Stock Option Agreement - ServiceMaster Co. and Jonathan P. Ward
THE SERVICEMASTER COMPANY
STOCK OPTION AGREEMENT
February 8, 2002
The Company hereby grants to the Optionee as of the Grant
Date, pursuant to the provisions of the Plan, the Option to purchase the number
of Option Shares specified in the Term Sheet at the Exercise Price per share
upon and subject to the terms and conditions set forth below and in the Term
Sheet. References to employment shall also mean an agency or independent
contractor relationship and references to employment by the Company shall also
mean employment by a Subsidiary. Capitalized terms not defined herein shall have
the meanings specified in the Term Sheet or the Plan.
1. Option Subject to Acceptance of Agreement. The Option shall be null and
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void unless the Optionee shall accept this Agreement by executing one copy of
the related Term Sheet and returning an original execution copy to the Company.
2. Time and Manner of Exercise of Option.
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2.1. Maximum Term of Option. In no event may the Option be exercised, in
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whole or in part, after the Expiration Date.
2.2. Exercise of Option. (a) Except as otherwise provided by Sections
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2.2(b) hereof and by Section 11 of the Plan, the Option shall become exercisable
in accordance with the Exercise Schedule set forth in the Term Sheet.
(b) If the Optionee's employment with the Company terminates by reason of
Disability or death, the Option shall be immediately exercisable with respect to
all of the Option Shares on the effective date of the Optionee's termination of
employment or date of death and may thereafter be exercised by the Optionee or
the Optionee's Legal Representative or Permitted Transferees, as the case may
be, until and including the earliest to occur of (i) the date which is two years
after the effective date of the Optionee's termination of employment or date of
death and (ii) the Expiration Date.
(c) If the Optionee's employment with the Company terminates by reason of
retirement on or after age 63 or after a minimum of fifteen years of employment
(fifteen years need not be consecutive) with the Company ("Retirement"), the
Option shall continue in accordance with its terms and, to the extent the Option
shall be or become exercisable with respect to the Option Shares, may thereafter
be exercised by the Optionee or the Optionee's Legal Representative until the
Expiration Date.
(d) If the Optionee's employment with the Company terminates for any reason
other than Disability, death or Retirement, the Option shall be exercisable only
to the extent it is exercisable on the effective date of the Optionee's
termination of employment and may thereafter be exercised by the Optionee or the
Optionee's Legal Representative until and
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including the earliest to occur of (i)
the date which is six months after the effective date of the Optionee's
termination of employment and (ii) the Expiration Date; provided that if the
Optionee's employment is terminated for Gross Misconduct, the Option shall
terminate automatically on the effective date of the Optionee's termination of
employment. Gross Misconduct means the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by the Optionee of confidential information or trade secrets of the Company or
any Subsidiary, or any other intentional misconduct by the Optionee adversely
affecting the business or affairs of the Company or any Subsidiary in a material
manner. The foregoing definition shall not be deemed to be inclusive of all the
acts or omissions which the Company or any Subsidiary may consider as grounds
for the dismissal or discharge of the Optionee or any other individual in the
employment of the Company or any Subsidiary.
(e) If the Optionee dies during the post-employment exercise period
pursuant to Section 2.2(b) following termination of employment by reason of
Disability, the Option shall be exercisable only to the extent it is exercisable
on the date of death, and may thereafter be exercised by the Optionee's Legal
Representative or Permitted Transferees, as the case may be, until the earlier
to occur of (i) two years after the effective date of the Optionee's termination
of employment and (ii) the Expiration Date.
(f) If the Optionee dies following termination of employment by reason of
Retirement and prior to the Expiration Date, the Option shall be exercisable
only to the extent it is exercisable on the date of death, and may thereafter be
exercised by the Optionee's Legal Representative or Permitted Transferees, as
the case may be, until the earliest to occur of (i) two years after the date of
death and (ii) the Expiration Date.
(g) If the Optionee dies during post-employment exercise period determined
pursuant to Section 2.2(d) following termination of employment for any reason
other than Disability, Retirement or Gross Misconduct, the Option shall be
exercisable only to the extent it is exercisable on the date of death, the
Option may thereafter be exercised by the Optionee's Legal Representative or
Permitted Transferees, as the case may be, until the earliest to occur of (i)
six months after the effective date of the Optionee's termination of employment
and (ii) the Expiration Date.
2.3. Method of Exercise. Subject to the limitations set forth in this
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Agreement, the Option may be exercised by the Optionee (1) by giving written
notice to the Company specifying the number of whole shares of Stock to be
purchased and accompanied by payment therefor in full (or arrangement made for
such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery
(either actual delivery or by attestation procedures established by the Company)
of previously owned whole shares of Stock (which the Optionee has held for at
least six months prior to the delivery of such shares or which the Optionee
purchased on the open market and in each case for which the Optionee has good
title, free and clear of all liens and encumbrances) having an aggregate Fair
Market Value, determined as of the date of exercise, equal to the aggregate
purchase price payable pursuant to the Option by reason of such exercise, (iii)
in cash by a broker-dealer acceptable to the Company to whom the Optionee has
submitted an irrevocable notice of exercise or (iv) a combination of (i) and
(ii), and (2) by executing such documents as the Company may reasonably request.
