<PAGE> 1
LAIDLAW ENVIRONMENTAL SERVICES, INC.
1301 GERVAIS STREET, SUITE 300
COLUMBIA, SOUTH CAROLINA 29201
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS IS REQUIRED
IN CONNECTION WITH THIS INFORMATION STATEMENT
This Information Statement (the "Information Statement") is being
mailed on or about August 29, 1997 to the holders of record at the close of
business on August 21, 1997, of the common stock, par value $1.00 per share (the
"Common Stock"), of Laidlaw Environmental Services, Inc., a Delaware corporation
(formerly known as Rollins Environmental Services, Inc.) (the "Company") in
connection with the appointment of certain persons (the "Designated Directors")
to the Board of Directors of the Company (the "Board of Directors") other than
at a meeting of the stockholders of the Company. You are urged to read this
Information Statement carefully. However, no action is required by the
shareholders of the Company in connection with the appointment of the Designated
Directors.
This Information Statement is being distributed pursuant to the
requirements of Section 14(f) of the Securities Exchange Act of 1934, as
amended, and Rule 14f-1 thereunder.
INFORMATION RELATING TO THE COMPANY'S COMMON STOCK
The shares of Common Stock are the only class of voting securities of
the Company outstanding. Each share of Common Stock is entitled to one vote per
share on all matters submitted to a vote of the shareholders. As of August 21,
1997, the Company had 180,415,811 shares of Common Stock outstanding.
CHANGE IN CONTROL OF THE COMPANY
On May 15, 1997, pursuant to the terms of a Stock Purchase Agreement,
dated as of February 6, 1997 (the "Stock Purchase Agreement"), among the
Company, Laidlaw Inc., a Canadian corporation ("Laidlaw"), and Laidlaw
Transportation, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of Laidlaw ("LTI"), the Company acquired certain direct and indirect
subsidiaries of Laidlaw (the "Acquired Subsidiaries") for consideration of (i)
$400,000,000 in cash (less certain assumed bond indebtedness described in the
Stock Purchase Agreement, a portion of which was paid at the closing of the
transactions contemplated by the Stock Purchase Agreement (the "Closing")),
consisting of a payment of $225,000,000, less the amount of such bond
indebtedness, from the Company to LTI and a repayment of $175,000,000 owed to
Laidlaw by a Canadian subsidiary of Laidlaw Chem-Waste, Inc., a Delaware
corporation and a wholly owned subsidiary of LTI, with funds contributed by the
Company, (ii) 120,000,000 shares of Common Stock issued to LTI, valued at
$330,000,000 based upon a price per share of $2.75, the average closing market
price on the NYSE -- Composite Transactions for the ten trading days before and
ten trading days after February 6, 1997, and (iii) a 5% Subordinated Convertible
Pay-in-kind Debenture due 2009 of the Company in the original principal amount
of $350,000,000 issued to LTI (the "PIK Debenture"). The terms and conditions of
the acquisition (the "Acquisition") are set forth in the Stock Purchase
Agreement and certain exhibits and schedules to the Stock Purchase Agreement.
The Stock Purchase Agreement was attached as Annex A to the Company's
Proxy Statement dated April 30, 1997 in connection with the Special Meeting of
the Company's shareholders held on May 13, 1997, at which meeting the
Acquisition was approved by the shareholders of the Company. The description in
this Information Statement of the Stock Purchase Agreement and its terms and
conditions is qualified in its entirety by reference to
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the Stock Purchase Agreement and the respective exhibits and schedules thereto
and is not, and does not purport to be, complete.
As a result of the Acquisition, Laidlaw indirectly owns approximately
66.5% of the outstanding Common Stock and substantially all of the management of
the Company now consists of former officers and directors of the Acquired
Subsidiaries. Due to these factors, the Acquired Subsidiaries were treated as
the acquiror for accounting purposes and the Acquisition was recorded as a
reverse acquisition.
BOARD OF DIRECTORS
GENERAL
The Board of Directors of the Company currently consists of ten
members and is divided into three classes with the members of each class serving
three-year terms. The terms of Class I Directors will expire at the 1998 annual
shareholders' meeting, of Class II Directors at the 1999 annual shareholders'
meeting and of Class III Directors at the 2000 annual shareholders' meeting.
Each director holds office until such director's successor is elected and
qualified or until such director's earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS
Pursuant to the terms of the Stock Purchase Agreement, the Company
agreed to increase the size of its Board of Directors from eight to ten members
and to cause the election or appointment as directors of the Company of (i) the
President and Chief Executive Officer of the Company, (ii) three individuals
designated by the Company, (iii) three individuals designated by Laidlaw and
(iv) three individuals designated jointly by the Company and Laidlaw. John W.
Rollins, Sr. (a Class III Director, term to expire at the 2000 annual
shareholders' meeting), John W. Rollins, Jr. (a Class II Director, term to
expire at the 1999 annual shareholders' meeting) and Henry B. Tippie (now a
Class I Director, term to expire at the 1998 annual shareholders' meeting), all
of whom were directors of the Company prior to the Closing, were to continue on
the Board of Directors as the Company's designees (the "Continuing Directors").
