or more equity partners if they were to proceed and discussed the possible ways of trying to arrange for several potential bidding groups among the parties who delivered the indication of interest letters. Following discussion, our board authorized our financial advisors to have further discussions with the interested bidders to establish bidding groups. In addition, in light of the staple-on financing being offered by Morgan Stanley and Goldman Sachs to prospective buyers, our board authorized a committee of outside directors to select a third investment banking firm that would not be involved or potentially involved in the financing of a transaction for our company and that could be in a position to render an opinion as to the fairness from a financial point of view of the financial consideration to be received by our stockholders pursuant to any merger agreement we proposed to entered into.

Following the December 21, 2006 board meeting, at the direction of our board of directors, our financial advisors held discussions with the various parties who had delivered indication of interest letters. Those discussions resulted in the formation of three bidding groups: one group which included CD&R and another private equity sponsor, a second group (referred to in this proxy statement as Bidder A) comprised of two private equity sponsors and a strategic buyer, and a third group (referred to in this proxy statement as Bidder B) comprised of two private equity sponsors, one of which had not been contacted by us or our financial advisors and had not submitted an indication of interest, but subsequently entered into a confidentiality agreement at the request of its co-bidder.

On January 8, 2007, we made available to the bidding groups and their representatives an electronic data room containing diligence materials. We continued to add materials to the data room throughout the balance of the sale process.

On January 9, 2007, our board of directors met by teleconference. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of our senior management were also present. Our directors were advised as to the formation of the bidding groups, the opening of the electronic data room and the plan for the bidding groups to be invited to detailed management presentations.

On January 16, 17 and 22, 2007, our senior management made day-long presentations to each of the three bidding groups and their respective debt financing sources and their representatives. Thereafter and over the next several weeks, our financial advisors and senior management responded to a substantial number of questions and numerous requests for additional data received from the bidding groups.

On February 6, 2007, our financial advisors were advised that Bidder B had decided not to continue with the process because its valuation was below the per share price in its original indication of interest.

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On February 16, 2007, our board of directors met by teleconference. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of our senior management were also present. Representatives of Morgan Stanley and Goldman Sachs discussed the status of the due diligence being conducted by the two remaining bidding groups and discussed a possible timetable for when bids would be requested. Representatives of Sidley reviewed the draft merger agreement that had been sent to our board in advance of the meeting, noting that it was intended that the draft would be sent to the bidding groups at the time when the board authorized bids to be solicited.

On February 21, 2007, our financial advisors were advised by CD&R that its co-bidder had decided not to proceed with a bid for our company. We subsequently consented to CD&R contacting an additional party for purpose of providing equity financing in connection with CD&R’s bid.

On February 23, 2007, our board of directors met in person at a regular meeting of the board. Representatives of Morgan Stanley, Goldman Sachs and Sidley and members of our senior management were also present. Representatives of Morgan Stanley and Goldman Sachs updated the board on events since the previous meeting and discussed a possible timetable for when bids would be requested. Following discussion, our board authorized our financial advisors to distribute a letter to the two bidding groups, together with a copy of the draft merger agreement, and to invite bids to be submitted during the week of March 12, 2007. In addition, our board of directors approved the recommendation of the committee of outside directors formed to select a third investment banker and authorized us to retain Greenhill to undertake a study to enable it to render an opinion to our board with respect to the fairness from a financial point of view of the financial consideration to be received by our stockholders pursuant to any merger agreement we ultimately entered into.

On February 26, 2007, representatives of Morgan Stanley and Goldman Sachs distributed a bid procedures letter and a draft merger agreement, including a form of limited guaranty, to the two potential financial sponsors that were still actively engaged in the process, being CD&R and a financial sponsor previously part of the group referred to above as Bidder A whose co-bidders had previously determined not to proceed with a bid for our company. The bid procedures letter requested that proposals for the potential acquisition of our company, accompanied by equity and debt commitments, sponsor guaranties and a mark-up of the merger agreement, be submitted by March 14, 2007. In addition, we executed an engagement letter with Greenhill.

On March 7, 2007, Debevoise & Plimpton LLP, legal counsel for CDRSVM Parent, submitted a preliminary mark-up of the merger agreement to Sidley. The respective counsel discussed the mark-up on March 10, 2007.

On March 14, 2007, two investment funds managed by CD&R and their co-investors (referred to in this proxy statement collectively as the Initial Equity Sponsors) and Bidder A each submitted a proposal letter in response to the February 26, 2007 bid procedures letter. The Initial Equity Sponsors submitted a proposal to acquire our company for a price of $15.625 per share, accompanied by the requested equity and debt commitment letters and a marked-up merger agreement. Neither Morgan Stanley nor Goldman Sachs nor their respective affiliates were parties to the commitment letters.  The proposal letter indicated that, if selected to acquire our company, CD&R would contact Morgan Stanley and Goldman Sachs about becoming a part of the financing. Bidder A submitted a proposal to acquire our company for a price of $14.10 per share, accompanied by the requested equity and debt commitment letters and a marked-up merger agreement. Affiliates of Morgan Stanley and Goldman Sachs were among the financial institutions signing the debt commitment letters delivered by Bidder A.

On March 15, 2007, our board of directors met by teleconference. Representatives of Morgan Stanley, Goldman Sachs, Greenhill and Sidley and members of our senior management were also present. Representatives of Morgan Stanley and Goldman Sachs discussed the bids received and the nature and general terms of the equity and debt commitments that accompanied the bids. Representatives of Sidley described the nature of the marked-up merger agreements that accompanied the bids. Following

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discussion, our board directed counsel to negotiate the final terms of merger agreements with each of the two bidders. Our board directed representatives of Morgan Stanley and Goldman Sachs to inform the two bidders of the plan to hold a board meeting on the morning of March 18, 2007 to consider the bids and to determine if either bidder wished to provide any additional information before that scheduled meeting and otherwise confirm whether its bid was its best and final offer.

Following the March 15, 2007 board meeting, representatives of Morgan Stanley and Goldman Sachs communicated the board’s message to each of the bidder groups and representatives of Sidley commenced negotiations on the merger agreements with counsel for each of the bidder groups, which negotiations concluded late in the evening of March 17, 2007 with agreements that were in substantially final form.

On March 17, 2007, the Initial Equity Sponsors orally confirmed their earlier bid of $15.625 per share and that the bid was their best and final offer, and they also delivered a revised debt commitment letter from Citigroup Global Markets, Inc., J.P. Morgan Securities Inc., JPMorgan Chase Bank, N.A., Banc of America Securities LLC, Banc of America Bridge LLC and Bank of America, N.A. Bidder A delivered a revised proposal in which it increased its offer to $14.25 per share and also delivered a revised debt commitment letter. Bidder A orally confirmed that its increased bid was its best and final offer.

On March 18, 2007, our board of directors met in person. All of our directors were present except for Brian Griffiths, who was unavailable due to a previously scheduled event with the British Parliament where he is a member of the House of Lords. Representatives of Morgan Stanley, Goldman Sachs, Greenhill and Sidley and members of our senior management were also present. Representatives of Sidley again reviewed the fiduciary duties of the directors. Morgan Stanley and Goldman Sachs reviewed the events that had occurred since the last board meeting, discussed the equity and debt commitments delivered by the Initial Equity Sponsors and presented their financial analysis of the proposed merger with Merger Sub (the entity formed by the Initial Equity Sponsors to effect the merger). After responding to questions, each of Morgan Stanley and Goldman Sachs delivered to our board an oral opinion, which was subsequently confirmed by delivery of a written opinion, each dated March 18, 2007, that as of such date and based on and subject to the assumptions, procedures, factors, limitations and qualifications set forth in its respective written opinion, the $15.625 per share in cash to be received by the holders of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. Thereafter, Greenhill presented its financial analysis of the proposed merger with Merger Sub. After responding to questions, Greenhill delivered to our board an oral opinion, which was subsequently confirmed by delivery of a written opinion, dated March 18, 2007, that as of such date and based on and subject to the assumptions, procedures, factors, limitations and qualifications set forth in its written opinion, the $15.625 per share in cash to be received by the holders of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinions of Morgan Stanley, Goldman Sachs and Greenhill, which set forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken with such opinions, are attached as Appendix B, Appendix C and Appendix D to this proxy statement, respectively. Representatives of Sidley then reviewed the terms of the proposed merger agreement. Mr. Spainhour delivered the formal recommendation of senior management that our board approve the merger agreement.

After additional discussion, and taking into account the factors described below in greater detail under “—Reasons for the Merger; Recommendation of Our Board of Directors,” our board of directors unanimously (with one director absent) adopted resolutions which, among other things, approved the merger, the merger agreement and the other transactions contemplated by the merger agreement and resolved to recommend that our common stockholders vote for the adoption of the merger agreement.

Following the board meeting, ServiceMaster, CDRSVM Parent and Merger Sub executed the merger agreement. Before the opening of trading of ServiceMaster common stock on March 19, 2007, ServiceMaster issued a press release announcing the execution of the merger agreement. The material terms of the merger agreement are described below under “Terms of the Merger Agreement” beginning

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on page 58 of this proxy statement, which description is qualified in its entirety by reference to the merger agreement, which is attached as Appendix A to this proxy statement.

Reasons for the Merger; Recommendation of Our Board of Directors

In reaching its decision to approve the merger, our board of directors consulted with our management and its legal and financial advisors and has considered and evaluated a number of factors, including:

·       Our current and historical financial condition and results of operations.

·       Our current strategic business plan and related financial projections and the risks associated with our ability to meet such projections for future results of operations.

·       The other possible strategic alternatives to the merger, including continuing to operate on a stand-alone basis and to execute our strategic business plan, and the risks and uncertainties associated with such alternatives.

·       Our engagement in a competitive bid process during 2006 and the beginning of 2007 with the goal of maximizing shareholder value, which included:

·        the public announcement on November 28, 2006 that we had retained financial advisors to assist in exploring strategic alternatives, including a possible sale of the company;

·        the solicitation of indications of interest from numerous potential acquirers, including both financial sponsors and strategic buyers;

·        delivery of summary information to 14 potential buyers who entered into confidentiality agreements with our company, including 12 financial sponsors and two strategic buyers;

·        receipt of nine indications of interest in December 2006; and

·        submission by two potential acquirers in March 2007 of proposals to acquire ServiceMaster.

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·       The fact that during the publicly announced competitive bid process only one party other than the Initial Equity Sponsors made an offer to acquire ServiceMaster.

·       The relationship of the $15.625 per share cash merger consideration to the current trading price and the historical trading prices of our common stock, including:

·        The fact that the $15.625 per share cash merger consideration represents a 16.0% premium over the closing price of our common stock on March 16, 2007, the last trading day prior to the date of the merger agreement;

·        The fact that the $15.625 per share cash merger consideration represents a 31.0% premium over the closing price of our common stock on November 27, 2006, the last trading day before we announced that our board of directors would explore strategic alternatives; and

·        The fact that the $15.625 per share cash merger consideration represents a 38.5%  premium over the closing price of our common stock on November 14, 2006, the day before The Wall Street Journal published an article on rumors of a potential sale of ServiceMaster.

·       The relationship of the $15.625 per share cash merger consideration to the historical and projected earnings per share of the company.

·       The fact that the consideration to be received by our stockholders in the merger will consist entirely of cash, which will provide liquidity and certainty of value to our stockholders.

