Agreement of Limited Partnership Of TruGreen Limited Partnership

 

 

Provisions

 

NOW THEREFORE, in consideration of the commitments contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree as follows:

 

1.                                        Assignment of Partnership Interest . ServiceMaster Consumer Services L.P. assigns its 99% partnership interest to TruGreen Holding L.L.C.

 

2.                                        Partners after Assignment . As a result of the transaction contemplated by this Amendment, TruGreen, Inc. is the sole general partner of TruGreen L.P., and TruGreen Holding L.L.C. is the sole limited partner of TruGreen L.P.

 

3.                                        No Other Changes . The parties make no changes to the LP Agreement other than the changes described in this Amendment.

 

IN WITNESS WHEREOF, the parties have executed this Amendment on the date first mentioned above.

 

	ServiceMaster Consumer Services
	Limited Partnership
	By: ServiceMaster Consumer Services, Inc.
	By:	/s/ Lawrence L. Mariano, III
		Lawrence L. Mariano, III
		Senior Vice President
	TruGreen Limited Partnership
	By: TruGreen, Inc.
	By:	/s/ Robert C. von Gruben
		Robert C. von Gruben
		Vice President

 

 

Amendment No. 2

 

Agreement of Limited Partnership
of
TruGreen Limited Partnership
dated October 31, 1990

 

THIS AMENDMENT is made on August 5, 1998 by and among ServiceMaster Consumer Services Limited Partnership, a Delaware limited partnership (“ServiceMaster Consumer Services L.P.”), and TruGreen Limited Partnership, a Delaware limited partnership (“TruGreen L.P.”).

 

Recitals

 

A.                                    The current partners of TruGreen L.P. are as follows:

 

		State of
Company		Organization		Partner Type
ServiceMaster Consumer Services L.P.		Delaware		Limited Partner—99.09%
TruGreen, Inc.		Delaware		General Partner—.01%

 

B.                                      Pursuant to that certain Agreement of Limited Partnership of TruGreen L.P., dated October 31, 1990 (“LP Agreement”), ServiceMaster Consumer Services L.P. has exercised its right to assign its .09% partner interest to TruGreen, Inc.

 

C.                                      As a result of the transaction contemplated by this Amendment, the partners of TruGreen L.P. will be as follows:

 

		State of
Company		Organization		Partner Type
ServiceMaster Consumer Services L.P.		Delaware		Limited Partner—99%
TruGreen, Inc.		Delaware		General Partner—1%

 

Provisions

 

NOW THEREFORE, in consideration of the commitments contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree as follows:

 

1.                                        Assignment of Partner Interest . ServiceMaster Consumer Services L.P. assigns its .09% partner interest to TruGreen, Inc.

 

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2.                                        Partners after Assignment . As a result of the transaction contemplated by this Amendment, TruGreen, Inc. is the sole general partner of TruGreen L.P., and ServiceMaster Consumer Services L.P. is the sole limited partner of TruGreen L.P.

 

4.                                        No Other Changes . The Parties make no changes to the LP Agreement other than the changes described in this Amendment.

 

IN WITNESS WHEREOF, the parties have executed this Amendment on the date first mentioned above.

 

TruGreen, Inc.			ServiceMaster Consumer Services Limited
			Partnership
			By:	ServiceMaster Consumer Services,
				Inc., general partner
By:	/s/ David M. Slott		By:	/s/ Ernest J. Mrozek
	David M. Slott			Ernest J. Mrozek
	President			President

 

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Amendment No. 1

 

Agreement of Limited Partnership
of
TruGreen Limited Partnership
dated October 31, 1990

 

THIS AMENDMENT is made on August 5, 1998 by and among TSSGP Limited Partnership, a Delaware limited partnership (“TSSGP”), and TruGreen Limited Partnership, a Delaware limited partnership (“TruGreen L.P.”).

 

Recitals

 

A.                                    The current partners of TruGreen L.P. are as follows:

 

		State of
Company		Organization		Partner Type
ServiceMaster Consumer Services L.P.		Delaware		Limited Partner—99%
TruGreen, Inc.		Delaware		General Partner—.01%
TSSGP Limited Partnership		Delaware		Special General Partner—.09%

 

B.                                      TSSGP desires to withdraw as the Special General Partner of TruGreen L.P.

 

C.                                      ServiceMaster Consumer Services L.P. and TruGreen, Inc. desire to approve the withdrawal of TSSGP as the Special General Partner under the Agreement of Limited Partnership of TruGreen L.P., dated October 31, 1990 (“LP Agreement”).

 

D.                                     As a result of the transaction contemplated by this Amendment, the partners of TruGreen L.P. will be as follows:

 

		State of
Company		Organization		Partner Type
ServiceMaster Consumer Services L.P.		Delaware		Limited Partner—99.09%
TruGreen, the.		Delaware		General Partner—.01%

 

Provisions

 

NOW THEREFORE, in consideration of the commitments contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree as follows:

 

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1.                                        Withdrawal of TSSGP . TSSGP withdraws as the Special General Partner from TruGreen L.P.

