SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ROLLINS ENVIRONMENTAL SERVICES, INC.
________________________________________________________________________________
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
________________________________________________________________________________
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock of Rollins Environmental Services, Inc. and a 5%
Subordinated Convertible Pay-in-kind Debenture due 2009 in the original
principal amount of $350,000,000
2) Aggregate number of securities to which transaction applies:
120,000,000 shares of Common Stock of Rollins Environmental Services,
Inc. and a 5% Subordinated Convertible Pay-in-kind Debenture due 2009 in
the original principal amount of $350,000,000
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The filing fee of $73,308.37 has been calculated pursuant to Rule
0-11(c)(1) and Rule 0-11(a)(4) and is equal to 1/50 of 1% of
$366,541,838 (the book value of the investment of Laidlaw
Transportation, Inc. in Laidlaw Chem-Waste, Inc., the private company
the shares of which are being acquired by Rollins Environmental
Services, Inc., after giving effect to the contemplated pre-closing
reorganization as described in the Proxy Statement under "The Stock
Purchase Agreement -- Reorganization."
4) Proposed maximum aggregate value of transaction: $366,541,838
5) Total fee paid: $73,308.37
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _____________________________________________________
2) Form, Schedule or Registration Statement No.: _______________________________
3) Filing Party: _______________________________________________________________
4) Date Filed: _________________________________________________________________
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ROLLINS ENVIRONMENTAL SERVICES, INC.
One Rollins Plaza
Wilmington, Delaware 19803
April __, 1997
Dear Rollins Stockholder:
You are invited to attend a special meeting of stockholders (the "Special
Meeting") of Rollins Environmental Services, Inc. ("Rollins") to be held at the
Sheraton Suites Hotel, 422 Delaware Avenue, Wilmington, DE 19801, on Tuesday,
April 29, 1997, at 9:00 a.m., local time.
At the Special Meeting, you will be asked to (i) approve the recently
announced agreement for the acquisition of the hazardous and industrial waste
operations (the "Acquisition") of Laidlaw Inc., a Canadian corporation
("Laidlaw") by Rollins, as contemplated by the Stock Purchase Agreement (the
"Stock Purchase Agreement") dated as of February 6, 1997 among Rollins, Laidlaw
and Laidlaw Transportation, Inc., a Delaware corporation and indirect wholly
owned subsidiary of Laidlaw ("LTI"); (ii) approve in connection with the
Acquisition the issuances (the "Issuances") (a) at the closing (the "Closing")
of the Acquisition, of 120,000,000 shares (the "Stock Consideration") of
Rollins' common stock, par value $1.00 per share (the "Common Stock") and (b) at
a time after the Closing, of a currently indeterminate number of shares of
Common Stock issuable pursuant to the terms of a 5% Subordinated Convertible
Pay-in-kind Debenture due 2009 in the original principal amount of $350,000,000
(the "PIK Debenture"); and (iii) approve in connection with the Acquisition
amendments to Rollins' certificate of incorporation which will (a) increase the
number of authorized shares of Common Stock available for issuance from
120,000,000 to 350,000,000 shares, (b) change the name of Rollins to Laidlaw
Environmental Services, Inc. as of the Closing and (c) increase the size of
Rollins' Board of Directors (the "Board of Directors") from eight to ten members
(each, an "Amendment", and collectively, the "Amendments"). The approval of the
Acquisition and the Issuances requires the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Special
Meeting and entitled to vote thereon, provided that a quorum consisting of a
majority of the shares of Common Stock entitled to vote is present. The approval
of each of the Amendments requires the affirmative vote of a majority of the
shares of outstanding Common Stock entitled to vote on each of the Amendments,
which vote would also constitute a quorum.
The Stock Purchase Agreement provides that the purchase price to be paid by
Rollins will consist of $400,000,000 in cash (less certain assumed bond
indebtedness as described therein, a portion of which is being repaid at
Closing), the Stock Consideration and the PIK Debenture. Following the
consummation of the Acquisition, Laidlaw will own approximately 67% of the
voting stock of Rollins. As a result, the equity ownership of current
stockholders will be reduced and, if certain financial benefits and operational
efficiencies anticipated by Rollins in connection with the Acquisition are not
achieved, the Acquisition may result in a dilution of earnings on a per share
basis. See "The Acquisition -- Reasons for the Acquisition" in the accompanying
Proxy Statement. The enclosed Proxy Statement summarizes the material terms and
conditions of the Stock Purchase Agreement, which is attached to the Proxy
Statement as Annex A. Please review and consider the enclosed materials,
including the attached annexes, carefully.
Although Delaware law does not require stockholder approval for the
Issuances, the rules of the New York Stock Exchange, Inc. applicable to Rollins
require such stockholder approval, and the Closing of the Acquisition is
contingent on such approval. Rollins' Board of Directors has carefully
considered and has unanimously approved the terms and conditions of the Stock
Purchase Agreement, the Issuances and each of the Amendments and hope you will
give your approval to the Stock Purchase Agreement, the Issuances and each of
the Amendments. In reaching its conclusion with respect to the Stock Purchase
Agreement, the Issuances and each of the Amendments, the Board of Directors
considered, among other things, an opinion dated January 31, 1997 of Raymond
James & Associates, Inc., an investment banking firm engaged by Rollins that, as
of the date of such opinion, the terms of the Acquisition were fair to Rollins
from a financial point of view, such opinion being attached to the Proxy
Statement as Annex B.
The respective obligations of Rollins, Laidlaw and LTI to consummate the
Acquisition are conditioned upon, among other things, the approval of the Stock
Purchase Agreement, the Issuances and each of the Amendments by the stockholders
of Rollins at the Special Meeting. If any of the Stock Purchase Agreement, the
Issuances or the Amendments is not approved, then the Acquisition cannot be
consummated, notwithstanding that the other proposals may have been approved by
the stockholders of Rollins.
In view of the importance of the actions to be taken at the Special
Meeting, the need with respect to each of the Amendments to obtain an
affirmative vote of a majority of the outstanding shares of Common Stock and
since votes that are not cast are, in effect, counted as a vote "against" the
proposals we urge you to read the accompanying Proxy Statement carefully and,
regardless of the number of shares you own, we request that you complete, sign,
date and return the enclosed proxy card promptly in the accompanying prepaid
envelope. A proxy may be revoked by a later dated, properly executed proxy. You
may, of course, attend the Special Meeting and vote in person, even if you have
previously returned your proxy card.
Sincerely,
_______________________________________
JOHN W. ROLLINS, SR.
Chairman of the Board and
Chief Executive Officer
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1997
TO THE HOLDERS OF COMMON STOCK:
PLEASE TAKE NOTICE that a special meeting (the "Special Meeting") of
Stockholders of ROLLINS ENVIRONMENTAL SERVICES, INC., a Delaware corporation,
will be held at the Sheraton Suites Hotel, 422 Delaware Avenue, Wilmington, DE
19801, on Tuesday, April 29, 1997 at 9:00 a.m., local time, for the following
purposes:
1. To approve the acquisition (the "Acquisition") contemplated by the
Stock Purchase Agreement (the "Stock Purchase Agreement") dated as of
February 6, 1997 among Rollins Environmental Services, Inc., a Delaware
corporation ("Rollins"), Laidlaw Inc., a Canadian corporation ("Laidlaw")
and Laidlaw Transportation, Inc., a Delaware corporation and indirect
wholly owned subsidiary of Laidlaw ("LTI");
2. To approve the issuances (the "Issuances") (i) at the closing (the
"Closing") of the Acquisition, of 120,000,000 shares (the "Stock
Consideration") of Rollins' common stock, par value $1.00 per share (the
"Common Stock") and (ii) at a time after the Closing of a currently
indeterminate number of shares of Common Stock, issuable pursuant to the
terms of a 5% Subordinated Convertible Pay-in-kind Debenture due 2009 in
the original principal amount of $350,000,000 (the "PIK Debenture");
3. To approve an amendment to Rollins' certificate of incorporation to
increase the number of authorized shares of Common Stock from 120,000,000
to 350,000,000 shares;
4. To approve an amendment to Rollins' certificate of incorporation to
change the name of Rollins to Laidlaw Environmental Services, Inc. as of
the Closing;
5. To approve an amendment to Rollins' certificate of incorporation to
increase the size of the Board of Directors from eight to ten members; and
6. To consider and act on such other business as may properly be
presented at the Special Meeting.
The respective obligations of Rollins, Laidlaw and LTI to consummate the
Acquisition are subject to, among other conditions, the approval of the Stock
Purchase Agreement, the Issuances and each of the proposed amendments to
Rollins' certificate of incorporation (collectively, the "Amendments"), by the
stockholders of Rollins at the Special Meeting. If any of these proposals is not
adopted, then the Acquisition cannot be consummated, notwithstanding that the
other proposals may have been approved by the stockholders of Rollins. The
aproval of the Acquisition and the Issuances requires the affirmative vote of a
majority of the shares of Common Stock present in person or represented by proxy
at the Special Meeting and entitled to vote thereon, provided that a quorum
consisting of a majority of the shares of Common Stock entitled to vote is
present. The approval of each of the Amendments requires the affirmative vote of
a majority of the shares of outstanding Common Stock entitled to vote on the
Amendments, which vote would also constitute a quorum. Upon receipt of
stockholder approval for these proposals, Rollins will proceed to consummate the
Acquisition, subject to the other conditions specified in the Stock Purchase
Agreement. Following the consummation of the Acquisition, Laidlaw will own
approximately 67% of the voting stock of Rollins. As a result, the equity
ownership of current stockholders will be reduced and, if certain financial
benefits and operational efficiencies anticipated by Rollins in connection with
the Acquisition are not achieved, the Acquisition may result in a dilution of
earnings on a per share basis. See "The Acquisition -- Reasons for the
Acquisition" in the accompanying Proxy Statement.
The Proxy Statement dated ___________ is attached.
The Board of Directors has fixed the close of business on March 27, 1997 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Special Meeting.
You are cordially invited to attend the Special Meeting. If you cannot be
present in person, please sign and date the enclosed proxy and promptly mail it
in the enclosed return envelope which requires no United States postage. Any
stockholder giving a proxy has the right to revoke it any time before it is
voted.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL B. KINNARD, Secretary
Dated: Wilmington, Delaware
_____________, 1997
---------------------------
YOU ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO UNITED STATES POSTAGE.
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
One Rollins Plaza
Wilmington, Delaware 19803
PROXY STATEMENT
---------------------------
REGARDING
THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 29, 1997
---------------------------
This Proxy Statement is being mailed to stockholders commencing on or about
April ___, 1997, in connection with the solicitation by the Board of Directors
(the "Board of Directors") of Rollins Environmental Services, Inc., a Delaware
corporation ("Rollins"), of proxies to be voted at the special meeting of
stockholders (the "Special Meeting") to be held at the Sheraton Suites Hotel,
422 Delaware Avenue, Wilmington, DE 19801 on Tuesday, April 29, 1997, at 9:00
a.m., local time and upon any adjournment thereof, for the purposes set forth in
the accompanying notice. Proxies will be voted in accordance with the directions
specified thereon and otherwise in accordance with the judgment of the persons
designated as the holders of the proxies. Proxies marked as abstaining on any
matter to be acted on by the stockholders and broker non-votes will be treated
as present at the Special Meeting. Any proxy on which no direction is specified
will be voted: (1) FOR the approval of the Stock Purchase Agreement; (2) FOR the
approval of the Issuances; (3) FOR the approval of the Amendment to increase the
number of authorized shares of Common Stock available for issuance from
120,000,000 to 350,000,000 shares; (4) FOR the approval of the Amendment to
change the name of Rollins to Laidlaw Environmental Services, Inc. as of the
Closing; (5) FOR the approval of the Amendment to increase the size of Rollins'
Board of Directors from eight to ten members; and (6) otherwise in accordance
with the judgment of the person specified thereon. A stockholder may revoke a
proxy by: (1) delivering to Rollins written notice of revocation, (2) delivering
to Rollins a proxy signed on a later date or (3) appearing at the Special
Meeting and voting in person.
Certain capitalized terms used in this Proxy Statement without definition
have the meanings ascribed thereto in the Glossary.
_________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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GLOSSARY................................................................................................ 1
AVAILABLE INFORMATION................................................................................... 4
INCORPORATION BY REFERENCE.............................................................................. 4
SUMMARY................................................................................................. 5
Rollins............................................................................................... 5
The Acquired Subsidiaries............................................................................. 5
The Stock Purchase Agreement; The Acquisition......................................................... 5
Financing............................................................................................. 6
Special Meeting....................................................................................... 8
Reasons for the Acquisition........................................................................... 8
Opinion of Financial Advisor.......................................................................... 9
Accounting Treatment.................................................................................. 9
The Amendments........................................................................................ 9
Changes to the Board of Directors..................................................................... 10
Recommendation of the Board of Directors.............................................................. 10
SUMMARY FINANCIAL DATA.................................................................................. 11
RISK FACTORS............................................................................................ 12
Uncertainties in Integrating Operations and Achieving Cost Savings.................................... 12
Control of Rollins.................................................................................... 12
Dependence on Key Personnel........................................................................... 12
Possible Depressing Effect of Future Sales of the Common Stock........................................ 12
Valuation of the Acquired Subsidiaries................................................................ 13
Laidlaw Indemnities................................................................................... 13
Leverage.............................................................................................. 13
Need for Substantial Additional Capital............................................................... 13
Interest Rates and Restrictive Covenants.............................................................. 14
Environmental Regulation.............................................................................. 14
Risks of Pending and Future Legal Proceedings......................................................... 15
Competitive Environment............................................................................... 15
Substantial International Operations.................................................................. 16
Cyclical and Seasonal Nature of Business.............................................................. 16
THE SPECIAL MEETING..................................................................................... 17
Date, Time and Place of the Special Meeting........................................................... 17
Purpose of the Special Meeting........................................................................ 17
Record Date and Outstanding Voting Securities......................................................... 17
Revocability of Proxy................................................................................. 17
Vote Required for Approval............................................................................ 17
Solicitation of Proxies............................................................................... 18
Expenses of Proxy Solicitation........................................................................ 18
Board of Directors' Recommendations................................................................... 19
THE ACQUISITION......................................................................................... 20
General Description of the Acquisition................................................................ 20
Background of the Acquisition......................................................................... 20
Reasons for the Acquisition........................................................................... 23
Financing of the Acquisition.......................................................................... 25
Opinion of Financial Advisor to Rollins............................................................... 27
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Board of Directors' Recommendation.................................................................... 30
Accounting Treatment.................................................................................. 30
Interests of Certain Persons in the Acquisition....................................................... 30
No Dissenter's Rights of Appraisal.................................................................... 31
THE STOCK PURCHASE AGREEMENT............................................................................ 32
Acquisition Consideration............................................................................. 32
Closing Date.......................................................................................... 33
Representations and Warranties........................................................................ 33
Environmental Matters................................................................................. 34
Conduct of Business Pending Closing................................................................... 35
Other Conditions to the Consummation of the Acquisition............................................... 37
Government and Regulatory Approvals................................................................... 37
Resales of Rollins Securities by Laidlaw.............................................................. 38
Laidlaw Standstill.................................................................................... 38
LTI Guaranties........................................................................................ 38
Tax Matters........................................................................................... 39
Indemnification....................................................................................... 39
Amendment and Waivers................................................................................. 40
Termination; Termination Fee.......................................................................... 40
Non-Competition Obligations of Laidlaw................................................................ 41
Affiliate Transactions and Business Combinations...................................................... 41
Proposed Modification of Westinghouse Debt............................................................ 41
Reorganization........................................................................................ 41
PRO FORMA COMBINED BALANCE SHEET........................................................................ 42
PRO FORMA COMBINED STATEMENT OF OPERATIONS.............................................................. 43
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.............................................. 45
ROLLINS SELECTED FINANCIAL DATA......................................................................... 49
ROLLINS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 50
BUSINESS OF ROLLINS..................................................................................... 58
General Development of Business....................................................................... 58
Financial Information about Industry Segments......................................................... 58
Narrative Description of Business..................................................................... 58
Regulation............................................................................................ 59
Employees............................................................................................. 61
Properties............................................................................................ 61
Legal Proceedings..................................................................................... 61
LAIDLAW HAZARDOUS WASTE SERVICES SELECTED FINANCIAL DATA................................................ 63
LAIDLAW HAZARDOUS WASTE SERVICES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................................................................................... 64
BUSINESS OF THE ACQUIRED SUBSIDIARIES................................................................... 69
Narrative Description of Business..................................................................... 69
Competition........................................................................................... 69
Regulation............................................................................................ 69
Employees............................................................................................. 70
Properties............................................................................................ 70
Legal Proceedings..................................................................................... 70
MARKET PRICE DATA FOR THE COMMON STOCK.................................................................. 72
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DIVIDEND POLICY......................................................................................... 72
PRINCIPAL STOCKHOLDERS.................................................................................. 73
DESCRIPTION OF CAPITAL STOCK............................................................................ 75
Common Stock.......................................................................................... 75
Special Provisions of the Certificate of Incorporation and Delaware Law............................... 75
PROPOSED AMENDMENTS..................................................................................... 77
Approval.............................................................................................. 78
Board of Directors' Recommendation.................................................................... 78
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING................................................................ 79
OTHER MATTERS........................................................................................... 79
INDEX TO FINANCIAL STATEMENTS........................................................................... F-1
ANNEX A -- Stock Purchase Agreement..................................................................... A-1
Exhibit A to Annex A -- Form of 5% Subordinated Convertible Pay-in-kind Debenture due 2009 of Rollins
Environmental Services, Inc........................................................................ A-A-1
Exhibit B to Annex A -- Form of Stock Registration Agreement.......................................... A-B-1
ANNEX B -- Fairness Opinion of Raymond James & Associates, Inc.......................................... B-1
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<PAGE>
GLOSSARY
Unless the context otherwise requires, the following terms shall have the
meanings set forth below when used in this Proxy Statement. These defined terms
are not used in the financial statements attached hereto.
"Acquisition" means the acquisition contemplated in the Stock Purchase
Agreement and the transactions related thereto.
"Acquisition Consideration" means the Cash Consideration, the Stock
Consideration and the PIK Debenture.
"Acquired Subsidiaries" means (i) Chem-Waste and (ii) all direct and
indirect subsidiaries of Laidlaw engaged in the hazardous and industrial waste
business, other than the Retained Subsidiaries.
"Agent" means the Toronto-Dominion Bank, a Canadian chartered bank.
"Amendments" means the proposed amendments to the Certificate of
Incorporation to (i) increase the number of authorized shares of Common Stock
available for issuance from 120,000,000 to 350,000,000, (ii) change the name of
Rollins to Laidlaw Environmental Services, Inc. as of the Closing and (iii)
increase the size of Rollins' Board of Directors from eight to ten members, for
each of which approval is being sought at the Special Meeting.
"Bank Commitment" means the conditional commitment received by Laidlaw from
the Agent to provide $650,000,000 in aggregate principal amount of senior
secured credit facilities, which commitment is assignable to Rollins.
"Board of Directors" means the Board of Directors of Rollins.
"Bylaws" means Rollins' bylaws, as amended from time to time.
"Cash Consideration" means the payment of $400,000,000 in cash (less
certain assumed bond indebtedness as described in the Stock Purchase Agreement,
a portion of which is being repaid at Closing), consisting of a payment of
$225,000,000, less the amount of such bond indebtedness, from Rollins to LTI and
a repayment of $175,000,000 to Laidlaw from a Canadian subsidiary of Chem-Waste
with funds contributed by Rollins at the Closing.
"CERCLA" means the United States Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Certificate of Incorporation" means Rollins' certificate of incorporation,
as amended from time to time.
"Chem-Waste" means Laidlaw Chem-Waste, Inc., a Delaware corporation and a
wholly owned subsidiary of LTI.
"Closing" means the execution and delivery of the documents required to
effectuate the Acquisition contemplated by the Stock Purchase Agreement and the
closing of the Acquisition contemplated by the Stock Purchase Agreement.
"Closing Date" means the date upon which the Closing takes place, that,
unless Rollins and LTI agree otherwise, will be the fifth business day after all
necessary governmental and regulatory approvals regarding the Acquisition have
been obtained and all other conditions to the respective obligations of Rollins,
Laidlaw and LTI as set forth in the Stock Purchase Agreement have been satisfied
or waived.
"Common Stock" means the common stock, par value $1.00 per share, of
Rollins.
"Competition Act" means the Canadian Competition Act, as amended.
"Credit Facilities" means the $650,000,000 in aggregate principal amount of
senior secured credit facilities that the Agent has agreed to provide pursuant
to the Bank Commitment, which credit facilities will consist of five parts:
(a) a $275,000,000 6-year Senior Secured Revolving Credit Facility
1
<PAGE>
with a $200,000,000 letter of credit sublimit (the "Revolving Credit Facility"),
(b) a $165,000,000 6-year Senior Secured Amortizing Term Loan ("Facility B"),
(c) a $60,000,000 6-year Senior Secured Amortizing Canadian Term Loan ("Facility
C"), (d) a $75,000,000 Minimally Amortizing 7-year Senior Secured Term Loan
("Facility D") and (e) a $75,000,000 Minimally Amortizing 8-year Senior Secured
Term Loan ("Facility E"); (Facility B, Facility C, Facility D and Facility E,
collectively, the "Term Loans").
"Damages" means all obligations, claims, liabilities, damages, penalties,
deficiencies, losses, investigations, proceedings, judgments, fines, and
reasonable costs and expenses (including, but not limited to, reasonable costs
and expenses incurred in connection with the performance of obligations,
interest, bonding and court costs and attorneys', accountants', engineers',
consultants' and investigators' fees and disbursements) incurred in connection
with any investigation or defense of any of the foregoing.
"Debenture Shares" means the shares of Common Stock issuable pursuant to
the terms of the PIK Debenture.
"DGCL" means the Delaware General Corporation Law, as amended.
"DOJ" means the United States Department of Justice and all successors
thereto.
"EBIT" means operating income before interest and taxes.
"EBITDA" means EBIT plus depreciation and amortization.
"EPA" means the United States Environmental Protection Agency and all
successors thereto.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FTC" means the United States Federal Trade Commission and all successors
thereto.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis as set forth in opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and in statements of the
Financial Accounting Standards Board ("SFAS").
"Governmental Entity" means any U.S., Canadian or foreign, state,
territorial, federal, provincial or local court, executive office, legislature,
governmental agency or ministry, commission, or administrative, regulatory or
self-regulatory authority or instrumentality.
"HSR Act" means the United States Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Investment Canada Act" means the Canadian Investment Canada Act, as
amended.
"IRC" means the United States Internal Revenue Code of 1986, as amended.
"Issuances" means the issuance of the Stock Consideration and the Debenture
Shares for which approval is being sought at the Special Meeting.
"Laidlaw" means Laidlaw Inc., a Canadian corporation.
"Laidlaw Environmental Services" or "LES" means the Acquired Subsidiaries
other than Chem-Waste.
"Laidlaw Hazardous Waste Services" or "LHWS" means all of the direct or
indirect subsidiaries of Laidlaw engaged in the hazardous waste business.
"Laidlaw Hazardous Waste Services' Financial Statements" means the
Financial Statements audited by Coopers & Lybrand, Chartered Accountants and
included in this Proxy Statement.
"LTI" means Laidlaw Transportation, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Laidlaw.
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"LTI Guaranties" means various present or future liabilities and
obligations of the Acquired Subsidiaries in respect of which Laidlaw and certain
of its subsidiaries are liable, pursuant to the Stock Purchase Agreement.
"Lenders" means the syndicate of banks and other financial institutions
acceptable to Rollins and the Agent that will make the loans pursuant to the
Credit Facilities.
"LIBOR" means the London Interbank Offering Rate.
"NYSE" means the New York Stock Exchange, Inc.
"Pacific Exchange" means the Pacific Stock Exchange, Inc.
"PIK Debenture" means the 5% Subordinated Convertible Pay-in-kind Debenture
due 2009 of Rollins in the original principal amount of $350,000,000 to be
issued to LTI at the Closing.
"Proxy Statement" means this proxy statement relating to the Special
Meeting.
"Raymond James" means Raymond James & Associates, Inc., financial advisor
to Rollins.
"RCRA" means the United States Resource Conservation and Recovery Act of
1976, as amended.
"Record Date" means March 27, 1997, the date for determining shares
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof.
"Retained Subsidiaries" means JTM Industries, Inc. and its subsidiary, KBK
Enterprises, Inc.
"Rollins" means Rollins Environmental Services, Inc., a Delaware
corporation.
"SEC" means the United States Securities and Exchange Commission or any
successor thereto.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Special Meeting" means the special meeting of stockholders of Rollins to
be held with respect to, among other things, approval by Rollins' stockholders
of the Stock Purchase Agreement, the Issuances and each of the Amendments.
"Stock Consideration" means the issuance of the 120,000,000 shares of
Common Stock to LTI pursuant to the Stock Purchase Agreement.
"Stock Purchase Agreement" means the Stock Purchase Agreement among
Rollins, Laidlaw and LTI dated as of February 6, 1997, a copy of which is
attached hereto as Annex A.
"Stock Registration Agreement" means the Stock Registration Agreement among
Rollins, Laidlaw and LTI dated as of the Closing Date.
"Westinghouse" means the Westinghouse Electric Corporation, a Pennsylvania
corporation.
3
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AVAILABLE INFORMATION
Rollins Environmental Services, Inc. ("Rollins") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). The reports, proxy statements and other information filed by
Rollins with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material also can be obtained from the Public Reference Section of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Information filed with the SEC can also be inspected at the
SEC's site on the World Wide Web at http://www.sec.gov. In addition, material
filed by Rollins can be inspected at the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005 and The Pacific Stock
Exchange, Inc. (the "Pacific Exchange"), 301 Pine Street, San Francisco,
California 94104.
INCORPORATION BY REFERENCE
The following documents filed with the SEC by Rollins pursuant to the
Exchange Act are incorporated by reference in this Proxy Statement:
1. Rollins' Annual Report on Form 10-K for the fiscal year ended
September 30, 1996;
2. Rollins' Quarterly Report on Form 10-Q for the first quarter ended
December 31, 1996;
3. Rollins' Quarterly Report on Form 10-Q for the first quarter ended
December 31, 1995; and
4. Rollins' Current Reports on Form 8-K dated January 6, 1997 and
February 7, 1997.
All documents subsequently filed by Rollins pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to April 29, 1997, the date of the Special Meeting of
stockholders, shall be deemed to be incorporated by reference into this Proxy
Statement and to be part hereof from the date of filing of such documents. All
information appearing in this Proxy Statement is qualified in its entirety by
the information and financial statements (including the notes thereto) appearing
in the documents incorporated by reference herein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
modified or superseded, for purposes of this Proxy Statement, to the extent that
a statement contained herein or in any subsequently filed document that is
deemed to be incorporated herein modifies or supersedes any such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement.
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. As used herein, the term "Proxy Statement" includes the
annexes attached hereto and should be read in conjunction therewith. The
information contained in this summary is qualified in its entirety by and should
be read in conjunction with more detailed information contained in this Proxy
Statement. Unless otherwise indicated, capitalized terms used in this summary
are defined in the Glossary or elsewhere in this Proxy Statement.
Rollins............................ Rollins Environmental Services, Inc.
("Rollins") is engaged in the business of
industrial waste treatment and disposal. It
transports, treats and disposes of
industrial chemical waste by incineration
and other methods and operates waste
processing, recycling and repackaging
facilities. Rollins conducts its operations
through a network of 26 regional service
centers nationwide. During the fiscal year
ended September 30, 1996, Rollins had
revenues of $241,130,000 and a net loss of
$30,186,000. On __________, 1997, the
closing price of the common stock, par value
$1.00 per share, of Rollins (the "Common
Stock") on the New York Stock Exchange, Inc.
was $_____ per share.
The Acquired Subsidiaries.......... Laidlaw Chem-Waste, Inc. ("Chem-Waste")
and certain identified direct and indirect
subsidiaries of Chem-Waste (collectively,
the "Acquired Subsidiaries") provide
hazardous and industrial waste services
primarily under the name Laidlaw
Environmental Services from 85 service
locations in 26 states and seven Canadian
provinces. The Acquired Subsidiaries operate
landfills, a land treatment facility for
non-hazardous industrial wastes, hazardous
waste liquid injection incinerators, a
hazardous liquids and solids waste
incinerator, and hazardous and non-hazardous
waste water treatment plants. They also
provide specialized transportation services
and site remediation, emergency, technical
and analytical services. During the fiscal
year ended August 31, 1996, the Acquired
Subsidiaries had revenues of $652,973,000
and a net loss of $6,146,000.
The Stock Purchase Agreement;
The Acquisition.................... Rollins will acquire the Acquired
Subsidiaries, through which Laidlaw Inc.
("Laidlaw") conducts substantially
all of its hazardous and industrial waste
management operations, for consideration of
(i) $400,000,000 in cash (less certain
assumed bond indebtedness described in the
stock purchase agreement among Rollins,
Laidlaw and Laidlaw Transportation, Inc.
("LTI") dated February 6, 1997
(the "Stock Purchase Agreement"), a portion
of which is being paid at Closing),
consisting of a payment of $225,000,000,
less the amount of such bond indebtedness,
from Rollins to LTI and a repayment of
$175,000,000 to Laidlaw from a Canadian
subsidiary of Chem-Waste with funds
contributed by Rollins, (the "Cash
Consideration"), (ii) 120,000,000 shares of
Common Stock (the "Stock Consideration"),
valued at $330,000,000 based upon a
5
<PAGE>
price per share of $2.75, being the average
closing market price on the NYSE --
Composite Transactions for the ten trading
days before and ten trading days after
February 6, 1997, the date of the signing of
the Stock Purchase Agreement, and (iii) a 5%
Subordinated Convertible Pay-in-kind
Debenture due 2009 of Rollins in the
original principal amount of $350,000,000 to
be issued to LTI (the "PIK Debenture")
(collectively, the "Acquisition
Consideration"). The amount of the
Acquisition Consideration was determined by
the Board of Directors of Rollins in the
course of arm's-length negotiation with
Laidlaw of the terms of the Acquisition. 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 is attached as
Annex A to this Proxy Statement. The
description in this Proxy Statement of the
Stock Purchase Agreement, the Acquisition
and their terms and conditions is qualified
in its entirety by reference to the Stock
Purchase Agreement and the pertinent
exhibits and schedules thereto, and is not,
and does not purport to be, complete.
Following the consummation of the
Acquisition, Laidlaw will own approximately
67% of the voting stock of Rollins. As a
result, the equity ownership of current
stockholders will be reduced and, if certain
financial benefits and operational
efficiencies anticipated by Rollins in
connection with the Acquisition are not
achieved, the Acquisition may result in a
dilution of earnings on a per share basis.
See "The Acquisition -- Reasons for the
Acquisition." The acquisition of the
Acquired Subsidiaries will be accounted for
using the purchase method of accounting. See
"The Acquisition -- Accounting Treatment."
If the Stock Purchase Agreement is
terminated solely because the stockholders
of Rollins fail to approve any of (i) the
Stock Purchase Agreement, (ii) the proposal
to issue (a) at the closing (the "Closing")
of the Acquisition, the Stock Consideration
and (b) at a time after the Closing, a
currently indeterminate number of shares of
Common Stock, issuable pursuant to the terms
of the PIK Debenture (the "Issuances") or
(iii) the Amendments (as defined below), and
the failure to receive such stockholder
approval directly results from the existence
of a third party offer to acquire at least
51% of Rollins' stock or assets, then
Rollins will pay $10,000,000 to LTI within
10 days of such termination. Additionally,
if the Stock Purchase Agreement is
terminated because of the breach or default
under such agreement of Laidlaw or LTI, then
LTI will pay $10,000,000 to Rollins within
10 days of such termination. See "The Stock
Purchase Agreement -- Termination;
Termination Fee."
Financing.......................... Rollins intends to finance the Cash
Consideration with proceeds of a new bank
financing. In contemplation of the
Acquisition, Laidlaw has received a
conditional commitment (the "Bank
Commitment") from The
6
<PAGE>
Toronto-Dominion Bank (the "Agent") to
provide $650,000,000 in aggregate principal
amount of senior secured credit facilities
(the "Credit Facilities"). Laidlaw has
agreed to assign the Bank Commitment to
Rollins. At the Closing following such
assignment, Rollins will become the Borrower
under the Credit Facilities. The Credit
Facilities will consist of five parts: (a) a
$275,000,000 6-year Senior Secured Revolving
Credit Facility with a $200,000,000 letter
of credit sublimit (the "Revolving Credit
Facility" or "Facility A"), (b) a
$165,000,000 6-year Senior Secured
Amortizing Term Loan ("Facility B"), (c) a
$60,000,000 6-year Senior Secured Amortizing
Canadian Term Loan ("Facility C"), (d) a
$75,000,000 Minimally Amortizing 7-year
Senior Secured Term Loan ("Facility D") and
(e) a $75,000,000 Minimally Amortizing
8-year Senior Secured Term Loan ("Facility
E"); (Facility B, Facility C, Facility D and
Facility E, collectively, the "Term Loans").
The Credit Facilities will be secured by all
of the tangible assets of Rollins to the
extent required by the syndicate of banks
and other financial institutions
(collectively, the "Lenders") acceptable to
Rollins and the Agent that will make the
loans pursuant to the Credit Facilities. All
of the capital stock of Rollins'
subsidiaries, including the Acquired
Subsidiaries, will be pledged as part of
such security for the Credit Facilities, and
such subsidiaries will guaranty the
obligations of Rollins to the Lenders.
Laidlaw will not guaranty any portion of the
Credit Facilities. The Term Loans will be
drawn in full on the date upon which the
Closing takes place (the "Closing Date").
The Revolving Credit Facility will be
available commencing on the Closing Date at
which time $200,000,000 will be available
for letters of credit and $100,000,000 will
be available for loans, subject to an
aggregate limit of $275,000,000. Interest
per annum on the Credit Facilities will vary
depending on the particular Credit Facility,
whether Rollins chooses to borrow under
Eurodollar or non-Eurodollar loans and, with
respect to Facilities A, B and C, the
current total leverage ratio. Several fees
are payable in connection with the Credit
Facilities such as an underwriting fee of
$16,250,000 which is payable to the agent in
installments, an annual administration fee
of $125,000 which is payable in annual
installments and letter of credit fees. The
Credit Facilities are subject to a number of
conditions which include those customary for
financing transactions of this type (such as
the preparation of loan documentation
satisfactory to the Lenders, receipt of
opinions of counsel, absence of material
adverse changes, and receipt by the Lenders
of an environmental assessment report
satisfactory to the Lenders), as well as the
following conditions:
(a) the Lenders shall have completed and
been satisfied with the results of their due
diligence review of the assets, liabilities,
business, operations, conditions, prospects
and environmental condition and litigation
of Rollins and
7
<PAGE>
(b) the Acquisition, including the Seller's
acceptance of the PIK Debenture, shall have
been consummated concurrently with the
closing of the Credit Facilities on terms
satisfactory to the Lenders. See "The
Acquisition -- Financing of the
Acquisition."
Special Meeting.................... The special meeting of stockholders of
Rollins (the "Special Meeting") will be held
at the Sheraton Suites Hotel, 422 Delaware
Avenue, Wilmington, DE 19801, on Tuesday,
April 29, 1997, at 9:00 a.m., local time.
The purpose of the Special Meeting is to
consider and act upon (i) a proposal to
approve the Stock Purchase Agreement, (ii) a
proposal to approve the Issuances, (iii) a
proposal to approve the amendment to
Rollins' certificate of incorporation to
increase the number of authorized shares of
Common Stock from 120,000,000 to 350,000,000
shares, (iv) a proposal to approve the
amendment to Rollins' certificate of
incorporation to change the name of Rollins
to Laidlaw Environmental Services, Inc. as
of the Closing, (v) a proposal to approve
the amendment to Rollins' certificate of
incorporation to increase the size of
Rollins' Board of Directors from eight to
ten members and (vi) such other business as
may be properly presented to the Special
Meeting. Only holders of record of shares of
Common Stock at the close of business on the
record date, are entitled to notice of, and
to vote at, the Special Meeting. The
presence, in person or by proxy, at the
Special Meeting of the holders of a majority
of the outstanding shares of stock entitled
to be cast at the Special Meeting is
necessary to constitute a quorum at the
Special Meeting. The affirmative vote of the
holders of a majority of the votes present
in person or by proxy at the Special Meeting
is required to approve the Stock Purchase
Agreement and the Issuances. Approval of
each of the Amendments requires the
affirmative vote of the holders of a
majority of the shares of Common Stock
outstanding and entitled to vote at the
Special Meeting. The respective obligations
of Rollins, Laidlaw and LTI to consummate
the Acquisition are subject to, among other
conditions, the approval of the stockholders
of Rollins of the Stock Purchase Agreement,
the Issuances and each of the Amendments.
Reasons for the Acquisition........ The Board of Directors anticipates that the
Acquisition is consistent with Rollins'
long-term objective of creating a
vertically-integrated hazardous and
industrial waste management company with a
broad geographic base of operations and will
result in several important benefits to
Rollins, among which are: (i) the
Acquisition would allow Rollins to increase
its revenues and profits; (ii) the
Acquisition would better position Rollins to
compete in the currently consolidating
hazardous and industrial waste management
industry; (iii) the Acquisition would enable
Rollins to serve additional markets and to
expand operations in existing markets; (iv)
the Acquisition would
8
<PAGE>
result in various cost-savings and
synergies, economies of scale and
efficiencies; and (v) by taking advantage of
the Acquired Subsidiaries' superior
liquidity and access to capital, the
Acquisition would enable Rollins to better
meet the increased need for capital
resources in order to remain competitive.
Following the consummation of the
Acquisition, Rollins will be the largest
hazardous and industrial waste management
company in the United States and Canada
measured by revenues.
Opinion of Financial Advisor....... Raymond James & Associates, Inc. ("Raymond
James") has delivered a written opinion
dated January 31, 1997 to the Board of
Directors that, as of the date of such
opinion, the terms of the Acquisition
pursuant to the Stock Purchase Agreement
were fair, from a financial point of view,
to Rollins. The full text of the written
opinion of Raymond James, which sets forth
assumptions made, matters considered and
limitations on the review undertaken in
connection with the opinion, is attached
hereto as Annex B and is incorporated herein
by reference. The summary of the opinion of
Raymond James set forth in this Proxy
Statement is qualified in its entirety by
reference to the written opinion attached as
Annex B to this Proxy Statement.
Stockholders are urged to, and should, read
such opinion in its entirety. See "The
Acquisition -- Opinion of Financial Advisor
to Rollins."
Accounting Treatment............... If the Acquisition is consummated, it will
be accounted for using the purchase method
of accounting applied in accordance with
generally accepted accounting principles.
After the Closing, the former shareholder of
Laidlaw Environmental Services will have a
majority of the voting rights of the
outstanding equity securities of the
combined company. As a result, for
accounting purposes, Laidlaw Environmental
Services will be treated as the accounting
acquirer and the transaction will be
recorded as a reverse acquisition.
Consequently, the assets and liabilities of
Rollins will be recorded at their estimated
fair value, with any difference between the
amount of such fair value and the purchase
price being recorded as goodwill. The
operating results of the combined company
will include the results of operations of
that part of the combined company which is
currently Rollins from and after the Closing
Date.
The Amendments..................... At the Special Meeting, Rollins stockholders
will be asked to consider and act upon
proposals to approve Amendments to Rollins'
certificate of incorporation that will (i)
increase the number of authorized shares of
Common Stock available for issuance from
120,000,000 to 350,000,000 shares, (ii)
change the name of Rollins to Laidlaw
Environmental Services, Inc. as of the
Closing and (iii) increase the size of
Rollins' Board of Directors from eight to
ten members. The Board of Directors believes
that the Amendment with respect to the
number of authorized
9
<PAGE>
shares is necessary in order to ensure that
(i) there will be sufficient authorized,
unissued and unreserved shares of Common
Stock available to effect the Issuances and
(ii) after the consummation of the
Acquisition, Rollins will have shares
available for issuance at the Board of
Directors' discretion for future
acquisitions, stock splits, stock dividends,
equity financings, employee benefit plans
and other corporate purposes. The other
Amendments are also required under the Stock
Purchase Agreement. Certain Amendments may
have an anti-takeover effect. See "Proposed
Amendments."
Changes to the Board
of Directors....................... If the Acquisition of the Acquired
Subsidiaries is consummated, pursuant to the
Stock Purchase Agreement Rollins and LTI
will use their best efforts to cause to be
elected, through the filling of vacancies,
new members of the Rollins Board of
Directors so that the members are Kenneth W.
Winger, currently the President and Chief
Executive Officer of Laidlaw Environmental
Services, who will become President and
Chief Executive Officer of Rollins following
the Closing; John W. Rollins, Sr., John W.
Rollins, Jr. and Henry B. Tippie, all of
whom currently serve on the Board of
Directors of Rollins; James R. Bullock,
President and Chief Executive Officer of
Laidlaw, John R. Grainger, President and
Chief Operating Officer of Laidlaw Transit,
and Leslie W. Haworth, Senior Vice-
President and Chief Financial Officer of
Laidlaw, all of whom have been designated by
Laidlaw; and three individuals to be
designated jointly by Rollins and LTI. To
facilitate this change, it is expected that
the other current Board members of Rollins
will resign immediately following the
Closing.
Recommendation of the Board
of Directors....................... The Board of Directors believes that the
terms and conditions of the Stock Purchase
Agreement and the Acquisition thereunder are
in the best interests of Rollins and its
stockholders and the Board of Directors
unanimously recommends that the Rollins
stockholders vote (i) FOR approval of the
Stock Purchase Agreement, (ii) FOR approval
of the Issuances, (iii) FOR approval of the
Amendment to Rollins' certificate of
incorporation to increase the number of
authorized shares of Common Stock available
for issuance from 120,000,000 to 350,000,000
shares, (iv) FOR approval of the Amendment
to Rollins' certificate of incorporation to
change the name of Rollins to Laidlaw
Environmental Services, Inc. as of the
Closing and (v) FOR approval of the
Amendment to Rollins' certificate of
incorporation to increase the size of
Rollins' Board of Directors from eight to
ten members.
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<PAGE>
SUMMARY FINANCIAL DATA
The following unaudited pro forma condensed combined summary financial data
gives effect to the issuance of 120,000,000 shares of Common Stock of Rollins
using the purchase method of accounting, as if such transactions had occurred as
of October 1, 1995 for the pro forma combined statement of operations data and
as of December 31, 1996 for the pro forma combined balance sheet data. In
addition, this data gives effect to the allocation of purchase price as if
Laidlaw Environmental Services acquired the net assets of Rollins, accounting
for the Acquisition as a reverse acquisition, and does not reflect additional
cost savings from operating synergies that Rollins expects to achieve from the
combination. The unaudited pro forma condensed combined summary financial data
was derived from and should be read in conjunction with the "PRO FORMA COMBINED
BALANCE SHEET," "PRO FORMA COMBINED STATEMENT OF OPERATIONS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for
Rollins and Laidlaw Hazardous Waste Services included elsewhere in this Proxy
Statement.
ROLLINS ENVIRONMENTAL SERVICES, INC. AND LAIDLAW ENVIRONMENTAL SERVICES
UNAUDITED PRO FORMA CONDENSED COMBINED SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------------------- ----------------------
ACQUIRED PRO FORMA ACQUIRED PRO FORMA
ROLLINS SUBSIDIARIES COMBINED(1) ROLLINS SUBSIDIARIES COMBINED(1)
--------- ----------- ------------ --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (IN THOUSANDS, EXCEPT PER SHARE DATA)
(YEAR ENDED SEPTEMBER 30, 1996) (QUARTER ENDED DECEMBER 31, 1996)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.......................... $ 241,130 $ 652,973 $ 885,741 $ 59,384 $ 172,565 $ 230,233
Operating income (loss)........... (37,057) 57,319 32,827 (5,724) 14,899 12,317
Net loss.......................... (30,186) (6,146) (22,827) (5,168) (2,048) (2,711)
Net loss per share................ (.50) -- (.12) (.09) -- (.01)
Weighted average number of common
and common equivalent shares
outstanding..................... 60,401 -- 182,762 60,376 -- 186,739
<CAPTION>
(AS OF SEPTEMBER 30, 1996) (AS OF DECEMBER 31, 1996)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital................... $ 34,065 $ 42,284 $ 30,473 $ 77,460 $ 80,933
Total assets...................... 384,967 1,436,337 357,616 1,437,266 1,571,465
Noncurrent liabilities............ 170,985 915,732 165,212 934,504 1,033,322
Stockholders' equity.............. 154,483 359,419 149,315 366,542 332,576
</TABLE>
- ------------------
(1) See "NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS" for
explanations of the pro forma adjustments.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy Statement, the
following risk factors should be considered carefully by the stockholders of
Rollins before voting on the proposal to approve the stock purchase agreement
among Rollins, Laidlaw Inc., a Canadian corporation ("Laidlaw") and Laidlaw
Transportation, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of Laidlaw ("LTI "), dated February 6, 1997 (the "Stock Purchase
Agreement").
UNCERTAINTIES IN INTEGRATING OPERATIONS AND ACHIEVING COST SAVINGS
Rollins and Laidlaw Chem-Waste, Inc. ("Chem-Waste") and certain direct and
indirect subsidiaries of Chem-Waste identified in the Stock Purchase Agreement
(collectively, the "Acquired Subsidiaries") are large enterprises with
operations in different markets. The success of any business combination,
including the acquisition contemplated in the Stock Purchase Agreement and the
transactions related thereto (the "Acquisition"), is in part dependent on the
ability following the transaction to consolidate operations and integrate
departments, systems and procedures and thereby obtain business efficiencies,
economies of scale and related cost savings. The consolidation of operations,
the integration of departments, systems and procedures and the reallocation of
staff present significant management challenges. There can be no assurance that
future consolidated results will improve as a result of the Acquisition, or as
to the timing or extent to which cost savings and efficiencies will be achieved.
CONTROL OF ROLLINS
After the Acquisition is consummated, Laidlaw will indirectly own
approximately 67% of the outstanding common stock, par value $1.00 per share, of
Rollins (the "Common Stock"). Although Laidlaw and LTI have agreed not to enter
into certain affiliate transactions or engage in certain business combinations
with Rollins or its subsidiaries after the consummation of the Acquisition,
Laidlaw will be able to exert considerable influence over the election of
Rollins' directors and the outcome of corporate actions requiring stockholder
approval.
DEPENDENCE ON KEY PERSONNEL
Rollins' future success depends to a significant extent on its management
team. The loss of the services of members of current management teams of Rollins
and the Acquired Subsidiaries could have a material adverse effect on Rollins'
business, financial condition and future prospects. Furthermore, neither
Rollins, nor the Acquired Subsidiaries, hold keyman insurance on any member of
their management teams.
POSSIBLE DEPRESSING EFFECT OF FUTURE SALES OF THE COMMON STOCK
Future sales of the 120,000,000 shares of Common Stock issued to LTI
pursuant to the Stock Purchase Agreement (the "Stock Consideration") or any
shares of Common Stock issued in payment of amounts due under or on the
conversion of the 5% Subordinated Convertible Pay-in-kind Debenture due 2009 of
Rollins in the original principal amount of $350,000,000 to be issued to LTI at
the closing (the "Closing") of the Acquisition (the "PIK Debenture"), or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock. Although LTI is subject to limitations on resales of Common
Stock both under the Stock Registration Agreement and the Securities Act of
1933, as amended (the "Securities Act") and the regulations promulgated
thereunder, there can be no assurance as to when, and how many of, such shares
of Common Stock will be sold and the effect such sales may have on the market
price of the Common Stock. In addition, Rollins may issue Common Stock in
connection with other acquisitions or transactions. As restrictions on resale
lapse or if such shares are registered for sale to the public, such securities
may be sold to the public. In the event of the issuance and subsequent resale of
a substantial number of shares of Common Stock, or a perception that such sales
could occur, there could be a material adverse effect on the prevailing market
price of the Common Stock.
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<PAGE>
VALUATION OF THE ACQUIRED SUBSIDIARIES
There are a number of methods of determining the valuation of any company,
which methods often involve consideration of intangible factors, such as the
future of the economy in general, interest rates in particular, contractual
relations and regulatory and legal requirements that are not readily capable of
being quantified with precision. Accordingly, determination of a precise
valuation of the Acquired Subsidiaries is not possible. The Board of Directors
of Rollins (the "Board of Directors") has relied on forecasts and projections
regarding the Acquired Subsidiaries' future operating performance, as well as
numerous other factors, including the Acquired Subsidiaries' audited financial
statements. In addition, the Board of Directors engaged Raymond James &
Associates, Inc. ("Raymond James") to provide an opinion as to the fairness,
from a financial point of view, of the terms of the Acquisition. Raymond James
has delivered a written opinion dated January 31, 1997 to the Board of Directors
that, as of the date of such opinion, the terms of the Acquisition pursuant to
the Stock Purchase Agreement were fair, from a financial point of view, to
Rollins. The full text of the opinion of Raymond James, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex B and is incorporated
herein by reference. The summary of the opinion of Raymond James set forth in
this Proxy Statement is qualified in its entirety by reference to the written
opinion attached as Annex B to this Proxy Statement. Stockholders are urged to,
and should, read such opinion in its entirety. Neither Rollins, nor Raymond
James, has conducted any specific appraisals or valuations of the assets or
liabilities of the Acquired Subsidiaries.
LAIDLAW INDEMNITIES
Rollins has received an indemnity from Laidlaw for potential contingent
liabilities relating to the Acquired Subsidiaries after the Closing, including
tax and environmental liabilities, subject to certain limitations. See "The
Stock Purchase Agreement -- Indemnification." Laidlaw is also providing either a
credit enhancement or a guaranty for certain indebtedness of Rollins. See "The
Stock Purchase Agreement -- LTI Guaranties." In addition, as part of the
restructuring of Rollins' debt to Westinghouse, Laidlaw has guaranteed
$60,000,000 of Rollins' indebtedness. Under the terms of the restructuring, it
shall be an event of default with respect to such indebtedness if Laidlaw does
not maintain an investment grade rating on its indebtedness. See "Stock Purchase
Agreement -- Proposed Modification of Westinghouse Debt." While Laidlaw debt is
currently rated investment-grade or better, the failure of Laidlaw to maintain
its rating or to perform under its indemnification obligations when required to
do so may have a material adverse effect on the financial condition and results
of operations of Rollins.
LEVERAGE
After consummation of the Acquisition, Rollins will be highly leveraged
with substantial debt service obligations, including principal and interest
obligations with respect to bank debt of as much as $650,000,000, the PIK
Debenture which has an original principal amount of $350,000,000 and note
obligations to Westinghouse Electric Corporation ("Westinghouse") in the
aggregate amount of $60,000,000. Therefore, Rollins will be particularly
susceptible to adverse changes in its industry, the economy and the financial
markets generally. In addition, Rollins' ability to obtain additional debt
financing will be limited by restrictive covenants under the terms of the Credit
Facilities and other debt instruments and those limits on financing may
therefore limit Rollins' ability to service its existing debt obligations
through additional debt financing if cash flow from operations is insufficient
to service such obligations.
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL
Rollins is obligated to make substantial payments commencing in 1997 on the
indebtedness incurred in connection with the Acquisition, including the
indebtedness to various bank lenders and the PIK Debenture. To repay some of
this indebtedness, Rollins may need to obtain additional financing. There can be
no assurance that additional financing will be available on a timely basis, if
at all, or that
13
<PAGE>
it will be available on terms acceptable to Rollins. In the event that adequate
financing is not available or is not available in the amounts or on terms
acceptable to Rollins, the implementation of Rollins' strategy could be impeded
and Rollins' ability to react to changes in the industries in which it does
business could be limited, which could have a material adverse effect on
Rollins' business, financial condition and future prospects.
INTEREST RATES AND RESTRICTIVE COVENANTS
After the Acquisition, a substantial portion of Rollins' outstanding
indebtedness may be at floating interest rates. Although Rollins has not
contracted to enter into any interest rate swaps, under the terms of the Credit
Facilities Rollins will be required to use interest rate swaps to manage the
risk of interest rate fluctuations. The terms of such interest rate swaps have
not been established. Despite such swaps a substantial increase in interest
rates could adversely affect Rollins' ability to service its debt obligations.
In addition, most of Rollins' debt instruments contain covenants establishing
certain financial and operating restrictions as well as cross-default and
cross-acceleration provisions. A failure to comply with any covenant or any
obligation contained in any credit agreement could result in an event of default
which could accelerate debt under certain other credit agreements.
ENVIRONMENTAL REGULATION
The operations of businesses of Rollins and the Acquired Subsidiaries are
subject to certain federal, state and local requirements which regulate health,
safety, environment, zoning and land-use. Operating and other permits are
generally required for incinerators, landfills, transfer and storage facilities,
certain collection vehicles, storage tanks and other facilities owned or
operated by Rollins or the Acquired Subsidiaries, and these permits are subject
to revocation, modification and renewal. Although Rollins believes that all
facilities of Rollins and the Acquired Subsidiaries meet federal, state and
local requirements in all material respects and have all of the required
operating and other permits, it may be necessary to expend considerable time,
effort and money to keep existing or acquired facilities of Rollins and the
Acquired Subsidiaries in compliance with applicable requirements, including new
regulations, and to maintain existing permits and approvals and to obtain the
permits and approvals necessary to increase their capacity. Applicable
requirements are enforceable by injunctions and fines or penalties, including
criminal penalties. These regulations are administered by the United States
Environmental Protection Agency (the "EPA") and various other federal, state and
local environmental and health and safety agencies and authorities, including
the Occupational Safety and Health Administration of the United States
Department of Labor and by the provincial environmental ministries in Canada.
The United States Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes liability for damages and
the cleanup of sites from which there is a release or threatened release of a
hazardous substance into the environment on, among others, the current and
former owners and operators of such sites. Liability under CERCLA can be founded
upon the release or threatened release, even as a result of unintentional and
non-negligent action, of thousands of hazardous substances, including very small
quantities of such substances. CERCLA liability may also attach to Rollins with
regard to facilities owned or operated by third parties where Rollins or an
Acquired Subsidiary arranged for disposal or treatment of hazardous substances
at, or transportation of hazardous substances to, such a facility, or where
Rollins or an Acquired Subsidiary was the waste transporter who selected such
facility for treatment or disposal of hazardous substances. The costs of a
CERCLA cleanup can be significant. Given the difficulty of obtaining insurance
for environmental impairment liability, such liability could have a material
impact on Rollins' business, financial condition and future prospects. See
"Business of Rollins -- Regulation" and "Business of the Acquired Subsidiaries
- -- Regulation."
Rollins and the Acquired Subsidiaries currently carry environmental
impairment liability insurance and site-specific pollution liability insurance.
However, these insurance policies are limited in scope and coverage. As a
result, there can be no assurance that the level or breadth of such insurance
coverages will be sufficient to fully cover potential claims. In addition, such
insurance is becoming
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increasingly expensive and difficult to obtain. There can be no assurance that
adequate insurance coverage will be available in the future at an acceptable
cost, if at all, or in sufficient amounts to protect Rollins, including the
Acquired Subsidiaries, against liabilities. The obligation to pay any
environmental damages claim in excess of insurance coverage could have a
material adverse effect on the business, financial condition and future
prospects of Rollins.
With respect to various operating facilities, Rollins and the Acquired
Subsidiaries are required to provide certain financial assurances with respect
to certain statutorily required closure and post-closure obligations. These
financial assurances may take the form of insurance, parental guarantees,
letters of credit or deposits of cash, to the extent acceptable to the
Governmental Entities requiring such assurances. Laidlaw has provided certain of
these financial assurances in the form of parental guarantees of the obligations
of one or more of the Acquired Subsidiaries. Following the consummation of the
Acquisition, Rollins will be obligated to provide most of these financial
assurances. Although the Credit Facilities are intended to be available to
provide certain letters of credit, there can be no assurance that Rollins will
be able to provide the required financial assurances without increased cost or
at all.
RISKS OF PENDING AND FUTURE LEGAL PROCEEDINGS
In addition to the costs of complying with environmental regulations,
hazardous waste treatment companies generally will continue to be involved in
legal proceedings in the ordinary course of business. Alleged failure by
Rollins, including the Acquired Subsidiaries, to comply with laws and
regulations may lead to the imposition of fines or the denial, revocation or
impediment of the renewal of permits and licenses by United States, Canadian or
foreign, state, territorial, federal, provincial or local courts, executive
offices, legislatures, governmental agencies or ministries, commissions, or
administrative, regulatory or self-regulatory authorities or instrumentalities
("Governmental Entities"). In addition, such Governmental Entities as well as
surrounding landowners may claim that Rollins or the Acquired Subsidiaries are
liable for environmental damages. Citizens groups have become increasingly
active in challenging the grant or renewal of permits and licenses for hazardous
waste facilities, and responding to such challenges has further increased the
costs associated with establishing new facilities or expanding current
facilities. A significant judgment against Rollins or the Acquired Subsidiaries,
the loss of a significant permit or license or the imposition of a significant
fine could have a material adverse effect on Rollins' business, financial
condition and future prospects. Rollins and the Acquired Subsidiaries are
currently parties to various legal proceedings, as well as environmental
proceedings which have arisen in the ordinary course of its business. No
assurance can be given with respect to the outcome of these legal and
environmental proceedings and the effect such outcomes may have on Rollins or
the Acquired Subsidiaries. Although Rollins believes that losses resulting from
the ultimate resolution of such proceedings will not have a material adverse
effect on the business, financial condition or future prospects of Rollins,
including the Acquired Subsidiaries, unfavorable resolution of any matter
individually or in the aggregate could have a material adverse effect on
business, financial condition and future prospects of Rollins, including the
Acquired Subsidiaries.
COMPETITIVE ENVIRONMENT
Rollins and the Acquired Subsidiaries operate in a highly competitive
environment. In addition, the hazardous waste industry is changing as a result
of rapid consolidation. The future success of Rollins will be affected by such
changes, the nature of which cannot be forecast with certainty. There can be no
assurance that such developments will not create additional competitive
pressures on Rollins' business.
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SUBSTANTIAL INTERNATIONAL OPERATIONS
Upon completion of the Acquisition, Rollins will have substantial
operations in Canada. Certain risks are inherent in international operations,
including the risk of differing regulation, currency risks and tax risks.
Rollins currently operates under substantially United States-based environmental
and other regulation. After the Acquisition, it will also be subject to
substantial Canadian regulation. Also, the relative value of United States
dollars and Canadian dollars could change. The impact of future exchange rate
fluctuations on the results of operations cannot be accurately predicted. After
the Acquisition Rollins will be subject to Canadian tax laws and regulations.
The application of United States and foreign tax laws and regulations to Rollins
and to intercompany relationships created by the Acquisition will be subject to
audit and review by independent national tax authorities. In addition, business
practices or laws in Canada may impose costs, restrictions or requirements on
such activities that differ in significant respects from the U.S. business
environment.
CYCLICAL AND SEASONAL NATURE OF BUSINESS
The hazardous waste business is cyclical to the extent that it is dependent
upon a stream of waste from cyclical industries. If those cyclical industries
slow significantly, the business that Rollins receives from those industries is
likely to slow. Also, Rollins' business is somewhat seasonal in that less waste
is received in winter months. The Acquired Subsidiaries are likely to have the
same cyclical attributes and at least as great seasonal attributes.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of stockholders of Rollins to be held with respect to
the proposals discussed in this Proxy Statement (the "Special Meeting") will
take place at the Sheraton Suites Hotel, 422 Delaware Avenue, Wilmington, DE
19801, on Tuesday, April 29, 1997, at 9:00 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and act upon (i) a
proposal to approve the Stock Purchase Agreement, (ii) a proposal to approve the
issuance of (a) at the Closing of the Acquisition, the Stock Consideration and
(b) at a time after the Closing, a currently indeterminate number of shares of
Common Stock (the "Debenture Shares"), issuable pursuant to the terms of the PIK
Debenture (the "Issuances"), (iii) a proposal to approve the Amendment to
Rollins' certificate of incorporation to increase the number of authorized
shares of Common Stock available for issuance from 120,000,000 to 350,000,000
shares, (iv) a proposal to approve the Amendment to Rollins's certificate of
incorporation to change the name of Rollins to Laidlaw Environmental Services,
Inc. as of the Closing, (v) a proposal to approve the Amendment to Rollins'
certificate of incorporation to increase the size of Rollins' Board of Directors
from eight to ten members and (vi) such other business as may be properly
presented to the Special Meeting. Rollins anticipates that the representatives
of KPMG Peat Marwick LLP, independent public accountants for Rollins, will
attend the Special Meeting, may make a statement if they desire to do so and
will also be available to respond to appropriate questions.
RECORD DATE AND OUTSTANDING VOTING SECURITIES
Only holders of record of the Common Stock at the close of business on
March 27, 1997 (the "Record Date"), are entitled to notice of, and to vote at,
the Special Meeting. On the Record Date, there were issued, outstanding and
entitled to vote 60,375,811 shares of Common Stock. The Delaware General
Corporation Law, as amended (the "DGCL") and the Certificate of Incorporation
prescribe that each share of Common Stock entitles the holder to one vote on all
matters presented at the Special Meeting.
REVOCABILITY OF PROXY
A stockholder who has given a proxy may revoke it at any time before it is
exercised at the Special Meeting, by (i) delivering to Rollins a written notice
stating that the proxy is revoked, (ii) signing and so delivering a proxy
bearing a later date or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not, by itself, revoke a
proxy).
VOTE REQUIRED FOR APPROVAL
The Certificate of Incorporation permits the Board of Directors in its
discretion to submit any contract or act for approval or ratification at any
meeting of the stockholders called for the purpose of considering such contract
or act. Such contract must be approved by a vote of the holders of a majority of
the stock represented in person or by proxy and entitled to vote at the Special
Meeting. Pursuant to the terms of the Stock Purchase Agreement, unless
stockholder approval is obtained, the Acquisition cannot be consummated.
Accordingly, the Board of Directors is hereby submitting the Stock Purchase
Agreement to the stockholders for their approval.
Pursuant to the rules of the NYSE, an issuer must obtain stockholder
approval of any potential issuance of common stock or securities convertible
into common stock pursuant to an acquisition, if such stock has or would have
upon issuance voting power equal to or in excess of 20% of the voting power
outstanding prior to such issuance or if the issuance will result in the change
of control of the issuer. The Stock Consideration, together with the Debenture
Shares, would represent over 20% of the voting power of Rollins outstanding
immediately after such issuances. Further, the issuance will result
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in the change of control of Rollins. Thus, approval by the Rollins stockholders
of the Issuances is required by the rules of the NYSE. The Issuances must be
approved by the vote of the holders of a majority of the shares of Common Stock
voting on the proposal, provided that the total vote cast at the Special Meeting
represents over 50% in interest of all shares of Common Stock entitled to vote
on the proposal. In addition, receipt of such stockholder approval is a
condition to the consummation of the Acquisition pursuant to the Stock Purchase
Agreement. Consequently, the Board of Directors is hereby submitting the
Issuances to the stockholders for their approval. Unless such approval is
obtained, the Acquisition will not be consummated. As of the date of this Proxy
Statement, the Board of Directors anticipates consummating the Acquisition as
soon as practicable but in no case later than the later to occur of April 30,
1997, or the 61st day after the date of this Proxy Statement, assuming
satisfaction or waiver of all other conditions to Closing.
The DGCL requires that any amendments to the Certificate of Incorporation
be approved by a majority of the shares of Common Stock outstanding and entitled
to vote at the Special Meeting as of the Record Date. In addition, receipt of
stockholder approval for each of the Amendments is a condition to the Closing of
the Acquisition. Each of the Amendments must be approved by the vote of the
holders of a majority of the outstanding shares of Common Stock entitled to
vote, provided that a majority of the votes entitled to be cast at the Special
Meeting is present in person or by proxy. Consequently, the Board of Directors
is hereby submitting each of the Amendments to the stockholders for their
approval. Unless each such approval is obtained, the Acquisition will not be
consummated.
The presence, in person or by proxy, at the Special Meeting of the holders
of a majority of the votes entitled to be cast at the Special Meeting is
necessary to constitute a quorum at the Special Meeting. Under the DGCL, shares
as to which a stockholder abstains or withholds from voting and shares as to
which a broker indicates that it does not have discretionary authority to vote
("broker non-votes") will be treated as present at the Special Meeting for
purposes of determining a quorum. Under the DGCL, in determining whether the
proposals have received the requisite number of affirmative votes, abstentions
and broker nonvotes with respect to any proposal will have the same effect as a
vote against such proposal. Proxies will be voted in accordance with the
directions specified thereon and otherwise in accordance with the judgment of
the persons designated as proxies. Each proxy submitted will be voted as
directed but, if not otherwise specified, proxies solicited by the Board of
Directors will be voted in favor of the Stock Purchase Agreement, in favor of
the Issuances and in favor of each of the Amendments. Holders of Common Stock
are entitled to one vote for each share held as of the Record Date.
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors for
use at the Special Meeting, to be held at the Sheraton Suites Hotel, 422
Delaware Avenue, Wilmington, DE 19801, on Tuesday, April 29, 1997 at 9:00 a.m.,
local time. Only holders of record of Common Stock at the close of business on
the Record Date will be entitled to vote at the Special Meeting. On the Record
Date, there were 60,375,811 shares of Common Stock outstanding and entitled to
vote. A majority of those shares, present in person or by proxy, will constitute
a quorum for the transaction of business at the Special Meeting. Abstentions and
broker non-votes will be considered to be present for purposes of a quorum but
will be counted as votes cast against the relevant matters. This Proxy Statement
and the accompanying form of proxy were first mailed to the Rollins stockholders
on or about __________, 1997.