·       The qualifications of Morgan Stanley, Goldman Sachs and Greenhill and the financial presentations of Morgan Stanley and Goldman Sachs and of Greenhill, including the opinions of each of Morgan Stanley, Goldman Sachs and Greenhill to the effect that, as of March 18, 2007, based on and subject to the assumptions, procedures, factors, limitations and qualifications set forth therein, the $15.625 per share in cash to be received by the holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such stockholders.

·       The fact that our stockholders will be entitled to appraisal rights under Delaware law.

·       The terms and conditions of the merger agreement (which our board of directors believes would not preclude a superior proposal, as set forth in “Terms of the Merger Agreement—Special Meeting of ServiceMaster’s Stockholders; Recommendation of Our Board of Directors”), and the course of negotiation thereof, including:

·        the closing conditions to the merger, including the fact that the obligations of CDRSVM Parent and Merger Sub under the agreement are not subject to a financing condition;

·        the structure of the transaction as a merger which will result in detailed public disclosure and a period of time prior to the stockholder vote on the merger during which an unsolicited superior proposal could be made;

·        our right to engage in negotiations with, and provide information to, a third party that makes an unsolicited acquisition proposal if the board of directors, or any committee thereof, determines in good faith, after consultation with its financial advisors and outside counsel, that such proposal could reasonably be expected to result in a transaction that is more favorable to our stockholders than the merger;

·        our right to terminate the merger agreement in order to accept a superior proposal, subject to certain conditions, including the right of CDRSVM Parent to match a takeover proposal, and the payment by us of the Company termination fee;

·        our right to terminate the merger agreement following the occurrence of an intervening event, if the board of directors determines in good faith, after consultation with its financial advisors, that failure to withdraw or modify its recommendation of the merger would be reasonably likely to be inconsistent with its fiduciary obligations to our stockholders, subject to certain conditions and the payment by us of the Company termination fee;

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·        our right to receive a termination fee from CDRSVM Parent if CDRSVM Parent fails to obtain its financing proceeds; and

·        the termination fee and expense reimbursement provisions of the merger agreement, including the belief of our board of directors, after discussion with its advisors, that the termination fee and expenses that may be payable by us to CDRSVM Parent in connection with a termination were within the range of termination fees and expenses payable in similar transactions.

·       The belief of our board of directors, after discussions with its advisors, that the presence of the Initial Equity Sponsors in the transaction would not deter strategic buyers from expressing an interest in acquiring ServiceMaster or making a superior proposal with respect to ServiceMaster.

·       The nature of the financing commitments received with respect to the merger by CDRSVM Parent and, in the case of the debt financing, Merger Sub, including (1) the conditions to the obligations of the institutions providing such commitments to fund their commitments and (2) the identities of those institutions and their experience in consummating transactions such as those contemplated by the merger agreement.

·       A guarantee of CDRSVM Parent’s and Merger Sub’s obligations under the merger agreement of up to $200 million in the aggregate by the Initial Equity Sponsors under certain circumstances.

·       The careful review of the representations and warranties in the merger agreement, and the preparation of our disclosure letter, by our management team and our outside counsel.

The board of directors has also considered a variety of risks and other potentially negative factors concerning the merger. These factors included the following:

·       The fact that, following the merger, our public stockholders will cease to participate in any future earnings growth of ServiceMaster or benefit from any future increase in its value.

·       The fact that the ability of CDRSVM Parent and Merger Sub to complete the merger is effectively subject to the receipt of debt financing by Merger Sub, and that such debt financing may not be available for reasons beyond our control or the control of Merger Sub.

·       Our remedy for any willful breach of the merger agreement by CDRSVM Parent or Merger Sub is limited to the $200 million in guarantees and is otherwise limited to the $100 million CDRSVM Parent termination fee in the event that the proceeds of the financing sufficient to pay the merger consideration and consummate the transactions contemplated by the merger agreement are not obtained.

·       The fact that completion of the merger is subject to certain closing conditions, including regulatory approvals.

·       The fact that, for United States federal income tax purposes, the cash merger consideration will be taxable to the stockholders entitled to receive such consideration.

·       The possible disruption to our business that may result from the announcement of the merger and the resulting distraction of the attention of our management.

·       The relatively high degree of leverage on ServiceMaster as a result of the financing structure to effect the merger and the resulting risk of a potential fraudulent conveyance in the event of a failure of ServiceMaster following the merger. In mitigation of this risk, the board of directors considered analyses that show that ServiceMaster should be able to support the level of leverage contemplated by the financing for the merger, the closing condition of the receipt of a solvency letter and the terms of the financing.

·       The restrictions on the conduct of our business prior to completion of the merger which could delay or prevent us from undertaking business opportunities that may arise pending completion of the merger.

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The foregoing discussion of the information and factors considered by our board of directors is not intended to be exhaustive but, we believe, includes all material factors considered by our board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, our board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative or specific weight or values to any of these factors. In addition, individual directors may have given different weight to different factors.

Based on the factors outlined above, our board of directors determined that the merger agreement and the merger are fair to holders of our common stock.

Our board of directors believes that the merger is advisable to, fair to and in the best interests of holders of ServiceMaster common stock. Our board of directors recommends that you vote “FOR” adoption of the merger agreement.

Opinions of ServiceMaster’s Financial Advisors

ServiceMaster’s board of directors retained both Morgan Stanley and Goldman Sachs as financial advisors because each of Morgan Stanley and Goldman Sachs is an internationally recognized investment banking firm with experience in transactions similar to the merger. At the meeting of ServiceMaster’s board of directors on March 18, 2007, each of Morgan Stanley and Goldman Sachs rendered its oral opinion, subsequently confirmed in writing, that as of March 18, 2007, and based upon and subject to the various considerations set forth in its opinion, the $15.625 per share in cash to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinions of Morgan Stanley and Goldman Sachs, each dated as of March 18, 2007, are attached to this proxy statement as Appendix B and C, respectively. The opinions set forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley and Goldman Sachs in rendering their opinions. We encourage you to read the opinions carefully. The opinions of Morgan Stanley and Goldman Sachs are directed to ServiceMaster’s board of directors and address only the fairness from a financial point of view of the consideration to be received by the holders of shares of ServiceMaster common stock as of the date of the opinions. The opinions do not address any other aspects of the transaction and do not constitute recommendations to any holder of shares of ServiceMaster common stock as to how to vote at the stockholders’ meeting to be held in connection with this transaction. The summaries of the opinions of Morgan Stanley and Goldman Sachs set forth in this proxy statement are qualified in their entirety by reference to the full text of the opinions.

Opinion of Morgan Stanley

Morgan Stanley rendered its oral opinion (subsequently confirmed in writing as set forth in Appendix B to this proxy statement) to ServiceMaster’s board of directors that, as of March 18, 2007 and based upon and subject to the considerations and limitations set forth in the opinion, the $15.625 per share cash merger consideration to be received by the holders of shares of ServiceMaster common stock was fair from a financial point of view to such holders.

The full text of the written opinion of Morgan Stanley, dated March 18, 2007, is attached to this proxy statement as Appendix B. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. The opinion of Morgan Stanley is directed to ServiceMaster’s board of directors and addresses only the fairness from a financial point of view of the merger consideration to be received by holders of shares of ServiceMaster common stock as of the date of the opinion. The opinion does not address any other aspects of the transaction and does not constitute a recommendation to any holder of ServiceMaster common stock as to how to vote with respect to the merger. The summary of the opinion of

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Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

In connection with rendering its opinion, Morgan Stanley, among other things:

(a)   reviewed certain publicly available financial statements and other business and financial information of ServiceMaster;

(b)   reviewed certain internal financial statements and other financial and operating data concerning ServiceMaster prepared by the management of ServiceMaster;

(c)   reviewed certain financial projections prepared by the management of ServiceMaster;

(d)   discussed the past and current operations and financial condition and the prospects of ServiceMaster with senior executives of ServiceMaster;

(e)   reviewed the reported prices and trading activity of ServiceMaster’s common stock;

(f)    compared the financial performance of ServiceMaster and the prices and trading activity of ServiceMaster’s common stock with that of certain other comparable publicly-traded companies and their securities;

(g)   reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

(h)   participated in discussions and negotiations among representatives of ServiceMaster and CDRSVM Parent and their financial and legal advisors;

(i)    reviewed the merger agreement and certain related documents; and

(j)    performed such other analyses and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information supplied or otherwise made available to it by ServiceMaster for the purposes of its opinion. With respect to the financial projections, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of ServiceMaster. In addition, Morgan Stanley assumed that the acquisition will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions. Morgan Stanley also assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the merger. Morgan Stanley is not a legal, tax, regulatory or actuarial advisor. Morgan Stanley is a financial advisor only and has relied upon, without independent verification, the assessment of ServiceMaster and its legal, tax, regulatory and actuarial advisors with respect to such matters. Morgan Stanley made no independent valuation or appraisal of the assets or liabilities of ServiceMaster, nor was it furnished with any such appraisals.

The opinion does not address the relative merits of the merger as compared to alternative transactions or strategies that might be available to ServiceMaster, or the underlying business decision of ServiceMaster to enter into the merger. The opinion of Morgan Stanley was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, March 18, 2007.

Opinion of Goldman Sachs

Goldman Sachs rendered its oral opinion (subsequently confirmed in writing as set forth in Appendix C to this proxy statement) to ServiceMaster’s board of directors that, as of March 18, 2007, and based upon and subject to the assumptions, procedures, factors, limitations and qualifications set forth in such opinion, the $15.625 per share in cash to be received by the holders of shares of ServiceMaster common stock was fair from a financial point of view to such holders.

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The full text of the written opinion of Goldman Sachs, dated March 18, 2007, which sets forth the assumptions made, procedures followed, factors considered and limitations and qualifications of the review undertaken in connection with the opinion, is attached as Appendix C to this proxy statement. Goldman Sachs provided its advisory services and opinion for the information and assistance of ServiceMaster’s board of directors in connection with its consideration of the merger. Goldman Sachs’ opinion is not a recommendation as to how any holder of shares of ServiceMaster common stock should vote with respect to the merger. The summary of the opinion of Goldman Sachs set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

·       the merger agreement;

·       annual reports to stockholders and Annual Reports on Form 10-K of ServiceMaster for the five years ended December 31, 2006;

·       certain interim reports to stockholders and Quarterly Reports on Form 10-Q of ServiceMaster;

·       certain other communications from ServiceMaster to its stockholders; and

·       certain internal financial analyses and forecasts for ServiceMaster prepared by its management.

Goldman Sachs also held discussions with members of the senior management of ServiceMaster regarding their assessment of the past and current business operations, financial condition and future prospects of ServiceMaster. In addition, Goldman Sachs reviewed the reported price and trading activity for ServiceMaster common stock, compared certain financial and stock market information for ServiceMaster with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the commercial and consumer services industries specifically, and in other industries generally, and performed such other studies and analyses, and considered such other factors, as Goldman Sachs considered appropriate.

Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by it, and assumed such accuracy and completeness for purposes of rendering its opinion. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of ServiceMaster or any of its subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of ServiceMaster or any of its subsidiaries furnished to Goldman Sachs. Goldman Sachs did not express any opinion as to the impact of the merger on the solvency or the viability of the surviving corporation or the ability of the surviving corporation to pay its obligations when they become due.

Goldman Sachs’ opinion did not address the underlying business decision of ServiceMaster to engage in the merger. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, March 18, 2007.

