TABLE OF CONTENTS

ARTICLE I
DEFINITIONS; INTERPRETATION

		Page
Section 1.1	Definitions	2
Section 1.2	Interpretation	9

ARTICLE II
THE MERGER

Section 2.1	The Merger	10
Section 2.2	Closing	10
Section 2.3	Effective Time	10
Section 2.4	Effects of the Merger	10
Section 2.5	Certificate of Incorporation and By-laws; Officers and Directors.	11

ARTICLE III
EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT
CORPORATIONS; SURRENDER OF CERTIFICATES

Section 3.1	Effect on Stock	11
Section 3.2	Surrender of Certificates	12

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 4.1	Organization	14
Section 4.2	Subsidiaries	14
Section 4.3	Capital Structure	15
Section 4.4	Authority	16
Section 4.5	Consents and Approvals; No Violations	17
Section 4.6	SEC Documents and Other Reports	17
Section 4.7	Absence of Material Adverse Change	18
Section 4.8	Information Supplied	19
Section 4.9	Compliance with Laws	19
Section 4.10	Tax Matters	19
Section 4.11	Liabilities	20
Section 4.12	Litigation	20
Section 4.13	Benefit Plans	20
Section 4.14	State Takeover Statutes	21
Section 4.15	Intellectual Property	22
Section 4.16	Material Contracts	22
Section 4.17	Labor and Employment	22
Section 4.18	Real Estate	23
Section 4.19	Environmental Matters	23
Section 4.20	Affiliate Transactions	24
Section 4.21	Required Vote of Company Stockholders	24
Section 4.22	Opinions of Financial Advisors	24

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TABLE OF CONTENTS

(continued)

		Page
Section 4.23	Brokers	24

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

Section 5.1	Organization	25
Section 5.2	Authority	25
Section 5.3	Consents and Approvals; No Violations	25
Section 5.4	Information Supplied	26
Section 5.5	Litigation	26
Section 5.6	Capitalization and Interim Operations of Sub	26
Section 5.7	Financing Commitments	26
Section 5.8	Brokers	27
Section 5.9	Lack of Ownership of Company Common Stock	27
Section 5.10	Guaranty	27
Section 5.11	Absence of Arrangements with Management	27

ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 6.1	Conduct of Business by the Company Pending the Merger	28
Section 6.2	No Solicitation	30
Section 6.3	Conduct of Parent and Sub Pending the Merger	32

ARTICLE VII
ADDITIONAL AGREEMENTS

Section 7.1	Employee Benefits	32
Section 7.2	Treatment of Stock-Based Awards	35
Section 7.3	Stockholder Approval; Preparation of Proxy Statement	36
Section 7.4	Access to Information	37
Section 7.5	Fees and Expenses	37
Section 7.6	Public Announcements	38
Section 7.7	Transfer Taxes	39
Section 7.8	State Takeover Laws	39
Section 7.9	Indemnification; Directors and Officers Insurance	39
Section 7.10	Reasonable Best Efforts	40
Section 7.11	Notification of Certain Matters	41
Section 7.12	Financing	41
Section 7.13	Solvency Letter	44
Section 7.14	Exchange Rights Agreement	44

ARTICLE VIII
CONDITIONS PRECEDENT

Section 8.1	Conditions to Each Party’s Obligation to Effect the Merger	44
Section 8.2	Conditions to the Obligations of the Company to Effect the Merger	45
Section 8.3	Conditions to the Obligations of Parent and Sub to Effect the Merger	46

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ARTICLE IX
TERMINATION AND AMENDMENT

		Page
Section 9.1	Termination	46
Section 9.2	Effect of Termination	48
Section 9.3	Amendment	48
Section 9.4	Extension; Waiver	49

ARTICLE X
GENERAL PROVISIONS

Section 10.1	Non-Survival of Representations and Warranties and Agreements	49
Section 10.2	Notices	49
Section 10.3	Counterparts	50
Section 10.4	Entire Agreement; No Third-Party Beneficiaries	50
Section 10.5	Governing Law; Venue; Waiver of Jury Trial	51
Section 10.6	Assignment	52
Section 10.7	Severability	52
Section 10.8	Enforcement of this Agreement	52
Section 10.9	Obligations of Subsidiaries	52
Section 10.10	Construction	52

 

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER , dated as of March 18, 2007 (this “ Agreement ”), among CDRSVM Topco, Inc., a Delaware corporation (“ Parent ”), CDRSVM Acquisition Co., Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“ Sub ”), and The ServiceMaster Company, a Delaware corporation (the “ Company ”) (Sub and the Company being hereinafter collectively referred to as the “ Constituent Corporations ”).  Except as otherwise set forth herein, capitalized (and certain other) terms used herein shall have the meanings set forth in Section 1.1 .

W I T N E S S E T H:

WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have each approved the merger of Sub with and into the Company (the “ Merger ”), upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of common stock, par value $0.01 per share, of the Company (the “ Company Common Stock ” or the “ Shares ”), other than Dissenting Shares (as defined herein) and Shares owned directly or indirectly by Parent or the Company, will be converted into the right to receive cash as set forth herein;

WHEREAS, the respective Boards of Directors of the Company and Sub have each determined that this Agreement and the Merger are advisable and in the best interests of their respective stockholders and recommended that their respective stockholders adopt this Agreement;

WHEREAS, concurrently with the execution of this Agreement, and as a condition to the willingness of the Company to enter into this Agreement, each of 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, Clayton, Dubilier & Rice Fund VII, L.P., Clayton Dubilier & Rice Fund VII (Co-Investment), L.P. and J.P. Morgan Ventures Corporation (the “ Guarantors ”) is entering into a guaranty with the Company in the form attached hereto as Exhibit A (the “ Guaranty ”) pursuant to which the Guarantors are guaranteeing certain obligations of Parent and Sub in connection with this Agreement; and

WHEREAS, each of Parent, Sub and the Company desires to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, each of Parent, Sub and the Company hereby agrees as follows:

 

ARTICLE I

DEFINITIONS; INTERPRETATION

Section 1.1  Definitions .  As used in this Agreement, the following terms have the meanings specified or referred to in this Section 1.1 and shall be equally applicable to both the singular and plural forms.

“ Acquisition Agreement ” has the meaning set forth in Section 6.2(c) .

“ Affiliate ” means, with respect to any Person, any other Person that, at the time of determination, directly or indirectly through one or more intermediaries Controls, is Controlled by or is under Common Control with such Person.

“ Agreement ” has the meaning set forth in the introductory paragraph of this Agreement.

“ Benefit Plan ” means any material bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical, stock appreciation, restricted stock or other material employee benefit plan providing benefits to any current or former employee, officer or director of the Company or any of its Subsidiaries or, in the case of any stock purchase plan, any franchisee or employee of a franchisee.

“ Business Day ” means any day ending at 11:59 p.m. (Eastern Time) other than a Saturday or Sunday or a day on which banks are required or authorized to close in the City of New York.

“ By-laws ” has the meaning set forth in Section 2.5(b) .

“ Certificate ” has the meaning set forth in Section 3.1(c) .

“ Certificate of Incorporation ” means the Amended and Restated Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time.

“ Certificate of Merger ” has the meaning set forth in Section 2.3 .

“ Closing ” has the meaning set forth in Section 2.2 .

“ Closing Date ” has the meaning set forth in Section 2.2 .

“ Code ” means the Internal Revenue Code of 1986.

“ Commitment Letter ” has the meaning set forth in Section 5.7 .

“ Company ” has the meaning set forth in the introductory paragraph of this Agreement.

“ Company 401(k) Plan ” has the meaning set forth in Section 7.1(e) .

“ Company Awards ” means, collectively, Company Stock Options, Company SARs and Company Stock Units.

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“ Company Common Stock ” has the meaning set forth in the first recital of this Agreement.

“ Company Credit Agreement ” means the $500,000,000 Credit Agreement, dated as of May 19, 2004, as amended as of May 6, 2005, among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A. and Bank of America, N.A. as syndication agents, SunTrust Bank as administrative agent, and U.S. Bank National Association and Wachovia Bank, N.A. as documentation agents.

“ Company DCP ” has the meaning set forth in Section 7.1(f) .

“ Company Employment Agreement ” has the meaning set forth in Section 4.13(b) .

“ Company Leased Real Property ” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property of the Company or any of its Subsidiaries.

“ Company Leases ” means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant to which the Company or any of its Subsidiaries holds all or any portion of any Company Leased Real Property.

