November 15, 2006

 

Mr. Ernest J. Mrozek

P.O. Box 382728

Germantown, TN 38183-2728

 

Dear Ernie:

 

Reference is hereby made to your Employment Agreement (the “Agreement”) dated as
of January 1, 2004 by and between you and The ServiceMaster Company
(“ServiceMaster”). As you know, the Agreement expires on December 31, 2006. The
Agreement also sets forth the obligations of ServiceMaster and your rights in
the event of your termination of employment. The purpose of this letter is to
set forth, in consideration of your continuing employment with ServiceMaster,
the obligations of ServiceMaster and your rights in the event of your
termination of employment on or prior to December 31, 2008.

 

In the event that your employment is terminated (i) during the period beginning
on and including January 1, 2007 and ending on and including December 31, 2007
by ServiceMaster without Cause or by you for Good Reason or (ii) during the
period beginning on and including January 1, 2008 and ending on and including
December 31, 2008 by ServiceMaster without Cause or by you for any reason
(including for Good Reason or by reason of retirement), but excluding by reason
of death or Disability, then ServiceMaster shall pay to you, within the time
period set forth below, after the effective date of your date of termination
(“Date of Termination”), as compensation for services rendered to ServiceMaster
and its affiliated companies, a lump sum cash amount equal to the sum of
subsections (1)-(4) below and, in addition, the amount determined under
subsection (5) below, in each case subject to any applicable payroll or other
taxes required to be withheld:

(1) Your full annual base salary through the Date of Termination, to the extent
not previously paid (but after giving effect to any amounts that would be
deferred pursuant to the ServiceMaster deferred compensation plan); plus

(2)       two (2) times your highest annual base salary in effect during the
two-year period commencing January 1, 2007; plus

(3)       two (2) times your annual bonus at an annual target payout equal to
100% of your highest annual base salary in effect during the two-year period
commencing January 1, 2007; plus

(4)

reimbursement of all your proper and reasonable expenses incurred by you in the
performance of your duties in accordance with the policies of ServiceMaster;
plus

(5)

any restriction period applicable to shares of ServiceMaster restricted stock
and restricted stock units held by you as of November 15, 2006 will lapse, and
all such shares shall vest, as of the close of business on the Date of
Termination;

 

 

 

 

provided, that you understand and agree that any amount payable and any
restricted stock that vests pursuant to subsection (2), (3) or (5) by reason of
a termination by you of your employment shall be conditioned upon you giving
written notice as set forth below not less than 45 days prior to the Date of
Termination. The amounts payable pursuant to this paragraph and the immediately
following paragraph shall be paid within 15 days after the Date of Termination;
provided, however, that any payments that ServiceMaster determines constitute
the payment of “nonqualified deferred compensation,” within the meaning Section
409A of the Internal Revenue Code of 1986 shall be paid on the six-month
anniversary of your separation from service, within the meaning of Section 409A.

In the event that your employment is terminated (i) during the period beginning
on and including January 1, 2007 and ending on and including December 31, 2007
by ServiceMaster for Cause or by you without Good Reason or by reason of
retirement, death or Disability or (ii) during the period beginning on and
including January 1, 2008 and ending on and including December 31, 2008 by
ServiceMaster for Cause or by reason of your death or Disability, then
ServiceMaster shall pay to you (or your executors, legal representatives or
administrators in the event of your death) within the time period set forth in
the immediately preceding paragraph, as compensation for services rendered to
ServiceMaster and its affiliated companies, a lump sum cash amount (subject to
any applicable payroll or other taxes required to be withheld) equal to the sum
of:

(1) your full annual base salary through the Date of Termination or date of
death, to the extent not previously paid (but after giving effect to any amounts
that would be deferred pursuant to the ServiceMaster deferred compensation
plan); plus

(2) reimbursement of all your proper and reasonable expenses incurred by you in
the performance of your duties in accordance with the policies of ServiceMaster.