Financial Analyses of ServiceMaster’s Financial Advisors

A description of the material financial analyses jointly performed by Morgan Stanley and Goldman Sachs in connection with the preparation of their respective fairness opinions is set forth below. The following summary does not, however, purport to be a complete description of all the financial analyses performed by Morgan Stanley and Goldman Sachs in connection with their respective fairness opinions. The order of the analyses described does not represent relative importance or weight given to those analyses by Morgan Stanley and Goldman Sachs. The summary includes information presented in tabular format. In order to more fully understand the financial analyses used by Morgan Stanley and Goldman Sachs, the tables must be read together with the full text of each summary. The tables alone are not a complete description of Morgan Stanley’s and Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent based on market data, is based on market data as it existed on or before March 16, 2007, and is not necessarily indicative of current market conditions.

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Historical Stock Trading Range Analysis.   Morgan Stanley and Goldman Sachs performed a trading range analysis to provide background and perspective on the historical stock prices and trading volume of ServiceMaster common stock. Morgan Stanley and Goldman Sachs reviewed the closing prices and trading volume of ServiceMaster common stock for various periods ending March 16, 2007, the last full trading day prior to the meeting of ServiceMaster’s board of directors to consider the merger. Morgan Stanley and Goldman Sachs also reviewed the closing price of ServiceMaster common stock on November 14, 2006, the last public trading date before a rumor of a possible sale of the company was discussed publicly in an article in The Wall Street Journal. Morgan Stanley and Goldman Sachs observed the following:

 

 

This analysis indicated that the $15.625 per share cash merger consideration to be received by the holders of ServiceMaster common stock pursuant to the merger agreement represented:

·       A premium of 38.5%, based on the closing market price of $11.28 per share of common stock as of November 14, 2006 (one day prior to the release of the article in The Wall Street Journal discussing a possible sale of the company);

·       A premium of 16.0%, based on the closing market price of $13.47 per share of common stock as of March 16, 2007;

·       A premium of 11.7%, based on the high price of $13.99 per share of common stock for the twelve month period ended March 16, 2007; and

·       A premium of 61.7%, based on the low price of $9.66 per share of common stock for the twelve month period ended March 16, 2007.

Morgan Stanley and Goldman Sachs noted that the consideration to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement was $15.625 per share.

Review of Equity Research Analysis.   Morgan Stanley and Goldman Sachs reviewed future price targets for the price per share of ServiceMaster common stock in Wall Street research reports published by selected equity research analysts. Morgan Stanley and Goldman Sachs noted that the range of future common stock price targets published by the selected equity research analysts for ServiceMaster was $13.00 to $15.00. This range was based upon the price targets of the four equity research analysts who had published such data as of March 16, 2007. Morgan Stanley and Goldman Sachs applied a discount rate of 10% (ServiceMaster’s estimated cost of equity capital) to the $14.00 median of the four price targets. Based upon this analysis, Morgan Stanley and Goldman Sachs estimated a value per share of ServiceMaster common stock of $12.73. Morgan Stanley and Goldman Sachs noted that the consideration to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement was $15.625 per share.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for ServiceMaster’s common stock and these estimates are subject to uncertainties, including the future financial performance of ServiceMaster and future financial market conditions.

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Selected Comparable Companies Analysis.   Morgan Stanley and Goldman Sachs performed a selected comparable companies analysis, which attempts to provide an implied value of a company by comparing it to similar selected comparable companies. Morgan Stanley and Goldman Sachs compared certain financial information of ServiceMaster with publicly available consensus equity research estimates for other companies that shared similar business characteristics of ServiceMaster. Specifically, Morgan Stanley and Goldman Sachs selected companies in the broadly defined commercial and consumer services industries. Morgan Stanley and Goldman Sachs then omitted certain of those companies based on the amount of their revenues, the size of their market capitalization or other characteristics that made them dissimilar to ServiceMaster. Morgan Stanley and Goldman Sachs also omitted certain companies that may offer services similar to ServiceMaster’s services but were not directly comparable to ServiceMaster due to the diversification of such companies’ businesses among other characteristics. The selected comparable companies used in this analysis were:

·       Cintas Corporation;

·       Compass Group PLC;

·       Ecolab, Inc.;

·       Rentokil Initial PLC;

·       Rollins, Inc.; and

·       Sodexho Alliance SA.

For purposes of this analysis, Morgan Stanley and Goldman Sachs analyzed the following statistics of each of these selected companies for comparison purposes:

·       the ratio of (1) aggregate value, defined as the sum of market capitalization and total debt less cash and cash equivalents, referred to in this proxy statement as net debt, to (2) estimated earnings before interest, taxes, depreciation and amortization, referred to in this proxy statement as EBITDA, for calendar years 2007 and 2008; and

·       the ratio of price to estimated earnings for calendar years 2007 and 2008.

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Based on the analysis of the relevant financial multiples and ratios for each of the comparable companies, Morgan Stanley and Goldman Sachs selected representative ranges of financial multiples for the selected companies and applied this range of multiples to the corresponding ServiceMaster financial statistic. Morgan Stanley and Goldman Sachs used estimates of EBITDA and earnings per share, referred to in this proxy statement as EPS, for calendar years 2007 and 2008 derived from publicly available equity research sources as of March 16, 2007, the last full trading day prior to the meeting of ServiceMaster’s board of directors to consider the merger. Morgan Stanley and Goldman Sachs then calculated an implied value per share of ServiceMaster common stock based on the selected range of ratios of aggregate value to EBITDA and price to estimated earnings by (1) multiplying ServiceMaster’s estimated EBITDA for calendar years 2007 and 2008, adjusted to include interest income and investment income, primarily related to the required reserve balances maintained by the subsidiaries of ServiceMaster comprising its American Home Shield segment, referred to in this proxy statement as ServiceMaster’s Adjusted EBITDA, by the selected range of ratios of aggregate value to EBITDA and (2) multiplying ServiceMaster’s estimated earnings for calendar year 2007 and 2008 by the selected range of ratios of price to estimated earnings, then, in each case, subtracting ServiceMaster’s net debt and then dividing by the number of shares of ServiceMaster common stock outstanding, calculated on a fully-diluted basis, as provided by ServiceMaster management. The results of this analysis are depicted in the table below:

 

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Morgan Stanley and Goldman Sachs noted that the consideration per share to be received by holders of ServiceMaster common stock pursuant to the merger agreement was $15.625.

No company utilized in the selected comparable companies analysis is identical or directly comparable to ServiceMaster. In evaluating the selected companies, Morgan Stanley and Goldman Sachs made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of ServiceMaster, such as the impact of competition on the businesses of ServiceMaster and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of ServiceMaster or the industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using peer group data.

Precedent Transactions Analysis.   Morgan Stanley and Goldman Sachs also performed a precedent transactions analysis, which attempts to provide an implied value of a company based on publicly available financial terms and premium of selected transactions that share certain characteristics with the relevant transaction. In connection with its analysis, Morgan Stanley and Goldman Sachs compared publicly available statistics for 18 selected commercial and consumer services transactions with transaction values between $100 million and $10 billion announced between August 8, 1996 and March 16, 2007, the most recent of which was publicly announced on November 16, 2006. Morgan Stanley and Goldman Sachs selected these precedent transactions based on the fact that the target companies were in the commercial and/or consumer services sector, the same broader industries as ServiceMaster. The following is a list of these transactions:

Selected Precedent Transactions (Target / Acquirer)

·       Brickman Group Ltd. / Leonard Green & Partners, L.P.

·       ARAMARK Corporation / CCMP Capital Advisors, LLC; Goldman Sachs Group, Merchant Banking Division; J.P. Morgan Partners, LLC; Thomas H. Lee Partners, L.P.; Warburg Pincus, LLC

·       Elior S.A. / Holding Bercy International

·       J.C. Ehrlich Co., Inc. / Rentokil Initial PLC

·       ISS A/S / EQT Partners; Goldman Sachs Group, Merchant Banking Division

·       Tempo Services Ltd. / Pacific Services Solutions Pty Ltd.

·       Wickes Ltd. / Travis Perkins PLC

·       Dyno-Rod UK / Centrica PLC

·       Western Pest Services / Rollins, Inc.

·       IMO Car Wash Group Ltd. / J.P. Morgan Partners, LLC

·       Comfort Systems USA (Subsidiary Companies) / EMCOR Group, Inc.

·       Management Services Division of ServiceMaster Co. / ARAMARK Corporation

·       Crothall Services Group, Inc. / Compass Group PLC

·       Building One Services Corporation / Group Maintenance America Corporation

·       Service Experts, Inc. / Lennox International, Inc.

·       American Residential Services, LLC / ServiceMaster Co.

·       LandCare USA, Inc. / ServiceMaster Co.

·       Roto-Rooter, Inc. / Chemed Corporation

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For each transaction listed above, Morgan Stanley and Goldman Sachs derived the aggregate values for the transaction, defined as market capitalization plus net debt, divided by last twelve months (“LTM”) EBITDA and LTM earnings before interest and taxes, referred to in this proxy statement as EBIT, of the target company, resulting in a reference range for the selected transactions. The resulting ratio of aggregate value to LTM EBITDA multiple range for the selected group of transactions was 5.9x to 14.6x with a median of 9.8x. The resulting aggregate value to LTM EBIT multiple range was 7.3x to 49.4x with a median of 13.7x. Morgan Stanley and Goldman Sachs selected a representative ratio of aggregate value to LTM EBITDA multiple range of 9.0x to 11.0x and an aggregate value to LTM EBIT multiple range of 11.0x to 13.0x based on the precedent transactions listed above and applied that range to the LTM (the period of January 1, 2006 to December 31, 2006 for the purposes of this analysis) Adjusted EBITDA of ServiceMaster and EBIT of ServiceMaster, adjusted to include interest income and investment income, primarily related to the required reserve balances maintained by the subsidiaries of ServiceMaster comprising its American Home Shield segment, referred to in this proxy statement as ServiceMaster’s Adjusted EBIT. The results of this analysis are depicted in the table below.

 

Morgan Stanley and Goldman Sachs noted that the consideration per share to be received by holders of shares of ServiceMaster common stock pursuant to the merger agreement was $15.625.

No company or transaction utilized in the precedent transactions analysis is identical to ServiceMaster or the merger. In evaluating the precedent transactions, Morgan Stanley and Goldman Sachs made judgments and assumptions with regard to general business, market and financial conditions and other matters, which are beyond the control of ServiceMaster, such as the impact of competition on the business of ServiceMaster or the industry generally, industry growth and the absence of any adverse material change in the financial condition of ServiceMaster or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared.

Discounted Cash Flow Analysis   Using ServiceMaster management’s financial forecasts for fiscal years 2007 to 2009, which included the impact of the utilization of ServiceMaster’s deferred tax asset for calendar years 2007 through 2009, and extrapolations of those projections for calendar years 2010 through 2011, Morgan Stanley performed an analysis of the present value of the free cash flows, discounted to April 1, 2007, that ServiceMaster could generate from 2007 and beyond. Morgan Stanley discounted the unlevered free cash flows of ServiceMaster at ServiceMaster’s estimated weighted average cost of capital of 9.0%-11.0%, derived by applying the capital asset pricing model and utilizing ServiceMaster’s current after-tax average debt borrowing rate and capital structure. Morgan Stanley assumed terminal values based on a range of multiples of 9.0-10.0x estimated fiscal 2011 Adjusted EBITDA, based on a combination of multiples derived from the comparable company analysis discussed above.