“ Company Letter ” means the letter from the Company to Parent dated the date hereof, which letter relates to this Agreement and is designated therein as the Company Letter.

“ Company Lines of Credit ” means, collectively, (i) the Company’s $20,000,000 line of credit with Banca Di Roma, as evidenced by that certain letter agreement, dated as of January 21, 2005, between the Company and Banca Di Roma, (ii) the Company’s $25,000,000 line of credit with Wells Fargo Bank, National Association, as evidenced by that certain Agreement, dated as of May 18, 2005, between the Company and Wells Fargo Bank, National Association, and (iii) the Company’s $15,000,000 line of credit with Regions Bank, as evidenced by the Negotiated Rate Promissory Note, dated as of November 9, 2005, between the Company and Regions Bank, in each case as amended or extended prior top the date hereof.

“ Company Material Contract ” has the meaning set forth in Section 4.16 .

“ Company Owned Real Property ” means all land, together with all buildings, structures, improvements, and fixtures located thereon, and all easements and other rights and interests appurtenant thereto, owned by the Company or any Subsidiary of the Company.

“ Company Permits ” has the meaning set forth in Section 4.9 .

“ Company Preferred Stock ” has the meaning set forth in Section 4.3(a) .

“ Company Real Property ” means, collectively, the Company Leased Real Property and the Company Owned Real Property.

“ Company Restricted Shares ” has the meaning set forth in Section 4.3(d) .

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“ Company SARs ” has the meaning set forth in Section 4.3(b)(v) .

“ Company SEC Documents ” has the meaning set forth in Section 4.6 .

“ Company Stock Incentive Plans ” means the Company’s 2003 Equity Incentive Plan, 2001 Directors Stock Plan, 2000 Equity Incentive Plan, 1998 Non-Employee Directors Discounted Stock Option Plan, 1998 Equity Incentive Plan, 10 Plus Option Plan, 1997 Share Option Plan, 1994 Non-Employee Directors Share Option Plan, 1996 Incentive Plan of American Residential Services, Inc., LandCare USA, Inc. 1998 Long-Term Incentive Plan and WeServeHomes.com, Inc. 2000 Stock Option/Stock Issuance Plan.

“ Company Stock Options ” has the meaning set forth in Section 4.3(b)(iii) .

“ Company Stock Purchase Plans ” means the Company’s 2004 Employee Stock Purchase Plan and the Franchisee Share Purchase Plan.

“ Company Stock Units ” has the meaning set forth in Section 4.3(b)(vi) .

“ Company Stockholder Approval ” has the meaning set forth in Section 7.3(a) .

“ Company Termination Fee ” has the meaning set forth in Section 7.5(b) .

“ Confidentiality Agreement ” has the meaning set forth in Section 7.4 .

“ Constituent Corporations ” has the meaning set forth in the introductory paragraph of this Agreement.

“ Control ” means, as to any Person, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.  The terms “Controlled by,” “under Common Control with” and “Controlling” have correlative meanings.

“ Current Premium ” has the meaning set forth in Section 7.9(b) .

“ D&O Insurance ” has the meaning set forth in Section 7.9(b) .

“ Debt Financing ” has the meaning set forth in Section 5.7 .

“ DGCL ” means the General Corporation Law of the State of Delaware.

“ Directors Plan ” has the meaning set forth in Section 7.1(g) .

“ Dissenting Shares ” has the meaning set forth in Section 3.1(d) .

“ Dissenting Stockholder ” has the meaning set forth in Section 3.1(d) .

“ Effective Time ” has the meaning set forth in Section 2.3 .

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“ Environmental Law ” means any applicable statute, law, ordinance, regulation, rule, judgment, decree or order of any Governmental Entity relating to any matter of pollution, protection of human health and the environment or environmental regulation or control or regarding Hazardous Substances.

“ Environmental Permits ” means any permit, approval, authorization, license, variance or permission required from a Governmental Entity under any applicable Environmental Laws.

“ Equity Funding Letters ” has the meaning set forth in Section 5.7 .

“ Equity Interest ” has the meaning set forth in Section 6.1(a) .

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Benefit Plan ” means a U.S. Benefit Plan maintained as of the date of this Agreement that is also an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or that is also an “employee welfare benefit plan” (as defined in Section 3(1) of ERISA).

“ Exchange Act ” means the Securities Exchange Act of 1934.

“ Exchange Fund ” has the meaning set forth in Section 3.2(a) .

“ Exchange Rights Agreement ” means the Exchange Rights Agreement  referred to in Section 4.3(b) of the Company Letter

“ Expenses ” means documented and reasonable out-of-pocket fees and expenses incurred or paid by or on behalf of Parent in connection with the Merger or the consummation of any of the transactions contemplated by this Agreement, including all documented and reasonable fees and expenses of law firms, commercial banks, investment banking firms, accountants, experts and consultants to Parent.

“ Financing ” has the meaning set forth in Section 5.7 .

“ GAAP ” means United States generally accepted accounting principles.

“ Goldman Sachs ” means Goldman, Sachs & Co.

“ Governmental Entity ” means any federal, state, local or foreign government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational, any stock exchange or any self-regulating entity supervising, organizing and supporting any stock exchange.

“ Greenhill ” means Greenhill & Co., LLC.

“ Guarantors ” has the meaning set forth in the third recital of this Agreement.

“ Guaranty ” has the meaning set forth in the third recital of this Agreement.

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“ Hazardous Substance ” means any material defined as toxic or hazardous, including any petroleum and petroleum products, under any applicable Environmental Law.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“ Indemnified Person ” has the meaning set forth in Section 7.9(a) .

“ Intellectual Property ” means all trademarks, service marks, trade names, trade dress, including all goodwill associated with the foregoing, domain names, copyrights, software and computer programs, internet web sites, mask works and other semiconductor chip rights, and similar rights, and registrations and applications to register or renew the registration of any of the foregoing, patents and patent applications and rights, trade secrets and all similar intellectual property rights.

“ Intervening Event ” means a material event relating to the Company and its Subsidiaries taken as a whole (other than an increase in the market price of the Company Common Stock and any event resulting from a breach of this Agreement by the Company or any of its Subsidiaries) that was neither known to the Board of Directors of the Company nor reasonably foreseeable as of or prior to the date hereof (and not relating to or resulting from any Takeover Proposal), which becomes known to the Company prior to the Company Stockholder Approval.

“ IRS ” means the United States Internal Revenue Service.

“ Knowledge ” means the actual knowledge of the officers of the Company set forth in Section 1.1 of the Company Letter or the officers of Parent set forth in Section 1.1 of the Parent Letter, as the case may be.

“ Liens ” means any pledges, claims, liens, charges, encumbrances, defects of title, restrictions on transfer,  and security interests of any kind or nature whatsoever, except in the case of securities, for limitations on transfer imposed by federal or state securities laws.

“ Marketing Period ” has the meaning set forth in Section 7.12(a) .

“ Material Adverse Change ” or “ Material Adverse Effect ” means, when used in connection with the Company or Parent, as the case may be, any change, effect or circumstance that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to the business, properties, assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole, or Parent and its Subsidiaries taken as a whole, as the case may be; provided , however , that to the extent any change, effect or circumstance is caused by or results from any of the following, it shall not be taken into account in determining whether there has been a “Material Adverse Change” or “Material Adverse Effect” with respect to the Company or Parent, as the case may be:  (i) except with respect to the representations and warranties set forth in Section 4.5 or Section 5.3 , the announcement of the execution of this Agreement (including losses or threatened losses of the relationships of the Company or any of its Subsidiaries with customers, distributors, suppliers or franchisees), actions contemplated by this Agreement or the performance of obligations under this Agreement, (ii) the identity of Parent or any of its Affiliates as the acquiror of the Company, (iii) changes affecting the United States economy or financial or securities markets as a whole or changes that are the result of

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factors generally affecting the industries in which the Company and its Subsidiaries conduct their business, (iv) failure to meet internal or analyst financial forecasts, (v) any change in the market price or trading volume of the equity securities of the Company on or after the date hereof, (vi) the suspension of trading in securities generally on the NYSE or the American Stock Exchange or the Nasdaq National Market, (vii) any change in any applicable law, rule or regulation or GAAP or interpretation thereof after the date hereof, (viii) the availability or cost of financing to Parent or Sub, and (ix) the commencement, occurrence or continuation of any war, armed hostilities or acts of terrorism involving or affecting the United States of America or any part thereof, except (A) in the case of the foregoing clause (iii) only, to the extent such changes do not materially disproportionately impact the Company and its Subsidiaries, taken as a whole, relative to other companies in the industries in which the Company and its Subsidiaries conduct their business and (B) the events underlying changes, effects and circumstances described in the foregoing clauses (iv) and (v) are not included within the scope of such clauses.