The Company shall have sole discretion to
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disapprove of an election pursuant to
any of clauses (ii) - (iv). Any fraction of a share of Stock which would be
required to pay such purchase price shall be rounded down and the Optionee will
be required to pay the fractional share portion to the next whole share. No
certificate representing a share of Stock shall be delivered until the full
purchase price therefor has been paid.
2.4 Termination of Option and Forfeiture of Option Gain. (a)
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Notwithstanding the Term Sheet or any provision of this Agreement, if at any
time prior to the date that is one year after the date of exercise of all or any
portion of the Option, the Optionee:
(1) directly or indirectly (whether as owner, stockholder,
director, officer, employee, principal, agent, consultant, independent
contractor, partner or otherwise), in North America or any other
geographic area in which the Company is then conducting business, owns,
manages, operates, controls, participates in, performs services for, or
otherwise carries on, a business similar to or competitive with the
business conducted by the Company or any Subsidiary; or
(2) directly or indirectly attempts to induce any employee of
the Company to terminate or abandon his or her employment for any
purpose whatsoever or any attempt directly or indirectly to solicit the
trade or business of any current or prospective customer, supplier or
partner of the Company; or
(3) directly or indirectly engages in any activity which is
contrary, inimical or harmful to the interests of the Company,
including but not limited to (i) violations of Company policies (ii)
disclosure or misuse of any confidential information or trade secrets
of the Company or a Subsidiary (iii) participation in any activity not
approved by the Board or Chairman which could reasonably be foreseen as
contributing to or resulting in a Change in Control of the Company and
(iv) conduct related to employment for which either criminal or civil
penalties may be sought;
then the Option shall terminate automatically on the date the Optionee engages
in such activity and the Optionee shall pay the Company, within five business
days of receipt by the Optionee of a written demand therefor, an amount in cash
determined by multiplying the number of shares of Stock purchased pursuant to
each exercise of the Option within the one-year period described above (without
reduction for any shares of Stock delivered by the Optionee or withheld by the
Company pursuant to Section 2.3 or Section 3.2) by the difference between (i)
the Fair Market Value of a share of Stock on the date of such exercise and (ii)
the Exercise Price per share of Stock.
(b) The Optionee may be released from the Optionee's obligations under
Section 2.4(a) only if and to the extent the Committee determines in its sole
discretion that such a release is in the best interests of the Company.
(c) The Optionee agrees that by executing this Agreement the Optionee
authorizes the Company and its Subsidiaries to deduct any amount or amounts owed
by the Optionee pursuant to Section 2.4(a) from any amounts payable by the
Company or any Subsidiary to the Optionee, including, without limitation, any
amount payable to the Optionee as
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salary, wages, vacation pay or bonus. This
right of setoff shall not be an exclusive remedy and the Company's or a
Subsidiary's election not to exercise this right of setoff with respect to any
amount payable to the Optionee shall not constitute a waiver of this right of
setoff with respect to any other amount payable to the Optionee or any other
remedy.
3. Additional Terms and Conditions of Option.
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3.1. Nontransferability of Option. The Option may not be transferred by the
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Optionee other than (i) by will or the laws of descent and distribution or (ii)
pursuant to beneficiary designation procedures approved by the Company. Except
to the extent permitted by the foregoing sentence, during the Optionee's
lifetime the Option is exercisable only by the Optionee or the Optionee's Legal
Representative. Except to the extent permitted by the foregoing, the Option may
not be sold, transferred, assigned, pledged, hypothecated, encumbered or
otherwise disposed of (whether by operation of law or otherwise) or be subject
to execution, attachment or similar process. Upon any attempt to so sell,
transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the
Option, the Option and all rights hereunder shall immediately become null and
void.
3.2. Withholding Taxes. (a) As a condition precedent to the delivery of
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Stock upon exercise of the Option, the Optionee shall, upon request by the
Company, pay to the Company in addition to the purchase price of the shares,
such amount of cash as the Company may be required, under all applicable
federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with respect to
such exercise of the Option. If the Optionee shall fail to advance the Required
Tax Payments after request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or thereafter payable by
the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to advance the
Required Tax Payments by any of the following means: (1) a cash payment to the
Company pursuant to Section 3.2(a), (2) delivery (either actual delivery or by
attestation procedures established by the Company) to the Company of previously
owned whole shares of Stock (which the Optionee has held for at least six months
prior to the delivery of such shares or which the Optionee purchased on the open
market and in each case for which the Optionee has good title, free and clear of
all liens and encumbrances) having an aggregate Fair Market Value, determined as
of the date the obligation to withhold or pay taxes first arises in connection
with the Option (the "Tax Date"), equal to the Required Tax Payments, (3)
authorizing the Company to withhold whole shares of Stock which would otherwise
be delivered to the Optionee upon exercise of the Option having an aggregate
Fair Market Value, determined as of the Tax Date, equal to the Required Tax
Payments, (4) a cash payment by a broker-dealer acceptable to the Company to
whom the Optionee has submitted an irrevocable notice of exercise or (5) any
combination of (1), (2) and (3). The Company shall have sole discretion to
disapprove of an election pursuant to any of clauses (2)-(5). No certificate
representing a share of Stock shall be delivered until the Required Tax Payments
have been satisfied in full.