At a meeting of the Board of Directors held on January 31, 1997, all
of the directors of the Company, except the Continuing Directors, tendered their
resignations to be effective as of the date of the Closing. In addition, Mr.
Tippie resigned as a Class II Director effective as of the date of the Closing
and was appointed to fill the vacancy to be created upon the Closing by the
resignation of a Class I Director.
At a meeting of the Board of Directors held on the date of the
Closing, May 15, 1997, (i) Kenneth W. Winger, the newly appointed President and
Chief Executive Officer of the Company, and Leslie W. Haworth were appointed as
Class I Directors (terms to expire at the 1998 annual shareholders' meeting),
(ii) John R. Grainger was appointed as a Class II Director (term to expire at
the 1999 annual shareholders' meeting) and (iii) James R. Bullock was appointed
as a Class III Director (term to expire at the 2000 annual shareholders'
meeting). Each of Mr. Haworth, Mr. Grainger and Mr. Bullock were designated by
Laidlaw.
At a meeting of the Board of Directors held on June 4, 1997, David E.
Thomas, Jr. was appointed as a Class III Director (term to expire at the 2000
annual shareholders' meeting) and James L. Wareham was appointed as a Class I
Director (term to expire at the 1998 annual shareholders' meeting). Finally, at
a meeting of the Board of Directors held on July 9, 1997, Grover C. Wrenn was
appointed as a Class II Director (term to expire at the 1999 annual
shareholders' meeting). Each of Mr. Thomas, Mr. Wareham and Mr. Wrenn were
designated by the Company and Laidlaw acting jointly.
Each of the Designated Directors has assumed office, and the
Designated Directors and the Continuing Directors constitute all of the members
of the Board of Directors.
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<PAGE> 3
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information with respect to the
current executive officers and directors of the Company as of August 21, 1997.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Kenneth W. Winger 58 President, Chief Executive Officer
and Director
Michael J. Bragagnolo 51 Executive Vice President and Chief
Operating Officer
Paul R. Humphreys 38 Senior Vice President of Finance
and Chief
Financial Officer
Henry H. Taylor 53 Vice President, General Counsel and
Secretary
James R. Bullock 53 Director, Chairman of the Board
John R. Grainger 48 Director
Leslie W. Haworth 54 Director
John W. Rollins, Sr. 80 Director
John W. Rollins, Jr. 55 Director
David E. Thomas, Jr. 40 Director
Henry B. Tippie 70 Director
James L. Wareham 57 Director
Grover C. Wrenn 54 Director
</TABLE>
Kenneth W. Winger became President, Chief Executive Officer and Director of the
Company on May 15, 1997. Mr. Winger was President, Chief Operating Officer and
sole director of Laidlaw Environmental Services (US), Inc. (formerly known as
Laidlaw Environmental Services, Inc.) ("LES (US)"), from July 1995 until May 15,
1997. From May 1991 until July 1995, Mr. Winger was Senior Vice President for
Corporate Development of Laidlaw. Mr. Winger also is a director of ViroGroup,
Inc.
Michael J. Bragagnolo became Executive Vice President and Chief Operating
Officer of the Company on May 15, 1997. Mr. Bragagnolo joined LES (US) in
January 1997 as Executive Vice President after spending five years at Laidlaw
Waste Systems, Inc. as Executive Vice President of United States Operations from
September 1993 until December 1996 and as Executive Vice President Strategic
Planning from August 1992 through August 1993.
Paul R. Humphreys, became Chief Financial Officer of the Company on May 15,
1997. Mr. Humphreys was Vice President of Finance for LES (US) from January 1995
until May 15, 1997. From 1988 until January 1995, Mr. Humphreys was Manager of
Finance of Laidlaw.
Henry H. Taylor became Vice President - General Counsel and Secretary of the
Company on May 15, 1997. From May 1996 until May 15, 1997, Mr. Taylor was Vice
President of Legal and Regulatory Affairs of LES (US). Mr. Taylor was Secretary
of LES(US) from May 1990 until May 14, 1997 and was Vice President of Legal
Affairs of LES(US) from May 1990 until May 1996.
James R. Bullock became a Director and the Chairman of the Board of the Company
on May 15, 1997. Mr. Bullock has been President and Chief Executive Officer of
Laidlaw since October 1993. For more than two years prior thereto, Mr. Bullock
was President and Chief Executive Officer of Cadillac Fairview Corporation
Limited, a property development company. Mr. Bullock also is a director of
Laidlaw.
John R. Grainger became a Director of the Company on May 15, 1997. Mr. Grainger
has been President and Chief Operating Officer of LTI since May 1992. Mr.
Grainger currently serves as the Chairman of the Human Resources
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<PAGE> 4
and Compensation Committee of the Board of Directors (the "Human Resources and
Compensation Committee").
Leslie W. Haworth became a Director of the Company on May 15, 1997. Mr. Haworth
has been Senior Vice President and Chief Financial Officer of Laidlaw for more
than five years. Mr. Haworth currently serves as the Chairman of the Audit
Committee of the Board of Directors (the "Audit Committee").
John W. Rollins, Sr. has been a Director of the Company since 1982 and was
Chairman of the Board and Chief Executive Officer of the Company from 1988 until
May 15, 1997. Mr. Rollins also has been Chairman of the Board and Chief
Executive Officer of Rollins Truck Leasing Corp. for more than five years. Mr.