EXPENSES OF PROXY SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
Rollins. In addition to solicitations by mail, regular employees of Rollins may,
if necessary to assure the presence of a quorum, solicit proxies in person or by
telephone. Rollins will reimburse brokers or other persons holding stock in
their names or in the names of their nominees for their reasonable expenses in
forwarding proxy material to beneficial owners of stock. Rollins has retained
Regan & Associates, Inc., a proxy solicitor, to perform solicitation services in
connection with this Proxy Statement. For such
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services, Regan & Associates, Inc. will receive a fee of $7,500 and will be
reimbursed for certain out-of-pocket expenses and indemnified against certain
liabilities incurred in connection with this solicitation.
BOARD OF DIRECTORS' RECOMMENDATIONS
Rollins is routinely discussing potential acquisitions with a variety of
hazardous and industrial waste management and disposal companies to fulfill its
objective of creating a vertically-integrated hazardous and industrial waste
management company with a broad geographic base of operations. Through the
consummation of the Acquisition contemplated in the Stock Purchase Agreement,
Rollins can further this objective. For the reasons set forth in "The
Acquisition -- Reasons For the Acquisition," the Board of Directors believes
that the terms and conditions of the Stock Purchase Agreement and the
Acquisition are in the best interests of Rollins. The Board of Directors has
unanimously approved the Stock Purchase Agreement and the Acquisition and
recommends that the stockholders of Rollins vote "FOR" the approval of the Stock
Purchase Agreement, "FOR" the approval of the Issuances, "FOR" approval of the
Amendment to Rollins' certificate of incorporation to increase the number of
authorized shares of Common Stock from 120,000,000 to 350,000,000 shares, "FOR"
approval of the Amendment to Rollins' certificate of incorporation to change the
name of Rollins to Laidlaw Environmental Services, Inc. as of the Closing, and
"FOR" approval of the Amendment to Rollins' certificate of incorporation to
increase the size of Rollins' Board of Directors from eight to ten members.
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THE ACQUISITION
The following summary of the Acquisition is qualified in its entirety by
reference to the provisions in the Stock Purchase Agreement and certain exhibits
thereto, which are included as Annex A to this Proxy Statement.
GENERAL DESCRIPTION OF THE ACQUISITION
Rollins proposes to acquire the hazardous and industrial waste business
conducted by Laidlaw in the United States and Canada for consideration comprised
of (i) $400,000,000 in cash (less certain assumed bond indebtedness as described
in the Stock Purchase Agreement, a portion of which is being repaid at Closing)
consisting of a payment of $225,000,000, less the amount of such bond
indebtedness, from Rollins to LTI and a repayment of $175,000,000 to Laidlaw
from a Canadian subsidiary of Chem-Waste with funds contributed by Rollins (the
"Cash Consideration"); (ii) the Stock Consideration; and (iii) the PIK
Debenture. Laidlaw conducts substantially all its hazardous and industrial waste
business through the Acquired Subsidiaries. The Acquired Subsidiaries consist of
Chem-Waste and all direct and indirect subsidiaries of Laidlaw engaged in the
hazardous and industrial waste business, other than the Retained Subsidiaries.
BACKGROUND OF THE ACQUISITION
In April 1996, John W. Rollins, Sr., Chairman of the Board and Chief
Executive Officer of Rollins, and John W. Rollins, Jr., Senior Vice Chairman of
the Board, met briefly in Atlanta, Georgia with James R. Bullock, President and
Chief Executive Officer of Laidlaw, and Leslie W. Haworth, Senior Vice President
and Chief Financial Officer of Laidlaw, to discuss the possibility of a business
combination involving their respective hazardous waste businesses. Specific
economic terms were not discussed at this meeting.
Two subsequent meetings were held in October 1996. Present at one or both
meetings on behalf of Rollins were John W. Rollins, Sr., John W. Rollins, Jr.
and Henry B. Tippie, Chairman of the Executive Committee of Rollins, and present
on behalf of Laidlaw were James R. Bullock, Leslie W. Haworth and Ivan R.
Cairns, Senior Vice President and General Counsel of Laidlaw. During the October
meetings, the parties discussed a possible acquisition by Rollins of Laidlaw's
hazardous and industrial waste business and the possible terms of such an
acquisition. Laidlaw indicated that it would be interested in considering a
disposition of its hazardous and industrial waste business if acceptable terms
could be agreed upon. The parties discussed in general various financial and
operating information relative to each other's hazardous waste businesses, and
certain aspects of the synergies that could result from a combination of the two
businesses.
On November 1, 1996, the parties executed a confidentiality agreement and
agreed to exchange additional, more detailed information relative to financial
and operating matters. The parties next met in Wilmington, Delaware on November
15, 1996 for an in-depth discussion of potential terms for the Acquisition and
related financing and tax issues. Present on behalf of Rollins were John W.
Rollins, Sr., John W. Rollins, Jr., Henry B. Tippie, and Klaus M. Belohoubek,
Esquire, Counsel to Rollins. Present on behalf of Laidlaw were James R. Bullock,
Leslie W. Haworth, Ivan R. Cairns, Kenneth W. Winger, President and Chief
Operating Officer of Laidlaw Environmental Services, Inc., and two additional
representatives from Laidlaw. Certain tentative terms for the Acquisition were
developed at this meeting, involving a combination of cash, debt and securities
to be paid by Rollins comprised of approximately $400,000,000 in cash,
120,000,000 shares of Common Stock of Rollins, a payment-in-kind debenture in
the principal amount of $375,000,000 and warrants for 100,000,000 shares of
Common Stock of Rollins. The parties agreed that additional due diligence and
negotiation of terms, particularly with regard to the debentures and warrants,
was necessary before a proposed structure could be finalized.
Following this November meeting, it was agreed that each party would
continue its due diligence investigation of the other's business with a view to
determining if an acceptable acquisition structure could be developed. This
process continued through December as Rollins and Laidlaw continued their
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negotiations and due diligence, and held various internal meetings regarding
structure, tax, legal, accounting, financing and operating issues.
Simultaneously, the parties agreed to jointly focus their efforts on
securing financing for the Acquisition on acceptable terms and conditions.
Various sources of outside financing and the renegotiation of existing debt were
considered.
Since certain financial terms discussed during the November 15, 1996
meeting assumed the renegotiation of existing debt, the parties agreed to
jointly explore negotiations with Rollins' largest creditor, Westinghouse
Electric Corporation ("Westinghouse"). As a result of Rollins' 1995 acquisition
of Aptus, Inc. from Westinghouse, Westinghouse became the holder of 100% of
Rollins' $13,839,000 7.75% Senior Unsecured Debentures (the "Senior Unsecured
Debentures") and 100% of Rollins' $66,000,000 7.25% Subordinated Convertible
Debentures (the "Subordinated Convertible Debentures"). In addition,
Westinghouse provided a credit enhancement on Rollins' $45,700,000 Tooele County
Variable Rate Industrial Revenue Bonds (the "Revenue Bonds") and provided
$25,000,000 of letters of credit for certain statutorily required closure and
post-closure financial assurances.
After various discussions between representatives of Laidlaw, Rollins and
Westinghouse, it was agreed that should the Acquisition be consummated, the
Senior Unsecured Debentures and Subordinated Convertible Debentures would be
replaced with a $60,000,000 promissory note from Rollins, to be guaranteed by
Laidlaw. In addition, Westinghouse would be relieved of its obligations relative
to the credit enhancement on the Revenue Bonds and the letters of credit for
financial assurances. An agreement in principle reflecting these terms was
entered into with Westinghouse on January 6, 1997.
During this same period, representatives of Rollins and Laidlaw continued
to negotiate various terms of the Acquisition. An initial draft of the Stock
Purchase Agreement was circulated with the original intention of negotiating a
final agreement before making a public announcement. Based on the number of
issues that remained to be addressed in the Stock Purchase Agreement, the
extensive number of exhibits and schedules requiring completion, and the level
of due diligence that each side felt would be appropriate prior to executing a
final, binding document, the parties agreed to first negotiate and finalize a
letter of intent.
Also during December, representatives of Laidlaw and Rollins negotiated the
terms of the $650,000,000 Senior Secured Credit Facilities (the "Credit
Facilities") arranged with The Toronto-Dominion Bank as lead syndicate bank (the
"Agent"). Approximately $325,000,000 to $350,000,000 of the proceeds of the
credit facilities were to be used to pay a portion of the $400,000,000 cash
component of the consideration to Laidlaw. The remaining $50,000,000 to
$75,000,000 of the cash consideration was to consist of industrial revenue bonds
and other third party indebtedness of the Acquired Subsidiaries that would
remain in place after Closing. After negotiation of several drafts, a commitment
letter for the $650,000,000 Senior Secured Credit Facilities (the "Bank
Commitment") was executed on December 10, 1996 between the Agent and Laidlaw,
and made assignable to Rollins. The $650,000,000 was comprised of a $275,000,000
revolving line of credit ($200,000,000 of which could be used for letters of
credit for closure and post-closure financial assurances) and $375,000,000 of
six, seven and eight year amortizing term loans at various interest rates.
As the parties negotiated the terms of the financing with the Agent and
renegotiated the Westinghouse debt, certain changes were made to the amount and
form of the consideration to be paid to Laidlaw. The warrants were replaced with
a convertible feature added to the payment-in-kind debenture and the total
amount of the payment-in-kind debenture was reduced. The revised consideration
consisted of $400,000,000 in cash, 120,000,000 shares of Common Stock of
Rollins, and a 5% subordinated convertible pay-in-kind debenture in the original
principal amount of $350,000,000 with a conversion price of $3.75 per share.
Various refinements to the terms of the consideration and the letter of intent
continued throughout December.
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On January 3, 1997, John W. Rollins, Jr., Klaus M. Belohoubek and Patrick
J. Bagley, Chairman of the Audit Committee of Rollins, met with representatives
of Raymond James to review the terms of the proposed Acquisition and to retain
Raymond James as its financial advisor.
On January 6, 1997, the Board of Directors of Rollins held a special
meeting in Wilmington, Delaware to review the transaction, including the most
recent draft of the letter of intent and various issues relative to structural,
financial, legal, accounting, tax, environmental and operating aspects of the
Acquisition. The Board of Directors directed management to execute the letter of
intent in substantially the same form as presented to the meeting, to retain
Raymond James to review the fairness of the terms of the Acquisition from a
financial standpoint, and to continue with due diligence and negotiation of a
definitive stock purchase agreement. The letter of intent was executed later
that day and Rollins and Laidlaw issued a joint press release announcing its
terms after the close of the market.
Discussions between Rollins and Laidlaw continued through the next several
weeks in an effort to finalize negotiations on the terms of the Acquisition and
the Stock Purchase Agreement. Concurrently, each party began more extensive due
diligence relative to legal, environmental, accounting, financing and
operational concerns. Due diligence teams from each party visited each other's
corporate and regional offices and various operating facilities.
During the week of January 24, a draft of the Stock Purchase Agreement was
circulated to the Board of Directors. Numerous conversations among management
and the Board of Directors ensued to discuss the current form of the Acquisition
and the draft of the Stock Purchase Agreement. As a result, management continued
to proceed with final negotiations.
On Monday, January 27, 1997, a meeting was held in Toronto, Canada to
continue negotiations on the Stock Purchase Agreement. Present for Laidlaw was
James R. Bullock and Ivan R. Cairns; present for Rollins were John W. Rollins,
Jr., Klaus M. Belohoubek and Michael B. Kinnard, Vice President and General
Counsel of Rollins. The parties exchanged certain information relative to the
results of their due diligence efforts and finalized various details relative to
the indemnification provisions in the agreement, including those relating to
taxes and environmental matters. Subject to various thresholds and time periods,
Laidlaw agreed to remain responsible for all pre-Closing taxes and for certain
environmental claims that could arise after consummation of the Acquisition.
Over the next few days, Rollins and Laidlaw exchanged various drafts of the
Stock Purchase Agreement and the exhibits and schedules thereto.
On January 31, 1997, during its regularly scheduled quarterly meeting, the
Board of Directors reviewed the terms of the Acquisition and the most recent
draft of the Stock Purchase Agreement. Details relative to the financing with
the Agent, a draft of the fairness opinion to be provided by Raymond James, and
the most recent version of the Stock Purchase Agreement were provided to the
Board of Directors in advance of the meeting. During the meeting, management
updated the Board of Directors on the terms negotiated during the previous
weeks, presented a summary of the due diligence investigation conducted to date,
reviewed various financing and structural issues, and discussed operating and
management issues that would need to be addressed post-Closing. Representatives
of Raymond James also addressed the meeting, gave a detailed financial
presentation, together with pro forma financial statements, and delivered the
firm's opinion that the Acquisition was fair to Rollins from a financial
standpoint. After extensive discussion, the Board of Directors unanimously voted
to authorize management to execute the Stock Purchase Agreement in the form
presented, assuming no material changes were made prior to execution.
On February 6, 1997, the exhibits and schedules to the Stock Purchase
Agreement were finalized and the Stock Purchase Agreement was executed
substantially in the form presented to the Board of Directors on January 31,
1997. Later that day, the parties jointly announced the execution of the Stock
Purchase Agreement after the close of the market.
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REASONS FOR THE ACQUISITION
At a meeting of the Board of Directors held on January 31, 1997, the Board
of Directors concluded that the Stock Purchase Agreement and the Acquisition are
fair to and in the best interests of Rollins and its stockholders, approved the
Stock Purchase Agreement and certain related matters, and resolved to recommend
that the stockholders of Rollins approve and adopt the Stock Purchase Agreement.
As described under " -- Background of the Acquisition," at meetings held on
January 6, 1997 and January 31, 1997, the Board of Directors received
presentations from, and reviewed the terms of the Stock Purchase Agreement with,
its financial and legal advisors.
In approving the Stock Purchase Agreement and the Acquisition and
concluding that they are in the best interest of Rollins and its stockholders,
the Board of Directors considered the following material factors:
1. The Board of Directors' belief that there is an increasing trend of
consolidation within the hazardous and industrial waste industry and that
the Acquisition will allow Rollins to compete more effectively in this
consolidating industry.
2. The Acquisition is consistent with Rollins' long-term objective of
creating a vertically-integrated hazardous and industrial waste management
company with a broad geographic base of operations.
3. The Board of Directors reviewed carefully the respective
businesses, financial condition, results of operations, cash flows, and
prospects of each of Rollins and Laidlaw, both on a historical and on a
prospective basis. In this regard, the Board of Directors believes that
Laidlaw is an established and highly regarded company with an effective and
experienced management team; that the combination of Rollins with the
Acquired Subsidiaries would result in various cost-savings and synergies,
economies of scale and efficiencies; that the Acquired Subsidiaries'
superior liquidity and access to capital would better be able to meet the
increased need for capital resources to remain competitive in the
consolidating hazardous and industrial waste industry; and that Rollins and
the Acquired Subsidiaries would have greater ability to serve additional
markets in the hazardous and industrial waste industry and to expand
operations in existing markets. See "Summary Pro Forma Combined Financial
Statements."
4. Management of Rollins anticipates that combining its operations
with those of the Acquired Subsidiaries will increase revenues and return
its operations to profitability. Assuming that anticipated integration
initiatives are completed and projected operating synergies and cost
savings are realized, the Acquisition should be accretive to future
earnings per share and cash flow. Management believes that there are
opportunities for substantial cost savings, including the elimination of
redundant overhead and operating expenses and the realization of other
valuable business synergies and operating efficiencies. Provided that its
various assumptions are accurate, management of Rollins believes that,
within six to twelve months after Closing, Rollins and the Acquired
Subsidiaries can realize approximately $90,000,000 in synergies and cost
savings on a combined basis.
5. The management of Rollins evaluated the operating facilities of
Rollins and the Acquired Subsidiaries on a combined basis and concluded
that certain of the facilities of the Acquired Subsidiaries will be
redundant. Accordingly, Rollins anticipated that, in the quarter in which
the Closing occurs, it will record a one-time after-tax charge to earnings
of approximately $200,000,000 (approximately $320,000,000 before tax).
6. The Board of Directors considered the presentation of Raymond James
delivered to the Board of Directors at its meeting on January 31, 1997,
including Raymond James's opinion to the effect that, as of January 31,
1997, the terms of the Acquisition are fair to Rollins, from a financial
point of view. See " -- Opinion of Financial Advisor to Rollins."
7. The Board of Directors considered various financial and other terms
and conditions of the Stock Purchase Agreement, including the terms of the
Stock Purchase Agreement that permit the
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Board of Directors, in the exercise of its fiduciary duties and subject to
certain conditions, to respond to inquiries regarding potential alternative
business combination transactions, to provide information to and negotiate
with any third party making an unsolicited bona fide proposal to engage in
such a transaction with Rollins, and to terminate the Stock Purchase
Agreement if the stockholders of Rollins do not approve of the Acquisition.
In that regard, the Board of Directors believed that Rollins' obligation to
pay to LTI a termination fee to reimburse certain of Laidlaw's expenses if
the Stock Purchase Agreement is terminated under certain circumstances
would not unreasonably impede any interested third party from proposing an
alternative business combination transaction. See "The Stock Purchase
Agreement -- Termination; Termination Fee."
8. The Board of Directors took into account that since the execution
of the letter of intent relative to the Acquisition and the public
announcement thereof on January 6, 1997, no other party had proposed or
indicated any interest in proposing to Rollins an alternative business
combination transaction. In that regard, the Board of Directors believed
that any potential alternative transaction would be unlikely to provide
value to Rollins' stockholders superior to the Acquisition.
9. The Board of Directors' belief that considering the above factors,
particularly the enhanced opportunities available to Rollins and Laidlaw to
compete effectively in the marketplace as a combined entity, the
Acquisition affords Rollins' stockholders greater opportunity to realize
appreciation in the value of their equity investment in Rollins.
There can be no assurance, of course, that the benefits anticipated to
result from the Acquisition will, in fact, be achieved.
In addition to the anticipated benefits of the Acquisition, the Board of
Directors considered the following potential risks and disadvantages:
1. After consummation of the Acquisition, Rollins will be highly
leveraged with substantial debt service obligations, and will thus be
particularly susceptible to adverse changes in its industry, the economy
and the financial markets generally. Rollins' ability to complete
additional debt financing will be limited by restrictive covenants under
the terms of the financing for the Cash Consideration, and those limits on
financing may also limit Rollins' ability to complete additional
acquisitions. See " -- Financing of the Acquisition."
2. Any substantial delay in or reduction of expected operating
synergies and cost savings could adversely impact the value of Rollins'
Common Stock and Rollins' ability to raise new capital.
3. Rollins' success after the Acquisition will be dependent in part on
Rollins' ability to successfully integrate the operations of the Acquired
Subsidiaries, which are substantially larger than Rollins itself.
4. Rollins will acquire operations in Canada, where it has little
familiarity with the regulatory framework governing waste management
operations.
5. Rollins has received an indemnity from Laidlaw for potential
contingent liabilities relating to the Acquired Subsidiaries after Closing,
including tax and environmental liabilities, subject to certain
limitations. See "The Stock Purchase Agreement -- Indemnification." Laidlaw
is also providing either a credit enhancement or a guaranty for certain
indebtedness of Rollins. See "The Stock Purchase Agreement -- LTI
Guaranties." In addition, as part of the restructuring of Rollins' debt to
Westinghouse, Laidlaw has guaranteed $60,000,000 of Rollins' indebtedness.
Under the terms of the restructuring, it shall be an event of default with
respect to such indebtedness if Laidlaw does not maintain an investment
grade rating on its indebtedness. See "Stock Purchase Agreement -- Proposed
Modification of Westinghouse Debt." While Laidlaw debt is currently rated
investment-grade or better, the failure of Laidlaw to perform under its
indemnification obligations when required to do so may have a material
adverse effect on the financial condition and results of operations of
Rollins.
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6. Following the consummation of the Acquisition, Laidlaw will own
approximately 67% of the voting stock of Rollins. As a result, the equity
ownership of current stockholders will be reduced and, if certain financial
benefits and operational efficiencies anticipated by Rollins in connection
with the Acquisition are not achieved, the Acquisition may result in a
dilution of earnings on a per share basis.
Other Risk Factors. Stockholders are referred to a variety of additional
risk factors associated with Rollins and Laidlaw as a combined entity. See "Risk
Factors."
In addition to its potential benefits and risks, the Board of Directors, in
reaching its decision to approve the Acquisition, considered: (i) the terms and
conditions of the Stock Purchase Agreement and the fact that such terms and
conditions were negotiated on an arm's-length basis between Rollins and Laidlaw,
and (ii) the agreements entered into between Laidlaw and each of John W.
Rollins, Sr., John W. Rollins, Jr., and Henry B. Tippie, the three members of
the Executive Committee of Rollins and significant stockholders of Rollins, to
vote their shares in favor of the Acquisition. See " -- Interests of Certain
Persons in the Acquisition." In addition, each member of the Board of Directors
has expressed his intention to vote any shares owned by him, or over which he
exercises voting control, in favor of the Acquisition.
In view of the nature and variety of factors considered in connection with
its evaluation of the Acquisition, the Board of Directors did not find it
practicable to quantify or otherwise assign specific weights to specific
factors. Each anticipated benefit was deemed to support the conclusion of the
Board of Directors, and the anticipated benefits, considered as a whole, were
determined to outweigh the potential risks and disadvantages, considered as a
whole.
FINANCING OF THE ACQUISITION
Rollins intends to finance the Cash Consideration with proceeds of a new
bank financing. In contemplation of the Acquisition, Laidlaw has received the
Bank Commitment from the Agent to provide the Credit Facilities. Laidlaw has
agreed to assign the Bank Commitment to Rollins. At the Closing following such
assignment, Rollins will become the Borrower under the Credit Facilities.
The Credit Facilities will consist of five parts: (i) a $275,000,000 6-year
Senior Secured Revolving Credit Facility with a $200,000,000 letter of credit
sublimit (the "Revolving Credit Facility" or "Facility A"), (ii) a $165,000,000
6-year Senior Secured Amortizing Term Loan ("Facility B"), (iii) a $60,000,000
6-year Senior Secured Amortizing Canadian Term Loan ("Facility C"), (iv) a
$75,000,000 Minimally Amortizing 7-year Senior Secured Term Loan ("Facility D")
and (v) a $75,000,000 Minimally Amortizing 8-year Senior Secured Term Loan
("Facility E"; Facility B, Facility C, Facility D and Facility E, collectively,
the "Term Loans"). The Credit Facilities will be secured by all of the tangible
assets of Rollins to the extent required by the syndicate of banks and other
financial institutions (collectively, the "Lenders") acceptable to Rollins and
the Agent that will make the loans pursuant to the Credit Facilities. All of the
capital stock of Rollins' subsidiaries, including the Acquired Subsidiaries,
will be pledged as part of such security for the Credit Facilities, and such
subsidiaries will guaranty the obligations of Rollins to the Lenders. In
addition, the Lenders have the option to require Rollins to grant to the Agent
on behalf of the Lenders a security interest in certain real property held by
Rollins. Laidlaw will not guaranty any portion of the Credit Facilities.
The Term Loans will be drawn in full on the date upon which the Closing
takes place (the "Closing Date"), which date will be, unless Rollins and LTI
agree otherwise, the fifth business day after all necessary governmental and
regulatory approvals regarding the Acquisition have been obtained and all other
conditions to the respective obligations of Rollins, Laidlaw and LTI as set
forth in the Stock Purchase Agreement have been satisfied or waived. The
Revolving Credit Facility will be available commencing on the Closing Date of
which $200,000,000 will be available for letters of credit and $100,000,000 will
be available for loans, subject to an aggregate limit of $275,000,000. Principal
will be due under Facility B in annual installments commencing in 1997 of
$7,000,000, $19,000,000, $26,000,000, $29,000,000, $40,000,000, in years 1997
through 2001, respectively, with a final principal payment of $44,000,000 due at
maturity in 2002. Principal will be due under Facility C in
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annual installments commencing in 1997 of $3,000,000, $6,000,000, $9,000,000,
$11,000,000 and $15,000,000, in years 1997 through 2001, respectively, with a
final principal payment of $16,000,000 due at maturity in 2002. Principal will
be due under Facility D in annual installments of $750,000 in years 1997 through
2002, with a final principal payment of $70,500,000 due at maturity in 2003.
Principal will be due under Facility E in annual installments of $750,000 in
years 1997 through 2003, with a final principal payment of $69,750,000 due at
maturity in 2004.
Interest per annum on the Credit Facilities will vary depending on the
particular Credit Facility, whether Rollins chooses to borrow under Eurodollar
or non-Eurodollar loans and, with respect to Facilities A, B and C, the current
total leverage ratio. Non-Eurodollar loans are made at the Alternate Base Rate
plus Base Rate Margin. The Alternate Base Rate is defined as the higher of (i)
the applicable prime rate of the Agent and (ii) the Federal Funds rate plus 1/2
of 1%. Eurodollar loans are made at the London Interbank Offered Rate ("LIBOR")
plus the LIBOR Margin. With respect to Facilities A, B and C Base Rate Margin
will vary from a low of 0%, if the total leverage ratio is less than 1.50, to
1.375%, if the total leverage ratio is greater than 3.00, and LIBOR Margin will
vary from a low of 1.000%, if the total leverage ratio is less than 1.50, to
2.375%, if the total leverage ratio is greater than 3.00. With respect to
Facility C, Prime Rate Margin will vary from a low of 0%, if the total leverage
ratio is less than 1.50, to 1.375%, if the total leverage ratio is greater than
3.00, and B/A Margin will vary from a low of 1.000%, if the total leverage ratio
is less than 1.50, to 2.375%, if the total leverage ratio is greater than 3.00.
With respect to Facility D, the Base Rate Margin will be 2.125% and the LIBOR
Margin will be 3.125%. With respect to Facility E, the Base Rate Margin will be
2.375% and the LIBOR Margin will be 3.375%. In the event of and during the
continuance of a payment default under the Credit Facilities, all margins will
be increased by 2.00%.
Several fees are payable in connection with the Credit Facilities. An
underwriting fee of $16,250,000 is payable to the Agent in installments. Of the
total fee, $2,437,500 has been advanced by Laidlaw and the remainder will be
paid from the proceeds of the loans under the Credit Facilities at Closing. The
portion of the fee advanced by Laidlaw will be repaid to Laidlaw by Rollins at
the Closing. An annual administration fee of $125,000 will be payable in
advance, with the first payment due on the Closing Date and subsequent payments
due thereafter on each anniversary of the Closing Date. In addition, letter of
credit fees will be payable at a rate per annum equal to the applicable LIBOR
Margin for Facilities A, B and D.
The Credit Facilities are subject to a number of conditions which include
those customary for financing transactions of this type (such as the preparation
of loan documentation satisfactory to the Lenders, receipt of opinions of
counsel, absence of material adverse changes, and receipt by the Lenders of an
environmental assessment report satisfactory to the Lenders), as well as the
following conditions: (i) the Lenders shall have completed and been satisfied
with the results of their due diligence review of the assets, liabilities,
business, operations, conditions, prospects and environmental condition and
litigation of Rollins and (ii) the Acquisition, including the Seller's
acceptance of the PIK Debenture, shall have been consummated concurrently with
the closing of the Credit Facilities on terms satisfactory to the Lenders.
The Bank Commitment provides that the agreement pursuant to which the
Credit Facilities will be established will contain negative, affirmative and
financial covenants customarily found in the Lenders' credit agreements for
financings such as the financing provided by the Credit Facilities, including
covenants (i) requiring compliance with laws and performance of obligations,
(ii) restricting transactions with affiliates, (iii) requiring satisfactory
levels of interest coverage and fixed charge coverage and ratios of total funded
debt to operating cash flow and total contingent obligations to operating cash
flow, (iv) limiting annual capital expenditures, (v) requiring periodic
reporting of financing information and (vi) restricting debt, guarantees, liens,
mergers and consolidations, sales of assets, dividends and other distributions
to stockholders, changes in the nature of the business and changes in charter
documents and other material contracts. The covenants referred to above will be
subject to significant exceptions. Although the Bank Commitment generally
describes the types of covenants which are to be incorporated into the final
credit agreement, neither the precise terms of the covenants, nor the exceptions
thereto, are described in the Bank Commitment. Prior to the execution of
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the credit agreement pursuant to which the Credit Facilities are to be
established, Laidlaw, Rollins and the Lenders must negotiate mutually
satisfactory covenants and any exceptions applicable thereto.
OPINION OF FINANCIAL ADVISOR TO ROLLINS
On January 31, 1997, Raymond James delivered its written opinion to the
Board of Directors that, as of the date of such opinion, the terms of the
Acquisition were fair, from a financial point of view, to Rollins. The full text
of the written opinion of Raymond James, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Annex B to this Proxy Statement and is
incorporated herein by reference. The summary of the opinion of Raymond James
set forth in this Proxy Statement is qualified in its entirety by reference to
the written opinion attached to this Proxy Statement as Annex B. Stockholders of
Rollins are urged to, and should, read such opinion in its entirety. Raymond
James' opinion is directed only to the fairness, from a financial point of view,
of the terms of the Acquisition to Rollins and does not constitute a
recommendation to any stockholder of Rollins as to how such stockholder should
vote concerning the Acquisition.
In connection with this opinion, Raymond James reviewed, among other
things, a draft of the Stock Purchase Agreement; Annual Reports to Stockholders
and Annual Reports on Form 10-K of Rollins for the two years ended September 30,
1996; Annual Reports to Stockholders of Laidlaw for the two fiscal years ended
August 31, 1996; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of Rollins and Laidlaw; the unaudited historical financial
statements of the Acquired Subsidiaries for the years ended August 31, 1994,
1995 and 1996; certain unaudited interim financial statements of Rollins and the
Acquisition Subsidiaries; and certain internal financial analyses and forecasts
for Rollins prepared by the management of Rollins and for the Acquired
Subsidiaries prepared by the management of the Acquired Subsidiaries. Raymond
James also held discussions with members of the senior management of Rollins and
the Acquired Subsidiaries regarding the past and current business operations,
financial condition and future prospects of Rollins and the Acquired
Subsidiaries and of a combined business consisting of Rollins and the Acquired
Subsidiaries. In addition, Raymond James reviewed other information deemed
relevant to its inquiry including the reported price and trading activity for
the capital stock of Rollins, certain other publicly available financial
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the environmental services industry, and performed such other studies and
analyses as it considered appropriate.
No limitations were placed by the Board of Directors or management of
Rollins with respect to the investigations made or the procedures followed by
Raymond James. Raymond James relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it for purposes of its opinion. Raymond James assumed that the information
presents fairly in all material respects the financial position and results of
operations of Rollins and the Acquired Subsidiaries for the periods set forth
therein and that the reserves for environmental liabilities set forth in the
financial statements for the Acquired Subsidiaries are adequate. Management of
Rollins and Laidlaw advised Raymond James that the respective foregoing
projections reflect the best currently available judgment and estimates by them,
and Raymond James assumed that the results contemplated in such projections,
including without limitation, projected cost savings and operating synergies
resulting from the Acquisition, will be realized in the amounts and at the times
contemplated therein. Raymond James did not make an independent evaluation or
appraisal of the assets and liabilities of Rollins or the Acquired Subsidiaries;
and Raymond James has not been furnished with any such evaluation or appraisal.
In rendering its opinion, Raymond James analyzed the fairness, from a
financial point of view, of the terms of the Acquisition based on (i) the Cash
Consideration, Stock Consideration and PIK Debenture (the "Acquisition
Consideration") exchanged by Rollins for the Acquired Subsidiaries and (ii) the
retained ownership held by pre-Acquisition Rollins stockholders in the combined
post-Acquisition business comprised of Rollins and the Acquired Subsidiaries.
The amount of the
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Acquisition Consideration was determined by the Board of Directors of Rollins in
the course of arms-length negotiation with Laidlaw of the terms of the
Acquistion.
The following is a summary of the material financial analyses used by
Raymond James in connection with providing its opinion to the Board of Directors
on January 31, 1997, which opinion is attached hereto as Annex B.
(i) Comparable Company Analysis. Using publicly available
information, as part of its analysis, Raymond James reviewed and compared
certain financial information, ratio and stock market multiples of six
publicly traded corporations in the hazardous waste treatment industry:
American Ecology Corp. (ECOL), Clean Harbors Inc. (CLHB), Envirosource Inc.
(ENSO), GNI Group Inc. (GNUC), Safety-Kleen Corp. (SK) and Thermo
Remediation Inc. (THN) (the "Selected Companies"). The public market
multiples and financial ratios for the Selected Companies were calculated
using the closing market prices as of January 28, 1997. With respect to the
Selected Companies, Raymond James considered enterprise value (i.e., market
value of common equity plus book value of debt less cash and cash
equivalents) as a multiple of latest twelve months ("LTM") sales, EBITDA
and EBIT. Raymond James also considered market value of common equity
("equity value") as a multiple of LTM net income and the book value of
equity. Such analysis indicated that for the selected companies (a)
enterprise value as a multiple of LTM sales ranged from 0.5x to 1.8x; (b)
enterprise value as a multiple of LTM EBITDA ranged from 5.9x to 13.5x; (c)
enterprise value as a multiple of LTM EBIT ranged from 11.5x to 15.4x; (d)
equity value as a multiple of LTM net income ranged from 16.0x to 18.6x;
and (e) equity value as a multiple of book value ranged from 0.4x to 2.7x.
Raymond James applied the results of the above to its analysis of both
(a) the consideration exchanged by Rollins for the Acquired Subsidiaries
and (b) the retained ownership held by pre-Acquisition Rollins stockholders
in the combined post-Acquisition business comprised of Rollins and the
Acquired Subsidiaries. Using the average multiples of each of the measures
described above, the Acquired Subsidiaries' calculated valuation was $537
million to $1,591 million. The implied value of the retained equity
ownership held by the pre-Acquisition Rollins' stockholders was estimated
to be $52 million to $234 million.
(ii) Selected Transactions Analysis. Raymond James analyzed certain
information relating to selected transactions in the remedial field
services and hazardous waste treatment industry, consisting of the
acquisition by: Carlyle Group, LP of International Technologies Corp.
(August 29, 1996), Tyco International Ltd. of Earth Technology Corp. USA
("Earth Tech") (December 11, 1995), Fluor Daniel Inc. of Groundwater
Technology Inc. (December 1, 1995), Thermo Remediation Inc., of Remediation
Technologies Inc. (November 20, 1995), Ohm Corp. of the remediation units
of Rust International (December 6, 1994), Laidlaw Inc. of USPCI Inc.
(October 31, 1994), Rollins of Aptus Inc. (August 23, 1994), Earth Tech of
Hazwaste Industries Inc. (June 20, 1994) and Earth Tech of Summit
Environmental Group Inc, (the "Selected Transactions"). Such analysis
indicated that for the Selected Transactions (a) enterprise value as a
multiple of LTM sales ranged from 0.4x to 1.5x, (b) enterprise value as a
multiple of LTM EBITDA ranged from 4.7x to 11.2x, (c) enterprise value as a
multiple of LTM EBIT ranged from 7.0x to 27.9x, (d) equity deal value as a
multiple of LTM net income ranged from 9.9x to 69.2x, (e) deal equity value
as a multiple of total assets as of the last day of the last reporting
period ranging from.4x to 1.6x, and (f) deal equity value as a multiple of
book value as of the last day of the last reporting period ranging from .7x
to 12.1x.
Raymond James applied the results of the above to its analysis of both
(a) the consideration exchanged by Rollins for the Acquired Subsidiaries
and (b) the retained ownership held by pre-Acquisition Rollins stockholders
in the combined post-Acquisition business of Rollins and the Acquired
Subsidiaries. Using the average multiples of each of the measures described
above, the Acquired Subsidiaries' calculated valuation was $510 million to
$3,587 million. The implied value of the retained equity ownership held by
the pre-Acquisition Rollins stockholders was estimated to be $43 million to
$124 million.
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(iii) Discounted Cash Flow Analysis. Raymond James performed a
discounted cash flow analysis of the project future free cash flows for the
years 1997 through 2004 of both the Acquired Subsidiaries and the combined
business comprised of Rollins and the Acquired Subsidiaries. The discounted
cash flow analysis for the Acquired Subsidiaries was developed based on
certain operating and financial assumptions, forecasts and other
information provided by the management of the Acquired Subsidiaries and
assuming, among other things, discount rates of 8.1%, 10.1% and 12.1% based
on the weighted average cost of capital of the Selected Companies, and
terminal EBITDA multiples of 6.0x, 7.0x and 8.0x. Utilizing these
assumptions, Raymond James arrived at an equity valuation range of $715.4
million to $1.1 billion for the Acquired Subsidiaries. The discounted cash
flow analysis for the combined business comprised of Rollins and the
Acquired Subsidiaries was based on certain operating and financial
assumptions, forecasts, synergy assumptions and other information provided
by the managements of the Acquired Subsidiaries and Rollins, discount rates
of 8.1%, 10.1% and 12.1%, and terminal EBITDA multiples of 6.0x, 7.0x and
8.0x. Utilizing these assumptions, Raymond James arrived at a valuation
range of $98.4 million to $623.0 million for 100% of the combined business,
including $33.0 million to $208.6 million for the equity retained by the
Rollins' stockholders.
(iv) Pro Forma Analysis. Raymond James analyzed certain pro forma
effects resulting from the Acquisition, including, among other things, the
impact of the Acquisitions on the projected earnings per share ("EPS") of
the combined business comprised of Rollins and the Acquired Subsidiaries
for the years 1997 through 2004. Based on assumptions provided by and
projections prepared by the managements of Rollins and the Acquired
Subsidiaries, the results of the pro forma analysis suggest the Acquisition
would be accretive to Rollins' EPS in each of the years analyzed, assuming
all cost savings and synergies anticipated were achieved. The actual
results achieved by the combined business may vary from the projected
results and variations may be material.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary of the material financial analyses
set forth above, without considering the analyses as a whole, could create an
incomplete view of the processes underlying Raymond James' opinion. No company
or transaction used in the above analyses as a comparison is directly comparable
to Rollins or the Acquired Subsidiaries or the Acquisition. In arriving at its
fairness opinion, Raymond James considered the results of such analyses taken as
a whole. Furthermore, in arriving at its fairness opinion Raymond James did not
attribute any particular weight to any analysis or factor it considered, but
rather made qualitative judgments as to the significance and relevance of any
analysis or factor. The analyses were prepared solely for purposes of Raymond
James's providing its opinion to the Board of Directors of Rollins as to the
fairness from a financial point of view of the terms of the Acquisition to
Rollins pursuant to the Stock Purchase Agreement and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of Rollins,
Laidlaw, Raymond James or any other person assumes responsibility if future
results are materially different from those forecast.
As described above, Raymond James's opinion to the Board of Directors of
Rollins was one of many factors taken into consideration by the Board of
Directors in making its determination to approve the Stock Purchase Agreement
and the Acquisition. The foregoing summary does not purport to be a complete
description of the analysis performed by Raymond James and is qualified by
reference to the written opinion of Raymond James set forth in Annex B hereto.
Raymond James, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private
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placements, and valuations for estate, corporate and other purposes. Rollins
selected Raymond James as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Acquisition.
Raymond James provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Rollins and/or Laidlaw for its own account and for the account of
customers. Raymond James has served as a financial advisor to Laidlaw within the
past twelve months and has been paid for services provided pursuant to those
engagements.
Pursuant to a letter agreement dated January 3, 1997 (the "Letter"),
Rollins engaged Raymond James to act as its financial advisor in connection with
the Acquisition. Pursuant to the terms of the Letter, Rollins agreed to pay
Raymond James $800,000 of which $200,000 was paid upon execution of the Letter
and an additional $300,000 was paid upon execution of the Agreement. The
remaining $300,000 is to be paid upon consummation of the Acquisition. Rollins
has agreed to reimburse Raymond James for its reasonable out-of-pocket expenses
(up to a maximum of $25,000), including attorney's fees, and to indemnify
Raymond James against certain liabilities, including certain liabilities under
the federal securities laws.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors of Rollins believes the Acquisition is in the best
interests of Rollins and its stockholders and unanimously recommends that the
Rollins stockholders vote "FOR" the Stock Purchase Agreement and the Issuances.
ACCOUNTING TREATMENT
If the acquisition is consummated, it will be accounted for using the
purchase method of accounting applied in accordance with generally accepted
accounting principles. After the Closing, the former shareholder of Laidlaw
Environmental Services will have a majority of the voting rights of the
outstanding equity securities of the combined company. As a result, for
accounting purposes, Laidlaw Environmental Services will be treated as the
accounting acquirer and the transaction will be recorded as a reverse
acquisition. Consequently, the assets and liabilities of Rollins will be
recorded at their estimated fair value, with any difference between the amount
of such fair value and the purchase price being recorded as goodwill. The
operating results of the combined company will include the results of operations
of that part of the combined company which is currently Rollins from and after
the Closing Date.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
Board Representation. The Stock Purchase Agreement requires that Rollins,
immediately prior to the Closing, shall increase the size of its Board of
Directors from eight to ten members and appoint the individuals named in this
Proxy Statement to the Board of Directors. Rollins and LTI shall use their best
efforts to cause to be elected, through the filling of vacancies, immediately
following Closing, new members of the Rollins Board of Directors so that the
members are Kenneth W. Winger, currently the President and Chief Executive
Officer of Laidlaw Environmental Services, who will become President and Chief
Executive Officer of Rollins following the Closing; John W. Rollins, Sr., John
W. Rollins, Jr. and Henry B. Tippie, all of whom currently serve on the Board of
Directors of Rollins; James R. Bullock, President and Chief Executive Officer of
Laidlaw, John R. Grainger, President and Chief Operating Officer of Laidlaw
Transit, and Leslie W. Haworth, Senior Vice-President and Chief Financial
Officer of Laidlaw, all of whom have been designated by Laidlaw; and three
individuals to be designated jointly by Rollins and LTI. To facilitate this
change, it is expected that the other current Board members of Rollins will
resign immediately following the Closing. Under the terms of Rollins' current
Certificate of Incorporation, the Board of Directors consists of three classes
of directors. Following the resignation of the Rollins' Board members
immediately following the Closing, the three classes shall be reconfigured with
the term of office of the first class to expire at the next annual meeting of
the Board of Directors, of the second class one year thereafter and of the third
class two
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years thereafter, and at each annual meeting of the Board of Directors held
after such reconfiguration, directors shall be chosen for a full three year term
to succeed those whose terms expire. Each class of directors shall have at least
one representative who has been nominated (i) solely by Rollins, (ii) solely by
LTI and (iii) by Rollins and LTI acting jointly.
Accordingly, at Closing, Kenneth W. Winger, currently the President and
Chief Executive Officer of Laidlaw Environmental Services, will become President
and Chief Executive Officer of Rollins. John W. Rollins, Sr., John W. Rollins,
Jr. and Henry B. Tippie, each of whom is currently a member of the Board of
Directors of Rollins, will continue on the Board of Directors. Mr. Tippie's term
as a member of the Board of Directors will expire in 1998 rather than 1999,
however. All other current directors of Rollins will resign from the Board
effective as of the Closing Date. James R. Bullock, John R. Grainger and Leslie
W. Haworth and three additional directors will become members of the Board of
Directors effective as of the Closing Date. If any such nominee becomes
unavailable for election for any reason, Rollins and/or LTI will have the right
to propose an alternative nominee and the stockholders will have discretionary
authority to vote for a substitute or substitutes.
Stockholder Agreement to Vote. Pursuant to a letter dated February 17,
1997, John W. Rollins, Sr., John W. Rollins, Jr. and Henry B. Tippie agreed to
vote their shares of Common Stock in favor of the Stock Purchase Agreement, the
Issuances and the Amendments. John W. Rollins, Sr. has the right to vote
3,697,576 shares of Common Stock, John W. Rollins, Jr. has the right to vote
166,125 shares of Common Stock and Henry B. Tippie has the right to vote
1,270,000 shares of Common Stock.
Agreement with Officers. Pursuant to a letter dated January 15, 1997, John
V. Flynn, Jr., President and Chief Operating Officer, agreed to resign from such
positions on the Closing Date in exchange for (i) at the option of Mr. Flynn,
either (a) remaining an employee for two years from the Closing Date 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, 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 Rollins. The
letter also specifies that, for a period of three years after the Closing Date,
Mr. Flynn will not participate in a business which competes with Rollins in the
hazardous or industrial waste incineration business.
Frank H. Minner, Jr., Group Vice President -- Finance, Treasurer and Chief
Financial Officer, agreed to resign from such positions on the Closing Date in
exchange for receiving as severance payment of $165,973 over a one-year period,
which amount is equal to one year's salary.
John W. Rollins, Jr., Senior Vice Chairman of the Board, agreed to resign
from such position on the Closing Date (although he will remain a director) in
exchange for an agreement to guarantee Mr. Rollins an annual retirement benefit
of $57,538.45 beginning June 1, 1997, which is the amount of his present accrued
benefit under the Rollins Pension Plan and Excess Benefit Plan if he were to
retire at age 65. The difference between the benefit Mr. Rollins would receive
under such plans at age 65 and the amount he would otherwise receive beginning
June 1, 1997 will be paid by Rollins.
Pursuant to Section 11.14 of the Stock Purchase Agreement, all employees of
Rollins, including the officers named above, will receive immediate vesting of
all incentive stock options on the Closing Date.
John W. Rollins, Sr. and Henry B. Tippie, the other two officers among
Rollins' five most highly compensated officers, also will resign their positions
as officers on the Closing Date (although they will remain directors). They will
receive no severance or other compensation for such resignations.
NO DISSENTER'S RIGHTS OF APPRAISAL
There are no rights of appraisal or similar rights of dissenters with
respect to any matter to be acted upon hereby. Delaware law does not require
that holders of Common Stock who object to the Stock Purchase Agreement and the
Acquisition, and who vote against or abstain from voting in favor of the Stock
Purchase Agreement, the Issuances or the Amendments be afforded any appraisal or
dissenters' rights or the right to receive cash for their shares.
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THE STOCK PURCHASE AGREEMENT
The following summary of the Stock Purchase Agreement is not complete and
is qualified in its entirety by reference to the provisions in the Stock
Purchase Agreement, or pertinent exhibits, which are included as Annex A hereto.
ACQUISITION CONSIDERATION
Components of Consideration. The aggregate consideration to be paid by
Rollins for all of the stock of Chem-Waste consists of (i) the Cash
Consideration, (ii) the Stock Consideration and (iii) the PIK Debenture.
Cash Consideration. The Cash Consideration consists of $400,000,000 in
cash (less certain assumed bond indebtedness described in the Stock Purchase
Agreement, a portion of which is being paid at Closing), consisting of a payment
of $225,000,000, less the amount of such bond indebtedness, from Rollins to LTI
and a repayment of $175,000,000 to Laidlaw from a Canadian subsidiary of
Chem-Waste with funds contributed by Rollins. Rollins intends to finance the
Cash Consideration with proceeds of a new bank financing consisting of the Bank
Commitment from the Agent to provide $650,000,000 in aggregate principal amount
of senior secured Credit Facilities. Laidlaw has agreed to assign the Bank
Commitment to Rollins. At the Closing following such assignment, Rollins will
become the Borrower under the Credit Facilities. The Credit Facilities will
consist of a revolving credit facility and four Term Loans. The Credit
Facilities will be secured by all of the tangible assets of Rollins to the
extent required by the Lenders. All of the capital stock of Rollins'
subsidiaries, including the Acquired Subsidiaries, will be pledged as part of
such security for the Credit Facilities, and such subsidiaries will guaranty the
obligations of Rollins to the Lenders. Laidlaw will not guaranty any portion of
the Credit Facilities. See "The Acquisition -- Financing of the Acquisition."
Stock Consideration. The Stock Consideration consists of 120,000,000
shares of Rollins' Common Stock. Upon issuance in accordance with the terms of
the Stock Purchase Agreement, the 120,000,000 shares of Common Stock will be
fully paid and non-assessable. Laidlaw and LTI will have the right under certain
circumstances pursuant to a registration rights agreement to be dated the
Closing Date (the "Stock Registration Agreement") to demand, on three occasions
in the first five years after the Closing Date and on three additional occasions
during the period after the fifth anniversary and prior to the twelfth
anniversary of the Closing Date, that Rollins file (and use its reasonable
efforts to cause to become effective) a United States registration statement
covering shares of Common Stock (including the Stock Consideration) and to use
its reasonable efforts to qualify such shares of Common Stock for sale under the
blue sky or securities laws of the various states of the United States, and to
demand that Rollins use its reasonable efforts to effect the qualification of
such shares of Common Stock for distribution under the Canadian Securities Acts.
Such right expires on the earlier of (i) the twelfth anniversary of the Closing
Date and (ii) the date on which 80% or more of the PIK Debenture has been
converted or redeemed. See "-- Resales of Rollins Securities by Laidlaw."
The PIK Debenture. On the Closing Date, Rollins will issue the PIK
Debenture. The principal of the PIK Debenture will be payable twelve years after
the Closing Date, subject to earlier mandatory or optional prepayment and any
acceleration of its maturity upon default.
The PIK Debenture will bear interest at the fixed rate of 5% per annum. For
the first two years after the Closing Date (the "Mandatory PIK Interest Payment
Period"), interest on the outstanding principal balance of the PIK Debenture
will accrue at the 5% rate, but will be paid in Common Stock. After the
Mandatory PIK Interest Payment Period, at the election of Rollins any payment
due under the PIK Debenture (except upon an optional early redemption),
including any accrued interest or principal, may be paid in 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 current market
price of Common Stock as of the date such payment is due. Interest on the
outstanding principal balance of the PIK Debenture will be payable semiannually
beginning approximately six months after the date of Closing and continuing
through the scheduled maturity date of the PIK Debenture.
On and after the fifth anniversary of the Closing Date and until the
business day prior to the repayment of the PIK Debenture, the PIK Debenture will
be convertible, in whole or in part, at the option of the holder, to shares of
Common Stock. The conversion shall be at a price equal to the
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conversion price (the "Conversion Price"), which shall be $3.75 per share,
subject to adjustment under certain circumstances.
Shares issued upon payment in Common Stock of any amount due under the PIK
Debenture or upon conversion of the PIK Debenture shall also be entitled to
registration rights as provided in the Stock Registration Agreement. See "--
Resales of Rollins Securities by Laidlaw."
During the period commencing five years after the Closing Date, Rollins
will have the option to prepay the PIK Debenture in cash, in whole or in part,
at the face amount of the PIK Debenture; provided, however, that Rollins will be
permitted to exercise such prepayment option only if the last reported sales
price of Common Stock equals or exceeds 120% of the Conversion Price for a
period of at least 10 consecutive trading days.
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 Rollins to pay the principal
amount or accrued interest amount of the PIK Debenture on its maturity date or
any interest payment date, respectively, (ii) certain events involving the
voluntary or involuntary bankruptcy of Rollins or other insolvency proceedings
involving Rollins and (iii) the acceleration of the maturity of the amounts
outstanding under the Credit Facilities as a result of a default thereunder. In
the event the PIK Debenture is accelerated as the result of any acceleration of
the amounts outstanding under the Credit Facilities no action may be taken if
the amount outstanding under the Credit Facilities is no longer subject to
acceleration or the related default under the Credit Facilities is waived.
The PIK Debenture will rank junior in right of payment to the amounts
outstanding under the Credit Facilities and to essentially all other
indebtedness of Rollins other than (i) amounts owed (except to banks, insurance
companies and other financing institutions and except for 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 Rollins.
CLOSING DATE
Unless Rollins and LTI agree otherwise, the Acquisition will be consummated
on the fifth business day after all necessary governmental and regulatory
approvals have been obtained, the Rollins stockholders have approved the matters
submitted to them for approval in connection with the Stock Purchase Agreement,
and all other conditions to the consummation of the Acquisition have been
satisfied or waived. It is currently expected that the Acquisition will be
consummated on or before the fifth business day following the Special Meeting.
See "-- Governmental and Regulatory Approvals" and "-- Other Conditions to the
Consummation of the Acquisition."
REPRESENTATIONS AND WARRANTIES
In the Stock Purchase Agreement, Rollins, Laidlaw and LTI have made various
representations and warranties (subject in some cases to materiality and
knowledge qualifiers) relating to, among other things, their respective
businesses and financial condition, the parties' requisite corporate authority
to enter into and perform their obligations under the Stock Purchase Agreement,
the absence of a breach or violation of or default under the parties' charter or
bylaws or internal rules or regulations governing conduct of corporate actions
as a result of the consummation of the Acquisition, the accuracy of the
respective parties's various filings with the SEC, the accuracy of the
respective parties' financial statements, the accuracy of the respective
parties' tax returns and other filings with applicable taxing authorities, the
satisfaction of certain legal requirements, including the receipt of all
governmental, regulatory and other necessary consents or waivers for the
Acquisition and the absence of certain changes in their respective businesses,
including the absence of undisclosed liabilities, environmental matters or labor
matters having a material adverse effect on the respective parties' business and
material litigation matters. In addition, Rollins, Laidlaw and LTI have made
representations and warranties relating to their employee benefit plans and
material contracts of Rollins or the Acquired Subsidiaries, as appropriate, the
nature of their respective transactions with affiliates and the condition and
sufficiency of their respective assets. Laidlaw and LTI have made
representations and warranties that upon the transfer in connection with the
Acquisition of the issued and outstanding capital stock of
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Chem-Waste, such shares will be duly authorized, validly issued, fully paid and
nonassessable, that LTI has good and marketable title to such shares, free and
clear of any liens, and that the transfer of such shares in connection with the
Acquisition will pass good and marketable title to such shares, free and clear
of any liens, other than any liens granted in connection with the financing of
the Acquisition. Rollins has made representations and warranties that, upon
issuance pursuant to the terms of the Stock Purchase Agreement, the Common Stock
and Debenture Shares will be duly authorized, validly issued, fully paid and
nonassessable.
ENVIRONMENTAL MATTERS
In the Stock Purchase Agreement, Laidlaw and LTI have made representations
and warranties to Rollins (subject to certain knowledge and materiality
qualifiers and matters previously disclosed) to the effect that (i) the Acquired
Subsidiaries and their respective processes, operations, transportation, storage
and disposal activities and undertakings are and have been in compliance with,
all required environmental permits and are otherwise in compliance and have been
in compliance with, all applicable environmental laws, and the Acquired
Subsidiaries have received no notice of noncompliance with any environmental
laws; (ii) the Acquired Subsidiaries have not transported, stored, received,
treated or disposed of waste to or at (a) any location where the receipt of such
waste was unlawful or (b) any location designated for remedial action; (iii) the
Acquired Subsidiaries have not received notice that any location to which waste
has been transported, stored, or disposed of has been designated for remedial
action; (iv) within the past seven years, the Acquired Subsidiaries have never
been fined, sentenced or convicted of a criminal offense for noncompliance with
any environmental laws; (v) the Acquired Subsidiaries have not received any
notice which alleges they are liable for the release of any hazardous substances
on or off-site of their property or a facility owned and operated by third
parties in a manner that fails to comply with applicable environmental laws;
(vi) the Acquired Subsidiaries have not received any notice that they are a
potentially responsible party for a federal, state, provincial or local clean-up
site or for corrective action under any environmental law; (vii) the Stock
Purchase Agreement discloses each guaranty or other financial security currently
maintained pursuant to the requirements of applicable environmental laws with
regard to the assets and activities of any Acquired Subsidiary; (viii) each of
the Acquired Subsidiaries has made available to Rollins all environmental
audits, evaluations and assessments in their possession which concern any
Acquired Subsidiary; and (ix) the Stock Purchase Agreement lists and accurately
describes each Laidlaw and LTI landfill.
Similarly, Rollins has made representations and warranties to Laidlaw and
LTI (subject to certain knowledge and materiality qualifiers and matters
previously disclosed) to the effect that (i) Rollins and their subsidiaries and
its respective processes, operations, transportation, storage and disposal
activities and undertakings are and have been in compliance with, all required
environmental permits and are otherwise in compliance and have been in
compliance with, all applicable environmental laws, and Rollins and its
subsidiaries have received no notice of noncompliance with any environmental
laws; (ii) Rollins and its subsidiaries have not transported, stored, received,
treated or disposed of waste to or at (a) any location where the receipt of such
waste was unlawful or (b) any location designated for remedial action; (iii)
Rollins and its subsidiaries have not received notice that any location to which
waste has been transported, stored, or disposed of has been designated for
remedial action; (iv) Rollins and its subsidiaries within the past seven years
have never been fined, sentenced or convicted of a criminal offense for
noncompliance with any environmental laws; (v) Rollins and its subsidiaries have
not received any notice which alleges they are liable for the release of any
hazardous substances on or off-site of their property or a facility owned and
operated by third parties in a manner that fails to comply with applicable
environmental laws; (vi) Rollins and its subsidiaries have not received any
notice that they are a potentially responsible party for a federal, state,
provincial or local clean-up site or for corrective action under any
environmental law; (vii) the Stock Purchase Agreement discloses each guaranty or
other financial security currently maintained pursuant to the requirements of
applicable environmental laws with regard to the assets and activities of
Rollins and its subsidiaries; (viii) Rollins and its subsidiaries have made
available to LTI all environmental audits, evaluations and assessments in their
possession which concern Rollins and any of its subsidiaries; and (ix) the Stock
Purchase Agreement lists and accurately describes each Rollins landfill.
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CONDUCT OF BUSINESS PENDING CLOSING
Pursuant to the Stock Purchase Agreement, Laidlaw and LTI have agreed that,
prior to the Closing Date, and except as otherwise agreed to in writing by
Rollins and except as set forth in the Stock Purchase Agreement, (i) Laidlaw and
LTI shall cause each of the Acquired Subsidiaries to conduct its operations
according to its ordinary and usual course of business and Laidlaw or LTI shall
notify Rollins of (a) any unexpected material emergency or change in the normal
course of business or in the operation of the properties of the Acquired
Subsidiaries; (b) the instigation of any regulatory proceedings or complaints,
investigations or hearings of Governmental Entities involving LTI or any
Acquired Subsidiary which could have a material adverse effect on the Acquired
Subsidiaries, Laidlaw or LTI; (c) proposed budgets, capital expenditures,
acquisitions and dispositions of assets and other decisions involving material
properties of the Acquired Subsidiaries; and (d) any matter or event which comes
to the knowledge of LTI or Laidlaw and which makes or could make any
representation or warranty made by LTI or Laidlaw untrue or inaccurate; (ii)
Laidlaw and LTI shall not cause or permit any Acquired Subsidiary to (except in
contemplation of Closing) (a) amend its charter, bylaws or other similar
organizational documents; (b) issue, sell, pledge, dispose of or encumber any
shares of its capital stock or securities convertible into any such shares, or
enter into an agreement or commitment with respect to the issuance or purchase
of any such shares or securities; (c) pay any dividend or other distribution in
respect of any shares of issued and outstanding capital stock of Chem-Waste; (d)
incur any indebtedness for borrowed money other than intercompany indebtedness
between any Acquired Subsidiary and LTI or any affiliate of LTI other than an
Acquired Subsidiary; (e) make or commit to make any capital investment, capital
expenditure, capital addition or capital improvement that exceed the amounts set
forth in the budget of capital expenditures included in the Stock Purchase
Agreement; (f) except in the ordinary course of business and except for
settlements made by insurers, enter into any compromise or settlement of any
litigation, proceeding or governmental investigation relating to such Acquired
Subsidiary or its properties that requires such Acquired Subsidiary to make a
payment in excess of $250,000 or which would result in the imposition of any
material restriction upon the operations of such Acquired Subsidiary or the
disposition of any of its properties; (g) sell real property or any interest in
or improvement upon real property or any other capital asset with a book value
or sales price in excess of $250,000; (h) amend any pension plan or employee
benefit plan or make any statement relating to any anticipated or proposed
increase in benefits under any such plans for current, future or former
employees of any of the Acquired Subsidiaries other than strictly in accordance
with the terms of such plans as currently constituted; (i) transfer, license,
lease, sell, dispose, mortgage or encumber any assets or properties other than
in the ordinary course of business; or (j) increase compensation, benefits or
severance for employees of any Acquired Subsidiary except as required by any
collective bargaining agreements entered into by the Acquired Subsidiaries as in
effect on the date of the Stock Purchase Agreement and except as disclosed by
LTI in the Stock Purchase Agreement; (iii) Laidlaw and LTI shall give to Rollins
and its representatives (including its lenders and their representatives) full
access during normal business hours to all the properties, books, contracts,
commitments, records, tax returns and personnel and advisors of LTI, Laidlaw and
the Acquired Subsidiaries; furnish to Rollins all information with respect to
the Acquired Subsidiaries which Rollins may reasonably request; and none of such
information shall, at the date furnished, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; and prior to the date on which this Proxy Statement is
mailed, promptly inform Rollins on becoming aware that any information
concerning any of the Acquired Subsidiaries furnished to Rollins pursuant to
this subparagraph (iii) contains any such material misstatement or omission;
(iv) within the time specified in the Stock Purchase Agreement, Laidlaw shall
furnish Rollins with copies of filings made with the SEC and LTI shall furnish
Rollins with copies of interim financial statements; (v) Laidlaw and LTI shall
receive, hold, treat and if applicable, return all information and data
furnished by Rollins in accordance with the terms of the confidentiality
agreement entered into among them; (vi) LTI and Laidlaw shall, and shall cause
the Acquired Subsidiaries to use their best efforts to perform and fulfill their
respective obligations under the Stock Purchase Agreement in order to consummate
the Acquisition; and (vii) LTI shall cause the Acquired Subsidiaries to give
environmental consultants of the Agent full access to the facilities, personnel
and records of the Acquired Subsidiaries as such
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consultants shall reasonably request in order to conduct environmental
assessments of each parcel of real property owned or under the management of the
Acquired Subsidiaries.
Similarly, Rollins has agreed that, prior to the Closing Date, and except
as otherwise agreed to in writing by Laidlaw and LTI and except as set forth in
the Stock Purchase Agreement, (i) Rollins and its subsidiaries shall conduct
their operations according to their ordinary and usual course of business and
Rollins shall notify Laidlaw and LTI of (a) any unexpected material emergency or
change in the normal course of business or in the operation of the properties of
Rollins and its subsidiaries; (b) the instigation of any regulatory proceedings
or complaints, investigations or hearings of Governmental Entities involving
Rollins and its subsidiaries which could have a material adverse effect on
Rollins and its subsidiaries; (c) proposed budgets, capital expenditures,
acquisitions and dispositions of assets and other decisions involving material
properties of Rollins and its subsidiaries; and (d) any matter or event which
comes to the knowledge of Rollins and which makes or could make any
representation or warranty made by Rollins untrue or inaccurate; (ii) Rollins
shall not cause or permit any of its subsidiaries to (except in contemplation of
Closing) (a) amend its charter, bylaws or other similar organizational
documents; (b) issue, sell, pledge, dispose of or encumber any shares of its
capital stock or securities convertible into any such shares, or enter into an
agreement or commitment with respect to the issuance or purchase of any such
shares or securities; (c) split, combine or reclassify any outstanding shares of
Common Stock or shares of any subsidiary; (d) declare, pay or set aside for
payment any dividend or other distribution in respect of any outstanding shares
of Common Stock or redeem, purchase or acquire any Common Stock; (e) incur any
indebtedness for borrowed money other than intercompany indebtedness between
Rollins and another of its subsidiaries; (f) make or commit to make any capital
investment, capital expenditure, capital addition or capital improvement that
exceed the amounts set forth in the budget of capital expenditures included in
the Stock Purchase Agreement; (g) except in the ordinary course of business and
except for settlements made by insurers, enter into any compromise or settlement
of any litigation, proceeding or governmental investigation relating to Rollins
or any of its subsidiaries or its respective properties that requires Rollins or
its subsidiary to make a payment in excess of $250,000 or which would result in
the imposition of any material restriction upon the operations of Rollins or its
subsidiary or the disposition of any of its properties; (h) sell real property
or any interest in or improvement upon real property or any other capital asset
with a book value or sales price in excess of $250,000; (i) amend any pension
plan or employee benefit plan or make any statement relating to any anticipated
or proposed increase in benefits under any such plans for current, future or
former employees of Rollins or its subsidiaries other than strictly in
accordance with the terms of such plans as currently constituted; (j) transfer,
license, lease, sell, dispose, mortgage or encumber any assets or properties
other than in the ordinary course of business; or (k) increase compensation,
benefits or severance for employees of Rollins or any of its subsidiaries except
as required by any collective bargaining agreements entered into by Rollins or
any of its subsidiaries as in effect on the date of the Stock Purchase Agreement
and except as disclosed by Rollins in the Stock Purchase Agreement; (iii)
Rollins shall give to Laidlaw, LTI and its representatives (including its
lenders and their representatives) full access during normal business hours to
all the properties, books, contracts, commitments, records, tax returns and
personnel and advisors of Rollins and its subsidiaries; furnish to Laidlaw and
LTI all information with respect to Rollins and its subsidiaries which Laidlaw
and LTI may reasonably request; and none of such information shall, at the date
furnished, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading; and prior to
the date on which this Proxy Statement is mailed, promptly inform Laidlaw and
LTI on becoming aware that any information concerning Rollins furnished to
Laidlaw and LTI pursuant to this subparagraph (iii) contains any such material
misstatement or omission; (iv) within the time specified in the Stock Purchase
Agreement, Rollins shall furnish Laidlaw and LTI with copies of filings made
with the SEC and copies of interim financial statements; (v) Rollins shall
receive, hold, treat and if applicable, return all information and data
furnished by Laidlaw and LTI in accordance with the terms of the confidentiality
agreement entered into among them; (vi) Rollins shall, and shall cause its
subsidiaries to use their best efforts to perform and fulfill their respective
obligations under the Stock Purchase Agreement in order to consummate the
Acquisition; and (vii) Rollins shall and shall cause its subsidiaries to give
environmental consultants of the Agent full access to the facilities, personnel
and records of Rollins and its subsidiaries as such
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consultants shall reasonably request in order to conduct environmental
assessments of each parcel of real property owned or under the management of
Rollins and its subsidiaries.