“ Merger ” has the meaning set forth in the first recital of this Agreement.

“ Merger Consideration ” has the meaning set forth in Section 3.1(c) .

“ Morgan Stanley ” means Morgan Stanley & Co. Incorporated.

“ New Financing Commitments ” has the meaning set forth in Section 7.12(a) .

“ NYSE ” means The New York Stock Exchange, Inc.

“ Parent ” has the meaning set forth in the introductory paragraph of this Agreement.

“ Parent Letter ” means the letter from Parent to the Company dated the date hereof, which letter relates to this Agreement and is designated therein as the Parent Letter.

“ Parent Termination Fee ” has the meaning set forth in Section 7.5(c) .

“ Paying Agent ” has the meaning set forth in Section 3.2(a) .

“ Person ” means an individual, corporation, partnership, limited partnership, limited liability partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity (including any person as defined in Section 13(d)(3) of the Exchange Act).

“ principal executive officer ” has the meaning set forth in Section 4.6(b) .

“ principal financial officer ” has the meaning set forth in Section 4.6(b) .

“ Proxy Statement ” has the meaning set forth in Section 4.8 .

“ Qualifying Confidentiality Agreement ” means an executed agreement with provisions requiring any Person receiving nonpublic information with respect to the Company, which provisions to keep such information confidential are no less restrictive in the aggregate to such Person than the Confidentiality Agreement is to Parent, its Affiliates, and their respective

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personnel and representatives (it being understood that such agreement with such Person need not have comparable standstill provisions), provided that no such confidentiality agreement shall conflict with any rights of Parent or Sub or obligations of the Company and its Subsidiaries under this Agreement.

“ Required Financial Information ” has the meaning set forth in Section 7.12(b) .

“ Retained Employees ” has the meaning set forth in Section 7.1(b) .

“ Sarbanes-Oxley Act ” means the Sarbanes-Oxley Act of 2002.

“ SEC ” means the Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933.

“ Shares ” has the meaning set forth in the first recital of this Agreement.

“ Solvent ” when used with respect to any Person means that, as of any date of determination, (i) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are generally determined in accordance with applicable federal laws governing determinations of the insolvency of debtors, (ii) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (iii) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business and (iv) such Person will be able to pay its debts as they mature. For purposes of this definition, (a) “debt” means liability on a “claim,” and (b) “claim” means any (1) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (2) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

“ Stockholders Meeting ” has the meaning set forth in Section 7.3(a) .

“ Sub ” has the meaning set forth in the introductory paragraph of this Agreement.

“ Subsidiary ” of any Person means another Person, of which securities or ownership interests (i) having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned or controlled directly or indirectly by such first Person and/or by one or more of its Subsidiaries or (ii) representing at least 50% of such securities or ownership interests are at the time directly or indirectly owned by such first Person and/or by one or more of its Subsidiaries.

“ Superior Proposal ” means any bona fide written proposal or offer from any Person (other than Parent and its Affiliates) not solicited in violation of Section 6.2(a) relating to any direct or indirect acquisition or purchase, for consideration consisting of cash and/or securities,

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of 50% or more of the consolidated assets of the Company and its Subsidiaries or more than 50% of the voting power of the Shares then outstanding, including by means of any tender or exchange offer that if consummated would result in any Person (other than Parent and its Affiliates) beneficially owning Shares with more than 50% of the voting power of the Shares then outstanding and, in each case, that is on terms that the Board of Directors of the Company determines in its good faith judgment (after consultation with a financial advisor of nationally recognized reputation, such as Goldman Sachs, Greenhill or Morgan Stanley) to be more favorable to the Company’s stockholders than the transactions contemplated hereby, taking into account all relevant aspects of such offer (in comparison with the terms of this Agreement and any revised offer by Parent), including financial considerations (including additional transaction costs and the effect of any termination fee, expenses or amounts payable hereunder) and the likelihood that the proposed transaction would be consummated.

“ Surviving Corporation ” has the meaning set forth in Section 2.1 .

“ Takeover Proposal ” means any proposal or offer from any Person (other than Parent and its Affiliates) relating to (i) any direct or indirect acquisition or purchase of 20% or more of the assets of the Company and its Subsidiaries or 20% or more of the voting power of the Shares then outstanding, including any tender offer or exchange offer that if consummated would result in any Person (other than Parent and its Affiliates) beneficially owning Shares with 20% or more of the voting power of the Shares then outstanding, or (ii) any merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or similar transaction involving the Company pursuant to which any Person or the stockholders of any Person would own 20% or more of any class of equity securities of the Company or of any resulting parent company of the Company, in each case other than the transactions contemplated by this Agreement.

“ Tax ” and “ Taxes ” means any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any Governmental Entity.

“ Tax Return ” means any return, report or similar statement required to be filed with respect to any Tax including any information return, claim for refund, amended return or declaration of estimated Tax.

“ Termination Date ” has the meaning set forth in Section 9.1(b)(i) .

“ Terminix International ” means The Terminix International Company, L.P., a Delaware limited partnership.

“ Transfer Taxes ” has the meaning set forth in Section 7.7 .

Section 1.2  Interpretation .  For purposes of this Agreement, (i) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation,” (ii) the word “or” is not exclusive and (iii) the words “herein,” “hereof,” “hereby,” “hereto” and

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“hereunder” refer to this Agreement as a whole.  Unless the context otherwise requires, a reference herein:  (i) to an Article or Section means an Article and Section of this Agreement, (ii) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement, (iii) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any rules or regulations promulgated thereunder and (iv) all references to “dollars” or “$” or any similar reference or designation contained therein means United States dollars.  Titles to Articles and headings of Sections are inserted for convenience of reference only and shall not be deemed a part of or to affect the meaning or interpretation of this Agreement.

ARTICLE II
THE MERGER

Section 2.1  The Merger .  Upon the terms and subject to the conditions hereof, and in accordance with the DGCL, Sub shall be merged with and into the Company at the Effective Time.  Following the Effective Time, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the “Surviving Corporation”) and shall succeed to and assume all the rights and obligations of Sub and the Company in accordance with Section 259 of the DGCL.

Section 2.2  Closing .  The closing of the Merger (the “ Closing ”) will take place at 10:00 a.m. on a date mutually agreed to by Parent and the Company (the “ Closing Date ”), which shall be no later than the fifth Business Day after satisfaction or waiver of the conditions set forth in Article VIII (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022, unless another date, time or place is agreed to in writing by the parties hereto, provided that notwithstanding the satisfaction or waiver of the conditions set forth in Article VIII , (i) Parent and Sub will not be required to effect the Closing until the earlier of (a) the final day of the Marketing Period and (b) the Termination Date and (ii) the Company shall not be required to effect the Closing without at least five Business Days’ notice specified by Parent.

Section 2.3  Effective Time .  The Merger shall become effective when a Certificate of Merger (the “Certificate of Merger”), executed in accordance with the relevant provisions of the DGCL, is duly filed with the Secretary of State of the State of Delaware, or at such later time as Sub and the Company shall agree and is specified in the Certificate of Merger.  When used in this Agreement, the term “ Effective Time ” shall mean the later of the date and time at which the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware or such later time established by the Certificate of Merger.  The filing of the Certificate of Merger shall be made as soon as practicable after the satisfaction or waiver of the conditions to the Merger set forth in Article VIII (but in no event on a date prior to the date of the Closing).

Section 2.4  Effects of the Merger .  The Merger shall have the effects set forth in the DGCL.

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Section 2.5  Certificate of Incorporation and By-laws; Officers and Directors .

(a)  The certificate of incorporation of the Surviving Corporation shall be as set forth on Exhibit B hereto, until thereafter changed or amended as provided therein or by applicable law.

(b)  The By-laws of the Company (the “ By-laws ”), as in effect immediately prior to the Effective Time, shall be the by-laws of the Surviving Corporation until thereafter changed or amended as provided by the certificate of incorporation or by-laws of the Surviving Corporation or by applicable law.

(c)  The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

(d)  The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

ARTICLE III
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES

Section 3.1  Effect on Stock .  As of the Effective Time, by virtue of the Merger and without any action on the part of any of Parent, Sub, the Company or the holders of any securities of the Constituent Corporations:

(a)  Capital Stock of Sub .  Each issued and outstanding share of capital stock of Sub shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, $0.01 par value, of the Surviving Corporation.