Rollins also is a director of Matlack Systems, Inc., Rollins, Inc., RPC Energy
Services and Dover Downs Entertainment, Inc.
John W. Rollins, Jr. has been a Director of the Company since 1982. He was also
a Director from 1978 until 1980. Mr. Rollins was Vice Chairman of the Board from
1983 until 1988 and Senior Vice Chairman of the Board from 1988 until May 15,
1997. Mr. Rollins has been President and Chief Operating Officer and a director
of Rollins Truck Leasing Corp. for more than five years, the Chairman of the
Board of Matlack Systems, Inc. for more than five years and a director of Dover
Downs Entertainment, Inc. since June 1996. Mr. Rollins is a member of the Human
Resources and Compensation Committee.
David E. Thomas, Jr. became a Director of the Company on June 4, 1997. Mr.
Thomas has been Senior Managing Director and Head of the Investment Banking
Group of Raymond James & Associates, Inc. ("Raymond James") since July 1996.
From 1991 until July 1996, he was Managing Director of Raymond James. Mr. Thomas
also is a director of Reynolds, Smith and Hills, Inc. Mr. Thomas is a member of
the Human Resources and Compensation Committee.
Henry B. Tippie has been a Director of the Company since 1982 and was Chairman
of the Executive Committee of the Company from 1988 until May 15, 1997. Mr.
Tippie has been Chairman of the Executive Committee and Vice Chairman of the
Board and a director of Rollins Truck Leasing Corp. since 1974 and Chairman of
the Board and President of Tippie Services, Inc. since 1982. Mr. Tippie also is
a director of RPC Inc., Dover Downs Entertainment, Inc., Matlack Systems, Inc.
and Rollins, Inc. Mr. Tippie is a member of the Audit Committee.
James L. Wareham became a Director of the Company on June 4, 1997. Mr. Wareham
has been President of AK Steel Corporation since March 1997. From 1989 until
March 1997, Mr. Wareham was President and Chief Executive Officer of
Wheeling-Pittsburgh Steel Corporation. Mr. Wareham also was Chairman of
Wheeling-Pittsburgh Steel Corporation from September 1992 until March 1997 and
President of WHX Corporation from December 1992 until March 1997. Mr. Wareham is
a member of the Audit Committee.
Grover C. Wrenn became a Director of the Company on July 9, 1997. Mr. Wrenn has
been Chairman and Chief Executive Officer of Better Health Network, Inc. since
June 1996. He was Chief Executive Officer of EnSys Environmental Products, Inc.
from April 1995 through December 1996. From 1991 through March 1995, Mr. Wrenn
was President and Chief Executive Officer of Applied Bioscience International.
Mr. Wrenn also is a director of Strategic Diagnostics, Inc. and Pharmakinetics
Laboratories, Inc.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company, except that
John W. Rollins, Jr. is the son of John W. Rollins, Sr.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held four meetings during the
fiscal year ended September 30, 1996 (the "1996 Fiscal Year"). During the 1996
Fiscal Year, the Board of Directors had three committees, the Audit Committee
(which held two meetings), the Executive Committee (which held three meetings)
and the Stock
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<PAGE> 5
Option Committee (which held three meetings). During the 1996 Fiscal Year, no
director attended fewer than 75% of the aggregate number of meetings of the
Board of Directors and the committees on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS FOR THE 1996 FISCAL YEAR
Audit Committee. During the 1996 Fiscal Year, the Audit Committee's
functions included consulting with the Company's independent public accountants
concerning the scope and results of the audit, reviewing the evaluation of
internal accounting controls and inquiring into special accounting related
matters.
Executive Committee. During the 1996 Fiscal Year, the Executive
Committee had the power to exercise all of the powers and authority of the Board
of Directors in the management of the business and affairs of the Company in
accordance with the provisions of the by-laws of the Company. During the 1996
Fiscal Year, the Executive Committee also performed all of the functions of a
compensation committee of the Board of Directors.
Stock Option Committee. During the 1996 Fiscal Year, the Stock Option
Committee administered the Company's outstanding stock option plans including
the granting of options to various employees of the Company and its
subsidiaries.
CURRENT COMMITTEES OF THE BOARD OF DIRECTORS
Following the Acquisition, the Board of Directors discontinued the
Executive Committee and the Stock Option Committee, redefined the duties of the
Audit Committee and established the Human Resources and Compensation Committee.
Audit Committee. The Audit Committee is responsible for the oversight
of the Company's financial reporting process and internal controls. Its duties
include reviewing results of external audits, management's responses to external
audit recommendations, internal audit reports and management's response to those
reports; reviewing annual financial statements and any significant disputes
between management and external auditors in connection with those financial
statements; considering major changes and major questions of choice regarding
appropriate auditing and accounting principles and practices to be followed when
preparing corporate financial statements; reviewing corporate procedures used in
preparing public financial statements and related management commentaries;
meeting periodically with management to review the Company's major financial
risk exposures; and considering indemnification issues.