OTHER CONDITIONS TO THE CONSUMMATION OF THE ACQUISITION
In addition to the Rollins stockholders' approval and the regulatory
filings and approvals (see "-- Governmental and Regulatory Approvals"), the
respective obligations of Rollins, Laidlaw and LTI to consummate the Acquisition
are subject to satisfaction or waiver of the following conditions: (i) the
respective representations and warranties of Rollins, Laidlaw and LTI being true
and correct as of the Closing Date, (ii) since the date of the Stock Purchase
Agreement, no event having occurred which would have a material adverse effect
on any of the Acquired Subsidiaries, LTI or Rollins and its subsidiaries, (iii)
Rollins having exempted the sale of the Stock Consideration and Debenture Shares
from Rollins' rights plan, (iv) Rollins having received the proceeds of the
financings contemplated by the Bank Commitment or proceeds from other financing
contemplated by the Bank Commitment or proceeds from other financing which are
satisfactory to Rollins, Laidlaw and LTI, (v) Rollins having received the
opinion of Raymond James to the effect that the terms of the Acquisition is fair
to Rollins, (vi) the debt to Westinghouse having been retired in accordance with
a letter of intent among Rollins, Laidlaw and Westinghouse (see "-- Proposed
Modification of Westinghouse Debt") and (vii) LTI having reorganized as
described within this Proxy Statement (see "-- Reorganization").
GOVERNMENT AND REGULATORY APPROVALS
Hart-Scott-Rodino Matters. The Acquisition is subject to the United States
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The HSR Act requires prior notification of the United State Federal Trade
Commission and are successors thereto (the "FTC") and the United States
Department of Justice and all successors thereto (the "DOJ") regarding certain
mergers and acquisitions prior to their consummation in order to allow the FTC
and the DOJ an opportunity to review the proposed acquisition, and, if deemed
necessary, to oppose the proposed acquisition for any anti-competitive effect.
Following notification, the parties are subject to a 30-day waiting period
during which the FTC and the DOJ will review the proposed acquisition and may
request additional information. The FTC and the DOJ may extend the waiting
period for an additional period of not more than 20 days. The parties to the
acquisition may request early termination of the initial waiting period,
provided all notifications and responses to requests for additional information
have been submitted. On January 22, 1997, Rollins and Laidlaw each filed a
Notification and Report Form for Certain Mergers and Acquisitions under the HSR
Act and requested early termination of the waiting period. The waiting period
expired on February 22, 1997.
Canadian Competition Act. Many of the Acquired Subsidiaries are
incorporated under the laws of Canada or a Canadian province, and operate in
Canada. Under the Canadian Competition Act (the "Competition Act"), an
acquisition of a Canadian subsidiary may qualify as a "merger" and be subject to
the notification and waiting period requirements of the Competition Act. The
Competition Act is administered by the Canadian Director of Investigation and
Research appointed under the Competition Act (the "Competition Act Director").
Although Laidlaw and LTI believe that the Competition Act is not applicable to
the Acquisition, they have applied for an advance ruling certificate which has
the effect of exempting the transaction from the notification provisions of the
Competition Act. Laidlaw and LTI expect to receive this certificate prior to the
Closing Date.
Investment Canada Act. The Investment Canada Act is the principal Canadian
legislation governing foreign investment in Canada generally (the "Investment
Canada Act"). Laidlaw and LTI have determined that the Investment Canada Act is
not applicable to the Acquisition.
Other Regulatory Approvals. Other than the consents and approvals
disclosed by LTI in the Stock Purchase Agreement, Rollins is not aware of any
other material governmental or regulatory approvals required for consummation of
the Acquisition, other than compliance with applicable securities laws.
37
<PAGE>
RESALES OF ROLLINS SECURITIES BY LAIDLAW
Registration Rights. The Stock Purchase Agreement provides that upon
consummation of the Acquisition, Rollins and LTI will enter into the Stock
Registration Agreement under which Rollins will make certain undertakings with
respect to the registration of the PIK Debenture or shares of Common Stock under
United States federal and state and Canadian provincial and territorial
securities laws (collectively, the "Securities Laws"). Subject to certain
restrictions, the Stock Registration Agreement will grant Laidlaw and LTI the
right to demand the registration under the Securities Laws of (i) the shares of
Common Stock constituting the Stock Consideration, (ii) the PIK Debenture, (iii)
the shares of Common Stock issued as Debenture Shares and (iv) any shares of
Common Stock issued in connection with any stock dividend on, or any stock
split, reclassification or reorganization of shares of Common Stock referenced
in the foregoing clauses (i), (ii) and (iii) (collectively, the "Registrable
Securities"). Under the Stock Registration Agreement, Laidlaw and LTI have the
right to demand three registrations during the first five years after the
Closing Date and an additional three registrations during the period after the
fifth anniversary and prior to the twelfth anniversary of the Closing Date.
Laidlaw and LTI may exercise their demand registration rights by sending Rollins
a written request for registration, whereupon Rollins must (i) prepare and file
(and use its best efforts to cause to become effective) a registration statement
under the United States securities laws and use its reasonable efforts to
qualify for sale under the securities laws of the various states of the United
States and (ii) use its reasonable efforts to effect the qualification for
distribution under Canadian securities laws, of the number of Registrable
Securities requested to be registered by LTI; provided, however, that all
offerings contemplated by a demand for registration shall be underwritten
offerings involving either a distribution of Registrable Securities to the
public where no single buyer, acting individually or with others, acquires more
than 10% of such offering or a distribution by way of dividend or other
distribution to holders of Common Stock in the capital of Rollins where such
dividend or other distribution is made pro rata among the holders of all such
classes of shares according to the number of shares of either class held by each
of them. In addition, if Rollins proposes to file one or more other registration
statements, Laidlaw and LTI will have certain limited rights to have Registrable
Securities included in such registration statements.
All expenses of any registrations under the Stock Registration Agreement
will be borne by Rollins, except that Laidlaw will reimburse Rollins for any
expenses relating to registration in Canada. Rollins will agree in the Stock
Registration Agreement to indemnify Laidlaw, LTI and each underwriter of the
Registrable Securities against certain Securities Law liabilities. The rights of
Laidlaw and LTI under the Stock Registration Agreement shall expire on the
earlier of (i) the twelfth anniversary of the Closing Date and (ii) the first
date on which 80% or more of the PIK Debenture has been converted or redeemed.
LAIDLAW STANDSTILL
The Stock Purchase Agreement provides that for a period of three years from
the Closing Date, none of Laidlaw or its affiliates shall purchase any issued
and outstanding shares of Common Stock (other than the Stock Consideration and
Debenture Shares), unless Laidlaw or its affiliate, as the case may be, shall
have received the consent of a majority of those members of the Board of
Directors of Rollins appointed jointly by Rollins and LTI. Notwithstanding this
limitation, shares of Common Stock purchased by employees of Rollins or any
subsidiary of Rollins upon exercise of options issued to any of such employees
pursuant to employee plans of Rollins shall not be aggregated with any shares of
Common Stock purchased by Laidlaw or its affiliates subsequent to the Closing
Date for purposes of determining whether Laidlaw or its affiliates have complied
with this limitation on purchases of shares of Common Stock.
LTI GUARANTIES
Laidlaw and subsidiaries of Laidlaw other than the Acquired Subsidiaries
(the "Retained Subsidiaries") are secondarily, contingently or conditionally,
and in some cases, primarily, liable in respect of various present or future
liabilities and obligations of the Acquired Subsidiaries under guaranties in the
aggregate amount of approximately $253,000,000 (the "LTI Guaranties"), many of
which secure obligations of Acquired Subsidiaries with respect to claims, costs
and expenses associated with the closure, post-closure monitoring, reclamation,
remediation or cleanup of hazardous
38
<PAGE>
waste sites. In the Stock Purchase Agreement, Rollins and the Acquired
Subsidiaries agree to use all commercially reasonable efforts to cause Laidlaw,
LTI and each retained subsidiary to be released from all further liability in
respect of all Laidlaw Guaranties, within six months following the Closing Date.
If at the end of six months following the Closing Date, any LTI Guaranty remains
outstanding, then Rollins is obligated under the Stock Purchase Agreement to
cause a letter of credit to be issued to Laidlaw by a commercial bank in the
amount of, and for the purpose of securing, the unreleased LTI Guaranty.
TAX MATTERS
Responsibility for Income Taxes. Under the Stock Purchase Agreement, LTI
will be responsible for, and have agreed to indemnify Rollins and the Acquired
Subsidiaries against, all United States and Canadian federal, state, provincial,
territorial, local and foreign income tax liabilities of the LTI U.S.
Consolidated Tax Group (as hereinafter defined) and the Acquired Subsidiaries
(and of any other consolidated, combined or unitary group of corporations which
includes or may have included any of the Acquired Subsidiaries), for all taxable
periods (or portion thereof) ending on or before the Closing Date. Any tax on
the gain from the sale of the Acquired Subsidiaries is the responsibility of
LTI, and is covered by the indemnity, under the Stock Purchase Agreement.
Tax Controversy. The Acquired U.S. Subsidiaries are members of an
affiliated group of corporations within the meaning of Section 1504(c) of the
Internal Revenue Code of 1986, as amended (the "IRC"), of which LTI is the
common parent corporation (the "LTI U.S. Consolidated Tax Group"). The LTI U.S.
Consolidated Tax Group includes, in addition to LTI and the United States
Acquired Subsidiaries, other United States subsidiaries of LTI which will not be
acquired in the Acquisition. The LTI U.S. Consolidated Tax Group files a
consolidated United States federal income tax return.
LTI has disclosed to Rollins the existence of a tax controversy in the
amount of more than $385,000,000 with the United States Internal Revenue Service
(the "Tax Controversy") involving the deduction of interest paid to related
foreign persons in connection with determining the consolidated United States
federal income tax liability of the LTI U.S. Consolidated Tax Group for the
fiscal years 1986 through 1991. See "Business of the Acquired Subsidiaries --
Legal Proceedings." The LTI U.S. Consolidated Tax Group has also received notice
that fiscal years 1992, 1993 and 1994 will be examined regarding this issue. The
Acquired Subsidiaries could be directly liable for a substantial portion of any
tax and interest assessed if the disallowance of the deduction is sustained. In
addition, under Treasury Regulations promulgated under Section 1502 of the IRC,
each member of the LTI U.S. Consolidated Tax Group including each United States
Acquired Subsidiary, is or could be severally liable for United States federal
income tax liabilities of the entire LTI U. S. Consolidated Tax Group.
Any amounts at issue in the Tax Controversy and for which any Acquired U.S.
Subsidiary may ultimately be found liable, as well as any taxes resulting from
sale of the Acquired Subsidiaries, are the responsibility of LTI and included in
and covered by the indemnity of LTI described above under the caption
"--Responsibility for Taxes."
INDEMNIFICATION
The Stock Purchase Agreement provides for various indemnification
obligations of Laidlaw, LTI and Rollins. Pursuant to the Stock Purchase
Agreement, Laidlaw and LTI agreed to jointly and severally indemnify and hold
harmless, subject to certain limitations, Rollins and the Acquired Subsidiaries
and their respective affiliates from and against any and all Damages suffered by
them 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 their covenants and agreements in the Stock
Purchase Agreement to be performed on or after the Closing Date or any
representation or warranty which survives the Closing, provided that breaches of
representations and warranties shall result in indemnification only 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,
including any release, occurring prior to the Closing Date, 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 Rollins, or (b) related to the Marine
Shale Processors or Mercier, Quebec facilities and exceeded (x) an aggregate
39
<PAGE>
of $1,000,000 in the particular year and (y) an aggregate since the Closing Date
of $1,000,000 times the number of years elapsed since the Closing Date, but only
to the extent of cash expenditures incurred six years after the Closing Date.
Further, Rollins has agreed to indemnify and hold harmless, subject to certain
limitations, each of Laidlaw, LTI and their affiliates (but not any Acquired
Subsidiary after the Closing), and their respective successors and assigns from
any and all Damages suffered by LTI which are caused by or arising out of or in
respect of (i) various tax obligations and liabilities, (ii) any breach of
default in the performance by Rollins of any covenant or agreement contained in
the Stock Purchase Agreement to be performed after the Closing Date or any
representation or warranty survives the Closing, (iii) any environmental
liability or environmental claim of any Acquired Subsidiary, with certain
limitations and (iv) certain guaranties of LTI identified in the Stock Purchase
Agreement.
AMENDMENT AND WAIVERS
The Stock Purchase Agreement may be amended by Rollins, Laidlaw and LTI, by
or pursuant to action taken by their respective Boards of Directors, at any time
before or after approval by Rollins' stockholders of the matters to be submitted
to them for approval at the Special Meeting. After such approval, no amendment
shall be made which materially increases the amount or materially alters the
terms of the Stock Consideration, the PIK Debenture, or the Debenture Shares
without further approval of Rollins' stockholders. The Stock Purchase Agreement
may be amended only by a written instrument executed by each of Rollins, Laidlaw
and LTI.
At any time on or before the Closing Date, the parties may (i) extend the
time for the performance of any of the obligations or other act of any of the
other parties, (ii) waive any inaccuracies in the representations and warranties
made in the Stock Purchase Agreement or in a disclosure schedule of a party
delivered pursuant to the Stock Purchase Agreement, (iii) waive compliance with
any of the agreements or conditions of the Stock Purchase Agreement which may be
legally waived, and (iv) grant consents under the Stock Purchase Agreement;
provided, however, that no such extension, waiver or grant shall be effective
until all parties, other than the party receiving the extension, waiver or grant
shall have given such extension, waiver or grant. Any such extension, waiver or
grant shall be valid only if evidenced by a written instrument executed by the
party giving it.
TERMINATION; TERMINATION FEE
The Stock Purchase Agreement may be terminated at any time before
consummation of the Acquisition by (i) the mutual consent of the Boards of
Directors of LTI and Rollins, (ii) by either Rollins or LTI if the Acquisition
has not been consummated on or before the later to occur of April 30, 1997 or
the 61st day after the SEC has approved this Proxy Statement (or any later date
which may be mutually agreed to in writing by Rollins and LTI); provided,
however, that such right to terminate the Stock Purchase Agreement shall not be
available to any party that has breached in any material respect its obligations
under the Stock Purchase Agreement in any manner that has proximately
contributed to the failure of the Acquisition to occur on or before such date,
or (iii) by either LTI or Rollins if the stockholders of Rollins shall have
failed to approve at the Special Meeting the matters submitted to them for
approval at the Special Meeting.
If the Stock Purchase Agreement is terminated under any of the provisions
described above, then subject to the payment of any termination fee which may be
payable as described below, and unless a party has breached its obligations
under the Stock Purchase Agreement, the termination will be without further
liability to any party.
If the Stock Purchase Agreement is terminated solely because Rollins'
stockholders fail to approve the matters submitted to them for approval at the
Special Meeting, and if such failure to obtain stockholder approval directly
results from a third-party offer to acquire at least 51% of Rollins' stock or
assets (whether in the form of a tender offer, merger proposal, asset purchase
or otherwise), then Rollins will be required by the Stock Purchase Agreement to
pay to LTI, within ten days following such termination, an amount equal to
$10,000,000.
If the Stock Purchase Agreement is terminated because of the breach or
default under such agreement of Laidlaw or LTI, then LTI will pay to Rollins,
within ten days following such termination, an amount equal to $10,000,000.
40
<PAGE>
NON-COMPETITION OBLIGATIONS OF LAIDLAW
The Stock Purchase Agreement provides that upon consummation of the
Acquisition, for a period of five years following the Closing Date, none of
Laidlaw or any of its affiliates shall compete with Rollins or any affiliate of
Rollins with respect to owning, operating, constructing or otherwise engaging in
the hazardous and industrial waste business as presently conducted by the
Acquired Subsidiaries, but excluding the coal combustion by-product management
services conducted by the Retained Subsidiaries.
AFFILIATE TRANSACTIONS AND BUSINESS COMBINATIONS
The Stock Purchase Agreement provides that neither Laidlaw, LTI nor any
affiliate thereof, shall enter into any transaction with Rollins or any of its
subsidiaries except in the ordinary course, pursuant to the reasonable
requirements of the business of Rollins or its subsidiaries and upon fair and
reasonable terms no less favorable to Rollins or its subsidiaries than would be
obtainable in a comparable arm's length transaction with a third party.
Furthermore, neither Laidlaw, LTI nor any affiliate thereof shall engage in any
business combination within the meaning of Section 203 of the DGCL with Rollins
or any of its subsidiaries unless the stockholders of Rollins (other than LTI or
the affiliates thereof) receive consideration and are otherwise treated on terms
no less favorable than that received by LTI or the affiliates thereof in
connection with such business combination.
PROPOSED MODIFICATION OF WESTINGHOUSE DEBT
In connection with Rollins' 1995 acquisition of Aptus, Inc. from
Westinghouse, Rollins issued to Westinghouse a 7.75% Senior Unsecured Debenture
dated as of March 31, 1995, as supplemented, having a principal amount of
$13,839,000 (the "Senior Debenture"), and a 7.25% Subordinated Convertible
Debenture dated March 31, 1995, as supplemented, having a principal amount of
$66,000,000 (the "Subordinated Debenture") (the Senior Debenture and the
Subordinated Debenture are referred to as the "Debt"). Westinghouse and Laidlaw
have agreed, by letter dated January 6, 1997, to restructure the Debt on the
Closing Date as follows: The Debt will be reduced to an aggregate principal
amount of $60,000,000, will be unconditionally guaranteed by Laidlaw, will pay
interest at the six-month LIBOR rate in effect from time to time, will have
mandatory payments of $10,000,000 in principal on each of the fourth and fifth
anniversaries of the Closing Date and will mature on the sixth anniversary of
the Closing Date. In addition, the Debt will be prior in right and time to any
debt of Rollins held by Laidlaw and it shall be an event of default with respect
to the Debt if Laidlaw fails to maintain an investment grade rating by both
Standard & Poor's Ratings Services and Moody's Investors Services. Laidlaw,
Rollins and Westinghouse will negotiate in good faith to cause Laidlaw,
simultaneously with the restructuring of the Debt, to assume certain of Rollins'
obligations in connection with the stock purchase agreement dated March 31, 1995
between Rollins and Westinghouse. In connection therewith, Laidlaw and Rollins
will seek to relieve Westinghouse from the obligation to maintain (i) a credit
enhancement with respect to Rollins' $45,700,000 Tooele County Variable Rate
Industrial Revenue Bonds and (ii) $25,000,000 in letters of credit for certain
statutorily required closure and post-closure financial assurances. If
Westinghouse cannot be released from such letters of credit as of to the Closing
Date, Laidlaw will have 30 days from the Closing Date to obtain such release.
REORGANIZATION
The Stock Purchase Agreement provides that on or before the Closing Date,
as a condition to the consummation of the Acquisition, LTI shall reorganize such
that Chem-Waste shall own the entire hazardous and industrial waste business of
LTI and its affiliates. Prior to Closing, Chem-Waste shall transfer to LTI as a
dividend all of the issued shares of the Retained Subsidiaries. Except for
certain intercompany indebtedness specified in the Stock Purchase Agreement,
Laidlaw shall contribute any intercompany indebtedness from any Canadian
Acquired Subsidiary to such subsidiary in exchange for common shares and a
subsidiary of Chem-Waste shall purchase the Canadian Acquired Subsidiaries from
Laidlaw for indebtedness of $175,000,000.
41
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
($000 OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
LAIDLAW COMPANIES PRO FORMA
HAZARDOUS ADJUSTMENTS HISTORICAL ADJUSTMENTS
WASTE --------------------- ACQUIRED HISTORICAL ------------------------ PRO FORMA
SERVICES DR. CR. SUBSIDIARIES ROLLINS DR. CR. COMBINED
----------- --------- --------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.......... $ -- $ -- $ -- $ -- $ 11,768 $ -- $ -- $ 11,768
Accounts receivable,
net.................. 209,243 9,798 199,445 44,028 742(11) 242,731
Income taxes
recoverable.......... 603 603 3,880 4,483
Deferred income
taxes................ -- 4,901 4,901
Other current assets... 14,093 461 13,632 8,985 22,617
---------- --------- --------- ---------- --------- ---------- ---------- ----------
Total current
assets........... 223,939 -- 10,259 213,680 73,562 -- 742 286,500
Property and equipment,
net.................. 1,117,586 14,246 1,103,340 266,131 61,140(1) 291,500(12) 1,139,111
Long-term investments.... 37,517 37,517 -- 37,517
Goodwill................. 119,577 38,224 81,353 9,205 8,565(2) 81,993
Other assets............. 1,376 1,376 8,718 16,250(9) 26,344
---------- --------- --------- ---------- --------- ---------- ---------- ----------
Total assets....... $1,499,995 $ -- $ 62,729 $1,437,266 $ 357,616 $ 77,390 $ 300,807 $1,571,465
========== ========= ========= ========== ========= ========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable....... $ 74,901 $ 2,446 $ -- $ 72,455 $ 17,909 $ 742(11) $ -- $ 89,622
Accrued liabilities.... 58,976 2,423 56,553 21,573 12,000(3) 105,126
15,000(4)
Accrued remediation and
other costs.......... -- -- 2,369 2,369
Current maturities of
long-term debt....... 7,212 7,212 1,238 8,450
---------- --------- --------- ---------- --------- ---------- ---------- ----------
Total current
liabilities.......... 141,089 4,869 -- 136,220 43,089 742 27,000 205,567
Accrued remediation and
other liabilities...... 105,866 384 105,482 16,512 25,000(4) 177,194
30,200(13)
Deferred income taxes.... 85,318 136 85,182 16,782 121,700(14) 3,656(5) (16,080)
Minority interest........ 1,052 1,052 -- 1,052
Intercompany advances.... 694,634 694,634 -- 694,634(8)
Long-term debt........... 48,154 48,154 131,918 19,800(6) 16,250(9) 521,156
344,634(8)
Convertible debenture.... 350,000(8) 350,000
Shareholders' equity
Investment by Laidlaw,
Inc.................. 423,882 57,340 366,542 366,542(10)
Common stock........... 60,376 120,000(10) 180,376
Other shareholders' 88,939 16,719(7) 152,200
equity............... 200,000(15) 246,542(10)
---------- --------- --------- ---------- --------- ---------- ---------- ----------
Total shareholders'
equity........... 423,882 57,340 -- 366,542 149,315 566,542 383,261 332,576
---------- --------- --------- ---------- --------- ---------- ---------- ----------
Total liabilities
and shareholders'
equity........... $1,499,995 $ 62,729 $ -- $1,437,266 $ 357,616 $1,403,418 $1,180,001 $1,571,465
========== ========= ========= ========== ========= ========== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial statements.
42
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
($000 OMITTED, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
LAIDLAW COMPANIES PRO FORMA
HAZARDOUS ADJUSTMENTS HISTORICAL ADJUSTMENTS
WASTE -------------------- ACQUIRED HISTORICAL -------------------- PRO FORMA
SERVICES DR. CR. SUBSIDIARIES ROLLINS DR. CR. COMBINED
----------- --------- --------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ 715,829 $ 62,856 $ -- $ 652,973 $ 241,130 $ 8,362(16) $ -- $ 885,741
--------- --------- --------- --------- --------- ------- ---------- ---------
Expenses:
Operating................ 524,906 51,343 473,563 209,855 8,362(16) 675,056
Depreciation and
amortization........... 50,513 2,222 48,291 33,502 8,457(17) 73,336
Selling and
administrative......... 78,845 5,045 73,800 34,830 4,108(18) 104,522
--------- --------- --------- --------- --------- ------- ---------- ---------
654,264 58,610 595,654 278,187 20,927 852,914
Operating earnings......... 61,565 62,856 58,610 57,319 (37,057) 8,362 20,927 32,827
Interest expense........... 61,558 152 61,710 8,854 10,003(19) 60,561
Other income............... (1,391) (1,391) -- (1,391)
--------- --------- --------- --------- --------- ------- ---------- ---------
Income (loss) before income
tax benefits and minority
interest................. 1,398 63,008 58,610 (3,000) (45,911) 8,362 30,930 (26,343)
Income taxes (benefits).... 2,200 1,700 500 (15,725) 9,063(20) (6,162)
Minority interest.......... (2,646) (2,646) -- (2,646)
--------- --------- --------- --------- --------- ------- ---------- ---------
Net loss............. $ (3,448) $ 63,008 $ 60,310 $ (6,146) $ (30,186) $17,425 $ 30,930 $ (22,827)
========= ========= ========= ========= ========= ======= ========== =========
Net loss per share(21)..... $ (.12)
=========
Weighted average common and
common equivalent shares
outstanding (000)........ 182,762
</TABLE>
See notes to unaudited pro forma combined financial statements.
43
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED DECEMBER 31, 1996
($000 OMITTED, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
LAIDLAW COMPANIES PRO FORMA
HAZARDOUS ADJUSTMENTS HISTORICAL ADJUSTMENTS
WASTE -------------------- ACQUIRED HISTORICAL --------------------- PRO FORMA
SERVICE DR. CR. SUBSIDIARIES ROLLINS DR. CR. COMBINED
----------- --------- --------- ----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 188,973 $ 16,408 $ -- $ 172,565 $ 59,384 $ 1,716(16)$ -- $ 230,233
--------- --------- --------- --------- --------- --------- -------- ---------
Expenses:
Operating..................... 138,043 13,302 124,741 49,147 1,716(16) 172,172
Depreciation and
amortization................ 15,905 587 15,318 8,114 2,115(17) 21,317
Selling and administrative.... 18,674 1,067 17,607 7,847 1,027(18) 24,427
--------- --------- --------- --------- --------- --------- -------- ---------
172,622 14,956 157,666 65,108 4,858 217,916
Operating earnings.............. 16,351 16,408 14,956 14,899 (5,724) 1,716 4,858 12,317
Interest expense................ 17,077 9 17,086 2,236 4,316(19) 15,006
Other income.................. (1,167) 1 (1,166) (1,166)
--------- --------- --------- --------- --------- --------- -------- ---------
Income (loss) before income tax
benefits and minority
interest...................... 441 16,418 14,956 (1,021) (7,960) 1,716 9,174 (1,523)
Income taxes (benefits)......... 200 200 (2,792) 2,953(20) 361
Minority interest............... (827) (827) -- (827)
--------- --------- --------- --------- --------- --------- -------- ---------
Net loss................... $ (586) $ 16,418 $ 14,956 $ (2,048) $ (5,168) $ 4,669 $ 9,174 $ (2,711)
========= ========= ========= ========= ========= ========= ======== =========
Net loss per share(21).......... $ (.01)
=========
Weighted average common and
common equivalent shares
outstanding (000)............. 186,739
</TABLE>
See notes to unaudited pro forma combined financial statements.
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
A. SUMMARY OF TRANSACTION
Rollins will issue 120,000,000 shares of Common Stock valued at
$330,000,000 based upon a price per share of $2.75, being the average closing
market price on the NYSE -- Composite Transactions for the ten trading days
before and the ten trading days after February 6, 1997, the date of the signing
of the Stock Purchase Agreement, for certain subsidiaries of Laidlaw. At
closing, existing intercompany advances from Laidlaw will be settled through the
issuance of $350,000,000 original principal amount of 5% Subordinated
Convertible Pay-in-Kind Debenture due 2009 of Rollins and a payment of
$400,000,000 in cash (less certain assumed bond indebtedness as described in the
Stock Purchase Agreement, a portion of which is being repaid at Closing),
consisting of a payment of $225,000,000, less the amount of such bond
indebtedness, from Rollins to LTI and a repayment of $175,000,000 to Laidlaw
from a Canadian subsidiary of Chem-Waste with funds contributed by Rollins. Such
funds are to be provided from Credit Facilities to be established in connection
with the Acquisition. The Credit Facilities will consist of five parts: (i) a
$275,000,000 6-year Senior Secured Revolving Credit Facility with a $200,000,000
letter of credit sublimit (the "Revolving Credit Facility" or "Facility A"),
(ii) a $165,000,000 6-year Senior Secured Amortizing Term Loan ("Facility B"),
(iii) a $60,000,000 6-year Senior Secured Amortizing Canadian Term Loan
("Facility C"), (iv) a $75,000,000 Minimally Amortizing 7-year Senior Secured
Term Loan ("Facility D") and (v) a $75,000,000 Minimally Amortizing 8-year
Senior Secured Term Loan ("Facility E"); (Facility B, Facility C, Facility D and
Facility E, collectively, the "Term Loans"). The Credit Facilities will be
secured by all of the tangible assets of Rollins to the extent required by the
syndicate of banks and other financial institutions (collectively, the
"Lenders") acceptable to Rollins and the Agent that will make the loans pursuant
to the Credit Facilities. All of the capital stock of Rollins' subsidiaries,
including the Acquired Subsidiaries, will be pledged as part of such security
for the Credit Facilities, and such subsidiaries will guaranty the obligations
of Rollins to the Lenders. Laidlaw will not guaranty any portion of the Credit
Facilities. The Term Loans will be drawn in full on the Closing Date. The
Revolving Credit Facility will be available commencing on the Closing Date at
which time $200,000,000 will be available for letters of credit and $100,000,000
will be available for loans, subject to an aggregate maximum of $275,000,000.
Interest per annum on the Credit Facilities will vary depending on the
particular Credit Facility, whether Rollins chooses to borrow under Eurodollar
or non-Eurodollar loans and, with respect to Facilities A, B and C the current
total leverage ratio. Several fees are payable in connection with the Credit
Facilities such as an underwriting fee of $16,250,000 which is payable to the
agent in installments, an annual administration fee of $125,000 which is payable
in annual installments and letter of credit fees. The Credit Facilities are
subject to a number of conditions which include those customary for financing
transactions of this type (such as the preparation of loan documentation
satisfactory to the Lenders, receipt of opinions of counsel, absence of material
adverse changes, and receipt by the Lenders of an environmental assessment
report satisfactory to the Lenders), as well as the following conditions: (i)
the Lenders shall have completed and been satisfied with the results of their
due diligence review of the assets, liabilities, business, operations,
conditions, prospects and environmental condition and litigation of Rollins and
(ii) the Acquisition, including the Seller's acceptance of the PIK Debenture,
shall have been consummated concurrently with the closing of the Credit
Facilities on terms satisfactory to the Lenders.
The principal of the PIK Debenture will be payable twelve years after the
Closing Date, subject to earlier mandatory or optional prepayment and any
acceleration of its maturity upon default. The PIK Debenture will bear interest
at the fixed rate of 5% per annum. For the first two years after the Closing
Date (the "Mandatory PIK Interest Payment Period"), interest on the outstanding
principal balance of the PIK Debenture will accrue at the 5% rate, but will be
paid in Common Stock. After the Mandatory PIK Interest Payment Period, at the
election of Rollins any payment due under the PIK Debenture (except upon an
optional early redemption), including any accrued interest or principal, may be
paid in Common Stock. Interest on the outstanding principal balance of the PIK
Debenture will be payable semiannually beginning approximately six months after
the date of Closing and continuing through the
45
<PAGE>
scheduled maturity date of the PIK Debenture. On and after the fifth anniversary
of the Closing Date and until the business day prior to the repayment of the PIK
Debenture, the PIK Debenture will be convertible, in whole or in part, at the
option of the holder, to shares of Common Stock. The conversion shall be at a
price equal to the conversion price (the "Conversion Price"), which shall be
$3.75 per share, subject to adjustment under certain circumstances.
During the period commencing five years after the Closing Date, Rollins
will have the option to prepay the PIK Debenture in cash, in whole or in part,
at the face amount of the PIK Debenture; provided, however, that Rollins will be
permitted to exercise such prepayment option only if the last reported sales
price of Common Stock equals or exceeds 120% of the Conversion Price for a
period of at least 10 consecutive trading days. The PIK Debenture will rank
junior in right of payment to the amounts outstanding under the Credit
Facilities and to essentially all other indebtedness of Rollins other than (i)
amounts owed (except to banks, insurance companies and other financing
institutions and except for 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 Rollins.
B. ACCOUNTING TREATMENT
If the Acquisition is consummated, it will be accounted for using the
purchase method of accounting applied in accordance with generally accepted
accounting principles. After the Closing, the former shareholder of LES will
have a majority of the voting rights of the outstanding equity securities of the
combined company. As a result, for accounting purposes, LES will be treated as
the accounting acquirer and the transaction will be recorded as a reverse
acquisition. Consequently, the assets and liabilities of Rollins will be
recorded at their estimated fair value, with any difference between the amount
of such fair value and the purchase price being recorded as goodwill. The
operating results of the combined company will include the results of operations
of that part of the combined company which is currently Rollins from and after
the Closing Date.
The aggregate reverse acquisition purchase price of $166,034,000 was
determined by applying a price per share of $2.75 (being the average closing
market price on the NYSE-Composite Transactions for the 10 trading days before
and 10 trading days after February 6, 1997, the date of the signing of the Stock
Purchase Agreement) to the Rollins shares currently outstanding. The purchase
price has been allocated to the assets acquired and liabilities assumed based on
fair market value at December 31, 1996. The fair value of assets acquired and
liabilities assumed is summarized as follows (in thousands):
Current assets.............................................. $ 73,562
Property and equipment...................................... 327,271
Other assets................................................ 8,718
Goodwill.................................................... 640
Current liabilities......................................... (70,089)
Long-term liabilities....................................... (174,068)
-----------
Reverse acquisition purchase price........................ $ 166,034
-----------
-----------
C. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined balance sheet gives effect to
the Acquisition as if it had occurred on December 31, 1996. The unaudited pro
forma combined statements of operations for the three months ended December 31,
1996 and the year ended September 30, 1996 give effect to the Acquisition as if
it had occurred as of October 1, 1995. Transactions between Rollins and LES have
been eliminated.
The pro forma combined balance sheet at December 31, 1996 includes the
balance sheet of Rollins at December 31, 1996 and the balance sheet of LES at
November 30, 1996. The pro forma combined statements of operations for the year
ended September 30, 1996 and the quarter ended
46
<PAGE>
December 31, 1996 include for Rollins the year ended September 30, 1996 and
quarter ended December 31, 1996 and for LES the year ended August 31, 1996 and
the quarter ended November 30, 1996.
The effects of the Acquisition have been presented using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based upon management's best preliminary
estimate of their fair values. The preliminary allocation of the purchase price
will be subject to further adjustments, which will not be material, and, as
Rollins finalizes the allocation of the purchase price in accordance with
generally accepted accounting principles. The excess of the purchase price over
the estimated fair value of the net assets acquired is being amortized over 40
years on a straight-line basis. The pro forma adjustments related to the
purchase allocation of the Transaction represent management's best estimate of
the effects of the Transaction.
The combined financial statements do not purport to be indicative of the
combined financial position or combined results of operations of Rollins and LES
that might have occurred, nor are they indicative of future financial position
or results of operations.
The pro forma financial statements should be read in conjunction with the
historical consolidated financial statements of Rollins and the notes thereto
and the historical combined financial statements of LES and the notes thereto
included elsewhere herein. See also Rollins' "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Forward-Looking
Statements," appearing elsewhere herein.
D. RETAINED COMPANIES ADJUSTMENTS
These adjustments have been made to remove the financial position and
results of operations of JTM Industries, Inc. and its subsidiary, KBK
Enterprises, Inc. (the "Retained Subsidiaries") from the financial position and
results of operations of Laidlaw Hazardous Waste Services. This results in pro
forma combined balance sheet and pro forma combined statement of operations that
includes only the financial position and results of operations of Laidlaw
Environmental Services.
E. PRO FORMA ADJUSTMENTS
The following adjustments and elimination entries have been made to the
unaudited pro forma combined balance sheet to reflect the acquisition of Rollins
by LES using the reverse acquisition method of accounting for the Acquisition:
(1) To adjust Rollins property and equipment to fair values.
(2) To eliminate the historical goodwill ($9,205,000) of Rollins and
record the goodwill ($640,000) resulting from the Acquisition.
(3) To record a termination benefit provision for the elimination of
approximately 700 Rollins positions as a result of the Acquisition. It is
expected that these positions will be eliminated over three months
following the Closing.
(4) To record a provision for the closure and remediation costs
related to certain Rollins facilities planned to be closed as a result of
the Acquisition. It is expected that $15,000,000 of these costs will be
expended within one year and $25,000,000 will be expended in future
periods. As such $25,000,000 of the total provision has been recorded as a
long-term liability.
(5) To record the incremental change in Rollins tax liability which
results from the adjustment of assets and liabilities to fair value
utilizing the Federal statutory rate of 35 percent plus an effective state
rate of 5 percent.
(6) To adjust Rollins long-term debt to fair value.
(7) To record the effect upon Shareholders' Equity of entries (1)
through (6), above.
(8) To record Acquisition indebtedness and eliminate intercompany
advances due Laidlaw Inc.
(9) To record credit facility underwriting fee.
(10) To record the issuance of 120,000,000 Rollins shares, eliminate
investment by Laidlaw Inc. and adjust Other Shareholders' Equity to reflect
the Pro Forma Combined Shareholders' Equity resulting from the Acquisition.
47
<PAGE>
(11) To eliminate accounts receivable and accounts payable balances
between combined companies.
The following adjustments have been made to the unaudited pro forma
combined balance sheet to reflect the anticipated closing and rationalization of
certain of the operating facilities of the Acquired Subsidiaries as they will
become redundant due to the Acquisition. These adjustments reflect the effect
upon the pro forma balance sheet as if they had been made at December 31, 1996.
A one-time after tax loss of $200,000,000 ($320,000,000 before taxes) will be
charged to earnings in the quarter in which the Acquisition closes.
(12) To adjust redundant facilities to estimated realizable values.
(13) To record a provision for the closure costs related to certan LES
facilities planned to be closed as a result of the Acquisition.
(14) To record the incremental change in the LES tax liability which
results from the adjustment of certain assets and the recording of certain
liabilities utilizing the Federal statutory rate of 35 percent plus an
effective state rate of 5 percent.
(15) To record the effect upon Shareholders' Equity of entries (12)
through (14), above.
The following adjustments to the pro forma combined statement of operations
have been made to reflect the acquisition of Rollins:
(16) To eliminate transactions between combined companies.
(17) To adjust depreciation to reflect the fair value adjustment of
property and equipment and to reflect the effects of the Acquisition upon
goodwill amortization.
(18) To eliminate certain administrative expenses charged to LES by
Laidlaw, that will not be charged after the Acquisition closes. These
expenses are for income tax compliance and advice, risk management
service, financial reporting, treasury and other corporate office functions
performed by Laidlaw on LES' behalf. Rollins currently incurs similar
expenses, which are not eliminated in the pro forma combined statement of
operations.
(19) To adjust interest expense to reflect the cost of financing
associated with the Acquisition. Interest rates assumed were 8 3/8% and 5%
for the $344,634,000 of borrowings under the credit facilities and the
$350,000,000 PIK Debenture, respectively. A 1/8% increase in interest rates
on those debt items which provide for variable rates would have the
following effect on interest expense, net loss and net loss per share for
the year and quarter presented:
<TABLE>
<CAPTION>
FOR THE QUARTER
FOR THE YEAR ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ --------------------
<S> <C> <C>
Increase in interest expense.............................. $ 536,000 $ 138,000
------------ ------------
Increase in net loss...................................... $ 322,000 $ 83,000
------------ ------------
Increase in net loss per share............................ $ .0018 $ .0004
------------ ------------
</TABLE>
The increase in the net loss per share was calculated by dividing the
increase in net loss by the weighted average common and common equivalent
shares outstanding which were 182,762,000 for the year ended September 30,
1996 and 186,739,000 for the quarter ended December 31, 1996.
(20) To record the incremental change in the combined entity's
provision for income taxes as a result of pro forma entries (16) through
(19), above, utilizing the Federal statutory rate of 35 percent plus an
effective state rate of 5 percent.
(21) Net loss per share on a fully diluted basis has not been
presented as the effect of certain common stock equivalents would be
anti-dilutive.
48
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected statement of operations data for each of the three
years in the period ended September 30, 1996 and the balance sheet data at
September 30, 1996 and 1995 are derived from consolidated financial statements
of Rollins contained elsewhere herein, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The statement of
operations data for the years ended September 30, 1993 and 1992 and the balance
sheet data at September 30, 1994, 1993 and 1992 have been derived from audited
consolidated financial statements of Rollins not included herein. The statement
of operations data for the three-month periods ended December 31, 1996 and 1995
and the balance sheet data at December 31, 1996 are derived from unaudited
interim consolidated financial statements of Rollins contained elsewhere herein.
The unaudited interim consolidated financial statements include all material
adjustments, consisting of normal recurring accruals which Rollins considered
necessary for a fair presentation of its financial position and results of
operations for these periods. Operating results of Rollins for the three months
ended December 31, 1996 are not necessarily indicative of the results that may
be expected for the entire year ending September 30, 1997. The data should be
read in conjunction with the consolidated financial statements of Rollins, the
unaudited interim consolidated financial statements of Rollins and management's
discussion and analysis of Rollins included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, FISCAL YEAR ENDED SEPTEMBER 30,
-------------------- -------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.............. $ 59,384 $ 61,436 $ 241,130 $ 217,367 $ 181,468 $ 214,843 $ 240,477
Earnings (loss) before
income taxes
(benefits).......... $ (7,960) $ (10,409) $ (45,911) $ (28,655) $ (16,876)(1) $ 19,155 $ 49,215
Income taxes
(benefits).......... (2,792) (3,736) (15,725) (10,363) (6,942)(2) 7,231 17,203
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)... $ (5,168) $ (6,673) $ (30,186) $ (18,292) $ (9,934)(1)(2) $ 11,924 $ 32,012
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per
share............... $ (.09) $ (.11) $ (.50) $ (.30) $ (.16)(1)(2) $ .20 $ .53
--------- --------- --------- --------- --------- --------- ---------
Cash dividends per
share(3)............ $ -- $ -- $ -- $ -- $ -- $ .10 $ .0925
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
AT DECEMBER 31, -----------------------------------------------------
1996 1996 1995 1994 1993 1992
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital........ $ 30,473 $ 34,065 $ 50,772 $ 66,369 $ 64,864 $ 68,898
Property and
equipment............ $ 266,131 $ 272,811 $ 298,673 $ 166,383 $ 180,998 $ 169,285
Total assets........... $ 357,616 $ 384,967 $ 429,484 $ 273,386 $ 278,641 $ 283,318
Long-term debt......... $ 131,918 $ 132,453 $ 134,181 $ 3,970 $ 4,632 $ 5,444
Shareholders' equity... $ 149,315 $ 154,483 $ 184,669 $ 202,961 $ 212,807 $ 206,572
</TABLE>
- ------------------
(1) Includes special charge of $14,500 ($9,031 after tax benefit or $.15 per
share).
(2) Includes benefit of $543 or $.01 per share from the adoption of SFAS No. 109
-- Accounting for Income Taxes.
(3) Rollins' Board of Directors suspended the payment of cash dividends at its
October 29, 1993 meeting.
49
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1996 VS. THREE MONTHS
ENDED DECEMBER 31, 1995
Revenues decreased by $2,052 (3.3%) to $59,384 from the $61,436 reported
last year. The decrease in revenues was the result of higher incineration
volumes processed at lower average prices and lower transportation revenues
offset in part by an increase in landfill and other service revenues. Rollins'
incineration revenues continue to be adversely affected by industry-wide
overcapacity and intense price competition.
Operating expenses decreased by $3,591 (6.8%) primarily as the result of
lower transportation, payroll, insurance and maintenance costs offset in part by
higher costs related to the increased incineration volumes and the use of
subcontractors to dispose of various waste streams outside Rollins' permitted
capabilities.
Depreciation expense increased by $584 (7.8%) due mainly to an increase in
amortization of airspace for a completed landfill cell.
Selling and administrative expenses decreased by $1,367 (14.8%). The
decrease is attributable to the continued integration of various acquisitions
into the existing business and continued company-wide costs containment efforts.
As a percentage of revenues, selling and administrative expenses decreased to
13.2% in 1996 from 15.0% in 1995.
Interest expense decreased by $127 (5.4%) as a result of the reduction in
long-term debt from the same period last year.
The effective rate of income tax benefit for the quarters ended December
31, 1996 and 1995 were 35.1% and 35.9%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Rollins' operations require ongoing capital investments for property and
equipment and continuous expenditures for remediation. The timing of capital
expenditures is dependent upon expansion and renovation projects, and the timing
of remediation spending is generally dictated by permit requirements.
During the first quarter of 1997 and 1996, expenditures for property and
equipment were $1,434 and $2,687, respectively. In addition, expenditures for
remediation projects at Rollins' facilities during the first fiscal quarter of
1997 and 1996 were $1,051 and $1,160, respectively.
The primary source of financing such cash requirements as well as any
losses from operations has been available cash balances and cash flow from
operations. Since Rollins has a large investment in facilities and equipment,
depreciation represents a significant component of cash flow from operations. In
the quarter ended December 31, 1996, depreciation represented $8,426.
The cash used in operations during the first quarter of 1997 was not
representative of Rollins' expectations for future quarters due to the
unfavorable working capital changes experienced. The decrease in cash was mainly
due to RES (NJ) and the EPA settling the outstanding claims with the Bridgeport
Rental & Oil Services Superfund Site for a payment of $13,035. Excluding this
one-time payment, cash flow from operations for the first fiscal quarter was
essentially at a breakeven level.
For the remainder of fiscal year 1997, Rollins anticipates lower operating
cash requirements as it realizes the benefits of cost reductions. Rollins'
capital and remediation expenditures for the remainder
50
<PAGE>
of fiscal 1997 are projected to be approximately $5,635. Capital and remediation
expenditures and required debt service of $533 for the remainder of 1997 are
expected to be financed from available cash balances, income tax refunds and
proceeds from the sale of certain nonstrategic assets.
At December 31, 1996, Rollins was in compliance with the fixed charge
coverage ratio and maintenance of net worth covenants with respect to the 7.75%
Senior Unsecured Debentures. On November 27, 1996, Rollins received a waiver of
these covenants with respect to the period ended September 30, 1996 and the debt
agreement was amended to reduce the quarterly fixed charge coverage ratio and
net worth requirements for the periods up to and including September 30, 1997.
Based upon preliminary estimates that it would violate one or both of these
covenants with respect to the period ended March 31, 1997, Rollins obtained an
additional waiver on April 7, 1997 waiving compliance with both covenants for
such period.
Post Acquisition. Assuming the proposed Acquisition is completed and
substantially all of the anticipated cost savings from combining the operations
of Rollins and the Acquired Subsidiaries are realized, cash flow from operations
is expected to be approximately $125,000 in fiscal 1998. Depreciation represents
approximately $80,000 and non-cash interest from the PIK Debenture represents
another $17,500 of the total. The pay-in-kind feature of the PIK Debenture
allows Rollins to pay accrued interest in cash or in shares of Common Stock. For
the first two years after Closing, the terms of the Credit Facilities require
that such payments must be made in shares of Common Stock. This represents an
important cash flow consideration for the first two years after the Acquisition
and is designed to minimize cash outlays during these first two years. In
addition, scheduled debt service under the Credit Facilities for the four years
after the Acquisition is minimal and capital expenditures are expected to be
less than $60,000 annually for the first few years after the Acquisition, which
represents approximately 75% of annual depreciation.
51
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
Rollins' revenues, summarized by method of disposal or other service
provided, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF % OF % OF
1996 REVENUES 1995 REVENUES 1994 REVENUES
----------- --------- ----------- --------- ----------- ---------
Incineration............................. $ 164,948 68.4 $ 154,266 71.0 $ 135,559 74.7
Transportation........................... 27,348 11.3 22,110 10.2 15,922 8.8
Services................................. 14,053 5.8 10,914 5.0 9,930 5.5
Landfill................................. 10,036 4.2 5,663 2.6 906 .5
Other.................................... 24,745 10.3 24,414 11.2 19,151 10.5
----------- --------- ----------- --------- ----------- ---------
$ 241,130 100.0 $ 217,367 100.0 $ 181,468 100.0
----------- --------- ----------- --------- ----------- ---------
</TABLE>
- ------------------
Each caption in the above table includes the portion of the revenues of Rollins'
subsidiaries related to that particular service.
A comparison of 1995 and 1994 reported and pro forma revenues from existing
business and from acquisitions is shown in the following table as if the
acquisitions had occurred at the beginning of the periods presented (in
thousands):
<TABLE>
<CAPTION>
INCREASE
REVENUES 1995 (DECREASE) 1994
- -------- ----------- ----------- -----------
<S> <C> <C> <C>
Existing business $ 174,532 $ (6,936) $ 181,468
Acquired companies................................................ 42,835 42,835 --
----------- ----------- -----------
Reported revenues............................................... 217,367 35,899 181,468
Acquired companies prior to acquisition........................... 44,412 100,590
----------- -----------
Pro forma revenues................................................ $ 261,779 $ 282,058
----------- -----------
----------- -----------
</TABLE>
A similar comparison of revenues of 1996 is not possible as Rollins
utilized the additional processing flexibility gained through the recent
acquisitions to more efficiently schedule company-wide production, whereby
revenues from existing business and acquired companies become indistinguishable.
Additionally, 1996 revenues include a full year of revenues from acquired
companies.
FISCAL YEAR 1996 VS. 1995
Revenues for 1996 increased by $23,763 (11%) to $241,130 from the $217,367
reported in the prior year. Incineration revenues, which represent the largest
portion of Rollins revenues, increased by 7%. This growth resulted from a volume
increase of 11% offset in part by a 4% decrease in average prices. The overall
revenue increase was due in large part to acquisitions made in March and April
1995. Fiscal 1996 includes 12 months of revenues from acquisitions compared with
six months in fiscal 1995 offset in part by lower average prices and a change in
incineration mix. Rollins' hazardous solid waste operations faced declining
prices during the first nine months of fiscal 1996. During the last quarter
solid waste pricing appeared to have stabilized. Overall incineration waste
volumes remained flat during fiscal 1996. Rollins' incineration revenues
continue to be adversely affected by industry-wide overcapacity, intense price
competition and unpredictable event business. Industry consolidation predicted
in 1996 did not occur, therefore, Rollins implemented a new program that manages
Rollins' capacity and shifting market demands by placing two facilities on
flexible operating schedules. These facilities are maintained in such a way that
incineration can begin quickly when
52
<PAGE>
market demand warrants. Industry overcapacity and pricing pressure from
customers and competitors is expected to continue for the foreseeable future.
The increase in transportation and landfill revenues was primarily from a large
disposal contract with one customer which expires in December 1996. The increase
in service revenues resulted from offering a wider range of services through new
regional service centers that were established to meet the growing customer
demand for total waste management. Rollins is continuing to work vigorously with
the states and the EPA to establish standards that will regulate equitably the
commercial hazardous waste incineration industry and the incineration of
hazardous wastes by the cement kiln industry. Rollins believes such regulations,
when enacted, will mitigate the effects of intense price competition and help
stabilize the volume of waste available for treatment.
Operating expenses increased by $28,089 (15%) to $209,855 from the $181,766
reported in 1995. The increase reflects the increase in revenues and higher
fixed operating costs as the result of acquisitions made during fiscal 1995.
Operating expenses related to acquired companies were $68,954 in 1996 compared
with $33,192 in 1995. However, the 1995 expenses represent only those expenses
incurred principally from April 1995 forward. Operating expenses of acquired
companies incurred prior to their acquisition in 1995 amounted to approximately
$30,400. By placing certain facilities on flexible operating schedules in 1996,
operating expenses related to such facilities decreased by $7,366. Operating
costs as a percentage of revenues increased to 87% in 1996 from 84% in 1995
because a large component of Rollins' cost structure is fixed. In addition, the
percentage increase was the result of continued pressure on pricing and a shift
in revenue mix to lower profit margin business. The lower revenues reduced the
benefit expected from personnel reductions and spending cuts made during fiscal
1996.
Depreciation increased by $6,792 (25%) due mainly to an increase in
amortization of airspace for a completed landfill cell and the impact of the
1995 acquisitions.
Selling and administrative expenses increased by $2,267 (7%) principally as
a result of including 12 months of selling and administrative expenses from
acquisitions compared with six months in fiscal 1995. As a percentage of
revenues, selling and administrative expenses decreased slightly to 14% in 1996
from 15% in 1995.
Interest expense increased by $3,871 as a result of acquisition-related
debt incurred or assumed in the third quarter of fiscal 1995.
The income tax benefits recorded for the years 1996 and 1995 were based on
estimated effective rates of 34% and 36% of the loss before income taxes,
respectively.
As reported in the note entitled Quarterly Results (Unaudited) in the Notes
to the Consolidated Financial Statements, the results in certain fiscal quarters
show a gross loss or a nominal gross profit. The gross losses shown for the
second fiscal quarter of 1996 and 1995 resulted principally from the seasonal
winter effects, such as low air temperatures and snow, which impact operations
during the January through March time period. For the third and fourth fiscal
quarters of 1996, respectively, the gross loss and nominal gross profit shown
resulted primarily from lower revenues caused by a shift in product mix from
higher priced solid waste to lower priced liquid waste. Higher maintenance costs
during an unscheduled shut down of the then recently acquired facilities from
Westinghouse Electric Corporation accounted for a significant portion of the
gross loss shown for the fourth fiscal quarter of 1995.
FISCAL YEAR 1995 VS. 1994
Revenues for 1995 increased by $35,899 (20%) to $217,367 from the $181,468
reported in 1994. Acquisitions in 1995 and late 1994 contributed approximately
$42,835 of the revenue increase, while existing business revenues decreased by
$6,936. Existing business incineration revenues decreased $10,683 which was the
result of lower average prices, lower incineration volumes and a change in
incineration mix. Rollins' incineration revenues continue to be adversely
effected by industry-wide overcapacity, intense price competition and lower
volumes of available waste. The decrease in
53
<PAGE>
incineration revenues was offset in part by an increase in transportation
revenues, Chempak services and other revenues which were attributable to the
growing customer demand for total waste management and transportation services.
Rollins is continuing to work vigorously with the states and the EPA to regulate
additional waste streams into the incineration market and establish standards
which will equitably regulate the commercial hazardous waste incineration
industry and the incineration of hazardous wastes by the cement kiln industry.
Rollins believes such regulations, when enacted, will mitigate the effects of
intense price competition and help stabilize the volume of waste available for
treatment.
Operating expenses increased by $47,713 (36%) to $181,766 from the $134,053
reported in 1994. Acquisitions in 1995 and late 1994 contributed approximately
$34,704 of this expense increase, while existing business expense increased by
$10,311. The existing business increase was the result of higher transportation,
plant maintenance, payroll and disposal costs. Increased plant maintenance and
payroll overtime resulted from the adverse effects upon treatment equipment
caused by the changed incineration mix of disposable wastes. The increase in
transportation costs reflects the increased customer reliance on
Rollins-supplied transportation. Disposal cost increases were attributable to a
change in incineration mix which required the use of subcontractors to dispose
of various waste streams outside of the company's permitted capabilities.
Operating costs as a percentage of revenues increased to 84% in 1995 from 74% in
1994. A large component of Rollins' cost structure is fixed which caused
operating expenses to increase as a percentage of revenues. The Company
continues its activities to reduce expenses and streamline the organization.
Depreciation increased by $3,950 (17%) due mainly to the impact of recent
acquisitions offset in part by lower amortization expenses related to leasehold
improvements which have become fully amortized and the impact of lower capital
expenditures during the past few years.
Selling and administrative expenses increased by $5,914 (22%) principally
as a result of higher payroll, data processing and other transitional costs
incurred in connection with recent acquisitions. As a percentage of revenues,
selling and administrative expenses were 15% in both 1995 and 1994.
Interest expense increased by $4,601 as a result of acquisition-related
debt incurred or assumed.
The income tax benefits recorded for the years 1995 and 1994 were based on
estimated effective rates of 36% and 38% of the loss before income taxes,
respectively.
In the face of industry consolidation and market uncertainty, Rollins made
a strategic decision to purchase its largest competitor. The acquisition of
Aptus, Inc. on March 31, 1995 provides a critical service expansion with the
addition of a 4.4 meter incinerator in Aragonite, Utah, a 3.6 meter incinerator
in Coffeyville, Kansas, and a transfer and storage facility in Lakeville,
Minnesota. This enhanced long-term commitment also included the purchase of
Allworth of Tennessee, Inc., a transfer, storage and processing facility. These
strategic actions were taken to improve service, competitive position and to
enhance Rollins' full service capabilities on a regionalized basis. Such actions
are expected to result in lower transportation costs and provide greater
operating efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
Rollins' operations require ongoing capital investments, which have been
financed with the cash flows from operations and available cash. Expenditures
for property and equipment were $7,832 in 1996, $20,051 in 1995 and $18,002 in
1994. Commitments for the purchase of property and equipment amounted to $471 at
September 30, 1996. Rollins plans capital expenditures of up to $6,161 in 1997
to upgrade facilities. Such expenditures include improvements to electrical
power and water systems; waste collection, storage and processing facilities;
and other equipment modernization programs.
In addition, Rollins spent $3,883, $3,937 and $2,874, respectively, on
remediation projects at its facilities in 1996, 1995 and 1994. Rollins believes
the amounts accrued for remediation and other costs are adequate to cover the
cost of the mandated remediation and other corrective actions required to be
completed at its facilities.
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On September 30, 1996, RES (NJ) settled with the EPA the Bridgeport Rental
& Oil Services Superfund Site (BROS) for $13,035. As of September 30, 1996, RES
(NJ) had been reimbursed a total of $8,163 from various insurance carriers. On
November 8, 1996, RES (NJ) received an additional $2,555 from insurance carriers
with an additional $445 to be reimbursed at a later date. On November 14, 1996,
RES (NJ) made payments of $13,035 to the Trustees of the BROS Superfund Site
Qualified Settlement Fund and Environmental Remediation Trust in fulfillment of
its settlement obligations.
At September 30, 1996, Rollins was not in compliance with the fixed charge
coverage ratio with respect to the 7.75% Senior Unsecured Debentures. Emerging
Issues Task Force Issue No. 86-30, "Classification of Obligations When a
Violation is Waived by the Creditor," requires a company to reclassify long-term
debt as current when a covenant violation has occurred absent a loan
modification and it is probable that the borrower will not be able to comply
with the same covenant at measurement dates that are within the next twelve
months. On November 27, 1996, Rollins received a waiver of this covenant with
respect to the period ended September 30, 1996 and the debt agreement was
amended to reduce the quarterly fixed charge coverage ratio requirement for the
periods up to and including September 30, 1997. Based upon current projections,
management of Rollins believes that it will be able to remain in compliance
under the terms of the amended agreement. Additionally, Rollins collateralized
the 7.75% Senior Unsecured Debentures and the 7.25% Convertible Subordinated
Debentures by granting a security interest in $22,000 of Rollins' accounts
receivable and a second mortgage on certain land with a carrying value of
$4,973.
For fiscal 1997, Rollins anticipates lower operating cash requirements due
to a lower level of planned capital and remediation spending. Rollins believes
that existing cash balances, cash expected to be generated from operations,
which includes income tax refunds, and proceeds from the sale of certain
nonstrategic assets will be sufficient to meet Rollins' cash requirements for
fiscal 1997. Depreciation, which represents the largest component of cash flow
from operations, is expected to be approximately $34,000 in 1997.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that Rollins' long-lived assets, which consist
primarily of incinerator facilities, transfer, storage and processing
facilities, other equipment, and certain identifiable intangibles, be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. Rollins will adopt this
standard in the first quarter of fiscal 1997. The implementation of SFAS 121 is
not expected to have a material impact on the results of operations or financial
position of Rollins.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") which
encourages the fair value-based method of accounting for stock options and
similar equity instruments granted to employees. This method requires that the
fair value of equity instruments granted to employees be recorded as
compensation expense. However, SFAS 123 allows for the continued use of the
intrinsic value-based method, which, in most cases, does not result in a charge
to earnings. Rollins does not expect to change its method of accounting for
stock options. However, Rollins will adopt the disclosure requirements of SFAS
123 when required in fiscal 1997.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 "Environmental Remediation Liabilities" (SOP
96-1) for fiscal years beginning after December 15, 1996. This SOP 96-1 provides
that environmental remediation liabilities should be accrued when the criteria
of Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies" (SFAS 5) are met and it includes benchmarks to aid in the
determination of when environmental remediation liabilities should be
recognized. SOP 96-1 also provides guidance with respect to the measurement of
the liability and the display and disclosure of environmental remediation
liabilities in the financial statements. Rollins has not determined the impact,
if any, of adopting SOP 96-1.
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FORWARD-LOOKING STATEMENTS
Matters discussed in this Proxy Statement contain forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act (the "Private Securities Litigation Reform Act of
1995"). The statements relate to anticipated financial performance, business
prospects, new services, market forces, commitments, technological developments
and other matters. The Private Securities Litigation Reform Act of 1995 provides
a safe harbor for forward looking statements. In order to comply with the terms
of the safe harbor, Rollins notes that a variety of factors could cause Rollins'
actual results and experience to differ materially form the anticipated results
or other expectations expressed in Rollins' forward looking statements.
Forward looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts", or "projects", or
variations of these words, suggesting that future outcomes are uncertain. The
following discussion is intended to identify certain factors (though not
necessarily all such factors) that could cause future outcomes to differ
materially from those set forth in forward looking statements made by Rollins.
The risks and uncertainties that may affect the operations, performance,
development and results of Rollins' business include the following factors:
general economic conditions, competitive factors and pricing pressures,
overcapacity in the industry, shifts in market demand, changes in federal, state
and local laws and regulations, especially environmental regulations, equipment
utilization, potential increases in equipment, maintenance and operating costs,
potential increases in labor costs, the performance and needs of industries
served by Rollins' business, alternate and emerging technologies and Rollins'
costs of continuing investments in technology, uncertainties of litigation,
Rollins' ability to generate adequate cash flow or finance its future business
requirements through outside sources, compliance with debt covenants, success or
timing of completion of ongoing or anticipated capital or maintenance projects,
planned and unplanned outages due to maintenance, equipment malfunctions or work
stoppages, the availability of adequate levels of insurance, Rollins' ability to
provide adequate financial assurances for its closure and post-closure
obligations, various hazards which could disrupt operations (including
explosions, fires and severe weather conditions) and management retention and
development.
Forward looking statements are included in "Summary," "Summary Financial
Information," "The Acquisition," "Pro Forma Combined Financial Statements,"
"Rollins Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Acquired Subsidiaries' Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business of Rollins," "Business
of the Acquired Subsidiaries" and elsewhere in this Proxy Statement. Although
Rollins believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. All phases of Rollins' operations are subject to a
number of uncertainties, risks and other influences, many of which are outside
the control of Rollins and any one of which, or a combination of which, could
materially affect the results of Rollins' operations and whether the forward
looking statements made by Rollins ultimately prove to be accurate. Such
important factors ("Important Factors") that could cause actual results to
differ materially from Rollins' expectations are disclosed in this section and
elsewhere in this report. All subsequent written and oral forward looking
statements attributable to Rollins or persons acting on its behalf are expressly
qualified in their entirety by the Important Factors described below that could
cause actual results to differ from Rollins' expectations.
Competition. The hazardous waste collection and disposal business is
highly competitive and requires substantial amounts of capital. Rollins competes
with numerous waste management companies, a number of which have greater
resources than Rollins. Forward looking statements assume that Rollins will be
able to effectively compete with the other waste management companies.
Integration. Rollins' financial position and results of operations depend
to a large extent on the integration of the businesses of the Acquired
Subsidiaries, recently acquired businesses and other businesses to be acquired.
The forward looking statements assume that integration of acquired companies,
including the internalization of waste and other synergies, may require up to 18
months from the date the acquisition closes. In preparing estimates regarding
the integration of businesses, assumptions have been made regarding the
elimination of certain operating costs and selling, general
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and administrative expenses, the allocation of purchase price to assets acquired
and the net book value of assets subsequent to acquisition. Failure to achieve
effective integration and the estimated financial impact in the anticipated time
period or at all could have a material adverse effect on Rollins' future results
of operations.
Ongoing Capital Requirements. To the extent that internally generated cash
and cash available under Rollins' existing credit facilities and senior
financings are not sufficient to provide the cash required for future
operations, capital expenditures, acquisitions, debt repayment obligations
and/or financial assurance obligations, Rollins will require additional equity
and/or debt financing in order to provide such cash. The Acquisition will cause
Rollins to incur significant debt obligations and debt service costs. The
forward looking statements assume that Rollins will be able to generate cash and
raise the capital necessary to finance such requirements at rates that are as
good as or better than those currently available in the market place. There can
be no assurance, however, that such financing will be available or, if
available, will be available on terms consistent with the assumptions made by
Rollins.
Economic Conditions. Rollins' business is affected by general economic
conditions. The forward looking statements assume that Rollins will be able to
achieve internal volume and price growth which is not impacted by an economic
downturn. There can be no assurance that an economic downturn will not result in
a reduction in the volume of waste being disposed of at Rollins' facilities
and/or the price that Rollins can charge for its services.
Dependence on Senior Management. Rollins is highly dependent upon its
senior management team. In addition, as Rollins continues to grow, its
requirements for operations management with waste industry experience will also
increase. The availability of such experienced management is not known. The
forward looking statements assume that experienced management will be available
when needed by Rollins at compensation levels that are within industry norms.
The loss of the services of members of senior management or the inability to
hire experienced operations management could have a material adverse effect on
forward looking information.
Influence of Governmental Regulation. Rollins' operations are subject to
and substantially affected by extensive federal, state and local laws,
regulations, orders and permits, which govern environmental protection, health
and safety, zoning and other matters. These regulations may impose restrictions
on operations that could adversely affect Rollins' results, such as limitations
on the expansion of disposal facilities, limitations on the disposal of
out-of-state waste or certain categories of waste or mandates regarding the
disposal of solid waste. Because of heightened public concern, companies in the
waste management business may become subject to judicial and administrative
proceedings involving federal, state or local agencies. These governmental
agencies may seek to impose fines or revoke or deny renewal of operating permits
or licenses for violations of environmental laws or regulations or to require
remediation of environmental problems at Rollins facilities or nearby
properties, or resulting from transportation or predecessors' transportation and
collection operations, all of which could have a material adverse effect on
Rollins. Liability may also arise from actions brought by individuals or
community groups in connection with the permitting or licensing of operations,
any alleged violations of such permits and licenses or other matters. The
forward looking statements assume that there will be no materially negative
impact on its operations due to government regulation.