 

2.                                        Approval of Withdrawal . ServiceMaster Consumer Services L.P. and TruGreen, Inc. approve of the withdrawal by TSSGP as the Special General Partner under the LP Agreement.

 

3.                                        Partners after Withdrawal . As a result of the withdrawal of TSSPG, TruGreen, Inc. is the sole general partner of TruGreen L.P., and ServiceMaster Consumer Services L.P. is the sole limited partner of TruGreen L.P.

 

4.                                        No Other Changes . The Parties make no changes to the LP Agreement other than the changes described in this Amendment.

 

IN WITNESS WHEREOF, the parties have executed this Amendment on the date first mentioned above.

 

TruGreen, Inc.			TSSGP Limited Partnership
			(withdrawing limited partner)
			By:	TSSGP Management Corporation, general
				partner
By:	/s/ David M. Slott		By:	/s/ Robert F. Keith
	David M. Slott			Robert F. Keith
	President			Vice President

 

 

ServiceMaster Consumer Services Limited Partnership

 

By:	ServiceMaster Consumer Services,
	Inc., general partner
By:	/s/ Ernest J. Mrozek
	Ernest J. Mrozek
	President

 

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AMENDED AND RESTATED

 

AGREEMENT OF LIMITED PARTNERSHIP

 

OF

 

TRUGREEN LIMITED PARTNERSHIP

 

MAY 20, 1992

 

 

TABLE OF CONTENTS

 

	ARTICLE I
	Organizational Matters
1.1	Formation	2
1.2	Name	2
1.3	Registered Office; Principal Office	2
1.4	Power of Attorney	3
1.5	Term	5
	ARTICLE II
	Definitions
2.1	Defined Terms	5
	ARTICLE III
	Purpose
3.1	Purpose	12
	ARTICLE IV
	Capital Contributions
4.1	General Partner	13
4.2	Class A Limited Partners	13
4.3	Class B Limited Partner	14
4.4	Capital Accounts	14
4.5	Computation Rules	15
4.6	Effect of Transfer of Partnership Interest	18
4.7	Issuance of Additional Partnership Interests	18
4.8	Redemptions	19
4.9	Interest	20
4.10	No Withdrawal	20
4.11	Loans From Partners	20
4.12	Division of Partnership Interests	20
	ARTICLE V
	Allocations
5.1	Determination of Profits and Losses	21
5.2	Allocation of Profits and Losses for Capital Account Purposes	21
5.3	Allocation in the Event of Transfers	21

 

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5.4	Allocation of Profits and Losses on Distribution of Assets in Kind	21
5.5	Elections	22
5.6	Deficit in Capital Account Balances	23
5.7	Recharacterization of Fees and Guaranteed Payments	23
5.8	Imputation of Profit or Loss	24
5.9	Minimum Gain	24
5.10	Qualified Income Offset	25
5.11	Limitation on Allocation of Losses	26
5.12	Curative Allocations	26
	ARTICLE VI
	Distributions of Net Cash Flow
6.1	Distributions of Net Cash Flow Not Within the Context of a Dissolution and Termination of the Partnership	26
6.2	Distributions of Net Cash Flow in the Context of a Dissolution and Termination of the Partnership	28
	ARTICLE VII
	Management and Operation of the Business
7.1	Management	28
7.2	Certificate of Limited Partnership	30
7.3	Reliance by Third Parties	31
7.4	Compensation and Reimbursement of the General Partner	32
7.5	Outside Activities	33
7.6	Partnership Funds	34
7.7	Loans to or From the General Partner: Contracts with Affiliates	35
7.8	Indemnifion of the General Partner	36
7.9	Liabilities of the General Partner and Affiliates	39
7.10	Resolution of Conflicts of Interest	40
7.11	Other Matters Concerning the General Partner	41
7.12	Title to Partnership Assets	42
7.13	General Partner’s Representations, Warranties and Covenants	42
	ARTICLE VIII
	Rights and Obligations of the Limited Partner
8.1	Limitation of Liability	42
8.2	Management of Business	43
8.3	Outside Activities	43

 

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8.4	Return of Capital	43
8.5	Right of Limited Partner Relating to the Partnership	43
	ARTICLE IX
	Books, Records, Accounting and Reports
9.1	Records of the Partnership	45
9.2	Accounting Matters	45
9.3	Reports	46
9.5	Other Information	46
	ARTICLE X
	Tax Matters
10.1	Preparation of Tax Returns	47
10.2	Taxable Year	47
10.3	Tax Elections	47
10.4	Tax Controversies	47
10.5	Organization Expense	48
10.6	Taxation as a Partnership	48
10.7	Tax Shelter Investor List	48
	ARTICLE XI
	Transfer of Interests
11.1	Transfer	48
11.2	Transfer of Interest of General Partner	49
11.3	Transfer of Interest of Limited Partner	49
	ARTICLE XII
	Admission of Substituted Partners
12.1	Admission of Successor Limited Partner	49
12.2	Amendment of Agreement and of Certificate of Limited Partnership	50
	ARTICLE XIII
	Option to Sell and Option to Purchase the Percentage Interests Held by the Class A Limited Partners
13.1	Introduction: Definition of Terms	50
13.2	Grant of Option to Purchase	52
13.3	Grant of Option to Sell	52
13.4	Determination of Earnings for a Fiscal Year	53