(b)  Treasury Stock and Parent Owned Stock .  Each Share that is owned by the Company or by any wholly owned Subsidiary of the Company and each Share that is owned by Parent, Sub or any other wholly owned Subsidiary of Parent shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(c)  Conversion of Shares .  Subject to Section 3.1(d) , each Share issued and outstanding (other than Shares to be cancelled in accordance with Section 3.1(b) and Dissenting Shares), shall be cancelled and be converted into the right to receive in cash, without interest, $15.625 per Share (the “ Merger Consideration ”).  As of the Effective Time, all such Shares shall be cancelled in accordance with this Section 3.1(c) , and when so cancelled, shall no longer be outstanding and shall automatically be retired and shall cease to exist, and each holder of a certificate representing any such Shares (a “ Certificate ”) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration for each such Share, without interest.

(d)  Shares of Dissenting Stockholders .  Any issued and outstanding Shares held by a Person (a “ Dissenting Stockholder ”) who has not voted in favor of or consented to the adoption of this Agreement and the Merger and has complied with all the provisions of the DGCL concerning the right of holders of Shares to require appraisal of their Shares (“ Dissenting

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Shares ”) shall not be converted into the right to receive the Merger Consideration as described in Section 3.1(c) , but shall be converted into the right to receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to the procedures set forth in Section 262 of the DGCL.  If such Dissenting Stockholder withdraws its demand for appraisal or fails to perfect or otherwise loses its right of appraisal, in any case pursuant to the DGCL, its Shares shall be deemed to be converted as of the Effective Time into the right to receive the Merger Consideration for each such Share, without interest.  The Company shall give Parent prompt notice of any demands for appraisal of Shares received by the Company.  The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands.

Section 3.2  Surrender of Certificates .  (a)    Paying Agent .  Prior to the Effective Time, Parent shall designate a bank or trust company that shall be reasonably satisfactory to the Company to act as paying agent in the Merger (the “ Paying Agent ”), and, as of the Effective Time, Parent shall deposit, or cause the Surviving Corporation to deposit, with the Paying Agent a cash amount in immediately available funds equal to the product of the Merger Consideration and the number of Shares issued and outstanding immediately prior to the Effective Time (exclusive of any Shares to be cancelled pursuant to Section 3.1(b) and any Dissenting Shares) (the “ Exchange Fund ”).  Funds made available to the Paying Agent shall be invested by the Paying Agent as directed by Sub or, after the Effective Time, the Surviving Corporation; provided , however , that such investments shall only be in obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the highest rating from Moody’s Investors Service, Inc. or Standard & Poor’s Corporation or a combination of the foregoing and, in any such case, no such instrument shall have a maturity exceeding three months (it being understood that any and all interest or income earned on funds made available to the Paying Agent pursuant to this Agreement shall be remitted to Parent).  To the extent that there are losses with respect to such investments, or the Exchange Fund diminishes for other reasons below the level required to make prompt cash payment of the Merger Consideration as contemplated hereby, Parent shall promptly replace or restore the cash in the Exchange Fund lost through such investments or other events so as to ensure that the Exchange Fund is at all times maintained at a level sufficient to make such cash payments.

(b)  Exchange Procedure .  As soon as practicable after the Effective Time (and in any event within three (3) Business Days thereof), the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of a Certificate (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or the making of affidavits of loss in lieu thereof) to the Paying Agent and shall be in a form and have such other customary provisions as Parent and the Company may reasonably agree) and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits of loss in lieu thereof) in exchange for the Merger Consideration as provided in Section 3.1 .  Upon surrender of a Certificate (or an affidavit of loss in lieu thereof) for cancellation to the Paying Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent pursuant to such instructions, the holder of such Certificate shall be entitled to receive promptly in exchange therefor the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.1 , and the Certificate so surrendered shall forthwith be cancelled.  In the event of a transfer of ownership of Shares that is

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not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such Tax has been paid or is not applicable.  Until surrendered as contemplated by this Section 3.2 , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.1 .  No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate (or an affidavit of loss in lieu thereof).  Parent or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as Parent or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Code or under any provision of state, local or foreign Tax law.  To the extent that amounts are so withheld by Parent or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by Parent or the Paying Agent.

(c)  No Further Ownership Rights in Shares .  All Merger Consideration paid upon the surrender of Certificates (or affidavits of loss in lieu thereof) in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates.  At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be cancelled and exchanged as provided in this Article III .

(d)  Termination of Exchange Fund .  Any portion of the Exchange Fund that remains undistributed to the holders of Shares for twelve months after the Effective Time shall be delivered to Parent, upon demand, and any holders of Shares (other than Shares to be cancelled in accordance with Section 3.1(b) and Dissenting Shares) who have not theretofore complied with this Article III and the instructions set forth in the letter of transmittal mailed to such holders after the Effective Time shall thereafter look only to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) for payment of the Merger Consideration to which they are entitled, without interest.

(e)  No Liability .  None of Parent, Sub, the Company or the Paying Agent shall be liable to any Person in respect of any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

(f)  Lost, Stolen or Destroyed Certificates .  If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the

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Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the cash payment into which the Shares represented by such Certificate shall have been converted pursuant to Section 3.1 .

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except (i) as set forth in the corresponding section of the Company Letter, it being understood that matters disclosed pursuant to one section of the Company Letter shall be deemed disclosed with respect to any other section of the Company Letter where it is reasonably apparent that the matters so disclosed are applicable to such other section, (ii) as specifically disclosed in the Company SEC Documents filed with or furnished to the SEC on or after December 31, 2005 and prior to the date hereof (excluding any disclosures set forth in any risk factor section or forward looking statements contained therein) or (iii) as expressly contemplated or expressly permitted under this Agreement or any agreement contemplated hereby, the Company hereby represents and warrants to Parent and Sub as follows:

Section 4.1  Organization .  The Company and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite corporate, partnership or limited liability company (as the case may be) power and authority to carry on its business as now being conducted, except where the failure to be in good standing or to have such corporate, partnership or limited liability company (as the case may be) power and authority has not had and would not reasonably be expected to have a Material Adverse Effect on the Company.  The Company and each of its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing has not had and would not reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger.  The Company has made available to Parent complete and correct copies of the Certificate of Incorporation and the By-laws and the charter and by-laws (or similar organizational documents), as amended through the date hereof,  of each of its Subsidiaries listed in Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Section 4.2  Subsidiaries .  All of the outstanding shares of capital stock of each Subsidiary of the Company that is a corporation have been validly issued and are fully paid and nonassessable.  All of the outstanding shares of capital stock or other equity interests of each Subsidiary of the Company are owned by the Company, by one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company, free and clear of all Liens.  No shares of preferred stock of any Subsidiary of the Company are issued and outstanding.  Except for the capital stock and other equity interests of its Subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture, limited liability company or other entity that is material to the business of the Company and its Subsidiaries, taken as a whole.

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Section 4.3  Capital Structure .  (a)   The authorized capital stock of the Company consists of 1,000,000,000 shares of Company Common Stock and 11,000,000 shares of preferred stock, par value $0.01 per share (the “ Company Preferred Stock ”).

(b)  At the close of business on March 15, 2007 (March 16, 2007, in the case of clauses (vi) and (vii)):

(i)  291,683,841 shares of Company Common Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free of preemptive rights;

(ii)  36,278,986 shares of Company Common Stock were held by the Company in its treasury;

(iii)  16,483,895 shares of Company Common Stock were reserved for issuance pursuant to outstanding options to purchase Company Common Stock granted under the Company Stock Incentive Plans or listed in Section 4.3(b)(iii) of the Company Letter (collectively, the “ Company Stock Options ”);

(iv)  1,555,782 shares of Company Common Stock were reserved for issuance in accordance with the Company Stock Purchase Plans;

(v)  421,190 shares of Company Common Stock were reserved for issuance pursuant to outstanding, free-standing stock appreciation rights with respect to 4,635,375 shares of Company Common Stock granted under the Company Stock Incentive Plans (collectively, the “ Company SARs ”);

(vi)  47,526 shares of Company Common Stock were reserved for issuance pursuant to outstanding stock units and restricted stock units granted under the Company Stock Incentive Plans (collectively, the “ Company Stock Units ”); and

(vii)  8,000,000 shares of Company Common Stock were reserved for issuance upon the exchange of Class B Limited Partnership Units in Terminix International pursuant to the Exchange Rights Agreement.