Human Resources and Compensation Committee. The Human Resources and
Compensation Committee is responsible for reviewing and recommending to the
Board of Directors of the Company annual salary, bonus, stock options and other
benefits, direct and indirect, of senior executives; reviewing new executive
compensation programs; periodically reviewing the coordination of the Company's
executive compensation programs; reviewing and recommending to the Board of
Directors of the Company compensation for directors; and establishing and
periodically reviewing policies in the area of management perquisites.
The Board of Directors does not have a standing nominating committee.
COMPENSATION OF DIRECTORS
Prior to the Acquisition, directors who were not full-time employees
of the Company or any of its subsidiaries were each paid an annual retainer of
$10,000 and an attendance fee of $750 for each Board of Directors or committee
meeting attended. Currently, each director who is not an employee of the Company
is paid $20,000 as an annual retainer plus $750 for each meeting attended.
Directors who are also employees of the Company receive no separate compensation
for serving as directors.
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<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
BENEFICIAL OWNERS OF FIVE PERCENT OR MORE OF THE COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company by the only person who is known to
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock as of August 21, 1997, based on reports filed on Schedule 13D with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
Name Number of Shares Percent of Class
- ---- ---------------- ----------------
<S> <C> <C>
Laidlaw Inc.(1) 120,000,000 66.5%
3221 North Service Road
Burlington, Ontario,
Canada L7R3Y8
</TABLE>
- ------------
(1) The shares of Common Stock shown as owned by Laidlaw are held of record
by LTI.
STOCK OWNERSHIP OF THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of August 21, 1997, information
regarding the beneficial ownership of the Common Stock of the Company by (i)
each of the Company's directors, (ii) to the knowledge of the Company, each of
the officers named in the Summary Compensation Table appearing elsewhere herein
(the "Named Executive Officers") and (iii) all of the Company's directors and
current executive officers as a group.
<TABLE>
<CAPTION>
Name Number of Shares Percent of Class
- ---- ---------------- ----------------
<S> <C> <C>
Kenneth W. Winger -0- N/A
James R. Bullock -0- N/A
John R. Grainger -0- N/A
Leslie W. Haworth -0- N/A
John W. Rollins, Sr.(1) 3,697,576 2.05%
John W. Rollins, Jr.(2) 357,862 *
David E. Thomas, Jr. -0- N/A
Henry B. Tippie(3) 2,294,689 1.27%
James L. Wareham -0- N/A
Grover C. Wrenn -0- N/A
John V. Flynn, Jr.(4) 100,000 *
Frank H. Minner, Jr.(5) 40,200 *
All directors and 6,350,127 3.52%
executive officers as a
group (13 persons)
</TABLE>
- ------------
* Signifies less than 1%
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<PAGE> 7
(1) Does not include 182,749 shares owned by Mr. Rollins' wife and 101,975
shares held by his wife as custodian for his minor children, as to which
shares Mr. Rollins disclaims any beneficial ownership.
(2) Includes 191,737 shares held by Mr. Rollins as co-trustee. Does not include
6,191 shares owned by Mr. Rollins' wife, as to which shares Mr. Rollins
disclaims any beneficial ownership.
(3) Includes 968,689 shares held by Mr. Tippie as co-trustee; 26,000 shares
held by him as trustee; and 30,000 shares owned by a partnership over which
he has sole voting power. Does not include 23,000 shares owned by Mr.
Tippie's wife and 21,000 shares held by his wife as trustee for his
children, as to which shares Mr. Tippie disclaims any beneficial ownership.
(4) Includes 100,000 shares subject to options which are currently exercisable.
(5) Includes 40,200 shares subject to options which are currently exercisable.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
requires the Company's executive officers, directors and persons who are
beneficial owners of more than ten percent of the Company's Common Stock
("reporting persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Reporting persons are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms filed by them.
Based on its review of the copies of Section 16(a) forms received by it,
the Company believes that, during the 1996 Fiscal Year, all reporting persons
fully complied with the filing requirements applicable to such persons.
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<PAGE> 8
COMMON STOCK PERFORMANCE
The following graph reflects a comparison of the cumulative total
shareholders' return on the Common Stock for the five-year period from October
1, 1991 through September 30, 1996 with the cumulative return of the S&P
Composite 500 index and an index of peer companies selected by the Company
consisting of companies engaged in the industrial waste disposal industry. In
addition to the Company, for the 1996 Fiscal Year, the peer group included Clean
Harbors, Inc. and Philip Environmental, Inc. For the fiscal year ended September
30, 1995, the peer group included the Company, Clean Harbors, Inc. and Horsehead
Resource Development, Inc. As the stock of Horsehead Resource Development, Inc.
is no longer publicly traded, the 1995 peer group, as presented for comparative
purposes, consists only of the Company and Clean Harbors, Inc. The graph assumes
that the value of an investment in the Common Stock and each index was 100 at
September 30, 1991 and all dividends were reinvested. The comparisons in this
table are required by the Securities and Exchange Commission and, therefore, are
not intended to forecast or necessarily be indicative of any future return on
the Common Stock.
[GRAPHIC]
<TABLE>
<CAPTION>
Years
-----------------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Laidlaw Environmental Services, Inc. 100 107 59 60 48 27
1996 Peer Group 100 103 59 57 50 48
1995 Peer Group 100 103 59 58 44 26
S&P 500 100 111 125 130 169 203
</TABLE>
Assumes $100 invested on October 1, 1991.