 

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13.5	Resolution of Disputes	53
13.6	Determination of the Option Price	54
13.7	Procedure for Exercise of an Option and Payment for the Percentage Interest Involved	55
13.8	Right of the Partnership to Purchase Percentage Interests Upon Termination of Employment of Certain Employees Prior to January 1, 1997	56
13.9	Termination by Reason of Death or Incapacity During the Early Departure Period or the Exercise Period	58
13.10	Effect of Acquisition of Other Businesses on Earnings	59
13.11	Right to Purchase	59
13.12	Amendment to Article XIII	60
13.13	Public Offering	60
	ARTICLE XIV
	Dissolution and Liquidation
14.1	Dissolution	60
14.2	Continuation of the Business of the Partnership After Dissolution	62
14.3	Liquidation	63
14.4	Distribution in Kind	65
14.5	Cancellation of Certificate of Limited Partnership	66
14.6	Reasonable Time for Winding Up	66
14.7	Return of Capital	67
14.8	Waiver of Partition	67
	ARTICLE XV
	Amendment of Partnership Agreement
15.1	Amendment to be Adopted Solely by the General Partner	67
15.2	Amendment Procedures	68
	ARTICLE XVI
	General Provisions
16.1	Addresses	69
16.2	Notices	69
16.3	Titles and Captions	69
16.4	Pronouns and Plurals	70
16.5	Binding Effect	70
16.6	Integration	70
16.7	Creditors	70

 

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16.8	Waiver	70
16.9	Counterparts	70
16.10	Applicable Law	71
16.11	Invalidity of Provisions	71
16.12	Enforcement Costs	71
16.13	Reference to Treasury Regulations	71

 

Schedule A:                                Class A Limited Partners Signature Page

 

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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
TRUGREEN LIMITED PARTNERSHIP

 

This Agreement of Limited Partnership is entered into on the twentieth day of May, 1992, by and among TruGreen, Inc., a Delaware corporation, as the general partner (the “General Partner”), the persons executing the “Class A Limited Partners Signature Page” as the Class A Limited Partners (the “Class A Limited Partners”), and ServiceMaster Consumer Services Limited Partnership, a Delaware limited partnership, as the Class B Limited Partner (the “Class B Limited Partner”) (collectively, the “Partners”).

 

The limited partnership organized under the agreement of limited partnership between the Original Partners dated October 20, 1990 (the “Partnership”) was formed under the name “PCLC Company Limited Partnership” by the filing of a Certificate of Limited Partnership with the Delaware Secretary of State on October 31, 1990. The General Partner was incorporated under the name “PCLC, Inc.” by the filing of a Certificate of Incorporation with the Delaware Secretary of State on October 31, 1990. On April 20, 1992, the name of the Partnership was changed to “TruGreen Limited Partnership” by the filing of a Certificate of Amendment of the Certificate of Limited Partnership and the name of the General Partner was changed to “TruGreen, Inc.” by the filing of a Certificate of Amendment of the Certificate of Incorporation. The Partners now desire to amend and restate the agreement of limited partnership of the Partnership in its entirety, to reflect the foregoing changes in name, to reflect the admission to the

 

 

Partnership of the Class A Limited Partners, to redesignate ServiceMaster Consumer Services L.P. as the Class B Limited Partner, to include a new Article XIII, and to make certain other changes, as follows:

 

ARTICLE I

Organizational Matters

 

1.1                                  Formation . The Partners hereby continue the Partnership pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Delaware Act. The Partnership Interest of any Partner shall be personal property for all purposes.

 

1.2                                  Name . The name of the Partnership shall be, and the business of the Partnership shall be conducted under the name of, “TruGreen”. The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate. The words “Limited Partnership” or the abbreviation “L.P.” shall be included in the Partnership’s name where necessary for the purpose of complying with the laws of any jurisdiction that so requires. The General Partner in its sole discretion may change the name of the Partnership at any time and from time to time.

 

1.3                                  Registered Office; Principal Office . (a) The address of the registered office of the Partnership in the State of Delaware shall be Corporation Trust Center, 1229 Orange Street, Wilmington,

 

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New Castle County, Delaware 19801. The registered agent for service of process on the Partnership in the State of Delaware at such registered office shall be The Corporation Trust Company.

 

(b)                                  The principal office of the Partnership shall be 855 Ridge Lake Boulevard, Memphis, Tennessee 38120, or such other place as the General Partner may from time to time designate. The Partnership may maintain offices at such other place or places as the General Partner deems advisable.