Potential Environmental Liability. Rollins and the Acquired Subsidiaries
may incur liabilities for the deterioration of the environment as a result of
their operations. Any substantial liability for environmental damage could
materially adversely affect the operating results and financial condition of
Rollins. Due to the limited nature of insurance coverage for environmental
liabilities for Rollins and the Acquired Subsidiaries, if additional liabilities
were incurred for environmental damage, Rollins' business and financial
condition could be materially adversely affected. The forward looking statements
assume that Rollins will not incur any material environmental liabilities other
than those for which a provision has been recorded in the consolidated financial
statements and disclosed in the notes thereto.
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BUSINESS OF ROLLINS
Rollins transports, treats, and disposes of industrial chemical waste by
incineration and other methods at seven facilities located in Colorado, Kansas,
Louisiana (2), New Jersey, Texas and Utah. Rollins operates waste processing,
recycling and repackaging facilities in California, Minnesota, Louisiana and
Tennessee and has analytical laboratories in California, Colorado, Kansas,
Louisiana, Michigan, New Jersey, Tennessee, Texas and Utah.
The principal executive office of Rollins is One Rollins Plaza, 2200
Concord Pike, Wilmington, Delaware 19803 and the telephone number is
(302) 426-2700.
GENERAL DEVELOPMENT OF BUSINESS
In fiscal 1996, for the fourth consecutive year, Rollins' earnings were
adversely affected by continued weak conditions in the commercial hazardous
waste incineration industry. Although overall incineration waste volumes
remained flat during fiscal 1996, incineration revenues continued to be
adversely affected by industry-wide overcapacity, intense price competition and
unpredictable event business. The industry-wide overcapacity was largely due to
fewer remediation projects generating wastes for treatment and disposal, many of
which have been either deferred or cancelled, reduced volumes from generators
attributable to reuse, reduce and recycle programs, and uncertainties in the
regulatory requirements affecting waste and contaminated sites. On the
regulatory front, Rollins is continuing to work vigorously with the states and
the EPA to establish standards that will regulate equitably the commercial
hazardous waste incineration industry and incineration of hazardous wastes by
the cement kiln industry. Rollins believes such standards, when enacted, will
mitigate the effects of intense price competition and help stabilize the volume
of waste available for treatment.
To increase its revenue base, Rollins has expanded and will continue to
expand its service line under its ongoing mission to be a one source service
provider. An increasing number of customers prefer to use fewer environmental
service providers who provide wider service offerings. For example, through a
partnership with Ogden Martin Waste Treatment Systems, Inc., the largest
operator of waste-to-energy facilities in the United States, Rollins now offers
non-regulated waste services. In addition, Rollins is striving to streamline and
simplify its business processes to enhance customer satisfaction, a significant
contributor to maintaining core business and gaining new business from current
customers.
Rollins modified its operations in fiscal 1996 by reducing its capacity to
match service demands. The Coffeyville, Kansas incineration plant switched to a
"campaign" operation where it accumulates volumes and incinerates such volumes
periodically. The Baton Rouge, Louisiana plant was transitioned to a transfer
and storage operation with incineration services idled temporarily, yet
available if needed. Both incinerators are being maintained in a ready status
and both were used in this way during the fiscal year.
Otherwise, there were no significant changes in the business of Rollins in
fiscal 1996.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of Rollins, essentially all of which is conducted in the
United States, consists solely of industrial waste treatment and disposal.
Financial information concerning this business is included in Rollins'
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements (including the notes
thereto) of Rollins.
NARRATIVE DESCRIPTION OF BUSINESS
Rollins collects waste for treatment and disposal through a network of 26
Regional Service Centers nationwide. Each Service Center offers collection and
customer service support and operates as a one source service location. These
Service Centers are the entry point for collecting waste into Rollins facilities
and are equipped with short-term storage and transfer capabilities from where
waste generated by labpacking and remediation management is then shipped to
treatment and disposal facilities.
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Rollins treats and disposes industrial chemical waste at its facilities in
Coffeyville, Kansas; Baton Rouge, Louisiana; Bridgeport, New Jersey; Deer Park,
Texas; and Aragonite, Utah (the "Plants"). In addition, Rollins provides secure
land disposal services for a variety of treated wastes and treatment residues at
its Deer Trail, Colorado landfill (the "Landfill"). Aqueous waste streams are
treated and disposed at a deep injection well (the "Injection Well") located in
Plaquemine, Louisiana. The Plants, Landfill and Injection Well are operated by
wholly owned subsidiaries. Rollins also treats, recycles or repackages
industrial chemical wastes at its facilities in Los Angeles, California;
Lakeville, Minnesota; and Mt. Pleasant, Tennessee (the "TSDs") for disposal at
the Plants, Landfill or other disposal facilities.
Rollins incinerates wastes at each of the Plants. High temperature
incineration effectively eliminates organic wastes such as herbicides, plastics,
halogenated solvents, pesticides, pharmaceuticals and refinery wastes,
regardless of whether they are gases, liquids, sludges or solids. Federal and
state incineration regulations require a destruction and removal efficiency of
99.99% for most organic wastes and 99.9999% for polychlorinated biphenyls
("PCBs"). Rollins' six rotary kiln incinerators and the Rollins Rotary Reactor
meet or exceed these requirements. The incinerators at Coffeyville, Kansas and
Aragonite, Utah and an incinerator at Deer Park, Texas have permits to burn
PCBs.
The Landfill disposes a variety of treated wastes, such as incinerator ash,
industrial residues and sludges, contaminated soils, catalysts and contaminated
construction debris, in landfills meeting or exceeding the requirements of state
and federal regulations. The Landfill offers state-of-the-art stabilization and
encapsulation technology, solidification and other appropriate treatment of
organic hazardous waste, secure landfill disposal of solid and previously
solidified materials, and oil/solvent collection, blending and material storage.
While most waste is transported to Rollins' facilities by truck, waste can
also be received by rail at the Baton Rouge, Deer Park and Coffeyville plants
and by barge at the Injection Well.
Rollins provides analytical services through laboratories operated at its
incineration facilities in Coffeyville, Kansas; Baton Rouge, Louisiana;
Bridgeport, New Jersey; Deer Park, Texas; and Aragonite, Utah and by other
subsidiaries located in Ann Arbor, Michigan; Deer Trail, Colorado; Mount
Pleasant, Tennessee; and Los Angeles, California.
Rollins conducts business with more than 3,600 customers. These customers
are primarily engaged in the chemical processing industry and are located
throughout the United States. No one customer currently accounts for more than
5% of Rollins' consolidated revenues. Rollins believes the principal
considerations for customers choosing between incineration and other methods of
disposal are current and anticipated state and Federal regulations, price and
concern over long-term liability.
Competitors operate large-scale incinerators in El Dorado, Arkansas
(Environmental Systems Company); Sauget, Illinois and Port Arthur, Texas
(Chemical Waste Management, Inc.); East Liverpool, Ohio (Waste Technologies,
Inc.); Grafton, Ohio (Ross Incineration Services, Inc.); Calvert City, Kentucky
(LWD); and Clive, Utah (Laidlaw Environmental Services). Other companies have
applied for or received permits to construct and operate hazardous waste
incinerators. In addition, competition is also provided by cement kilns.
REGULATION
The Plants, Landfill, TSDs and Injection Well are intensively regulated by
the EPA and by the applicable state regulatory agencies.
Environmental laws and regulations require hazardous waste disposal
facilities to obtain permits, which generally outline the procedures under which
the facilities must be operated. Violations of permit conditions, or of the
regulations, even if immaterial or unintentional, may result in fines,
shutdowns, remedial work or revocation of the permit. Rollins believes it is in
compliance in all material respects with the requirements of all of its
operating permits and related federal and state regulations.
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The United States Resource Conservation and Recovery Act ("RCRA") created a
comprehensive scheme for the regulation of hazardous waste facilities and for
the storage, treatment and disposal of hazardous wastes. The EPA has adopted
regulations under RCRA governing the management and disposal of hazardous
wastes, including standards for storage areas, incinerators (including
destruction standards) and landfills. RCRA also imposes financial responsibility
standards to ensure the availability of funds to maintain sites after closing.
Under RCRA, applicants who filed Part Applications with the EPA received
interim status for their hazardous waste treatment facilities in November 1980.
If the EPA (or the state agency that was delegated this authority by the EPA) is
satisfied with an application describing the proposed characteristics, equipment
and operation of a facility, it may issue a Part B operating permit valid for up
to ten years. All new facilities will require a Part B permit before commencing
operations. Part B permits were granted to the Deer Park plant on March 15,
1988, to the Bridgeport plant on March 31, 1989 and to the Baton Rouge plant on
February 8, 1993. The Injection Well was granted a Part B permit on January 10,
1994.
Facilities operated under Part B permits must meet stringent RCRA and
permit standards. Operators with Part B permits or interim status are required
to certify to regulatory agencies that they (i) meet specified groundwater
monitoring conditions; (ii) post financial security for the closure and, with
certain permits, post-closure maintenance of their facilities; and (iii) provide
insurance protection for other parties in the event of environmental damage.
Such certifications were made for all Rollins facilities. In this regard,
Rollins has supplied financial assurance to regulatory agencies and others in
the aggregate amount of $56,808,000 at September 30, 1996, which included
letters of credit of $6,707,000. The balance is satisfied principally by a
combination of insurance and trust funds.
In order to qualify the Bridgeport, New Jersey, Baton Rouge, Louisiana and
the Deer Park, Texas plants to accept and dispose of waste under the Superfund
program, Rollins' subsidiaries Rollins Environmental Services (NJ) Inc. ("RES
(NJ)"), Rollins Environmental Services (LA) Inc. ("RES (LA)") and Rollins
Environmental Services (TX) Inc. ("RES (TX)") entered into consent agreements
with the EPA under Section 3008(h) of RCRA. The agreements provide for a
thorough evaluation and assessment of the facilities and contain procedures
under which RES (NJ), RES (LA) and RES (TX) will undertake certain corrective
actions. The cost of certain corrective actions required under Section 3008(h)
has been included in Accrued Remediation and Other Costs in the Consolidated
Balance Sheet of Rollins for the year ended September 30, 1996.
In November 1988, Rollins acquired Oil, Inc. (name changed to Rollins
O.P.C. Inc. in 1992), a small company that operates a hazardous waste storage,
treatment and transfer facility in Los Angeles, California. In August 1990, Oil,
Inc. was granted a Part B permit allowing it to handle most of the EPA waste
codes as well as to upgrade the facility for drum storage, repacking, bulking
and blending.
In January 1989, Rollins acquired a hazardous waste storage and container
processing facility in Tipton, Missouri, which was incorporated as Tipton
Environmental Technology, Inc. On April 22, 1994, this facility was granted a
Part B permit to store and bulk certain hazardous waste regulated under RCRA
along with the storage and processing of certain PCB-contaminated wastes.
In July 1994, Rollins acquired Highway 36 Land Development Company, a
secure landfill in Deer Trail, Colorado. This facility operates under a Part B
permit that was granted on April 2, 1987.
On March 31, 1995, Rollins acquired from Westinghouse all of the capital
stock of National Electric, Inc. ("NEI"), a wholly owned subsidiary of
Westinghouse. NEI owned all of the capital stock of Aptus, Inc. NEI did not
conduct any business operations. Aptus is engaged in the sale of services
related to the transportation, storage, laboratory analysis and incineration of
certain types of hazardous waste. The Aptus, Inc. acquisition expanded Rollins'
incineration offerings to include a 4.4 meter kiln in Aragonite, Utah and a 3.6
meter kiln in Coffeyville, Kansas, which has the nation's only dioxin permit. In
addition, the acquisition included a transfer, storage and disposal facility in
Lakeville, Minnesota. These facilities operate under Part B permits which were
granted on March 30, 1990 for Aragonite, Utah; July 27, 1991 for Coffeyville,
Kansas; and August 31, 1992 for Lakeville, Minnesota.
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On April 28, 1995, Rollins acquired from Southdown, Inc. all of the issued
and outstanding shares of common stock of Allworth of Tennessee, Inc., a waste
processing facility located in Mount Pleasant, Tennessee. This facility operates
under a Part B permit which was granted on July 14, 1988.
EMPLOYEES
As of September 30, 1996, Rollins had approximately 1,665 employees.
PROPERTIES
Rollins maintains its headquarters in space leased from Rollins Properties,
Inc., a wholly owned subsidiary of Rollins Truck Leasing Corp., at 2200 Concord
Pike, Wilmington, Delaware.
In addition to pollution control equipment, each subsidiary owns the number
of acres of land following its name: Aptus, Inc., Coffeyville, Kansas 432 acres,
Aragonite, Utah 2,323 acres, and Lakeville, Minnesota 17 acres; Allworth of
Tennessee, Inc. 18 acres; RES (NJ) 532 acres; RES (LA) 820 acres; Rollins
Environmental Services of Louisiana, Inc. 20 acres; RES (TX) 1,200 acres;
Rollins Environmental Services (CA) Inc. 3,693 acres; Rollins Environmental,
Inc. 12 acres; Tipton Environmental Technology, Inc. 60 acres and Highway 36
Land Development Company 6,010 acres. Administrative and service offices are
located in owned or leased facilities in 21 states.
LEGAL PROCEEDINGS
In the opinion of management, based on the advice of counsel, the outcome
of the unsettled claims and litigation listed below and various other claims and
legal actions pending against Rollins which are not listed are only remotely
likely to be material.
Bridgeport Rental & Oil Service Superfund Site ("BROS"). On April 3, 1989,
RES (NJ) was served with a Directive by the New Jersey Department of
Environmental Protection (the "NJDEPE") in which it is alleged that RES (NJ),
during the period 1970 through 1977, discharged hazardous wastes into a lagoon
at a facility operated by BROS in Logan Township, New Jersey. RES (NJ) believes
the allegations are unfounded and inaccurate. RES (NJ) has defended itself
vigorously against the allegations. It has been alleged by the EPA that the
lagoon covered 13 acres and contained some 70,000,000 gallons of contaminated
liquids and 85,000 cubic yards of contaminated soils and sludges. On August 29,
1989, RES (NJ) was served with a demand letter by the EPA in which it alleged
that RES (NJ) was liable for its share of $17,800,000 in past costs incurred by
the EPA at the BROS site.
In late 1970, RES (NJ) completed the construction of its hazardous waste
disposal plant located in Bridgeport, New Jersey. At the time, RES (NJ) did not
have sufficient tank storage space on site to store all of the liquid hazardous
waste received from a substantial number of customer-generators. As a
consequence, in late 1970, RES (NJ) rented tank storage space at BROS.
Thereafter, some of the liquid waste material received at the Bridgeport plant
was transferred to the rented BROS storage tanks for storage pending disposal at
the Bridgeport plant.
RES (NJ) did not knowingly discharge any waste materials from these rented
storage tanks into the BROS lagoon or on the ground surrounding the tanks. The
waste material was returned to RES (NJ)'s Bridgeport plant for disposal. RES
(NJ) does, however, have records relative to three spills which occurred at the
BROS site. It is believed that only one spill which occurred in 1971 may
possibly have found its way into the lagoon. The other two spills were in
negligible amounts and were cleaned up immediately.
Although the NJDEPE is aware that only a minuscule portion of the material
in the lagoon resulted from the storage tank operations of RES (NJ), the NJDEPE
has nonetheless taken the position that the act of storing waste in the tanks
rented from BROS constituted a "discharge" of the waste. Thus the NJDEPE
contends that RES (NJ) and its customers are responsible for partial payment of
the cleanup costs even though their waste was removed by RES (NJ) from the
storage tanks at BROS and disposed at RES (NJ)'s Bridgeport plant.
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In 1978, RES (NJ) completed the construction of a new tank farm at its
Bridgeport plant. In 1980, RES (NJ) emptied and cleaned each and every one of
the storage tanks that it had under lease at the BROS site. During the cleaning
process, each and every tank was inspected carefully to determine its integrity.
As each tank was determined to be empty and clean, the use of each tank was then
returned to BROS. Each and every tank was determined to be structurally sound
with no leaks of any type.
A comprehensive investigation of the historical uses of the BROS site has
been undertaken. The investigation produced proof that the contributors of the
vast majority of hazardous substances to the BROS site were departments and/or
agencies of the United States. On March 20, 1992, RES (NJ) and others filed suit
against the United States and its responsible departments and agencies, seeking
cost recovery and a declaration as to the liability of the United States with
respect to the site.
On July 10, 1992, the United States filed suit against RES (NJ) and six
other defendants in the U.S. District Court of New Jersey (the "New Jersey
District Court"). The suit sought recovery of costs incurred by the United
States at the BROS site, interest on these costs and a declaration that the
defendants were jointly and severally liable for future response costs. RES (NJ)
has contested this action vigorously, focusing on its suit against the United
States as the contributor of the overwhelming percentage of hazardous substances
to the BROS site.
An intensive mediation effort has resulted in a settlement of the matter
which culminated on September 30, 1996 with the lodging of a consent decree with
the New Jersey District Court. The settlement between all of the potentially
responsible parties ("PRPs") and the EPA was for a total of $221,500,000. Of
this amount, the governmental PRPs will pay 78.9% or $174,760,000, while the
private PRPs (including RES (NJ)) will pay 21.1% or $46,740,000. RES (NJ) is
responsible for $13,035,000 of the settlement. As of September 30, 1996, RES
(NJ) had been reimbursed a total of $8,163,000 from various insurance carriers.
Since then, RES (NJ) received an additional $2,890,000 from insurance carriers
with an additional $110,000 to be reimbursed at a later date. On November 14,
1996, RES (NJ) made payments of $13,035,000 to the Trustees of the BROS
Superfund Site Qualified Settlement Fund and Environmental Remediation Trust in
fulfillment of its settlement obligations. On January 17, 1997, the settlement
was finalized and confirmed by the New Jersey District Court's entry of the
consent decree.
Helen Kramer Superfund Site. In October 1990, RES (NJ) was served with a
third-party complaint alleging RES (NJ)'s use of the Helen Kramer Landfill
during the mid-1970s. The Helen Kramer Landfill (the "Kramer Landfill") is a EPA
Superfund site which is currently being remediated under the supervision of the
EPA. In 1989, the United States filed suit against 25 parties for cost recovery.
A number of those original defendants have commenced this third-party action
against RES (NJ) and approximately 160 other parties. RES (NJ) does have a
connection to the Kramer Landfill based on the disposal of lagoon sludge from a
customer's facility. It is not possible at this time to determine RES (NJ)'s
portion of the Kramer Landfill's remediation expenses. Virtually all parties,
including RES (NJ), have been involved in a lengthy and complex settlement
process which has yet to produce a final allocation plan. Rather than abandon
the effort and resort to a litigation alternative, and at the urging of the U.S.
District Court Judge responsible for the case, the parties have commenced a
mediation process in an effort to reach a satisfactory allocation and settle the
case.
Rinehardt Litigation. In April 1996, Rollins Environmental Services of
Louisiana, Inc. ("RES of LA") along with 84 other parties was served with a
complaint alleging that RES of LA in some way was responsible for personal
injury and property damage to persons living in the proximity of the Bayou
Sorrel Superfund Site (the "Bayou Sorrel Site"). The Bayou Sorrel Site was a
waste disposal site which has been remediated in conjunction with the EPA.
Plaintiffs have requested that the matter be certified as a class action.
Defendants removed the action to federal court. RES of LA will contest this
action vigorously as it is not even clear, at this stage of the case, whether
the plaintiffs have suffered any damages.
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LAIDLAW HAZARDOUS WASTE SERVICES
SELECTED FINANCIAL DATA
($000's Omitted)
The following selected statements of income data for each of the three
years in the period ended August 31, 1996 and the balance sheet data of August
31, 1996 and 1995 are derived from combined financial statements of Laidlaw
Hazardous Waste Services ("LHWS") contained elsewhere herein, which have been
audited by Coopers & Lybrand, independent chartered accountants. The statement
of income data for the three-month periods ended November 30, 1996 and 1995 and
the balance sheet data at November 30, 1996 are derived from unaudited interim
combined financial statements of LHWS contained elsewhere herein. The unaudited
interim combined financial statements include all material adjustments,
consisting of normal recurring accruals which LHWS considered necessary for a
fair presentation of its financial position and results of operations for these
periods. Operating results of LHWS for the three months ended November 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year ending August 31, 1997. The statement of income data for the years
ended August 31, 1993, and 1992 and the balance sheet data at August 31, 1993,
1992 and 1991 are derived from unaudited financial statements. The data should
be read in conjunction with the combined financial statements of LHWS, the
unaudited interim combined financial statements of LHWS and management's
discussion and analysis of financial condition and results of operations of LHWS
included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30, FISCAL YEAR ENDED AUGUST 31,
------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues.......................... $188,973 $196,695 $715,829 $642,856 $517,804 $511,554 $458,150
Income (loss) before income taxes
and minority interest........... 441 4,463 1,398 5,564 14,931 2,586 18,142
Income tax expense................ (200) (2,000) (2,200) (3,700) (4,350) (3,000) (9,300)
Minority interest................. (827) (1,050) (2,646) (150) -- (212) --
Net income (loss)................. $ (586) $ 1,413 $ (3,448) $ 1,714 $ 10,581 $ (626) $ (8,842)
</TABLE>
Per share data have not been presented as the selected financial data
presented herein have been derived from special purpose financial statements
which present information with respect to the hazardous waste operations of
Laidlaw on a combined basis. See Note 1 -- "Basis of presentation of Financial
Statements" of the Notes to Financial Statements of LHWS.
<TABLE>
<CAPTION>
AT
NOVEMBER 30, AT AUGUST 31,
------------ ----------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------ ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital...................... $ 82,850 $ 44,161 $ 60,075 $ 90,831 $119,522 $ 87,071
Property and equipment............... 1,117,586 1,126,354 1,074,758 755,027 681,028 667,939
Total assets......................... 1,499,995 1,498,193 1,429,752 974,053 947,976 891,668
Long-term debt and intercompany
advances........................... 742,788 729,283 711,090 510,217 513,937 513,705
Contributed capital.................. 423,882 414,920 400,325 302,668 301,641 294,098
</TABLE>
63
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LAIDLAW HAZARDOUS WASTE SERVICES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30
Items in Laidlaw Hazardous Waste Services' ("LHWS") Combined Statements of
Income for the three months ended November 30, 1996 as a percentage of total
revenue and the percentage changes in dollar amounts of the items compared to
the same period in the previous year are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF INCREASE
REVENUE (DECREASE)
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30 NOVEMBER 30, 1996
------------------ ------------------
1996 1995 OVER 1995
------ ------ ------------------
<S> <C> <C> <C>
Revenue........................................ 100.0% 100.0% (3.9)%
Operating expenses............................. 73.0 72.6 (3.3)
Depreciation and amortization.................. 8.4 6.8 20.1
Selling, general and administrative expenses... 9.9 10.5 (9.8)
------ -----
Income from operations......................... 8.7 10.1 (18.0)
------ -----
</TABLE>
REVENUE
Revenue declined $7.7 million (3.9%) during the three months ended November
30, 1996 as compared to the corresponding period in the prior year. Volume
changes reduced revenue by $10.4 million (5.3%) as compared to the prior year.
Revenue contributed by acquisitions added $2.7 million (1.4%). Reduced volumes
of event business were responsible for the revenue reductions from volume. The
term "event business" is used to describe a one-time remediation/clean-up
projects. During the three months ended November 30, 1995, LHWS completed a
large event project that was disposed of at LHWS's Utah landfill.
OPERATING EXPENSES
Operating expenses decreased by $4.8 million (3.3%) primarily as a result
of the decrease in revenue of 3.9% and as a result of the cost reduction
initiatives instituted over the past year. As a result of the decline in prices
for LHWS's services during the past several years, due to the intense price
competition within the industry, LHWS has undertaken steps to reduce its fixed
and variable cost of operations. These initiatives include reduction in
personnel (headcount) and rationalization of some operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $2.7 million (20.1%) in
1996 primarily as a result of depreciation and amortization of the Clive
facility. Prior to August 31, 1996 all costs associated with the Clive
incineration facility had been capitalized as the facility had not yet received
the final operating conditions which convey site operating limits and which are
contained in the final permit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses have decreased $2.0 million
(9.8%) as compared to the prior year primarily as a result of personnel
(headcount) and other selling, general and administrative cost reduction efforts
undertaken by LHWS within the past twelve months.
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<PAGE>
INCOME FROM OPERATIONS AND OPERATING PROFIT MARGIN
Income from operations declined $3.6 million (18.0%) during the three
months ended November 30, 1996 as compared to the prior year. The operating
margin declined to 8.7% from 10.1%. This decline is due principally to the
inclusion of a high margin large event project that was disposed of at LHWS's
Utah landfill during the three months ended November 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was a deficit of $11.7 million in
the three months ended November 30, 1996 and compared to a positive $5.1 million
in the three months ended November 30, 1995. The decline was due to the drop in
net income and to the increase in cash used to finance accounts receivable. The
average days sales outstanding increased to 101 days at November 30, 1996 from
99 days at August 31, 1996 as LHWS's customers continue to extend payment terms.
In the prior year, the average days sales outstanding decreased to 94 days at
November 30, 1995 from 110 days at August 31, 1995. The November 30, 1996
accounts receivable balance was also higher than normal as a result of a payment
of $5 million that was due in November 1996 being received in December 1996.
65
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31
Items in Laidlaw Hazardous Waste Services ("LHWS") Combined Statements
of Income for the three years ended August 31, 1996 as a percentage of total
revenue and the percentage changes in dollar amounts of the items compared to
the previous year are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
--------------------------- PERCENTAGE INCREASE
(DECREASE)
YEAR ENDED AUGUST 31 ----------------------
--------------------------- YEAR 1996 YEAR 1995
1996 1995 1994 OVER 1995 OVER 1994
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue...................................... 100.0% 100.0% 100.0% 11.3% 24.2%
Operating expenses........................... 73.3 71.9 68.5 13.5 30.5
Depreciation and amortization................ 7.1 7.8 9.3 1.2 3.3
Selling, general and administrative
expenses................................... 11.0 10.5 13.4 16.6 (2.5)
----- ----- -----
Income from operations....................... 8.6 9.8 8.8 (1.9) 37.8
----- ----- -----
</TABLE>
REVENUE
The growth in revenue in 1996 was 11.3% ($72.9 million). This growth was
primarily associated with acquisitions which added $115.7 million (18.0%) while
price and volume changes reduced revenue by $43.7 million (6.8%), and foreign
exchange rate changes resulted in a revenue increase of $0.9 million (0.1%). The
acquisition growth was almost entirely associated with the acquisition of United
States Pollution Control, Inc. ("USPCI") on December 31, 1994. The USPCI
acquisition contributed $315 million of revenue in 1996 as compared to $200
million in 1995. The 1995 revenue from USPCI was for a period of eight months.
Price and volume changes reduced 1996 revenue by 6.8%. LHWS handled increased
waste volumes in 1996 as compared to 1995, however, intense price competition
resulted in substantially reduced service prices as compared to the prior year.
The hazardous waste industry is plagued by service overcapacity driven somewhat
by the barriers to industry exit which result from the high costs to close
hazardous waste facilities. In addition, waste minimization efforts by the
industry's customers, reduced enforcement and funding of mandated clean-up
initiatives (e.g. Superfund), development of certain alternatives to off-site
disposal and selected declassification of waste streams as "hazardous" has
resulted in flat or reduced volumes even though industrial output has increased
over the same period. These factors have resulted in competition based almost
entirely on price.
In 1995, revenue growth of $125.1 million (24.2%) consisted of revenue
growth from acquisition of $204.2 million (39.4%), price and volume reductions
reduced revenues by $20.7 million (4.0%), divestiture of LHWS's European
operations reduced revenues by $57.2 million (11.0%) while foreign exchange rate
changes accounted for the balance of the revenue reduction of $1.2 million
(0.2%). The acquisition of USPCI on December 31, 1994 contributed $200 million
of revenue. Revenue reductions due to price and volume changes were primarily as
a result of a reduction in volumes from event business, especially in LHWS's
western U.S. landfills, and from pricing pressures in the government services
operations. Revenues in 1995 were also reduced as a result of the divestiture of
LHWS's European operations on August 31, 1994. The deterioration in the value of
the Canadian dollar as compared to the United States dollar reduced revenues by
$1.2 million (0.2%).
OPERATING EXPENSES
In 1996, LHWS's operating expenses increased by $62.4 million (13.5%) to
73.3% of revenue from 71.9% of revenue in 1995, primarily as a result of the
inclusion of an additional four months of operating results from the USPCI
acquisition.
The USPCI acquisition contributed an additional $115 million of revenue in
1996 as compared to the prior year as the 1995 results included its operations
only since its acquisition date of December 31, 1994. LHWS also handled
increased waste volumes during 1996 but at significantly lower prices.
66
<PAGE>
However, in response to the reduced price for its services, LHWS initiated cost
reduction programs in an attempt to mitigate the earnings decline. These cost
reduction initiatives included reductions in personnel levels and
rationalization of some operations.
In 1995, operating expense increased by $108.0 million (30.5%) over 1994
primarily as a result of the USPCI acquisition on December 31, 1994 which
contributed $200 million of revenue in 1995. The cost structure of the former
USPCI operations were different from LHWS's operations in that the USPCI
operations had higher operating expenses as a percentage of revenue but lower
selling, general and administrative expenses and depreciation and amortization.
In addition, negative price and volume changes as a result of reductions in
volumes from event business, especially in LHWS's western U.S. landfills, and
from pricing pressures in the government service operation resulted in operating
expenses as a percentage of revenue to increase to 71.9% in 1995 from 68.5% in
1994.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased to 7.1% of revenue in 1996
from 7.8% of revenue in 1995, primarily as a result of the impact of the
inclusion of the additional four months of the former USPCI operations which had
a lower depreciation and amortization expense as a percentage of revenue as
compared to LHWS's other operations.
In 1995, deprecation and amortization expense was 7.8% of revenue as
compared to 9.3% in 1994. This decrease was due to the USPCI acquisition which
had a different cost structure from LHWS's existing business (lower selling,
general and administrative expense and depreciation and amortization expenses
but higher cost of operations).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $11.2 million
(16.6%) to 11.0% of revenue in 1996 from 10.5% in 1995, as a result of revenue
reductions due to the continued downward pressure on pricing, and reduced levels
of event business, that partially offset the growth from acquisition due to the
inclusion of an additional four months of operating results from the former
USPCI operations. The inclusion of the additional four months of results from
the former USPCI operations was the primary reason selling, general and
administrative expenses increased to $78.8 million in 1996 from $67.6 million in
1995.
In 1995, selling, general and administrative expenses decreased 2.5% to
$67.6 million (10.5% of revenue) from $69.4 million (13.4% of revenue) as a
result of the USPCI acquisition which had lower selling, general and
administrative expense as a percentage of revenue, from the synergies achieved
from combining the former USPCI operations with LHWS's existing business and
from cost reduction efforts made to minimize the earnings impact from the
decline in prices for LHWS's services.
INCOME FROM OPERATIONS AND OPERATING PROFIT MARGIN
Income from operation decreased by $1.2 million and operating margin
declined to 8.6% in 1996 primarily as a result of the revenue reductions due to
price. The price reductions more severely impacted LHWS's United States
operations as price competition was more intense in the United States than it
was in Canada.
In 1995, operating income increased by $17.2 million (37.8%) primarily as a
result of the growth in LHWS's operations as a result of the USPCI acquisition.
Operating margins in 1995 increased to 9.8% from 8.8% in 1994. The improvement
in operating margins were primarily as a result of the USPCI acquisition and the
divestiture of LHWS's low margin European operations. The growth in income from
operations in the United States portion of LHWS's business, was as a result of
the USPCI acquisition.
LIQUIDITY AND CAPITAL RESOURCES
LHWS currently operates as a division of Laidlaw Inc. Excess cash is
routinely transferred to the parent and any financing requirements are provided
by the parent. Accordingly, no cash or bank indebtedness balances are reported
in the financial statements of LHWS. As explained in Note 1 to the Combined
Financial Statements, the financial statements of LHWS have been prepared
assuming
67
<PAGE>
retroactive restatement of intercompany advances and contributed capital
provided by the parent, Laidlaw Inc., to equal the proportional amounts agreed
to be in effect upon the acquisition by Rollins of substantially all of LHWS.
Other financing requirements or surpluses were provided by or returned to the
parent, Laidlaw Inc.
Trade and other accounts receivable represent the largest portion of
current assets totaling $193.8 million at August 31, 1996. The average days
sales outstanding is approximately 99 days. The level continues to remain high
as LHWS's customers continue to extend payment terms.
Net cash provided by operating activities was $51.3 million, $36.6 million
and $70.1 million during the years ended August 31, 1996, 1995 and 1994
respectively. Since LHWS has a large investment in facilities and equipment,
depreciation and amortization represents a significant portion of net cash from
operations. Depreciation and amortization was $50.5 million, $50.0 million and
$48.4 million during the years ended August 31, 1996, 1995 and 1994.
LHWS's operations require ongoing capital investments for property and
equipment and continuous expenditures for remediation. Capital expenditures for
property and equipment were $112.0 million, $74.7 million and $67.3 million in
the years ended August 31, 1996, 1995 and 1994. Capital expenditures increased
in 1996 primarily as a result of the expenditures necessary to bring LHWS's
Clive, Utah incinerator into operation by August 31, 1996. Acquisition
expenditures were $8.0 million, $229.2 million and $Nil million in the years
ended August 31, 1996, 1995 and 1994. The 1995 acquisition expenditures included
$225 million for the purchase of USPCI.
LHWS did not generate sufficient net cash from operations to finance the
above noted expenditures for property, equipment and acquisitions, and as such,
balance of the funds required were provided by the parent, Laidlaw Inc.
LHWS is required to provide financial assurances to government agencies
under applicable environmental regulations relating to its landfills. The
financial assurances include performance bonds, letters of credit and trust
deposits required principally to secure LHWS's estimated closure and post-
closure obligations relating to its landfills. At August 31, 1996, LHWS had
outstanding approximately $138.7 million in outstanding letters of credit.
Additionally, the parent, Laidlaw Inc. and its affiliates have provided
financial assurances, guarantees and additional letters of credit in aggregate
amount of approximately $281 million for closure and post-closure activities,
bid bonds and other financial matters.
FOREIGN CURRENCY TRANSLATION
Approximately 15% of LHWS's revenues are derived from their Canadian
operations and as such are collected in Canadian dollars. LHWS reports its
financial condition in U.S. dollars and therefore is subject to fluctuations in
the exchange rates between Canadian and U.S. dollars. In the past three years,
the Canadian dollar exchange rate has been somewhat static changing less than 2%
year over year. For assets and liabilities, LHWS uses the exchange rate as of
the balance sheet date. For revenues and expenses, LHWS uses a weighted monthly
average exchange rate for the year.
INFLATION AND PREVAILING ECONOMIC CONDITION
Inflation has not had a significant impact on LHWS's operations.
SEASONALITY
Adverse winter weather moderately affects all of LHWS's operations,
particularly during the second fiscal quarter. The main reason for this is
reduced volumes of waste being received at LHWS's facilities and higher
operating costs associated with operating in sub-freezing weather and high
levels of snowfall.
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<PAGE>
BUSINESS OF THE ACQUIRED SUBSIDIARIES
The Acquired Subsidiaries represent substantially all of the hazardous and
industrial waste services business of Laidlaw. The principal executive offices
of the Acquired Subsidiaries is 220 Outlet Point Boulevard, Columbia, South
Carolina 29210 and the telephone number is (803) 798-2993.
NARRATIVE DESCRIPTION OF BUSINESS
The Acquired Subsidiaries provide hazardous and industrial waste services
from 85 service locations in 26 states and seven Canadian provinces. These
services are conducted primarily under the name Laidlaw Environmental Services.
The Acquired Subsidiaries operate twelve landfills, ten in the United States and
two in Canada, and a land treatment facility for non-hazardous industrial wastes
in Louisiana. They operate three hazardous waste liquid injection incinerators,
one in each of South Carolina, Ontario and Quebec and a hazardous liquids and
solids waste incinerator in Utah. The Acquired Subsidiaries also operate three
hazardous and three non-hazardous waste water treatment plants, ten facilities
which offer fuel blending services to recycle solvents and produce industrial
fuels from wastes, five facilities which offer PCB treatment services and 29
service centres, or transfer stations, for hazardous waste collection and
transfer. They also provide specialized transportation services and site
remediation, emergency, technical and analytical services. Less than truckload
quantities of waste are collected from generators and are shipped to one of the
service centres and are consolidated and remanifested for shipment in full
truckload quantities to a treatment or disposal facility of the Acquired
Subsidiaries or to other permitted facilities for final disposal. The site
remediation and industrial services consist of collection, removal and disposal
of stored process wastes and collection, removal, disposal and site restoration
of contaminated sites, including contamination as a result of spillage, process
leakage and former waste disposal activities.
COMPETITION
Although the Acquired Subsidiaries are the largest provider of hazardous
waste management services in North America, management believes that no company
accounts for a material portion of the total hazardous waste services market.
The sources of competition vary by locality and by type of service rendered,
with competition coming from the other major waste services companies and the
thousands of privately owned firms in North America which offer waste services.
On a smaller scale, the Acquired Subsidiaries compete with municipalities and
larger plants which provide their own waste services. In acquiring new contracts
and maintaining business, the Acquired Subsidiaries experience competition
primarily in the areas of pricing and service.
The hazardous waste services market presently is characterized by excess
capacity in existing facilities. This results largely from fewer remediation
projects generating wastes for treatment or disposal, as well as deferred,
cancelled or reduced volumes from generators because of their reuse, reduce and
recycle programs, and uncertainties in the regulatory requirements affecting
waste and contaminated sites.
REGULATION
The collection and disposal of solid and hazardous wastes and the operation
of landfills and transfer stations are subject to local, state, provincial and
federal requirements which regulate health, safety, the environment, zoning and
land-use. Operating permits are generally required for landfills, transfer
stations, treatment and storage facilities and certain collection vehicles, and
these permits are subject to revocation, modification and renewal. State,
provincial and local regulations vary, but generally govern disposal activities
and the location and use of facilities and also impose restrictions to prohibit
or minimize air and water pollution. In addition, governmental authorities have
the power to enforce compliance with these regulations and to obtain injunctions
or impose fines in the case of violations.
The business of the Acquired Subsidiaries, particularly their landfill
businesses, are significantly affected by federal, state, provincial and local
environmental laws, including RCRA, the United States
69
<PAGE>
Toxic Substances Control Act, CERCLA, the United States Clean Water Act and the
United States Clean Air Act, and corresponding state laws and related
regulations and enforcement practices. Safety standards under the Occupational
Safety and Health Act are also applicable to their businesses.
RCRA provides for the establishment of a national hazardous waste
management program through a comprehensive regulatory system. Among other
things, it defines hazardous wastes and provides standards for generators,
transporters and disposers of hazardous wastes, and for the issuance of permits
for sites where such material is treated, stored or disposed. These regulations
also require their facilities to demonstrate financial assurance for sudden and
accidental and, in the case of land based treatment facilities, non-sudden and
gradual pollution occurrences. Financial assurance for future closure and
post-closure expenses must also be maintained.
CERCLA, among other things, imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites which release hazardous
substances, as well as generators and transporters of the waste material, are
jointly and severally liable for remediation costs and environmental damages.
The United States Clean Water Act regulates the discharge of pollutants
into surface waters and sewers from a variety of sources, including disposal
sites and treatment facilities. The Acquired Subsidiaries is required to obtain
discharge permits and conduct sampling and monitoring programs. The United
States Clean Air Act regulates the emission of certain potentially harmful
substances into the air. These regulations also impact the operations of the
Acquired Subsidiaries.
EMPLOYEES
The Acquired Subsidiaries engage approximately 3,950 employees to provide
their hazardous and industrial waste services, of whom approximately 1,165 are
executive, supervisory, clerical and sales personnel. Approximately 10% of the
remaining employees are represented by various collective bargaining groups.
Management believes that its relations with its employees are excellent.
PROPERTIES
The Acquired Subsidiaries provide hazardous and industrial waste services
from 61 facilities in the United States and 24 in Canada. To provide these
services, the Acquired Subsidiaries utilize approximately 1,580 waste vehicles,
1,530 trailers and 2,190 containers.
LEGAL PROCEEDINGS
The business of the Acquired Subsidiaries is continuously regulated by
federal, state, provincial and local provisions that have been enacted or
adopted, regulating the discharge of materials into the environment or primarily
for the purpose of protecting the environment. The nature of the Acquired
Subsidiaries' business results in them frequently becoming a party to judicial
or administrative proceedings involving all levels of governmental authorities
and other interested parties. The issues that are involved generally relate to
applications for permits and licenses by the Acquired Subsidiaries and their
conformity with legal requirements and alleged technical violations of existing
permits and licenses. At November 30, 1996, the Acquired Subsidiaries were
involved in three proceedings of the latter type relating primarily to
activities at waste treatment, storage and disposal facilities where management
believes sanctions involved in each instance may exceed $100,000.
In the United States, CERCLA imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites, which release hazardous
substances, as well as generators and transporters of the waste material, are
jointly and severally liable for remediation costs and environmental damage. At
November 30, 1996, the Acquired Subsidiaries had been notified that they were
potentially responsible parties in connection with 19 locations under CERCLA.
The Acquired Subsidiaries continually review their status with respect to each
location, taking into account the alleged connection to the location and the
extent of the contribution to the volume of waste at the location, the available
evidence connecting the subsidiary to
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<PAGE>
that location and the numbers and financial soundness of the potentially
responsible parties at the location.
The consolidated federal income tax returns of Laidlaw's United States
subsidiaries for the fiscal years ended August 31, 1987 and 1988 have been under
audit by the Internal Revenue Service, In March 1994, the subsidiaries received
a Statutory Notice of Deficiency proposing that the subsidiaries pay additional
taxes relating to disallowed deductions in those income tax returns. The
principal issue involved relates to the timing and the deductibility for tax
purposes of interest attributable to loans owing to related foreign persons. The
subsidiaries have petitioned the United States Tax Court (captioned as Laidlaw
Transportation, Inc. & Subsidiaries et al v. Commissioner of Internal Revenue,
Docket Nos. 9361-94 and 9362-94) for a redetermination of claimed deficiencies
of approximately $49.6 million (plus interest of approximately $69.8 million as
of November 30, 1996). In May 1996, the subsidiaries received Revenue Agent's
reports that the subsidiaries pay additional taxes of approximately $160.7
million (plus interest of approximately $112.5 million as of November 30, 1996).
In May 1996, the subsidiaries received Revenue Agent's reports proposing that
the subsidiaries pay additional taxes of approximately $160.7 million (plus
interest of approximately $112.5 million as of November 30, 1996) relating to
disallowed deductions in federal income tax returns for the fiscal years ended
August 31, 1989, 1990 and 1991 based on the same issues. The subsidiaries intend
to vigorously defend these claimed deficiencies. Although the final outcome
cannot be predicted with certainty, Laidlaw management, based upon a thorough
review of the facts and the advice of counsel, believes that the ultimate
disposition of these issues will not have a materially adverse effect upon
Laidlaw's consolidated financial position or results of operations. The Acquired
Subsidiaries are jointly and severally responsible for the claims being asserted
against Laidlaw's U. S. consolidated Tax group, of which the Acquired
Subsidiaries are members. Under the Stock Purchase Agreement, Laidlaw and the
Seller are responsible for, and have agreed to indemnify, Rollins and the
Acquired Subsidiaries against all United States and Canadian federal, state,
provincial, local and foreign tax liabilities for all periods ended on or prior
to the closing date. See "The Stock Purchase Agreement -- Tax Matters."
71
<PAGE>
MARKET PRICE DATA FOR THE COMMON STOCK
The Common Stock is listed on the NYSE and the Pacific Exchange under the
symbol "REN." The high and low prices per share for the periods indicated were
as follows:
HIGH LOW
------ ------
1995
First Quarter..................................... $6 1/8 $4 3/8
Second Quarter.................................... 5 1/2 4
Third Quarter..................................... 5 4 1/8
Fourth Quarter.................................... 5 1/4 4 1/4
1996
First Quarter..................................... $4 1/2 $2 2/3
Second Quarter.................................... 3 1/8 2
Third Quarter..................................... 4 1/2 2 1/4
Fourth Quarter.................................... 4 1/8 2 5/8
1997
First Quarter..................................... $2 7/8 $1 5/8
On January 6, 1997, the last trading day preceding public announcement of
the Acquisition, the closing price per share of Common Stock as quoted on the
NYSE Composite Transactions was $2.00. As of the Record Date, there were
approximately 6,541 record holders of the Common Stock.
DIVIDEND POLICY
Since September 1993, Rollins has not declared or paid any cash dividends
on its Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. It is anticipated that the credit agreement pursuant to
which the Credit Facilities are being established will also prohibit the payment
of dividends (unless a given percentage of Lenders otherwise agree).
72
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at _____________ by: (i) each person who is known
by Rollins to beneficially own more than five percent of the outstanding shares
of Common Stock, (ii) each of the Directors' names, (iii) each of Rollins'
executive officers not included in the information regarding the Board of
Directors and (iv) all Rollins directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF
TITLE OF BENEFICIAL PERCENT OF
CLASS NAME AND ADDRESSES OF BENEFICIAL OWNERS OWNERSHIP(1) CLASS
-------- --------------------------------------- ---------------- ----------
<S> <C> <C> <C>
Common John W. Rollins 3,697,576(2) 6.1%
One Rollins Plaza
Wilmington, DE 19803
Common State of Wisconsin 5,966,800 9.9%
Investment Board
P.O. Box 7842
Madison, WI 53707
Common The Crabbe Huson Special Fund, Inc. 5,963,400(3) 9.9%
and The Crabbe Huson Group, Inc.
121 S.W. Morrison, Suite 1400
Portland, OR 97204
Common Dimensional Fund Advisors, Inc. 3,306,034(4) 5.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Common John V. Flynn, Jr. 20,000 --
One Rollins Plaza
Wilmington, DE 19803
Common John W. Rollins, Jr. 166,125(5) .3%
One Rollins Plaza
Wilmington, DE 19803
Common Henry B. Tippie 1,270,000(6) 2.1%
One Rollins Plaza
Wilmington, DE 19803
Common Patrick J. Bagley 1,000 --
One Rollins Plaza
Wilmington, DE 19803
Common William L. Medford, Jr. 25,000 --
One Rollins Plaza
Wilmington, DE 19803
Common Nicholas Pappas 100,170(7) .2%
One Rollins Plaza
Wilmington, DE 19803
Common William B. Philipbar, Jr. 27,692 --
One Rollins Plaza
Wilmington, DE 19803
Common Don C. Stansberry 2,000 --
One Rollins Plaza
Wilmington, DE 19803
Common Frank H. Minner, Jr. 30,725 .1%
One Rollins Plaza
Wilmington, DE 19803
Common All Directors and Officers as a Group (11 persons) 5,315,288 8.8%
</TABLE>
- ------------------
(1) As to officers and directors, owned directly and of record.
73
<PAGE>
(2) Does not include 182,749 shares, as to which Mr. Rollins disclaims any
beneficial interest, held by his wife and 101,975 shares, as to which Mr.
Rollins disclaims any beneficial interest, held by his wife as custodian for
his minor children.
(3) The Crabbe Huson Special Fund, Inc. and The Crabbe Huson Group, Inc.
("Crabbe Huson") is a registered investment advisor. In its capacity as an
investment advisor, Crabbe Huson has discretionary authority to dispose of
or to vote shares that are under its management. As a result, Crabbe Huson
may be deemed to have beneficial ownership of such shares. Crabbe Huson does
not, however, have any economic interest in the shares. Crabbe Huson's
clients are the actual owners of the shares.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 3,306,304 shares of
Rollins Common Stock as of December 31, 1996, all of which shares are held
in portfolios of DFA Investment Dimensions Group, Inc., a registered
open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(5) Does not include 191,737 shares, as to which Mr. Rollins disclaims any
beneficial interest, held as co-trustee and 6,191 shares, as to which Mr.
Rollins disclaims any beneficial interest, held by his wife.
(6) Does not include 968,689 shares, as to which Mr. Tippie disclaims any
beneficial interest, held as co-trustee; 26,000 shares, as to which Mr.
Tippie disclaims any beneficial interest, held as trustee; 23,000 shares, as
to which Mr. Tippie disclaims any beneficial interest, owned by his wife;
21,000 shares, as to which Mr. Tippie disclaims any beneficial interest,
held by his wife as trustee for his children and 30,000 shares, as to which
Mr. Tippie disclaims any beneficial interest, owned by a partnership over
which he has sole voting power.
(7) Does not include 10,450 shares, as to which Mr. Pappas disclaims any
beneficial interest, held by his wife.
74
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The outstanding capital stock of Rollins on the Record Date consisted of
60,375,811 shares of Common Stock, par value $1. 00 per share. Holders of Common
Stock are entitled to one vote (non-cumulative) for each share of such stock
registered in their respective names at the close of business on the Record
Date.
The holders of a majority of the issued and outstanding Common Stock
constitute a quorum at any meeting of the stockholders and the affirmative vote
of a majority of the shares present is required for stockholder approval, except
for certain proposals to amend the Certificate of Incorporation which require
the affirmative vote of the holders of a majority of all outstanding Common
Stock for approval. Other amendments to the Certificate of Incorporation
concerning (a) special meetings of stockholders, (b) amendments to the bylaws of
Rollins (the "Bylaws"), (c) certain provisions relating to the Board of
Directors and (d) certain business transactions, when not approved by a majority
of the Board of Directors, require the affirmative vote of 75% of all
outstanding Common Stock for approval. Removal of any director or of the entire
Board of Directors may be effected only for cause and only at a meeting of the
stockholders called for that purpose by the affirmative vote of the holders of
75% or more of the shares of Rollins entitled to vote.
The Board of Directors is divided into three classes, each of which serves
for a term of three years.
Pursuant to the Certificate of Incorporation, as amended, the authorized
capital stock of Rollins consists of 120,000,000 shares of Common Stock and
1,000,000 shares of preferred stock, par value $1.00 per share. If the
Amendments are approved, the authorized Common Stock will be increased to
350,000,000 shares. The following description of certain of Rollins' securities
is a summary, does not purport to be complete or to give effect to applicable
statutory or common law and is subject in all respects to the applicable
provisions of the Certificate of Incorporation and the information herein is
qualified in its entirety by this reference.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which the stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to cumulative voting
rights. Therefore, holders of a majority of the shares voting for the election
of directors can elect all the directors. Subject to the terms of any
outstanding series of preferred stock, the holders of Common Stock are entitled
to dividends in such amounts and at such times as may be declared by Rollins'
Board of Directors out of funds legally available therefor. On liquidation or
dissolution, holders of Common Stock are entitled to share ratably in all net
assets available for distribution to stockholders after payment of any
liquidation preferences to holders of preferred stock. Holders of Common Stock
have no redemption, conversion or preemptive rights.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND DELAWARE LAW
The provisions of the Certificate of Incorporation and Rollins' Bylaws
summarized in the succeeding paragraphs may be deemed to have an anti-takeover
effect or may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by a stockholder.
Pursuant to the Certificate of Incorporation, the Board of Directors may by
resolution establish one or more series of preferred stock, having such number
of shares, designation, preferences and relative, participating, optional or
other special rights as may be fixed by the Board of Directors without any
further stockholder approval. Such rights, preferences, privileges and
limitations as may be established could have the effect of impeding or
discouraging the acquisition of control of Rollins.
The Bylaws provide that stockholders' nominations for the Board of
Directors and proposals for other business to be transacted at stockholders'
meetings must be timely received by Rollins and must
75
<PAGE>
comply with specified form and content requirements. The Bylaws also provide
that special meetings of stockholders may be called only by particular members
of the Board of Directors.
Limitation of Director Liability. Section 102(b)(7) of the DGCL ("Section
102(b)") authorizes corporations to limit or to eliminate the personal liability
of directors to corporations and their stockholders for monetary damages for
breach of directors' fiduciary duty of care. Although Section 102(b) does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
limits the liability of directors to Rollins or its stockholders to the fullest
extent permitted by Section 102(b). Specifically, directors of Rollins will not
be personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Rollins or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Bylaws provide
for mandatory indemnification of current and former directors, officers,
employees, agents and fiduciaries of Rollins or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such indemnified persons is or was serving at the request of Rollins
against all expenses, liabilities and losses to which they may become subject or
which they may incur as a result of being or having been a director, officer,
employee or agent of Rollins or of such other enterprise. In addition, Rollins
must advance to directors, officers, employees and agents for reasonable
expenses incurred by or on behalf of them in connection with indemnifiable
claims.
Insofar as indemnification for liabilities arising out of the Securities
Act may be permitted to directors, officers and controlling persons of Rollins
pursuant to the foregoing provisions, it is the understanding of Rollins that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Delaware Anti-Takeover Law. Section 203 of the DGCL ("Section 203")
generally provides that a stockholder acquiring more than 15% of the outstanding
voting stock of a corporation subject to the statute (an "Interested
Stockholder") but less than 85% of such stock may not engage in certain Business
Combinations (as defined in Section 203) with the corporation for a period of
three years after the date on which the stockholder became an Interested
Stockholder unless (i) prior to such date, the corporation's board of directors
approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) the Business Combination is
approved by the corporation's board of directors and authorized at a
stockholders' meeting by a vote of at least two-thirds of the corporation's
outstanding voting stock not owned by the Interested Stockholder. Under Section
203, these restrictions will not apply to certain Business Combinations proposed
by an Interested Stockholder following the earlier of the announcement or
notification of one of certain extraordinary transactions involving the
corporation and a person who was not an Interested Stockholder during the
previous three years or who became an Interested Stockholder with the approval
of the corporation's board of directors, if such extraordinary transaction is
approved or not opposed by a majority of the directors who were directors prior
to such person becoming an Interested Stockholder during the previous three
years or were recommended for election or elected to succeed such directors by a
majority of such directors.
Section 203 defines the term Business Combination to encompass a wide
variety of transactions with or caused by an Interested Stockholder, including
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders, such as mergers,
certain asset sales, certain issuances of additional shares to the Interested
Stockholder, transactions with the corporation which increase the proportionate
interest in the corporation directly or indirectly owned by the Interested
Stockholder or transactions in which the Interested Stockholder receives certain
other benefits.
76
<PAGE>
The provisions of Section 203, coupled with the Board of Director's
authority to issue preferred stock without further stockholder action, could
delay or frustrate the removal of incumbent directors or a change in control of
Rollins. The provisions also could discourage, impede or prevent a merger,
tender offer or proxy contest, even if such event would be favorable to the
interests of stockholders. Rollins' stockholders, by adopting an amendment to
the Certificate of Incorporation, may elect not to be governed by Section 203
effective 12 months after such adoption. Neither the Certificate of
Incorporation nor the Bylaws exclude Rollins from the restrictions imposed by
Section 203.
Interested Stockholder Transactions. Pursuant to the Certificate of
Incorporation, unless certain business combinations with an Interested
Stockholder have been approved by a majority of the entire Board of Directors,
such business combinations shall require the affirmative vote of the holders of
at least 75% of the outstanding shares of capital stock of Rollins entitled to
vote (the "Voting Shares"). An Interested Stockholder is defined in the
Certificate of Incorporation to be any person who is (i) the beneficial owner,
directly or indirectly, of more than 20% of the Voting Shares or (ii) an
affiliate of Rollins who at any time within the previous two years was the
beneficial owner, directly or indirectly, of not less than 20% of the Voting
Shares or (iii) an assignee of shares of Rollins capital stock that were at any
time within the previous two years beneficially owned by an Interested
Stockholder. The types of business combinations as to which these provisions of
the Certificate of Incorporation relate include: mergers or consolidations of
Rollins or any of its subsidiaries with or into an Interested Stockholder or any
other corporation which, after the merger or consolidation, would be an
affiliate of an Interested Stockholder; any sale, lease or other disposition of
assets of Rollins or any of its subsidiaries having an aggregate fair market
value of $5,000,000 or more to an Interested Stockholder or an affiliate
thereof; the issuance of securities of Rollins having an aggregate fair market
value of $5,000,000 or more to an Interested Stockholder or an affiliate
thereof; the adoption of any plan for the liquidation or dissolution of Rollins
or any reclassification or recapitalization of Rollins that has the effect of
increasing the proportionate share of the outstanding shares of any class of
equity or convertible securities of Rollins or any of its subsidiaries which is
owned by an Interested Stockholder or an affiliate thereof.
Common Stock Purchase Rights. Each share of Common Stock outstanding
includes one common stock purchase right (a "Right") which is non-detachable and
non-exercisable until certain defined events occur, including certain tender
offers or the acquisition by a person or group of affiliated or associated
persons of 15% of Rollins' Common Stock. Upon the occurrence of certain defined
events, the Right entitles the holder to purchase additional stock of Rollins or
stock of an acquiring company at 50% discount. The Rights expire on June 30,
1999 unless earlier redeemed by Rollins at a price of $.01 per Right.
PROPOSED AMENDMENTS
The Board of Directors has adopted, and proposes that the stockholders of
Rollins approve, the Amendments, which would (i) increase the number of
authorized shares of Common Stock available for issuance from 120,000,000 to
350,000,000, (ii) change the name of Rollins to Laidlaw Environmental Services,
Inc. as of the Closing and (iii) increase the size of the Rollins' Board of
Directors from eight to ten members.
On the Record Date, there were 60,375,811 shares of Common Stock issued and
outstanding. The Acquisition involves the issuance or potential issuance of at
least 120,000,000 shares of Common Stock. Thus, to complete the Acquisition,
Rollins will need additional shares of Common Stock. The adoption of the
Amendments are a condition to the Closing. Therefore, if the Amendments are not
adopted, the Closing will not take place and the Acquisition will not be
consummated. The Board of Directors believes that it is in the best interests of
Rollins to have additional shares of Common Stock available for issuance at its
discretion for future acquisitions, stock splits, stock dividends, equity
financings, employee benefit plans and other corporate purposes.
The additional shares of Common Stock authorized by the Amendments will be
available for issuance at any time in the future without further stockholder
approval, unless such approval were
77
<PAGE>
required by law, as in the case of consolidations and certain statutory mergers,
or by the rules of any securities exchanges on which the Common Stock were then
to be listed. Holders of Common Stock have no preemptive right to purchase or
otherwise acquire any shares of Common Stock that may be issued in the future.
The DGCL does not vest the stockholders of a Delaware corporation with
dissenters' rights with respect to the Acquisition contemplated by the
Amendments. If the Amendments are approved by the requisite vote, Rollins will
file a certificate of amendment to its Certificate of Incorporation with the
Delaware Secretary of State promptly following the conclusion of the Special
Meeting. The proposed Amendments will fix the number of shares of authorized
Common Stock at 350,000,000 and will become effective on the date of filing with
the Delaware Secretary of State.
Rollins has no immediate plans, understandings or agreements with respect
to the issuance of any additional shares of Common Stock which would be
authorized by the Amendments, except for the issuance of shares of Common Stock
for the payment of the Stock Consideration, for the payment of accrued interest
or principal under the PIK Debenture and upon any conversion, in whole or in
part, of the PIK Debenture. The authority of the Board to issue additional
Common Stock may be considered as having the effect of discouraging an attempt
by another person or entity to effect a takeover or otherwise gain control of
Rollins, because the issuance of additional Common Stock would dilute the voting
power of the Common Stock then outstanding. At the date of this Proxy Statement,
Rollins is not aware of any pending or threatened effort to accumulate Rollins
shares or to obtain control of Rollins by means of a merger, tender offer,
solicitation in opposition of management or otherwise, other than the
acquisition of the Stock Consideration by LTI pursuant to the Stock Purchase
Agreement, which in itself may have the effect of discouraging an attempt to
effect a takeover or otherwise gain control of Rollins.
The Board of Directors, which will be increased in size from eight to ten
members, is divided into three classes. Following the Board's reconfiguration,
the term of office of the first class shall expire at the next annual meeting of
the Board of Directors, of the second class one year thereafter and of the third
class two years thereafter, and at each annual meeting of the Board of Directors
held after such reconfiguration, directors shall be chosen for a full three year
term to succeed those whose terms expire. Each class of directors shall have at
least one representative who has been nominated (i) solely by Rollins, (ii)
solely by LTI and (iii) by Rollins and LTI acting jointly. See "The Acquisition
- --Interests of Certain Persons in the Acquisition."
The Board of Directors is currently divided into three classes, which may
have the effect of delaying, deferring or preventing a change of control of
Rollins by making more difficult and time-consuming any change in control of
Rollins through the proxy contest mechanism. In addition, the increase in the
size of the Board of Directors from eight to ten members combined with the
resignation of certain directors immediately following the Closing will enable
the remaining directors to appoint a majority of the Board.
APPROVAL
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve each of the Amendments.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors believes that the proposal to approve Amendments to
the Certificate of Incorporation is in the best interests of Rollins
stockholders and unanimously recommends that Rollins stockholders vote "FOR"
each of the Amendments.
78
<PAGE>
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Any stockholder who wishes to submit a proposal for action to be included
in the proxy statement and form of proxy relating to the annual meeting of
stockholders is required to submit such proposals to Rollins on or before August
22, 1997.
OTHER MATTERS
The cost of soliciting proxies in the accompanying form will be borne by
Rollins. In addition to solicitations by mail, a number of regular employees of
Rollins may, if necessary to assure the presence of a quorum, solicit proxies in
person or by telephone. Rollins will reimburse brokers or other persons holding
stock in their names or in the names of their nominees for their reasonable
expenses in forwarding proxy material to beneficial owners of stock. Rollins may
retain a proxy solicitor to perform solicitation services in connection with
this Proxy Statement. For such services, the proxy solicitor will receive a fee
and will be reimbursed for certain out-of-pocket expenses and indemnified
against certain liabilities incurred in connection with this solicitation.
The persons designated to vote shares covered by Board of Directors'
proxies intend to exercise their judgment in voting such shares on other matters
that may properly come before the Special Meeting. Management does not expect
that any matters other than those referred to in this Proxy Statement will be
presented for action at the Special Meeting.
By Order of the Board of Directors
/s/ John W. Rollins, Sr.
Chairman of the Board and Chief
Executive Officer
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF ROLLINS ENVIRONMENTAL SERVICES, INC.
Report of Independent Certified Public Accountants...................................................... F-2
Consolidated Balance Sheet as of September 30, 1996 and 1995............................................ F-3
Consolidated Statement of Operations for the Years Ended September 30, 1996, 1995 and 1994.............. F-4
Consolidated Statement of Cash Flows for the Years Ended September 30, 1996, 1995 and 1994.............. F-5
Notes to the Consolidated Financial Statements.......................................................... F-6
Consolidated Balance Sheet as of December 31, 1996 and December 31, 1995
(unaudited).......................................................................................... F-16
Consolidated Statement of Operations for the Three Months Ended December 31, 1996 and 1995
(unaudited).......................................................................................... F-17
Consolidated Statement of Cash Flows for the Three Months Ended December 31, 1996 and 1995
(unaudited).......................................................................................... F-18
Notes to the Consolidated Financial Statements (unaudited).............................................. F-19
COMBINED FINANCIAL STATEMENTS OF LAIDLAW HAZARDOUS WASTE SERVICES
Report of Independent Chartered Accountants............................................................. F-20
Combined Balance Sheets as of August 31, 1996 and 1995.................................................. F-21
Combined Statements of Income for the Years Ended August 31, 1996, 1995 and 1994........................ F-22
Combined Statements of Cash Flows for the Years Ended August 31, 1996, 1995 and 1994.................... F-23
Notes to Combined Financial Statements.................................................................. F-24
Combined Balance Sheets as of November 30, 1996 and 1995 (unaudited).................................... F-32
Combined Statements of Income for the Three Months Ended November 30, 1996 and 1995 (unaudited)......... F-33
Combined Statements of Cash Flows for the Three Months Ended November 30, 1996 and 1995 (unaudited)..... F-34
Note to Combined Financial Statements (unaudited)....................................................... F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Rollins Environmental Services, Inc.
We have audited the consolidated financial statements of Rollins
Environmental Services, Inc. and subsidiaries as of September 30, 1996 and 1995
and the related consolidated statements of operations and cash flows for each of
the years in the three-year period ended September 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurane about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rollins
Environmental Services, Inc. and subsidiaries as of September 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in the Notes to the Consolidated Financial Statements, in
fiscal year 1994, the Company changed its method of accounting for income taxes.