In the event that your employment hereunder is terminated (i) during the period
beginning on and including January 1, 2007 and ending on and including December
31, 2007 by ServiceMaster without Cause or by you for Good Reason or (ii) during
the period beginning on and including January 1, 2008 and ending on and
including December 31, 2008 by ServiceMaster without Cause or by you for any
reason (including for Good Reason or by reason of retirement), but excluding by
reason of death or Disability, then for a period of two years commencing on the
Date of Termination, ServiceMaster and its subsidiaries shall continue to
provide all benefits, as then generally made available to executive officers,
with respect to you and your dependents. After the expiration of such two-year
period, you shall be entitled to continue your medical and other coverages as
set forth under Federal law (COBRA).

Any amount paid pursuant to the above shall be paid in lieu of any other amount
of severance relating to salary or bonus continuation to be received by you upon
your termination of employment under any severance plan, policy or arrangement
of ServiceMaster or its affiliated companies; provided, that if a Change in
Control of ServiceMaster occurs and (2) your Change in Control Severance
Agreement with ServiceMaster is in effect on the date of the Change in Control,
this letter agreement shall be terminated and superseded by the Change in
Control Severance Agreement, as such agreement may be amended, modified or
superseded from time to time.

 

2

 

 

 

So long as you are employed by ServiceMaster and you maintain a residence in
each of the Chicago metropolitan area and the Memphis metropolitan area,
ServiceMaster shall reimburse you, for each night for which the performance of
your duties results in your staying overnight at your residence in the Memphis
metropolitan area, the amount of $150 per night.

 

From and after the date hereof and through and including December 31, 2009 (or,
if earlier, the date that is one year after the Date of Termination), you shall
not do any of the following, directly or indirectly, without the prior written
consent of ServiceMaster:

(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 ServiceMaster
is then conducting business, own, manage, operate, control, participate in,
perform services for, or otherwise carry on, a business similar to or
competitive with the business conducted by ServiceMaster or any subsidiary of
ServiceMaster; or

(2) directly or indirectly attempt to induce any employee of ServiceMaster 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 ServiceMaster; or

(3) directly or indirectly engage in any activity which is contrary, inimical or
harmful to the interests of ServiceMaster, including but not limited to (i)
violations of ServiceMaster policies, (ii) disclosure or misuse of any
confidential information or trade secrets of ServiceMaster or a subsidiary of
ServiceMaster, (iii) participation in any activity not approved by the Board
which could reasonably be foreseen as contributing to or resulting in a Change
in Control and (iv) conduct related to employment for which either criminal or
civil penalties may be sought.

As used in this letter agreement, the following terms shall have the respective
meanings set forth below:

 

“Cause” means: (1) a material breach by you of your duties and responsibilities
(other than as a result of incapacity due to physical or mental illness) which
is demonstrably willful and deliberate on your part, which is committed in bad
faith or without reasonable belief that such breach is in the best interests of
ServiceMaster and which is not remedied within 30 days after receipt of written
notice from ServiceMaster specifying such breach; or (2) the commission by you
of a felony or misdemeanor involving any act of fraud, embezzlement or
dishonesty or any other intentional misconduct by you that substantially and
adversely affects the business affairs or reputation of ServiceMaster or an
affiliated company.

“Change in Control” shall have the meaning set forth in your Change in Control
Severance Agreement; provided, that in the event such definition shall be
modified or revised in such agreement, then the definition of Change in Control
for purposes of this letter agreement shall be so modified or revised.

 

3

 

 

 

“Disability” means your absence from your duties with ServiceMaster or its
affiliated companies on a full-time basis for at least 180 consecutive days as a
result of your incapacity due to physical or mental illness.