 

1.4                                  Power of Attorney . (a) Each of the Partners hereby constitutes and appoints the General Partner and the Liquidator (as hereinafter defined), and any successor to either thereof by merger, assignment election or otherwise, with full power of substitution as his true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to:

 

(i)                               execute, swear to, acknowledge, deliver, file and record in the appropriate office:

 

(A)                              this Agreement, all certificates and other instruments other instruments and all amendments thereof which the General Partner or the Liquidator deems reasonable and appropriate or necessary to form, qualify or continue the qualification of the Partnership as a limited partnership (or a partnership in which limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property;

 

B)                                    all instruments which the General Partner or the Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement made in accordance with its terms;

 

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(C)                                conveyances and other instruments or documents which the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including a certificate of cancellation; and

 

(D)                               all instruments relating to the admission, withdrawal or substitution of a partner pursuant to Article XI;

 

(ii)                             execute, swear to and acknowledge all ballots, consents approvals, waivers, certificates and other instruments appropriate or necessary in the sole discretion of the General Partner or the Liquidator, to make, evidence, give, confirm, or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement and/or appropriate or necessary in the sole discretion of the General Partner or the Liquidator, to effectuate the terms or intent of this Agreement.

 

Nothing herein contained shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article XV or as otherwise expressly provided for in this Agreement.

 

The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the subsequent dissolution, bankruptcy or termination of any Partner or the transfer of all or any portio of its Partnership Interest and shall extend to the Partner’s successors, assigns and representatives. Each such Partner, in its capacity as such, hereby agrees to be bound by any representations made by the General Partner or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Partner hereby waives any and all defenses which may be

 

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available to contest, negate or disaffirm the action of the General Partner or the Liquidator, taken in good faith under such power of attorney. Each Partner shall execute and deliver to the General Partner or the Liquidator, within 15 days after receipt of the General Partner’s or the Liquidator’s request therefor, such further designations, powers of attorney and other instruments as the General Partner or the Liquidator deem necessary to effectuate this Agreement and the purposes of the Partnership.

 

1.5                                 Term . The Partnership commenced upon the filing of the Certificate of Limited Partnership in accordance with the Delaware Act, and the Partnership shall continue in existence until the close of the Partnership’s business on December 31, 2040, or until the earlier termination of the Partnership in accordance with the provisions of Article XIV.

 

ARTICLE II

 

Definitions

 

2.1                                 Defined Terms . Unless clearly indicated to the contrary, the following definitions shall, for all purposes, be applied to the terms used in this Agreement.

 

“ Adjusted Capital Account Deficit ” means, with respect to each of the Partners, the deficit balance, if any, in such Partner’s Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments:

 

(1)                    Credit to such Capital Account any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to

 

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restore pursuant to the penultimate sentence of Treasury Regulation sec. 1.704-1(b)(4)(iv)(f);

 

(2)                    Debit to such Capital Account the items described in Treasury Regulation sec. 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

 

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulation sec. 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

“ Adjusted Property ” means any property for which the Carrying Value has been adjusted pursuant to Section 4.4, Section 4.5 or Section 4.6. Once an Adjusted Property is deemed distributed by, and recontributed to, the Partnership for federal income tax purposes upon a termination thereof pursuant to Section 708 of the Code, such property shall thereafter constitute a Contributed Property until the Carrying Value of such property is further adjusted pursuant to Section 4.4, Section 4.5 or Section 4.6.

 

“ Affiliate ” means any Person that directly or indirectly controls, is controlled by, or is under common control with, the Person in question. As used in the definition of “Affiliate”, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

“ Agreed Value ” of any Contributed Property means the fair market value of such property or other consideration as

 

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determined by the General Partner using such reasonable method of valuation as it may adopt; provided, the Agreed Value of any property deemed contributed to the Partnership for federal income tax purposes upon termination thereof pursuant to Section 708 of the Code shall be determined in accordance with Section 4.4 hereof. Subject to Section 4.4, the General Partner shall, in its discretion, use such method as it deems reasonable and appropriate to allocate the aggregate Agreed Value of Contributed Properties transferred to the Partnership in a single or integrated transaction among each separate property on a basis proportional to their fair market values, taking into account Code Section 1060 principles where applicable.

 

“ Business Day ” means Monday through Friday of each week, except that a holiday recognized as such by the Government of the United States or the State of Illinois or Tennessee shall not be regarded as a Business Day.

 

“ Capital Account ” means the capital account maintained for a Partner pursuant to Section 4.4.

 

“ Capital Contribution ” means any cash and cash equivalent which a Partner contributes to the Partnership pursuant to Article IV.