KPMG Peat Marwick LLP
Wilmington, Delaware
November 8, 1996, except for the last paragraph under the
footnote "Indebtedness", which is as of November 27, 1996
F-2
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (includes short-term investments of: 1996-$18,166;
1995-$32,108)...................................................................... $ 27,231 $ 38,691
Accounts receivable, net of allowance for doubtful accounts: 1996-$648; 1995-$681..... 42,302 42,774
Deferred income taxes................................................................. 5,616 4,948
Income taxes recoverable.............................................................. 7,059 10,637
Other current assets.................................................................. 11,356 12,122
-------- --------
Total Current Assets............................................................... 93,564 109,172
Property and Equipment, net............................................................. 272,811 298,673
Excess of Cost Over Net Assets of Businesses Acquired................................... 9,331 10,054
Other Assets............................................................................ 9,261 11,585
-------- --------
Total Assets....................................................................... $384,967 $429,484
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable...................................................................... $ 21,369 $ 23,705
Accrued liabilities................................................................... 34,432 29,283
Accrued remediation and other costs................................................... 1,970 3,723
Current maturities of long-term debt.................................................. 1,728 1,689
-------- --------
Total Current Liabilities.......................................................... 59,499 58,400
Long-term Debt.......................................................................... 132,453 134,181
Accrued Remediation and Other Costs..................................................... 9,829 11,959
Other Liabilities....................................................................... 7,396 10,456
Deferred Income Taxes................................................................... 21,307 29,819
Commitments and Contingent Liabilities (see notes to the Consolidated Financial
Statements)
Shareholders' Equity
Preferred stock, $1 par value
Shares outstanding: None
Common stock, $1 par value
Shares Outstanding: 1996 and 1995-60, 375,811...................................... 60,376 60,376
Additional paid-in capital............................................................ 4,650 4,650
Retained earnings..................................................................... 89,457 119,643
-------- --------
Total Shareholders' Equity......................................................... 154,483 184,669
-------- --------
Total Liabilities and Shareholders' Equity......................................... $384,967 $429,484
-------- --------
-------- --------
</TABLE>
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................................. $241,130 $217,367 $181,468
-------- -------- --------
Expenses:
Operating.......................................................... 209,855 181,766 134,053
Special charge..................................................... -- -- 14,500
Depreciation....................................................... 33,502 26,710 22,760
Selling and administrative......................................... 34,830 32,563 26,649
Interest........................................................... 8,854 4,983 382
-------- -------- --------
287,041 246,022 198,344
-------- -------- --------
Loss Before Income Tax Benefits and Cumulative Effect of Change in
Accounting Principle............................................... (45,911) (28,655) (16,876)
Income tax benefits.................................................. (15,725) (10,363) (6,399)
-------- -------- --------
Loss Before Cumulative Effect of Change in Accounting Principle...... (30,186) (18,292) (10,477)
Cumulative effect (to September 30, 1993) of adoption of
SFAS No. 109....................................................... -- -- 543
-------- -------- --------
Net Loss............................................................. $(30,186) $(18,292) $ (9,934)
-------- -------- --------
-------- -------- --------
Loss per Share:
Loss before cumulative effect of change in accounting principle.... $ (.50) $ (.30) $ (.17)
Cumulative effect of adoption of SFAS No. 109...................... -- -- .01
-------- -------- --------
Loss Per Share....................................................... $ (.50) $ (.30) $ (.16)
-------- -------- --------
-------- -------- --------
Average common shares and equivalents
outstanding (000).................................................. 60,401 60,400 60,377
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
F-4
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss............................................................. $(30,186) $(18,292) $ (9,934)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities, net of acquisitions:
Special charge..................................................... -- -- 14,500
Expenditures charged to accrued remediation and other costs........ (3,883) (3,937) (2,874)
Depreciation and amortization...................................... 34,253 26,839 22,760
Changes in assets and liabilities:
Current and deferred income taxes............................... (5,602) (6,828) (6,468)
Accounts receivable............................................. 472 (774) 2,636
Accounts payable and accrued liabilities........................ 2,813 15,668 5,643
Other, net...................................................... (269) 1,116 (477)
-------- -------- --------
Net cash (used in) provided by operating activities............. (2,402) 13,792 25,786
-------- -------- --------
Cash Flows From Investing Activities:
Acquisition of businesses, net of cash acquired.................... -- (9,588) --
Purchase of property and equipment................................. (7,832) (20,051) (18,002)
Proceeds from sales of equipment................................... 463 428 75
-------- -------- --------
Net cash used in investing activities........................... (7,369) (29,211) (17,927)
-------- -------- --------
Cash Flows From Financing Activities:
Repayment of long-term debt........................................ (1,689) (662) (662)
Exercise of stock options.......................................... -- -- 88
-------- -------- --------
Net cash used in financing activities........................... (1,689) (662) (574)
-------- -------- --------
Cash And Cash Equivalents:
Net (decrease) increase in cash and cash equivalents................. (11,460) (16,081) 7,285
Beginning of period................................................ 38,691 54,772 47,487
-------- -------- --------
End of period...................................................... $ 27,231 $ 38,691 $ 54,772
-------- -------- --------
-------- -------- --------
Supplemental information:
Interest paid...................................................... $ 9,254 $ 4,219 $ 549
Income taxes recovered............................................. $(10,123) $ (3,640) $ (472)
-------- -------- --------
-------- -------- --------
Noncash Investing and Financing Activities:
Acquisition of businesses
Fair value of assets acquired................................... $ -- $169,572 $ --
Cash paid....................................................... -- 9,599 --
-------- -------- --------
Liabilities assumed and incurred............................. $ -- $159,973 $ --
-------- -------- --------
-------- -------- --------
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
F-5
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ORGANIZATION AND ACCOUNTING POLICIES
Organization -- Rollins Environmental Services, Inc. consists solely of
industrial waste treatment and disposal. Essentially all of the Company's
operations are conducted within the United States.
Consolidation -- The consolidated financial statements include the accounts
of all subsidiaries. Intercompany transactions and balances among these
subsidiaries have been eliminated.
Revenue recognition -- Revenues from waste treatment and disposal and the
related costs associated with the treatment and disposal are recognized at the
time when the material is received by the Company which is the point in time
when the Company assumes liabilities for the handling of the waste. Since the
Company's incineration services are dependent upon mixing certain types of
wastes with other compatible or complementary wastes, and this process may
require several additional days to complete, it has become acceptable industry
practice to invoice customers upon receipt of waste. Concurrent with the billing
process is the recording of a receivable from the customer and the recognition
of revenue. Since a majority of the waste streams are incinerated within a few
days, it is not administratively practical to defer the recording of revenue
until the waste is incinerated, which typically occurs within a short period of
time after the waste is received.
The above practice matches revenue and variable expenses accurately. Since
the industry requires large investments in costly and complex facilities, the
proportion of fixed expenses to total expenses is substantially higher than in
many other industries, which minimize the exposure that might otherwise occur in
estimating variable expense.
Earnings (loss) per share -- Earnings (loss) per share are computed
assuming the conversion of all potentially dilutive outstanding stock options.
Cash equivalents -- Cash equivalents, carried at cost which approximates
fair market value, represent short-term investments with an original maturity at
purchase of three months or less.
Property and equipment -- The Company provides for depreciation on a
straight-line, specific item basis net of salvage or residual values over the
assets' estimated useful lives. The estimated useful lives are 10 to 40 years
for buildings, three to 20 years for equipment and vehicles, and 10 years for
site improvements. Major additions and improvements are capitalized and
depreciated over the remaining lives of the assets. Repairs and maintenance are
charged to expense as incurred. Where landfill disposal operations have been
conducted on the same parcels of land where the Company conducts its
incineration and other treatment operations, land is carried at cost and
expenditures in connection with the preparation and operation of landfills are
charged to expense as incurred. Where landfill operations are conducted on
subsequently acquired parcels of land, the cost of the land and landfill
preparation costs are deferred and charged to expense as the airspace in the
landfill is filled.
Goodwill -- The excess of cost over net assets of businesses acquired is
being amortized on a straight-line basis over twenty years. The Company
periodically reviews goodwill to assess recoverability and impairments would be
recognized in operating results if a permanent diminution in value were to
occur.
Environmental remediation reserves -- The Company establishes reserves for
environmental remediation at hazardous waste sites not owned by the Company when
it is both probable a liability has been incurred and a reasonable estimate of
the costs can be determined. The Company recognizes recoveries from third
parties when it is probable that such amounts will be realized and such amounts
are not offset against the related environmental remediation liability. The
receivable amounts from third parties at September 30, 1996 is not material.
F-6
<PAGE>
The Company records accruals for certain environmental remediation
activities at its facilities where commitments have been made and reasonable
cost estimates are possible. The cost of operating and maintaining systems and
equipment constructed for environmental remediation, as well as the cost of
treating recovered groundwater, are charged to operating expense as incurred.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair values of financial instruments -- The carrying amounts reported in
the balance sheet for current assets and current liabilities approximate their
fair value at September 30, 1996.
SPECIAL CHARGE
A special charge of $14,500 ($9,031 after tax benefit or $.15 per share)
was recorded in the second quarter of fiscal year 1994. The charge included: (1)
various engineering and other expenditures ($8,200) on projects no longer
considered viable in the current business climate; (2) estimated expenditures
($5,000) for capping of a closed landfill and related activities; and (3)
miscellaneous items ($1,300).
ACQUISITIONS
On March 31, 1995, the Company acquired from Westinghouse Electric
Corporation all of the capital stock of National Electric, Inc. ("NEI"), a
wholly owned subsidiary of Westinghouse Electric Corporation. NEI owns all of
the capital stock of Aptus, Inc. NEI is not conducting any business operations.
Aptus is engaged in the sale of services related to the transportation, storage,
laboratory analysis and incineration of certain types of hazardous waste.
The purchase price of $132,039 consisted of a cash payment of $6,500, the
assumption of Westinghouse Electric Corporation's obligations and duties in
connection with the $45,700 Variable Rate Hazardous Waste Treatment Revenue
Bonds, and the issuance of $13,839 of 7.75% Senior Unsecured Debentures and
$66,000 of 7.25% Convertible Subordinated Debentures.
On April 28, 1995, the Company acquired all of the common stock of Allworth
of Tennessee, Inc., a waste processing facility for a cash payment of $3,099.
These acquisitions were accounted for using the purchase method and,
accordingly, the assets acquired and the liabilities assumed have been recorded
at their fair values on their acquisition dates. This treatment resulted in an
excess of cost over net assets acquired of approximately $10,000.
The results of operations of these companies are included in the
Consolidated Statement of Operations from the acquisition dates forward.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred at the beginning of the
periods presented and do not purport to be
F-7
<PAGE>
indicative of what would have occurred had the acquisitions been made as of
those dates or of future operating results.
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1994
--------- ---------
Revenues......................................... $ 261,779 $ 282,058
Net loss......................................... $ (24,653) $ (12,742)
Loss per share................................... $ (.41) $ (.21)
--------- ---------
--------- ---------
Property and Equipment
The property and equipment accounts are as follows:
SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
Land............................................ $ 31,324 $ 31,324
Buildings....................................... 75,661 72,169
Equipment and vehicles.......................... 303,305 299,035
Site improvements............................... 39,978 30,250
Construction in progress........................ 5,525 17,277
Accumulated depreciation........................ (182,982) (151,382)
---------- ----------
$ 272,811 $ 298,673
---------- ----------
---------- ----------
Commitments for the purchase of capital assets amounted to $471 at
September 30, 1996.
INCOME TAXES
The income tax benefits for the three years ended September 30, 1996 are
comprised as follows:
YEAR ENDED SEPTEMBER 30,
---------------------------
1996 1995 1994
-------- -------- -------
Current:
Federal.................................... $ (7,262) $(10,446) $(3,242)
State...................................... 199 144 639
Deferred:
Federal.................................... (8,192) 1,277 (2,228)
State...................................... (470) (1,338) (1,568)
-------- -------- -------
Income tax benefits.......................... $(15,725) $(10,363) $(6,399)
-------- -------- -------
-------- -------- -------
A reconciliation of the income tax benefits for the three years ended
September 30, 1996 with amounts calculated by applying the statutory federal
income tax rate for those years to the loss before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Federal income tax benefits at statutory rate........................ $(16,069) $(10,029) $(5,907)
State income tax benefits............................................ (1,566) (977) (604)
Valuation allowance.................................................. 1,390 201 --
Other................................................................ 520 442 112
-------- -------- -------
Income tax benefits.................................................. $(15,725) $(10,363) $(6,399)
-------- -------- -------
-------- -------- -------
</TABLE>
F-8
<PAGE>
The tax effect of temporary differences which comprise the current and
non-current deferred income tax amounts shown on the balance sheet are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued remediation and closure costs.............................. $ 4,478 $ 6,007
Expenses deductible when paid...................................... 7,659 5,907
State net operating loss benefits, expiring 2001-2011.............. 4,359 2,678
Federal net operating loss benefits, expiring 2010-2011............ 18,624 7,000
Other.............................................................. 187 497
-------- --------
Total gross deferred tax assets................................. 35,307 22,089
Less valuation allowance........................................ (3,368) (2,138)
-------- --------
Net deferred tax assets......................................... 31,939 19,951
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation............................... 44,108 44,032
Section 172(f) carryback claim..................................... 3,331 --
Other.............................................................. 191 790
-------- --------
Total gross deferred liabilities................................... 47,630 44,822
-------- --------
Net deferred tax liability...................................... $ 15,691 $ 24,871
-------- --------
-------- --------
</TABLE>
As of October 1, 1993, the Company adopted SFAS No. 109 -- Accounting for
Income Taxes which requires the use of the liability method of accounting for
deferred income taxes. The cumulative effect on prior years of this adoption was
a reduction of the 1994 net loss by $543 ($.01 per share).
At September 30, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of $53,211 which will expire on various dates
through 2010 and 2011. Operating loss carryforwards of $16,200 were generated by
Aptus, Inc. prior to its acquisition on March 31, 1995. The use of Aptus, Inc.'s
pre-acquisition operating losses is subject to limitations imposed by the
Internal Revenue Code. The Company has recorded a valuation allowance for
federal and state purposes of $3,368 to reflect the estimated amount of deferred
tax assets which may not be realized principally due to expiration of operating
loss carryforwards. The valuation allowance includes $1,701 of tax benefits
related to Aptus, Inc.'s pre-acquisition tax losses which, if realized, would
reduce goodwill.
The change in the valuation allowance for deferred tax assets resulted from
management's assessment that some additional portion of the deferred tax assets
may not be realized. The realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considered the scheduled
reversals of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment.
In September 1996, the Company filed Form 1139 "Corporate Application for
Tentative Refund" to carryback its 1995 net loss as provided for in Section
172(f) of the Internal Revenue Code, claiming a federal income tax refund of
$3,331. In September of 1996, the Company also filed Form 1120X for 1994,
carrying back its net operating loss as provided for in Section 172(f) claiming
a refund of $1,433. This amount has not been received and has not been recorded
in the Company's financial statements. Section 172(f) is an area of the tax law
without significant precedent and there may be substantial opposition by the IRS
to the Company's refund claims. Therefore, the $3,331 received in October 1996
also has been recorded on the Company's financial statements as a deferred tax
liability. The $1,433
F-9
<PAGE>
claimed on the Company's 1994 Form 1120X will be recorded as a deferred tax
liability in the Company's financial statements at such time the amount is
received.
ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Environmental remediation (Non-owned sites)(1).......................... $ 13,560 $ 8,873
Employee compensation................................................... 5,223 5,543
Taxes other than income................................................. 5,086 4,995
Insurance and legal..................................................... 1,432 2,339
Landfill capping costs.................................................. 1,792 2,208
Other................................................................... 7,339 5,325
-------- --------
$ 34,432 $ 29,283
-------- --------
-------- --------
</TABLE>
- ------------------
(1) At September 30, 1996, the Company reclassified $4,600 from other
liabilities to environmental remediation (non-owned sites) to reflect
settlement with the EPA of the Bridgeport Rental & Oil Services Superfund
Site (BROS) for $13,035. On November 14, 1996, payments totalling $13,035
were made to the Trustees of the BROS Environmental Remediation Trust in
fulfillment of the Company's settlement obligations.
SHAREHOLDERS' EQUITY
Changes in the components of shareholders' equity are as follows:
<TABLE>
<CAPTION>
$1 PAR VALUE ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance at September 30, 1993............................ $60,350 $4,588 $147,869 $212,807
Net loss................................................. (9,934) (9,934)
Exercise of stock options................................ 26 62 88
------- ------ -------- --------
Balance at September 30, 1994............................ 60,376 4,650 137,935 202,961
Net loss................................................. (18,292) (18,292)
------- ------ -------- --------
Balance at September 30, 1995............................ 60,376 4,650 119,643 184,669
Net loss................................................. (30,186) (30,186)
------- ------ -------- --------
Balance at September 30, 1996............................ $60,376 $4,650 $ 89,457 $154,483
------- ------ -------- --------
------- ------ -------- --------
</TABLE>
The Company is authorized to issue 120,000,000 shares of its $1 Par Value
Common Stock and 1,000,000 shares of its $1 Par Value Preferred Stock. The terms
and conditions of each issue of preferred stock are determined by the Board of
Directors. No preferred stock has been issued.
Each share of common stock outstanding includes one common stock purchase
right (a "Right") which is non-detachable and non-exercisable until certain
defined events occur, including certain tender offers or the acquisition by a
person or group of affiliated or associated persons of 15% of the Company's
common stock. Upon the occurrence of certain defined events, the Right entitles
the holder
F-10
<PAGE>
to purchase additional stock of the Company or stock of an acquiring company at
a 50% discount. The Right expires on June 30, 1999 unless earlier redeemed by
the Company at a price of $.01 per Right.
STOCK OPTION PLAN
Under the Company's stock option plan, options to purchase common stock of
the Company may be granted to officers and key employees at not less than 100%
of the fair market value at the date of grant.
Option activity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Number of options
Outstanding at beginning of year............ 982,802 658,868 674,660
Granted..................................... 341,200 394,200 200,610
Exercised.................................. -- -- (25,557)
Expired or canceled........................ (114,017) (70,266) (190,845)
--------- ------- --------
Outstanding at September 30................... 1,209,985 982,802 658,868
--------- ------- --------
--------- ------- --------
At September 30
Options available for grant................. 76,790 339,390 717,390
Options exercisable......................... 500,812 384,375 317,900
Per share prices
Options granted............................. $2.25 to $ 3.88 $4.13 to $ 5.00 $4.63 to $ 5.75
Options exercised........................... -- -- $3.47
Options outstanding......................... $2.25 to $12.25 $4.13 to $12.25 $4.63 to $12.80
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
TRANSACTIONS WITH RELATED PARTIES
Certain directors and officers of the Company are also directors and
officers of Rollins Truck Leasing Corp. and Matlack Systems, Inc.
The Company purchased transportation services from subsidiaries of Matlack
Systems, Inc. in the amount of $13,916 in 1996, $13,265 in 1995 and $3,175 in
1994. The cost of these services has been included in operating expense in the
Consolidated Statement of Operations.
The Company also purchased fuel for its vehicles, information systems
services, and rented transportation equipment and office space from Rollins
Truck Leasing Corp., its subsidiaries and affiliates. The aggregate cost of
these materials, services and rents, which have been included in operating
expense or selling and administrative expense, as appropriate, in the
Consolidated Statement of Operations, was $4,769 in 1996, $6,617 in 1995 and
$6,551 in 1994.
An officer of the Company is the trustee of an employee benefits trust
which provides certain insurance and health care benefits to employees of the
Company. Contributions to the trust, which were charged to operating or selling
and administrative expense, as appropriate, were $7,385 in 1996, $6,792 in 1995
and $5,156 in 1994.
F-11
<PAGE>
In the opinion of management of the Company, the foregoing transactions
were effected at rates which approximate those which the Company would have
realized or incurred had such transactions been effected with independent third
parties.
INDEBTEDNESS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
7.25% Convertible Subordinated Debentures, due 2005.................................. $ 66,000 $ 66,000
Variable Rate Hazardous Waste Treatment Revenue Bonds, due 2020 (Interest rates range
from 3.5% to 3.7%)................................................................. 45,700 45,700
7.75% Senior Unsecured Debentures, due 2001-2005..................................... 13,839 13,839
Promissory note, interest at prime (8.25%), due 1996-2001............................ 5,333 6,400
Other Long-Term Debt................................................................. 3,309 3,931
Less Current Maturities.............................................................. (1,728) (1,689)
-------- --------
$132,453 $134,181
-------- --------
-------- --------
</TABLE>
Other long-term debt consists of real estate purchase money mortgage
obligations payable in installments to 2001, at interest rates of 9% and 10%.
Land with a carrying value of $5,504 is pledged as collateral.
The aggregate amounts of maturities and sinking fund requirements for all
indebtedness over the next five years are as follows: 1997-$1,728; 1998-$1,728;
1999-$1,728; 2000-$1,728 and 2001-$4,496.
Due to the variable rate provisions of the Hazardous Waste Treatment
Revenue Bonds and the Promissory note, the carrying value approximates fair
value. The fair value of the Convertible Subordinated and Senior Unsecured
Debentures is $19,800 less than the face value based on an agreement between the
sole holder of the Debentures and Laidlaw. The fair value of the remaining
long-term debt approximates its carrying value.
The 7.25% Convertible Subordinated Debentures due on March 31, 2005 are
convertible into shares of the Company's common stock at a conversion price
equal to $6.15 at any time prior to maturity. These Debentures contain default
provisions which provide for accelerated repayment should the Company be in
default with regard to the 7.75% Senior Unsecured Debentures. At the option of
the Company, the Debentures are redeemable under certain circumstances on or
after March 31, 1998 should the price per share of the Company's common stock
exceed $6.97.
The 7.75% Senior Unsecured Debentures contain covenants that restrict or
limit the ability of the Company to pay dividends, incur indebtedness,
repurchase common stock and the sale of assets. The Company must also maintain a
fixed charge coverage ratio and a minimum tangible net worth of $145,000.
At September 30, 1996, the Company was not in compliance with the fixed
charge coverage ratio with respect to the 7.75% Senior Unsecured Debentures.
Emerging Issues Task Force Issue No. 86-30, "Classification of Obligations When
a Violation is Waived by the Creditor," requires a company to reclassify
long-term debt as current when a covenant violation has occurred absent a loan
modification and it is probable that the borrower will not be able to comply
with the same covenant at measurement dates that are within the next twelve
months. On November 27, 1996, the Company received a waiver of this covenant
with respect to the period ended September 30, 1996 and the debt agreement was
amended to reduce the quarterly fixed charge coverage ratio requirement for the
periods up to and including September 30, 1997. Based upon current projections,
management of the Company believes that it will be able to remain in compliance
under the terms of the amended agreement. Additionally, the Company
collateralized the 7.75% Senior Unsecured Debentures and the 7.25% Convertible
Subordinated Debentures by granting a security interest in $22,000 of the
Company's accounts receivable and a second mortgage on certain land with a
carrying value of $4,973.
F-12
<PAGE>
PENSION PLANS
The Company maintains a noncontributory pension plan for eligible
employees. Pension costs are funded in accordance with the provisions of the
Internal Revenue Code. The Company also maintains a nonqualified,
noncontributory defined benefit pension plan for certain employees to restore
pension benefits reduced by federal income tax regulations. The cost associated
with the plan is determined using the same actuarial methods and assumptions as
those used for the Company's qualified pension plan.
The components of net periodic pension cost are as follows:
SEPTEMBER 30,
------------------------
1996 1995 1994
------- ------- ------
Service cost......................................... $ 1,834 $ 1,398 $1,777
Interest cost........................................ 1,345 1,102 1,032
Return on plan assets................................ (1,796) (3,579) (420)
Net amortization and deferral........................ 170 2,455 (492)
------- ------- ------
Net periodic pension cost............................ $ 1,553 $ 1,376 $1,897
------- ------- ------
------- ------- ------
The following table sets forth the funded status and the amount recognized
in the Company's balance sheet for the plans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested................................................................................ $14,967 $11,928
Non-vested............................................................................ 1,080 1,107
------- -------
$16,047 $13,035
------- -------
------- -------
Projected benefit obligation............................................................ $19,844 $16,203
Plan assets at market value............................................................. 18,571 16,395
------- -------
Projected benefit obligation in excess of (under) plan assets........................... 1,273 (192)
Unrecognized gain....................................................................... 4,150 4,751
Unrecognized prior service.............................................................. (129) (139)
Unamortized unfunded projected benefit obligation at adoption........................... (691) (768)
------- -------
Accrued pension liability............................................................... $ 4,603 $ 3,652
------- -------
------- -------
</TABLE>
The discount rate and the rate of assumed compensation increase for all
three years were 8.0% and 5.0%, respectively. The expected long-term rate of
return on assets was 9.0% for 1996 and 1995 and 9.5% for 1994.
The assets of the plan at September 30, 1996 were invested 75% in equity
securities, 19% in fixed income securities and the balance in other interest
bearing accounts.
Effective October 1, 1994, the Company established a defined contribution
401(k) plan which permits participation by substantially all employees not
represented under a collective bargaining agreement. The Company's 401(k)
expense was $54 in 1996 and $34 in 1995.
COMMITMENTS AND CONTINGENT LIABILITIES
Environmental laws and regulations require hazardous waste disposal
facilities to obtain operating permits which generally outline the procedures
under which the facility must be operated. Violations of permit conditions or of
the regulations, even if immaterial or unintentional, may result in fines,
shutdowns, remedial work or revocation of the permit. The Company believes it is
in compliance with the requirements of all of its operating permits and related
federal and state regulations.
F-13
<PAGE>
The Company is the subject of various lawsuits and claims by government
agencies with respect to clean-up of hazardous waste sites not owned by the
Company. Management believes any payments which may be required will ultimately
be substantially recoverable from insurance coverage. The Company believes that
it is only remotely likely that the ultimate resolution of these lawsuits and
claims would be material.
Accrued remediation and other costs were $11,799 and $15,682 at September
30, 1996 and 1995, respectively. Accrued remediation for non-Company-owned
sites, which is included in accrued liabilities and other liabilities, was
$14,604 and $14,570 at September 30, 1996 and 1995, respectively. Major elements
of cost in these reserves include groundwater recovery systems, slurry wall or
alternative containment systems, excavation and disposal of soil and waste
material, and engineering study and report costs associated with the remedial
activities. These major cost elements are segregated according to facility
location and are based on studies performed for the Environmental Protection
Agency and the states where the facilities operate. Changing federal or state
standards as well as technological developments and alternative engineering
solutions may affect the cost estimates in the future. Based on the status of
the various remedial programs at the facilities, it is expected that most, if
not all, of the remedial work will occur within the next five years. The Company
believes that the ultimate costs associated with these remediation activities,
after giving consideration to existing accruals, will not be material.
Regulatory agencies normally require operators with temporary or long-term
permits to provide insurance protection for other parties in the event of
environmental damage and to provide for continued maintenance after operations
are terminated. The Company has supplied financial assurance to regulatory
agencies and others in the aggregate amount of $56,808 at September 30, 1996,
which included letters of credit of $6,707. The balance is satisfied principally
by a combination of insurance and trust funds.
LEASE COMMITMENTS
The Company leases some of the premises and equipment used in its
operations. Leases classified as operating leases expire on various dates during
the next eight years. Total rental expense for all operating leases except those
with terms of a month or less was $4,915 in 1996, $4,266 in 1995 and $4,392 in
1994.
Minimum future rental payments required under operating leases having
non-cancelable terms in excess of one year as of September 30, 1996 are as
follows:
YEAR ENDING SEPTEMBER 30,
-------------------------
1997.............................................. $ 5,900
1998.............................................. 4,702
1999.............................................. 2,622
2000.............................................. 1,620
2001.............................................. 1,282
Later years....................................... 1,152
-------
Total minimum payments required................... $17,278
-------
-------
F-14
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER MARCH JUNE SEPTEMBER
1996 31 31 30(1) 30(1)
- ---- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues............................................ $ 61,436 $ 58,731 $ 61,582 $ 59,381
Gross profit (loss)................................. $ 724 $ (4,355)(2) $ (191)(3) $ 2(3)
Loss before income tax benefit...................... $ (10,409) $ (14,978) $ (9,534) $ (10,990)
Net loss............................................ $ (6,673) $ (9,561) $ (6,207) $ (7,745)
Loss per share...................................... $ (.11) $ (.16) $ (.10) $ (.13)
1995
- ----
Revenues............................................ $ 49,907 $ 43,354 $ 63,287 $ 60,819
Gross profit (loss)................................. $ 7,977 $ (742)(2) $ 556 $ (1,622)(4)
Earnings (loss) before income tax (benefits)........ $ 1,876 $ (7,508) $ (10,094) $ (12,929)
Net earnings (loss)................................. $ 1,220 $ (4,577) $ (6,606) $ (8,329)
Earnings (loss) per share........................... $ .02 $ (.08) $ (.11) $ (.13)
</TABLE>
- ------------------
(1) Results for the quarters ended June 30 and September 30, 1995 include the
results of operations of acquired companies for the periods in which they
were owned by the Company.
(2) The gross losses shown for the second fiscal quarter of 1996 and 1995
resulted principally from the seasonal winter effects, such as low air
temperatures and snow, which impact operations during the January through
March time period.
(3) The gross loss and nominal gross profit shown for the third and fourth
fiscal quarters of 1996, respectively, resulted primarily from lower
revenues caused by a shift in product mix from higher priced solid waste to
lower priced liquid waste.
(4) The gross loss shown for the fourth fiscal quarter of 1995 resulted
principally from higher maintenance costs during an unscheduled shut down of
the then recently acquired facilities from Westinghouse Electric
Corporation.
F-15
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (includes short-term investments of:
1996 -- $9,277; 1995 -- $23,305)................................................ $ 11,768 $ 29,176
Accounts receivable, net........................................................... 44,028 44,478
Income taxes recoverable........................................................... 3,880 12,335
Deferred income taxes.............................................................. 4,901 4,215
Other current assets............................................................... 8,985 12,605
--------- ---------
Total current assets............................................................ 73,562 102,809
Property and equipment, at cost
Land............................................................................... 31,324 31,324
Buildings.......................................................................... 76,082 72,129
Equipment and vehicles............................................................. 303,171 298,901
Site improvements.................................................................. 40,763 30,618
Construction in progress........................................................... 5,385 19,424
Accumulated depreciation........................................................... (190,594) (158,565)
--------- ---------
266,131 293,831
Excess of cost over net assets of businesses acquired................................ 9,205 9,802
Other assets......................................................................... 8,718 11,183
--------- ---------
Total assets.................................................................... $ 357,616 $ 417,625
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................... $ 17,909 $ 23,023
Accrued liabilities................................................................ 21,573 29,575
Accrued remediation and other costs................................................ 2,369 3,163
Current maturities of long-term debt............................................... 1,238 1,238
--------- ---------
Total current liabilities....................................................... 43,089 56,999
Long-term debt....................................................................... 131,918 133,648
Accrued remediation and other costs.................................................. 8,369 11,359
Other liabilities.................................................................... 8,143 10,511
Deferred income taxes................................................................ 16,782 27,112
Shareholders' equity
Preferred stock, $1 par value, 1,000,000 shares authorized; issued and outstanding
-- None
Common stock, $1 par value, 120,000,000 shares authorized; issued and outstanding:
1996 and 1995 -- 60,375,811..................................................... 60,376 60,376
Additional paid-in capital......................................................... 4,650 4,650
Retained earnings.................................................................. 84,289 112,970
--------- ---------
Total shareholders' equity...................................................... 149,315 177,996
--------- ---------
Total liabilities and shareholders' equity...................................... $ 357,616 $ 417,625
--------- ---------
--------- ---------
</TABLE>
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
F-16
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
QUARTER ENDED
DECEMBER 31,
------------------
1996 1995
-------- --------
Revenues................................................. $ 59,384 $ 61,436
-------- --------
Operating expenses....................................... 49,147 52,738
Depreciation............................................. 8,114 7,530
Selling and administrative expenses...................... 7,847 9,214
Interest expense......................................... 2,236 2,363
-------- --------
67,344 71,845
-------- --------
Loss before income tax benefit........................... (7,960) (10,409)
Income tax benefit....................................... (2,792) (3,736)
-------- --------
Net loss................................................. $ (5,168) $ (6,673)
-------- --------
-------- --------
Loss per share........................................... $ (.09) $ (.11)
-------- --------
-------- --------
Average common shares and equivalents outstanding (000).. 60,376 60,421
Dividends paid per common share.......................... None None
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
F-17
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31,
-----------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................. $ (5,168) $(6,673)
Adjustments to reconcile net loss to net cash used in operating activities:
Expenditures charged to accrued remediation and other costs........................... (1,061) (1,160)
Depreciation and amortization......................................................... 8,246 7,781
Changes in assets and liabilities:
Current and deferred income taxes.................................................. (301) (3,672)
Accounts receivable................................................................ (1,726) (1,704)
Accounts payable and accrued liabilities........................................... (16,319) (390)
Other, net......................................................................... 3,325 (30)
-------- -------
Net cash used in operating activities................................................. (13,004) (5,848)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment....................................................... (1,434) (2,687)
Proceeds from sale of equipment.......................................................... -- 4
-------- -------
Net cash used in investing activities................................................. (1,434) (2,683)
-------- -------
Cash flows from financing activities:
Repayment of long-term debt.............................................................. (1,025) (984)
-------- -------
Net cash used in financing activities................................................. (1,025) (984)
-------- -------
Cash and cash equivalents:
Net decrease in cash and cash equivalents.................................................. (15,463) (9,515)
Beginning of period...................................................................... 27,231 38,691
-------- -------
End of period............................................................................ $ 11,768 $29,176
-------- -------
-------- -------
Supplemental information:
Interest paid............................................................................ $ 999 $ 1,363
Income taxes (recovered) paid............................................................ $ (2,491) $ 64
</TABLE>
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
F-18
<PAGE>
ROLLINS ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
STATEMENT PREPARATION
The accompanying unaudited condensed consolidated financial statements do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the unaudited condensed consolidated financial statements contain
all material adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the consolidated financial position of Rollins at
December 31, 1996 and 1995, and the consolidated results of its operations and
cash flows for the three months ended December 31, 1996 and 1995. Operating
results for these interim periods are not necessarily indicative of the results
that can be expected for a full year.
ADOPTION OF RECENT ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets To Be Disposed Of"
("SFAS 121"). SFAS 121 requires that Rollins' long-lived assets, which consist
primarily of incinerator facilities, transfer, storage and processing
facilities, other equipment, and certain identifiable intangibles, be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. Rollins adopted this
standard in the first quarter of fiscal 1997. The implementation of SFAS 121 did
not have a material impact on the results of operations or financial position of
Rollins.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the combined balance sheets of Laidlaw Hazardous Waste
Services (as defined in Note 1) as at August 31, 1996 and 1995 and the combined
statements of income and cash flows for the years ended August 31, 1996, 1995
and 1994. These financial statements are the responsibility of the management of
Laidlaw Inc. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Laidlaw Hazardous Waste Services as at
August 31, 1996 and 1995 and the results of its operations and cash flows for
the years ended August 31, 1996, 1995 and 1994 in accordance with United States
generally accepted accounting principles.
/s/ Coopers & Lybrand
-----------------------------------
Coopers & Lybrand
Chartered Accountants
October 16, 1996 (except for Note 1
which is at February 6, 1997)
Hamilton, Canada
F-20
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
COMBINED BALANCE SHEETS
($000'S OMITTED)
<TABLE>
<CAPTION>
AUGUST 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Trade and other accounts receivable (net of allowance for doubtful accounts of $5,371;
August 31, 1995 -- $5,728)............................................................ $ 193,810 $ 193,258
Inventories............................................................................. 8,022 8,878
Income taxes recoverable................................................................ 5,017 --
Other current assets.................................................................... 6,377 8,475
---------- ----------
Total current assets................................................................ 213,226 210,611
---------- ----------
Long-term investments................................................................... 37,093 30,814
---------- ----------
Fixed assets
Land, landfill sites and improvements................................................... 625,117 614,750
Buildings............................................................................... 326,873 322,691
Vehicles and other...................................................................... 500,235 420,690
---------- ----------
1,452,225 1,358,131
Less: Accumulated depreciation and amortization......................................... (325,871) (283,373)
---------- ----------
1,126,354 1,074,758
---------- ----------
Other assets
Goodwill (net of accumulated amortization of $14,635; August 31, 1995 -- $12,748)....... 120,053 111,807
Deferred charges........................................................................ 1,467 1,762
---------- ----------
121,520 113,569
---------- ----------
Total assets........................................................................ $1,498,193 $1,429,752
---------- ----------
---------- ----------
LIABILITIES
Current liabilities
Accounts payable........................................................................ $ 92,080 $ 80,858
Accrued liabilities (Note 4)............................................................ 69,703 60,335
Income taxes payable.................................................................... -- 236
Current portion of long-term debt (Note 3).............................................. 7,282 9,107
---------- ----------
Total current liabilities........................................................... 169,065 150,536
---------- ----------
Deferred items
Income taxes (Note 9)................................................................... 86,339 38,881
Environmental and other (Note 4)........................................................ 98,050 128,774
---------- ----------
184,389 167,655
---------- ----------
Long-term debt (Note 3)................................................................. 49,426 55,149
---------- ----------
Minority interest....................................................................... 536 146
---------- ----------
403,416 373,486
---------- ----------
Commitments and Contingencies (Note 5)
NET INVESTMENT BY LAIDLAW INC.
Intercompany advances................................................................... 679,857 655,941
Contributed capital..................................................................... 414,920 400,325
---------- ----------
1,094,777 1,056,266
---------- ----------
Total liabilities and net investment by Laidlaw Inc................................. $1,498,193 $1,429,752
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-21
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
COMBINED STATEMENTS OF INCOME
($000'S OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenue.................................................................... $ 715,829 $642,856 $517,804
--------- -------- --------
Operating expenses......................................................... 524,906 462,521 354,499
Depreciation and amortization.............................................. 50,513 49,928 48,356
Selling, general and administrative expenses (Note 6)...................... 78,845 67,644 69,401
--------- -------- --------
Income from operations..................................................... 61,565 62,763 45,548
Interest on intercompany advances.......................................... (56,211) (55,874) (41,761)
Interest on long-term debt................................................. (5,347) (4,296) (3,039)
Interest, dividend and other income........................................ 1,391 2,971 3,380
Unusual item (Note 10)..................................................... -- -- 10,803
--------- -------- --------
Income before income taxes and minority interest........................... 1,398 5,564 14,931
Income tax expense (Note 9)................................................ (2,200) (3,700) (4,350)
Minority interest.......................................................... (2,646) (150) --
--------- -------- --------
Net income (loss).......................................................... ($ 3,448) $ 1,714 $ 10,581
--------- -------- --------
--------- -------- --------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-22
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
COMBINED STATEMENTS OF CASH FLOWS
($000'S OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
Net Cash Provided by (Used In):
Operating activities.................................................. $ 51,270 $ 36,600 $ 70,095
Investing activities.................................................. (119,975) (303,930) (67,341)
Financing activities.................................................. 107,216 524,999 (44)
----------- ----------- ---------
38,511 257,669 2,710
Net investment by Laidlaw Inc. -- beginning of year................... 1,056,266 798,597 795,887
----------- ----------- ---------
Net investment by Laidlaw Inc. -- end of year......................... $ 1,094,777 $ 1,056,266 $ 798,597
----------- ----------- ---------
----------- ----------- ---------
Operating activities
Net income (loss)..................................................... (3,448) 1,714 10,581
Items not affecting cash:
Depreciation and amortization....................................... 50,513 49,928 48,356
Deferred income taxes (Note 9)...................................... 1,076 1,588 2,704
Other............................................................... 390 146 --
Unusual gain........................................................ -- -- (10,803)
Cash provided by (used in) financing working capital:
Trade and other accounts receivable................................. (552) (7,340) 645
Inventories......................................................... 856 (277) (646)
Other current assets................................................ 2,098 (480) 856
Income taxes recoverable (payable).................................. (5,253) (465) 6,931
Accounts payable and accrued liabilities............................ 5,590 (8,214) 11,471
----------- ----------- ---------
Net cash provided by operating activities............................. $ 51,270 $ 36,600 $ 70,095
----------- ----------- ---------
----------- ----------- ---------
Investing activities
Purchase of fixed assets.............................................. ($ 109,538) ($ 72,195) ($ 52,689)
Proceeds from sale of fixed and other assets.......................... 3,547 1,548 938
Purchase of other assets.............................................. -- (1,238) (1,145)
Expended on acquisitions (Note 7)..................................... (8,000) (229,186) --
Other................................................................. (5,984) (2,859) (14,445)
----------- ----------- ---------
Net cash used in investing activities................................. ($ 119,975) ($ 303,930) ($ 67,341)
----------- ----------- ---------
----------- ----------- ---------
Financing activities
Repayment of long-term debt........................................... ($ 7,548) ($ 27,049) ($ 5,591)
Proceeds from issuance of long-term debt.............................. -- 32,251 --
Decrease in long-term liabilities..................................... (15,724) (6,167) (6,271)
Net advances and capital contributions from Laidlaw Inc............... 130,488 525,964 11,818
----------- ----------- ---------
Net cash provided by (used in) financing activities................... $ 107,216 $ 524,999 $ (44)
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-23
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
($000'S OMITTED)
1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These special purpose financial statements have been prepared to reflect
the combined financial position and results of operations of Laidlaw
Environmental Services, Inc. and its subsidiaries, Laidlaw Environmental
Services Ltd. and its subsidiaries, Smogless S.p.A. and its subsidiaries,
Laidlaw Belgium N.V., Norsk Special Olje S.A., and Laidlaw Environmental
Services de Mexico, S.A. de C.V. which comprise the hazardous waste operations
of Laidlaw Inc. ("Laidlaw Hazardous Waste Services" or the "Group").
These special purpose financial statements give effect to the retroactive
restatement of intercompany advances and contributed capital provided by the
parent, Laidlaw Inc., to equal the proportional amounts agreed upon to be in
effect upon the acquisition by Rollins Environmental Services, Inc. of
substantially all of the Group.
Interest expense on intercompany advances has been calculated using the
applicable rate (1996 - 10.33%; 1995 - 10.31% and 1994 - 8.43%) charged by
Laidlaw Inc. on its advances to subsidiaries. These interest rates are
indicative of the rates the Group would have incurred on a stand-alone basis.
Income taxes have been calculated using applicable U.S. and Canadian income tax
rates on U.S. and Canadian income for tax purposes on a separate return basis.
The surplus funds of the Group are regularly transferred to Laidlaw Inc.,
and any financing requirements are provided by Laidlaw Inc. Accordingly, no cash
or bank indebtedness balances are reported in these financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally
accepted accounting principles requires the Group to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses, and disclosure of contingencies. Future events could alter such
estimates in the near term.
A summary of significant accounting policies followed in the preparation of
these financial statements is as follows:
(a) Inventories
Inventories are valued at the lower of cost, determined on a first-in,
first-out basis, and replacement cost.
(b) Long-term investments
Long-term investments are carried at cost and consist primarily of
long-term trust fund deposits with government authorities to support closure and
post-closure activities at several of the Group's facilities.
(c) Fixed assets
Landfill sites, preparation costs, and improvements are recorded at cost
and amortized on the basis of landfill capacity utilized during the year.
Landfill capacity represents total permitted airspace which is measured in the
form of cubic yards. As of August 31, 1996, the Group's remaining landfill
capacity totalled approximately 254 million (1995 - 257 million) cubic yards.
Effective in 1996, the Group commenced capitalizing interest on undeveloped
landfill capacity to the cost of the landfill. The effect of the adoption of
this policy was immaterial in the current and prior years.
F-24
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Interest, construction and modification costs, and testing costs related to
the permitting and state required trial burns at the Clive, Utah incineration
facility have been capitalized to the cost of the incinerator. Such costs were
incurred prior to the receipt of final operating conditions which convey site
operating limits and which are contained in the final permit.
Depreciation and amortization of other property and equipment is provided
substantially on a straight-line basis over their estimated useful lives which
are as follows:
Buildings....................... 20 to 40 years
Vehicles and other.............. 5 to 15 years
The Group periodically reviews the carrying values of its fixed assets to
determine whether such values are recoverable. Any resulting write downs are
charged against income.
(d) Other assets
Goodwill is amortized on a straight-line basis over forty years. The Group
reviews the value assigned to goodwill to determine if its recoverability has
been impaired by conditions affecting the Group. The amount of any impairment is
charged against income.
Deferred charges, other than deferred financing costs, are amortized on a
straight-line basis over a two to five year period depending on the nature of
the deferred costs. Deferred financing costs are amortized over the life of the
related debt instrument.
(e) Environmental liabilities
Environmental liabilities include accruals for costs associated with
closure and post-closure monitoring and maintenance of the Group's landfills,
remediation at certain of the Group's facilities and corrective actions at
Superfund sites. The Group accrues for closure and post-closure costs over the
life of the landfill site as capacity is consumed.
(f) Foreign currency translation
The Group's Canadian operations are all of a self-sustaining nature. The
accounts are translated to U.S. dollars on the following basis:
Assets and liabilities at the exchange rate in effect at the balance sheet
date and revenue and expenses at weighted monthly average exchange rates for the
year.
(g) Financial instruments
The Group's accounts receivable, accounts payable and long-term debt
constitute financial instruments. Based on available market information, the
carrying value of these instruments approximates their fair value as at August
31, 1996 and 1995. Concentrations of credit risk in accounts receivable are
limited, due to the large number of customers comprising the Group's customer
base throughout North America. The Group performs ongoing credit evaluations of
its customers, but does not require collateral to support customer accounts
receivable. The Group establishes an allowance for doubtful accounts based on
the credit risk applicable to particular customers, historical trends and other
relevant information.
(h) Revenue
Revenues from waste treatment and disposal are recognized when the material
is delivered to the Group. Treatment and disposal costs are recognized
concurrently with revenues. When disposal occurs at a Group facility, the
disposal costs accrued are recorded at the intercompany transfer price, such
that profits earned by that facility are deferred until final disposal.
F-25
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(i) Accounting pronouncement not yet required to be adopted
The Group does not expect the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121 to have a materially adverse effect on the Group's
financial position or results of operations. In 1997 the Group is required to
adopt SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", issued by the Financial Accounting
Standards Board. SFAS No. 121 requires that long-lived assets be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
the asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest charges) from an asset to be held and used in
operations is less than the carrying value of the asset, an impairment loss must
be recognized in the amount of the difference between the carrying value and the
fair value. Should events and circumstances indicate that any of the Group's
landfills be reviewed for possible impairment, such review for recoverability
will be made in accordance with Emerging Issues Task Force Discussion Issue
("EITF") 95-23. The EITF outlines how cash flows for environmental exit costs
should be determined and measured.
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
AUGUST 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Notes due at various dates from 1997 to 2010 with interest rates
from 5% to 10%.................................................. $55,474 $62,824
Capital leases payable, due in 2000 with interest rates
of 8.5%......................................................... 1,234 1,432
------- -------
56,708 64,256
Less: Current portion............................................. 7,282 9,107
------- -------
$49,426 $55,149
------- -------
------- -------
</TABLE>
The aggregate amount of minimum payments required on long-term debt in each
of the years indicated is as follows:
Year ending August 31, 1997............................... $ 7,282
1998............................... 553
1999............................... 342
2000............................... 189
2001............................... 36
Thereafter......................... 48,306
-------
$56,708
-------
-------
4. ENVIRONMENTAL LIABILITIES
The Group has recorded liabilities for closure and post-closure monitoring
and environmental remediation costs as follows:
F-26
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
4. ENVIRONMENTAL LIABILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Current portion of environmental liabilities, included in
accrued liabilities.......................................... $ 22,964 $ 10,524
Non-current portion of environmental liabilities............... 83,601 106,293
-------- --------
$106,565 $116,817
-------- --------
-------- --------
</TABLE>
The Group, in the normal course of its business, expends funds for
environmental protection and remediation, but does not expect these expenditures
to have a materially adverse effect on its financial condition or results of
operations, since its business is based upon compliance with environmental laws
and regulations and its services are priced accordingly.
Closure and post-closure monitoring and maintenance costs for U.S.
landfills are estimated based on the technical requirements of the Subtitle C
and D Regulations of the U.S. Environmental Protection Agency or the applicable
state requirements, whichever are stricter, and the air emissions standards
under the Clear Air Act, and include such items as final capping of the site,
methane gas and leachate management, groundwater monitoring, and operation and
maintenance costs to be incurred during the period after the facility closes and
ceases to accept waste. Closure and post-closure costs for the Group's landfills
in Canada are based upon the local landfill regulations governing the facility.
The Group has also established procedures to routinely evaluate potential
remedial liabilities at sites which it owns or operated, or to which it
transported waste, including 19 sites listed on the Superfund National Priority
List (NPL). In the majority of situations, the Group's connection with NPL sites
relates to allegations that its subsidiaries (or their predecessors) transported
waste to the facilities in question, often prior to the acquisition of such
subsidiaries, by the Group. The Group routinely reviews and evaluates sites
requiring remediation, including NPL sites, giving consideration to the nature
(i.e., owner, operator, transporter or generator), and the extent (i.e., amount
and nature of waste hauled to the location, number of years of site operations
by the Group, or other relevant factors) of the Group's alleged connection with
the site, the accuracy and strength of evidence connecting the Group to the
location, the number, connection and financial ability of other named and
unnamed potentially responsible parties and the nature and estimated cost of the
likely remedy. Where the Group concludes that it is probable that a liability
has been incurred, provision is made in the financial statements, based upon
management's judgement and prior experience, for the Group's best estimate of
the liability. Such estimates are subsequently revised as deemed necessary as
additional information becomes available.
Estimates of the extent of the Group's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult. The ultimate
outcome of these items may differ from current estimates. The Group believes
that its extensive experience in the environmental services business provides a
reasonable basis for making its estimates. However, these estimates may include
a range of possible outcomes. In such cases, management provides for the amount
within the range that constitutes its best estimate. It is less than likely but
more than remotely possible that the Group's potential liability could be at the
high end of such ranges, which would be approximately $26 million in the
aggregate higher than the estimates that have been recorded in these financial
statements. While the Group does not currently anticipate that any adjustment to
its estimates would be material to its financial statements, it is reasonably
possible that technological, regulatory or enforcement developments, the results
of environmental
F-27
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
4. ENVIRONMENTAL LIABILITIES -- (CONTINUED)
studies or other factors could necessitate the recording of additional
liabilities that could be material. The impact of such future events cannot be
estimated at the current time.
Where the Group believes that both the amount of a particular environmental
liability and the timing of the payments are reliably determinable, the cost in
current dollars is discounted to present value assuming inflation of 3% and a
risk free discount rate of 8%. Had the Group not discounted any portion of its
liability, the amount recorded would have been increased by approximately $9
million at August 31, 1996 (1995 -- $9 million).
The majority of the Group's active landfill sites have estimated remaining
lives ranging from 2 to more than 100 years based upon current site plans and
anticipated annual volumes of waste. As at August 31, 1996, the Group estimates
that during this remaining site life, it will provide for an additional $72
million (1995 -- $67 million) of closure and post-closure costs, including
accretion for the discount recognized to date.
Anticipated payments of environmental liabilities for each of the next five
years and thereafter are as follows:
Year ending August 31, 1997.............................. $ 22,964
1998.............................. 16,768
1999.............................. 14,323
2000.............................. 7,583
2001.............................. 7,834
Thereafter........................ $109,093
--------
$178,565
--------
--------
5. COMMITMENTS AND CONTINGENCIES
(a) Lease commitments
Rental expense incurred under operating leases amounted to $42,002, $39,325
and $25,732 in the years ended August 31, 1996, 1995, and 1994 respectively.
Rentals payable under operating leases for premises and equipment are as
follows:
Year ending August 31, 1997........................... $14,037
1998........................... 11,136
1999........................... 8,342
2000........................... 5,384
2001........................... 2,546
Thereafter..................... 6,933
-------
$48,378
-------
-------
(b) Legal proceedings
The consolidated federal income tax returns of the Laidlaw Transportation,
Inc. U.S. Consolidated Tax Group (the United States subsidiaries of the Group
are members of this taxpayers group) for the fiscal years ended August 31, 1986,
1987 and 1988 have been under audit by the Internal Revenue Service. In March
1994, the Laidlaw Transportation, Inc. U.S. Consolidated Tax Group received a
Statutory Notice of Deficiency proposing that the Laidlaw Transportation, Inc.
U.S. Consolidated Tax
F-28
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Group pay additional taxes relating to disallowed deductions in those income tax
returns. The principal issue involved relates to the timing and the
deductibility for tax purposes of interest attributable to loans owing to
related foreign persons. The Laidlaw Transportation, Inc. U.S. Consolidated Tax
Group has petitioned the United States Tax Court (captioned as Laidlaw
Transportation, Inc. and Subsidiaries et al v. Commissioner of Internal Revenue,
Docket Nos. 9361-94 and 9362-94) for a re-determination of claimed deficiencies
of approximately $50.3 million (plus interest of approximately $67.6 million as
of August 31, 1996). In May 1996, the Laidlaw Transportation, Inc. U.S.
Consolidated Tax Group received Revenue Agent's reports proposing that the
Laidlaw Transportation, Inc. U.S. Consolidated Tax Group pay additional taxes of
approximately $161.3 million (plus interest of approximately $105.7 million as
of August 31, 1996) relating to disallowed deductions in federal income tax
returns for the fiscal years ended August 31, 1989, 1990 and 1991 based on the
same issues. The Laidlaw Transportation, Inc. U.S. Consolidated Tax Group
intends to vigorously contest these claimed deficiencies. Although the final
outcome cannot be predicted with certainty, the Group, based upon a thorough
review of the facts and the advice of counsel, believes that the ultimate
disposition of these issues will not give rise to any additional liability.
(c) Letters of Credit and guarantees
At August 31, 1996, the Group had $138,692 (1995 - $151,564) in outstanding
letters of credit, of which the most significant are in support of the Group's
undertakings in respect of landfill closure and post-closure activities required
in obtaining regulatory operating permits. In addition, Laidlaw Inc. and its
affiliates have provided financial assurances, guarantees and additional letters
of credit in the aggregate amount of approximately $281 million for closure and
post-closure activities, bid bonds and other financial matters.
6. RELATED PARTY TRANSACTIONS
Included in selling, general and administrative expenses are management
fees paid to Laidlaw Inc. as follows:
YEAR ENDED AUGUST 31,
---------------------
1996 1995 1994
------ ------ ------
Management fees......................................... $4,562 $3,373 $5,242
------ ------ ------
------ ------ ------
Management fees have been allocated to the Group based upon the Group's
share of Laidlaw Inc.'s consolidated revenue. Management fees are charged by
Laidlaw Inc. to each of its operating groups in order to recover its general and
administrative costs. The services provided by Laidlaw Inc. include treasury,
taxation and insurance.
These fees are in the normal course of operations and are considered
reasonable by both parties. The Group directly incurs all other significant
costs of doing business.
F-29
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
7. ACQUISITIONS
A summary of the Group's acquisitions of hazardous waste management
companies in the periods indicated is as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------
1996 1995 1994
------- --------- -------
<S> <C> <C> <C>
Assets acquired -- at fair value:
Fixed assets.................................................... $ 181 $ 279,112 --
Goodwill........................................................ 12,459 48,499 --
Long-term investments and other assets.......................... -- 5,400 --
Deferred income taxes........................................... -- 38,806 --
------- --------- -------
12,640 371,817 --
Long-term liabilities assumed..................................... (2,273) (102,927) --
Working capital................................................... (2,367) 896 --
------- --------- -------
Expended on acquisitions.......................................... $ 8,000 $ 269,786 --
------- --------- -------
------- --------- -------
Financed by
Debt incurred................................................... $ 8,000 $ 229,186 --
Debt assumed.................................................... -- 40,600 --
------- --------- -------
$ 8,000 $ 269,786 --
------- --------- -------
------- --------- -------
Number of businesses acquired..................................... 1 2 --
------- --------- -------
Annualized revenue acquired (unaudited)........................... $17,000 $ 309,000 --
------- --------- -------
------- --------- -------
</TABLE>
PRO FORMA DATA (UNAUDITED)
Condensed pro forma statements of operations data, as if acquisitions each
year had occurred at the beginning of the previous year, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statements of operations data:
Revenue....................................................... $725,753 $770,359 $764,902
Net income (loss)............................................. (3,144) 4,742 13,662
</TABLE>
The decline in pro forma revenue for 1996 to $725.8 million from $770.4
million in 1995 is as a result of the negative price and volume changes in
revenues experienced by the Group.
8. SEGMENTED GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
United States and Europe
Revenue.................................................. $ 620,530 $ 554,770 $437,955
Income from operations................................... 52,335 56,307 40,057
Total identifiable assets................................ 1,286,377 1,218,619 760,777
Canada:
Revenue.................................................. $ 95,299 $ 88,086 $ 79,849
Income from operations................................... 9,230 6,456 5,491
Total identifiable assets................................ 211,816 211,133 213,276
</TABLE>
F-30
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
($000'S OMITTED)
9. INCOME TAXES
Income (loss) before income taxes by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes and minority interest
United States and Europe......................................... $ 8,038 $13,072 $18,768
Canada........................................................... (6,640) (7,508) (3,837)
------- ------- -------
$ 1,398 $ 5,564 $14,931
------- ------- -------
------- ------- -------
</TABLE>
The Group's income tax expense is comprised of the following:
YEAR ENDED AUGUST 31,
-------------------------
1996 1995 1994
-------- ------ -------
Current tax expense....................... $(1,124) $(2,112) $(1,646)
Deferred tax expense...................... (1,076) (1,588) (2,704)
------- ------- -------
Total expense............................. $(2,200) $(3,700) $(4,350)
------- ------- -------
------- ------- -------
The Group's effective income tax rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Combined basic Canadian Federal and Provincial income tax rates...... 42.5% 42.5% 42.5%
Non-taxable gain..................................................... 0.0 0.0 (30.7)
Expenses not deductible -- 152.0 38.2 14.2
non-deductible goodwill amortization and other.....................
Effect of lower tax rate applicable to United States income.......... (38.8) (13.8) (1.4)
Other................................................................ 1.7 (0.4) 4.5
------- ------ ------
157.4 66.5 29.1
------- ------ ------
------- ------ ------
</TABLE>
The tax effect of temporary differences which comprise deferred income
taxes shown on the balance sheet are as follows:
AUGUST 31,
------------------
1996 1995
-------- --------
Deferred tax assets:
Net operating loss benefits..........................$ 54,736 $ 69,390
Accrued remediation and closure costs................ 15,042 18,977
Expenses deductible when paid........................ 13,838 17,039
Other................................................ 12,835 6,864
-------- --------
Net deferred tax assets................................ 96,451 112,270
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation................. 141,033 125,186
Capitalized expenses deducted for tax................ 41,757 25,965
-------- --------
Total gross deferred liabilities....................... 182,790 151,151
-------- --------
Net deferred tax liability.............................$ 86,339 $ 38,881
-------- --------
-------- --------
10. UNUSUAL ITEM
In 1994, the unusual item of $10.8 million represents the net gain on
disposal of the Group's European operations.
F-31
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
COMBINED BALANCE SHEETS
($000'S OMITTED)
(UNAUDITED)
NOVEMBER 30,
----------------------
1996 1995
---------- ----------
ASSETS
Current assets
Trade and other accounts receivable
(net of allowance for doubtful accounts of $5,572;
November 30, 1995 -- $6,609)....................... $ 209,243 $ 203,750
Inventories.......................................... 8,341 9,185
Income taxes recoverable............................. 603 3,955
Other current assets................................. 5,752 7,289
---------- ----------
Total current assets............................ 223,939 224,179
---------- ----------
Long-term investments................................ 37,517 31,346
---------- ----------
Fixed assets
Land, landfill sites and improvements................ 635,716 624,791
Buildings............................................ 326,641 324,203
Vehicles and other................................... 496,576 429,531
---------- ----------
1,458,933 1,378,525
Less: Accumulated depreciation and
amortization 341,347 294,243
---------- ----------
1,117,586 1,084,282
---------- ----------
Other assets
Goodwill (net of accumulated amortization of $15,539;
November 30, 1995 -- $13,451)........................ 119,577 110,760
Deferred charges..................................... 1,376 1,691
---------- ----------
120,953 112,451
---------- ----------
Total assets.................................... $1,499,995 $1,452,258
---------- ----------
---------- ----------
LIABILITIES
Current liabilities
Accounts payable..................................... $ 74,901 $ 74,862
Accrued liabilities.................................. 58,976 74,468
Current portion of long-term debt.................... 7,212 8,511
---------- ----------
Total current liabilities....................... 141,089 160,841
---------- ----------
Deferred items
Income taxes......................................... 85,318 43,889
Environmental and other.............................. 105,866 109,905
---------- ----------
191,184 153,794
---------- ----------
Long-term debt....................................... 48,154 55,038
---------- ----------
Minority interest.................................... 1,052 1,196
---------- ----------
381,479 370,869
---------- ----------
NET INVESTMENT BY LAIDLAW INC.
Intercompany advances................................ 694,634 671,543
Contributed capital.................................. 423,882 409,846
---------- ----------
1,118,516 1,081,389
---------- ----------
Total liabilities and
net investment by Laidlaw Inc................ $1,499,995 $1,452,258
---------- ----------
---------- ----------
F-32
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
COMBINED STATEMENTS OF INCOME
($000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue................................................................................. $188,973 $196,695
-------- --------
Operating expenses...................................................................... 138,043 142,805
Selling, general and administrative expenses............................................ 18,674 20,708
-------- --------
Income from operations.................................................................. 16,351 19,937
Interest on intercompany advances....................................................... (15,893) (14,295)
Interest on long-term debt.............................................................. (1,184) (1,662)
Interest, dividend and other income..................................................... 1,167 483
-------- --------
Income before income taxes and minority interest........................................ 441 4,463
Income tax expense...................................................................... (200) (2,000)
Minority interest....................................................................... (827) (1,050)
-------- --------
Net income (loss) for the period........................................................ $ (586) $ 1,413
-------- --------
-------- --------
</TABLE>
F-33
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
COMBINED STATEMENTS OF CASH FLOWS
($000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net cash provided by (used in):
Operating activities.................................................... ($ 11,665) $ 5,066
Investing activities.................................................... (6,884) (24,866)
Financing activities.................................................... 55,676 44,923
----------- -----------
37,127 25,123
Net investment by Laidlaw Inc. -- beginning of period................... 1,081,389 1,056,266
----------- -----------
Net investment by Laidlaw Inc. -- end of period......................... $ 1,118,516 $ 1,081,389
----------- -----------
----------- -----------
Operating activities
Net income (loss)....................................................... ($ 586) $ 1,413
Items not affecting cash:
Depreciation and amortization...................................... 15,905 13,245
Deferred income taxes.............................................. (881) 2,025
Other.............................................................. 516 1,050
Cash provided by (used in) financing working capital:
Trade and other accounts receivable................................ (15,433) (10,492)
Inventories........................................................ (319) (307)
Other current assets............................................... 625 1,186
Income taxes recoverable........................................... 4,414 (4,191)
Accounts payable and accrued liabilities........................... (15,906) 1,137
----------- -----------
Net cash provided by (used in) operating activities..................... ($ 11,665) $ 5,066
----------- -----------
----------- -----------
Investing activities
Purchase of fixed assets................................................ ($ 7,933) ($ 24,420)
Proceeds from sale of fixed and other assets............................ 1,473 86
Other................................................................... (424) (532)
----------- -----------
Net cash used in investing activities................................... ($ 6,884) ($ 24,866)
----------- -----------
----------- -----------
Financing activities
Repayment of long-term debt............................................. ($ 1,342) ($ 707)
Increase (decrease) in long-term liabilities............................ (4,184) (8,869)
Net advances and capital contributions from Laidlaw Inc................. 61,202 54,499
----------- -----------
Net cash provided by financing activities............................... $ 55,676 $ 44,923
----------- -----------
----------- -----------
</TABLE>
F-34
<PAGE>
LAIDLAW HAZARDOUS WASTE SERVICES
NOTE TO COMBINED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying interim combined financial statements of Laidlaw Hazardous
Waste Services have been prepared in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X and in accordance with United States
generally accepted accounting principles. Accordingly, these financial
statements do not include all of the disclosures required by generally accepted
accounting principles for annual financial statements. In the opinion of
management, all adjustments considered necessary for fair presentation have been
included; all such adjustments are of a normal, recurring nature. Operating
results for the three months ended November 30, 1996 are not necessarily
indicative of the results that may be expected for the full year ending August
31, 1997. For further information, see Laidlaw Hazardous Waste Services'
consolidated financial statements, including the accounting policies and notes
thereto for the year ended August 31, 1996.
F-35
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
AMONG
ROLLINS ENVIRONMENTAL SERVICES, INC.
AND
LAIDLAW INC.,
AND
LAIDLAW TRANSPORTATION, INC.