3.3. Adjustment. In the event of any change in the capitalization of the
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Company (such as a stock split) or a corporate transaction (such as any merger,
consolidation,
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separation, including a spin-off, or other distribution of stock
or property of the Company), any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the number and
class of securities subject to the Option and the purchase price per security
shall be appropriately adjusted by the Committee without an increase in the
aggregate purchase price. The decision of the Committee regarding any such
adjustment shall be final, binding and conclusive.
3.4. Compliance with Applicable Law. The Option is subject to the condition
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that if the listing, registration or qualification of the shares subject to the
Option upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the purchase or delivery of
shares hereunder, the Option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company agrees to use reasonable efforts to effect or obtain any such listing,
registration, qualification, consent or approval.
3.5. Delivery of Certificates. Upon the exercise of the Option, in whole or
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in part, the Company shall deliver or cause to be delivered one or more
certificates representing the number of shares purchased against full payment
therefor. The Company shall pay all original issue or transfer taxes and all
fees and expenses incident to such delivery, except as otherwise provided in
Section 3.2.
3.6. Option Confers No Rights as Shareholder. The Optionee shall not be
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entitled to any privileges of ownership with respect to shares of Stock subject
to the Option unless and until purchased and delivered upon the exercise of the
Option, in whole or in part, and the Optionee becomes a shareholder of record
with respect to such delivered shares; and the Optionee shall not be considered
a shareholder of the Company with respect to any such shares not so purchased
and delivered.
3.7. Option Confers No Rights to Continued Employment. In no event shall
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the granting of the Option or its acceptance by the Optionee give or be deemed
to give the Optionee any right to continued employment by or service with the
Company or any affiliate of the Company.
3.8. Decisions of Board or Committee. The Board or the Committee shall have
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the right to resolve all questions which may arise in connection with the Option
or its exercise. Any interpretation, determination or other action made or taken
by the Board or the Committee regarding the Plan or this Agreement shall be
final, binding and conclusive.
3.9. Company to Reserve Shares. The Company shall at all times prior to the
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expiration or termination of the Option reserve and keep available, either in
its treasury or out of its authorized but unissued shares of Stock, the full
number of shares subject to the Option from time to time.
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3.10. Agreement Subject to the Plan. This Agreement is subject to the
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provisions of the Plan, and shall be interpreted in accordance therewith. The
Optionee hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
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4.1. Designation as Nonqualified Stock Option. The Option is hereby
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designated as not constituting an "incentive stock option" within meaning of
section 422 of the Code; this Agreement shall be interpreted and treated
consistently with such designation.
4.2. Meaning of Certain Terms. (a) As used herein, employment by the
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Company shall include employment by a corporation which is a "subsidiary
corporation" of the Company, as such term is defined in section 424 of the Code.
References in this Agreement to sections of the Code shall be deemed to refer to
any successor section of the Code or any successor internal revenue law.
(b) As used herein, the term "Legal Representative" shall include an
executor, administrator, legal representative, guardian or similar person and
the term "Permitted Transferee" shall include any transferee (i) pursuant to a
transfer permitted under Section 6.7 of the Plan and Section 3.1 hereof or (ii)
designated pursuant to beneficiary designation procedures approved by the
Company.
4.3. Successors. This Agreement shall be binding upon and inure to the
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benefit of any successor or successors of the Company and any person or persons
who shall, upon the death of the Optionee, acquire any rights hereunder in
accordance with this Agreement or the Plan.
4.4. Notices. All notices, requests or other communications provided for in
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this Agreement shall be made, if to the Company, to the Corporate Secretary at
The ServiceMaster Company, One ServiceMaster Way, Downers Grove, IL 60515, and
if to the Optionee, to the address of the Optionee contained in the Company's
records. All notices, requests or other communications provided for in this
Agreement shall be made in writing either (a) by personal delivery, (b) by
facsimile with confirmation of receipt, (c) by mailing in the United States
mails to the last known address of the party entitled thereto, (d) by express
courier service or (e) electronic mail delivery system. The notice, request or
other communication shall be deemed to be received upon personal delivery, upon
confirmation of receipt of facsimile transmission or upon receipt by the party
entitled thereto if by United States mail, express courier service or return
receipt of electronic mail delivery system; provided, however, that if a notice,
request or other communication sent to the Company is not received during
regular business hours, it shall be deemed to be received on the next succeeding
business day of the Company.
4.5. Governing Law. This Agreement, the Option and all determinations made
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and actions taken pursuant hereto and thereto, to the extent not governed by the
laws of the United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving effect to
principles of conflicts of law.
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