 

“ Carrying Value ” means (a) with respect to a Contributed Property, the Agreed Value of such property reduced (but not below zero) by all depreciation, cost recovery deductions and amortization deductions with respect to such property charged

 

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to the Capital Accounts of the Partners and adjusted to reflect any other changes to such Carrying Value for sales, retirements and other dispositions of assets included in a Contributed Property, as of the time of determination; and (b) with respect to any other property, the adjusted basis thereof for federal income tax purposes, as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Section 4.4, Section 4.5 or Section 4.6.

 

“ Certificate of Limited Partnership ” means the Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware pursuant to Section 1.4, as it may be amended and/or restated from time to time.

 

“ Class A Limited Partners ” means the persons who execute Schedule A, entitled “Class A Limited Partners Signature Page.”

 

“ Class A Limited Partners Admission Date ” means May 20, 1992.

 

“ Class B Limited Partner ” means ServiceMaster Consumer Services Limited Partnership, a Delaware limited partnership.

 

“ Code ” means the Internal Revenue Code of 1986, as amended and in effect from time to time, and applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

 

“ Commencement Date ” means November 8, 1990.

 

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to above.

 

“ Equity Loan ” means, as to each Class A Limited Partner, the loan arranged by the General Partner or any successor loan entered into by such Class A Limited Partner, in order to fund the Capital Contribution of the Class A Limited Partner.

 

“ Fiscal Year ” means the calendar year.

 

“ General Partner ” means TruGreen, Inc., a Delaware corporation (formerly known as PCLC, Inc.).

 

“ Initial Properties ” means the assets and businesses which were transferred by the “WM Contributors” (as that term is defined in the Participation Agreement) pursuant to the Participation Agreement on or after the Commencement Date as defined therein.

 

“ Limited Partners ” means the Class A Limited Partners and the Class B Limited Partner, collectively.

 

“ Liquidator ” has the meaning specified in Section 14.3.

 

“ Net Cash Flow ” means the total cash receipts generated from the operations of the Partnership, the sale or other disposition of any Partnership property or otherwise (but specifically excluding (i) receipts from Capital Contributions and (ii) proceeds from loans to the Partnership), reduced by (a) all expense incident to the operation and management of the Partnership (but excluding any expense not involving a cash outlay), such as amounts charged for depreciation; (b) all current payments on account of any loans to the Partnership, including without limitation debt service to

 

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third party lenders; (c) expenditures for capital assets not financed through reserves previously set aside by the Partnership for such purposes; and (d) reasonable reserves for working capital and future obligations.

 

“ Opinion of Counsel ” means a written opinion of counsel acceptable to the General Partner. Such counsel may be the regular counsel to the Partnership or the General Partner.

 

“ Original Partners ” means the General Partner and ServiceMaster Consumer Services Limited Partnership.

 

“ Participation Agreement ” means the agreement having that name and dated as of November 8, 1990 by and among The ServiceMaster Company Limited Partnership and Waste Management, Inc. et al.

 

“ Partners ” means the General Partner and the Limited Partners.

 

“ Partnership ” means the limited partnership organized pursuant to this Agreement.

 

“ Percentage Interest ” means the percentage ownership of the Partnership held by a given Partner. At the Commencement Date, the Percentage Interests of the Partners were: the General Partner: 1%; the Limited Partner: 99%. From and after the Class A Limited Partners Admission Date, the Percentage Interests of the Partners are: the General Partner: 1%; the Class A Limited Partners collectively: 12.2%; and the Class B Limited Partner: 86.8%. The General Partner shall maintain in the books and records of the Partnership a record of the

 

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Percentage Interest held by each Class A Limited Partner. The Partners contemplate that the aggregate Percentage Interest of the Class A Limited Partners may increase to 15% at a date or dates subsequent to the Class A Limited Partners Admission Date.

 

“ Person ” means an individual or a corporation, partnership, trust, or unincorporated organization, association or other entity.

 

“ Recapture Income ” means any gain recognized by the Partnership (computed without regard to any adjustment required by Section 734 or 743 of the Code) upon the disposition of any property or asset of the Partnership that does not constitute capital gain or Section 1231 gain for federal income tax purposes because such gain represents the recapture of deductions previously taken with respect to such property or assets.

 

“ ServiceMaster Consumer Services Affiliate ” means any Affiliate of ServiceMaster Consumer Services Limited Partnership.

 

ARTICLE III

 

Purpose

 

3.1                                  Purpose . The purpose and business of the Partnership shall be the providing of termite and pest control services and lawn care services and the granting of franchises for the conduct of lawn care businesses. Such businesses shall include, without

 

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limitation, the acquisition, management, operation and disposition of the properties acquired by the Partnership as part of the transactions contemplated by the Participation Agreement and by the Asset Acquisition Agreement between the Partnership and Ecolab Inc. dated May 20, 1992, the carrying on of any businesses relating thereto or arising therefrom, the entering into any partnership, joint venture or other similar arrangement, to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing, and anything incidental or necessary to the foregoing, all for the production of income and profit.