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<PAGE> 9
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual
compensation for services in all capacities to the Company for the fiscal years
ended September 30, 1994, 1995 and 1996 of those persons who were, at September
30, 1996, (i) the Chairman of the Board and Chief Executive Officer of the
Company and (ii) the other four most highly compensated executive officers of
the Company whose total annual salary for the 1996 Fiscal Year exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
(a) (b) (c) (g)
Name and Securities Underlying
Principal Position Year Salary ($) Options/SARs (#)
------------------ ----- ---------- ---------------
<S> <C> <C> <C>
John W. Rollins, Sr. 1996 $180,000 -0-
Chairman of the Board 1995 300,000 -0-
and Chief Executive 1994 315,000 -0-
Officer
John V. Flynn, Jr. 1996 $401,981 18,000
President and Chief 1995 287,500 54,000
Operating Officer
John W. Rollins, Jr. 1996 $180,000 18,000
Senior Vice Chairman 1995 300,000 18,000
of the Board 1994 315,000 10,200
Henry B. Tippie 1996 $180,000 -0-
Chairman - Executive 1995 300,000 -0-
Committee 1994 315,000 -0-
Frank H. Minner, Jr. 1996 $169,520 15,000
Group Vice President
- - Finance, Treasurer
and Chief Financial
Officer
</TABLE>
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<PAGE> 10
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted in the 1996 Fiscal Year
to Named Executive Officers. The table also sets forth hypothetical gains that
would exist for the options at the end of their eight year terms, assuming
compound rates of stock appreciation of 5% and 10%. The actual future value of
the options will depend on the market value of the Common Stock. All option
exercise prices are equal to the closing market price of a share of Common Stock
on the NYSE -- Composite Transactions on the grant date.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term(2)
- ------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in the Base Price Expiration
Name Granted (#) 1996 Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ------------- ----------------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
John V. Flynn, Jr. (1) 18,000 5.3% $2.875 12/03/03 $ 24,708 $59,181
John W. Rollins, Jr. (1) 18,000 5.3% 2.875 12/03/03 24,708 59,181
Frank H. Minner, Jr. (1) 15,000 4.4% 2.875 12/03/03 20,590 49,317
</TABLE>
- -----------------
(1) Options granted on December 4, 1995.
(2) These amounts, based on assumed appreciation rates of 5% and 10% as
prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. These numbers do not take into account certain
provisions of the options providing for termination of the option
following termination of employment, nontransferrability or phased-in
vesting. The Company did not use an alternative formula for a grant date
valuation as it is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile
factors. Future compensation resulting from option grants is based solely
on the performance of the Company's stock price.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
The following table sets forth the number of exercisable and unexercisable
options held by Named Executive Officers as of September 30, 1996, and the value
thereof based on the closing market price of a share of Common Stock on the NYSE
- -- Composite Transactions on September 30, 1996, $2.75.
<TABLE>
<CAPTION>
(a) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at FY-End (#) FY-End ($) Exercisable
Name Exercisable /Unexercisable /Unexercisable
- ------------------------ --------------------------- -----------------------
<S> <C> <C>
-0-/-0-
John V. Flynn, Jr. 9,000/63,000 -0-/-0-
Frank H. Minner, Jr. 4,200/36,000 -0-/-0-
John W. Rollins, Jr. 93,300/-0- -0-/-0-
Henry B. Tippie 47,100/-0- -0-/-0-
</TABLE>
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<PAGE> 11
DEFINED BENEFIT PLANS
During the 1996 Fiscal Year, the Company had a pension plan (the
"Pension Plan") which was a non-contributory qualified, defined benefit plan.
All full-time employees of the Company were eligible to participate in the
Pension Plan. As of September 30, 1989, retirement benefits under the Pension
Plan were computed utilizing from 1% to 1.5% of any employee's annual cash
compensation and years of service to age 65. Commencing October 1, 1989,
retirement benefits were computed utilizing 1.25% of earnings up to covered
compensation, as that term is defined in the Pension Plan, and 1.7% of earnings
above covered compensation and years of service to age 65. Compensation utilized
to compute benefits under the Pension Plan includes regular salaries or wages,
commissions, bonuses, overtime earnings and short-term disability income
protection benefits.
During the 1996 Fiscal Year, the Company also maintained a
non-qualified, defined benefit plan (the "Excess Benefit Plan"), which covered
those participants of the Pension Plan whose benefits were limited by the
Internal Revenue Code of 1986, as amended (the "Code"). A participant in the
Excess Benefit Plan was entitled to a benefit equaling the difference between
the amount of the benefit that would be payable to him under the Pension Plan
but for the Code limitation and the amount of the benefit actually payable to
him under the Pension Plan.
During the 1996 Fiscal Year, retirement benefits under the Pension
Plan and the Excess Benefit Plan were not subject to any reduction for Social
Security benefits or other offset amounts, could be paid in certain alternative
forms having actuarially equivalent values and were fully vested after the
completion of five years of credited service or, if earlier, upon reaching age
55.
The estimated combined annual benefit at retirement for each of the
Named Executive Officers under the Pension Plan and the Excess Benefit Plan as
of September 30, 1996 was: John V. Flynn, Jr., $85,243; John W. Rollins, Jr.,
$87,608; Henry B. Tippie, $58,491; and Frank H. Minner, Jr., $5,127. John W.