(c)  No shares of Company Preferred Stock are issued and outstanding.

(d)  The Company has delivered to Parent a correct and complete list as of the close of business on March 15, 2007 of (i) each outstanding Company Stock Option, Company SAR and Company Stock Unit and (ii) each outstanding share of restricted Company Common Stock that is still subject to forfeiture conditions (collectively, the “ Company Restricted Shares ”) granted under the Company Stock Incentive Plans, including the date of grant, exercise price or base price (if applicable), number of shares of Company Common Stock subject thereto, the Company Stock Incentive Plan under which such Company Stock Option, Company SAR, Company Stock Unit or Company Restricted Share, as the case may be, was granted and, with respect to any Company Stock Option or Company SAR, whether it is exercisable and, with respect to any Company Stock Unit, whether it is vested.

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(e)  Since the close of business on March 15, 2007, the Company has not issued or reserved for issuance any shares of Company Common Stock other than (i) pursuant to the Company Stock Purchase Plans, (ii) upon the exercise of Company Stock Options or Company SARs reflected in the list referred to in Section 4.3(d) or (iii) upon the settlement of Company Stock Units reflected in the list referred to in Section 4.3(d) .

(f)  Except as set forth in Section 4.3(b) , as of the date of this Agreement, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements, undertakings or contractual rights the value of which are based on the value of the capital stock or other securities of the Company of any kind to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries (whether through any convertible or exchangeable securities or otherwise) to issue, deliver or sell or create, or cause to be issued, delivered or sold or created, additional shares of capital stock or other securities of the Company or of any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement, undertaking or contractual right.

(g)  As of the date of this Agreement, except pursuant to the Exchange Rights Agreement referred to in Section 4.3(b) of the Company Letter and the terms of the Company Stock Incentive Plans, there are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Equity Interests of the Company or any of its Subsidiaries.

(h)  There are no outstanding bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matter on which the Company’s stockholders may vote.

Section 4.4  Authority .  (a)   The Company has the requisite corporate power and authority to execute and deliver this Agreement and, subject to adoption of this Agreement by the Company’s stockholders, to consummate the transactions contemplated hereby.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the Merger and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to adoption of this Agreement by the Company’s stockholders.  This Agreement has been duly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Parent and Sub) constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to the enforcement of creditors’ rights generally and (ii) is subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law).

(b)  The Board of Directors of the Company, at a meeting duly called and held, subject to the terms and conditions set forth elsewhere in this Agreement, has unanimously (with one member absent) (i) approved and declared this Agreement, the Merger and the other transactions contemplated hereby advisable and in the best interests of the Company’s stockholders and (ii) resolved to recommend to the stockholders of the Company that they adopt this Agreement, and has not subsequently rescinded or modified such approval or resolution in any way, subject to the

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right of the Board of Directors of the Company to withdraw or modify its recommendation in accordance with the terms of this Agreement.

Section 4.5  Consents and Approvals; No Violations .  Except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the HSR Act, the DGCL, the laws of other states in which the Company is qualified to do or is doing business and state takeover laws, (b) foreign and supranational laws relating to antitrust and anticompetition clearances listed in Section 4.5 of the Company Letter, (c) other approvals of Governmental Entities listed in Section 4.5 of the Company Letter and (d) as may be required in connection with the Taxes described in Section 7.7 , neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) result in any breach of any provision of the Certificate of Incorporation or the By-laws or of the similar organizational documents of any of the Company’s Subsidiaries, (ii) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Entity (except where the failure to make such filings or to obtain such permits, authorizations, consents or approvals, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger), (iii) result in a breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to or permit any right of termination, amendment, cancellation or acceleration or other changes of any right or obligation or the loss of any benefits) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets are bound or result in the creation of any Lien on any property or asset of the Company or any of its Subsidiaries or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its Subsidiaries or any of their properties or assets, except, in the case of clause (iii), for breaches, defaults, terminations, amendments, cancellations, accelerations, changes, losses, Liens or violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger.

Section 4.6  SEC Documents and Other Reports .  (a)   The Company has filed with the SEC all documents required to be filed by it since December 31, 2005 under the Securities Act or the Exchange Act (the “ Company SEC Documents ”).  As of their respective filing dates (or, if amended prior to the date of this Agreement, as of the respective filing date of such amendment), the Company SEC Documents complied in all material respects with the requirements of the NYSE, the Securities Act or the Exchange Act, as the case may be, each as in effect on the date so filed, and at the time filed with the SEC (or, if amended prior to the date of this Agreement, as of the respective filing date of such amendment), none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the Company SEC Documents (if amended prior to the date of this Agreement, as amended) complied as of their respective dates in all material respects with the then applicable accounting requirements and the published rules and regulations of the SEC and the NYSE with respect thereto, have been prepared in accordance with GAAP (except in the case of the unaudited

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statements, as permitted by Form 10-Q under the Exchange Act) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein).

(b)  The Company is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act.  Each current and former principal executive officer of the Company and principal financial officer of the Company has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and 906 of the Sarbanes-Oxley Act, as applicable, with respect to the Company SEC Documents, and the statements contained in such certifications were true and accurate as of the date they were made.  For purposes of this Agreement, “ principal executive officer ” and “ principal financial officer ” have the meanings given to such terms in the Sarbanes-Oxley Act.

(c)  The Company’s system of internal control over financial reporting provides reasonable assurance (i) that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, (ii) that receipts and expenditures are made only in accordance with the authorization of management and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the Company’s assets that could materially affect the Company’s financial statements.

(d)  The Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are reasonably designed to ensure that (i) material information (both financial and non-financial) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii) all such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding disclosure and to make the certifications of the principal executive officer and principal financial officer of the Company required under the Exchange Act with respect to such reports.  The Company has disclosed, based on its most recent evaluation of such disclosure controls and procedures prior to the date hereof to its independent auditors and the audit committee of its Board of Directors (a) any significant deficiencies and material weaknesses in the design or operation of the Company’s internal controls over financial reporting that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves management or other employees of members of the Company who have a significant role in the Company’s internal controls over financial reporting.  The Company has made available to Parent any such disclosure made by management to the Company’s independent auditors and the audit committee of the Company’s Board of Directors.

Section 4.7  Absence of Material Adverse Change .  Since December 31, 2006, the Company and its Subsidiaries have conducted their respective businesses in all material respects in the ordinary course, and there has not been (a) any Material Adverse Change with respect to the Company or any change with respect to the Company that would reasonably be expected to prevent or materially delay the consummation of the Merger, (b) any declaration, setting aside or

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payment of any dividend or other distribution with respect to its capital stock or any redemption, purchase or other acquisition of any of its capital stock (other than regular, quarterly cash dividends in the amount of not more than $0.12 per Share), (c) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (d) any change in accounting methods, principles or practices used by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in GAAP.

Section 4.8  Information Supplied .  None of the information supplied or to be supplied by the Company specifically for inclusion in the proxy statement relating to the Stockholders Meeting (together with any amendments or supplements thereto, the “ Proxy Statement ”) will, at the time the Proxy Statement is first mailed to the Company’s stockholders, at the time of the Stockholders Meeting and at the time of any amendments or supplements thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.  The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act, except that no representation or warranty is made by the Company with respect to statements made therein based on information supplied by Parent or Sub or any of their representatives specifically for inclusion therein.

Section 4.9  Compliance with Laws .  None of the Company and its Subsidiaries is, and none of their businesses are being conducted, in violation of any law, ordinance or regulation of any Governmental Entity, except for any violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger.  Each of the Company and its Subsidiaries has in full force and effect all federal, state, local and foreign governmental licenses, authorizations, consents, permits, registrations and approvals, and has otherwise satisfied all applicable legal or regulatory requirements, necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted (collectively, “ Company Permits ”), and no default has occurred under any such Company Permit, except for the absence of Company Permits and for defaults under Company Permits that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.  The Company and its Subsidiaries are in compliance with all applicable law relating to the offer and sale of franchises and the relationship of its Subsidiaries with their respective franchisees, except where the failure to so comply, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger.