“Good Reason” means, without your written consent, the occurrence of any of the
following events: (1) any of (i) the reduction in any material respect in your
position(s), authorities or responsibilities with ServiceMaster; provided, that
so long as the management of the financial accounting, internal audit, investor
relations, tax and treasury functions continues to report to you directly or
indirectly, it shall not constitute Good Reason if there is a change in your
position(s), authorities or responsibilities with respect to the management of
the financial accounting, internal audit, investor relations, tax and treasury
functions; (ii) an adverse change in your reporting relationships, or (iii) any
failure to re-elect you to an executive officer position with ServiceMaster; (2)
(i) a reduction in your base salary as in effect as of November 15, 2006, or as
the same may be increased from time to time thereafter, (ii) with respect to the
annual equity-based compensation award made by ServiceMaster, a reduction in
your target annual value attributed to such equity-based compensation award from
the target value attributed to your 2006 award made on February 14, 2006, or
(iii) or a target annual bonus in either 2007 or 2008 that is less than an
annual target payout equal to 75% of your 2007 base salary, or as the same may
be increased from time to time thereafter; provided, that it shall not
constitute Good Reason if any reduction is approved by the Compensation and
Leadership Development Committee and the percentage reduction is equal to or
less than the corresponding percentage reduction in compensation or target
compensation of all or a majority of other executive officers of ServiceMaster;
or (3) the failure of ServiceMaster to (i) provide you and your dependents
benefits substantially comparable to the plans, practices, programs and policies
of ServiceMaster and its subsidiaries in effect for you on January 1, 2007, (ii)
provide fringe benefits substantially comparable to the plans, practices,
programs and policies of ServiceMaster and its subsidiaries in effect for you on
November 15, 2006, (iii) provide an office, together with secretarial and other
assistance, substantially comparable to that provided to you by ServiceMaster on
November 15, 2006, or (iv) provide you with four weeks annual paid vacation.

For purposes of this Agreement, an isolated, insubstantial and inadvertent
action taken in good faith and which is remedied by ServiceMaster after receipt
of written notice thereof given by you shall not constitute Good Reason.

This letter agreement shall inure to the benefit of and be enforceable by
ServiceMaster and its successors and assigns and by you and your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This letter agreement shall not be
terminated by any merger or consolidation of ServiceMaster whereby ServiceMaster
is or is not the surviving or resulting corporation or as a result of any
transfer of all or substantially all of the assets of ServiceMaster. In the
event of any such merger, consolidation or transfer of assets, the provisions of
this letter agreement shall be binding upon the surviving or resulting
corporation or the person or entity to which such assets are transferred.

All notices and other communications required or permitted under this letter
agreement shall be in writing and shall be deemed to have been duly given when
delivered or five days after deposit in the United States mail, postage prepaid,
addressed (a) if to you, to Ernest J. Mrozek, P.O. Box 382728, Germantown, TN
38183-2728, and if to ServiceMaster, to The ServiceMaster Company,

 

4

 

 

860 Ridge Lake Blvd., Memphis Tennessee 38120, attention General Counsel, or (b)
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

Except as otherwise specified herein, this letter agreement constitutes the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related in any manner to the subject matter hereof.

No provision of this letter agreement may be modified or waived unless such
modification or waiver is agreed to in writing and signed by you and by the
Chairman and Chief Executive Officer of ServiceMaster or any successor under
this letter agreement. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. Failure by you or ServiceMaster to insist upon strict
compliance with any provision of this Agreement or to assert any right which you
or ServiceMaster may have hereunder shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.

The interpretation, construction and performance of this letter agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of Illinois without regard to the principle of conflicts of laws.
The invalidity or enforceability of any provision of this letter agreement shall
not affect the validity or enforceability of any of the other provisions of this
letter agreement, which other provisions shall remain in full force and effect.

Sincerely,

 

THE SERVICEMASTER COMPANY

 

 

 

By:

/s/ J. Patrick Spainhour

Name:

J. Patrick Spainhour

 

Chairman and Chief Executive Officer

 

 

If you are in agreement with the above, please sign and date below.

 

By:

/s/ Ernest J. Mrozek

Name:

Ernest J. Mrozek

 

Chairman and Chief Executive Officer

 

 

5