Based on the foregoing, Morgan Stanley calculated an implied value per share range of ServiceMaster common stock of approximately $14.80 to $16.20, as compared to the $15.625 per share in cash to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement.

Using ServiceMaster management’s financial forecasts for fiscal years 2007 to 2009, Goldman Sachs performed an analysis of the present value of the free cash flows, discounted to April 1, 2007, that ServiceMaster could generate from 2007 and beyond. Goldman Sachs assumed a range of discount rates from 9.0% to 11.0%. The estimated weighted average cost of capital range used was derived by applying the capital asset pricing model and utilizing ServiceMaster’s current after-tax average debt borrowing rate and capital structure. The discounted cash flow analysis determined the discounted present value of the

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unlevered free cash flow generated over the period covered by ServiceMaster management’s financial forecasts,including the estimated present value of ServiceMaster’s deferred tax asset, and then added a terminal value based on a range of multiples of estimated fiscal year 2009 Adjusted EBITDA of 9.0x to 11.0x, based on a combination of multiples derived from the comparable company analysis discussed above.

Based on the foregoing, Goldman Sachs calculated an implied value per share range of ServiceMaster common stock of approximately $13.40 to $16.20, as compared to the $15.625 per share in cash to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement.

Present Value of Future Stock Price Analysis.   Morgan Stanley and Goldman Sachs performed a present value of future stock price analysis, which is designed to provide insight into the future value of a company’s common stock as a function of the company’s future earnings and its current forward price to EPS multiple, plus estimated dividends payable over the period, which value is subsequently discounted by a selected discount rate to arrive at a present value for the company’s stock price. In connection with this analysis, Morgan Stanley and Goldman Sachs calculated a range of present equity values per share for ServiceMaster’s common stock. To calculate the discounted equity value, Morgan Stanley and Goldman Sachs utilized ServiceMaster management’s financial forecasts for calendar years 2007 to 2009. Morgan Stanley and Goldman Sachs multiplied forecasted EPS for calendar years 2008 to 2009 from the management forecasts by the range of price to EPS ratios obtained from ServiceMaster’s observed historical and current multiples and the selected companies analysis to derive a range of future values per share of ServiceMaster common stock. Morgan Stanley and Goldman Sachs then discounted this range of future values per share by a discount rate of 10.0% to derive a range of present values per share. Morgan Stanley and Goldman Sachs selected the discount rate based on their estimates of the cost of equity capital of ServiceMaster. The present value of estimated future dividends paid to ServiceMaster shareholders was based on management projections for dividends paid through the aforementioned dates and was also calculated using ServiceMaster’s estimated cost of equity capital of 10%. Based upon and subject to the foregoing, Morgan Stanley and Goldman Sachs estimated a valuation range per share of ServiceMaster common stock of $12.20 to $13.30.

Morgan Stanley and Goldman Sachs noted that the consideration per share to be received by holders of shares of ServiceMaster common stock pursuant to the merger agreement was $15.625.

Leveraged Buyout Analysis.   Using ServiceMaster management’s financial forecasts for fiscal years 2007 to 2009 and extrapolations of those projections for calendar years 2010 and 2011, which were calculated by Morgan Stanley, Morgan Stanley also analyzed ServiceMaster from the perspective of a potential purchaser that was primarily a financial buyer that would effect a leveraged buyout of ServiceMaster using a debt capital structure consistent with the merger. Based on its experience, Morgan Stanley assumed that a financial buyer would value its ServiceMaster investment in calendar year 2011 at an aggregate value range that represented multiples of calendar year 2011 Adjusted EBITDA ranging from 9.0x to 12.0x. Morgan Stanley then calculated ServiceMaster’s calendar year 2011 equity value range by adding ServiceMaster’s forecasted calendar year 2011 cash balance and subtracting ServiceMaster’s forecasted 2011 debt outstanding. Based on the calendar year 2011 equity value range for ServiceMaster calculated by Morgan Stanley and Morgan Stanley’s assumption, based on its experience, that financial sponsors would likely target 5-year internal rates of return ranging from approximately 20% to approximately 25%, Morgan Stanley derived estimated implied values per share that a financial sponsor might be willing to pay to acquire ServiceMaster ranging from $14.50 to $16.00, as compared to the $15.625 per share in cash to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement.

Using ServiceMaster management’s financial forecasts for fiscal years 2007 to 2009, Goldman Sachs also analyzed ServiceMaster from the perspective of a potential purchaser that was primarily a financial buyer that would effect a leveraged buyout of ServiceMaster using a debt capital structure consistent with

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the merger. Goldman Sachs assumed that a financial buyer would value its ServiceMaster investment in calendar year 2009 at an aggregate value range that represented multiples of calendar year 2009 Adjusted EBITDA ranging from 9.0x to 12.0x. Goldman Sachs then calculated ServiceMaster’s calendar year 2009 equity value range by adding ServiceMaster’s forecasted calendar year 2009 cash balance and subtracting ServiceMaster’s forecasted 2009 debt outstanding. Based on the calendar year 2009 equity value range for ServiceMaster calculated by Goldman Sachs, assuming, given that ServiceMaster’s management financial forecasts were limited to 2007 to 2009, 3-year internal rates of return ranging from approximately 20% to approximately 25%, Goldman Sachs derived estimated implied values per share that a financial buyer might be willing to pay to acquire ServiceMaster ranging from $13.25 to $15.75, as compared to the $15.625 per share in cash to be received by the holders of shares of ServiceMaster common stock pursuant to the merger agreement.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Morgan Stanley’s opinion and Goldman Sachs’ opinion. In arriving at its fairness determination, each of Morgan Stanley and Goldman Sachs considered the results of all the analyses as a whole and did not attribute any particular weight to any factor or analysis considered by it.  As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s or Goldman Sachs’ views of the actual value of ServiceMaster.  No company or transaction used in the above analyses as a comparison is directly comparable to ServiceMaster or the contemplated merger.

Morgan Stanley and Goldman Sachs conducted these analyses described above solely as part of their analysis of the fairness of the merger consideration pursuant to the merger agreement for purposes of providing their opinions to ServiceMaster's board of directors as to the fairness from a financial point of view to the holders of shares of ServiceMaster common stock and in connection with the delivery of their opinions to ServiceMaster’s board of directors. These analyses described above do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous assumptions, factors or events, including with respect to industry performance, general business and economic conditions and other matters, beyond the control of the parties or their respective advisors, none of ServiceMaster, Morgan Stanley, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast. As described above, Morgan Stanley’s opinion and Goldman Sachs’ opinion to ServiceMaster’s board of directors were two of many factors taken into consideration by ServiceMaster’s board of directors in making its determination to approve the merger agreement.

The $15.625 per share in cash to be paid to the holders of shares of ServiceMaster common stock in the merger was determined through arm’s-length negotiations between ServiceMaster and CDRSVM Parent and was approved by ServiceMaster’s board of directors. Morgan Stanley and Goldman Sachs each provided advice to ServiceMaster during these negotiations. Morgan Stanley and Goldman Sachs did not, however, recommend any specific amount of consideration to ServiceMaster or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the proposed merger.

Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in performing financial analysis with respect to businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for corporate, estate and other purposes. In the past, Morgan Stanley and its affiliates have provided financial advisory services for ServiceMaster and CD&R and its affiliates and have received fees from CD&R and its affiliates for the

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rendering of these services. Morgan Stanley may also seek to provide such services to ServiceMaster and CD&R and its affiliates in the future and will seek to receive fees for the rendering of these services. In addition, Morgan Stanley and its affiliates, directors or officers, including individuals working with ServiceMaster in connection with this transaction, may have committed and may commit in the future to invest in private equity funds managed by affiliates of CD&R.

Morgan Stanley is a full services securities firm engaged in securities trading, investment management and brokerage services. In the ordinary course of its trading, brokerage, investment management and financing activities, Morgan Stanley or its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for their own account or the accounts of customers, in debt or equity securities or senior loans of ServiceMaster or any other company or any currency or commodity that may be involved in this transaction. In addition, with the authorization of ServiceMaster’s board of directors, Morgan Stanley Senior Fundings, Inc., an affiliate of Morgan Stanley, made available to CDRSVM Parent and other potential bidders a financing package in connection with the merger.

Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs has acted as financial advisor to ServiceMaster in connection with, and has participated in certain of the negotiations leading to the merger. In addition, Goldman Sachs has provided certain investment banking services to ServiceMaster from time to time. In addition, with the authorization of ServiceMaster’s board of directors, Goldman Sachs Credit Partners L.P., an affiliate of Goldman Sachs, made available to CDRSVM Parent and other potential bidders a financing package in connection with the merger.

Goldman Sachs has provided and is currently providing investment banking services to the Initial Equity Sponsors and their respective affiliates or portfolio companies, including having (i) acted as financial advisor to Riverwood Holding Inc., a former portfolio company of CD&R, in its merger with Graphic Packaging International Corp., in August 2003, (ii) participated in bank loan financings for North American Van Lines, Inc., a subsidiary of a portfolio company of CD&R, in November 2003, July 2005 and March 2006; (iii) acted as a lead manager for the initial public offering of common stock of SIRVA, Inc., a portfolio company of CD&R, in November 2003, and as a lead manager for a follow-on offering of common stock of SIRVA, Inc. in June 2004, (iv) acted as financial advisor to Kinko’s Inc., a former portfolio company of CD&R, in its sale to FedEx Corp. in February 2004, (v) participated in the bank loan, bridge loan, asset securitization and high yield financings and re-financings related to the acquisition of The Hertz Corporation, a portfolio company of CD&R, between December 2005 and June 2006, (vi) acted as financial advisor to Transguard Insurance Company of America, Inc., a former subsidiary of a portfolio company of CD&R, in connection with its sale in December 2005; (vii) acted as lead book-runner for the initial public offering of common stock of Hertz Global Holdings, Inc., a company in which CD&R-affiliated investment funds hold a substantial minority interest, in November 2006; (viii) participated in a mortgage securitization for Bank of America Commercial Mortgage Inc., an affiliate of Bank of America Corporation, in July 2006, and (ix) acted as lead manager on the sale of common stock of Warner Chilcott Limited, a former portfolio company of J.P. Morgan Partners, a former affiliate of JPMorgan Chase & Co., and a company in which affiliates of JPMorgan Chase & Co. continue to hold a minority interest, in September 2006.  In addition, Brian Griffiths, a director of ServiceMaster, is an international advisor to Goldman Sachs International Ltd., an affiliate of Goldman Sachs.

Goldman Sachs also may provide investment banking services to ServiceMaster and the Initial Equity Sponsors and their respective affiliates or portfolio companies in the future. In connection with the above-described investment banking services Goldman Sachs has received, and may receive, compensation. Affiliates of Goldman Sachs have invested and co-invested, and may invest and co-invest in the future, with affiliates of the Initial Equity Sponsors. As part of such investments, private equity funds managed by an

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affiliate of Goldman Sachs are investors in funds managed by CD&R, including holding limited partnership interests in CD&R Fund VII, including a private equity fund for the benefit of employees of Goldman Sachs which holds a less than 0.2% interest in CD&R Fund VII.

Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide such services to ServiceMaster, to affiliates of ServiceMaster and to the Initial Equity Sponsors and their respective affiliates and portfolio companies, may actively trade the debt and equity securities (or related derivative securities) of ServiceMaster and affiliates and portfolio companies of the Initial Equity Sponsors for their own accounts and for the accounts of their customers and may at any time hold long and short positions of such securities.