Rollins, Sr. did not participate in the Pension Plan or the Excess Benefit Plan
during the 1996 Fiscal Year. These estimated annual pension benefits of the
Named Executive Officers assume: (a) that each Named Executive Officer remains
in the service of the Company until age 65; (b) that each Named Executive
Officer's earnings continue at the same rate as paid in the 1996 Fiscal Year
during the remainder of his service until age 65; and (c) that the Pension Plan
and the Excess Benefit Plan continue without substantial modification.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Pursuant to a letter dated January 15, 1997, John V. Flynn, Jr.,
President and Chief Operating Officer, resigned from such positions on the date
of the Closing in exchange for (i) at the option of Mr. Flynn, either (a)
remaining an employee for two years from the date of the Closing at an annual
salary of $400,000 or (b) receiving as severance a lump sum payment equal to the
total amount then remaining unpaid under clause (a) and (ii) receiving, for so
long as Mr. Flynn remains an employee of the Company, use of a company car and
such health and welfare, life insurance, disability, pension, stock option and
other benefits as are made available to other employees of the Company. The
letter also specifies that, for a period of three years after the date of the
Closing, Mr. Flynn will not participate in a business which competes with the
Company in the hazardous or industrial waste incineration business.
Frank H. Minner, Jr., Group Vice President -- Finance, Treasurer and
Chief Financial Officer, resigned from such positions on the date of the Closing
in exchange for receiving as severance payment totalling $165,973 over a
one-year period.
John W. Rollins, Jr., Senior Vice Chairman of the Board, resigned from
such position on the date of the Closing in exchange for a guaranteed annual
retirement benefit of $57,538.45 beginning on June 1, 1997. The
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difference between the benefit Mr. Rollins would receive under the Pension Plan
and the Excess Benefit Plan at age 65 and the amount he would otherwise receive
under the plans beginning June 1, 1997 will be paid by the Company.
John W. Rollins, Sr. and Henry B. Tippie also resigned from their
positions as officers of the Company on the date of the Closing. However, they
received no severance or other compensation in connection with such
resignations.
Pursuant to the terms of the Stock Purchase Agreement, on the date of
the Closing, all employees, including the Named Executive Officers, received
immediate vesting of all options outstanding under the Company's stock option
plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1996 Fiscal Year, the Executive Committee of the Board of
Directors held primary responsibility for determining executive compensation
levels. The following directors served on the Company's Executive Committee
during the 1996 Fiscal Year: John W. Rollins, Sr., John W. Rollins, Jr. and
Henry B. Tippie. Each was an employee of the Company during the 1996 Fiscal
Year, but none participated in the deliberations of the Executive Committee with
respect to his own compensation. Henry B. Tippie serves on the compensation
committees of Rollins, Inc. and RPC Energy Services, Inc. John W. Rollins, Sr.,
John W. Rollins, Jr. and Henry B. Tippie are members of the executive committees
of Rollins Truck Leasing Corp. and Matlack Systems, Inc. The executive committee
of each of these two companies perform the functions of a compensation
committee. John W. Rollins, Sr. and Henry B. Tippie serve on the compensation
committee of Dover Downs Entertainment, Inc.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report of the Executive Committee and the Stock
Option Committee for the 1996 Fiscal Year.
The Company is engaged in a highly competitive industry. As a
consequence, the Company views its ability to attract and retain qualified
executives as the cornerstone of its future success. In order to accomplish this
objective, the Company has endeavored to structure its executive compensation in
a fashion that takes into account the Company's operating performance and the
individual performance of the executive. Of necessity, this analysis is
subjective in nature and not based upon a structured formula. The factors
referred to above are not weighted in an exact fashion.
Pursuant to the above compensation philosophy, the total annual
compensation of executive officers of the Company is made up of one or more of
three elements. The three elements are salary, an annual incentive compensation
package and, in some years, grants of stock options.
The salary of each executive officer is determined by the Executive
Committee. As previously stated, in making its determinations, the Executive
Committee gives consideration to the Company's operating performance for the
prior fiscal year and the individual executive's performance.
The annual incentive compensation package for executive officers is
developed by the Chief Operating Officer of the Company prior to the end of each
fiscal year. It is based upon a performance formula for the ensuing fiscal year.
That performance formula and incentive package is then reviewed by the Executive
Committee and is either accepted, amended or modified. None of the members of
the Board of Directors participate in the incentive program.
Awards under the Company's Stock Option Plan are purely discretionary,
are not based upon any specific formula and may or may not be granted in any
given fiscal year. Grants are made under the Plan and the Plan is administered
by disinterested directors within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934.
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When considering the grant of stock options, the Stock Option Committee of the
Board of Directors gives consideration to the overall performance of the Company
and the performance of the individual employees.
The CEO's compensation is determined by the Executive Committee. As is
the case with respect to the other Named Executive Officers, the CEO's
compensation is based upon the Company's operating performance and his
individual performance. The decision of the Executive Committee is, however,
very subjective and is not based upon any specific formula or guidelines. The
CEO does not participate in the deliberations of the Executive Committee when
his salary is determined. Neither the CEO nor any other member of the Executive
Committee participates in any Company incentive program. The CEO has never
received a stock option from the Company.