Section 4.10  Tax Matters .  The Company and each of its Subsidiaries has timely filed (after taking into account all applicable extensions) all Tax Returns required to be filed by them, except where the failure to timely file would not reasonably be expected to have a Material Adverse Effect on the Company.  All such Tax Returns are true, correct and complete in all respects, except where the failure of such Tax Returns to be true, correct or complete would not reasonably be expected to have a Material Adverse Effect on the Company.  Each of the Company and its Subsidiaries has paid or caused to be paid all Taxes shown as due on such Tax Returns and all Taxes owed by the Company and its Subsidiaries for which no return was required to be filed, except where the failure to do so would not reasonably be expected to have a

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Material Adverse Effect on the Company.  No deficiencies for any Taxes have been asserted in writing, proposed in writing or assessed in writing against the Company or any of its Subsidiaries that have not been paid or otherwise settled or are not otherwise being challenged under appropriate procedures, except for deficiencies that, if finally resolved in a manner adverse to the Company or relevant Subsidiary, would not reasonably be expected to have a Material Adverse Effect on the Company.  No written requests for waivers of the time to assess any material Taxes of the Company or its Subsidiaries are pending.  During the two-year period ending on the date hereof, neither the Company nor any Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a transaction qualifying for beneficial treatment under Section 355(a)(1).  Any participation by the Company or any Subsidiary in a “listed transaction” (as defined for purposes of Section 6011 of the Code and the applicable Treasury Regulations thereunder) has been properly disclosed to the IRS.

Section 4.11  Liabilities .  Neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of the Company and its Subsidiaries or in the notes thereto, other than liabilities and obligations (a) set forth in the Company’s consolidated balance sheet for the year ended December 31, 2006 included in the Company SEC Documents, (b) incurred in the ordinary course of business since December 31, 2006, (c) incurred in connection with the Merger or any other transaction or agreement contemplated by this Agreement or (d) that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company.

Section 4.12  Litigation .  As of the date of this Agreement, there is no suit, action, proceeding or investigation pending, or to the Knowledge of the Company threatened, against the Company or any of its Subsidiaries or their respective properties, assets or rights that would reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger.  Neither the Company nor any of its Subsidiaries nor any of their respective properties, assets or rights is subject to any outstanding judgment, order, writ, injunction or decree that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company or prevent or materially delay the consummation of the Merger.

Section 4.13  Benefit Plans .  (a)    Each Benefit Plan is listed in Section 4.13(a) of the Company Letter.  With respect to each Benefit Plan, the Company has made available to Parent a true and correct copy (or description in the case of an oral agreement) of: (i) each such Benefit Plan that has been reduced to writing and all amendments thereto; (ii) each trust, insurance or administrative agreement relating to each such Benefit Plan; (iii) the most recent summary plan description or other written explanation of each Benefit Plan provided to participants; (iv) the most recent annual report (Form 5500) filed with the IRS; and (v) the most recent determination letter, if any, issued by the IRS with respect to any Benefit Plan intended to be qualified under Section 401(a) of the Code.

(b)  Set forth in Section 4.13(b) of the Company Letter is a list of each employment, severance or termination agreement between the Company or any of its Subsidiaries and any current or former officer or director of the Company or any of its Subsidiaries, in effect as of the

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date of this Agreement, other than agreements that provide for the payment of an annual base salary or a cash severance benefit in an amount less than $200,000 (each listed agreement, a “ Company Employment Agreement ”).

(c)  Except as required by law or as the Company or any of its Subsidiaries has deemed advisable due to changes in law and that has previously been disclosed or made available to Parent, neither the Company nor any of its Subsidiaries has adopted or amended in any material respect any Benefit Plan or Company Employment Agreement since the date of the most recent audited financial statements included in the Company SEC Documents.

(d)  Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, each ERISA Benefit Plan maintained by the Company or any of its Affiliates has been maintained and operated in compliance with the applicable requirements of the Code and ERISA.  There is no Person (other than the Company or any of its Subsidiaries) that together with the Company or any of its Subsidiaries would be treated as a single employer under Section 414 of the Code or Section 4001(b) of ERISA.  Neither the Company nor any of its Affiliates has at any time during the six-year period preceding the date hereof maintained, contributed to or incurred any liability under any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any Benefit Plan that is subject to Title IV of ERISA or Section 412 of the Code (or comparable provision of non-U.S. law).

(e)  As of the date of this Agreement there are no pending or, to the Knowledge of the Company, threatened disputes, arbitrations, claims, suits or grievances involving a Benefit Plan (other than routine claims for benefits payable under any such Benefit Plan) that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company.

(f)  All Benefit Plans that are intended by their terms to be qualified under Section 401(a) of the Code have been determined by the IRS to be so qualified, or a timely application for such determination is now pending, and the Company has no Knowledge of any reason why any such Benefit Plan is not so qualified in operation.  Neither the Company nor any of its Subsidiaries has any liability or obligation under any welfare plan or agreement to provide benefits after termination of employment to any employee or dependent other than as required by Section 4980B of the Code or the terms of a separation plan or agreement that has previously been disclosed or made available to Parent.

(g)  The performance of the obligations under this Agreement by the Company or its Subsidiaries will not, by itself or in connection with other events, result in any payment under any Benefit Plan or under any Company Employment Agreement that would constitute an “excess parachute payment” for purposes of Section 280G or 4999 of the Code.

Section 4.14  State Takeover Statutes .  The action of the Board of Directors of the Company in approving the Merger, this Agreement and the other transactions contemplated hereby is sufficient to render the provisions of Section 203 of the DGCL inapplicable to the Merger and this Agreement.

 

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Section 4.15  Intellectual Property .  The Company and its Subsidiaries exclusively own free and clear of any Liens, or are validly licensed or otherwise have the right to use as currently used, all Intellectual Property used in the conduct of the business of the Company and its Subsidiaries taken as a whole, except for such Intellectual Property where the failure to so own, be validly licensed or have the right to use, individually or in the aggregate, and for such Liens as, would not reasonably be expected to have a Material Adverse Effect on the Company.  The Company and its Subsidiaries have taken all actions reasonably necessary to ensure full protection of their respective owned Intellectual Property under all applicable laws, except where the failure to take any such actions, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.  No claims are pending that allege that the Company or any of its Subsidiaries is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property other than claims that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.  To the Knowledge of the Company, no Person is infringing the rights of the Company or any of its Subsidiaries with respect to any Intellectual Property in a manner that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company.

Section 4.16  Material Contracts .  As of the date hereof, neither the Company nor any of its Subsidiaries is a party to or bound by any contract, agreement or other instrument (a) that is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC), (b) that limits or restricts the Company or any of its Subsidiaries from engaging in any line of business or in any geographic area in any material respect, (c) under which the Company or any of its Subsidiaries has directly or indirectly guaranteed any liabilities or obligations of a third party (other than ordinary course endorsements for collection) in excess of $10,000,000 in the aggregate, (d) relating to indebtedness for borrowed money, whether incurred, assumed, guaranteed or secured by any asset, or (e) involving continuing monetary (contingent or otherwise) obligations (other than immaterial ones) of the Company and its Subsidiaries relating to the acquisition or disposition of any business for an amount in excess of $10,000,000 (other than obligations under commercial contracts assumed in connection with asset acquisitions and other than obligations to the extent reflected on the consolidated balance sheet of the Company and its Subsidiaries).  Each contract of the type described in the first sentence of this Section 4.16 is referred to herein as a “ Company Material Contract .”  Each Company Material Contract is valid and in full force and effect and enforceable against the Company or one of its Subsidiaries and, to the Knowledge of the Company, the counterparty to such Company Material Contract, except to the extent that the failure to be valid and in full force and enforceable, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company.  Neither the Company nor any of its Subsidiaries has Knowledge of, or has received notice of, any default under (or any condition which with or without the giving of notice, the passage of time or both would cause such a default under) any Company Material Contract to which it is a party or by which it or any of its assets is bound, except for such defaults that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.

Section 4.17  Labor and Employment .  (a)   The Company and its Subsidiaries are in compliance with applicable labor and employment laws regarding their employees including the National Labor Relations Act of 1935, Title VII of the Civil Rights Act of 1964, the Age

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Discrimination in Employment Act of 1967, the Americans With Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Fair Labor Standards Act of 1938, the Illegal Immigration Enforcement Act of 2006 and comparable state and local laws, except for failures to be in compliance which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.

(b)  The Company and its Subsidiaries are in compliance with all applicable employment and collective bargaining agreements, except for failures to be in compliance which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.

Section 4.18   Real Estate .   (a)   The Company Real Property is sufficient for the operation of the business of the Company and its Subsidiaries as currently conducted in all material respects.