Pursuant to debt commitment letters entered into on April 9, 2007, affiliates of Morgan Stanley and Goldman Sachs have agreed to provide a portion of the debt financing for the merger. See “—Financing—Debt Financing” beginning on page 45 of this proxy statement.

Pursuant to a letter agreement, ServiceMaster engaged Morgan Stanley and Goldman Sachs to act as its financial advisors in connection with the contemplated transaction. Pursuant to the terms of the letter agreement, ServiceMaster agreed to pay Morgan Stanley and Goldman Sachs an aggregate fee of approximately $35 million, substantially all of which is payable only upon the consummation of the merger. All fees paid by ServiceMaster will be split evenly between Morgan Stanley and Goldman Sachs. Pursuant to the terms of the letter agreement, ServiceMaster has agreed to reimburse Morgan Stanley and Goldman Sachs for their reasonable expenses, including attorneys’ fees and disbursements, subject to a specified maximum. Finally, ServiceMaster has agreed to indemnify Morgan Stanley and Goldman Sachs and certain related persons against various liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of the engagement of Morgan Stanley and Goldman Sachs.

Opinion of Greenhill

ServiceMaster’s board of directors retained Greenhill to render an opinion as to the fairness, from a financial point of view, of the consideration to be received by its stockholders in connection with a possible merger, sale or other business combination. As part of its engagement, ServiceMaster requested that Greenhill render such an opinion in connection with the merger. On March 18, 2007, Greenhill delivered its oral opinion to the ServiceMaster board of directors, subsequently confirmed in writing, to the effect that, as of that date and based upon and subject to the limitations and assumptions stated in its opinion, the merger consideration to be paid to the ServiceMaster stockholders (other than ServiceMaster, CDRSVM Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries and stockholders who validly perfect their appraisal rights under Delaware law) for each share of common stock pursuant to the merger agreement was fair, from a financial point of view, to such stockholders.

Greenhill provided the opinion described above for the information and assistance of the ServiceMaster board of directors in connection with its consideration of the merger. Greenhill’s opinion to the ServiceMaster board of directors was one of many factors taken into consideration by the ServiceMaster board of directors in making its determination to approve the merger agreement. The terms of the merger agreement and the amount and form of merger consideration, however, were determined through negotiations between ServiceMaster and CD&R, on behalf of the Initial Equity Sponsors, and were approved by the ServiceMaster board of directors. Greenhill did not participate in these negotiations or recommend to ServiceMaster any specific amount or form of consideration or advise ServiceMaster that any specific amount or form of consideration constituted the only appropriate amount or form of consideration for the proposed merger. Furthermore, Greenhill was not requested to and did not solicit any expressions of interest from any other parties with respect to the merger or any other alternative

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transaction and expressed no opinion as to whether any alternative transaction might produce greater consideration for the stockholders of ServiceMaster.

The full text of Greenhill’s written opinion, dated March 18, 2007, is attached as Appendix D to this proxy statement. We encourage you to read the entire opinion carefully to learn about the assumptions made, general procedures followed, matters considered and limits on the scope of the review undertaken by Greenhill in rendering its opinion. Greenhill’s opinion relates only to the fairness, as of the date of the opinion and from a financial point of view to ServiceMaster’s stockholders, of the merger consideration to be paid in connection with the merger pursuant to the merger agreement, does not address any other aspect of the proposed merger or any related transaction and does not constitute a recommendation to any stockholder as to how to vote at any special meeting or to the ServiceMaster board as to whether it should approve the merger. Greenhill was not requested to opine to, and Greenhill’s opinion did not in any manner address, the merits of the merger relative to any other business strategies or transactions that may have been available to ServiceMaster or in which ServiceMaster might have engaged, as to whether any other transaction might be more favorable to ServiceMaster as an alternative to the merger or the underlying business decision by ServiceMaster to proceed with or effect the merger. The following summary of Greenhill’s opinion is qualified in its entirety by reference to the full text of the opinion. Greenhill’s opinion was directed to the board of directors of ServiceMaster for its benefit and use in evaluating the fairness of the merger consideration. We urge you to read the opinion carefully and in its entirety.

In arriving at its opinion, Greenhill performed numerous tasks and analyses, including the following:

·       reviewed the draft of the merger agreement presented to the ServiceMaster board of directors on March 18, 2007;

·       reviewed certain publicly available financial statements of ServiceMaster;

·       reviewed certain other publicly available business and financial information relating to ServiceMaster that it deemed relevant;

·       reviewed certain information, including financial forecasts and projections and other financial and operating data concerning ServiceMaster, prepared by the management of ServiceMaster;

·       discussed the past and present operations and financial condition and the prospects of ServiceMaster with senior executives of ServiceMaster;

·       reviewed the historical market prices and trading activity for the ServiceMaster common stock and analyzed its implied valuation multiples;

·       compared the financial performance of ServiceMaster with that of certain publicly traded companies it deemed relevant;

·       compared the value of the merger consideration with the trading valuations of certain publicly traded companies that it deemed relevant;

·       compared the value of the merger consideration with that received, to the extent publicly available, in certain publicly available transactions that it deemed relevant;

·       compared the value of the merger consideration to the valuation derived by discounting future cash flows and a terminal value of the business at discount rates that it deemed appropriate; and

·       performed such other analyses and considered such other factors as it deemed appropriate.

Greenhill also held discussions with ServiceMaster management and its legal counsel to discuss the merger and the results of Greenhill’s analysis and examination, and considered such other matters that it deemed relevant to its inquiry.

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In conducting its review and analysis and rendering its opinion, Greenhill assumed and relied upon, without independent verification, the accuracy and completeness of the information supplied or otherwise made available to it by representatives and management of ServiceMaster for the purposes of its opinion and further relied upon the assurances of the representatives and management of ServiceMaster that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of ServiceMaster, Greenhill relied upon the financial projections provided to it by ServiceMaster’s management, except Greenhill assumed, based upon discussions with ServiceMaster’s management, certain adjustments to ServiceMaster’s Adjusted EBITDA to reflect adjustments to interest income associated with regulatory changes to ServiceMaster’s American Home Shield securities portfolio and adjustments to compensation expense associated with changes to ServiceMaster’s equity incentive compensation plan, such adjustments being referred to in this proxy statement as the Further Adjustments. Greenhill assumed that the financial projections and data were reasonably prepared on a basis reflecting the best currently available estimates and good faith judgments of the management of ServiceMaster as to those matters. Greenhill expressed no opinion with respect to such projections and data or the assumptions upon which they were based. Greenhill performed no physical inspection of the properties or facilities of ServiceMaster. In addition, Greenhill did not make any independent valuation or appraisal of any of the assets or liabilities of ServiceMaster nor was Greenhill furnished with any such appraisals. Greenhill assumed that the merger will be consummated in accordance with the terms set forth in the final, executed merger agreement, which Greenhill further assumed would be identical in all material respects to the draft thereof presented to the ServiceMaster board of directors on March 18, 2007, without waiver of any of the conditions to closing of the merger. In addition, Greenhill assumed that all material governmental regulatory and other consents and approvals necessary for the consummation of the merger will be obtained without any effect on ServiceMaster in any way meaningful to its analysis.

Greenhill was not requested to opine to, and Greenhill’s opinion did not in any manner address the underlying business decision by ServiceMaster to proceed with or effect the merger or the structure, specific amount of consideration, or any other aspect of the merger other than the fairness, from a financial point of view, of the merger consideration. Greenhill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Greenhill as of, the date of its opinion.

The following is a summary of the material financial and comparative analyses delivered by Greenhill to the ServiceMaster board of directors in connection with rendering its opinion described above. The summary set forth below does not purport to be a complete description of the analyses performed by Greenhill, nor does the order in which the analyses are described represent relative importance or weight given to those analyses by Greenhill. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are not alone a complete description of Greenhill’s financial analyses.

Projected Tax Amortization

In connection with ServiceMaster’s 1998 reincorporation, the company generated substantial future tax benefits. Greenhill discounted ServiceMaster’s projected after-tax amortization expense, the pre-tax amount of which was provided to Greenhill by ServiceMaster’s management, at 7.46% (the weighted average interest rate on ServiceMaster’s outstanding debt, based on the stated coupon rates of ServiceMaster’s outstanding debt securities), to determine its estimated present value. Greenhill divided this present value by the number of shares outstanding, determined on a fully-diluted basis, yielding an implied present value of these future tax benefits of $0.98 per share. For purposes of the analysis, Greenhill assumed a fully diluted share count of 301.9 million shares, which included 8 million shares from the assumed exchange for ServiceMaster common stock of the minority interest in a subsidiary of

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ServiceMaster. Greenhill considered this implied valuation in conducting each of the analyses described below.

Comparable Company Valuation

Greenhill reviewed and compared certain financial information for ServiceMaster to the corresponding financial information, ratios and public market multiples for the following publicly traded companies:

·       Ecolab Inc.;

·       Rentokil Initial PLC;

·       Cintas Corporation;

·       The Scotts Miracle-Gro Company;

·       Rollins, Inc.; and

·       Chemed Corporation.

Greenhill selected these companies, among other reasons, because they are publicly traded companies with operations or businesses that for purposes of analysis may be considered reasonably comparable to those of ServiceMaster. None of the selected companies is directly comparable to ServiceMaster. Accordingly, Greenhill’s analysis of these selected publicly traded companies necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the analysis of the operating statistics and trading multiples of the selected publicly traded companies. In evaluating the comparable companies, Greenhill made judgments and assumptions concerning industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of ServiceMaster, such as the impact of competition on the businesses of ServiceMaster and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of ServiceMaster or the industry or the financial markets in general. Greenhill also made judgments as to the relative comparability of such companies to ServiceMaster and judgments as to the relative comparability of the various valuation parameters with respect to the companies. The numerical results may not in themselves be meaningful in analyzing the contemplated transaction as compared to the comparable companies.

Greenhill calculated and compared various financial multiples and ratios based on information it obtained from filings with the SEC, publicly available research reports and the Institutional Brokers Estimate System (also known as IBES). The multiples for each of the selected companies were based on closing share prices on March 16, 2007 and the most recent filings with the SEC, publicly available research reports and IBES, Capital IQ, Bloomberg and FactSet estimates. Greenhill analyzed the following information for the selected companies:

·       enterprise value as a multiple of estimated revenue, estimated EBITDA and estimated EBIT for 2007 and 2008;

·       share price as a multiple of estimated earnings per share for 2007 and 2008; and

·       the ratio of share price to estimated earnings per share for 2008 divided by the estimated long-term earnings growth rate.

Greenhill then calculated the implied enterprise valuation and equity valuation, respectively, and the implied price per share of ServiceMaster common stock by applying relevant multiple ranges to ServiceMaster’s estimated 2007 and 2008 Adjusted EBITDA (as adjusted by the Further Adjustments) and ServiceMaster’s estimated 2007 and 2008 net income, in each case based on the forecasts provided to Greenhill by ServiceMaster management. Greenhill used multiple ranges of 8.5x to 10.5x estimated 2007

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EBITDA, 7.5x to 9.5x estimated 2008 EBITDA, 17.0x to 21.0x estimated 2007 net income and 14.0x to 18.0x estimated 2008 net income. This analysis implied the ranges of enterprise valuations, equity valuations and prices per share of ServiceMaster common stock set forth below:

($ in millions, except per share amounts)

(1) As adjusted by the Further Adjustments.