Executive Committee
Henry B. Tippie, Chairman
John W. Rollins, Sr.
John W. Rollins, Jr.
Stock Option Committee
Henry B. Tippie, Chairman
John W. Rollins, Sr.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH LAIDLAW
In the ordinary course of business, the Company and Laidlaw or
affiliates of Laidlaw from time to time have entered into various business
transactions and agreements. The following is a summary of each of the material
agreements, arrangements and transactions between the Company or its affiliates
and Laidlaw or its affiliates since October 1, 1996.
Laidlaw Stock Ownership. Laidlaw indirectly owns approximately 66.5%
of the outstanding Common Stock of the Company. Pursuant to the terms of the
Stock Purchase Agreement, Laidlaw had the right to appoint three directors, one
in each class, to the Board of Directors of the Company. Additionally, Kenneth
W. Winger, as the newly appointed President and Chief Executive Officer of the
Company, was appointed to the Board of Directors pursuant to the terms of the
Stock Purchase Agreement. As a result, four of the ten directors are
representatives of Laidlaw. In addition, Laidlaw, acting with the Company, had
the right to appoint three additional directors to the Board of Directors of the
Company. For so long as Laidlaw owns more than 50% of the Common Stock, it will
have the power to elect all of the directors to be elected at any meeting of the
shareholders of the Company.
Laidlaw Indemnities. Pursuant to the terms of the Stock Purchase
Agreement, Laidlaw and LTI agreed to jointly and severally indemnify and hold
harmless, subject to certain limitations, the Company and its affiliates from
and against any and all Damages (as defined in the Stock Purchase Agreement)
suffered by the Company resulting from or in respect of (i) various tax
obligations and liabilities, (ii) pre-closing insurance claims, (iii) any breach
or default in the performance by Laidlaw or LTI of (a) their covenants and
agreements in the Stock Purchase Agreement to be performed on or after the date
of the Closing or (b) any representation or warranty which survives the Closing
(to the extent that damages therefrom exceed $2,000,000) and (iv) any
environmental liability or environmental claim arising as a result of any act or
omission by Laidlaw or LTI, including any release, occurring prior to the
Closing, but only to the extent such liability or claim (a) was known to Laidlaw
or certain of its affiliates and not disclosed in writing to the Company or (b)
relates to the Marine Shale Processors or Mercier, Quebec facilities and exceeds
(x) an aggregate of $1,000,000 in the particular year and (y) an aggregate since
the Closing of $1,000,000 times the number of years elapsed since the Closing,
but only to the extent of cash expenditures incurred within six years after the
date of the Closing.
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Laidlaw Guaranties. Prior to the Closing, Laidlaw entered into on
behalf of the Acquired Subsidiaries certain guaranties, performance guaranties,
bonds, performance bonds, suretyship arrangements, surety bonds, credits,
letters of credit, reimbursements, agreements and other undertakings, deposit
commitments or arrangements by which Laidlaw may be primarily, secondarily,
contingently or conditionally liable for or in respect of (or which create,
constitute or evidence a lien or encumbrance on any of the assets or properties
of Laidlaw which secures the payment or performance of) a present or future
liability or obligation of the Company (each a "Laidlaw Guaranty" and
collectively the "Laidlaw Guaranties"). Pursuant to the terms of the Stock
Purchase Agreement, the Company agreed to use its best efforts to cause Laidlaw
to be fully and finally released and discharged from all further liability or
obligation in respect of all Laidlaw Guaranties within six months following the
date of the Closing.
If at the end of six months following the date of the Closing, any
Laidlaw Guaranty remains outstanding, then no later than the fifth business day
following the expiration of such six-month period, the Company is required to
deliver to Laidlaw a letter of credit which (i) names Laidlaw as the beneficiary
thereof; (ii) is in an amount at least equal to the aggregate outstanding and
undrawn balances of all such outstanding Laidlaw Guaranties; (iii) is issued by
a bank having credit ratings by each of Standard & Poor's Ratings Services and
Moody's Investors Services, Inc. which are at least as high as the credit
ratings given by such credit rating organizations for the issuer bank of each
letter of credit which is an issuer of a Laidlaw Guaranty; (iv) has an
expiration date no earlier than the expiration date of the last to expire of the
Laidlaw Guaranties (however, if the letter of credit to be obtained by the
Company for the benefit of Laidlaw pursuant to the Stock Purchase Agreement is
to be issued with respect to more than one Laidlaw Guaranty, the amount of such
letter of credit will reduce automatically and without any action by any party
upon the expiration date of each Laidlaw Guaranty by the amount thereof or upon
the acceptance by the beneficiary of such Laidlaw Guaranty of a substitute
letter of credit provided by the Company); and (v) is payable at sight to
Laidlaw upon presentation of a written, sworn affidavit of an officer of Laidlaw
stating that Laidlaw's reclamation credit issued by such issuer bank has been
drawn upon by the beneficiary thereof in an amount not less than the draw being
made by Laidlaw on such letter of credit.
In addition, prior to the Closing, the Acquired Subsidiaries had
entered into certain guaranties for the benefit of Laidlaw's subsidiaries that
were not involved in the Stock Purchase Agreement (the "Retained Subsidiaries").
