American Home Shield 2015 Annual Report Download - page 43

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Risks Related to the TruGreen Spin-Off
If the TruGreen Separation Transaction were ultimately determined to be a taxable transaction for U.S. federal income tax
purposes, then we could be subject to significant tax liability.
In connection with the separation transaction that we completed in January 2014 (the “TruGreen Spin-off”), resulting in the
spin-off of the assets and certain liabilities of the business that comprises the lawn, tree and shrub care services previously conducted
by ServiceMaster primarily under the TruGreen brand name (collectively, the “TruGreen Business”) through a tax free, pro rata
dividend to our stockholders, we received an opinion of tax counsel with respect to the tax free nature of the TruGreen Spin-off to
ServiceMaster, TruGreen and ServiceMaster’s stockholders under Section 355 and related provisions of the Code. The opinion relied
on an Internal Revenue Service (the “IRS”) private letter ruling as to matters covered by the ruling. The tax opinion was based on,
among other things, certain assumptions and representations as to factual matters made by us, which, if incorrect or inaccurate in any
material respect, would jeopardize the conclusions reached by tax counsel in its opinion. The opinion is not binding on the IRS or the
courts, and the IRS or the courts may not agree with the opinion. If the TruGreen Spin-off were ultimately determined not to be tax
free, we could be liable for the U.S. federal income taxes imposed as a result of the transaction. Furthermore, events subsequent to the
TruGreen Spin-off could cause us to recognize a taxable gain in connection therewith. In addition, as is customary with tax free spin-
off transactions, we and the Equity Sponsors are limited in our ability to pursue certain strategic transactions.
Federal and state fraudulent transfer laws and Delaware corporate law may permit a court to void the TruGreen Spin-Off, which
would adversely affect our financial condition and our results of operations.
In connection with the TruGreen Spin-off, we undertook several corporate restructuring transactions which, along with the
contributions and distributions to be made as part of the spin-off, may be subject to challenge under federal and state fraudulent
conveyance and transfer laws as well as under Delaware corporate law.
Under applicable laws, any transaction, contribution or distribution completed as part of the spin-off could be voided as a
fraudulent transfer or conveyance if, among other things, the transferor received less than reasonably equivalent value or fair
consideration in return and was insolvent or rendered insolvent by reason of the transfer.
We cannot be certain as to the standards a court would use to determine whether or not any entity involved in the spin-off
was insolvent at the relevant time. In general, however, a court would look at various facts and circumstances related to the entity in
question, including evaluation of whether or not:
the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its
assets;
the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute and mature; or
it could not pay its debts as they became due.
If a court were to find that any transaction, contribution or distribution involved in the spin-off was a fraudulent transfer or
conveyance, the court could void the transaction, contribution or distribution. In addition, the spin-off could also be voided if a court
were to find that the spin-off was not a legal dividend under Delaware corporate law. The resulting complications, costs and expenses
of either finding could materially adversely affect our business, financial condition and results of operations.
Our directors and officers may have actual or potential conflicts of interest because of their equity ownership in New TruGreen.
As a result of the completion of the TruGreen Spin-off, TruGreen Holding Corporation (“New TruGreen”) operates the
TruGreen Business as a private independent company. Our directors and officers may own shares of New TruGreen’s common stock
or be affiliated with certain equity owners of New TruGreen. This ownership may create, or may create the appearance of, conflicts of
interest when these directors and officers are faced with decisions that could have different implications for us and New TruGreen. In
connection with the TruGreen Spin-off, we entered into a transition services agreement with New TruGreen under which we will
provide a range of support services to New TruGreen for a limited period of time. Potential conflicts of interest could arise in
connection with the resolution of any dispute that may arise between us and New TruGreen regarding the terms of the transition
services agreement or other agreements governing the TruGreen Spin-off and the relationship thereafter between the companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The headquarters for Terminix, along with the corporate headquarters, are located in leased premises at 860 Ridge Lake
Boulevard, Memphis, Tennessee. The headquarters for American Home Shield are located in leased premises at 889 Ridge Lake
Boulevard, Memphis, Tennessee. The headquarters for the Franchise Services Group and a training facility are located in owned
premises at 3839 Forest Hill Irene Road, Memphis, Tennessee. In addition, we lease space for call centers located at 6399 Shelby
View Drive, Memphis, Tennessee and 7620 Appling Center Drive, Memphis, Tennessee; offices located at 855 Ridge Lake
Boulevard, Memphis, Tennessee; and a training facility located at 1650 Shelby Oaks Drive North, Memphis, Tennessee.
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