 

To determine the enterprise and equity valuations reflected above, Greenhill assumed that ServiceMaster’s net debt was $580 million, including $53 million of off-balance sheet obligations related to structured real estate leases. Greenhill’s calculation of net debt assumed an exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster and assumed that an aggregate of $258 million in cash and marketable securities were restricted as a result of regulatory requirements, deferred compensation obligations and other obligations. For purposes of this analysis, Greenhill assumed a fully diluted share count of 301.9 million shares, which included 8 million shares from the assumed exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster.

Based on these analyses, Greenhill determined that the implied equity value per share of ServiceMaster common stock ranged from approximately $10.28 to $13.99 per share of ServiceMaster common stock when using these multiples. Taking into account the implied present value per share of ServiceMaster’s future tax benefits, Greenhill determined that the comparable company valuation produced a range of possible values from $11.26 to $14.97 per share of ServiceMaster common stock.

Discounted Cash Flow Valuation

Using discounted cash flow methodology, Greenhill calculated the present values of the projected unlevered future cash flows for ServiceMaster, using the forecasts provided to Greenhill by ServiceMaster management, adjusted as described above, to calculate a range of implied per share values. In this analysis, Greenhill estimated a weighted average cost of capital for ServiceMaster based on Greenhill’s review of, among other matters, the current weighted average cost of capital of ServiceMaster, the predicted equity betas and capital structures of businesses similar to ServiceMaster, the current weighted average cost of capital of these businesses and the implications to the weighted average cost of capital of various debt to market equity ratios, which Greenhill deemed appropriate based on its expertise and judgment. Greenhill performed calculations for terminal Adjusted EBITDA (as adjusted by the Further Adjustments) multiples of 7.5x, 8.5x and 9.5x (which implied perpetuity growth rates of 3.5%, 4.3% and 4.8%, respectively, assuming a weighted average cost of capital of 10.0%), and discount rates of 9.0%, 10.0% and 11.0%. This range of discount rates was selected based on the estimated weighted average cost of capital derived in the analysis above. Greenhill then aggregated (1) the present value of the projected unlevered future cash flows during the period from 2007 to 2011 resulting from the various discount rates with (2) the present value of the range of terminal values as determined by the various terminal Adjusted EBITDA (as

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adjusted by the Further Adjustments) multiples resulting from the various discount rates. The aggregate present value of these items represented the enterprise value range. An equity value per share was determined by subtracting the net debt including the off-balance sheet debt of ServiceMaster from the enterprise value and dividing the resulting equity value by the number of ServiceMaster shares outstanding, determined on a fully diluted basis, and adding the present value per share of future tax amortization benefits as set out above. Greenhill assumed that ServiceMaster’s net debt was $580 million, including $53 million of off-balance sheet obligations related to structured real estate leases. Greenhill’s calculation of net debt assumed an exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster and assumed that an aggregate of $258 million in cash and marketable securities were restricted as a result of regulatory requirements, deferred compensation obligations and other obligations. For purposes of this analysis, Greenhill assumed a fully diluted share count of 301.9 million shares, which included 8 million shares from the assumed exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster. The equity value per share of ServiceMaster implied by the discounted cash flow analysis ranged from $13.13 to $16.05 per share (assuming an 9.0% discount rate), from $12.61 to $15.42 per share (assuming a 10.0% discount rate) and from $12.12 to $14.82 (assuming an 11.0% discount rate).

Transaction Valuation Analysis

Greenhill performed various transaction valuation analyses in connection with rendering its opinion, including a precedent transaction analysis, a premiums paid analysis and a leveraged buyout analysis.

Precedent Transaction Analysis

Greenhill performed an analysis of selected recent business combinations involving U.S. companies engaged in selected services industries, consisting of transactions announced and closed since March 15, 2004 and valued at between $2 billion and $10 billion based on publicly available information and the CapitalIQ transaction database.

Although Greenhill analyzed the multiples implied by the selected transactions and compared them to the implied transaction multiples of the merger, none of these transactions or associated companies is identical to the acquisition of ServiceMaster pursuant to the merger agreement. Accordingly, Greenhill’s analysis of the selected transactions necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics, the parties involved and terms of their transactions and other factors that would necessarily affect the implied value of ServiceMaster versus the values of the companies in the selected transactions. In evaluating the precedent transactions, Greenhill made judgments and assumptions concerning industry performance, general business, economic, market and financial conditions and other matters. Greenhill also made judgments as to the relative comparability of those companies to ServiceMaster and judgments as to the relative comparability of the various valuation parameters with respect to the companies.

Using publicly available information for these selected transactions, Greenhill reviewed the consideration paid in the selected transactions and analyzed the enterprise value implied by such consideration as a multiple of revenues and EBITDA for the twelve months preceding the applicable transaction, and the stock price of the target company as a multiple of the earnings per share for the twelve months preceding the applicable transaction.

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The following table identifies the comparable transactions considered in this analysis: 

 

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Greenhill derived from the selected transactions a reference range of valuation ratios for the transactions. The median Enterprise Value to LTM EBITDA ratio for the group was 11.0x and the median Price to LTM EPS ratio for the group was 23.3x. Based on this analysis, Greenhill used multiple ranges of 10.0x to 12.0x actual 2006 Adjusted EBITDA and 20.0x to 25.0x actual 2006 net income. Greenhill then calculated the implied enterprise value, implied equity value and implied price per share of ServiceMaster common stock by applying the relevant multiple ranges to ServiceMaster’s actual 2006 Adjusted EBITDA and net income (excluding a loss from discontinued operations and restructuring charges), respectively. Greenhill assumed that ServiceMaster’s net debt was $580 million, including $53 million of off-balance sheet obligations related to structured real estate leases. Greenhill’s calculation of net debt assumed an exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster and assumed that an aggregate of $258 million in cash and marketable securities were restricted as a result of regulatory requirements, deferred compensation obligations and other obligations. For purposes of this analysis, Greenhill assumed a fully diluted share count of 301.9 million shares, which included 8 million shares from the assumed exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster. This analysis implied the ranges of enterprise values, equity values and prices per share of ServiceMaster common stock as set forth below:

($ in millions, except per share amounts)

 

Premiums Paid Analysis

Greenhill reviewed available data from 254 U.S. public company transactions announced since March 12, 2004 with transaction values between $2 billion and $10 billion and involving target companies  within the Industrials or Consumer Products and Services industry classifications of the Thomson ONE Banker database. Specifically, Greenhill analyzed the acquisition price per share as a premium to the average closing share price one day, one week and one month prior to the announcement of the transaction. Greenhill also applied the same criteria to review those of the 254 transactions that involved industrial and consumer products and services companies in order to capture premiums paid in related industry segments. In addition, Greenhill applied the same criteria to those of the 254 transactions involving an acquirer that is a financial sponsor in order to capture premiums paid by non-strategic acquirers such as the Initial Equity Sponsors. In transactions falling into the broad group, the median premium was 16.3% to the one day stock price, 19.6% to the one week stock price and 22.5% to the one month stock price. In transactions involving industrial and consumer products and services companies, the median premium was 20.2% to the one day stock price, 21.1% to the one week stock price and 27.2% to the one month stock price. Finally, in transactions where the acquirer was a financial sponsor, the median premium was 15.9% to the one day stock price, 16.9% to the one week stock price and 20.3% to the one month stock price.

Greenhill noted that the reasons for, and circumstances surrounding, each of the transactions reviewed were diverse and that the premiums fluctuated based on perceived growth, synergies, strategic value and type of consideration utilized in the transaction. None of the targets in the reviewed transactions

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is identical to ServiceMaster and, accordingly, Greenhill’s analysis of these transactions necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the comparison of the percentage purchase price premium implied by the merger versus the percentage purchase price premiums of these transactions.

Greenhill applied the median range of resulting per share purchase price premiums for the reviewed transactions to ServiceMaster’s common stock price one day, one week and one month prior to the ServiceMaster stock price becoming affected by transaction speculation, respectively, which produced a valuation range for ServiceMaster common stock of $12.85 to $13.99 per share. Greenhill assumed ServiceMaster’s closing price on November 14, 2006, $11.28 per share, as a proxy for the unaffected share price.

Leveraged Buyout Analysis

Greenhill also performed an analysis that involved estimating the returns on investment that a potential purchaser that was not a strategic buyer but rather a financial buyer could expect from a purchase of ServiceMaster at different purchase prices in a leveraged buyout using a capital structure similar to the acquisition. In connection with this analysis, Greenhill worked with ServiceMaster management to understand ServiceMaster management’s financial projections and how they might change in the context of a leveraged buyout of ServiceMaster. Greenhill assumed several key changes to ServiceMaster’s financial forecasts (adjusted as described above) in the context of a leveraged buyout, including the elimination of public company costs. In performing this analysis, Greenhill also made several assumptions about the characteristics of such a transaction based on comparable company and precedent transactions analyses, including such factors as transaction leverage, fees and expenses, financing terms, minimum cash requirements, warrants, amortization and exit EBITDA multiple. Greenhill also assumed transaction leverage of 9.5x 2006 actual Adjusted EBITDA, further adjusted to add back non-cash compensation expense. For purposes of this analysis, Greenhill assumed that ServiceMaster’s net debt was $580 million, including $53 million of off-balance sheet obligations related to structured real estate leases. Greenhill’s calculation of net debt assumed an exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster and assumed that an aggregate of $258 million in cash and marketable securities were restricted as a result of regulatory requirements, deferred compensation obligations and other obligations. Additionally, Greenhill assumed a range of fully diluted share counts consistent with a per share offer price of $14.00, $15.00, $15.625 and $16.00 respectively, all of which included 8 million shares from the assumed exchange for ServiceMaster common stock of the minority interest in a subsidiary of ServiceMaster. Greenhill then evaluated the projected revenue, Adjusted EBITDA and EBIT, incorporating the changes and assumptions described above, and projected cash flow for a leveraged ServiceMaster during the period from 2007 through 2011, and calculated the expected internal rate of return and return on investment for a potential acquirer assuming such acquirer exited its investment in ServiceMaster after five years. Greenhill performed this analysis using a per share purchase price of ServiceMaster of $14.00, $15.00, $15.625 and $16.00. The internal rates of returns were 29.2%, 22.0%, 18.5% and 16.7%, respectively, and the returns on investment at these per share purchase prices were 3.6x, 2.7x, 2.3x and 2.2x, respectively. Based on these results and its analysis of comparable company and precedent transactions, Greenhill concluded that, subject to the assumptions set out in the leveraged buyout analysis, a per share offer of $15.625 was within the range that could be reasonably expected from a financial sponsor in a leveraged buyout.

In evaluating the likely terms of any leveraged buyout of ServiceMaster and comparable company and precedent transactions, Greenhill necessarily made judgments and assumptions concerning industry performance, general business, economic, market and financial conditions and other matters, as well as to the relative comparability of other companies and precedent transactions to ServiceMaster.