Pursuant to the terms of the Stock Purchase Agreement, Laidlaw agreed to use all
reasonable efforts to cause each Acquired Subsidiary to be fully and finally
released and discharged from all further liability or obligation in respect of
any guaranty given by any Acquired Subsidiary for obligations of any Retained
Subsidiary and agreed to indemnify and hold harmless the Company from and
against any and all Damages suffered by it in connection with any such guaranty
and any and all other liabilities or obligations relating to the Retained
Subsidiaries.
Prior to the Closing, Laidlaw provided its corporate guaranty to
provide financial assurance for the costs of clean-up or environmental
impairment restoration or both incurred following closure or following a final
order to cease operations and commence closure of the hazardous waste management
facility operated by the Company in Pinewood, South Carolina. The financial
assurance required by the South Carolina Department of Health and Environmental
Control is comprised of the corporate guaranty, the State Permitted Sites Fund
and the GSX Contribution Fund. Pursuant to the terms of the Stock Purchase
Agreement, Laidlaw agreed to maintain, at its expense, until the tenth
anniversary of the date of the Closing, the corporate guaranty or such other
form of financial mechanism as may be permitted by the relevant environmental
laws and regulations to provide the required financial assurance.
The PIK Debenture. On the date of the Closing, the Company issued the
PIK Debenture. The principal of the PIK Debenture is payable on May 15, 2009,
subject to earlier mandatory or optional prepayment and any acceleration of its
maturity date upon default.
The PIK Debenture bears interest at the fixed rate of 5% per annum. For
the first two years after the date of the Closing (the "Mandatory PIK Interest
Payment Period"), interest on the outstanding principal balance of the
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PIK Debenture accrues at the 5% rate, but will be paid in shares of Common
Stock. After the Mandatory PIK Interest Payment Period, at the election of the
Company any payment due under the PIK Debenture (except upon an optional early
redemption), including any accrued interest or principal, may be paid in shares
of Common Stock. The number of shares of Common Stock for each such payment
shall be equal to the dollar amount in accrued interest or principal due divided
by the average of the daily closing prices of a share of Common Stock on the
NYSE -- Composite Transactions for the ten consecutive trading days selected by
the Company commencing not more than 20 trading days before, and ending not
later than, the date such payment is due. Interest on the outstanding principal
balance of the PIK Debenture is payable semiannually on November 15 and May 15,
beginning on November 15, 1997 and continuing until the payment in full of the
PIK Debenture.
Beginning on May 15, 2002, and continuing until the business day prior
to the repayment of the PIK Debenture, the PIK Debenture is convertible, in
whole or in part, at the option of the holder, into shares of Common Stock. The
conversion will be at a price equal to the conversion price (the "Conversion
Price") of $3.75 per share, subject to adjustment under certain circumstances.
During the period commencing on May 15, 2002, and continuing until
maturity, the Company has the option to prepay the PIK Debenture, in whole or in
part, only in cash, at the face amount of the PIK Debenture if the last reported
sales price of a share of Common Stock, as reported by the New York Stock
Exchange, equals or exceeds 120% of the Conversion Price for a period of at
least ten consecutive trading days prior to the date of such proposed
prepayment.
Subject to the subordination provisions of the PIK Debenture, the
maturity of the PIK Debenture may be accelerated if a "Default" occurs. Under
the PIK Debenture a "Default" includes (i) a failure by the Company to pay the
principal or accrued interest of the PIK Debenture on its maturity date or any
interest payment date, respectively, (ii) the voluntary or involuntary
bankruptcy of the Company or other insolvency proceedings involving the Company
and (iii) the acceleration of the maturity of the amounts outstanding under the
Credit Agreement dated as of May 15, 1997, among the Company, as borrower, the
Toronto-Dominion Bank, as agent, and the other financial institutions parties
thereto (the "Credit Facility") as a result of a default thereunder.
The PIK Debenture ranks junior in right of payment to the amounts
outstanding under the Credit Facility and to substantially all other
indebtedness of the Company except (i) amounts owed (other than to banks,
insurance companies and other financing institutions and obligations under
capitalized leases) for goods, materials, services or operating lease rental
payments in the ordinary course of business or for compensation to employees and
(ii) any liability for federal, state, provincial, local or other taxes owed or
owing by the Company.
Service Arrangements. Laidlaw and its affiliates have provided certain
financial and management services to the Company and its subsidiaries. Such
services have included providing general liability and workers' compensation
insurance and income tax management. Each of the service arrangements have been
on arms-length terms comparable to those available in transactions with
unaffiliated parties.
RAYMOND JAMES & ASSOCIATES, INC.
David E. Thomas, Jr., a Director of the Company, is the Senior
Managing Director and the Head of the Investment Banking Group of Raymond James.
Pursuant to the terms of a letter agreement dated January 3, 1997, the Company
engaged Raymond James as the Company's financial advisor in connection with the
Acquisition and agreed to (i) pay Raymond James a fee of $800,000, (ii)
reimburse Raymond James for its reasonable out-of-pocket expenses (up to a
maximum of $25,000) and (iii) indemnify Raymond James against certain
liabilities, including certain liabilities under the federal securities laws.
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