(b)  The Company has, subject to the terms of the Company Leases, the right to access, use and occupy the Company Leased Real Property for the full term of the Company Lease relating thereto, except for any failure to have such right which, individually or in the aggregate, would not be reasonably expected to have a Material Adverse Effect on the Company. Each Company Lease constitutes a legal, valid and binding agreement of the Company or one of its Subsidiaries, as applicable, and is enforceable against such Person in accordance with its terms, except that such enforceability (x) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to the enforcement of creditors’ rights generally and (y) is subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law).  To the Knowledge of the Company, there is no default under any Company Lease (or any condition or event, which, after notice or a lapse of time or both would constitute a default thereunder) which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company.

(c)  The Company or one of its Subsidiaries, as the case may be, has good and insurable fee title to the Company Owned Real Property.  The Company Owned Real Property has sufficient access to and from adjoining public right of ways, that is necessary to the conduct of the business of the Company and its Subsidiaries as presently conducted thereon, except for any failure to have such access which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.  There are no violations of any covenant, condition, or restriction which would materially impair the rights to use and occupancy with respect to the Company Owned Real Property for such purposes necessary for the conduct of the business of the Company and its Subsidiaries as presently conducted thereon, except for any failure to have such right which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.

Section 4.19  Environmental Matters .  Except for matters that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company: (i) the Company and its Subsidiaries are in compliance with all applicable Environmental Laws and Environmental Permits; (ii) no property currently (or, to the Knowledge of the Company) formerly owned or leased by the Company or any of its Subsidiaries has been the subject of any investigation by any Governmental Entity or of any third party demand alleging the presence of

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any Hazardous Substances that would require remediation pursuant to any Environmental Law; (iii) neither the Company nor any of its Subsidiaries has received any written notice, demand, letter, claim or request for information alleging that the Company or any of its Subsidiaries may be in violation of or subject to liability under any Environmental Law; and (iv) neither the Company nor any of its Subsidiaries is subject to any written order, decree, injunction or indemnity with any Governmental Entity or any third Person relating to liability under any Environmental Law or relating to contamination of any property by Hazardous Substances.  This Section 4.19 and Sections 4.6 , 4.7 , 4.9 and 4.12 set forth the sole representations and warranties of the Company with respect to environmental or workplace health or safety matters, including all matters arising under Environmental Laws.

Section 4.20  Affiliate Transactions .   Except pursuant to any employment or separation agreement with any officer of the Company, there are no transactions of the type that would be required to be disclosed by the Company under Item 404 of  Regulation S-K promulgated by the SEC.

Section 4.21  Required Vote of Company Stockholders .  The affirmative vote of the holders of a majority of the shares of Company Common Stock outstanding and entitled to vote at the Stockholders Meeting adopting this Agreement is the only vote of the holders of any class or series of the Company’s capital stock necessary to approve this Agreement and the transactions contemplated hereby.

Section 4.22  Opinions of Financial Advisors .  The Board of Directors of the Company has received the opinion of each of Goldman Sachs, Greenhill and Morgan Stanley to the effect that, as of the date of such opinion and based upon and subject to the matters set forth therein, the $15.625 per Share in cash to be received by the holders of shares of Company Common Stock pursuant to this Agreement is fair, from a financial point of view, to such holders.

Section 4.23  Brokers .  No broker, investment banker, financial advisor or other Person, other than Goldman Sachs, Greenhill and Morgan Stanley, the fees and expenses of which will be paid by the Company, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

Except (i) as set forth in the corresponding section of the Parent Letter, it being understood that matters disclosed pursuant to one section of the Parent Letter shall be deemed disclosed with respect to any other section of the Parent Letter where it is reasonably apparent that the matters so disclosed are applicable to such other section, or (ii) as expressly contemplated or expressly permitted under this Agreement or any agreement contemplated hereby, each of Parent and Sub, jointly and severally, hereby represents and warrants to the Company as follows:

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Section 5.1  Organization .  Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be in good standing or to have such power and authority has not had and would not reasonably be expected to have a Material Adverse Effect on Parent.

Section 5.2  Authority .  Each of Parent and Sub has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the Merger and the other transactions contemplated hereby.  The execution, delivery and performance of this Agreement by Parent and Sub and the consummation by each of Parent and Sub of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of Parent and Sub.  This Agreement has been duly executed and delivered by each of Parent and Sub and (assuming the valid authorization, execution and delivery of this Agreement by the Company) constitutes the valid and binding obligation of each of Parent and Sub enforceable against each of them in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to the enforcement of creditors’ rights generally and (ii) is subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law).

Section 5.3  Consents and Approvals; No Violations .  Except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act, the HSR Act, the DGCL, the laws of other states in which Parent is qualified to do or is doing business and state takeover laws, (b) foreign and supranational laws relating to antitrust and anticompetition clearances listed in Section 5.3 of the Parent Letter, (c) other approvals of Governmental Entities listed in Section 5.3 of the Parent Letter and (d) as may be required in connection with the Taxes described in Section 7.7, neither the execution, delivery or performance of this Agreement by Parent and Sub nor the consummation by Parent and Sub of the transactions contemplated hereby will (i) result in any breach of any provision of the respective certificate of incorporation or by-laws of Parent or Sub, (ii) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Entity (except where the failure to make such filings or to obtain such permits, authorizations, consents or approvals, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent or prevent or materially delay the consummation of the Merger), (iii) result in a breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which Parent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets are bound or result in the creation of any Lien on any property or asset of Parent or Sub or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Parent, any of its Subsidiaries or any of their properties or assets, except, in the case of clause (iii), for breaches, defaults, terminations, amendments, cancellations, accelerations or violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent or prevent or materially delay the consummation of the Merger.

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Section 5.4  Information Supplied .  None of the information supplied or to be supplied by Parent or Sub or any of their representatives specifically for inclusion in the Proxy Statement, at the time the Proxy Statement is first mailed to the Company’s stockholders or at the time of the Stockholders Meeting or at the time of any amendments or supplements thereto, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by Parent or Sub in connection with any of the foregoing with respect to statements made therein based on information supplied by the Company or any of its representatives specifically for inclusion therein.

Section 5.5  Litigation .  As of the date of this Agreement, there is no suit, action, proceeding or investigation pending, or to the Knowledge of Parent threatened, against Parent, Sub or any of their Subsidiaries or their respective properties, assets or rights that would reasonably be expected to have a Material Adverse Effect on Parent or prevent or materially delay the consummation of the Merger.  None of Parent, Sub or any of their Subsidiaries nor any of their respective properties, assets or rights is subject to any outstanding judgment, order, writ, injunction or decree that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Parent or prevent or materially delay the consummation of the Merger.

Section 5.6  Capitalization and Interim Operations of Sub .  The authorized capital stock of Sub consists solely of 1,000 shares of common stock, par value $0.01 per share, all of which are validly issued and outstanding.  All of the issued and outstanding shares of capital stock of Sub (a) are, and as of the Effective Time will be, owned by Parent or a direct or indirect wholly owned Subsidiary of Parent and (b) have been, and as of the Effective Time will be, duly authorized and validly issued and are, and as of the Effective Time will be, fully paid and nonassessable and free of preemptive or other similar rights.  Sub has no outstanding option, warrant, right or other agreement pursuant to which any Person (other than Parent) may acquire any equity security of Sub.  Sub has not conducted any business prior to the date hereof and has no, and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than those incident to its formation or contemplated by this Agreement.