DATED AS OF
FEBRUARY 6, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS AND INTERPRETATION...................................... A-1
1.1 Definitions.............................................. A-1
1.2 Interpretation........................................... A-8
ARTICLE II
THE ACQUISITION..................................................... A-8
2.1 Sale and Purchase of Shares.............................. A-8
2.2 Consideration for Chem-Waste Shares and
Chem-Waste Intercompany Indebtedness................... A-8
2.3 Total Consideration Allocation........................... A-9
2.4 Cash Management Cut-Off.................................. A-9
2.5 Recurring Charges........................................ A-9
ARTICLE III
THE CLOSING AND RELATED MATTERS..................................... A-9
3.1 The Closing.............................................. A-9
3.2 Actions in Contemplation of Closing...................... A-9
3.3 Other Actions at the Closing............................. A-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER............................ A-10
4.1 Organization of Seller and Laidlaw....................... A-10
4.2 Authority Relative to this Agreement..................... A-10
4.3 Status of Chem-Waste Shares.............................. A-11
4.4 No Violations............................................ A-11
4.5 Consents and Approvals................................... A-11
4.6 Acquired Subsidiaries.................................... A-11
4.7 No Other Subsidiaries.................................... A-12
4.8 Conduct of Hazardous and Industrial
Waste Business......................................... A-12
4.9 SEC Filings.............................................. A-12
4.10 Seller Financial Statements.............................. A-12
4.11 Absence of Certain Changes............................... A-13
4.12 No Undisclosed Liabilities............................... A-13
4.13 Acquired Subsidiary Properties........................... A-13
4.14 Taxes and Tax Returns.................................... A-13
4.15 Litigation............................................... A-13
4.16 Environmental Matters.................................... A-14
4.17 Governmental Licenses and Permits;
Compliance with Laws................................... A-15
4.18 Labor Matters............................................ A-15
4.19 Employee Benefit Plans................................... A-16
4.20 Brokers.................................................. A-17
4.21 Material Contracts....................................... A-17
4.22 Bank Accounts............................................ A-18
4.23 Officers and Directors................................... A-18
4.24 Condition and Sufficiency of Assets...................... A-18
4.25 Affiliate Transactions................................... A-18
i
<PAGE>
PAGE
----
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER......................... A-19
5.1 Organization of Purchaser Parties........................ A-19
5.2 Authority Relative to this Agreement..................... A-19
5.3 Status of Purchaser Common Shares........................ A-19
5.4 No Violations............................................ A-19
5.5 Consents and Approvals................................... A-20
5.6 Purchaser Capitalization................................. A-20
5.7 Purchaser Subsidiaries................................... A-20
5.8 Conduct of Hazardous and Industrial Waste Business....... A-21
5.9 SEC Filings.............................................. A-21
5.10 Purchaser Financial Statements........................... A-21
5.11 Absence of Certain Changes............................... A-21
5.12 No Undisclosed Liabilities............................... A-21
5.13 Purchaser Properties..................................... A-21
5.14 Taxes and Tax Returns.................................... A-21
5.15 Litigation............................................... A-22
5.16 Environmental Matters.................................... A-22
5.17 Governmental Licenses and Permits; Compliance with Laws.. A-24
5.18 Labor Matters............................................ A-24
5.19 Employee Benefit Plans................................... A-24
5.20 Financing................................................ A-25
5.21 Brokers.................................................. A-25
5.22 Material Contracts....................................... A-26
5.23 Bank Accounts............................................ A-26
5.24 Officers and Directors................................... A-26
5.25 Affiliate Transactions................................... A-27
5.26 Condition and Sufficiency of Assets...................... A-27
ARTICLE VI
SELLER AND LAIDLAW COVENANTS PENDING CLOSING........................ A-27
6.1 Conduct of Business...................................... A-27
6.2 Forbearance by the Acquired Subsidiaries................. A-27
6.3 Access and Information................................... A-28
6.4 Supplemental Information................................. A-29
6.5 Confidentiality.......................................... A-29
6.6 Consummation of Acquisition.............................. A-29
6.7 Access for Environmental Report.......................... A-29
6.8 Acquisitions of Purchaser Common Stock................... A-29
6.9 Competition.............................................. A-29
ARTICLE VII
PURCHASER COVENANTS PENDING CLOSING................................. A-30
7.1 Conduct of Business...................................... A-30
7.2 Forbearance by Purchaser and its Subsidiaries............ A-30
7.3 Access and Information................................... A-31
7.4 Supplemental Information................................. A-31
7.5 Purchaser Stockholders' Meeting and Restated and
Amended Certificate of Incorporation................... A-32
7.6 Confidentiality.......................................... A-32
7.7 Consummation of Acquisitions............................. A-32
7.8 Letter from Stockholders................................. A-32
7.9 Access for Environmental Report.......................... A-32
ii
<PAGE>
PAGE
----
ARTICLE VIII
MUTUAL CONDITIONS................................................... A-33
8.1 No Adverse Proceedings................................... A-33
8.2 HSR Waiting Period....................................... A-33
8.3 Purchaser Stockholder Approval........................... A-33
8.4 Competition Act Matters.................................. A-33
8.5 Westinghouse Debt Retirement............................. A-33
8.6 Reorganization........................................... A-33
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF PURCHASER.............................. A-34
9.1 Representations True at Closing.......................... A-34
9.2 No Adverse Changes....................................... A-34
9.3 Investment Canada Act.................................... A-34
9.4 Competition Act Matters.................................. A-34
9.5 Acquisition Financing.................................... A-34
9.6 Opinion of Financial Advisor............................. A-34
ARTICLE X
CONDITIONS TO SELLER'S AND LAIDLAW'S OBLIGATIONS.................... A-34
10.1 Representations True at Closing.......................... A-34
10.2 No Adverse Changes....................................... A-35
10.3 Investment Canada Act.................................... A-35
10.4 Competition Act Matters.................................. A-35
10.5 Waiver of Rights Plan.................................... A-35
10.6 Acquisition Financing.................................... A-35
ARTICLE XI
ADDITIONAL AGREEMENTS............................................... A-35
11.1 HSR Act Filings.......................................... A-35
11.2 Competition Act Filings.................................. A-35
11.3 Investment Canada Act Filings............................ A-35
11.4 Other Consents and Approvals............................. A-36
11.5 Publicity................................................ A-36
11.6 Expenses................................................. A-36
11.7 Securities Law Matters................................... A-36
11.8 Rule 144 Reports......................................... A-37
11.9 Seller Board Representation.............................. A-37
11.10 Seller Guaranties........................................ A-37
11.11 Guarantees of Performance of Retained Subsidiaries....... A-38
11.12 Pinewood Security........................................ A-38
11.13 Employees................................................ A-39
11.14 Purchaser Stock Option Plan.............................. A-39
11.15 Affiliate Transactions and Business Combination.......... A-39
11.16 Directors and Officers................................... A-39
ARTICLE XII
TAX MATTERS......................................................... A-40
12.1 Future Tax Returns....................................... A-40
12.2 Tax Covenants............................................ A-40
12.3 Other Tax Matters, Post-Closing Cooperation.............. A-41
12.4 Tax Controversies........................................ A-42
iii
<PAGE>
PAGE
----
ARTICLE XIII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES............... A-43
13.1 Nature of Statements..................................... A-43
13.2 Survival of Representations, Warranties and Covenants.... A-43
ARTICLE XIV
INDEMNIFICATION..................................................... A-43
14.1 Indemnification by Laidlaw and Seller.................... A-43
14.2 Indemnification by Purchaser............................. A-44
14.3 Third Party Claim........................................ A-44
14.4 Claims Between the Parties............................... A-45
ARTICLE XV
AMENDMENT AND TERMINATION........................................... A-46
15.1 Amendment................................................ A-46
15.2 Waiver................................................... A-46
15.3 Termination.............................................. A-46
15.4 Consequences of Termination.............................. A-46
ARTICLE XVI
GENERAL PROVISIONS.................................................. A-47
16.1 Non-Business Days........................................ A-47
16.2 Notices.................................................. A-47
16.3 Entire Agreement......................................... A-47
16.4 Assignment; Binding Effect............................... A-47
16.5 Counterparts............................................. A-47
16.6 Governing Law; Jurisdiction.............................. A-47
16.7 Severability of Provisions............................... A-47
16.8 Specific Performance..................................... A-47
16.9 Joint Drafting........................................... A-48
16.10 Captions................................................. A-48
16.11 No Third-Party Beneficiaries............................. A-48
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), is made as of February 6,
1997, among Rollins Environmental Services, Inc., a Delaware corporation
("Purchaser"), Laidlaw Inc., a Canadian corporation ("Laidlaw") and Laidlaw
Transportation, Inc., a Delaware corporation and indirect wholly-owned
subsidiary of Laidlaw ("Seller").
W I T N E S S E T H:
WHEREAS, Seller, exclusively through Laidlaw Chem-Waste, Inc., a Delaware
corporation and a wholly owned subsidiary of Seller ("Chem-Waste") and
Chem-Waste's direct and indirect subsidiaries, is engaged in the Hazardous and
Industrial Waste Business in the United States and Canada; and
WHEREAS, Seller wishes to sell all of its United States and Canadian
Hazardous and Industrial Waste Business; and
WHEREAS, Purchaser, through the acquisition of all of the issued and
outstanding capital stock of Chem-Waste, wishes to purchase all of the United
States and Canadian Hazardous and Industrial Waste Business of Seller;
NOW, THEREFORE, Purchaser, Seller and Laidlaw (collectively, the "Parties")
agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In this Agreement:
"Acquired Canadian Subsidiaries" means those Acquired Subsidiaries
which are incorporated under the laws of Canada or a Canadian province.
"Acquired Subsidiaries" means (i) Chem-Waste and (ii) the direct and
indirect wholly owned Subsidiaries of Chem-Waste listed and identified on
the attached Schedule I, collectively.
"Acquired U.S. Subsidiaries" means those Acquired Subsidiaries which
are incorporated under the laws of a state of the United States.
"Acquisition" means the acquisition of the Chem-Waste Shares and the
Chem-Waste Intercompany Indebtedness.
"Additional Purchaser Common Shares" means shares of Purchaser Common
Stock which may be issued after the Closing pursuant to the terms of the
Purchaser Convertible Debenture.
"Advance Ruling Certificate" means an advance ruling certificate
issued by the Competition Act Director under Section 102 of the Competition
Act.
"Affiliate" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person, with the terms
"control" and "controlled" meaning for purposes of this definition the
power to direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities or
partnership or other ownership interests, or by contract or otherwise.
"Ancillary Agreements" means, collectively, the Registration Rights
Agreement and the Purchaser Convertible Debenture.
"Antitrust Division" means the Antitrust Division of the United States
Department of Justice.
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"Bond Indebtedness" has the meaning specified in Section 2.2.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in Toronto, Ontario or New York, New York are
authorized or obligated to close.
"Chem-Waste Group Financial Statements" means all financial statements
of the Acquired Subsidiaries delivered to Purchaser under Section 4.10.
"Chem-Waste Group Taxes" means any and all Taxes incurred or imposed
on the Seller Group arising in a Pre-Closing Tax Period including Seller's
post-closing Taxes.
"Chem-Waste Intercompany Indebtedness" has the meaning specified in
Section 2.1.
"Chem-Waste Shares" means all of the issued and outstanding capital
stock of Chem-Waste, which stock as of the date hereof consists solely of
common shares, no par value per share, that are 100% owned by Seller.
"Closing" has the meaning specified in Section 3.1.
"Closing Date" means (i) the fifth Business Day immediately following
the earliest date upon or by which (a) the waiting period under the HSR Act
shall have expired or otherwise been terminated, (b) either (I) the
Competition Act Director shall have issued and not subsequently withdrawn
or threatened to withdraw, an Advance Ruling Certificate relating to the
Acquisition or (II) Purchaser shall have received the advice from the
Competition Act Director specified in Section 9.4(ii), (c) the ICA Minister
shall have made the determination, or shall have been deemed to have made
the determination, specified in Section 9.3, and (d) all other conditions
to the respective obligations of the Parties set forth in Articles VIII, IX
and X shall have been satisfied or waived, or (ii) such other date as
Purchaser and Seller may agree.
"Closing Price" has the meaning specified in Section 12.2.
"Code" means the United States Internal Revenue Code of 1986, as
amended, and the regulations and rulings of the Internal Revenue Service
promulgated thereunder.
"Commitment Letter" means the letter dated December 10, 1996,
addressed to Laidlaw, which can be assigned to Purchaser, relating to
senior credit facilities in an aggregate principal amount of $650,000,000
to be provided by The Toronto-Dominion Bank, in connection with, and
conditioned upon consummation of, the Acquisition, subject to the
satisfaction of other conditions and upon the terms set forth therein
including attachments thereto.
"Competition Act" means the Canadian Federal Competition Act, R.S.C.
1985, c. C-34, as amended.
"Competition Act Director" means the Canadian Director of
Investigation and Research appointed under the Competition Act.
"Confidentiality Agreement" means the confidentiality agreement dated
as of November 1, 1996, as amended, between Purchaser and Laidlaw.
"Damages" means all obligations, claims, liabilities, damages,
penalties, deficiencies, losses, investigations, proceedings, judgments,
fines, and reasonable costs and expenses (including, but not limited to,
reasonable costs and expenses incurred in connection with the performance
of obligations, interest, bonding and court costs and attorneys',
accountants', engineers', consultants' and investigators' fees and
disbursements) incurred in connection with any investigation or defense of
any of the foregoing.
"Environmental Claim" means any claim by a Person alleging or imposing
actual or potential liability (including potential liability for any
investigatory cost, containment or oversight cost, control cost, prevention
cost, remediation cost, cleanup cost, governmental response cost, natural
resources damage, toxic tort claim, property damage, personal injury or
penalty) arising out of, based on, resulting from or relating to (i) the
presence, storage, transport, disposal, use,
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discharge, release or threatened release of any Hazardous Substance at any
location, whether or not owned by the Person against which the claim is
made, or (ii) circumstances forming the basis for any liability under, or
any violation or alleged violation of, any Environmental Law.
"Environmental Laws" means all federal, foreign, state, provincial,
municipal and local statutes, codes, regulations, rules, ordinances and
other laws relating to the protection, preservation or conservation of the
environment and to public or worker health and safety, as amended or
reauthorized, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 422
U.S.C. ss.9601 et seq., the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. ss.6901 et seq., the Emergency Planning and Community
Right to Know Act, 42 U.S.C. ss.11001 et seq., the Clean Air Act, 42 U.S.C.
ss.7401 et seq., the Federal Water Pollution Control Act, 33 U.S.C. ss.1251
et seq., the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq., the
Safe Drinking Water Act, 42 U.S.C. ss.300f et seq., and the Occupational
Safety and Health Act, 29 U.S.C. Section651 et seq.
"Environmental Liabilities" means any and all costs (including
remedial, removal, response, abatement, cleanup, investigative and/or
monitoring costs), damages, settlements, expenses (including charges and
assessments, and expenses and costs of investigating, preparing or
defending any action or proceeding), liens, penalties, fines, prejudgment
and post-judgment interest, court costs and attorneys' fees incurred or
imposed (i) pursuant to any agreement, order, notice of responsibility,
directive (including requirements embodied in Environmental Laws),
injunction, judgment or similar documents (including settlements)
attributable to, connected with or arising out of or under, Environmental
Laws or (ii) pursuant to any claim by a Governmental Entity or other entity
or Person for personal injury, property damage, damage to natural
resources, remediation or response costs arising out of, connected with or
attributable to, any Hazardous Substance.
"Environmental Permits" means all permits, licenses, registrations,
certifications, exemptions, approvals and other authorizations of or by any
Governmental Entity pursuant to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any Person, any trade or
business, whether or not incorporated, which together with that Person
would be deemed a single employer within the meaning of Section 4001 of
ERISA or Section 414 of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"FTC" means the United States Federal Trade Commission.
"Governmental Entity" means any U.S., Canadian or foreign, state,
territorial, federal, provincial or local court, executive office,
legislature, governmental agency or ministry, commission, or
administrative, regulatory or self-regulatory authority or instrumentality.
"Hazardous and Industrial Waste Business" means the transportation,
treatment, storage and disposal of Hazardous Substances and industrial
wastes as presently conducted by the Acquired Subsidiaries, but excluding
the coal combustion by-product management services conducted by the
Retained Subsidiaries.
"Hazardous Substances" means chemicals, pollutants, contaminants,
wastes (including ambient wastes, hazardous wastes and liquid industrial
wastes), or other substances (including toxic, deleterious or hazardous
substances), as defined, listed or regulated pursuant to Environmental
Laws, including, asbestos or asbestos-containing materials, polychlorinated
biphenyls, pesticides and oils, and petroleum and petroleum products (as
those exemplary terms are defined in or regulated under the United States
National Oil and Hazardous Substances
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Pollution Contingency Plan, 40 C.F.R. ss.300.1 et seq. and other
Environmental Laws).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"ICA Minister" means the Minister responsible for administering the
Investment Canada Act.
"Income Tax Act" means the Canadian federal Income Tax Act, R.S.C.
1985 c. 1, as amended.
"Indebtedness" means with respect to any Person at any date, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), (ii) any other indebtedness of such Person which is
evidenced by a note, bond, debenture, letter of credit or similar
instrument, (iii) all obligations of such Person with respect to
guarantees, (iv) all obligations of such Person under leases of property
which are required to be capitalized under U.S. GAAP, (v) all obligations
of such Person in respect of acceptances issued or created for the account
of such Person (other than endorsements in the ordinary course of
business), (vi) all obligations of such Person in respect of interest rate
swaps or other interest rate hedging products or foreign currency exchange
agreements or exchange rate hedging arrangements, (vii) all obligations of
such Person in respect of reimbursement obligations under letters of
credit, and (viii) all liabilities of the type referred to in clauses (i)
through (vii) above that are secured by any lien, charge, security interest
or encumbrance on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment thereof.
"Intercompany Indebtedness" means, at any date, all amounts, other
than Recurring Charges, owed on that date by an Acquired Subsidiary, or any
obligation of an Acquired Subsidiary, contingent or otherwise on that date,
to Seller or any other member of the Seller Group other than the Acquired
Subsidiaries.
"Investment Canada Act" means the Investment Canada Act, R.S.C. 1985,
c. C-28, as amended.
"Laidlaw SEC Filings" has the meaning specified in Section 4.9.
"Law" means a law, statute, ordinance, rule, code or regulation
enacted or promulgated, or order, permit, directive, instruction or other
legally binding guideline or policy issued or rendered by, any Governmental
Entity.
"Lien" means a lien, mortgage, deed of trust, deed to secure debt,
pledge, hypothecation, assignment, deposit arrangement, easement,
preference, priority, assessment, security interest, lease, sublease,
charge, claim, adverse claim, levy, interest of other Persons, or other
encumbrance of any kind (including any conditional sale or other title
retention agreement having the same economic effect as any of the
foregoing).
"Mailing Date" has the meaning specified in Section 7.5.
"Material Adverse Effect" means (i) when used with reference to the
Acquired Subsidiaries, a material adverse effect on the financial
condition, business, assets, prospects or results of operations of the
Acquired Subsidiaries taken as a whole, (ii) when used with reference to
Purchaser, to Seller or to Laidlaw, a material adverse effect on its
ability to perform its obligations under this Agreement or any Ancillary
Agreement to which it is a party and (iii) when used with reference to
Purchaser and its Subsidiaries, a material adverse effect on the financial
condition, business, assets, prospects or results of operations of
Purchaser and its Subsidiaries (including from and after the Closing, the
Acquired Subsidiaries) taken as a whole.
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"Notice" means any written citation, directive, order, claim,
litigation, investigation, proceeding, judgment, letter or other
communication from any person, including any governmental agency or
employee thereof.
"Ontario Securities Act" means the Securities Act (Ontario), R.S.O.
1990, c.S.5, as amended.
"Permitted Liens" means (i) those Liens set forth in Section 4.13 of
the Seller Disclosure Schedule or Section 5.13 of the Purchaser Disclosure
Schedule, as applicable, (ii) those Liens reflected in the Purchaser SEC
Filings, in the case of the Purchaser and its assets or properties, (iii)
any Lien that is set forth in the title reports or title insurance binders
that have been made available to the Purchaser by Seller relating to any
interest in real property owned by an Acquired Subsidiary, (iv) Liens for
water and sewer charges and current taxes not yet due and payable or being
contested in good faith, and (v) other Liens (including mechanics',
couriers', workers', repairers', materialmen's, warehousemen's and other
similar Liens) arising in the ordinary course of business as would not in
the aggregate materially adversely affect the value of, or materially
adversely interfere with the use of, the property subject thereto.
"Person" means an individual, corporation, partnership, association,
joint stock company, limited liability company, Governmental Entity,
business trust, unincorporated organization or other legal entity.
"Policies" has the meaning specified in Section 11.15.
"Post-Closing Tax Period" means any Tax period (or portion thereof)
beginning after the close of business on the Closing Date.
"Pre-Closing Seller Insurance Claims" means any liability, personal
injury, property damage, workers compensation or other similar claim (other
than health and welfare insurance claims) made against any Acquired
Subsidiary by any Person with respect to a loss, damage, claim, incident or
occurrence which occurred before the time of Closing, including any such
matter which was incurred but not reported on or before the time of
Closing.
"Pre-Closing Tax Period" means any Tax period (or portion thereof)
ending on or before the close of business on the Closing Date.
"Purchaser Balance Sheet" has the meaning specified in Section 5.10.
"Purchaser Common Shares" means the 120,000,000 shares of Purchaser
Common Stock issuable to Seller under Section 2.2 as consideration for the
Chem-Waste Shares and, to the extent required, the Chem-Waste Intercompany
Indebtedness.
"Purchaser Common Stock" means the Common Stock, $1.00 par value per
share, of Purchaser.
"Purchaser Contracts" has the meaning specified in Section 5.22.
"Purchaser Convertible Debenture" means the 5% 12 year $350 million
principal amount, convertible, pay-in-kind debenture substantially in the
form of Exhibit A, which is to be issued by Purchaser to Seller under
Section 2.2.
"Purchaser Disclosure Schedule" means the Disclosure Schedule signed
for identification purposes only by the President, Chief Executive Officer
or Chief Financial Officer of Purchaser, which Purchaser has delivered to
Seller on or before the date of this Agreement, and which contains
information relevant to the representations and warranties made by
Purchaser in Article V.
"Purchaser Employee Plans" has the meaning specified in Section 5.19.
"Purchaser Fairness Opinion" means the opinion of Raymond James &
Associates, Inc. referred to in Section 9.6.
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"Purchaser Intercompany and Affiliate Agreements" means all contracts,
agreements, policies, practices and understandings, whether written or
oral, between any one or more of the Affiliates of the Purchaser other than
its Subsidiaries, on the one hand, and any one or more of Purchaser and its
Subsidiaries on the other hand.
"Purchaser Pension Plan" has the meaning specified in Section 5.19.
"Purchaser Property" means real or personal property or other asset
owned, leased or operated by Purchaser.
"Purchaser Proxy Statement" has the meaning specified in Section 7.5.
"Purchaser Reorganization Transaction" means: (i) any merger,
consolidation, recapitalization, liquidation or other business combination
transaction involving Purchaser; (ii) any tender offer or exchange offer
for any securities of Purchaser; or (iii) any sale or other disposition of
assets of Purchaser or any of its Subsidiaries in a single transaction or
in a series of related transactions.
"Purchaser Rights Plan" means the Rights Agreement dated as of June
14, 1989, as amended, between Purchaser and its registrar and transfer
company.
"Purchaser Securities" means, collectively, the Purchaser Common
Shares, the Purchaser Convertible Debenture and the Additional Purchaser
Common Shares.
"Purchaser SEC Filings" has the meaning specified in Section 5.9.
"Purchaser Stockholders' Meeting" means the meeting of Purchaser's
stockholders referred to in Section 7.5, as originally convened and as it
may be continued following any temporary adjournment or adjournments
thereof.
"Recurring Charges" means expenses for services provided to the
Acquired Subsidiaries by Laidlaw and Seller and their Affiliates other than
the Acquired Subsidiaries consisting of insurance premiums, corporate
overhead, bank service fees and guarantee fees.
"Registration Rights Agreement" means the Registration Rights
Agreement substantially in the form of Exhibit B to be entered into at the
Closing among Purchaser and Seller as provided in Section 3.3.
"Release" means releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing
or dumping.
"Retained Subsidiaries" means JTM Industries, Inc. ("JTM") and its
Subsidiary, KBK Enterprises, Inc.
"Revenue Canada" means Revenue Canada, Customs, Excise and Taxation,
the Canadian Federal Taxing Authority.
"SEC" means the United States Securities and Exchange Commission or
any successor agency.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Seller Consolidated Tax Group" means the affiliated group of
corporations within the meaning of Section 1504(c) of the Code, of which
Seller is the common parent corporation, which files a consolidated Tax
Return for U.S. federal income Tax purposes, and which includes Seller, the
Acquired U.S. Subsidiaries, the Retained Subsidiaries and the other U.S.
Subsidiaries of Seller.
"Seller Disclosure Schedule" means the Disclosure Schedule signed for
identification purposes only by the President, Chief Executive Officer or
Senior Vice President of Seller, which
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Seller has delivered to Purchaser on or before the date of this Agreement,
and which contains information relevant to the representations and
warranties made by Seller in Article IV.
"Seller Employee Plans" has the meaning specified in Section 4.19.
"Seller Group" means, at any date, Seller and all of its Affiliates at
that date (but excluding after the Closing, the Acquired Subsidiaries), and
"member of the Seller Group" refers to Seller or any such Affiliates.
"Seller Guaranty" means any guaranty, performance guaranty, bond,
performance bond, suretyship arrangement, surety bond, credit, letter of
credit, reimbursement agreement or other undertaking, deposit commitment or
arrangement by which any member of the Seller Group is or may be primarily,
secondarily, contingently or conditionally liable for or in respect of (or
which creates, constitutes or evidences a Lien on any of the assets or
properties of any member of the Seller Group which secures the payment or
performance of) any present or future liability or obligation of any
Acquired Subsidiary as set forth in Section 4.16 of the Seller Disclosure
Schedule.
"Seller Pension Plan" has the meaning specified in Section 4.19.
"Seller's Post-Closing Taxes" has the meaning specified in Section
12.1.
"Stock Option Plan" means collectively the Rollins Environmental
Services, Inc. 1982 and 1993 Stock Option Plans.
"Subsidiary" of a Party means an Affiliate of that Party more than 50%
of the aggregate voting power (or of any other form of voting equity
interest in the case of a Person that is not a corporation) of which is
beneficially owned by that Party directly or indirectly through one or more
other Persons.
"Tax" means any tax of any kind, however denominated, including any
interest, penalties (civil or criminal), fines or other additions to tax
that may become payable in respect thereof or in respect of a failure to
comply with any requirement relating to any Tax Return, imposed by any
federal, territorial, state, county, provincial or local Governmental
Entity, including all income, gross income, gross receipts, profits, goods
and services, social security, health, old age security, Canadian Pension
Plan, Quebec Pension Plan, sales and use, ad valorem, fees, excise, custom,
franchise, business license, property, capital stock, production,
occupation, real property gains, payroll and employee withholding,
unemployment or employment insurance, real and personal property, stamp,
environmental, transfer, workers' compensation, payroll, severance,
alternative minimum, windfall, and capital taxes, premiums, surtaxes,
charges, levies, assessments, reassessments, and other obligations of the
same or a similar nature to any of the foregoing and any expenses incurred
in connection with the determination, settlement or litigation of any Tax
Controversy.
"Tax Allocation Agreements" means all contracts, agreements, policies,
practices, intercompany procedures and understandings, whether written or
oral, between any Acquired Subsidiary and any other Person (including
another Acquired Subsidiary) by which all or any portion of any federal,
state, provincial or local income Tax is allocated to or shared or required
to be paid by any Acquired Subsidiary.
"Tax Benefit" means any credit carryover, carryback or other reduction
in otherwise required Tax payments. Such term does not include a decrease
in any Tax in one Tax period that results from an adjustment in another Tax
period, such as an increase in a deduction for depreciation that results
from a determination that, in a previous Tax period, an expenditure is
capitalized and not deducted or an item of gain is recognized.
"Tax Controversy" means an audit, review, examination or any other
administrative or judicial proceeding (including any determination with
respect to a claim for refund) with the purpose or effect of redetermining
Taxes.
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"Tax Liability Issue" has the meaning specified in Section 12.4.
"Tax Proceeding" has the meaning specified in Section 12.4.
"Tax Refund" means any rebate, refund or return of Taxes.
"Tax Returns" means all tax returns, declarations, reports, estimates,
information returns and statements required to be filed with any Taxing
Authority, or provided to any partner, shareholder, joint venturer or
member under U.S., Canadian or foreign federal, state, provincial or local
Laws (including reports with respect to backup withholding and payments to
Persons other than Taxing Authorities and, where permitted or required,
combined or consolidated returns for any group of entities), and annual tax
returns or information returns on behalf of employee benefit plans
sponsored by Seller or Purchaser, as the case may be, or any of their
respective ERISA Affiliates.
"Taxing Authority" means any Governmental Entity responsible for the
imposition, assessment, enforcement or collection of any Tax.
"Third-Party Claim" has the meaning specified in Section 14.3.
"Total Consideration" has the meaning specified in Section 2.2.
"Transfer Taxes" has the meaning specified in Section 12.3.
"$" or "U.S. dollars" refers to lawful currency of the United States.
"U.S. GAAP" means United States generally accepted accounting
principles consistently applied throughout the specified period and the
immediately preceding comparable period.
"Wages" has the meaning given such term by Section 3401(a) of the
Code.
"WARN Act" means the United States Worker Adjustment and Retraining
Notification Act of 1988.
"Westinghouse Debt" means the Purchaser's 7.75% Senior Unsecured
Debentures due March 31, 2005 and the Purchaser's 7.25% Convertible
Subordinated Debentures due March 31, 2005.
1.2 Interpretation. Capitalized terms defined in this Agreement are
equally applicable to both their singular and plural forms. References to a
designated "Article" or "Section" refer to an Article or Section of this
Agreement, unless otherwise specifically indicated. In this Agreement,
"including" is used only to indicate examples, without limitation to the
indicated examples, and without limiting any generality which precedes it.
ARTICLE II
THE ACQUISITION
2.1 Sale and Purchase of Shares. On the terms and subject to the
conditions of this Agreement, Seller agrees to sell, convey, assign and
transfer, free and clear of all Liens, and Purchaser agrees to purchase, the
Chem-Waste Shares, together with the Intercompany Indebtedness of the U.S.
Acquired Subsidiaries (the "Chem-Waste Intercompany Indebtedness").
2.2 Consideration for Chem-Waste Shares and Chem-Waste Intercompany
Indebtedness. The consideration payable by Purchaser for the Chem-Waste Shares
and the Chem-Waste Intercompany Indebtedness (the "Total Consideration") shall
be:
(i) $225,000,000 payable in cash at the Closing (less the principal
amount at the Closing of the Bond Indebtedness specified in Section 4.13 of
Seller's Disclosure Schedule (the "Bond Indebtedness"));
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(ii) the Purchaser Common Shares to be issued and delivered by
Purchaser to Seller at the Closing; and
(iii) the Purchaser Convertible Debenture to be issued and delivered
by Purchaser to Seller at the Closing.
2.3 Total Consideration Allocation. The Total Consideration shall be
allocated to the Chem-Waste Intercompany Indebtedness at the face value of such
debt on the Closing Date in the following order to the extent required: (i) the
cash portion of the purchase price; (ii) the Purchaser Convertible Debenture,
which the parties agree shall be valued at $350,000,000; and (iii) the Purchaser
Common Shares; and the remainder to the Chem-Waste Shares.
2.4 Cash Management Cut-Off. Laidlaw and Seller act as bankers for the
Acquired Subsidiaries and provide cash funding to the Acquired Subsidiaries on a
day-to-day basis with net positions, deposits and withdrawals being incorporated
into the amount of Intercompany Indebtedness of the Acquired Subsidiaries.
Purchaser, Laidlaw and Seller agree that this procedure will continue in the
normal course of business to the close of business on the Closing Date and that
any cash receipts, remittances and collection advices received by the Acquired
Subsidiaries or the bank collection agencies prior to such time will be for the
account of Laidlaw and Seller and reduce the amount of Intercompany Indebtedness
of the Acquired Subsidiaries and any checks, transfers, debit notices, drafts or
other payment demands presented to the counters of the bank disbursement agents
for the Acquired Subsidiaries prior to such time will be for the account of the
Acquired Subsidiaries and increase the amount of Intercompany Indebtedness of
the Acquired Subsidiaries.
2.5 Recurring Charges. Laidlaw and Seller and their Affiliates incur
Recurring Charges in the normal course of business, for which the Acquired
Subsidiaries reimburse Laidlaw and Seller and their Affiliates on a monthly
basis. Purchaser, Laidlaw and Seller agree that the Recurring Charges for
periods ending at the close of business on the Closing Date shall be excluded
from the amount of Intercompany Indebtedness of the Acquired Subsidiaries on the
Closing Date and shall be paid by the Acquired Subsidiaries to Laidlaw and
Seller and their Affiliates in the normal course of business after closing.
ARTICLE III
THE CLOSING AND RELATED MATTERS
3.1 The Closing. The sale and purchase of the Chem-Waste Shares, together
with the Chem-Waste Intercompany Indebtedness (the "Closing") shall take place
at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P. in New York, New York
at 10:00 a.m. local time on the Closing Date. At the Closing:
(i) Seller shall deliver to Purchaser:
(a) the certificates evidencing the Chem-Waste Shares, duly
endorsed in blank or accompanied by duly executed stock powers, and
in proper form for registration in the name of Purchaser; and
(b) the assignment of the Chem-Waste Intercompany Indebtedness,
and
(ii) Purchaser shall deliver to Seller:
(a) $225,000,000 payable in cash (less the principal amount at
the Closing of the Bond Indebtedness);
(b) the Purchaser Common Shares; and
(c) the Purchaser Convertible Debenture.
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All cash amounts payable by Purchaser at the Closing shall be payable by
wire transfers, to accounts designated in writing by Seller at least two
Business Days before the Closing Date, of U.S. dollar funds immediately
available in Toronto.
3.2 Actions in Contemplation of Closing. On or before the Closing Date,
and in any event not later than immediately before the Closing:
(i) Purchaser and Seller shall have retired the Westinghouse Debt in
accordance with that certain Letter of Intent dated January 6, 1997 by and
among Purchaser, Laidlaw and Westinghouse Electric Corporation.
(ii) The reorganization of Seller shall have occurred substantially as
described in Schedule II whereby Chem-Waste shall own the entire Hazardous
and Industrial Waste Business of Seller and its Affiliates.
(iii) Chem-Waste shall have transferred to Seller as a dividend on
Chem-Waste's Shares all of the issued and outstanding shares of JTM, a
Retained Subsidiary.
(iv) Except as provided in Sections 2.5 and 3.3(ii), Laidlaw shall
have contributed to the capital of each of the Canadian Acquired
Subsidiaries, in exchange for common shares, any and all Intercompany
Indebtedness of each of the Canadian Acquired Subsidiaries as of the
Closing Date.
3.3 Other Actions at the Closing. In addition to the consummation of the
Acquisition, the following actions shall take place at the Closing:
(i) Purchaser and Seller shall enter into a Registration Rights
Agreement pertaining to the registration of the Purchaser Common Shares,
the Additional Purchaser Common Shares and the Purchaser Convertible
Debenture.
(ii) Purchaser shall cause the Canadian Acquired Subsidiaries to repay
to Laidlaw Intercompany Indebtedness owing to it in an amount not to exceed
$175,000,000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller and Laidlaw jointly and severally represent and warrant to
Purchaser that:
4.1 Organization of Seller and Laidlaw. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Laidlaw is a corporation duly organized, validly existing and in good
standing under the Laws of Canada. Seller and Laidlaw each has full authority
and corporate power to conduct its business as it is currently being conducted
and as to be conducted following consummation of the Acquisition. Seller and
Laidlaw are each duly qualified to do business, and in good standing, in each
jurisdiction where the nature of its properties or business requires such
qualification.
4.2 Authority Relative to this Agreement. Seller and Laidlaw each has the
requisite corporate power and authority to enter into and perform its respective
obligations under this Agreement and each Ancillary Agreement to which each will
be a party. The execution and delivery of this Agreement and each Ancillary
Agreement to which Seller or Laidlaw will be a party, the consummation of the
Acquisition, and the other transactions contemplated in Articles II and III,
have been duly authorized by the Boards of Directors of Seller and Laidlaw, and
no other corporate proceedings on the part of Seller or Laidlaw, including any
approval by the stockholders of Seller or Laidlaw, are necessary to authorize
this Agreement, any Ancillary Agreement to which Seller or Laidlaw will be a
party, the consummation of the Acquisition, or the other transactions
contemplated in Articles II and III. This Agreement has been duly executed and
delivered by Seller and Laidlaw. Each Ancillary Agreement required to be
executed and delivered by Seller or Laidlaw at the Closing will be, upon its or
their execution and delivery as provided in Section 3.3 or elsewhere in this
Agreement duly executed and
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delivered by Seller or Laidlaw. Assuming the valid authorization, execution and
delivery of this Agreement (and each Ancillary Agreement to which Purchaser will
be a party) by Purchaser, this Agreement is, and each Ancillary Agreement which
to Seller or Laidlaw is a party will be, upon its execution and delivery at the
Closing as provided in Section 3.3 or elsewhere in this Agreement, a valid and
binding obligation of Seller or Laidlaw, enforceable in accordance with their
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws relating to or affecting creditors'
rights generally or by equitable principles.
4.3 Status of Chem-Waste Shares. Upon their transfer as provided in
Section 2.1, the Chem-Waste Shares will be duly authorized, validly issued,
fully paid and nonassessable. Seller has good and marketable title to the
Chem-Waste Shares, free and clear of any Liens, and the transfer of the Chem-
Waste Shares as provided in Section 2.1 will pass good and marketable title to
the Chem-Waste Shares, free and clear of any Liens, other than any Liens granted
in connection with the financing specified in Section 9.5.
4.4 No Violations. The execution, delivery and performance of this
Agreement and the applicable Ancillary Agreements by Seller and Laidlaw and the
consummation of the Acquisition and the other transactions contemplated in
Articles II and III will not:
(i) constitute a breach or violation of or default under the charter
or bylaws (or similar organizational documents) or internal rules or
regulations governing the conduct of corporate actions of Seller, Laidlaw
or any Acquired Subsidiary or any Law applicable to Seller, Laidlaw or any
Acquired Subsidiary; or
(ii) except as accurately reflected in Section 4.4 of the Seller
Disclosure Schedule, violate or conflict with, or result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination under, or result in the creation of any Lien upon the
Chem-Waste Shares or any of the assets or properties of any Acquired
Subsidiary under, any contract, indenture, loan document, license, permit,
order, decree or instrument to which Seller, Laidlaw or any Acquired
Subsidiary is a party or by which any of them or their assets or properties
are bound.
4.5 Consents and Approvals. No consent, order, approval, waiver or
authorization of, or registration, application, declaration or filing with, any
Governmental Entity or other Person is required with respect to Seller, Laidlaw
or any Acquired Subsidiary in connection with the execution and delivery of this
Agreement or any Ancillary Agreement, the consummation of the Acquisition, or
the other transactions contemplated in Articles II and III, except for:
(i) the HSR Act, Competition Act and Investment Canada Act filings and
approvals contemplated in this Agreement;
(ii) the consents and approvals described in Section 4.5 of the Seller
Disclosure Schedule; and
(iii) other cases, considered individually and in the aggregate, in
which any failure to make any such registration, application, declaration
or filing or to obtain any such consent, order, approval, waiver or other
authorization could not have a Material Adverse Effect on the Acquired
Subsidiaries, Seller or Laidlaw.
4.6 Acquired Subsidiaries. Section 4.6 of the Seller Disclosure Schedule
sets forth with respect to each Acquired Subsidiary (i) its jurisdiction of
formation, (ii) each jurisdiction in which it is qualified to do business as a
foreign entity, (iii) its authorized, issued and outstanding shares of capital
stock or units and (iv) the holder or holders of all of its issued and
outstanding shares of capital stock or units. Each Acquired Subsidiary is a
corporation (or a limited liability company in the case of ECDC Environmental,
L.C.) duly organized, validly existing and in good standing under the laws of
its jurisdiction of formation and has full authority and corporate power to
conduct its business as it is currently being conducted. Each Acquired
Subsidiary is duly qualified to do business, and in good
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standing, in each jurisdiction where the nature of its properties or business
requires such qualification, except for failures to be so qualified which could
not, individually or in the aggregate, have a Material Adverse Effect on the
Acquired Subsidiaries.
All of the issued and outstanding shares of capital stock or units of each
Acquired Subsidiary are validly issued, fully paid and nonassessable, and are
owned of record and beneficially, and free of any Liens, by Chem-Waste or
another Acquired Subsidiary (as reflected in Section 4.6 of the Seller
Disclosure Schedule). Except as disclosed in Section 4.6 of the Seller
Disclosure Schedule, there are no preemptive rights or outstanding
subscriptions, options, warrants, calls, rights, convertible securities,
obligations to make capital contributions or advances, voting trust
arrangements, shareholders' agreements or other agreements, commitments or
understandings relating to the capital stock or units of any Acquired
Subsidiary.
Seller will deliver to Purchaser prior to Closing true and correct copies
of the charter and bylaws (or similar organizational documents) of each Acquired
Subsidiary. Each Acquired Canadian Subsidiary is a "private company" within the
meaning of the Ontario Securities Act.
4.7 No Other Subsidiaries. No Acquired Subsidiary has any Subsidiary which
is not another Acquired Subsidiary or a Retained Subsidiary. Except as described
in Section 4.7 of the Seller Disclosure Schedule, and except for other Acquired
Subsidiaries and Retained Subsidiaries, no Acquired Subsidiary, directly or
indirectly, owns or is obligated to acquire any investment in any other
corporation, partnership, joint venture or other business entity.
4.8 Conduct of Hazardous and Industrial Waste Business. The Seller Group
is engaged in the Hazardous and Industrial Waste Business only through the
Acquired Subsidiaries, and neither Seller, any Retained Subsidiary, nor any
member of the Seller Group other than the Acquired Subsidiaries conducts any
operations associated with, or owns any assets or properties used in, or holds
any permits or licenses used in, the Hazardous and Industrial Waste Business.
None of the Acquired Subsidiaries is or has been engaged in any business other
than the Hazardous and Industrial Waste Business or owns or has owned any assets
or properties which are used in any business other than the Hazardous and
Industrial Waste Business.
4.9 SEC Filings. Laidlaw has filed all forms, reports and documents
required to be filed with the SEC since August 31, 1995 and Laidlaw has made
available to the Purchaser true and complete copies of (i) Laidlaw's Annual
Report on Form 10-K for the year ended August 31, 1995, and (ii) all other
reports, statements and registration statements (including Current Reports on
Form 8-K) filed by Laidlaw with the SEC since September 1, 1995 (collectively,
the "Laidlaw SEC Filings"). The Laidlaw SEC Filings (including all financial
statements or schedules included in them) (i) were prepared in compliance in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and (ii) did not at the time of filing (or if amended,
supplemented or superseded by a later filing, on the date of the later filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.10 Seller Financial Statements. Seller and Laidlaw have delivered to
Purchaser combined balance sheets of the Acquired Subsidiaries (prepared as a
separate combined group of corporations for financial reporting purposes)
audited at August 31, 1996 and August 31, 1995 and unaudited at November 30,
1996 and November 30, 1995, and the related combined statements of operations
and cash flows audited for the respective years ended August 31, 1996, 1995 and
1994 and unaudited for the three-month periods ended November 30, 1996 and 1995
(the "Chem-Waste Group Financial Statements").
The Chem-Waste Group Financial Statements have been prepared in accordance
with U.S. GAAP and have been prepared by combining the relevant financial
statements in accordance with U.S. GAAP applicable to the preparation of
combined financial statements.
The Chem-Waste Group Financial Statements fairly present in all material
respects the combined financial position of the Acquired Subsidiaries covered
thereby at the respective dates thereof, and the
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results of their combined operations and cash flows for the Acquired
Subsidiaries covered thereby for the respective periods indicated, in accordance
with U.S. GAAP except for the omission of explanatory footnote disclosures with
respect to the interim period Chem-Waste Group Financial Statements ended and as
of November 30, 1996 and November 30, 1995.
4.11 Absence of Certain Changes. Except as set forth in Section 4.11 of
the Seller Disclosure Schedule, since November 30, 1996, the Acquired
Subsidiaries have conducted their businesses only in the ordinary course,
consistent with past practice, and there has not occurred a Material Adverse
Effect with respect to the Acquired Subsidiaries or any event that could result
in a Material Adverse Effect with respect to the Acquired Subsidiaries.
4.12 No Undisclosed Liabilities. Except as disclosed on the August 31,
1996 and the November 30, 1996 Acquired Subsidiaries balance sheets or as set
forth in Sections 4.12 and 4.15 of the Seller Disclosure Schedule, no Acquired
Subsidiary has any liabilities or obligations, known or unknown, fixed or
contingent, other than (i) those liabilities and obligations arising since
August 31, 1996 in the ordinary course of its business and consistent with its
past practice, (ii) liabilities and obligations arising after the date of this
Agreement without violation of Sections 6.1 and 6.2, or (iii) liabilities and
obligations that, individually or in the aggregate, could not result in a
Material Adverse Effect on the Acquired Subsidiaries.
4.13 Acquired Subsidiary Properties. The Acquired Subsidiaries have good
and marketable title to their respective Seller Properties and assets, including
those reflected in the Chem-Waste Group Combined Financial Statements (other
than properties and assets disposed of in the ordinary course of business since
August 31, 1996, which in the aggregate are not material), free of all Liens
except Permitted Liens and Liens disclosed in Section 4.13 of the Seller
Disclosure Schedule.
4.14 Taxes and Tax Returns. Except as described in Section 4.14 of the
Seller Disclosure Schedule:
(i) all Tax Returns required to be filed with any Taxing Authority
with respect to any Pre-Closing Tax Period by or on behalf of the Acquired
Subsidiaries have been duly filed on a timely basis in accordance with all
applicable Laws, or will be timely filed in accordance with Section 12.1;
(ii) at the time of their filings all such Tax Returns were or will
be, in all respects, true, complete and correct;
(iii) Seller and the Acquired Subsidiaries have, and within the time
and in the manner prescribed by Law, paid all Taxes that are due and
payable;
(iv) the reserves for Taxes reflected in the Chem-Waste Group
Financial Statements are adequate (in accordance with U.S. GAAP) to cover
all Taxes that have not been paid, but which under U.S. GAAP were
accruable, through the date of the Chem-Waste Group Financial Statements;
(v) there are no Liens for Taxes upon any assets of any Acquired
Subsidiary, except Liens for Taxes not yet due for current Tax periods
ending on or after the Closing Date;
(vi) there are no outstanding deficiencies, assessments or written
proposals for the assessment of Taxes proposed, pending, asserted or
assessed against any Acquired Subsidiary, or for which any Acquired
Subsidiary could be directly or indirectly liable and there is no basis for
any additional assessment or reassessment for any Taxes for which adequate
provision has not been made in the books and records of the Acquired
Subsidiaries;
(vii) no extension of the statute of limitations or waiver of normal
reassessment periods on the assessment of any Taxes has been requested or
granted to or on behalf of any Acquired Subsidiary.
4.15 Litigation. Except as disclosed in Section 4.15 of the Seller
Disclosure Schedule, there is no suit, action, investigation or proceeding
pending or, to the knowledge of Seller or Laidlaw,
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threatened against any of the Acquired Subsidiaries at law or in equity before
or by any Governmental Entity or before any arbitrator or mediator of any kind,
that could have a Material Adverse Effect on the Acquired Subsidiaries, and
there is no judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator or mediator to which any Acquired Subsidiary (or any of its
assets or properties) is subject that could have a Material Adverse Effect on
the Acquired Subsidiaries. There is no suit, action, investigation or proceeding
pending or, to the knowledge of Seller or Laidlaw, threatened against any
Acquired Subsidiary at law or in equity before or by any Governmental Entity or
before any arbitrator or mediator of any kind, that could have a Material
Adverse Effect on any Acquired Subsidiary, and there is no judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator or mediator
to which any Acquired Subsidiary is subject that could have a Material Adverse
Effect on any Acquired Subsidiary. Neither Seller nor Laidlaw has knowledge of
any grounds on which any suit, action, investigation or proceeding of the nature
referred to in this Section 4.15 might be commenced with any reasonable
likelihood of success.
4.16 Environmental Matters.
(i) To the knowledge of Seller or Laidlaw, no Acquired Subsidiary has
transported, stored, received, treated or disposed of, nor has any Acquired
Subsidiary arranged for any third parties to transport, receive, store,
treat or dispose of, waste to or at (a) any location other than a site
where the receipt of such waste for such purposes was not at the time of
such receipt unlawful or (b) any location designated for remedial action
pursuant to the United States Comprehensive Environmental Response,
Compensation and Liability Act, as from time to time amended, or any
similar Law assigning responsibility for the cost of investigating or
remediating releases of Hazardous Substances into the environment, except
to the extent such action would not have a Material Adverse Effect on the
business, results of operations or financial condition of the Acquired
Subsidiaries, or as set forth in Section 4.16 of the Seller Disclosure
Schedule.
(ii) Except as set forth in Section 4.16 of the Seller Disclosure
Schedule, no Acquired Subsidiary has received written notice that any
location to which waste has been transported, stored or disposed of by any
Acquired Subsidiary has been designated for remedial action pursuant to any
applicable Law relating to responsibility for the cost of investigating or
remediating releases of Hazardous Substances into the environment. Set
forth in Section 4.16 of the Seller Disclosure Schedule is, to the
knowledge of Seller or Laidlaw, a complete and accurate list of locations
to which any Acquired Subsidiary has ever transported, or ever caused to be
transported, allowed or arranged for any third party to transport, any type
of waste material generated by customers of any Acquired Subsidiary for
storage, treatment, burning, recycling or disposal.
(iii) Compliance. To Seller's or Laidlaw's knowledge, each Acquired
Subsidiary and their respective processes, operations, transportation,
storage and disposal activities and undertakings have been and are in
compliance with all Environmental Laws (including reporting and record
keeping requirements), except to the extent any such noncompliance would
not have a Material Adverse Effect on the business, results of operations
or financial condition of the Acquired Subsidiaries or as set forth in
Section 4.16 of the Seller Disclosure Statement or noncompliances that have
been fully and finally resolved. To Seller's or Laidlaw's knowledge, the
Acquired Subsidiaries have received no Notice of noncompliance, and neither
Seller nor Laidlaw has knowledge of any facts which could give rise to a
Notice of noncompliance, with any Environmental Laws, except to the extent
any such noncompliance would not have a Material Adverse Effect on the
business, results of operations or financial condition of the Acquired
Subsidiaries, or as set forth in Section 4.16 of the Seller Disclosure
Schedule.
(iv) Environmental Permits. Except as set forth on Section 4.16 of
the Seller Disclosure Schedule and except to the extent that the failure to
obtain an Environmental Permit would not have a Material Adverse Effect on
the business, results of operations or financial condition of the Acquired
Subsidiaries, the Acquired Subsidiaries have obtained all Environmental
Permits which are required for the operation of the Acquired Subsidiaries'
business as presently conducted, all of
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which Environmental Permits are listed in Section 4.16 of the Seller
Disclosure Schedule. To the knowledge of Seller or Laidlaw, all such
Environmental Permits are valid and in full force and effect, and no
violations thereof have been experienced, noted or recorded by any
administrative or regulatory agency, except for violations that have been
fully and finally resolved and violations which would not have a Material
Adverse Effect on the business, results of operations or financial
condition of the Acquired Subsidiaries, or as set forth in Section 4.16 of
the Seller Disclosure Schedule, and no proceeding is pending or, to the
knowledge of Seller or Laidlaw, threatened to revoke or limit any of them.
(v) No Offenses. Except as disclosed in Section 4.16 of the Seller
Disclosure Schedule, within the past seven (7) years, the Acquired
Subsidiaries have never been convicted of a criminal offense for
noncompliance with any Environmental Laws, or been fined or otherwise
sentenced in or settled any such criminal prosecution short of conviction.
(vi) No Release of Hazardous Substances. Except as disclosed in
Section 4.16 of the Seller Disclosure Schedule, to the knowledge of Seller
or Laidlaw, no Acquired Subsidiary has received any Notice which alleges
that any Acquired Subsidiary is liable for (a) the Release of any Hazardous
Substances on or off-site of its property in a manner that fails to comply
with applicable Environmental Laws or (b) any Environmental Release from a
facility owned or operated by third parties.
(vii) Disposal Sites. Except as set forth in Section 4.16 of the
Seller Disclosure Schedule, to the knowledge of Seller or Laidlaw, no
Acquired Subsidiary has received Notice that any Acquired Subsidiary is a
potentially responsible party for a federal, state, provincial or local
clean-up site or for corrective action under any Environmental Law. Except
as set forth in Section 4.16 of the Seller Disclosure Schedule, to the
knowledge of Seller or Laidlaw, no Acquired Subsidiary has received any
written request for information from a regulatory agency with respect to a
disposal or contaminated site.
(viii) Environmental Audits. To Seller's or Laidlaw's knowledge, each
of the Acquired Subsidiaries has made available to Purchaser all
environmental audits, evaluations and assessments in their possession which
concern any Acquired Subsidiary.
(ix) Financial Assurances. Section 4.16 of the Seller Disclosure
Schedule sets forth a list of each Seller Guaranty currently maintained
pursuant to the requirements of applicable Environmental Laws with regard
to the assets and activities of any Acquired Subsidiary.
(x) Landfills. Section 4.16 of the Seller Disclosure Schedule lists
each Seller Group landfill and accurately describes each such landfill by
its city or county and state or province of location, total acreage,
permitted acreage, estimated remaining permitted capacity in cubic yards,
estimated or mandated closure date, and estimated closure, post-closure and
reclamation liability at its projected or mandated closure date (computed
at the closure date with and without discount to present value) and any
other recorded or unrecorded accruals, contingent or otherwise, or reserves
related to landfill liabilities of any type.
4.17 Governmental Licenses and Permits; Compliance with Laws. Except as
described in Section 4.17 of the Seller Disclosure Schedule, no Acquired
Subsidiary has received any notice of any revocation or modification of any
license, certification, tariff, permit, registration, exemption, approval or
other authorization by any Governmental Entity which remains outstanding. The
conduct of the business of each Acquired Subsidiary complies and has been
conducted in compliance with all applicable Laws, except for violations or
failures to comply, if any, that, individually or in the aggregate, could not
have a Material Adverse Effect on the Acquired Subsidiaries.
4.18 Labor Matters. Section 4.18 of the Seller Disclosure Schedule lists
and describes each collective bargaining agreement covering employees of any
Acquired Subsidiary. Except as disclosed in Section 4.18 of the Seller
Disclosure Schedule, (i) no Acquired Subsidiary is a party to or bound by any
collective bargaining or similar agreement with any labor organization
applicable to employees of any Acquired Subsidiary, (ii) there is no labor
strike, dispute, slowdown, work stoppage, unresolved
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material labor union grievance or labor arbitration proceedings pending or, to
the knowledge of Seller, threatened against any Acquired Subsidiary, and (iii)
to the knowledge of Seller or Laidlaw, there are no current union organizing
activities among employees of any Acquired Subsidiary.
Since the enactment of the WARN Act, no Acquired Subsidiary has effectuated
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of any
employment or facility of an Acquired Subsidiary. No Acquired Subsidiary has
been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar Canadian
federal, state, provincial or local Law. Except as set forth in Section 4.18 of
the Seller Disclosure Schedule, no employees of any Acquired Subsidiary have
suffered an "employment loss" (as defined in the WARN Act) since December 31,
1995.
4.19 Employee Benefit Plans. Section 4.19 of the Seller Disclosure
Schedule sets forth each retirement, pension, bonus, stock purchase, profit
sharing, stock option, deferred compensation, severance or termination pay,
insurance, medical, hospital, dental, vision care, drug, sick leave, disability,
salary continuation, legal benefits, unemployment benefits, vacation, incentive
or other compensation plan or arrangement or other employee benefit which is
maintained, or otherwise contributed to or required to be contributed to, by any
of the Acquired Subsidiaries, any member of the Seller Group or any ERISA
Affiliate of Seller for the benefit of employees or former employees and
directors or former directors of any of the Acquired Subsidiaries and their
spouses, dependents or beneficiaries (the "Seller Employee Plans"). True and
correct copies of each of the Seller Employee Plans have been delivered to
Purchaser, along with the most recent annual report for each Seller Employee
Plan, any trust agreement relating to each Seller Employee Plan and the most
recent summary plan description, actuarial report and determination letter for
each Seller Employee Plan. Each of the Acquired Subsidiaries has complied, and
currently is in compliance, both as to form and operation, in all material
respects, with the applicable provisions of ERISA and each other Law or
regulation imposed or administered by any Governmental Entity with respect to
each of the Seller Employee Plans. Except as set forth in Section 4.19 of the
Seller Disclosure Schedule, none of the Acquired Subsidiaries has at any time
maintained, adopted, established, contributed to or been required to contribute
to, otherwise participated in or been required to participate in, or had any
liability with respect to, any "employee benefit plan" within the meaning of
section 3(3) of ERISA. All Seller Employee Plans providing pension or retirement
benefits or obligations to current or former employees or their spouses,
dependents and beneficiaries are referred to collectively as "Seller Pension
Plan" and identified in Section 4.19 of the Seller Disclosure Schedule. Except
as set forth in Section 4.19 of the Seller Disclosure Schedule, no provision
concerning the Seller Pension Plan is contained in any collective bargaining
agreement affecting any current or former employees of any Acquired Subsidiary.
Each Seller Pension Plan that is required to be qualified under Section 401(a)
and Section 501(a) of the Code has received a determination letter to such
effect and no event has occurred which is reasonably likely to result in the
disqualification of any such Seller Pension Plan. The Seller Pension Plan is
registered under, and is in material compliance with, applicable Law. All
contributions to, and payments from, each Seller Employee Plan which may have
been required to be made in accordance with the terms of any such Seller
Employee Plan and, where applicable, the Laws which govern such Seller Employee
Plan, have been made in a timely manner, and each Seller Employee Plan has
otherwise at all times been administered in accordance with its terms and
applicable Law in all material respects. All material reports, Tax Returns and
similar documents with respect to any Seller Employee Plan required to be filed
with any Governmental Entity or distributed to any Seller Employee Plan
participant have been duly filed on a timely basis or distributed. There are no
pending investigations by any Governmental Entity involving or relating to any
Seller Employee Plan, no threatened or pending claims (except for claims for
benefits payable in the normal operation of the Seller Employee Plans), suits or
proceedings against any Seller Employee Plan or asserting any rights or claims
to benefits under any Seller Employee Plan which could give rise to a liability
nor, to the knowledge of Seller or Laidlaw, are there any facts that could give
rise to any liability in the event of any such investigation, claim, suit or
proceeding. No Notice has been received by Seller or any of the Acquired
Subsidiaries of any complaints or other proceedings of any kind involving any of
the Acquired Subsidiaries or any of
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the employees of any of the Acquired Subsidiaries or other potential claimants
before any Governmental Entity relating to any Seller Employee Plan or to any of
the Acquired Subsidiaries and to the knowledge of Seller or Laidlaw, there is no
basis for any such claims. Except as set forth in Section 4.19 of the Seller
Disclosure Schedule, the assets of each Seller Employee Plan are at least equal
to the liabilities, contingent or otherwise, of such Seller Employee Plan on a
plan termination basis, and each Seller Pension Plan is fully funded on a going
concern and solvency basis in accordance with its terms, applicable actuarial
recommendations and applicable Law. Neither Seller, Laidlaw nor any of the
Acquired Subsidiaries contribute to or have an obligation to contribute to, and,
to the knowledge of Seller or Laidlaw, have not within 6 years prior to the date
of this Agreement contributed to or had an obligation to contribute to, a
multi-employer plan within the meaning of Section 3(37) of ERISA. No event has
occurred and, to the knowledge of Seller or Laidlaw, there exists no condition
or set of circumstances in connection with which Purchaser, any of its
Affiliates or the Acquired Subsidiaries could be subject to any liability under
the terms of each Seller Employee Plan or under any applicable law of any
Governmental Entity, other than any condition or set of circumstances that could
not have a Material Adverse Effect on the Acquired Subsidiaries. In connection
with the consummation of the transactions contemplated by this Agreement, no
payments have or will be made under a Seller Employee Plan which, in the
aggregate, would be nondeductible under Section 280G of the Code.
The beneficiaries under all Seller Employee Plans shall consist only of
employees or former employees and directors or former directors of any of the
Acquired Subsidiaries and their spouses, dependents or beneficiaries. No
Acquired Subsidiary shall have any liability under the Seller Employee Plans.
4.20 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission from Seller, Laidlaw or any
Acquired Subsidiary in connection with this Agreement or the Acquisition based
upon arrangements made by or on behalf of Seller.
4.21 Material Contracts. Section 4.21 of the Seller Disclosure Schedule
lists all of the following written or oral contracts, agreements and commitments
(collectively, the "Seller Group Contracts"):
(i) all employment, consulting or personal services agreements or
contracts with any present or former officer, director or employee of any
Acquired Subsidiary who has an annual salary of $250,000 or more
(determined by using the currency in which they are paid);
(ii) all hazardous waste management agreements and contracts
(including those relating to the receipt, transport, disposal or other
management of waste) between any Acquired Subsidiary and any municipality
or other Governmental Entity or Person which resulted in annual payments in
the 1996 fiscal year to or by any Acquired Subsidiary of $2,000,000 or
more, which list includes the term of such agreements or contracts;
(iii) all contracts, agreements, agreements in principle, letters of
intent and memoranda of understanding which call for or contemplate the
future disposition (including restrictions on transfer and rights of first
offer or refusal) or acquisition of (or right to acquire) any interest in
any business enterprise, and all contracts, agreements and commitments
relating to the future disposition of a material portion of the assets and
properties of any Acquired Subsidiary other than in the ordinary course of
business;
(iv) all contracts, agreements with, or commitments to, any Person
containing any provision or covenant relating to the indemnification or
holding harmless by any Acquired Subsidiary of any Person which could
result in a liability to an Acquired Subsidiary of $250,000 or more;
(v) all leases or subleases of real property used in the conduct of
business of any Acquired Subsidiary providing for annual rental payments to
be paid by or on behalf of an Acquired Subsidiary of more than $250,000 in
each case;
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(vi) all contracts or agreements committing any Acquired Subsidiary to
make a capital expenditure in excess of $250,000;
(vii) all guaranties or other commitments or undertakings under which
any Acquired Subsidiary may be primarily, secondarily, contingently or
conditionally liable for or in respect of (or which creates, constitutes or
evidences a Lien on) any of the assets or properties of any Acquired
Subsidiary which secures the payment or performance on any present or
future liability or obligation of or to any member of the Seller Group or
any officer or director of the Seller Group; and
(viii) all Seller Guaranties.
Seller and Laidlaw shall make available to Purchaser within 15 days of the
Closing a true and correct copy of each Seller Group Contract. Each of the
Seller Group Contracts is in full force and effect and constitutes a legal,
valid and binding obligation of the Acquired Subsidiary which is a party to it,
and, to the knowledge of Seller or Laidlaw, of each other Person that is a party
to it. Except as set forth in Section 4.21 of the Seller Disclosure Schedule, no
Acquired Subsidiary is, and, to the knowledge of Seller or Laidlaw, no other
party to any Seller Group Contract is, in violation, breach or default of such
Seller Group Contract or, with or without notice or lapse of time or both, would
be in violation, breach or default of any such Seller Group Contract, except for
any violation, breach or default which, individually or in the aggregate, could
not result in a Material Adverse Effect on the Acquired Subsidiaries. Except as
set forth in Section 4.21 of the Seller Disclosure Schedule, no Seller Group
Contract provides that any party thereto other than the Acquired Subsidiary
which is a party to such Seller Group Contract may terminate such Seller Group
Contract by reason of the execution of this Agreement or the consummation of the
Acquisitions.
4.22 Bank Accounts. Section 4.22 of the Seller Disclosure Schedule lists
each bank, trust company or similar institution with which any Acquired
Subsidiary maintains an account or safe deposit box, and accurately identifies
each such account or safe deposit box by its number or other identification and
the names of all individuals authorized to draw thereon or have access thereto.
4.23 Officers and Directors. Section 4.23 of the Seller Disclosure
Schedule accurately lists by name and title all officers and directors of each
Acquired Subsidiary.
4.24 Condition and Sufficiency of Assets. The buildings, plants,
structures, and equipment of the Acquired Subsidiaries are structurally sound,
are in good operating condition and repair, and are adequate for the uses to
which they are being put, and none of such buildings, plants, structures or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures and equipment of the Acquired Subsidiaries are sufficient for
the continued conduct of the Acquired Subsidiaries' businesses after the Closing
Date in substantially the same manner as conducted prior to the Closing Date.
4.25 Affiliate Transactions. Neither Laidlaw, nor Seller, nor any
Affiliate of Laidlaw or Seller, has entered into directly or indirectly any
transaction (including without limitation the purchase, lease, sale or exchange
of property of any kind or the rendering of any service) with any Acquired
Subsidiary, except in the ordinary course and pursuant to the reasonable
requirements of such Acquired Subsidiary's business and upon fair and reasonable
terms no less favorable to such Acquired Subsidiary than would be obtainable in
a comparable arm's-length transaction with a Person not Laidlaw, Seller or an
Affiliate of Laidlaw or Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF
PURCHASER
Purchaser represents and warrants to Seller and Laidlaw that:
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5.1 Organization of Purchaser Parties. Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Purchaser has full authority and corporate power to conduct its
business as it is currently being conducted and as to be conducted following
consummation of the Acquisition. Purchaser is duly qualified to do business, and
in good standing, in each jurisdiction where the nature of its properties or
business requires such qualification.
5.2 Authority Relative to this Agreement. Purchaser has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and each Ancillary Agreement to which it will be a party. The
execution and delivery of this Agreement and each Ancillary Agreement to which
Purchaser will be a party, the consummation of the Acquisition, the issuance or
delivery of Purchaser Securities, and the other transactions contemplated in
Articles II and III, have been duly authorized by the Board of Directors of
Purchaser, and except for the approval by Purchaser's stockholders of the
Acquisition, the issuance by Purchaser in connection with the Acquisition of the
Purchaser Common Shares and the Additional Purchaser Common Shares, no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement, any Ancillary Agreement to which Purchaser will be a party, the
issuance and delivery of the Purchaser Securities, the consummation of the
Acquisition, or the other transactions contemplated in Articles II and III. This
Agreement has been duly executed and delivered by Purchaser. The Purchaser
Convertible Debenture, and each Ancillary Agreement required to be executed and
delivered by Purchaser at the Closing will be, upon its or their execution and
delivery as provided in Section 3.3 or elsewhere in this Agreement, duly
executed and delivered by Purchaser. Assuming the valid authorization, execution
and delivery of this Agreement (and each Ancillary Agreement to which Seller or
Laidlaw will be a party) by Seller and by Laidlaw, this Agreement is, and upon
its issuance and delivery at the Closing, the Purchaser Convertible Debenture
will be, and upon its execution and delivery by Purchaser, each Ancillary
Agreement to which Purchaser is a party will be, a valid and binding obligation
of Purchaser, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other Laws relating to or affecting creditors' rights generally or
by equitable principles.
5.3 Status of Purchaser Common Shares. Upon their issuance as provided in
Section 2.2, the Purchaser Common Shares will be, and upon any issuance thereof
by the Purchaser, the Additional Purchaser Common Shares will be, duly
authorized, validly issued, fully paid and nonassessable.