 

ARTICLE IV

 

Capital Contributions

 

4.1                                  General Partner . (a) The General Partner shall not be required to contribute to the capital of the Partnership except (i) as may be necessary to pay liabilities of the Partnership for which provision cannot otherwise be made through cash flow generated from operations of the Partnership or debt incurred in accordance with this Agreement or (ii) as otherwise expressly required pursuant to the provisions of this Agreement.

 

(b)                                  The General Partner will at all times while serving in such capacity retain its Percentage Interest which entitles the General Partner to a 1% participation in the Partnership’s income, gains, losses, deductions and credits, but only for so long as it continues to serve in such capacity.

 

4.2                                  Class A Limited Partners .           On the Class A Limited

 

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Partners Admission Date, the Class A Limited Partners shall contribute to the Partnership cash and promissory notes in the aggregate amount of $2,196,000.

 

4.3                             Class B Limited Partner . (a) On the Commencement Date, the Class B Limited Partner contributed to the Partnership the Initial Properties and the Partnership assumed (or took the Initial Properties subject to) all liabilities and other indebtedness which were directly related to the Initial Properties.

 

(b)                             The contributions made by the Limited Partners pursuant to Sections 4.2 and 4.3 and the Agreed Value of such contributions for purposes of the Delaware Act shall be described and recorded in the books and records of the Partnership.

 

4.4                                  Capital Accounts . Separate Capital Accounts shall be maintained for each Partner in accordance with federal income tax accounting principles, maintained in accordance with Treasury Regulation Section 1.704-1(b). The Capital Account of each Partner shall be increased by: (i) the amount of any cash and the fair market value of any property contributed to the Partnership by such Partner (net of liabilities secured by such contributed property that the Partnership is considered to assume or take subject to): (ii) the amount of Partnership income and gain or items thereof allocated to such partner; (iii) such Partner’s prorata share (determined in the same manner as such Partner’s share of income, gains, losses, deductions and credits) of any other amount received by the Partnership during such year which is exempt from federal income tax; and (iv) other items to the extent mandated by Treasury

 

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Regulation Section 1.704-1(b). The Capital Account of each Partner shall be reduced by: (i) the amount of money distributed to the Partner by the Partnership; (ii) the fair market value of property distributed by the Partnership to the Partner (net of liabilities secured by such distribute property that the Partner is considered to assumed or take subject to); (iii) the amount of Partnership losses and deductions or items thereof allocated to the Partner; (iv) such Partner’s prorata share (determined in the same manner as such Partner’s prorata share of income, gains, losses, deductions or credits) of any other expenditures of the partnership which are not deductible in computing the Partnership’s taxable income and which are not properly capitalized; and (v) other items to the extent mandated by Treasury Regulation Section 1.704(b).

 

4.5                                  Computation Rules . For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes (including any method of depreciation, cost recovery or amortization used for this purpose); provided that:

 

(i)                                      Solely for purposes of the application of the provisions hereof, the Partnership shall be treated as owning directly its proportionate share of all property owned by any partnership, joint venture or similar entity in which the Partnership has an ownership interest (as determined by the General Partner based upon the provisions of the governing

 

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documents of such entity);

 

(ii)                                   In accordance with the requirements of Section 704(b) of the Code, any deductions for depreciation, cost recovery or amortization attributable to a Contributed Property shall be determined as if the adjusted basis of such property on the date it was acquired by the Partnership were equal to the Agreed Value of such property. Upon an adjustment pursuant to Section 4.6 or 4.7 to the Carrying Value of any Partnership property subject to depreciation, cost recovery or amortization, any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined (A) as if the adjusted basis of such property were equal to the Carrying Value of such property immediately following such adjustment and (B) using a rate of depreciation, cost recovery or amortization derived under the same method and useful life as is applied for federal income tax purposes; provided, however, that if the asset has a zero adjusted basis, depreciation, cost recovery or amortization deductions shall be determined using any reasonable method the Managing General Partner may adopt.

 

(iii)                                Any income, gain or loss attributable to the taxable disposition of any property shall be determined by the Partnership as if the adjusted basis of such property as of the date of such disposition were equal in amount to the Partnership’s Carrying Value with respect to such property as of such date.

 

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(iv)                               If the Partnership’s adjusted basis in a depreciable or cost recovery property is reduced for federal income tax purposes pursuant to Section 48(q)(1) or 48(q)(3) of the Code (or any analogous provisions), the amount of such reduction shall, solely for purposes hereof, be deemed to be an additional depreciation or cost recovery deduction in the year such property is placed in service and shall be allocated among the Partners pursuant to Article V. Any restoration of such basis pursuant to Section 48(q)(2) (or any analogous provision) of the Code shall be allocated in the same manner to the Partnership Interests to which such deemed deduction was allocated.

 

(v)                                  All fees and other expenses incurred by the Partnership to promote the sale of (or to sell) an interest in the Partnership that can neither be deducted nor amortized under Section 709 of the Code shall be treated as an item of deduction and shall be allocated among the Partners pursuant to Article V.

