American Home Shield 2011 Annual Report Download - page 167

Table of Contents
consulting and management advisory services. The annual management fee payable under the consulting agreement with CD&R is $6.25 million. Under this
agreement, the Company recorded management fees in each of the years ended December 31, 2011, 2010 and 2009 of $6.25 million. The consulting
agreement also provides that CD&R may receive additional fees in connection with certain subsequent financing and acquisition or disposition transactions.
The consulting agreement will terminate on July 24, 2017, unless terminated earlier at CD&R's election.
In addition, in August 2009, the Company entered into consulting agreements with Citigroup, BAS and JPMorgan, each of which is an Equity Sponsor or
an affiliate of an Equity Sponsor. Under the consulting agreements, Citigroup, BAS and JPMorgan each provide the Company with on-going consulting and
management advisory services through June 30, 2016 or the earlier termination of the existing consulting agreement between the Company and CD&R. We
understand that on September 30, 2010, Citigroup transferred the management responsibility for certain investment funds that own shares of common stock of
Holdings to StepStone and Lexington Partners Advisors LP. We understand that Citigroup also assigned its obligations and rights under its consulting
agreement to StepStone, and beginning in the fourth quarter of 2010, the consulting fee otherwise payable to Citigroup became payable to StepStone. The
Company paid annual management fees of $0.5 million, $0.5 million and $0.25 million to StepStone, BAS and JPMorgan, respectively. The Company
recorded consulting fees related to these agreements in each of the years ended December 31, 2011, 2010 and 2009 of $1.25 million. As of December 22,
2011, Holdings purchased from BAS 7.5 million shares of capital stock of Holdings. Effective January 1, 2012, the annual management fee payable to BAS
was reduced to $0.25 million.
Indemnification Agreements
Holdings and ServiceMaster have entered into indemnification agreements with certain of the Equity Sponsors and Holdings stockholders affiliated with
certain of the Equity Sponsors, pursuant to which Holdings and ServiceMaster will indemnify those Equity Sponsors, the Holdings stockholders affiliated
with those Equity Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons,
against certain liabilities arising out of performance of the consulting agreement, transaction fee agreement and advisory agreements described above under
"Consulting Agreements" and certain other claims and liabilities, including liabilities arising out of financing arrangements and securities offerings.
Director Independence
Though not formally considered by our Board because our common stock is not registered with the SEC or traded on any national securities exchange,
based upon the listing standards of the NYSE, the national securities exchange upon which our common stock was traded prior to the Merger, we do not
believe that either of our directors would be considered "independent" because of their relationships with CD&R. See "Consulting Agreements" above.
Debt Purchases
In 2008 and 2009, Holdings completed open market purchases totaling $65.0 million in face value of the 2015 Notes for a cost of $21.4 million. On
December 21, 2011, the Company purchased from Holdings and retired $65.0 million in face value of the 2015 Notes for an aggregate purchase price of
$68.0 million, which included payment of accrued interest of $3.0 million. During the years ended December 31, 2011, 2010 and 2009, the Company
recorded interest expense of $6.8 million, $7.0 million and $6.9 million, respectively, related to 2015 Notes held by Holdings. During the years ended
December 31, 2011, 2010 and 2009, the Company paid interest to Holdings in the amount of $10.0 million, $7.0 million and $6.5 million, respectively.
Interest accrued by the Company and payable to Holdings as of December 31, 2010 amounted to $3.2 million. As a
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