5.4 No Violations. The execution, delivery and performance of this
Agreement and the applicable Ancillary Agreements by the Purchaser, the issuance
and delivery by Purchaser of the Purchaser Securities, and the consummation of
the Acquisition and the other transactions contemplated in Articles II and III
will not:
(i) constitute a breach or violation of or default under the charter
or bylaws of Purchaser or any of its Subsidiaries or any Law applicable to
Purchaser or any of its Subsidiaries; or
(ii) except as accurately reflected in Section 5.4 of the Purchaser
Disclosure Schedule, violate or conflict with, or result in a breach of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance by, or result in a right of termination
under, or result in the creation of any Lien upon the assets or properties
of Purchaser or any of its Subsidiaries under, any contract, indenture,
loan document, license, permit, order, decree or instrument to which
Purchaser or any of its Subsidiaries is a party or by which any of them or
their assets or properties are bound.
5.5 Consents and Approvals. No consent, order, approval, waiver,
authorization of, or registration, application, declaration or filing with, any
Governmental Entity or other Person is required with respect to Purchaser or any
Subsidiary of Purchaser in connection with the execution and delivery of this
Agreement, the issuance of the Purchaser Securities, the consummation of the
Acquisition, or the other transactions contemplated in Articles II and III,
except for:
(i) the HSR Act, Competition Act and Investment Canada Act filings and
approvals contemplated in this Agreement;
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(ii) the consents and approvals described on Section 5.5 of the
Purchaser Disclosure Schedule;
(iii) the approval by Purchaser's stockholders, as contemplated in
Section 7.5; and
(iv) other cases, considered individually and in the aggregate, in
which any failure to make any such registration, application, declaration
or filing or to obtain any such consent, order, approval, waiver or other
authorization could not have a Material Adverse Effect on Purchaser and its
Subsidiaries.
5.6 Purchaser Capitalization. The authorized capital stock of Purchaser
consists of (i) 120 million shares of Purchaser Common Stock and (ii) 1 million
shares of Preferred Stock, $1.00 par value, of Purchaser ("Purchaser Preferred
Stock"). At September 30, 1996, 60,375,811 shares of Purchaser Common Stock, and
no shares of Purchaser Preferred Stock, were issued and outstanding, all of
which were duly and validly issued, fully paid and nonassessable. Except as set
forth in the Purchaser SEC Filings or Section 5.6 of the Purchaser Disclosure
Schedule, no subscription, warrant, option, convertible security, stock
appreciation or other right (contingent or other) to purchase or acquire any
shares of any class of capital stock of Purchaser or any of its Subsidiaries is
authorized or outstanding and there is not outstanding any commitment of
Purchaser or any of its Subsidiaries to issue any shares, warrants, options or
other such rights or to distribute to holders of any class of its capital stock
any evidences of indebtedness or assets. Except as set forth in the Purchaser
SEC Filings, neither Purchaser nor any of its Subsidiaries has any contingent or
other obligation to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as set forth in the Purchaser SEC
Filings, Purchaser is not a party to any voting agreement, voting trust or
similar agreement or arrangement relating to its capital stock or any agreement
or arrangement relating to or providing for registration rights with respect to
its capital stock.
5.7 Purchaser Subsidiaries. Section 5.7 of the Purchaser Disclosure
Schedule sets forth with respect to each Subsidiary (i) its jurisdiction of
incorporation, (ii) each jurisdiction in which it is qualified to do business as
a foreign corporation, (iii) its authorized, issued and outstanding shares of
capital stock, and (iv) the holder or holders of all of its issued and
outstanding shares of capital stock. Each Subsidiary of Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full authority and corporate power
to conduct its business as it is presently being conducted. Each Subsidiary of
Purchaser is duly qualified to do business, and in good standing, in each
jurisdiction where the nature of its properties or business requires such
qualification, except for failures to be so qualified which could not,
individually or in the aggregate, have Material Adverse Effect on Purchaser and
its Subsidiaries.
Except as accurately disclosed in Section 5.7 of the Purchaser Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Subsidiary of Purchaser are validly issued, fully paid and nonassessable and are
owned of record and beneficially by Purchaser or a wholly owned direct or
indirect Subsidiary of Purchaser. Except as set forth in Section 5.7 of the
Purchaser Disclosure Schedule, there are no preemptive rights or outstanding
subscriptions, options, warrants, calls, rights, convertible securities,
obligations to make capital contributions or advances, voting trust
arrangements, shareholders' agreements or other agreements, commitments or
understandings relating to the issued and outstanding capital stock of any
Subsidiary of Purchaser. Except as described in Section 5.7 of the Purchaser
Disclosure Schedule, Purchaser does not, directly or indirectly, have any equity
investment in any corporation, partnership or joint venture or other business
entity.
5.8 Conduct of Hazardous and Industrial Waste Business. Purchaser is
engaged in the Hazardous and Industrial Waste Business. Purchaser is not
currently nor has been engaged in any business other than the Hazardous and
Industrial Waste Business or owns or has owned any assets or properties which
are used in any business other than the Hazardous and Industrial Waste Business.
5.9 SEC Filings. Purchaser has filed all forms, reports and documents
required to be filed with the SEC since January 1, 1993 and Purchaser has made
available to the Seller true and complete copies
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of (i) Purchaser's Annual Report on Form 10-K for the year ended September 30,
1995, and (ii) all other reports, statements and registration statements
(including Current Reports on Form 8-K) filed by Purchaser with the SEC since
January 1, 1993 (collectively, the "Purchaser SEC Filings"). The Purchaser SEC
Filings (including all financial statements or schedules included in them) (i)
were prepared in compliance in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time of filing (or if amended, supplemented or superseded by a later filing,
on the date of the later filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
5.10 Purchaser Financial Statements. The consolidated balance sheets and
consolidated statements of operations, stockholder's equity and cash flows of
Purchaser and its Subsidiaries included in the Purchaser SEC Filings fairly
present in all material respects the consolidated financial position of
Purchaser and its Subsidiaries at their respective dates and the consolidated
results of operations of Purchaser and its Subsidiaries for the respective
periods then ended, in accordance with U.S. GAAP. Purchaser's audited
consolidated balance sheet at September 30, 1996 included in the Purchaser SEC
Filings is herein called the "Purchaser Balance Sheet."
5.11 Absence of Certain Changes. Except as set forth in Section 5.11 of
the Purchaser Disclosure Schedule, since September 30, 1996, Purchaser and its
Subsidiaries have conducted their businesses only in the ordinary course,
consistent with past practice, and there has not occurred a Material Adverse
Effect with respect to Purchaser and its Subsidiaries or any event that could
result in a Material Adverse Effect on Purchaser and its Subsidiaries.
5.12 No Undisclosed Liabilities. Except as disclosed in the Purchaser
Balance Sheet or in Sections 5.12 and 5.15 of the Purchaser Disclosure Schedule,
Purchaser and its Subsidiaries have no liabilities or obligations, known or
unknown, fixed or contingent, other than (i) those liabilities and obligations
arising since September 30, 1996 in the ordinary course of business and
consistent with past practice, (ii) liabilities and obligations arising after
the date of this Agreement without violation of Sections 7.1 and 7.2, or (iii)
liabilities and obligations that, individually or in the aggregate, could not
result in a Material Adverse Effect on Purchaser and its Subsidiaries.
5.13 Purchaser Properties. Purchaser and its Subsidiaries have good and
marketable title to the owned properties and assets used in the conduct of their
business that are reflected in the Purchaser Balance Sheet (other than
properties and assets disposed of in the ordinary course of business since
September 30, 1996, which, in the aggregate, are not material), free of all
Liens except Permitted Liens and Liens disclosed in Section 5.13 of the
Purchaser Disclosure Schedule.
5.14 Taxes and Tax Returns. Except as described in Section 5.14 of the
Purchaser Disclosure Schedule:
(i) all Tax Returns required to be filed with any Taxing Authority
with respect to any Pre-Closing Tax Period by or on behalf of Purchaser and
its Subsidiaries have been or will be duly filed on a timely basis in
accordance with all applicable Laws;
(ii) at the time of their filings all such Tax Returns were or will
be, in all respects, true, complete and correct;
(iii) Purchaser and its Subsidiaries have, and within the time and in
the manner prescribed by Law, paid all Taxes that are due and payable;
(iv) the reserves for Taxes reflected in the Purchaser Balance Sheet
are adequate (in accordance with U.S. GAAP) to cover all Taxes that have
not been paid, but which under U.S. GAAP were accruable, through the date
of the Purchaser Balance Sheet;
(v) there are no Liens for Taxes upon any assets of Purchaser or any
of its Subsidiaries, except Liens for Taxes not yet due for current Tax
periods ending on or after the Closing Date;
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(vi) there are no outstanding deficiencies, assessments or written
proposals for the assessment of Taxes proposed, pending, asserted or
assessed against Purchaser or any Subsidiary of Purchaser and there is no
basis for any additional assessments or reassessments for any Taxes for
which adequate provision has not been made in the books and records of
Purchaser or its Subsidiaries, as the case may be; and
(vii) no extension of the statute of limitations or waiver of normal
reassessment periods on the assessment of any Taxes has been requested or
granted to Purchaser or any Subsidiary of Purchaser.
5.15 Litigation. Except as disclosed in the Purchaser SEC Filings or in
Section 5.15 of the Purchaser Disclosure Schedule, there is no suit, action,
investigation or proceeding pending or, to the knowledge of Purchaser,
threatened against Purchaser or any of its Subsidiaries at law or in equity
before or by any Governmental Entity or before any arbitrator or mediator of any
kind, that could have a Material Adverse Effect on Purchaser and its
Subsidiaries, and there is no judgment, decree, injunction, rule or order of any
Governmental Entity, arbitrator or mediator to which Purchaser or any Purchaser
Subsidiary (or any of its assets or properties) is subject that could have a
Material Adverse Effect on Purchaser and its Subsidiaries. There is no suit,
action, investigation or proceeding pending or, to the knowledge of Purchaser,
threatened against Purchaser at law or in equity before or by any Governmental
Entity or before any arbitrator or mediator of any kind, that could have a
Material Adverse Effect on Purchaser, and there is no judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator or mediator
to which Purchaser is subject that could have a Material Adverse Effect on
Purchaser. Purchaser has no knowledge of any grounds on which any suit, action,
investigation or proceeding of the nature referred to in this Section 5.15 might
be commenced with any reasonable likelihood of success.
5.16 Environmental Matters.
(i) To the knowledge of Purchaser, no Purchaser or Purchaser Subsidiary has
transported, stored, received, treated or disposed of, nor has Purchaser or any
Purchaser Subsidiary arranged for any third parties to transport, receive,
store, treat or dispose of, waste to or at (a) any location other than a site
where the receipt of such waste for such purposes was not at the time of such
receipt unlawful or (b) any location designated for remedial action pursuant to
the United States Comprehensive Environmental Response, Compensation and
Liability Act, as from time to time amended, or any similar Law assigning
responsibility for the cost of investigating or remediating releases of
Hazardous Substances into the environment, except to the extent such action
would not have a Material Adverse Effect on the business, results of operations
or financial condition of Purchaser and the Purchaser Subsidiaries or as set
forth in Section 5.16 of the Purchaser Disclosure Schedule.
(ii) Except as set forth in Section 5.16 of the Purchaser Disclosure
Schedule, neither Purchaser nor any Purchaser Subsidiary has received written
notice that any location to which waste has been transported, stored or disposed
of by Purchaser or any Purchaser Subsidiary has been designated for remedial
action pursuant to any applicable Law relating to responsibility for the cost of
investigating or remediating releases of Hazardous Substances into the
environment. Set forth in Section 5.16 of the Purchaser Disclosure Schedule is,
to the knowledge of Purchaser, a complete and accurate list of locations to
which Purchaser or any Purchaser Subsidiary has ever transported, or ever caused
to be transported, allowed or arranged for any third party to transport, any
type of waste material generated by customers of Purchaser or any Purchaser
Subsidiary for storage, treatment, burning, recycling or disposal.
(iii) Compliance. To Purchaser's knowledge, Purchaser and the Purchaser
Subsidiaries and their respective processes, operations, transportation, storage
and disposal activities and undertakings have been and are in compliance with
all Environmental Laws (including reporting and record keeping requirements),
except to the extent any such noncompliance would not have a Material Adverse
Effect on the business, results of operations or financial condition of
Purchaser and the Purchaser Subsidiaries or as set forth in Section 5.16 of the
Purchaser Disclosure Schedule or noncompliances that have been fully and finally
resolved. To Purchaser's knowledge, Purchaser and the Purchaser Subsidiaries
have
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received no Notice of noncompliance and Purchaser has no knowledge of any facts
which could give rise to a Notice of noncompliance, with any Environmental Laws,
except to the extent any such noncompliance would not have a Material Adverse
Effect on the business, results of operations or financial condition of
Purchaser and the Purchaser Subsidiaries taken as whole, or as set forth in
Section 5.16 of the Purchaser Disclosure Schedule.
(iv) Environmental Permits. Except as set forth in Section 5.16 of the
Purchaser Disclosure Schedule and except to the extent that the failure to
obtain an Environmental Permit would not have a Material Adverse Effect on the
business, results of operations or financial condition of Purchaser and the
Purchaser Subsidiaries, Purchaser and the Purchaser Subsidiaries have obtained
all Environmental Permits which are required for the operation of the
Purchaser's business as presently conducted, all of which Environmental Permits
are listed in Section 5.16 of the Purchaser Disclosure Schedule. To the
knowledge of Purchaser, all such Environmental Permits are valid and in full
force and effect, and no violations thereof have been experienced, noted or
recorded by any administrative or regulatory agency, except for violations that
have been fully and finally resolved and violations which would not have a
Material Adverse Effect on the business, results of operations or financial
condition of Purchaser and the Purchaser Subsidiaries, or as set forth in
Section 5.16 of the Purchaser Disclosure Schedule, and no proceeding is pending
or, to the knowledge of Purchaser, threatened to revoke or limit any of them.
(v) No Offenses. Except as disclosed in Section 5.16 of the Purchaser
Disclosure Schedule, within the past seven (7) years, Purchaser and the
Purchaser Subsidiaries have never been convicted of a criminal offense for
noncompliance with any Environmental Laws, or been fined or otherwise sentenced
in or settled any such criminal prosecution short of conviction.
(vi) No Release of Hazardous Substances. Except as disclosed in Section
5.16 of the Purchaser Disclosure Schedule, to the knowledge of Purchaser,
neither of Purchaser nor any of the Purchaser Subsidiaries has received any
Notice which alleges that Purchaser or any of the Purchaser Subsidiaries is
liable for (a) the Release of any Hazardous Substances on or off-site of its
property in a manner that fails to comply with applicable Environmental Laws or
(b) any Release from a facility owned or operated by third parties.
(vii) Disposal Sites. Except as set forth in Section 5.16 of the Purchaser
Disclosure Schedule, to the knowledge of Purchaser, neither Purchaser nor any of
the Purchaser Subsidiaries has received Notice that Purchaser or any of the
Purchaser Subsidiaries is a potentially responsible party for a federal, state,
provincial or local clean-up site or for corrective action under any
Environmental Law. Except as set forth in Section 5.16 of the Purchaser
Disclosure Schedule, to the knowledge of Purchaser, neither Purchaser nor any of
the Purchaser Subsidiaries has received any written request for information from
a regulatory agency with respect to a disposal or contaminated site.
(viii) Environmental Audits. To Purchaser's knowledge, Purchaser and the
Purchaser Subsidiaries have made available to Seller all environmental audits,
evaluations and assessments in their possession which concern Purchaser or any
of its Subsidiaries.
(ix) Financial Assurances. Section 5.16 of the Purchaser Disclosure
Schedule sets forth a list of each guaranty or other financial security
currently maintained pursuant to the requirements of applicable Environmental
Laws with regard to the assets and activities of Purchaser or any of its
Subsidiaries.
(x) Landfills. Section 5.16 of the Purchaser Disclosure Schedule lists
each landfill owned or operated by Purchaser and its Subsidiaries and accurately
describes each such landfill by its city or county and state or province of
location, total acreage, permitted acreage, estimated remaining permitted
capacity in tons, estimated or mandated closure date, and estimated closure,
post-closure and reclamation liability at its projected or mandated closure date
(computed at the closure date with and without discount to present value).
5.17 Governmental Licenses and Permits; Compliance with Laws. Except as
described in the Purchaser SEC Filings or Section 5.17 of the Purchaser
Disclosure Schedule, neither Purchaser nor any
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of its Subsidiaries has received notice of any revocation or modification of any
license, certification, tariff, permit, registration, exemption, approval or
other authorization by any Governmental Entity which remains outstanding. The
conduct of the business of Purchaser and its Subsidiaries complies and has been
conducted in compliance with all applicable Laws, except for violations or
failures to comply, if any, that, individually or in the aggregate, could not
have a Material Adverse Effect on Purchaser and its Subsidiaries.
5.18 Labor Matters. Section 5.18 of the Purchaser Disclosure Schedule
lists and describes each collective bargaining agreement covering employees of
Purchaser. Except as disclosed in Section 5.18 of the Purchaser Disclosure
Schedule, (i) neither Purchaser nor any Subsidiary is a party to or bound by any
collective bargaining or similar agreement with any labor organization
applicable to employees of Purchaser, (ii) there is no labor strike, dispute,
slowdown, work stoppage, unresolved material labor union grievance or labor
arbitration proceedings pending or, to the knowledge of Purchaser, threatened
against Purchaser or any Subsidiary, and (iii) to the knowledge of Purchaser,
there are no current union organizing activities among employees of Purchaser or
any Subsidiary.
Since the enactment of the WARN Act, neither Purchaser nor any Subsidiary
has effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of any employment or facility of any Subsidiary. Neither Purchaser nor any
Subsidiary has been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar Canadian federal, state, provincial or local Law. Except as set forth in
Section 5.18 of the Purchaser Disclosure Schedule, no employees of Purchaser or
any Subsidiary have suffered an "employment loss" (as defined in the WARN Act)
since December 31, 1995.
5.19 Employee Benefit Plans. Section 5.19 of the Purchaser Disclosure
Schedule sets forth each retirement, pension, bonus, stock purchase, profit
sharing, stock option, deferred compensation, severance or termination pay,
insurance, medical, hospital, dental, vision care, drug, sick leave, disability,
salary continuation, legal benefits, unemployment benefits, vacation, incentive
or other compensation plan or arrangement or other employee benefit which is
maintained, or otherwise contributed to or required to be contributed to, by
Purchaser, any Purchaser Subsidiary or any ERISA Affiliate of Purchaser for the
benefit of employees or former employees and directors or former directors of
any of the Subsidiaries and their spouses, dependents or beneficiaries (the
"Purchaser Employee Plans"). True and correct copies of each of the Purchaser
Employee Plans have been delivered to the Seller, along with the most recent
annual report for each Purchaser Employee Plan, any trust agreement relating to
each Purchaser Employee Plan and the most recent summary plan description,
actuarial report and determination letter for each Purchaser Employee Plan.
Purchaser has complied, and currently is in compliance, both as to form and
operation, in all material respects, with the applicable provisions of ERISA and
each other Law or regulation imposed or administered by any Governmental Entity
with respect to each of the Purchaser Employee Plans. Except as set forth in
Section 5.19 of the Purchaser Disclosure Schedule, Purchaser has at no time
maintained, adopted, established, contributed to or been required to contribute
to, otherwise participated in or been required to participate in, or had any
liability with respect to, any "employee benefit plan" within the meaning of
section 3(3) of ERISA. All Purchaser Employee Plans providing pension or
retirement benefits or obligations to current or former employees or their
spouses, dependents and beneficiaries are referred to collectively as "Purchaser
Pension Plan" and identified in Section 5.19 of the Purchaser Disclosure
Schedule. Except as set forth in Section 5.19 of the Purchaser Disclosure
Schedule, no provision concerning the Purchaser Pension Plan is contained in any
collective bargaining agreement affecting any current or former employees of any
Purchaser Subsidiary. Each Purchaser Pension Plan that is required to be
qualified under Section 401(a) and Section 501(a) of the Code has received a
determination letter to such effect and no event has occurred which is
reasonably likely to result in the disqualification of any such Purchaser
Pension Plan. The Purchaser Pension Plan is registered under, and is in material
compliance with, applicable Law. All contributions to, and payments from, each
Purchaser Employee Plan which may have been required to be made in accordance
with the terms of any such Purchaser Employee Plan and, where applicable, the
Laws which govern such Purchaser
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Employee Plan, have been made in a timely manner, and each Purchaser Employee
Plan has otherwise at all times been administered in accordance with its terms
and applicable Law in all material respects. All material reports, Tax Returns
and similar documents with respect to any Purchaser Employee Plan required to be
filed with any Governmental Entity or distributed to any Purchaser Employee Plan
participant have been duly filed on a timely basis or distributed. There are no
pending investigations by any Governmental Entity involving or relating to any
Purchaser Employee Plan, no threatened or pending claims (except for claims for
benefits payable in the normal operation of the Purchaser Employee Plans), suits
or proceedings against any Purchaser Employee Plan or asserting any rights or
claims to benefits under any Purchaser Employee Plan which could give rise to a
liability nor, to the knowledge of Purchaser, are there any facts that could
give rise to any liability in the event of any such investigation, claim, suit
or proceeding. No Notice has been received by Purchaser or any of its
Subsidiaries of any complaints or other proceedings of any kind involving any of
the Purchaser Subsidiaries or any of the employees of any of the Purchaser
Subsidiaries or other potential claimants before any Governmental Entity
relating to any Purchaser Employee Plan or to any of the Purchaser Subsidiaries
and to the knowledge of Purchaser, there is no basis for any such claims. Except
as set forth in Section 5.19 of the Purchaser Disclosure Schedule, the assets of
each Purchaser Employee Plan are at least equal to the liabilities, contingent
or otherwise, of such Purchaser Employee Plan on a plan termination basis, and
each Purchaser Pension Plan is fully funded on a going concern and solvency
basis in accordance with its terms, applicable actuarial recommendations and
applicable Law. Neither Purchaser nor any of its Subsidiaries contribute to or
have an obligation to contribute to, and, to the knowledge of Purchaser, have
not within 6 years prior to the date of this Agreement contributed to or had an
obligation to contribute to, a multi-employer plan within the meaning of Section
3(37) of ERISA. No event has occurred and, to the knowledge of Purchaser, there
exists no condition or set of circumstances in connection with which Seller, any
of its Affiliates or Subsidiaries could be subject to any liability under the
terms of each Purchaser Employee Plan or under any applicable law of any
Governmental Entity, other than any condition or set of circumstances that could
not have a Material Adverse Effect on the Subsidiaries. In connection with the
consummation of the transactions contemplated by this Agreement, no payments
have or will be made under a Purchaser Employee Plan which, in the aggregate,
would be nondeductible under Section 280G of the Code.
The beneficiaries under all Purchaser Employee Plans consist only of
employees or former employees and directors or former directors of any of
Purchaser and its Subsidiaries and their spouses, dependents or beneficiaries.
5.20 Financing. The funds committed to be made available to Purchaser
under the Commitment Letter, together with Purchaser's funds and funds otherwise
available to Purchaser, are sufficient to consummate the Acquisition.
5.21 Brokers. Except for Raymond James & Associates, Inc., which has acted
as financial advisor to Purchaser in connection with the Acquisition, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with this Agreement or the Acquisition based upon
arrangements made by or on behalf of Purchaser.
5.22 Material Contracts. Section 5.22 of Purchaser Disclosure Schedule
lists all of the following written or oral contracts, agreements and commitments
(collectively, the "Purchaser Contracts"):
(i) all employment, consulting or personal services agreements or
contracts with any present or former officer, director or employee of
Purchaser who has an annual salary of $250,000 or more (determined by using
the currency in which they are paid);
(ii) all hazardous waste management agreements and contracts
(including those relating to the receipt, transport, disposal or other
management of waste) between Purchaser and any municipality or other
Governmental Entity or Person which resulted in annual payments in the 1996
fiscal year to or by Purchaser of $2,000,000 or more, which list includes
the term of such agreements or contracts;
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(iii) all contracts, agreements, agreements in principle, letters of
intent and memoranda of understanding which call for or contemplate the
future disposition (including restrictions on transfer and rights of first
offer or refusal) or acquisition of (or right to acquire) any interest in
any business enterprise, and all contracts, agreements and commitments
relating to the future disposition of a material portion of the assets and
properties of Purchaser other than in the ordinary course of business;
(iv) all contracts, agreements with, or commitments to, any Person
containing any provision or covenant relating to the indemnification or
holding harmless by Purchaser of any Person which could result in a
liability to Purchaser of $250,000 or more;
(v) all leases or subleases of real property used in the conduct of
business of Purchaser providing for annual rental payments to be paid by or
on behalf of Purchaser of more than $250,000 in each case;
(vi) all contracts or agreements committing Purchaser to make a
capital expenditure in excess of $250,000;
(vii) all guaranties or other commitments or undertakings under which
Purchaser may be primarily, secondarily, contingently or conditionally
liable for or in respect of (or which creates, constitutes or evidences a
Lien on) any of the assets or properties of Purchaser which secures the
payment or performance on any present or future liability or obligation of
or to Purchaser or its Subsidiaries or any officer or director of Purchaser
or its Subsidiaries; and
(viii) all Purchaser Intercompany and Affiliate Agreements.
Purchaser shall make available to Seller within 15 days of the Closing a
true and correct copy of each Purchaser Contract. Each of the Purchaser
Contracts is in full force and effect and constitutes a legal, valid and binding
obligation of the Purchaser, and, to the knowledge of Purchaser, of each other
Person that is a party to it. Except as set forth in Section 5.22 of the
Purchaser Disclosure Schedule, Purchaser is not, and, to the knowledge of
Purchaser, no other party to any Purchaser Contract is, in violation, breach or
default of such Purchaser Contract or, with or without notice or lapse of time
or both, would be in violation, breach or default of any such Purchaser
Contract, except for any violation, breach or default which, individually or in
the aggregate, could not result in a Material Adverse Effect on the Purchaser.
Except as set forth in Section 5.22 of the Purchaser Disclosure Schedule, no
Purchaser Contract provides that any party thereto other than Purchaser may
terminate such Purchaser Contract by reason of the execution of this Agreement
or the consummation of the Acquisition.
5.23 Bank Accounts. Section 5.23 of the Purchaser Disclosure Schedule
lists each bank, trust company or similar institution with which Purchaser
maintains an account or safe deposit box, and accurately identifies each such
account or safe deposit box by its number or other identification and the names
of all individuals authorized to draw thereon or have access thereto.
5.24 Officers and Directors. Section 5.24 of the Purchaser Disclosure
Schedule accurately lists by name and title all officers and directors of
Purchaser.
5.25 Affiliate Transactions. Purchaser has not entered into directly or
indirectly any transaction (including without limitation the purchase, lease,
sale or exchange of property of any kind or the rendering of any service) with
any Affiliate, except in the ordinary course and pursuant to the reasonable
requirements of such Affiliate's business and upon fair and reasonable terms no
less favorable to such Affiliate than would be obtainable in a comparable
arm's-length transaction with a Person not Purchaser or any Affiliate of
Purchaser.
5.26 Condition and Sufficiency of Assets. The buildings, plants,
structures, and equipment of Purchaser are structurally sound, are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and none of such buildings, plants, structures or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The building, plants,
structures, and equipment of Purchaser are sufficient for the
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continued conduct of Purchaser's businesses after the Closing Date in
substantially the same manner as conducted prior to the Closing Date.
ARTICLE VI
SELLER AND LAIDLAW COVENANTS PENDING CLOSING
Seller and Laidlaw jointly and severally agree that pending the Closing,
without the prior written consent of Purchaser:
6.1 Conduct of Business. Each Acquired Subsidiary shall conduct its
operations according to its ordinary and usual course of business, comply with
applicable Laws, comply with the terms of Seller Employee Plans (including by
making all contributions required by the terms of the Seller Pension Plan,
applicable actuarial recommendations and applicable Laws), and use its best
efforts to preserve intact its business organization, keep available the
services of its officers and employees and maintain normal business
relationships with customers, suppliers and others having business relationships
with it. Seller and Laidlaw shall confer on a regular and frequent basis with
one or more designated representatives of Purchaser to report on operational
matters of materiality and to report the general status of on-going operations
of the Acquired Subsidiaries. Seller or Laidlaw shall notify Purchaser of:
(i) any unexpected material emergency or other material change in the
normal course of business or in the operation of the properties of the
Acquired Subsidiaries;
(ii) the instigation of or any significant development in any
regulatory proceedings or complaints, investigations or hearings of
Governmental Entities (or communications indicating that any may be
contemplated) involving either Seller or any Acquired Subsidiary, which
instigation or development could have a Material Adverse Effect on the
Acquired Subsidiaries, Laidlaw or Seller;
(iii) proposed budgets, capital expenditures, acquisitions and
dispositions of assets and other decisions involving material properties of
the Acquired Subsidiaries; and
(iv) any matter or event which comes to the knowledge of Seller or
Laidlaw and which makes or could make any representation and warranty made
by Seller or Laidlaw in Article IV untrue or inaccurate.
Seller and Laidlaw shall keep Purchaser fully informed of such events and
permit Purchaser's representatives access to all materials prepared in
connection with such events.
6.2 Forbearance by the Acquired Subsidiaries. Neither Seller nor Laidlaw
shall cause or permit any Acquired Subsidiary to (except as contemplated in
Section 3.2):
(i) amend its charter or bylaws (or other similar organizational
documents);
(ii) issue, sell, pledge, dispose of or encumber any shares of its
capital stock or securities convertible into any such shares, or enter into
any agreement or commitment with respect to the issuance or purchase of any
such shares or securities;
(iii) pay any dividend or other distribution in respect of the
Chem-Waste Shares or redeem, purchase or acquire any Chem-Waste Shares;
(iv) incur any indebtedness for borrowed money other than Intercompany
Seller Indebtedness;
(v) make or commit to make any capital investment, capital
expenditure, capital addition or capital improvement, except to the extent
that any single capital expenditure (or series of related capital
expenditures) made or committed to be made by any Acquired Subsidiary and
all capital expenditures made or committed to be made by all Acquired
Subsidiaries do not exceed the amounts set forth in the budget of capital
expenditures included in Section 6.2 of the Seller Disclosure Schedule;
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(vi) except in the ordinary course of business, and except for
settlements made by insurers, enter into any compromise or settlement of
any litigation, proceeding or governmental investigation relating to such
Acquired Subsidiary or its respective properties which requires such
Acquired Subsidiary to make a payment in excess of $250,000 or which would
result in the imposition of any restriction upon the operations of such
Acquired Subsidiary or the disposition of any of its properties, except for
restrictions or dispositions which could not have a Material Adverse Effect
on the Acquired Subsidiaries;
(vii) sell real property or any interest in or improvement upon real
property or any other capital asset the book value or sales price of which
is more than $250,000;
(viii) amend the Seller Pension Plan or Seller Employee Plans or make
any statement relating to any anticipated or proposed increase in benefits
under the Seller Pension Plan or Seller Employee Plans for current, future
or former employees of any of the Acquired Subsidiaries other than strictly
in accordance with the terms of the Seller Pension Plan or Seller Employee
Plans as currently constituted;
(ix) transfer, license, lease, sell, dispose, mortgage or encumber any
assets or properties other than in the ordinary course of business; or
(x) increase compensation, benefits or severance for employees of any
Acquired Subsidiary except as required by any collective bargaining
agreements entered into by the Acquired Subsidiaries as in effect on the
date of this Agreement and except as set forth in Section 6.2 of the Seller
Disclosure Schedule.
6.3 Access and Information. Seller and Laidlaw shall give to Purchaser and
its representatives (including its lenders and their representatives) full
access during normal business hours to all the properties, books, contracts,
commitments, records, Tax Returns, personnel and advisors of Seller, Laidlaw and
the Acquired Subsidiaries so that Purchaser may have full opportunity to make
such investigation of the Acquired Subsidiaries as it shall reasonably request
in advance. Seller and Laidlaw will cause Coopers & Lybrand to permit KPMG Peat
Marwick to review and examine the work papers of Coopers & Lybrand relating to
Seller, Laidlaw and the Acquired Subsidiaries. Seller and Laidlaw will promptly
furnish to Purchaser all information with respect to the Acquired Subsidiaries
which Purchaser may reasonably request. Additionally, Seller and Laidlaw will
promptly furnish Purchaser all information concerning the Acquired Subsidiaries
required for inclusion in any application, filing, statement or notice to be
made by Purchaser to, or filed or joined in by Purchaser with, any Governmental
Entity in connection with this Agreement or the Acquisition, including the
Purchaser Proxy Statement, and none of such information shall, at the date
furnished, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Seller and
Laidlaw shall prior to the Mailing Date promptly inform Purchaser on becoming
aware that any information concerning any of the Acquired Subsidiaries furnished
to Purchaser pursuant to this Section 6.3 contains any such material
misstatement or omission.
6.4 Supplemental Information. Laidlaw shall, within five days following
each such filing, furnish Purchaser with a copy of each Current Report on Form
8-K, each Quarterly Report on Form 10-Q and each Annual Report on Form 10-K
filed by Laidlaw with the SEC. Seller shall also furnish to Purchaser copies of
interim monthly financial statements for the Acquired Subsidiaries (prepared
using the format customarily used by Seller for such internal reports and, no
less frequently than each fiscal quarter, prepared for the Acquired Subsidiaries
for such fiscal quarter on a combined basis) as soon as practicable but in any
event within 35 days after the end of each month or quarter, as the case may be,
together with any information ordinarily prepared in connection with such
financial statements. All such interim financial statements shall fairly present
in all material respects in accordance with U.S. GAAP, consistently applied, the
combined financial position of the Acquired Subsidiaries covered thereby at the
respective dates thereof, and the results of their operations, and cash flows
for the Acquired Subsidiaries covered thereby for the respective periods covered
thereby, subject to year-end
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adjustments (consisting of normal recurring accruals) and the omission of
explanatory footnote materials required by U.S. GAAP.
6.5 Confidentiality. All information and data furnished by Purchaser to
Seller or Laidlaw under Section 7.3 or any other provision of this Agreement
shall be received, held, treated and, if applicable, returned to Purchaser, in
accordance and compliance with the Confidentiality Agreement.
6.6 Consummation of Acquisition. Seller and Laidlaw shall use their best
efforts to perform and fulfill, and shall use their best efforts to cause the
Acquired Subsidiaries to perform and fulfill, all conditions and obligations on
their part to be performed and fulfilled under this Agreement, to the end that
the Acquisition shall be consummated.
6.7 Access for Environmental Report. Seller shall cause the Acquired
Subsidiaries to each give to The Toronto-Dominion Bank environmental
consultants, full access to the facilities, personnel and records of the
Acquired Subsidiaries as such consultants shall reasonably request (including
for physical inspection of sites and the drilling of wells and the conducting of
soil borings and other Phase II investigatory techniques) in order to conduct
Phase I and II environmental assessments of each parcel of real property owned,
or under the management or control of, or operated, leased or occupied by, an
Acquired Subsidiary, and to prepare a report reflecting the findings and
recommendations of such consultants concerning such Phase I and Phase II
environmental assessments. Seller shall use its best efforts to ensure that all
information provided to The Toronto-Dominion Bank environmental consultants in
the course of its conduct of such environmental assessments is accurate,
complete and not misleading (including by omissions). Seller will provide, and
will cause the Acquired Subsidiaries to provide, upon written request therefor,
all consents, approvals and directions (and waivers of privacy, freedom of
information and similar Laws) so as to permit such consultants to have prompt
and unrestricted access to all relevant information in the possession or under
the control of Governmental Entities.
6.8 Acquisitions of Purchaser Common Stock. Laidlaw and its Affiliates for
a period of three years from the Closing Date shall not purchase any issued and
outstanding shares of Purchaser Common Stock (other than the Purchaser Common
Shares and Additional Purchaser Common Shares), unless Laidlaw or its Affiliate,
as the case may be, shall have received the consent of a majority of those
members of the Board of Directors of Purchaser appointed jointly by Purchaser
and Laidlaw. Notwithstanding anything in this Section 6.8 to the contrary, the
shares of Purchaser Common Stock purchased by employees of Purchaser or any
Purchaser Subsidiary upon exercise of options issued to any of such employees
pursuant to the Purchaser Employee Plans shall not be aggregated with any shares
of Purchaser Common Stock purchased by Laidlaw or its Affiliates subsequent to
the Closing Date for purposes of determining whether Laidlaw or its Affiliates
have complied with the limitation on purchases of shares of Purchaser Common
Stock set forth in the immediately preceding sentence.
6.9 Competition. None of Laidlaw or its Affiliates for a period of five
years after the Closing Date shall compete with Purchaser or any Purchaser
Affiliate with respect to owning, operating, constructing or otherwise engaging
in the Hazardous and Industrial Waste Business.
ARTICLE VII
PURCHASER COVENANTS PENDING CLOSING
Purchaser agrees that pending the Closing, without the prior written
consent of Laidlaw and Seller:
7.1 Conduct of Business. Purchaser and its Subsidiaries shall conduct
their operations according to their ordinary and usual course of business,
comply with all applicable Laws, comply with the terms of the Purchaser Employee
Plans (including by making all contributions required by the terms of the
Purchaser Pension Plan, applicable actuarial recommendations and applicable
Laws), and shall use their best efforts to preserve intact their business
organization, keep available the services of their officers and employees and
maintain normal business relationships with customers, suppliers and
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others having business relationships with it. Purchaser shall confer on a
regular and frequent basis with one or more designated representatives of
Laidlaw and Seller to report on operational matters of materiality and to report
the general status of on-going operations of Purchaser. Purchaser shall notify
Laidlaw and Seller of:
(i) any unexpected material emergency or other material change in the
normal course of business or in the operation of the properties of
Purchaser and its Subsidiaries;
(ii) the instigation of or any significant development in any
regulatory proceedings or complaints, investigations or hearings of
Governmental Entities (or communication indicating that any may be
contemplated) involving Purchaser and its Subsidiaries, which instigation
or development could have a Material Adverse Effect on Purchaser and its
Subsidiaries;
(iii) proposed budgets, capital expenditures, acquisitions and
dispositions of assets and other decisions involving material properties of
Purchaser and its Subsidiaries; and
(iv) any matter or event which comes to the knowledge of Purchaser and
which makes or could make any representation and warranty made by Purchaser
in Article V untrue or inaccurate.
Purchaser shall keep Laidlaw and Seller fully informed of such events and
permit Seller's representatives access to all materials prepared in connection
with such events.
7.2 Forbearance by Purchaser and its Subsidiaries. Purchaser shall not nor
shall it cause or permit any of its Subsidiaries to:
(i) amend or propose to amend its certificate of incorporation (except
as contemplated in Section 7.5) or bylaws;
(ii) issue any shares of Purchaser Common Stock or shares of any
Subsidiary or securities convertible into or exchangeable for shares of
Purchaser Common Stock or shares of any Subsidiary, or enter into any
agreement or commitment with respect to the issuance or purchase of any
such shares or securities, except that Purchaser may (a) issue shares of
Purchaser Common Stock upon any exercise of any presently outstanding
convertible indebtedness of Purchaser which are, in each such case,
described in the Purchaser SEC Filings and (b) issue shares of Purchaser
Common Stock issuable upon any exercise of any options granted under any
presently existing director and employee stock option plans;
(iii) split, combine or reclassify any outstanding shares of Purchaser
Common Stock or shares of any Subsidiary;
(iv) declare, pay or set aside for payment any dividend or other
distribution in respect of any outstanding shares of Purchaser Common Stock
or redeem, purchase or acquire any Purchaser Common Stock;
(v) incur any Indebtedness for borrowed money other than Indebtedness
to Purchaser or another Purchaser Subsidiary; or
(vi) make or commit to make any capital investment, capital
expenditure, capital addition or capital improvement, except to the extent
that any single capital expenditure (or series of related capital
expenditures) made or committed to be made by Purchaser or any Purchaser
Subsidiary and all capital expenditures made or committed to be made by
Purchaser or any Purchaser Subsidiary do not exceed the amounts set forth
in the budget of capital expenditures included in Section 7.2 of the
Purchaser Disclosure Schedule.
(vii) except in the ordinary course of business, and except for
settlements made by insurers, enter into any compromise or settlement of
any litigation, proceeding or governmental investigation relating to
Purchaser or any Purchaser Subsidiary or its respective properties which
requires Purchaser or such Purchaser Subsidiary to make a payment in excess
of $250,000 or which would result in the imposition of any restriction upon
the operations of Purchaser or any
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Purchaser Subsidiary or the disposition of any of its properties, except
for restrictions or dispositions which could not have a Material Adverse
Effect on Purchaser and its Subsidiaries;
(viii) sell real property or any interest in or improvement upon real
property or any other capital asset the book value or sales price of which
is more than $250,000;
(ix) amend the Purchaser Pension Plan or Purchaser Employee Plans or
make any statement relating to any anticipated or proposed increase in
benefits under the Purchaser Pension Plan or Purchaser Employee Plans for
current, future or former employees of Purchaser or its Subsidiaries other
than strictly in accordance with the terms of the Purchaser Pension Plan or
Purchaser Employee Plans as currently constituted;
(x) transfer, license, lease, sell, dispose, mortgage or encumber any
assets or properties other than in the ordinary course of business; or
(xi) increase compensation, benefits or severance for employees of
Purchaser or any Purchaser Subsidiary except as required by any collective
bargaining agreements entered into by Purchaser or such Purchaser
Subsidiary as in effect on the date of this Agreement and except as set
forth in Section 7.2 of the Purchaser Disclosure Schedule.
7.3 Access and Information. Purchaser shall give Laidlaw, Seller and its
representatives full access during normal business hours to all the properties,
books, contracts, commitments, Tax Returns, personnel and advisors, and records
of Purchaser and its Subsidiaries so that Laidlaw and Seller may have full
opportunity to make such investigation of Purchaser and its Subsidiaries as they
shall reasonably request in advance. Purchaser will cause KPMG Peat Marwick to
permit Coopers & Lybrand to review and examine the workpapers of KPMG Peat
Marwick relating to Purchaser and its Subsidiaries. Purchaser will furnish
Laidlaw and Seller all information concerning Purchaser and its Subsidiaries
which Laidlaw or Seller may reasonably request. Additionally, the Purchaser will
promptly furnish to Laidlaw and Seller all information concerning Purchaser and
its Subsidiaries required for inclusion in any application, filing, statement or
notice made by Laidlaw or Seller to, or filed or joined in by Laidlaw or Seller
with, any Governmental Entity in connection with this Agreement or the
Acquisition, and none of such information shall, at the date furnished, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Purchaser shall prior
to the Mailing Date promptly inform Laidlaw and Seller on becoming aware that
any information concerning the Purchaser furnished to Laidlaw and Seller
pursuant to this Section 7.3 contains any such material misstatement or
omission.
7.4 Supplemental Information. Purchaser shall, within five days following
each such filing, furnish Laidlaw and Seller with a copy of each Current Report
on Form 8-K, each Quarterly Report on Form 10-Q and each Annual Report on Form
10-K filed by Purchaser with the SEC. Purchaser shall also furnish Laidlaw and
Seller copies of Purchaser's interim monthly consolidated financial statements
as soon as practicable but in any event within 35 days after the end of each
month, together with any information ordinarily prepared in connection with such
financial statements. All financial statements included in each such Quarterly
Report on Form 10-Q and Annual Report on Form 10-K shall be prepared in
conformity with U.S. GAAP, shall present fairly in all material respects, in
accordance with U.S. GAAP, the consolidated financial position of Purchaser and
its Subsidiaries at the end of the periods covered thereby and the results of
their consolidated operations for the periods covered thereby, subject, in the
case of unaudited interim financial statements, to year-end adjustments
(consisting of normal recurring accruals) and the omission of explanatory
footnote materials required by U.S. GAAP.
7.5 Purchaser Stockholders' Meeting and Restated and Amended Certificate of
Incorporation. Purchaser shall call a special meeting of the holders of
Purchaser Common Stock to be held to vote to approve the Agreement, the issuance
of the Purchaser Common Shares, the Additional Purchaser Common Shares, and to
approve the Restated and Amended Certificate of Incorporation of the Purchaser,
which shall provide for the authorization of additional shares of
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authorized Purchaser Common Stock, for the change of the name of the Purchaser
to "Laidlaw Environmental Services, Inc." and the increase in the size of the
Board of Directors to ten members and that the Board of Directors shall consist
of the individuals in Section 7.5 of the Seller Disclosure Schedule. Purchaser
will use its best efforts to hold the Purchaser Stockholders' Meeting no later
than 40 days following the date of mailing of the definitive proxy statement to
be furnished to its stockholders in connection with such meeting (the "Purchaser
Proxy Statement"). Subject to fiduciary duties under applicable Laws, Purchaser
will recommend to its stockholders approval of the matters referred to above,
and agrees to take all lawful action to solicit and use its best efforts to
obtain a favorable vote thereon. In connection with the Purchaser Stockholders'
Meeting, Purchaser shall prepare and file with the SEC, as soon as practicable
following the delivery to Purchaser of the Chem-Waste Group Audited Financial
Statements, a preliminary copy of the Purchaser Proxy Statement. As soon as
practicable thereafter, Purchaser will cause to be mailed to each holder of
Purchaser Common Stock a copy of the Purchaser Proxy Statement complying in all
material respects with the Exchange Act. All information concerning Purchaser or
any of its Subsidiaries included in the Purchaser Proxy Statement will be, on
the date of commencement of the mailing of the Purchaser Proxy Statement (the
"Mailing Date"), true and correct in all material respects without omission of
any material fact required to be stated to make the information set forth
therein, in light of the circumstances under which they were made, not
misleading.
7.6 Confidentiality. All information and data furnished by Seller or
Laidlaw to Purchaser under Section 6.3 or any other provision of this Agreement
shall be received, held, treated and, if applicable, returned to Seller, in
accordance and compliance with the Confidentiality Agreement.
7.7 Consummation of Acquisitions. Purchaser shall use its best efforts to
perform and fulfill, and shall use its best efforts to cause its Subsidiaries to
perform and fulfill, all conditions and obligations on their part to be
performed and fulfilled under this Agreement, to the end that the Acquisition
shall be consummated.
7.8 Letter from Stockholders. On or before the date of this Agreement,
Purchaser has received, and has delivered to Laidlaw and Seller copies of, a
letter from John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie agreeing
to vote all shares of Purchaser Common Stock held by them for approval of the
matters to be submitted to Purchaser's stockholders for approval pursuant to
Section 7.5 of this Agreement.
7.9 Access for Environmental Report. Purchaser shall and shall cause its
Subsidiaries to give to The Toronto-Dominion environmental consultants, full
access to the facilities, personnel and records of the Purchaser and its
Subsidiaries as such consultants shall reasonably request (including for
physical inspection of sites and the drilling of wells and the conducting of
soil borings and other Phase II investigatory techniques) in order to conduct
Phase I and II environmental assessments of each parcel of real property owned,
or under the management or control of, or operated, leased or occupied by,
Purchaser and its Subsidiaries, and to prepare a report reflecting the findings
and recommendations of such consultants concerning such Phase I and Phase II
environmental assessments. Purchaser shall and shall cause its Subsidiaries to
use its best efforts to ensure that all information provided to The
Toronto-Dominion Bank environmental consultants in the course of its conduct of
such environmental assessments is accurate, complete and not misleading
(including by omissions). The Purchaser will and will cause its Subsidiaries to
provide, upon written request therefor, all consents, approvals and directions
(and waivers of privacy, freedom of information and similar Laws) so as to
permit such consultants to have prompt and unrestricted access to all relevant
information in the possession or under the control of Governmental Entities.
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ARTICLE VIII
MUTUAL CONDITIONS
The respective obligations of all Parties to consummate the Acquisition and
to take the other actions called for under Articles II and III are subject to
the fulfillment of each of the following conditions on or before the Closing
Date:
8.1 No Adverse Proceedings. No order entered or Law promulgated or enacted
by any Governmental Entity shall be in effect which would prevent consummation
of the Acquisition, and no proceeding brought by a Governmental Entity or any
other Person shall have been commenced and be pending which seeks to restrain,
enjoin, prevent or materially delay or restructure the Acquisition.
8.2 HSR Waiting Period. The waiting period under the HSR Act shall have
expired or otherwise been terminated.
8.3 Purchaser Stockholder Approval. The matters to be submitted to
Purchaser's stockholders as set forth in Section 7.5 of this Agreement shall
have been approved by the requisite vote of the holders of Purchaser Common
Stock.
8.4 Competition Act Matters. Either (i) the Competition Act Director shall
have issued an Advance Ruling Certificate in respect of the Acquisition and
shall not have subsequently withdrawn the Advance Ruling Certificate or
indicated that he has obtained new information as result of which the
Competition Act Director is no longer satisfied that he would not have
sufficient grounds on which to make an application under Section 92 of the
Competition Act with respect to the Acquisition, (ii) the applicable time period
under Section 123 of the Competition Act shall have expired or (iii) the Parties
determine that the Competition Act does not apply to the Acquisition.
8.5 Westinghouse Debt Retirement. The Westinghouse Debt shall be retired
in accordance with that certain Letter of Intent dated January 6, 1997 by and
among Purchaser, Laidlaw and Westinghouse Electric Corporation.
8.6 Reorganization. Seller shall have reorganized such that Chem-Waste
shall own the entire Hazardous and Industrial Waste Business of Seller and its
Affiliates.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the Acquisition and to take the
other actions called for under Articles II and III are subject to the
fulfillment of each of the following conditions on or before the Closing Date:
9.1 Representations True at Closing. Seller and Laidlaw shall have
performed and complied in all material respects with all obligations and
agreements required to be performed or complied with by them under this
Agreement at or prior to the Closing, and the representations and warranties of
Seller and Laidlaw contained in this Agreement shall be true and correct when
made and at and as of the Closing as if made at and as of such date and time;
and the Purchaser shall have received certificates, each dated the Closing Date,
of the President or a Vice President of each of Seller and Laidlaw, to the
effect set forth in this Section 9.1.
9.2 No Adverse Changes. Since the date of this Agreement, no event or
series of events taken in the aggregate shall have occurred which could have a
Material Adverse Effect on the Acquired Subsidiaries or Seller.
9.3 Investment Canada Act. Purchaser shall have received from the ICA
Minister a notice, satisfactory in form and substance to the Purchaser, under
subsection 21(l) of the Investment Canada Act, stating that the Acquisition is
likely to be of net benefit to Canada, or the ICA Minister shall have been
deemed, under Section 21(2) of the Investment Canada Act, to be satisfied that
the Acquisition is likely to be of net benefit to Canada and Purchaser shall
have received a notice from the ICA Minister
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to that effect, or the Parties shall have determined that the Investment Canada
Act does not apply to the Acquisition.
9.4 Competition Act Matters. Either (i) the Competition Act Director shall
have issued an Advance Ruling Certificate in respect of the Acquisition and
shall not have subsequently withdrawn the Advance Ruling Certificate or
indicated that he has obtained new information as a result of which the
Competition Act Director is no longer satisfied that he would not have
sufficient grounds on which to make an application under Section 92 of the
Competition Act in respect of the Acquisition, (ii) the Competition Act Director
or his representative shall have advised the Purchaser (on terms and in form
satisfactory to them) that the Competition Act Director does not currently
intend to make an application under Section 92 of the Competition Act in respect
of the Acquisition, and such advice shall not have been amended or rescinded or
(iii) the Parties determine that the Competition Act does not apply to the
Acquisition.
9.5 Acquisition Financing. Purchaser shall have received the proceeds of
the financings contemplated in the Commitment Letter, or proceeds from other
financing with respect to the Acquisition which are satisfactory to Purchaser,
in an aggregate amount of at least $650,000,000.
9.6 Opinion of Financial Advisor. On the date of this Agreement, Purchaser
has received the opinion of Raymond James & Associates, Inc. to the effect that
on the basis of the assumptions referred to therein, the consideration payable
by Purchaser in connection with the Acquisition, taken as a whole, is fair to
Purchaser.
ARTICLE X
CONDITIONS TO SELLER'S AND LAIDLAW'S OBLIGATIONS
The respective obligations of Seller and Laidlaw to consummate the
Acquisition and to take the other actions called for under Articles II and III
are subject to the fulfillment of each of the following conditions on or before
the Closing Date:
10.1 Representations True at Closing. Purchaser shall have performed and
complied in all material respects with all obligations and agreements required
to be performed or complied with by them under this Agreement at or prior to the
Closing and the representations and warranties of Purchaser contained in this
Agreement shall be true and correct when made and at and as of the Closing as if
made at and as of such date and time; and Seller shall have received a
certificate, dated the Closing Date, of the President or Vice President of
Purchaser, to the effect set forth in this Section 10.1.
10.2 No Adverse Changes. Since the date of this Agreement, no event or
series of events taken in the aggregate shall have occurred which could have a
Material Adverse Effect on Purchaser and its Subsidiaries.
10.3 Investment Canada Act. Seller shall have received from the ICA
Minister a notice, satisfactory in form and substance to Seller, under
subsection 21(l) of the Investment Canada Act, stating that the Acquisition is
likely to be of net benefit to Canada, or the ICA Minister shall have been
deemed, under Section 21(2) of the Investment Canada Act, to be satisfied that
the Acquisition is likely to be of net benefit to Canada and Seller shall have
received a notice from the ICA Minister to that effect, or the Parties determine
that the Investment Canada Act does not apply to the Acquisition.
10.4 Competition Act Matters. Either (i) the Competition Act Director
shall have issued an Advance Ruling Certificate in respect of the Acquisition
and shall not have subsequently withdrawn the Advance Ruling Certificate or
indicated that he has obtained new information as a result of which the
Competition Act Director is no longer satisfied that he would not have
sufficient grounds on which to make an application under Section 92 of the
Competition Act in respect of the Acquisition, (ii) the Competition Act Director
or his representative shall have advised Seller (on terms and in form
satisfactory to them) that the Competition Act Director does not currently
intend to make an application under Section 92 of the Competition Act in respect
of the Acquisition, and such advice
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shall not have been amended or rescinded or (iii) the Parties determine that the
Competition Act does not apply to the Acquisition.
10.5 Waiver of Rights Plan. Purchaser shall have exempted the sale of
Purchaser Securities from Purchaser's Rights Plan.
10.6 Acquisition Financing. Purchaser shall have received the proceeds of
the financings contemplated in the Commitment Letter, or proceeds from other
financing with respect to the Acquisition which are satisfactory to Laidlaw and
Seller, in an aggregate amount of at least $650,000,000.
ARTICLE XI
ADDITIONAL AGREEMENTS
11.1 HSR Act Filings. Laidlaw, Seller and Purchaser shall use their best
efforts to respond as promptly as practicable to all requests received from the
FTC or the Antitrust Division for additional information or documentation with
respect to notification and reports filed under the HSR Act.
11.2 Competition Act Filings. Purchaser and Seller agree to file with the
Competition Act Director, within 10 Business Days after the date of this
Agreement, the information set out in Section 121 of the Competition Act,
certified in accordance with Section 118 of the Competition Act. If the
Competition Act Director, before the expiration of seven days after the date of
filing of such information, requires the information set out in Section 122 of
the Competition Act, Purchaser and Seller shall file the required information
with the Competition Act Director within 10 Business Days after the date the
information is required by him. Purchaser shall prepare and file with the
Competition Act Director, and Seller shall cooperate with Purchaser in their
preparation and filing of, an Advance Ruling Certificate in respect to the
Acquisition, and all Parties will provide to the Competition Act Director all
information requested by him in connection with the Advance Ruling Certificate
application.
11.3 Investment Canada Act Filings. Purchaser agrees to prepare and file
with the ICA Minister, within 10 Business Days after the date of this Agreement,
an application for review under the Investment Canada Act in connection with the
Acquisition, and Seller agrees to cooperate with Purchaser in connection with
such application.
11.4 Other Consents and Approvals. All Parties shall use their best
efforts to obtain before the Closing, in addition to the approvals and consents
referred to in Section 4.5, and all other consents and approvals listed and
disclosed in Section 4.5 of the Seller Disclosure Schedule, Section 4.17 of the
Seller Disclosure Schedule or Section 5.5 of the Purchaser Disclosure Schedule;
provided, however, that nothing in this Section 11.4 or Sections 11.1, 11.2 or
11.3 shall require Purchaser or any Acquired Subsidiary to (i) dispose of or
hold separately all or any material portion of the assets, properties or
businesses of the Acquired Subsidiaries or the assets, properties or business of
Purchaser and its Subsidiaries or agree to the imposition of any material
limitation on the ability of Purchaser and its Subsidiaries after the Closing
(including the Acquired Subsidiaries) to conduct their business and own their
assets and properties after the Closing in substantially the same manner as
before the Closing, or (ii) in the case of Section 11.2 or 11.3 and the
applications referred to therein, make any undertaking relating to any Acquired
Canadian Subsidiary or its assets, properties, business, operations, employees
or practices, which in the reasonable judgment of Purchaser, would or could
have, after the Closing, a Material Adverse Effect on such Acquired
Subsidiaries.
11.5 Publicity. No Party other than Purchaser, Laidlaw or Seller shall
issue any press release or public announcement pertaining to the Acquisition.
Purchaser, Laidlaw and Seller shall consult with each Party concerning any such
press release or public announcement and shall use their best efforts to agree
on its text before its public dissemination and before making any filings with
any Governmental Entity or national securities exchange with respect to any such
press release or public announcement. In cases where Purchaser and Laidlaw and
Seller are unable to agree on a press release or public
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announcement, the Party proposing it will not issue or make it unless the
proposing Party is required to do so by Law, in which case the Party so
obligated shall use its reasonable efforts to provide a copy of the press
release or public announcement to the other Party before its filing or public
dissemination.
11.6 Expenses. Except as otherwise provided in Article XIV, each Party
shall pay its own costs and expenses incurred in connection with the
Acquisition, whether or not the Acquisition is consummated. No such costs or
expenses shall be paid by or charged to any Acquired Subsidiary.
11.7 Securities Law Matters. Seller represents and warrants to Purchaser
that the Purchaser Securities to be issued to Seller under this Agreement are
being acquired, and any Purchaser Common Stock issued pursuant to this Agreement
or Additional Purchaser Common Shares will be acquired, by Seller for
investment, for its own account and not with a view to, or for resale in
connection with, any distribution of Purchaser Securities within the meaning of
the Securities Act. No Purchaser Securities may be sold, transferred, or
otherwise disposed of without registration under the Securities Act and any
applicable state or provincial securities Laws, rules, regulations or policies.
Notwithstanding such representations, and subject to the provisions of this
Agreement and the terms of such securities, Purchaser agrees to permit a sale or
transfer of such securities if Purchaser obtains satisfactory assurances that
the sale or transfer may be made without registration under the Securities Act
and related rules and regulations (and all applicable state or provincial
securities Laws, rules, regulations or policies) including, without limitation,
receipt by Purchaser of an opinion to such effect from counsel reasonably
satisfactory to Purchaser, or compliance by Seller with the requirements of Rule
144, Rule 144A or Regulation S under the Securities Act.
Seller agrees that the Purchaser Convertible Debenture may be inscribed
with the legend set forth on the form thereof attached as Exhibit D to this
Agreement, and that all certificates evidencing Additional Purchaser Common
Shares and Purchaser Common Shares, but only if required under the Securities
Act and applicable state or provincial securities Laws at the time of their
issuance, will be inscribed with the following restrictive legend:
"The shares represented by this certificate have not been registered
(or qualified by prospectus) under the United States Securities Act of
1933, as amended, or the securities laws of any state of the United
States or any province of Canada. Such shares may not be offered,
sold, transferred, pledged, hypothecated or otherwise disposed of in
the absence of such a registration thereunder other than pursuant to
an exemption from such registration or prospectus requirements and
delivery to Laidlaw Environmental Services, Inc. of an opinion of
counsel reasonably satisfactory to it to the effect that such transfer
is exempt from registration under those laws."
11.8 Rule 144 Reports. For as long as Seller or any Affiliate of Seller
owns shares of Purchaser Common Stock representing at least 10% of total number
of shares of Purchaser Common Stock issued and outstanding from time to time,
Purchaser will
(i) make and keep "current public information" "available" (as both
those terms are defined in Rule 144) at all times;
(ii) timely file with the SEC in accordance with all applicable rules
and regulations, all reports and other documents (a) required of Purchaser
for Rule 144, as it may be amended from time to time (or any rule,
regulation, or statute replacing Rule 144) to be available and (b) required
to be filed under Section 15(d) of the Exchange Act even if Purchaser's
duty to file those reports or documents is suspended or therwise terminated
under the terms of Section 15(d); and
(iii) furnish Seller annually a written statement by Purchaser that it
has complied with the reporting requirements of the Exchange Act and Rule
144, together with a copy of the most recent annual or quarterly report of
Purchaser and such reports and documents filed by Purchaser with the SEC as
may reasonably be requested by Seller.
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11.9 Seller Board Representation. At or prior to the Closing, Purchaser
shall increase the size of its Board of Directors to ten (10) members. At
Closing, Purchaser and Seller, as set forth below, shall use their best efforts
to cause to be elected the following individuals to Purchaser's Board of
Directors: (i) the President and Chief Executive Officer of Purchaser; (ii)
three individuals who shall be designated by Purchaser; (iii) three individuals
who shall be designated by Seller; and (iv) three individuals who shall be
designated jointly by Purchaser and Seller. The Board of Directors shall consist
of three classes of directors. The term of office of the first class shall
expire at the next annual meeting of the Board of Directors, of the second class
one year thereafter and of the third class two years thereafter, and at each
annual meeting of the Board of Directors held after such classification,
directors shall be chosen for a full three year term to succeed those whose
terms expire. Each class of directors shall have at least one representative who
has been nominated solely by the Purchaser, solely by the Seller and by the
Purchaser and Seller acting jointly.
11.10 Seller Guaranties. Except as provided in Section 11.12 and except in
so far as any member of the Seller Group shall incur any liability or obligation
under Article XIV of this Agreement, Purchaser and Chem-Waste agree to use best
efforts, and to cause all other Acquired Subsidiaries to use best efforts, to
cause each member of the Seller Group to be fully and finally released and
discharged from all further liability or obligation in respect of all Seller
Guaranties in respect of which such member of the Seller Group is an obligated
party, within six months following the Closing Date, and to that end, Purchaser
and Acquired Subsidiaries agree to use best efforts to:
(i) cause all liabilities and obligations of each Acquired Subsidiary
which are guaranteed or secured by a Seller Guaranty to be fully and
faithfully performed on a timely basis and in accordance with their terms;
(ii) secure the surrender of and the return to each Seller issuer bank
of each letter of credit which is a Seller Guaranty which is outstanding at
the Closing Date, without draw thereon by any beneficiary thereof;
(iii) secure the cancellation and return to Seller or to the issuer
thereof, as appropriate, without payment thereunder, of all Seller
Guaranties which are performance, suretyship or other bonds; and
(iv) cause to be delivered to the respective members of the Seller
Group written releases, duly executed by all necessary releasing parties,
evidencing the full and final release of each member of the Seller Group
liable thereon or thereunder, from all liabilities and obligations under
each Seller Guaranty which is a guaranty or other direct undertaking or
commitment on the part of such member of the Seller Group.
For purposes of this Section 11.10, "best efforts" on the part of Purchaser
includes:
(i) the offering of a substitution of a like guaranty of Purchaser for
any Seller Guaranty which is a guaranty of Seller; and
(ii) the offering to the beneficiary or beneficiaries of any letter of
credit which is a Seller Guaranty, a substitute letter of credit having an
expiry date no earlier than the expiry date of such Seller Guaranty and
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 Seller
issuer bank which is the issuer of such Seller Guaranty.
If at the end of six months following the Closing Date any Seller Guaranty
remains outstanding, then no later than the fifth Business Day following the
expiration of such six-month period, Purchaser shall cause to be delivered to
Seller a letter of credit which shall:
(i) name Seller as the beneficiary thereof;
(ii) be in an amount at least equal to the aggregate outstanding and
undrawn balances of all such outstanding Seller Guaranties;
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(iii) be 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 Seller issuer banks;
(iv) have an expiry date no earlier than the expiry date of the last
to expire of the Seller Guaranties; provided, however, that if the letter
of credit to be obtained by the Purchaser for the benefit of Seller
pursuant hereto is to be issued with respect to more than one Seller
Guaranty, the amount of such letter of credit will reduce automatically and
without any action by any party upon the expiring date of each Seller
Guaranty by the amount thereof or upon the acceptance by the beneficiary of
such Seller Guaranty of a substitute letter of credit provided by
Purchaser; and
(v) be payable at sight to Seller upon presentation of a written,
sworn affidavit of an officer of Seller stating that the Seller reclamation
credit issued by such Seller issuer bank has been drawn upon by the
beneficiary thereof in an amount not less than the draw being made by
Seller on such letter of credit.
Notwithstanding any provisions of this Section 11.10, any liabilities or
obligations of any member of the Seller Group under Section 11.12 or Article XIV
of this Agreement shall remain in full force and effect and shall not be reduced
or replaced by any substitute hereunder.
11.11 Guarantees of Performance of Retained Subsidiaries. Laidlaw and
Seller shall 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 guarantee given by any Acquired Subsidiary for
obligations of any Retained Subsidiary and agree to indemnify and hold harmless
Purchaser and each Acquired Subsidiary from and against any and all Damages
suffered by Purchaser or the Acquired Subsidiaries in connection with any such
guarantee and any and all other liabilities or obligations relating to the
Retained Subsidiaries.