 

(vi)                               Except as otherwise provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership and, as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code (or treated as described in Treasury Regulation Section 1.704-1(b)(2)(iv)(i)(3)), without regard to the fact that such items

 

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are not includable in gross income or are neither currently deductible nor capitalizable for federal income tax purposes.

 

4.6                                  Effect of Transfer of Partnership Interest . Generally, a transferee of an interest in the Partnership Interest shall succeed to that portion of the Capital Account of the transferor relating to the interest transferred. However, if the transfer causes a termination of the Partnership under Section 708(b)(1)(8) of the Code, the Partnership properties shall be deemed to have been distributed in liquidation of the Partnership to the Partners (including the transferee of the interest in the Partnership) and deemed recontributed by such Partners and transferees in reconstitution of the Partnership. In such event, the Carrying Values of the Partnership properties shall be adjusted immediately prior to such deemed distribution pursuant to Section 4.7, and such adjusted Carrying Values shall constitute the Agreed Values of such properties upon such deemed contribution to the reconstituted Partnership. The Capital Accounts of such reconstituted Partnership shall be maintained in accordance with this Article IV.

 

4.7                                  Issuance of Additional Partnership Interests . Consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv), upon an issuance of additional interests in the Partnership for cash or property, the Capital Accounts of all Partners shall, immediately prior to such issuance, be adjusted (consistent with the provisions hereof) upward or downward to reflect any unrealized gain or unrealized loss attributable to each Partnership property, as if such unrealized gain or unrealized loss

 

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had been recognized upon an actual sale or each such property, immediately prior to such issuance, and had been allocated to the Partners at such time pursuant to Article V. Once such amounts have been determined, the General Partner shall allocate such aggregate value among the properties of the Partnership in a manner it deems reasonable based on the fair market value for individual properties.

 

4.8                                  Redemptions . In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv), immediately prior to the distribution of cash or any Partnership property in consideration for an interest in the Partnership, including distributions pursuant to Article XIII and deemed distributions resulting from a termination of the Partnership as described in Section 4.5, the Capital Accounts of all Partners shall, immediately prior to any such distribution, be adjusted (consistent with the provisions hereof) upward or downward to reflect any unrealized gain or unrealized loss attributable to each Partnership property, as if such unrealized gain or unrealized loss had been recognized upon an actual sale of each property, immediately prior to such distribution, and had been allocated to the Partners at such time pursuant to Article V. In determining such unrealized gain or unrealized loss, the aggregate cash amount and fair market value of Partnership assets (including any cash or cash equivalents) immediately prior to a distribution shall, in the case of a deemed distribution occurring as a result of a termination of the Partnership pursuant to Section 708 of the Code, be determined and allocated in the manner provided in Section 4.6

 

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or in the case of a liquidating distribution pursuant to Article XIII, be determined and allocated by the General Partner using such reasonable methods of valuation and allocation as it may adopt.

 

4.9                             Interest. No interest shall be paid by the Partnership on Capital Contributions or on balances in Partners’ Capital Accounts.

 

4.10                       No Withdrawal . A Partner shall not be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership except as provided in Articles VI, XIII and XIV.

 

4.11                            Loans From Partners . Loans by a Partner to the Partnership shall not be considered Capital Contributions. If any Partner shall advance funds to the Partnership in excess of the amounts required hereunder to be contributed by it to the capital of the Partnership, the making of such advance shall not result in any increase in the amount of the Capital Account of such Partner. The amounts of any such advances shall be a debt of the partnership to such Partner and shall be payable or collectible only out of the Partnership assets in accordance with the terms and conditions upon which such advances are made. All such advances shall be made on terms at least as favorable as the Partnership could bargain for at arms-length with unrelated third party lenders.

 

4.12                            Division of Partnership Interests . There shall be no prohibition on the division of Partnership Interests by any Partner or the Partnership issuing or transferring such Partnership Interests or parts thereof under this Agreement.

 

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ARTICLE V

 

Allocations

 

5.1                             Determination of Profits and Losses . The profits and losses of the Partnership shall be determined for each Fiscal Year in accordance with the accrual method of accounting within ninety days after the end of such Fiscal year. The terms “Profits” and “Losses” as used herein include each item of Partnership income, gain, loss, deduction and credit, as the case may be.

 

5.2                             Allocation of Profits and Losses for Capital Account Purposes . Except as otherwise provided herein, for purposes of maintaining the Capital Accounts and of determining the rights of the Partners among themselves, the Profits and Losses of the Partnership (including profit or loss on the sale of all or substantially all of the Partnership’s assets) shall be allocated with respect to each Fiscal Year to the Partners in accordance with their Percentage Interests.

 

5.3                             Allocation in the Event of Transfers . Each item of income, gain, loss, deduction or credit which is allocable to a Partner’s Percentage Interest that is transferred in whole or in part during any year shall, if permitted by law, be allocated according to the varying Percentage Interests of the Partners during the year. In applying this rule, the Partners shall prorate such Partnership items over the Partnership year by assigning the appropriate portion of each such item to each day in the period to which it is attributable.