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Other Considerations

General

The summary set forth above does not purport to be a complete description of the analyses or data presented by Greenhill, but simply describes, in summary form, the material analyses that Greenhill considered in connection with its opinion. The preparation of an opinion regarding fairness is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. The preparation of an opinion regarding fairness does not involve a mathematical evaluation or weighing of the results of the individual analyses performed, but requires Greenhill to exercise its professional judgment, based on its experience and expertise, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by Greenhill was carried out in order to provide a different perspective on the financial terms of the proposed merger and add to the total mix of information available. Greenhill did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion about the fairness of the consideration to be paid to the ServiceMaster stockholders. Rather, in reaching its conclusion, Greenhill considered the results of the analyses in light of each other and without placing particular reliance or weight on any particular analysis, and concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, Greenhill believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, may create an incomplete view of the evaluation process underlying its opinion. In performing its analyses, Greenhill made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by Greenhill are not necessarily indicative of future actual values or results, which may be significantly more or less favorable than suggested by such analyses. The analyses do not purport to be appraisals or to reflect the prices at which ServiceMaster might actually be sold.

Engagement of Greenhill

ServiceMaster hired Greenhill based on its qualifications and expertise in providing financial advice to companies and on its reputation as a nationally recognized investment banking firm. Pursuant to a letter agreement dated February 22, 2007 between ServiceMaster and Greenhill, ServiceMaster has paid Greenhill a fee of $1,000,000. In addition, ServiceMaster has agreed to reimburse Greenhill for all of its out-of-pocket expenses (including fees and expenses of its counsel) reasonably incurred by it in connection with its services, subject to a specified amount, and to indemnify Greenhill against certain liabilities that may arise out of its engagement.

Delisting and Deregistration of ServiceMaster Common Stock

ServiceMaster common stock is registered as a class of equity securities under the Exchange Act and is quoted on the New York Stock Exchange under the symbol “SVM.” As a result of the merger, ServiceMaster will be a privately-held company, with no public market for its common stock. After the merger, ServiceMaster common stock will cease to be traded on the New York Stock Exchange, and price quotations with respect to sales of shares of ServiceMaster common stock in the public market will no longer be available. In addition, ServiceMaster will no longer be required to file periodic reports with the SEC after the effective time of the merger with respect to its common stock.

Considerations Relating to the Proposed Merger

Set forth below are various risks relating to the proposed merger. The following is not intended to be an exhaustive list of the risks relating to the merger and should be read in conjunction with the other information in this proxy statement. In addition, you should refer to the section entitled “Risk Factors” in

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ServiceMaster’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as amended, which is incorporated in this proxy statement by reference, for risks relating to ServiceMaster’s business.

Failure to complete the merger could negatively impact the market price of ServiceMaster common stock.

If the merger is not completed for any reason, ServiceMaster will be subject to a number of material risks, including the following:

·       the market price of ServiceMaster’s common stock may decline to the extent that the current market price of our common stock reflects a market assumption that the merger will be completed;

·       costs relating to the merger agreement, such as legal, accounting and financial advisory fees, and in specified circumstances, termination and expense reimbursement fees, must be paid by us even if the merger is not completed and our ability to recover from CDRSVM Parent and under the guarantees of each of the Initial Equity Sponsors will be limited; and

·       the diversion of management’s attention from the day-to-day business of ServiceMaster and the potential disruption to its employees and its relationships with customers, suppliers and distributors during the period before the completion of the merger may make it difficult for ServiceMaster to achieve its strategic plan if the merger does not occur.

If the merger is not adopted by ServiceMaster’s stockholders at the special meeting, ServiceMaster, CDRSVM Parent and Merger Sub will not be permitted under Delaware law to complete the merger and each of ServiceMaster and CDRSVM Parent will have the right to terminate the merger agreement. Upon such termination and under specified circumstances, ServiceMaster may be required to reimburse CDRSVM Parent for certain of its expenses up to a maximum of $20 million and to pay to CDRSVM Parent a termination fee of $100 million (less the amount of reimbursed expenses). See “Terms of the Merger Agreement—Effects of Terminating the Merger Agreement” beginning on page 78 of this proxy statement.

Further, if the merger is terminated and our board of directors seeks another merger or business combination, stockholders cannot be certain that we will be able to find a party willing to pay an equivalent or better price than the price to be paid in the proposed merger.

Until the merger is completed or the merger agreement is terminated, under certain circumstances, ServiceMaster may not be able to enter into a merger or business combination with another party at a favorable price because of restrictions in the merger agreement.

Unless or until the merger agreement is terminated, subject to specified exceptions, ServiceMaster is restricted from soliciting, initiating, or knowingly encouraging any inquiries or proposals that may lead to a proposal or offer for an alternative transaction with any person or entity other than CDRSVM Parent. As a result of these restrictions, ServiceMaster may not be able to enter into an alternative transaction at a more favorable price without incurring potentially significant liability to CDRSVM Parent. See “Terms of the Merger Agreement—No Solicitation of Takeover Proposals” and “Terms of the Merger Agreement—Effects of Terminating the Merger Agreement” beginning on pages 65 and 78, respectively, of this proxy statement.

Uncertainties associated with the merger may cause ServiceMaster to lose key personnel.

Our current and prospective employees may be uncertain about their future roles and relationships with ServiceMaster following the completion of the merger. This uncertainty may adversely affect our ability to attract and retain key management and personnel.

Financing

We estimate the total amount of funds necessary to complete the merger and the related transactions to be approximately $5.2 billion, which includes approximately $4.8 billion to be paid out to our stockholders and holders of other equity-based interests in ServiceMaster and the remainder to be applied

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to pay related fees and expenses in connection with the merger, the financing arrangements and the related transactions, including a one-time transaction fee of approximately $54.5 million upon consummation of the merger, payable to the Equity Sponsors or their affiliates in connection with their roles in arranging and structuring the transactions. The estimate of the total amount of funds necessary to complete the merger and related transactions also includes amounts necessary to repay borrowings under ServiceMaster’s existing credit facilities and to repay ServiceMaster’s 6.95% Notes due August 15, 2007 and 7.875% Notes due August 15, 2009, which are expected to be repaid, redeemed, defeased or otherwise discharged (or notice of redemption is expected to be given) in connection with the merger. These payments are expected to be funded by a combination of equity contributions and debt financing, as well as our available cash. The estimated amount of debt to be repaid does not include specified debt of ServiceMaster expected to remain outstanding after the merger, primarily consisting of ServiceMaster’s 7.10% Notes due March 1, 2018, 7.45% Notes due August 15, 2027 and 7.25% Notes due March 1, 2038, certain capital leases and deferred payment obligations, in an estimated aggregate principal amount of approximately $450 million. The documentation governing the debt financing is expected to provide that any collateral securing such debt financing will not include capital stock, indebtedness or other obligations of ServiceMaster or any subsidiary, real estate or any other property or assets to the extent that granting any such security interest would require equally and ratably securing the 7.10% Notes due March 1, 2018, 7.45% Notes due August 15, 2027 and 7.25% Notes due March 1, 2038 under the indenture pursuant to which such notes were issued; accordingly, such notes are not expected to be secured or guaranteed in connection with the merger and related transactions. CDRSVM Parent and Merger Sub have obtained equity financing commitments from the Equity Sponsors and debt financing commitments from the Debt Sponsors (identified below under “— Debt Financing”) for the transactions contemplated by the merger agreement. After giving effect to the contemplated draws under the debt commitments, we currently expect total new debt outstanding at the close of the merger to be approximately $3.8 billion.

Equity Financing

The Initial Equity Sponsors have delivered equity commitment letters in the following amounts:

 

Each of the equity commitment letters provides that the equity funds will be contributed to fund the merger consideration in accordance with the merger agreement, to pay related amounts required to be paid by CDRSVM Parent under the merger agreement and to reimburse certain costs and expenses. Each of the equity commitments is generally subject to the satisfaction or waiver at the closing of the conditions precedent to the obligations of CDRSVM Parent to consummate the merger and the substantially contemporaneous funding of the debt financing. Each of the Initial Equity Sponsors may assign all or a portion of its equity funding obligation to affiliates or affiliated funds, or to entities governed by affiliates or affiliated funds; however, any such assignment will not relieve the applicable Initial Equity Sponsor of its contractual obligation to provide equity financing. The terms of each of the equity commitment letters will expire automatically upon the earliest to occur of  (i) the termination of the merger agreement, (ii) December 31, 2007, (iii) in the event we assert in any litigation or other proceeding any claim under

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any guarantee (as defined in the next paragraph), (iv) in the event CDRSVM Parent seeks to enforce the commitments and obligations set forth in the equity commitment letters other than at the direction of the lead investor, or (v) the announcement of a transaction for the sale of ServiceMaster or all or substantially all of its assets to a party other than CDRSVM Parent.

Concurrently with the execution and delivery of the equity commitment letters, each of the Initial Equity Sponsors executed and delivered to ServiceMaster a limited guaranty, which we refer to in this proxy statement as a guarantee, related to the performance by CDRSVM Parent and Merger Sub of certain payment obligations under the merger agreement. See “Terms of the Merger Agreement—Initial Equity Sponsor Guarantees” beginning on page 79 of this proxy statement for a description of the guarantees.

Debt Financing

The institutions listed below, referred to in this proxy statement as the Debt Sponsors, have delivered debt financing commitments in the following amounts:

 

The foregoing table reflects the debt commitment letter as amended and restated on April 9, 2007 to replace the commitment letter delivered on March 18, 2007 by Citigroup Global Markets, Inc., J.P. Morgan Securities Inc., JPMorgan Chase Bank, N.A., Banc of America Securities LLC, Banc of America Bridge LLC and Bank of America, N.A. Citigroup Global Markets Inc. and JPMorgan Chase Bank, N.A. were respectively allocated 29.75% of total commitments, Goldman Sachs and Morgan Stanley were respectively allocated 15% of total commitments, and Bank of America, N.A. and its affiliates were allocated 10.5% of total commitments. Assuming the merger is completed and the Debt Sponsors provide financing as contemplated by the amended and restated debt commitment letter, it is estimated by Merger Sub that each of Morgan Stanley and Goldman Sachs could be entitled to receive financing fees of up to $16.1 million pursuant to the fee schedule common to all the Debt Sponsors.

The debt financing commitments consist of: (i) a senior secured term loan facility in an aggregate principal amount of up to $2,650 million and an additional pre-funded synthetic letter of credit facility in an aggregate principal amount of up to $200 million, (ii) a senior secured revolving credit facility in an aggregate principal amount of up to $500 million, a portion of which will be available for issuing letters of credit and swing-line loans and (iii) unsecured senior debt financing in an aggregate principal amount of up to $1,150 million or, to the extent such financing is not in place on the closing date, a borrowing of twelve-month unsecured senior interim loans in an aggregate principal amount of up to $1,150 million.

The merger agreement contemplates a period of 30 consecutive business days, referred to in this proxy statement as the marketing period, to consummate the transactions contemplated by the debt financing commitments.  There are certain requirements in order for the marketing period to commence.  See “Terms of the Merger Agreement—Financing; Cooperation” beginning on page 68 of this proxy statement.

The debt financing commitments will expire if not drawn on or prior to 5:00 p.m., Eastern Time, on December 31, 2007 or upon termination of the merger agreement or consummation of the merger without

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the debt financing. The facilities contemplated by the debt financing commitments are subject to customary closing conditions, including:

·       the consummation of the merger;

·       the absence of outstanding preferred equity or indebtedness held by third parties, except for specified assumed debt, including certain existing notes, and any existing capital leases;

·       the absence of a material adverse change with respect to ServiceMaster, to the extent such change constitutes a “material adverse change” for purposes of the merger agreement;

·       the execution of definitive credit documentation consistent with the term sheets for the debt facilities;

·       receipt of equity contributions in an amount not less than $1,200 million;

·       the receipt of specified financial statements of ServiceMaster;

·       the receipt of a certificate of the chief financial officer with respect to the solvency of ServiceMaster; and

·       receipt of customary closing documents.