Section 5.7  Financing Commitments .  Parent has delivered to the Company true and complete copies of (a) an executed commitment letter from each of the Guarantors to provide equity financing in an aggregate amount set forth therein (the “ Equity Funding Letters ”) and (b) an executed debt commitment letter (the “ Commitment Letter ”) from J.P. Morgan Securities Inc., JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc., Banc of America Securities LLC, Banc of America Bridge LLC and Bank of America, N.A. to provide debt financing in an aggregate amount set forth therein (the “ Debt Financing ,” and, together with the financing referred to in clause (a), the “ Financing ”).  As of the date hereof, each of the Equity Funding Letters and the Commitment Letter, in the form so delivered, is a legal, valid and binding obligation of Parent or Sub and, to the Knowledge of Parent, the other parties thereto and (assuming that such Equity Funding Letters and Commitment Letter constitute such obligations of such other parties) is in full force and effect. Other than as permitted pursuant to Section 7.12(a) , none of the Equity Funding Letters or Commitment Letter has been amended or modified and the respective commitments contained in such letters have not been withdrawn,

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rescinded or terminated in any respect, and as of the date hereof (x) neither Parent nor Sub is in breach of any of the terms or conditions set forth therein and (y) to the Knowledge of Parent, no event has occurred which, with or without notice, lapse of time or both, would reasonably be expected to constitute a breach or failure to satisfy a condition precedent set forth therein. Parent or Sub has paid any and all commitment or other fees required by the Equity Funding Letters or the Commitment Letter that are due as of the date hereof and will pay, after the date hereof, all such commitments and fees as they become due. Except for the payment of customary fees, there are no conditions precedent or other similar contractual contingencies related to the funding of the full amount of the Financing, other than as set forth in or contemplated by the Equity Funding Letters or the Commitment Letter.  The aggregate proceeds contemplated by the Equity Funding Letters and the Commitment Letter will be sufficient for Sub and the Surviving Corporation to pay the aggregate Merger Consideration as contemplated by Section 3.1 , to make any payments required or contemplated by Section 7.1 or Section 7.2 and to make any other repayment or refinancing of debt contemplated in the Equity Funding Letters or the Commitment Letter and to pay all related fees and expenses.  As of the date of this Agreement, assuming the accuracy of the representations and warranties set forth in Article IV, Parent does not have any reason to believe that any of the conditions to the Financing will not be satisfied or that the Financing will not be available to Sub on the Closing Date.

Section 5.8  Brokers .  No broker, investment banker, financial advisor or other Person, other than as set forth in Section 5.8 of the Parent Letter, the fees and expenses of which will be paid by Parent or its Affiliates, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Sub.

Section 5.9  Lack of Ownership of Company Common Stock .  Neither Parent nor any of its Subsidiaries beneficially owns or, since January 1, 2004 has beneficially owned, directly or indirectly, any shares of Company Common Stock or other securities convertible into, exchangeable into or exercisable for shares of Company Common Stock.  There are no voting trusts or other agreements or understandings to which Parent or any of its Subsidiaries is a party with respect to the voting of the capital stock or other equity interest of the Company or any of its Subsidiaries.

Section 5.10  Guaranty .  Concurrently with the execution of this Agreement, Parent has caused each of the Guarantors to deliver to the Company its duly executed Guaranty.  Each Guaranty is in full force and effect and is the valid, binding and enforceable obligation of the applicable Guarantor and no event has occurred, which, with or without notice, lapse of time or both, would constitute a default on the part of such Guarantor under such Guaranty.

Section 5.11  Absence of Arrangements with Management .  Other than this Agreement, as of the date hereof, there are no contracts, undertakings, commitments, agreements or obligations or understandings between Parent or Sub or any of their Affiliates, on the one hand, and any member of the Company’s management or Board of Directors, on the other hand, relating to the transactions contemplated by this Agreement or the operations of the Company after the Effective Time.

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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 6.1  Conduct of Business by the Company Pending the Merger .  Except as (x) required by applicable law or by a Governmental Entity of competent jurisdiction, (y) expressly contemplated by this Agreement (including as permitted or required by Section 7.10 ) or (z) set forth in Section 6.1 of the Company Letter, during the period from the date of this Agreement until the Effective Time, the Company shall, and shall cause each of its Subsidiaries to carry on its business in the ordinary course as currently conducted and to use their commercially reasonable efforts to retain the services of its key officers and employees and to maintain relationships that are at least as favorable as those currently existing with suppliers, customers, franchisees, employees and others having material relationships with the Company and its Subsidiaries. Without limiting the generality of the foregoing, during such period, except as (x) required by applicable law or by a Governmental Entity of competent jurisdiction, (y) expressly contemplated by this Agreement (including as permitted or required by Section 7.10 ) or (z) set forth in Section 6.1 of the Company Letter, the Company shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Parent (which consent shall not be unreasonably withheld or delayed):

(a)  (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock or partnership, limited liability or other equity interests (any such stock or interest, an “ Equity Interest ”), except for (A) dividends by a wholly owned Subsidiary of the Company to its parent, (B) distributions required to be made under the partnership agreement of Terminix International and (C) regular, quarterly cash dividends of the Company in an amount not more than $0.12 per Share, or (ii) other than in the case of any wholly owned Subsidiary of the Company, adjust, split, combine or reclassify any of its Equity Interests or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any Equity Interests;

(b)  issue, deliver, sell, pledge or otherwise encumber any Equity Interest, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such Equity Interests, voting securities or convertible securities, or make any changes (by combination, merger, consolidation, reorganization, liquidation or otherwise) in the capital structure of the Company or any of its Subsidiaries, other than (i) the issuance of shares of Company Common Stock pursuant to Company Awards outstanding as of the date of this Agreement, (ii) the issuance by any direct or indirect wholly owned Subsidiary of the Company of its capital stock to the Company or another wholly owned Subsidiary of the Company, and (iii) the issuance of shares of Company Common Stock pursuant to the Company Stock Purchase Plans (it being the Company’s expectation that for the March and April purchase periods not more than $1,800,000 (including not more than $300,000 representing the Company’s contribution)) will be applied to the purchase of Company Common Stock thereunder);

(c)  amend or waive any provision of its Certificate of Incorporation or By-laws or similar organizational documents or, in the case of the Company, enter into any agreement with any stockholder in such Person’s capacity as stockholder;

 

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(d)  other than (i) capital expenditures permitted by Section 6.1(e) and purchases of inventory, raw materials and supplies in the ordinary course of business, and (ii) consolidation program acquisitions with purchase prices up to $67 million in the aggregate, acquire any assets or properties, including any Equity Interests of any Person;

(e)  make or agree to make any new capital expenditure, other than capital expenditures (i) approved by the Board of Directors of the Company prior to the date hereof or within the Company’s capital budget for fiscal 2007 and previously made available to Parent or (ii) to the extent not covered in clause (i), in an aggregate amount not to exceed $10,000,000;

(f)  other than transactions that are in the ordinary course of business, sell, lease, license, encumber by Lien or otherwise, or otherwise dispose of, or agree to sell, lease, license, encumber or otherwise dispose of, any of assets having a fair market value in excess of $10,000,000 in the aggregate;

(g)  incur any indebtedness for borrowed money, other than (i) indebtedness for borrowed money existing solely between the Company and its wholly owned Subsidiaries (which term, for purposes of this Section 6.1(g)(i) , shall include Terminix International) or between such wholly owned Subsidiaries, (ii) indebtedness for borrowed money incurred in the ordinary course of business under the Company Credit Agreement or the Company Lines of Credit in an amount at any time outstanding not to exceed the sum of $110,000,000 (being the approximate principal amount outstanding thereunder as of March 16, 2007) plus $75,000,000 through July 31, 2007 or plus $100,000,000 from August 1, 2007 thereafter, (iii) indebtedness for borrowed money incurred in the ordinary course of business consistent with past practice in connection with transactions described in Section 6.1(d)(ii) or (iv) capital leases entered into in the ordinary course of business consistent with past practice with aggregate obligations not in excess of $10,000,000;

(h)  other than in the ordinary course of business consistent with past practice, modify or amend in any material respect or terminate any Company Material Contract or enter into, modify or amend any new agreement that would have been considered a Company Material Contract had it been entered into at or prior to the date hereof;

(i)  settle or compromise any material action, claim, demand, suit, investigation, arbitration, litigation or similar judicial or regulatory matter;

(j)  (i) increase the salary, wages or benefits payable or to become payable to its directors, officers or employees, or any benefits provided under the Company Stock Purchase Plans, except for (A) increases required under employment agreements existing on the date hereof and (B) increases for officers and employees in the ordinary course of business; or (ii) enter into any employment, retention or severance agreement with, or establish, adopt, enter into or amend any bonus, profit sharing, thrift, stock option, restricted stock, pension, retirement, deferred compensation, retention, employment, termination or severance plan, agreement, policy or arrangement for the benefit of, any director, officer or employee, except, in each case, as may be required by the terms of any such plan, agreement, policy or arrangement or to comply with applicable law;

 

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(k)  (i) except as may be required by GAAP or as a result of a change in law, make any change in its method of accounting, or (ii) conduct any Tax affairs relating to the Company or any of its Subsidiaries other than in the ordinary course of business, in compliance with applicable law and in substantially the same manner as heretofore conducted and in good faith in substantially the same manner as such affairs would have been conducted if this Agreement had not been entered into or (iii) make or change any material Tax election, settle or compromise any material liability for Taxes, obtain any Tax ruling or amend any Tax Return; or

(l)  enter into any contract or agreement to, or resolve to,