 

5.4                                  Allocation of Profits and Losses on Distribution of

 

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Assets in Kind . In the event that all or a portion of the assets of the Partnership are distributed to the Partners in kind, the Capital Accounts of the Partners shall be —

 

(a)                                   Increased by the gain which would have been recognized by the Partnership if the assets to be distributed in kind were sold by the Partnership at a price equal to the fair market value of such assets and any such Profits were allocated between the Partners in accordance with the provisions of this Article V; or

 

(b)                                  Decreased by the loss which would have been recognized by the Partnership if the assets to be distributed in kind were sold by the Partnership at a price equal to the fair market value of such assets and any such Losses were allocated between the Partners in accordance with the provisions of this Article V.

 

The term “fair market value” shall be an amount agreed upon unanimously by the Partners within thirty days of a determination to distribute assets in kind pursuant hereof and, if not so agreed, by appraisal performed by an appraiser selected in the reasonable good faith discretion of the General Partner, provided that such appraiser shall be an M.A.I. appraiser with at least five years prior experience in valuing similar assets.

 

5.5                                  Elections . In the event of a transfer of any Percentage Interest, including a transfer at death, the Partnership, upon the good faith approval of the General Partner (who shall specifically take into account the request of the Partner acquiring such

 

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Percentage Interest), may elect, pursuant to Section 754 of the Code, to adjust the basis of the Partnership’s assets. Except insofar as an election pursuant to Section 754 has been made with respect to the interest of any Partner, the determination for federal income tax purposes of any Profits or Losses shall be made as provided for in this Agreement. Each Partner agrees to furnish the Partnership with all information necessary to give effect to such election.

 

5.6                             Deficit in Capital Account Balances . Upon dissolution and termination of the Partnership, the General Partner, after giving effect to all contributions, distributions and allocations for all taxable years, including the year in which such liquidation occurs, shall contribute to the capital of the Partnership an amount equal to the negative balance, if any, in its Capital Account in compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3). Any amount contributed by the General Partner under this Section 5.6 shall be distributed according to the priorities set forth in Section 14.3.

 

5.7                             Recharacterization of Fees and Guaranteed Payments . Notwithstanding anything to the contrary in this Agreement, in the event that any fees, interest or other amounts paid or payable to any Partner or any of its Affiliates (or any fees paid or payable to a third party) are deducted by the Partnership in reliance on Section 707(a) of the Code (or would be so deducted if such payee were treated as a Partner) and such fees, interest, or other amounts are disallowed as deductions to the Partnership and are

 

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recharacterized as Partnership distributions, then there shall be allocated to such Partner prior to the allocations otherwise pursuant to this Article an amount of Partnership gross revenues for the year in which such fees, interest or other amounts are treated as Partnership distributions in an amount equal to such fees, interests or other amounts treated as distributions.

 

5.8                             Imputation of Profit or Loss . Notwithstanding anything to the contrary in this Agreement, if and to the extent that, as a result of the Partnership engaging in any transaction between any Partner, any Partner is deemed to recognize income as a result of any transaction between such Partner and the Partnership pursuant to Sections 1272-1274, Section 7372, Section 483 or Section 482 of the Code, or any similar provision now or hereinafter in effect, or the Partnership is deemed to receive income under any of these provisions, any corresponding resulting loss, deduction or income of the Partnership shall be allocated to the Partner who engaged in such transaction with the Partnership.

 

5.9                             Minimum Gain . Notwithstanding any other provision of this Agreement, if a Limited Partner’s Capital Account has a deficit balance resulting in whole or in part from allocations of loss or deduction attributable to nonrecourse debt which is secured by Partnership property, which deficit balance exceeds such Limited Partner’s share of minimum gain (as defined below), then gross income and gain shall first be allocated to such Limited Partner in an amount equal to such excess. For purposes of this Section 5.9, “minimum gain” means the excess of the outstanding principal

 

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balance of nonrecourse debt which is secured by Partnership property over the Partnership’s adjusted tax basis of such property. The Partners acknowledge that this Section 5.9 is intended to comply with the requirements of Treasury Regulation Section 1.704-1(b)(4)(iv) and is to be interpreted, if possible, to comply with requirements of such regulation. The General Partner shall have complete discretion to amend this provision and if, in the Opinion of Counsel, such amendment is advisable to comply with Treasury Regulation Section 1.704-1(b)(4)(iv).

 

5.10                            Qualified Income Offset . (a) Except as provided in Section 5.9, in the event that the Limited Partner unexpectedly receives an adjustment, allocation or distribution due to items set forth in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that results in such Limited Partner having an Adjusted Capital Account Deficit, such Limited Partner shall, as quickly as possible and to the extent required by Treasury Regulation Section 1.704-1(b)(2)(ii)(d), be allocated items of gross income in an amount sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible.

 

(b)                                  The Partners acknowledge that this Section 5.10 is intended