Although the debt financing described in this proxy statement is not subject to the lenders’ satisfaction with their due diligence or to a “market out,” such financing might not be funded on the closing date because of failure to meet the closing conditions or for other reasons. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described herein is not available as anticipated.

Interests of ServiceMaster’s Directors and Executive Officers in the Merger

In considering the recommendation of our board of directors, you should be aware that our directors and our executive officers have interests in the transaction that are different from, or are in addition to, your interests as a stockholder. Our board of directors was aware of these actual and potential conflicts of interest and considered them along with other matters when they determined to recommend the merger.

Treatment of ServiceMaster Stock Options and Stock Appreciation Rights in the Merger

Options to acquire shares of ServiceMaster common stock granted under various ServiceMaster stock incentive plans that are outstanding immediately prior to the effective time of the merger, vested or unvested, will be cancelled as of the effective time of the merger and converted into the right to receive a cash payment equal to the excess (if any) of $15.625 per share over the exercise price per share of the option times the number of shares subject to the option, less any applicable withholding taxes.

Stock appreciation rights granted under various ServiceMaster stock incentive plans that are outstanding immediately prior to the effective time of the merger, vested or unvested, will be cancelled as of the effective time of the merger and converted into the right to receive a cash payment equal to the excess (if any) of $15.625 per share over the base price per share of the stock appreciation right times the number of shares subject to the stock appreciation rights award, less any applicable withholding taxes.

The table below sets forth, as of April 5, 2007, for each of ServiceMaster’s directors and executive officers, (a) the number of shares subject to vested options to purchase ServiceMaster common stock and vested SARs held by such person, (b) the value of such vested options and SARs (without regard to deductions for withholding taxes), calculated by multiplying (i) the excess, if any, of $15.625 over the per share exercise price of the option or base price of the SAR by (ii) the number of shares subject to the option or SAR, (c) the number of additional options and SARs held by such person that will vest upon the effectiveness of the merger, (d) the value of such additional options and SARs (without regard to

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deductions for withholding taxes), calculated by multiplying (i) the excess, if any, of $15.625 over the per share exercise price of the option or base price of the SAR by (ii) the number of shares subject to the option or SAR, (e) the aggregate number of shares subject to vested options and SARs and options and SARs that will vest as a result of the merger held by such person and (f) the aggregate value of all such vested options and SARs and options and SARS that will vest as a result of the merger (without regard to deductions for withholding taxes), calculated by multiplying (i) the excess, if any, of $15.625 over the per share exercise price of the option or base price of the SAR by (ii) the number of shares subject to the option or SAR.

 

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Treatment of ServiceMaster Restricted Stock and Restricted Stock Units in the  Merger

Upon completion of the merger, all outstanding shares of restricted stock and all restricted stock units granted under various ServiceMaster stock incentive plans will become fully vested and will be converted into the right to receive a cash payment equal to $15.625 per share times the number of shares or units, less any applicable withholding taxes. The table below sets forth, as of April 5, 2007, for each of ServiceMaster’s directors and executive officers (a) the number of shares of restricted stock and restricted stock units held by such person that will vest and become unrestricted as a result of the merger and (b) the total cash payment to the director or executive officer with respect to those shares of restricted stock and restricted stock units in connection with the merger (without regard to deductions for withholding taxes).

(1)          As of April 5, 2007, Mr. Goetz owned 4,157 deferred stock units.

(2)          As of April 5, 2007, Mr. Mrozek owned 39,211 restricted stock units.

Change in Control Provisions in Severance Agreements

We have entered into change in control severance agreements with all of our executive officers. These agreements generally provide, among other things, for severance pay and other benefits to the officer if, within two years following a change in control of ServiceMaster (as defined in each severance agreement), the executive officer’s employment with us (or our successor) is terminated by us (or our successor) other than for cause (as defined in each severance agreement) or is terminated by the executive officer for good reason (as such term is defined in each severance agreement). The completion of the merger would constitute a change of control for purposes of these severance agreements.

The change in control severance agreements, and the benefits that would be paid to our executive officers thereunder, are described in further detail below.

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Severance Benefits Payable to J. Patrick Spainhour.   If we terminate the employment of Mr. Spainhour without cause or Mr. Spainhour terminates his employment for good reason, in either case within the two-year period beginning on the date on which the merger is completed, we will pay to Mr. Spainhour a lump sum cash payment consisting of:

·       his accrued salary through the date of termination,

·       any unpaid previously earned bonus under the Annual Bonus Plan (the “ABP”),

·       any accrued and unpaid vacation pay,

·       a pro rated annual bonus under the ABP through the date of termination based upon the target bonus for the year in which the merger is completed, or, if higher, his target bonus for the year in which his employment is terminated,

·       an amount equal to his highest annual base salary during the prior 12 months plus 1/12th of such salary for each completed month of service from July 1, 2006, up to a maximum of 24 completed months (i.e., three times his highest annual base salary if the termination occurs on or after June 30, 2008),

·       an amount equal to his target annual bonus under the ABP for the year in which the change in control occurs plus 1/12th of such target bonus for each completed month of service from July 1, 2006, up to a maximum of 24 completed months (i.e., three times his target annual bonus if the termination occurs on or after June 30, 2008), and

·       an amount equal to any unvested employer matching contributions under our 401(k) plan and nonqualified deferred compensation plan.

In addition, we will continue to provide employee benefits, including medical plan benefits, to Mr. Spainhour for a period of one year plus one month for each completed month of service from July 1, 2006, up to a maximum of 24 completed months (i.e., three years of coverage if the termination occurs on or after June 30, 2008).

Severance Benefits Payable to Executive Officers Other than Mr. Spainhour.   If we terminate the employment of any executive officer other than Mr. Spainhour for a reason other than cause or if such executive officer terminates his or her employment for good reason, in either case within the two-year period beginning on the date that the merger is completed, we will pay to the officer a lump sum cash payment consisting of:

·       accrued salary through the date of termination,

·       any unpaid previously earned bonus,

·       any accrued and unpaid vacation pay,

·       a pro rated ABP and Corporate Performance Plan (“CPP”) bonus through the date of termination based upon the target bonus amounts for the year in which the merger is completed, or, if higher, the year in which the officer’s employment is terminated,

·       three (or, in the case of Messrs. Ascolese and Sutton, two) times  the executive’s highest annual base salary in the 12 months prior to termination,

·       three (or, in the case of Messrs. Ascolese and Sutton, two) times the executive’s target ABP and CPP bonus immediately prior to the change in control, or, if higher, for the year in which the merger is completed, and

·       an amount equal to any unvested employer matching contributions under our 401(k) plan and nonqualified deferred compensation plan.

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In addition, we will continue to provide the executive with employee benefits, including medical plan benefits, for a three-year (or, in the case of Messrs. Ascolese and Sutton, two-year) period following termination.

Under all of these agreements, including Mr. Spainhour’s, “good reason” means a material reduction in position, duties or responsibilities, a transfer of the executive’s home office by more than 40 miles, a reduction in salary, a failure to maintain substantially comparable benefit or compensation plans or to provide benefits substantially comparable to other peer employees, or a failure by ServiceMaster to require a successor to assume our obligations under the agreement.

With respect to all executives, including Mr. Spainhour, upon a termination by the company for cause, by the executive without good reason, or upon death or disability, we have no obligation to pay any prospective amounts or provide any benefits under the agreement. Our obligations will consist of those obligations accrued at the date of termination, including payment of earned salary, reimbursement of expenses and obligations which may otherwise be payable in the event of death or disability.

If any payment pursuant to the agreements or otherwise would be subject to the excise tax imposed on excess parachute payments, then we will make an additional payment (i.e., a gross-up payment) such that the executive would receive a net amount equal to the amount the executive would have received if the excise tax did not apply.

We are obligated to reimburse each executive, on a current basis, for all legal fees and expenses incurred in connection with a dispute under his or her change in control severance agreement. The executive must repay us if his or her claims are denied in total.

Additional Agreement with Messrs. Bono, Goetz, Kaput and Engel

We have also entered into an additional separation agreement with each of Messrs. Bono, Goetz, Kaput and Engel. These additional agreements provide that, in the case of Messrs. Bono and Goetz, their employment with us will end on August 31, 2007, in the case of Mr. Kaput, his employment with us will end on October 31, 2007 and, in the case of Mr. Engel, his employment with us will end on December 31, 2007. These agreements further provide that if (i) the merger is completed prior to these respective termination dates, (ii) CDRSVM Parent does not inform Messrs. Bono, Goetz, Kaput and Engel, as the case may be, that it is retaining his employment in our Downers Grove office because it is abandoning our plan to consolidate our Downers Grove office into our Memphis office and (iii) Messrs. Bono, Goetz, Kaput and Engel, as the case may be, has provided full time-services to us through the date of termination, then the officer in question will be deemed to have terminated his employment for good reason for purposes of his change in control severance agreement and will receive the payments and benefits described under
“—Severance Benefits Payable to Executive Officers Other than Mr. Spainhour” beginning on page 49 of this proxy statement.

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The following table sets forth information regarding the estimated value of payments and other benefits that would be payable by the company to each of the company’s executive officers if their employment were to be terminated immediately following the completion of the merger, under circumstances entitling such executive officer to severance.

 

Exculpation, Indemnification and Insurance

The merger agreement provides that CDRSVM Parent will cause the certificate of incorporation and bylaws of the surviving corporation and each of its subsidiaries to contain provisions no less favorable with respect to the exculpation from personal liability and indemnification of and advancement of expenses to directors, officers, employees and agents than are set forth in the certificate of incorporation or the bylaws of ServiceMaster as in effect on the date of the merger agreement. The merger agreement also provides that, subject to certain considerations, prior to the effective time of the merger, ServiceMaster will purchase an extended reporting period for its existing directors’ and officers’ liability insurance, which we refer to as D&O insurance, for a period of six years after the effective time of the merger. See “Terms of the Merger Agreement—Exculpation, Indemnification and Insurance of ServiceMaster’s Directors and Officers” on page 71 of this proxy statement.

Arrangements with CDRSVM Parent

As of the date of this proxy statement, none of our executive officers has entered into any agreement, arrangement or understanding with CDRSVM Parent or its affiliates regarding employment with, or the right to participate in the equity of, CDRSVM Parent. In addition, no member of our board of directors has entered into any agreement, arrangement or understanding with CDRSVM Parent or its affiliates regarding the right to participate in the equity of CDRSVM Parent. CDRSVM Parent has informed us that it is its intention to retain members of our existing management team with CDRSVM Parent or its affiliates after the merger is completed. Members of management are currently engaged in discussions with representatives of CDRSVM Parent regarding revised terms of employment. In addition to revised terms of employment, CDRSVM Parent has informed us that it anticipates offering members of management the opportunity to convert a portion of their current equity interests in ServiceMaster into equity in CDRSVM Parent and that it also intends to establish equity-based incentive compensation plans for management of CDRSVM Parent. Although we believe that members of our management team are likely to enter into new arrangements with CDRSVM Parent or its affiliates regarding employment with, and the right to purchase or participate in the equity of, CDRSVM Parent, such matters are subject to further negotiations and discussion and no terms or conditions have been finalized.

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