11.12 Pinewood Security. Laidlaw has provided its corporate guarantee to
provide financial assurance for the costs of clean-up and/or environmental
impairment restoration incurred following closure or following a final order to
cease operations and commence closure of the hazardous waste management facility
operated by Laidlaw Environmental Services of South Carolina, Inc. in Pinewood,
South Carolina. This financial assurance required by the South Carolina
Department of Health and Environmental Control is comprised of the corporate
guarantee, the State Permitted Sites Fund and the GSX Contribution Fund. Laidlaw
shall maintain, solely at its expense, until the tenth anniversary of the
Closing Date, the corporate guarantee or such other form of financial mechanism
as may be permitted by the relevant Environmental Laws to provide the required
financial assurance. This commitment shall not extend to any amounts released
from the GSX Contribution Fund. Notwithstanding this Section 11.11, Purchaser
shall be responsible for the costs of any clean-up and/or environmental
restoration incurred.
11.13 Employees. Unless and until the Closing shall have occurred, neither
Party shall for a period of 18 months beginning January 6, 1997, without the
prior written consent of the other Party, solicit the employment of, or employ
or offer to employ, any employees of the other Party. This prohibition shall
only extend to employees in senior management, or key employees in operations,
regulatory, financial, marketing and sales or permitting aspect of a Party's
business. This prohibition shall not apply to any employee 90 days after such
employee has left the employ of either Party.
11.14 Purchaser Stock Option Plan. Notwithstanding any other provision of
this Agreement, on or prior to the Closing Date the Purchaser may amend its
Stock Option Plan to permit the immediate vesting of stock options held by any
employee of Purchaser or any of its Subsidiaries, and Laidlaw, Seller and the
Purchaser agree that the Purchaser shall within 60 days after the Closing Date
file with the SEC and use its best efforts to have declared effective a
registration statement with respect to the Purchaser Common Stock to be issued
upon the exercise of options granted under the Stock Option Plan.
11.15 Affiliate Transactions and Business Combination. Laidlaw and Seller
agree with Purchaser that neither Laidlaw, nor Seller, nor any Affiliate of
Laidlaw or Seller,
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(i) shall enter into directly or indirectly any transaction (including
without limitation the purchase, lease, sale or exchange or property of any
kind or the rendering of any service) with Purchaser or any of its
Subsidiaries, except in the ordinary course and pursuant to the reasonable
requirements of Purchaser's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to Purchaser or such Subsidiary than
would be obtainable in a comparable arm's-length transaction with a Person
not Laidlaw, Seller or an Affiliate of Laidlaw or Seller. Any agreement
approved by a majority of the independent director of Purchasers shall be
deemed to be upon fair and reasonable terms.
(ii) shall engage in any business combination (as such term is defined
in Section 203 of the Delaware General Corporation Law) with Purchaser or
any of its Subsidiaries unless the stockholders of the Purchaser (other
than Seller or its Affiliates) receive consideration and are otherwise
treated on terms no less favorable than the consideration and terms
received by Seller or its Affiliates in connection with such business
combination.
11.16 Directors and Officers. Purchaser shall, and Laidlaw and Seller
shall cause Purchaser, and any successor of Purchaser, to maintain in effect for
a period of six years after the Closing Date the identical provisions currently
set forth in the Restated Certificate of Incorporation and Bylaws of Purchaser
with respect to the limitation on the personal liability of directors and the
indemnification of directors and officers of Purchaser and its Subsidiaries,
except for revisions that would increase the protection afforded thereunder.
Seller, and any Affiliate of Seller that is the record or beneficial owner of
shares of Purchaser Common Stock, shall vote to authorize, and shall cause any
member of the Board nominated by Seller or any of its Affiliates to authorize,
any indemnification made by Purchaser or any successor of Purchaser to such
directors and officers to the extent that any such approval may be required by
Section 145 of the Delaware General Corporation Law. In addition, Purchaser
shall, and Laidlaw and Seller shall cause Purchaser or its successors to
maintain in effect Purchaser's current directors and officers' liability
insurance policies (or policies providing comparable directors and officers'
liability insurance coverage) (the "Policies") covering current and former
members of the Board of Directors and officers of Purchaser (for liabilities
resulting from or arising out of this Agreement or events that occurred on or
prior to the Closing Date) for a period of at least six years after the Closing
Date and continuing members of the Board of Directors of the Purchaser (for
liabilities resulting from or arising out of events that occurred on or prior to
the third anniversary of the Closing Date) for a period of at least nine years.
Notwithstanding anything in the immediately preceding sentence to the contrary,
in the event that Purchaser determines that the Policies can only be maintained
or procured, as the case may be, at too great an expense to Purchaser or its
successor, Purchaser or its successor shall be permitted to substitute, and
Seller and Laidlaw shall cause Purchaser or its successor to substitute, in lieu
of the Policies, self-insurance or other insurance pursuant to which such
members of the Board of Directors shall be provided with similar directors and
officers' liability coverage; provided, however, that any such substitution
shall not cause a lapse of the directors and officers' liability coverage.
ARTICLE XII
TAX MATTERS
12.1 Future Tax Returns.
(i) Seller shall prepare and file, or cause to be prepared and filed,
in a timely fashion and at its sole expense all Tax Returns of the Acquired
Subsidiaries for the periods ended August 31, 1996 and the Closing Date
(which shall include the income of the U.S. Acquired Subsidiaries for the
periods ended August 31, 1996 and the Closing Date). The Tax Return for the
period ending on the Closing Date shall include the results of operations
of the Acquired Subsidiaries for the Pre-Closing Tax Period beginning
September 1, 1996, and ending on the Closing Date. Seller shall prepare all
Tax Returns in a manner consistent with prior periods. Seller shall pay or
discharge any and all U.S. Tax reflected on such Tax Returns, including the
tax liability of any member or former member of the Seller Group, however
measured, for which any Acquired
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Subsidiary is or may be held liable. Each such payment shall be made on or
before the date any such payment is due. Seller shall receive any tax
refunds reflected on such returns. The Acquired Subsidiaries will promptly
provide the information to Seller to prepare such returns.
(ii) Purchaser shall prepare and file in a timely fashion, all
corporate federal and provincial Tax Returns of the Acquired Canadian
Subsidiaries for the period ended August 31, 1997 (which shall include the
income of the Acquired Canadian Subsidiaries for the periods ended prior to
the Closing Date, and the period ended August 31, 1997). At least 15 days
prior to the filing of any Tax Returns required under this Section
12.1(ii), Laidlaw shall pay the Acquired Canadian Subsidiaries or the
Purchaser for any and all taxes reflected on such Tax Returns attributable
to Taxes accrued or recognized prior to the Closing Date, for which any
Acquired Canadian Subsidiary is or may be held liable. ("Seller's
Post-Closing Taxes") The Purchaser or the Acquired Canadian Subsidiary
shall reimburse Laidlaw for any Tax Refunds reflected on such returns
attributable to Taxes recoverable, accrued or recognized prior to the
Closing Date, determined on an after-tax basis.
(iii) With respect to all taxable periods including any Pre-Closing
Tax Period, the Seller Group, Purchaser, and the Acquired Subsidiaries will
make all computations, allocations, determinations and elections affecting
the Seller Group, and the Acquired Subsidiaries in accordance with the
provisions of the regulations promulgated under Section 1502 of the Code,
the provisions of the Income Tax Act and state, provincial and local income
tax rules. Unless one of the preceding provisions requires otherwise, the
Seller Group's share of income to be reported on such Acquired
Subsidiaries' return will be computed as of the Closing Date.
12.2 Tax Covenants.
(i) Without the prior written consent of Purchaser, neither the Seller
Group nor any Affiliate of the Seller Group shall, to the extent it may
affect or relate to any of the Acquired Subsidiaries, make or change any
tax election, change any annual tax accounting period, adopt or change any
method of tax accounting, file any amended Tax Return, enter into any
closing agreement, settle any Tax claim, assessment or proposed assessment,
surrender any right to claim a Tax Refund, consent to any extension or
waiver of the limitation period applicable to any Tax claim or assessment
or take or omit to take any other action, if any such action or omission
would have the effect of increasing any post-closing Tax liability of any
Acquired Subsidiary, Purchaser or any Affiliate of Purchaser.
(ii) Without the prior written consent of Seller, neither Purchaser
nor its Affiliates shall, to the extent it may affect or relate to any of
the Acquired Subsidiaries, make or change any tax election, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim,
assessment or proposed assessment, surrender any right to claim a Tax
Refund, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment or take or omit to take any other
action, if any such action or omission would affect a Pre-Closing Tax
Period.
(iii) Purchaser and the Seller Group agree that so long as any books,
records and files retained by the Seller Group and their Affiliates
relating to the business of the Acquired Subsidiaries, or the books,
records and files delivered to the control of Purchaser pursuant to this
Agreement to the extent they relate to the operations of the Acquired
Subsidiaries prior to the Closing Date, remain in existence and available,
each Party (at its own expense) shall have the right upon prior reasonable
notice to inspect and to make copies of the same at any time during
business hours for any proper purpose. Purchaser and the Seller Group and
their Affiliates shall use reasonable efforts not to destroy or allow the
destruction of any such books, records and files until the later of the
expiration of all applicable statutes of limitation and extensions thereof,
or the conclusion of administrative or judicial proceedings with respect to
Taxes for such period.
(iv) Purchaser will make its personnel or that of the Acquired
Subsidiaries available to answer requests related to Tax Proceedings as
defined in Section 12.4(ii). Purchaser will either
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provide documents needed to respond to federal and state information
requests or queries for such proceedings within 30 days or allow Seller to
take possession of records necessary to answer such requests.
(v) For income Tax purposes, each share of Purchaser Common Stock
shall be valued at the average the daily Closing Prices per share of
Purchaser Common Stock for the five consecutive trading days preceding the
Closing Date. The "Closing Price" for each trading day shall be the
reported last sale price of the New York Stock Exchange.
12.3 Other Tax Matters, Post-Closing Cooperation.
(i) If Purchaser receives any Tax Refund (including interest and
penalties refunded) for a Pre-Closing Tax Period of an Acquired Subsidiary,
other than any such Tax Refund arising from the application of a loss or
Tax credit arising in a Post-Closing Tax Period, then such persons shall
pay to Seller Group the actual amount of such Tax Refund as and when
received, on an after-tax basis.
(ii) Seller and Seller Group agree to cooperate with Purchaser in the
preparation and filing of any application to carryback a loss or Tax credit
arising in a Post-Closing Tax period to Pre-Closing Tax Period and Seller
or Seller Group shall pay to Purchaser and the actual amount of any Tax
Refund as and when received on an after-tax basis.
(iii) All transfer, real property transfer, recording, gains, stock
transfer, documentary, sales, use, stamp, registration, goods and services,
value added and other such Taxes and fees (including any penalties and
interest) incurred in connection with the sale of the stock of the Acquired
Subsidiaries, or otherwise in connection with the transactions effected
pursuant to this Agreement (collectively, the "Transfer Taxes") shall be
borne and paid by the Seller Group. To the extent permissible under Tax
Laws, the Seller Group shall undertake all actions and file such Tax
Returns or other forms or instruments as may be necessary to make payment
of any Transfer Taxes due prior to or on the Closing Date, and present
evidence of such payment at the Closing Date to Purchaser.
(iv) Any payment to be made to any party under Section 12 shall be
made within 15 days of demand (or receipt in the event of a refund of any
overpayment). Payment after that time shall bear interest at the rate of
interest prescribed by IRC Sec 6621(a)(1) and (z).
12.4 Tax Controversies.
(i) Purchaser and Seller shall each use reasonable efforts to keep the
other advised as to the status of Tax audits and litigation involving any
direct, indirect or contingent Taxes which could give rise to a liability
of the Seller Group to Purchaser under this Agreement for any pre-closing
period (a "Tax Liability Issue"). Seller agrees to timely notify Purchaser
regarding any proposed written communication (i.e., communications not
relating to inquiries or requests for information) by Seller to any such
Taxing Authority with respect to a Tax Liability Issue to the extent that
the issue would impact a post-closing period of Purchaser or the Acquired
Subsidiaries. Purchaser shall have the right to consult with Seller
regarding any response to such communications.
(ii) Seller shall have full responsibility for and discretion in
handling any Tax Controversy including, without limitation, an audit, a
protest to the appeals division of the IRS, or similar state or local
appellate division, and litigation in the U.S. Tax Court, or any other
court of competent jurisdiction (a "Tax Proceeding") for any pre-closing
period. Purchaser or the Acquired Subsidiaries shall give the Seller Group
the ability to handle any Tax Controversy whether by power of attorney or
as otherwise required by the Taxing Authority. However, upon request by
Purchaser and with the consent of Seller, Purchaser at its own expense
shall have full responsibility and discretion in handling any Tax
Proceeding for any Pre-closing tax period.
(iii) In the event that any one of the Acquired Subsidiaries is
required or elects to pay any Tax, file any bond or deposit any amount in
connection with a Tax Proceeding, Seller shall loan to Purchaser no later
than three (3) Business Days before such payment is required to be made,
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without interest and until a final determination with respect to such Tax
has occurred, one hundred percent of the amount to be paid or deposited by
Purchaser. Within three (3) Business Days of the receipt by Purchaser of a
refund of any amount loaned to it by Seller (including any interest
received by Purchaser), Purchaser shall pay such refunded amount to Seller
net of any Tax cost incurred by Purchaser and its Affiliates as a result of
such refund.
(iv) If the completion or settlement of any Tax Proceeding relating to
a Pre-Closing Tax Period, tax controversy or amended Tax Return gives rise
to a Tax Benefit for any Post-Closing Tax Period to Purchaser, the Acquired
Subsidiaries and any Affiliates, then such persons shall pay to Seller the
actual amount of such Tax Benefit realized by such persons as it relates to
such Pre-Closing Tax Period as and when received on an after-tax basis. No
payment will be made under this paragraph for less than $50,000 per period
or for a period of more than ten years.
(v) If the completion or settlement of any Tax Proceeding relating to
a Pre-Closing Tax Period, tax controversy or amended Tax Return gives rise
to a tax liability for any Post-Closing Tax Period to Purchaser, the
Acquired Subsidiaries and any Affiliates, then Seller shall pay to such
persons the actual amount of such tax liability on an after-tax basis as
and when paid. No payment will be made under this paragraph for less than
$50,000 per period or for a period of more than ten years.
(vi) By written notice to Seller, Purchaser shall have the right to
instruct Seller to forego proceedings with respect to one or more items for
which Seller may be liable to indemnify Purchaser. Such notice shall
constitute a waiver of the right of Purchaser to indemnification for any
Taxes arising out of such item for the period or periods involved, but
shall not otherwise waive any rights of Seller to any refund of a deposit
under Section 12.4(iii).
ARTICLE XIII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
13.1 Nature of Statements. All, but only those, statements contained in
this Agreement or any Disclosure Schedule or certificate delivered or by on
behalf of a Party under this Agreement shall be deemed representations and
warranties made by that Party in connection with the transactions contemplated
by this Agreement.
13.2 Survival of Representations, Warranties and Covenants. Regardless of
any investigation made at any time by or on behalf of any Party or of any
information any Party may have as a result of any such investigation, all
representations and warranties made in or pursuant to this Agreement (including
in any Disclosure Schedule or certificate delivered under this Agreement) shall,
except as otherwise provided in this Section 13.2, terminate on the Closing
Date. The representations and warranties made by Laidlaw and Seller in Sections
4.12 and 4.16 and the representations and warranties made by Purchaser in
Sections 5.12 and 5.16 shall survive until the sixth anniversary of the Closing
Date. The representations and warranties made by Laidlaw and Seller in Sections
4.2, 4.3, the second paragraph of 4.6, 4.13 and 4.14 and the representations and
warranties made by Purchaser in Sections 5.2, 5.3, 5.13 and 5.14 shall survive
indefinitely. If a bona fide claim is asserted before the expiration of the
survival period of a representation or warranty, such representation, warranty,
covenant, obligation or agreement shall continue in effect until the claim is
settled, adjudicated or otherwise resolved. With respect to this Section 13.2,
"known" means with respect to any matter referred to above that (i) the matter
is known to any Person who is or was an officer, director, employee or agent of,
or consultant to, Laidlaw or any member of the Seller Group (including the
Acquired Subsidiaries) or Purchaser or any of its Subsidiaries on or before the
Closing Date or (ii) any such Person is aware of facts which would have led a
reasonable Person to have conducted an investigation or inquiry likely to have
led to discovery of such matter.
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ARTICLE XIV
INDEMNIFICATION
The respective indemnification obligations of (i), Laidlaw and Seller and
(ii) Purchaser are as follows:
14.1 Indemnification by Laidlaw and Seller. Laidlaw and Seller jointly and
severally agree to pay and to indemnify and hold harmless Purchaser and each
Acquired Subsidiary and their respective Affiliates (but, in the case of the
Acquired Subsidiaries, only their respective Affiliates after the Closing),
successors and assigns from and against any and all Damages suffered by
Purchaser or the Acquired Subsidiaries which are caused by, arising out of or in
respect of:
(i) any and all Chem-Waste Group Taxes attributable to any Pre-Closing
Tax Period (including any transaction consummated in such Pre-Closing Tax
Period);
(ii) any Pre-Closing Seller Insurance Claims;
(iii) any breach or default in the performance by Laidlaw or Seller of
(a) any covenant or agreement contained in this Agreement to be performed
on or after the Closing Date or (b) any representation or warranty made
pursuant to Article IV, but only to the extent such representation or
warranty survives the Closing pursuant to Section 13.2; or
(iv) any Environmental Liability or Environmental Claim arising as a
result of any act or omission, including any Release, occurring prior to
the Closing Date, but only to the extent such Environmental Liability or
Environmental Claim
(a) was known to Laidlaw or a member of the Seller Group and not
disclosed in writing to Purchaser; or
(b) arose with respect to the treatment of waste at the facility
operated by Marine Shale Processors or the remediation of contaminated
soils and water arising from the former lagoon sites and operation of
the incinerator at Mercier, Quebec, but only to the extent that the
aggregate cash expenditures with respect to any such Environmental
Liabilities or Environmental Claims exceeds in the aggregate (I)
$1,000,000 during such year and (II) since the Closing Date an amount
equal to the product of $1,000,000 times the number of years that have
elapsed since the Closing Date; provided, however, that there shall be
no liability under this paragraph (iv)(b) for any cash expenditures
incurred more than six years after the Closing Date.
The amount of any damages that Laidlaw and Seller are required to
indemnify Purchaser against under (iii)(b) above, shall be the amount by
which the aggregate of all such damages exceeds $2 million.
14.2 Indemnification by Purchaser. Purchaser agrees to pay and to
indemnify and hold harmless and defend each of Laidlaw, Seller and their
Affiliates (but not any Acquired Subsidiary after the Closing), and their
respective successors and assigns from and against any and all Damages suffered
by Seller which are caused by or arising out of or in respect of:
(i) all Chem-Waste Group Taxes attributable to any Post-Closing Tax
Period (including, any transaction considered in such Post-Closing Tax
Period);
(ii) any breach or default in the performance by Purchaser of any (a)
covenant or agreement contained in this Agreement to be performed after the
Closing Date or (b) any representation or warranty made pursuant to Article
V, but only to the extent such representation or warranty survives the
Closing pursuant to Section 13.2 of this Agreement; or
(iii) any Environmental Liability or Environmental Claim of any
Acquired Subsidiary, but only to the extent that such Environmental
Liability or Environmental Claim
(a) was known to Purchaser and not disclosed in writing to Laidlaw
and Seller; or
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(b) arose solely as a result of an act or omission, including any
Release, occurring after the Closing Date;
provided, however, that there shall be no liability under this
paragraph (iii) for any Environmental Liability or Environmental Claim
asserted more than six years after the Closing Date.
(iv) Seller Guaranties listed and identified in Section 4.21 of the
Seller Disclosure Schedule.
The amount of any damages that Purchaser is required to indemnify
Laidlaw, Seller and their Affiliates against under (ii)(b) shall be the
amount by which the aggregate of all such damages exceeds $2 million.
14.3 Third Party Claim. If any Party (for purposes of this Section 14.3,
an "Indemnified Party") becomes aware of a fact, circumstance, claim, situation,
demand or other matter for which it or any other Indemnified Party has been
indemnified under this Article XIV and which has resulted or could result in a
liability owed by the Indemnified Party to a third party or a claim otherwise
advanced by a third party against the Indemnified Party (any such items being
herein called a "Third Party Claim"), the Indemnified Party, shall give prompt
written notice of the Third Party Claim to the Party obligated to provide
indemnity with respect to such Third Party Claim (for purposes of this Section
14.3, the "Indemnifying Party"), requesting indemnification therefor, specifying
the nature of and specific basis for the Third Party Claim and the amount or
estimated amount thereof to the extent then feasible; provided, however, a
failure to give such notice will not waive any rights of the Indemnified Party
except to the extent the rights of the Indemnifying Party are actually
materially prejudiced by such failure. The Indemnifying Party shall have the
right to assume the defense or investigation of such Third Party Claim and to
retain counsel and other experts to represent the Indemnified Party and shall
pay the fees and disbursements of such counsel and other experts. If within 30
days after receipt of the request (or five days if litigation is pending) the
Indemnifying Party fails to give notice to the Indemnified Party that the
Indemnifying Party assumes the defense or investigation of the Third Party
Claim, an Indemnified Party may retain counsel and other experts (whose fees and
disbursements shall be at the expense of the Indemnifying Party) to file any
motion, answer or other pleading and take such other action which the
Indemnified Party reasonably deems necessary to protect its interests or those
of the Indemnifying Party until the date on which the Indemnified Party receives
such notice from the Indemnifying Party. If an Indemnifying Party assumes the
defense or investigation and retains such counsel and other experts, any
Indemnified Party shall have the right to retain its own counsel and other
experts, but the fees and expenses of such counsel and other experts shall be at
the expense of the Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party mutually agree to the retention of such counsel and other
experts or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would, in the opinion of
counsel retained by the Indemnifying Party, be inappropriate due to actual or
potential differing interests between them.
If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate with the Indemnifying Party and its counsel in contesting any Third
Party Claim which the Indemnifying Party defends, or, if appropriate and related
to Third Party Claim in question, in making any counterclaim against the person
asserting the Third Party Claim, or any cross-complaint against any Person. No
Third Party Claim may be settled by the Indemnified Party without the consent of
the Indemnifying Party, which consent will not be unreasonably withheld. Unless
the Indemnifying Party agrees in writing that the Damages to the Indemnified
Party resulting from such settlement are fully covered by the indemnities
provided herein and that such Damages are fully compensable in money, no Third
Party Claim may be settled without the consent of the Indemnified Party, which
consent will not be unreasonably withheld. Except with respect to settlements
entered without the Indemnified Party's consent pursuant to the immediately
preceding sentence, to the extent it is determined that the Indemnified Party
has no right under this Article XIV to be indemnified by the Indemnifying Party,
shall promptly pay to the Indemnifying Party any amounts previously paid or
advanced by the Indemnifying Party with respect to such matters pursuant to this
Article XIV.
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After the delivery of notice of a Third Party Claim hereunder, at the
reasonable request of the Indemnifying Party the Indemnified Party shall grant
the Indemnifying Party and its representatives full and complete access to the
books, records and properties of the Indemnified Party to the extent reasonably
related to the matters to which the notice relates. The Indemnifying Party will
not disclose to any third person (except its representatives) any information
obtained pursuant to the preceding sentence which is designated as confidential
by the Indemnified Party and which is not otherwise generally available to the
public, except as may be required by applicable law. The Indemnifying Party
shall request its representatives not to disclose any such information (except
as may be required by applicable law). All such access shall be subject to the
normal safety regulations of the Indemnified Party, and shall be granted under
conditions which will not unreasonably interfere with the business and
operations of the Indemnified Party.
14.4 Claims Between the Parties. If any Party (for purposes of this
Section 14.4, an "Indemnified Party") becomes aware of a fact, circumstance,
claim, situation, demand or other matter (other than a Third Party Claim) for
which it or any other Indemnified Party has been indemnified under this Article
XIV and which has resulted or could result in a liability (any such items being
herein called a "Claim") being owed to the Indemnified Party by another Party
(the "Indemnifying Party"), the Indemnified Party shall give prompt written
notice to the Indemnifying Party of the Claim, stating the nature and basis of
the Claim and the amount claimed thereunder, together with supporting
information to the Claim, if any. If the Indemnifying Party does not notify the
Indemnified Party within 30 days from the date such Claim notice is given that
it disputes the Claim, the amount of the Claim shall conclusively be deemed to
be a liability of the Indemnifying Party hereunder.
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment. This Agreement may be amended by the Parties, by or
pursuant to action taken by their respective Boards of Directors, at any time
before or after approval by Purchaser's stockholders of the matters specified in
Section 7.5, but after such approval, no amendment shall be made which
materially increases the amount or materially alters the terms of the Purchaser
Securities without the further approval of Purchaser's stockholders. This
Agreement may be amended only by a written instrument executed by all of the
Parties.
15.2 Waiver. At any time on or before the Closing Date, each Party may (i)
extend the time for the performance of any of the obligations or other acts of
any other Party, (ii) waive any inaccuracies in the representations and
warranties made in this Agreement or in a Disclosure Schedule of any other
Party, (iii) waive compliance with any of the agreements or conditions of this
Agreement which may be legally waived, and (iv) grant consents under this
Agreement; provided, however, that no such extension, waiver or grant shall be
effective until all Parties, other than the Party receiving the extension,
waiver or grant, shall have given such extension, waiver or grant. Any such
extension, waiver or grant shall be valid only if evidenced by a written
instrument executed by the Party giving it.
15.3 Termination. This Agreement may be terminated at any time before the
Closing by:
(i) the mutual consent of the Boards of Directors of Seller and
Purchaser;
(ii) by either Purchaser or Seller if the Acquisition has not been
consummated on or before the later to occur of April 30, 1997 or the 61st
day after the SEC has approved the Purchaser Proxy Statement (or any later
date which may be agreed to by the mutual written consent of Purchaser and
Seller); provided, however, that such right to terminate this Agreement
shall not be available to any Party that has breached in any material
respect its obligations under this Agreement in any manner that has
proximately contributed to the failure of the Acquisition to occur on or
before such date; or
(iii) by either Seller or Purchaser if the stockholders of Purchaser
shall have failed to approve at the Purchaser Stockholders' Meeting the
matters specified in Section 7.5.
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15.4 Consequences of Termination.
(i) If this Agreement is terminated as provided in Section 15.3, it
shall forthwith become void and, except as otherwise hereinafter provided
in this Section 15.4, there shall be no liability or obligation on the part
of any Party or their respective officers or directors. Notwithstanding the
foregoing, the Confidentiality Agreement shall also survive such a
termination. Nothing in this Section 15.4 shall, however, relieve any Party
from any liability for any breach of this Agreement.
(ii) Notwithstanding paragraph (i) of this Section 15.4, if this
Agreement is terminated solely because the stockholders of Purchaser fail
to approve the matters referred to in Section 7.5 hereof, and the failure
to receive such stockholder approval directly results from the existence of
a third party offer to acquire at least 51% of Purchaser's stock or assets
(whether in the form of a tender offer, merger proposal, asset purchase or
otherwise), then Purchaser will pay to Seller within 10 days of such
termination of this Agreement an amount equal to $10 million.
(iii) Notwithstanding paragraph (i) of this Section 15.4, if this
Agreement is terminated because of the breach or default under this
Agreement of Laidlaw or Seller, then Seller will pay to Purchaser within 10
days of such termination of this Agreement an amount equal to $10 million.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Non-Business Days. If the date on which any action (including the
delivery of notices) to be taken under this Agreement is to occur falls on a day
which is not a Business Day, such action will be deemed timely taken if taken on
the first Business Day following.
16.2 Notices. All notices or other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person or transmitted by telecopier (with
receipt confirmed) to a Party at the address or telecopy number, as applicable,
set forth below (as any such address or telecopier number may be changed from
time to time by notice similarly given):
(1) if to Seller or Laidlaw, to:
Laidlaw, Inc.
3221 North Service Road
P.O. Box 5028
Burlington, Ontario L7R 3Y8
Attention: Ivan Cairns
Telecopy No.: (905) 332-6550
(2) if to Purchaser, to:
Rollins Environmental Services, Inc.
One Rollins Plaza
2200 Concord Pike
Wilmington, Delaware 19803
Attention: Klaus M. Belohoubek
Telecopy No.: (302) 426-3555
16.3 Entire Agreement. This Agreement, its Exhibits, the Disclosure
Schedules, all documents delivered under this Agreement and the Confidentiality
Agreement constitute, and together with the Ancillary Agreements upon their
execution and delivery as herein provided will constitute, the entire agreement,
and supersede all of the prior agreements and undertakings, both written and
oral among the Parties, or any of them, with respect to the subject matter of
this Agreement.
16.4 Assignment; Binding Effect. This Agreement may not be assigned by any
of the Parties. Subject to the preceding sentence, this Agreement shall be
binding upon the Parties and their respective successors and assigns.
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16.5 Counterparts. This Agreement may be executed in counterparts which
together shall constitute a single agreement.
16.6 Governing Law; Jurisdiction. This Agreement and the rights and
obligations of the parties created hereby shall be governed by the internal Laws
of the State of Delaware without regard to its conflict of law rules. The
Parties irrevocably consent to the non-exclusive jurisdiction of the courts of
the State of Delaware in connection with any dispute between or among them
arising under this Agreement or any Ancillary Agreement.
16.7 Severability of Provisions. If a provision of this Agreement or its
application to any Person or circumstance, is held invalid or unenforceable in
any jurisdiction, to the extent permitted by Law, such provision or the
application of such provision to Persons or circumstances other than those as to
which it is held invalid or unenforceable and in other jurisdictions, and the
remaining provisions of this Agreement, shall not be affected.
16.8 Specific Performance. Each Party agrees that one or more other
Parties would be irreparably damaged if any provision of this Agreement were not
performed in accordance with its specific terms or was otherwise breached.
Therefore, the Parties agree that each Party shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement or any of its provisions
and to specifically enforce this Agreement its terms and provisions in any
action instituted in the courts of the State of Delaware subject matter
jurisdiction, in addition to any other remedy to which a Party may be entitled,
at law or in equity.
16.9 Joint Drafting. This Agreement and its Exhibits have been jointly
drafted by the Parties and their counsel. Neither this Agreement nor any of its
Exhibits shall be construed against any Party based on its authorship.
16.10 Captions. The article and section headings in this Agreement are for
convenience only, and shall not affect the meaning or interpretation of this
Agreement.
16.11 No Third-Party Beneficiaries. There are no third-party beneficiaries
of this Agreement, except that the respective Affiliates and current or former
directors and officers of the Parties are entitled to the benefits of the
respective indemnification obligations of the Parties under Article XIV.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement, all as
of the date first written above.
LAIDLAW INC.
By:_____________________________________
Title:__________________________________
LAIDLAW TRANSPORTATION, INC.
By:_____________________________________
Title:__________________________________
ROLLINS ENVIRONMENTAL SERVICES, INC.
By:_____________________________________
Title:__________________________________
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EXHIBIT A TO ANNEX A
THIS DEBENTURE HAS NOT BEEN REGISTERED (OR QUALIFIED BY PROSPECTUS) UNDER
THE SECURITIES ACT (DEFINED BELOW) OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THIS DEBENTURE MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS HEREOF
AND THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT
AND SUCH STATE LAWS OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS AND UPON DELIVERY TO LAIDLAW
TRANSPORTATION, INC. OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ROLLINS
ENVIRONMENTAL SERVICES, INC. TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION AND THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THOSE LAWS.
5% SUBORDINATED CONVERTIBLE, PAY-IN-KIND DEBENTURE DUE 2009
$350,000,000 _______________, 1997
FOR VALUE RECEIVED, Rollins Environmental Services, Inc. ("Rollins"), a
Delaware corporation, promises to pay Laidlaw Transportation, Inc., a Delaware
corporation ("Laidlaw"), or its registered assigns, the principal amount of
$350,000,000 on the Maturity Date, with interest on the principal balance
outstanding from time to time at the rate and payable at the times and in the
manner hereinafter set forth.
1. Definitions.
1.1 For all purposes of this Debenture:
"Affiliate" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person with the terms
"control" and "controlled," meaning, for purposes of this definition, the
power to direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities or
partnership or other ownership interests, or by contract or otherwise.
"Applicable Price" means (i) in the event of a Non-Stock Fundamental
Change in which the holders of Common Stock receive only cash, the amount
of cash receivable by a holder of one share of Common Stock and (ii) in the
event of any other Fundamental Change, the Current Market Price for one
share of Common Stock on the record date for the determination of the
holders of Common Stock entitled to receive cash, securities, property or
other assets in connection with such Fundamental Change or, if there is no
such record date, on the date on which the holders of Common Stock will
have the right to receive such cash, securities, property or other assets.
"Bankruptcy or Insolvency Proceeding" has the meaning specified in
Section 5.2.
"Blockage Period" means any period when a Default or an Event of
Default or an event which, with the giving of notice or the lapse of time
or both, would constitute a Default or an Event of Default has occurred and
is continuing under the terms of the Credit Facility or under the terms of
any agreement or instrument pursuant to which any other Designated Senior
Indebtedness is created, issued, evidenced, secured or guaranteed.
"Board" means the Board of Directors of Rollins, as it shall exist
from time to time.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in Toronto, Ontario or New York, New York are
authorized or obligated to close.
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"Closing Price" of any Common Stock or other security on any day shall
mean the last reported sale price on such day on the New York Stock
Exchange, if the Common Stock or other security is not listed or admitted
to trading on such exchange, on the principal national securities exchange
on which such Common Stock or other security is listed or admitted to
trading, or, if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices as
furnished by any Nasdaq National Market member firm selected from time to
time by the Board for that purpose or, if not so available in such manner,
as otherwise determined in good faith by the Board.
"Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board)
of the consideration received by holders of Common Stock (subject to
certain limited exceptions) pursuant to such transaction consists of shares
of Common Stock that, for the twenty consecutive Trading Days immediately
prior to such Fundamental Change, has been admitted for listing, admitted
for listing subject to notice of issuance on a national securities exchange
or quoted on the New York Stock Exchange; provided, however, that a
Fundamental Change will not be a Common Stock Fundamental Change unless
Rollins continues to exist after the occurrence of such Fundamental Change.
"Common Stock" means the Common Stock, $1.00 par value per share, of
Rollins.
"Conversion Price" means $3.75, as adjusted from time to time in
accordance with Section 7.
"Credit Facility" means the Credit Agreement dated as of ____________,
1997, among Rollins, as borrower, The Toronto-Dominion Bank, as agent, and
the other financial institutions now or hereafter parties thereto (as the
same may be renewed, amended, modified, increased, extended, refinanced or
otherwise supplemented from time to time).
"Current Market Price" per share of Common Stock or any other security
on any date in question means the average of the daily Closing Prices for
the ten consecutive Trading Days selected by Rollins commencing not more
than 20 Trading Days before, and ending not later than, the day in
question; provided, however, that if another event occurs that would
require an adjustment pursuant to Sections 7.3.1 through 7.3.5, inclusive,
the Board may make such adjustments to the Closing Prices during such ten
Trading Day period as it deems appropriate to effectuate the intent of the
adjustments in this Debenture, in which case any such determination by the
Board shall be set forth in a resolution of the Board and shall be
conclusive.
"Debenture" means this 5% Subordinated Convertible, Pay-In-Kind
Debenture due 2009.
"Default" and "Event of Default" have the meaning specified in Section
8.
"Default Rate" means an annual interest rate equal to 9% per annum.
"Designated Senior Indebtedness" means (i) the Senior Indebtedness
incurred with respect to the Credit Facility and (ii) any other Senior
Indebtedness which is incurred pursuant to an agreement (or series of
related agreements simultaneously entered into) providing for Indebtedness,
or commitments to lend, of at least [$10,000,000] at the time of
determination and is specifically designated in the instrument evidencing
such Senior Indebtedness or the agreement under which such Senior
Indebtedness arises as "Designated Senior Indebtedness."
"$" or "U.S. dollars", refers to lawful currency of the United States
of America.
"Expiration Time" shall have the meaning specified in Section 7.3.5.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with generally accepted accounting principles to be capitalized on a
balance sheet of the lessee.
"Fundamental Change" means the occurrence of any transaction or event
or series of transactions or events pursuant to which all or substantially
all of the Common Stock is
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exchanged for, converted into, acquired for or constitutes solely the right
to receive cash, securities, property or other assets (whether by means of
an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise); provided,
however, in the case of a plan involving more than one such transaction or
event, for purposes of adjustment of the Conversion Price, such Fundamental
Change will be deemed to have occurred when substantially all of the Common
Stock has been exchanged for, converted into, or acquired for or
constitutes solely the right to received cash, securities, property or
other assets but the adjustment shall be based upon the consideration that
the holders of Common Stock received in the transaction or event as a
result of which more than 50% of the Common Stock shall have been exchanged
for, converted into, or acquired for or shall constitute solely the right
to receive such cash, securities, property or other assets.
"Governmental Entity" means any U.S. or Canadian or foreign, state,
federal, territorial, provincial or local court, executive office,
legislature, governmental agency, or ministry, commission, or
administrative, regulatory or self-regulatory authority or instrumentality.
"Guarantee" means, with respect to any Person, any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness
or to purchase (or to advance or supply funds for the purchase of) any
security for the payment of such Indebtedness, (ii) to purchase or lease
property, securities or services for the purpose of assuring the owner of
such Indebtedness of the payment of such Indebtedness or (iii) to maintain
working capital, equity capital or any other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to
pay such Indebtedness; provided, however, that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course
of business.
"Indebtedness" means, with respect to any Person at any date, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), (ii) any other indebtedness of such Person which is
evidenced by a note, bond, debenture, letter of credit or similar
instrument, (iii) all obligations of such Person with respect to
Guarantees, (iv) all obligations of such Person under Financing Leases, (v)
all obligations of such Person in respect of acceptances issued or created
for the amount of such Person (other than endorsements in the ordinary
course of business), (vi) all obligations of such Person in respect of
reimbursement obligations under letters of credit and (vii) all liabilities
of the type referred to in clauses (i) through (vi) above that are secured
by any lien, charge, security interest or encumbrance on any property owned
by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Interest Payment Date" shall have the meaning specified in Section
3.2.
"Laidlaw" means Laidlaw Transportation, Inc., a Delaware corporation.
"Mandatory PIK Interest Payment Period" means the period of time from
the date hereof until the second anniversary of the date hereof.
"Maturity Date" means __________, 2009.
"Non-Stock Fundamental Change" means any Fundamental Change other than
a Common Stock Fundamental Change.
"Notice of Conversion" shall have the meaning specified in Section
7.2.1.
"Optional PIK Interest Payment Period" means the period of time from
the second anniversary of the date hereof until the Maturity Date.
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"Person" means an individual, corporation, partnership, association,
joint stock company, limited liability company, Governmental Entity,
business trust, unincorporated organization, or other legal entity.
"Purchased Shares" shall have the meaning specified in Section 7.3.5.
"Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the Current Market Price of common stock received by
the holders of Common Stock in such Common Stock Fundamental Change on the
record date for the determination of the holders of Common Stock entitled
to receive such shares of common stock or, if there is no such record date,
on the date upon which the holders of Common Stock shall have the right to
receive such shares of common stock.
"Reference Date" shall have the meaning specified in Section 7.3.3.
"Reference Market Price" will initially mean $____ (which, unless
otherwise specified in this Debenture, will be 100% of the last reported
sale price per share of the Common Stock on the New York Stock Exchange on
__________, 1997) and, in the event of any adjustment to the Conversion
Price other than as a result of a Fundamental Change, the Reference Market
Price will also be adjusted so that the ratio of the Reference Market Price
to the Conversion Price after giving effect to any adjustment will always
be the same as the ratio of the initial Reference Market Price to the
initial Conversion Price.
"Representative" means at any date, with respect to the Credit
Facility, the Person or Persons then acting as the administrative agent
under the Credit Facility, and with respect to any other Designated Senior
Indebtedness, the holders of such Designated Senior Indebtedness or any
Person acting as agent of such holders at such date.
"Rollins" means Rollins Environmental Services, Inc., a Delaware
corporation, and its successors and assigns.
"Section 4.2 Prepayment Date" has the meaning specified in Section 4.2
of this Debenture.
"Section 4.2 Prepayment Notice" has the meaning specified in Section
4.2.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Indebtedness" means principal of, premium, if any, interest on
(including interest that, but for the filing of a petition initiating any
Bankruptcy or Insolvency Proceeding, would accrue on such obligations at
the rate provided in the agreements or instruments creating or evidencing
the respective obligations, whether or not such claim is allowed or
allowable in such Bankruptcy or Insolvency Proceeding) and all other
amounts of every kind or nature (including, but not limited to, fees,
indemnities and expenses) due on or in connection with any Indebtedness of
Rollins whether outstanding on the date of this Debenture or thereafter
created, incurred, assumed or Guaranteed by Rollins (including all
renewals, extensions or refundings of, or amendments, modifications or
supplements to, the foregoing) unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness
shall not be senior in right of payment to this Debenture. Without limiting
the generality of the foregoing, "Senior Indebtedness" shall include (i)
all obligations and liabilities of every kind and nature (including, but
not limited to, fees, expenses and indemnities) under the Credit Facility,
(ii) all obligations and liabilities of every kind and nature (including,
but not limited to, fees, expenses and indemnities) in respect of any
interest rate swaps or other interest rate hedging product entered into in
connection with Indebtedness incurred or to be incurred pursuant to the
Credit Facility, and (iii) any renewal, extension, refinancing or
rearrangement of any Indebtedness incurred or to be incurred pursuant to
the Credit Facility. Notwithstanding the foregoing, Senior Indebtedness
shall not include (a) amounts owed (except to banks, insurance companies
and other financing institutions and except for obligations under Financing
Leases) for goods, materials, services or operating lease rental
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payments in the ordinary course of business or for compensation to
employees of Rollins, and (b) any liability for federal, state, provincial,
local or other taxes owed or owing by Rollins.
"Subordinated Obligations" has the meaning specified in Section 5.1.
"Subsidiary" of a Person means an Affiliate of that Person more than
50% of the aggregate voting power (or of any other form of voting equity
interest in the case of a Person that is not a corporation) of which is
beneficially owned by that Person directly or indirectly through one or
more other Persons.
"Trading Day" means a day on which securities are traded on the
national securities exchange or quotation system used to determine the
Closing Price.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.
Code ss.77aaa-77bbbb).
1.2 Interpretation. Capitalized terms defined in this Debenture are
equally applicable to both their singular and plural forms. References to a
designated "Section" refers to a Section of this Debenture, unless
otherwise specifically indicated. In this Debenture, "including" is used
only to indicate examples, without limitation to the indicated examples,
and without limiting and generally which precedes it.
2. Interest Rate; Default Rate. From (and including) the date of this
Debenture through (but not including) the earlier of the Maturity Date or the
date the maturity of this Debenture is accelerated pursuant to Section 9.1,
interest shall accrue on the unpaid principal balance of this Debenture at an
annual fixed rate equal to 5% per annum. All past due principal and interest
shall accrue interest at the Default Rate from (and including) the day after the
date such principal or interest is payable hereunder through (but not including)
the date of payment. Interest will be calculated on the basis of the actual
number of days elapsed over a year composed of 365 days (or 366 days, as the
case may be).
3. Payment Terms. Subject to Section 5:
3.1 The outstanding principal balance of this Debenture shall be due
and payable on the Maturity Date.
3.2 Rollins shall pay to Laidlaw all accrued interest hereunder with
payments on each of ____________ and ____________ (each, an "Interest
Payment Date"), beginning ____________. Unless prohibited under applicable
law, during the Mandatory PIK Interest Payment Period, Rollins must, and
during the Optional PIK Interest Payment Period, Rollins may at its option,
make any payment due hereunder, including any accrued interest or
principal, in 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 Current Market Price as of the date such
payment is due.
3.3 Each payment or prepayment made in cash hereunder shall be made in
accordance with Laidlaw's reasonable instructions. Each other payment or
prepayment made in Common Stock shall be made in accordance with Laidlaw's
reasonable instructions.
3.4 Any payment or action that is due hereunder on a day which is not
a Business Day shall be deferred until the next succeeding Business Day
(but interest shall continue to accrue on any applicable payment until such
payment is made).
4. Optional Redemption.
4.1 This Debenture may not be redeemed or prepaid, in whole or in
part, before the fifth anniversary of the date hereof.
4.2 On and after the fifth anniversary of the date hereof, Rollins
shall have the right and option (the "Section 4.2 Prepayment Option") to
redeem and prepay this Debenture, in whole or in part, only in cash, on the
terms and subject to the conditions of this Section 4.2; provided, however,
that Rollins can exercise the Section 4.2 Prepayment Option only in the
event the last
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reported sales price of the Common Stock, as reported by the New York Stock
Exchange, equals or exceeds 120% of the Conversion Price for a period of at
least 10 consecutive Trading Days. Rollins may exercise this Section 4.2
Prepayment Option by giving the holder of this Debenture written notice
(the "Section 4.2 Prepayment Notice") of its election to exercise the
Section 4.2 Prepayment Option and by specifying in the Section 4.2
Prepayment Notice the date on which Rollins will prepay this Debenture
pursuant to this Section 4.2 (the "Section 4.2 Prepayment Date") and the
principal amount of this Debenture to be prepaid. This Section 4.2
Prepayment Date shall be at least 10 Business Days, and not more than 20
Business Days, after the date of the Section 4.2 Prepayment Notice. Upon
the Section 4.2 Prepayment Date, Rollins shall prepay this Debenture to the
extent specified in the Section 4.2 Prepayment Notice, by payment of an
amount equal to the principal amount of the Debenture identified in the
Section 4.2 Prepayment Notice.
5. Subordination.
5.1 The Indebtedness evidenced by, and all obligations in respect of,
this Debenture and the payment of principal of, premium and interest, if
any, on and all other obligations in respect of, this Debenture
(collectively, the "Subordinated Obligations") are expressly subordinate to
all Senior Indebtedness to the extent and in the manner set forth herein.
For purposes hereof, the term "subordinate" means that, unless and until
the Senior Indebtedness has been indefeasibly paid in full in cash, Laidlaw
will not have the right under any circumstances to, and will not, take,
demand, commence any suit or any other proceeding for collection, pursue
any other judicial or non-judicial remedy or receive from Rollins or any of
its Subsidiaries or Affiliates, and Rollins will not and will not permit
any of its Subsidiaries or Affiliates to, make, give or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner, any
payment of or on account of the Subordinated Obligations; provided,
however, that at any time, Rollins shall make, and Laidlaw may receive, and
Laidlaw may commence any suit or other proceeding for collection of,
scheduled payments of principal or interest on this Debenture in accordance
with the terms hereof.
5.2 Upon any payment or distribution of any kind or character to
creditors of Rollins (whether in cash, property or securities) in (i) a
total or partial liquidation, winding up or dissolution of Rollins (whether
voluntarily or involuntarily) or (ii) a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to Rollins or its
property, or an assignment for the benefit of creditors or any marshaling
of Rollins' assets and liabilities (any of the foregoing in clauses (i) and
(ii) being referred to herein as a "Bankruptcy or Insolvency Proceeding"),
the holders of Senior Indebtedness will be entitled to receive payment in
full in cash of all the principal of, interest on and other amounts payable
in respect of such Senior Indebtedness (including interest accruing after
the commencement of any such proceeding at the rate specified in the
agreements or instruments creating or evidencing the applicable Senior
Indebtedness and whether or not such interest is an allowed or allowable
claim under applicable law) before Laidlaw will be entitled to receive any
payment with respect to this Debenture (whether in cash, property or
securities); and until all obligations with respect to Senior Indebtedness
are indefeasibly paid in full in cash, any distribution received by Laidlaw
or to which Laidlaw would be entitled shall be paid over or made to the
holders of Senior Indebtedness. Upon the occurrence of any Bankruptcy or
Insolvency Proceeding relating to Rollins, the holders of Senior
Indebtedness are authorized and empowered to (a) demand, sue for, collect
and receive every payment or distribution on account of the Subordinated
Obligations payable or deliverable in connection with such event or
proceeding and give acquittance therefor, and (b) file claims and proofs of
claim in any statutory or non-statutory proceeding and take such other
actions as may be necessary or desirable for the enforcement of the
subordination provisions of this Debenture. Promptly after taking any
action provided in clauses (a) or (b) above, Rollins shall give written
notice therefore to the holder of this Debenture; provided, however, that
failure to give such notice shall in no event affect the validity of any
action so taken.
5.3 In the event that, notwithstanding the occurrence of any of the
events described in Sections 5.1 and 5.2, any such payment or distribution
of assets of Rollins of any kind or
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character, whether in cash, property or securities, shall be received by
the holder of this Debenture which is not permitted hereby, such payment or
distribution shall be held in trust for the ratable benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness.
5.4 The holders of Senior Indebtedness shall have no duty or
obligation to the holder of this Debenture in any manner whatsoever and
may, at any time and from time to time, in their sole discretion, without
the consent of or notice to the holder of this Debenture and without
impairing or releasing any rights of the holders of Senior Indebtedness or
any of the obligations of the holder of this Debenture hereunder, take any
or all of the following actions:
5.4.1 change the amount, manner, place, terms of payment or
interest rate, change or extend the time of payment of, or renew or
alter, any of the Senior Indebtedness, or amend, supplement or waive any
of the terms of any instrument or agreement now or hereafter executed
pursuant to which any of the Senior Indebtedness is issued or incurred;
5.4.2 sell, exchange, release, surrender, relend, realize upon or
otherwise deal with any manner and in any order, any property (or the
income, revenues, profits or proceeds therefrom) by whomsoever at any
time pledged or mortgaged to secure, or howsoever securing, any Senior
Indebtedness;
5.4.3 release any Person liable in any manner for the payment or
collection of the Senior Indebtedness;
5.4.4 exercise or refrain from exercising any rights or remedies
against Rollins or others, or otherwise act or refrain from acting or,
for any reason, fail to file, record or otherwise perfect any security
interest in or lien on any property of Rollins or any other Person; and
5.4.5 apply any sums received by the holders of Senior
Indebtedness, by whomsoever paid and however realized, to payment of the
Senior Indebtedness in such manner as the holders of Senior
Indebtedness, in their sole discretion, may deem appropriate.
5.5 Laidlaw and any future holder of this Debenture, by acceptance of
this Debenture, agree to provide to any holder of Senior Indebtedness, at
any time and from time to time, upon the written request of Rollins or such
holder of Senior Indebtedness, an agreement signed by Laidlaw or such
future holder of this Debenture addressed to the holder of such Senior
Indebtedness in substantially the form of, and on substantially the terms
set out in, Exhibit A, attached hereto, to the effect that such holder is a
holder of Senior Indebtedness, that the holder or holders of such Senior
Indebtedness are entitled to the benefits of Sections 5, 6 and 12 of this
Debenture and that the holder or holders of such Senior Indebtedness may
enforce the terms and provisions thereof to the same extent Rollins would
be able to do so, provided, however, that prior to furnishing such
agreement, Laidlaw has received from Rollins or such holder such
information as Laidlaw may reasonably request demonstrating to Laidlaw's
reasonable satisfaction that such holder is a holder of Senior
Indebtedness. Laidlaw, and each subsequent holder of this Debenture, by
acceptance of this Debenture, irrevocably appoints Rollins (with full power
of substitution) as its agent and attorney in fact (which appointment is
coupled with an interest and shall be irrevocable so long as any Senior
Indebtedness is outstanding) to execute and deliver on behalf and in the
name of Laidlaw or such holder, as the case may be, an agreement in
substantially the form of, and on substantially the terms set out in,
Exhibit A, attached hereto, in favor of each such holder of Senior
Indebtedness and to take such further action as may be necessary or
appropriate to effectuate the subordination as provided herein. Promptly
after exercise of any such power, Rollins will give written notice thereof
to the holder of the Debenture; provided, however, that failure to give
such notice shall in no event affect the validity of any power so
exercised.
5.6 If a Default shall have occurred and be continuing (other than a
Default pursuant to Section 8.2 or 8.3) and the holder of this Debenture
elects to accelerate this Debenture pursuant to Section 9, Laidlaw shall
give the Representative under the Credit Facility 30 days' prior written
notice before accelerating this Debenture, which notice shall state that it
is a "Notice of Intent to
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Accelerate"; provided, however, that Laidlaw shall not be required to give
such notice if at such time payment of any Indebtedness incurred pursuant
to the Credit Facility shall have been accelerated. If payment of this
Debenture is accelerated because of a Default, the holder shall promptly
notify the Representatives under the Designated Senior Indebtedness and the
holders of all other Senior Indebtedness of the accelerations.
5.7 Until all Senior Indebtedness has been indefeasibly paid in full
in cash, the holders of this Debenture shall not be entitled to assert,
enforce or otherwise exercise any right of subrogation against Rollins or
any other Person obligated on the Subordinated Obligations. After all
Senior Indebtedness has been indefeasibly paid in full in cash, and until
the Subordinated Obligations have been so paid in full, the holder of this
Debenture shall be subrogated to the rights of the holders of Senior
Indebtedness to receive distributions applicable to such Senior
Indebtedness. A distribution made under this Section 5 to holders of Senior
Indebtedness which otherwise would have been made to the holder of this
Debenture is not, as between Rollins and the holder of this Debenture, a
payment by Rollins on Senior Indebtedness.
5.8 This Section 5 defines the relative rights of the holder of this
Debenture and holders of Senior Indebtedness. Nothing in this Debenture
shall:
5.8.1 impair, as between Rollins and such holder, the obligation of
Rollins, which is absolute and unconditional, to pay principal of and
premium and interest, if any, on this Debenture in accordance with its
terms; or
5.8.2 except as otherwise set forth in this Section 5, prevent the
holder of this Debenture from exercising its available remedies upon a
Default, subject to the rights of holders of Senior Indebtedness to
receive distributions otherwise payable to such holder.
6. No Impairment. Section 5, this Section 6, the proviso to Section 9.1,
and Section 12 (and all defined terms used in such Sections) shall constitute a
continuing offer to all Persons who become holders of, or continue to hold,
Senior Indebtedness. Such provisions are made for the benefit of the holders
from time to time of Senior Indebtedness, and such Persons are conclusively
presumed to have relied upon such provisions. Such holders are made obligees
hereunder, and they or each of them may enforce such provisions. No right of any
present or future holder of any Senior Indebtedness to enforce the subordination
or other provisions referred to in this Section 6 shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of Rollins or
Laidlaw, or by any non-compliance by Rollins or Laidlaw with the terms,
provisions and covenants of this Debenture, regardless of any knowledge thereof
any such holder may have or otherwise be charged with. Section 5, this Section 6
and the subordination and other provisions referred to in this Section 6 may not
be amended or modified in any manner which might terminate or impair the
subordination or such other provisions except with the prior written consent of
the Representatives of all the Designated Senior Indebtedness.
7. Conversion of Debenture.
7.1 Conversion Rights. Subject to and upon compliance with the
provisions of this Section 7, the Debenture is convertible, in whole or in
part, at the option of the holder at any time on and after the fifth
anniversary of the date hereof, and on or prior to 5:00 p.m. (New York City
time) on the Business Day immediately preceding the date of repayment of
the Debenture, whether at maturity or upon redemption, into that number of
fully paid and nonassessable shares of Common Stock which shall be equal to
the quotient of the outstanding aggregate principal amount of the Debenture
divided by the Conversion Price (calculated as to each conversion to the
nearest 1/100th of a share), subject to adjustment as described in this
Section 7. In case the Debenture or portion thereof is called for
redemption, such conversion right in respect of the Debenture or portion so
called shall expire at 5:00 p.m. (New York City time) on the Business Day
immediately preceding the corresponding redemption date, unless the Company
defaults in making the payment due upon redemption.
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7.2 Conversion Procedures.
7.2.1 In order to convert all or a portion of the Debenture,
Laidlaw shall deliver to Rollins an irrevocable Notice of Conversion
setting forth the principal amount of the Debenture to be converted,
together with the name or names, if other than Laidlaw, in which the
shares of Common Stock should be issued upon conversion (the "Notice of
Conversion").
7.2.2 Subject to any right of Laidlaw to receive interest as
provided in Section 2 and 3.2, Rollins's delivery upon conversion of the
fixed number of shares of Common Stock into which the Debenture is
convertible (together with the cash payment, if any, in lieu of
fractional shares) shall be deemed to satisfy the Rollins's obligation
to pay the principal amount of the portion of the Debenture so converted
and any unpaid interest accrued on such Debenture at the time of such
conversion.
7.2.3 No fractional shares of Common Stock will be issued as a
result of conversion, but in lieu thereof, Rollins shall pay a cash
adjustment in an amount equal to the same fraction of the last reported
sale price of such fractional interest on the date on which the
Debenture was duly surrendered for conversion, or, if such day is not a
Trading Day, on the next Trading Day.
7.2.4 In the event of the conversion of the Debenture in part only,
a new Debenture for the unconverted portion thereof will be issued in
the name of Laidlaw.
7.3. Conversion Price Adjustments. The Conversion Price shall be
subject to adjustment (without duplication) from time to time as follows:
7.3.1 In case Rollins shall, while the Debenture or any portion
thereof is outstanding, (i) pay a dividend or make a distribution with
respect to its Common Stock in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares or (iv) issue by
reclassification of its shares of Common Stock any shares of capital
stock of Rollins, the Conversion Price in effect immediately prior to
such action shall be adjusted so that the Debenture, or any portion
thereof, thereafter surrendered for conversion shall be entitled to
receive the number of shares of capital stock of Rollins which it would
have owned immediately following such action had the Debenture or such
portion thereof been converted immediately prior thereto. An adjustment
made pursuant to this Section 7.3.1 shall become effective immediately
after the record date in the case of a dividend or other distribution
and shall become effective immediately after the effective date in case
of a subdivision, combination or reclassification (or immediately after
the record date if a record date shall have been established for such
event). If, as a result of an adjustment made pursuant to this Section
7.3.1, Laidlaw shall become entitled to receive shares of two or more
classes or series of capital stock of Rollins, the Board (whose
determination shall be conclusive and shall be described in a resolution
of the Board) shall determine the allocation of the adjusted Conversion
Price between or among shares of such classes or series of capital
stock.
7.3.2 In case Rollins shall, while the Debenture or any portion
thereof, is outstanding, issue rights or warrants to all holders of the
Common Stock entitling them (for a period expiring within 45 days after
the record date mentioned in this Section 7.3.2) to subscribe for or
purchase shares of Common Stock at a price per share less than the
Current Market Price on such record date, the Conversion Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date
of issuance of such rights or warrants by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of
shares which the aggregate offering price of the total number of shares
so offered for subscription or purchase would purchase at such Current
Market Price, and of which the denominator shall be the number of shares
of Common Stock outstanding
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on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase.
Such adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights or
warrants. For the purposes of this subsection, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of Rollins. Rollins shall not issue any rights or warrants
in respect of shares of Common Stock held in the treasury of Rollins. In
case any rights or warrants referred to in this subsection in respect of
which an adjustment shall have been made shall expire unexercised within
45 days after the same shall have been distributed or issued by Rollins,
the Conversion Price shall be readjusted at the time of such expiration
to the Conversion Price that would have been in effect if no adjustment
had been made on account of the distribution or issuance of such expired
rights or warrants.
7.3.3 Subject to the last sentence of this Section 7.3.3, in case
Rollins shall, by dividend or otherwise, distribute to holders of Common
Stock evidences of its Indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any
rights or warrants referred to in Section 7.3.2, any dividend or
distribution paid exclusively in cash and any dividend or distribution
referred to in Section 7.3.1), the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this Section 7.3.3 by a
fraction of which the numerator shall be the Current Market Price on the
date fixed for the payment of such distribution (the "Reference Date")
less the fair market value (as determined in good faith by the Board,
whose determination shall be conclusive and described in a resolution of
the Board), on the Reference Date, of the portion of the evidences of
Indebtedness, shares of capital stock, cash and assets so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day following the
Reference Date. In the event that such dividend or distribution is not
so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not occurred. If the Board determines the fair market
value of any distribution for purposes of this Section 7.3.3 by
reference to the actual or when issued trading market for any securities
comprising such distribution, it must in doing so consider the prices in
such market over the same period used in computing the current market
price per share of Common Stock. For purposes of this Section 7.3.3, any
dividend or distribution that includes shares of Common Stock or rights
or warrants to subscribe for or purchase shares of Common Stock shall be
deemed instead to be (i) a dividend or distribution of the evidences of
Indebtedness, shares of capital stock, cash or assets other than such
shares of Common Stock or such rights or warrants (making any Conversion
Price reduction required by this Section 7.3.3) immediately followed by
(ii) a dividend or distribution of such shares of Common Stock or such
rights or warrants (making any further Conversion Price reduction
required by Section 7.3.1 or 7.3.2), except (a) the Reference Date of
such dividend or distribution as defined in this Section 7.3.3 shall be
substituted as (I) "the record date in the case of a dividend or other
distribution," and (II) "the record date for the determination of
stockholders entitled to receive such rights or warrants" and (III) "the
date fixed for such determination" within the meaning of Sections 7.3.1
and 7.3.2 and (b) any shares of Common Stock included in such dividend
or distribution shall not be deemed outstanding for purposes of
computing any adjustment of the Conversion Price in Section 7.3.1.
7.3.4 In case Rollins shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding any cash
distribution referred to in Section 7.3.3) to all holders of Common
Stock in an aggregate amount that, together with (i) all other cash
distributions (excluding any cash distributions referred to in Section
7.3.3) made within the 12 months preceding such distribution and (ii)
any cash and the fair market value of other consideration payable in
respect of any tender offer by Rollins or a Subsidiary of Rollins for
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the Common Stock consummated within the 12 months preceding such
distribution, exceeds 12.5% of Rollins's market capitalization (being
the product of the current market price multiplied by the number of
shares of Common Stock then outstanding (current market price per share
shall be determined on the Trading Day immediately preceding the date of
declaration of such dividend)), the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this Section 7.3.4 by a
fraction of which the numerator shall be the Current Market Price on the
date fixed for the payment of such distribution less the amount of cash
so distributed and not excluded as provided applicable to one share of
Common Stock and the denominator shall be such Current Market Price,
such reduction to become effective immediately prior to the opening of
business on the day following the date fixed for the payment of such
distribution; provided, however, that in the event the portion of the
cash so distributed applicable to one share of Common Stock is equal to
or greater than the Current Market Price on the record date mentioned
above, in lieu of the foregoing adjustment, adequate provision shall be
made so that Laidlaw shall have the right to receive upon conversion the
amount of cash Laidlaw would have received had Laidlaw converted the
Debenture immediately prior to the record date for the distribution of
the cash. In the event that such dividend or distribution is not so paid
or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such record date had
not been fixed.
7.3.5 In the case of a tender offer by Rollins or any Subsidiary of
Rollins for Common Stock which involves an aggregate consideration that,
together with (i) any cash and other consideration payable in respect of
any tender offer consummated by Rollins or a Subsidiary of Rollins for
the Common Stock consummated within the 12 months preceding the
consummation of such tender offer and (ii) the aggregate amount of all
cash distributions (excluding any cash distributions referred to in
Section 7.3.3) to all holders of Common Stock within the twelve months
preceding the consummation of such tender offer, exceeds 12.5% of
Rollins's market capitalization (being the product of the Current Market
Price multiplied by the number of shares of Common Stock then
outstanding at the date of consummation of such tender offer), the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction
contemplated by this Section 7.3.5 by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding (including any
tendered shares) multiplied by the closing price per share of the Common
Stock on the Trading Day next succeeding the last time tenders may be
made pursuant to such tender offer (as it shall have been amended) (the
"Expiration Time") and the denominator shall be the sum of (a) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed
so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (b) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) at the Expiration Time and the
closing bid price per share of the Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the
Expiration Time.
7.3.6 Rollins may make at its option such reductions in the
Conversion Price, in addition to those required by Sections 7.3.1
through 7.3.5, as it considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax
purposes. Rollins from time to time may reduce the Conversion Price by
any amount for any period of time if the period is at least 20 days, the
reduction is irrevocable during the period, and the Board shall have
made a determination that such reduction would be in the best interest
of Rollins, which
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determination shall be conclusive. Whenever the Conversion Price is
reduced pursuant to the preceding sentence, Rollins shall mail to
Laidlaw a notice of the reduction at least 15 days prior to the date the
reduced Conversion Price takes effect, and such notice shall state the
reduced Conversion Price and the period it will be in effect and, in
reasonable detail, the facts supporting such reduced Conversion Price.
7.3.7 No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least
1% in the Conversion Price then in effect; provided, however, that any
adjustments which by reason of this Section 7.3.7 are not required to be
made shall be carried forward and taken into account in determining
whether any subsequent adjustment shall be required.
7.3.8 If any action would require adjustment of the Conversion
Price pursuant to more than one of the provisions described above only
one adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to Laidlaw.
7.4 Reclassification, Consolidation, Merger or Sale of Assets.
7.4.1 In the event that Rollins shall be a party to any transaction
or series of transactions constituting a Fundamental Change, including,
without limitation, (i) any recapitalization or reclassification of
Common Stock (other than a change in par value or as a result of a
subdivision or combination of Common Stock), (ii) any consolidation of
Rollins with, or merger of Rollins into, any other Person, any merger of
another Person into Rollins (other than a merger which does not result
in a reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock), (iii) any sale or transfer of all
or substantially all of the assets of Rollins or (iv) any compulsory
share exchange pursuant to any of which holders of Common Stock shall be
entitled to receive other securities, cash or other property or assets,
then appropriate provision shall be made as part of the terms of such
transaction or series of transactions so that Laidlaw shall have the
right thereafter to convert such Debenture only into (a) if any such
transaction does not constitute a Common Stock Fundamental Change, the
kind and amount of the securities, cash or other property or assets that
would have been receivable upon such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of
the number of shares of Common Stock into which such Debenture might
have been converted immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, transfer or share
exchange, after, in the case of a Non-Stock Fundamental Change, giving
effect to any adjustment in the Conversion Price required by the
provisions which follow in Sections 7.4.3.1 and (b) in the case of a
Common Stock Fundamental Change, common stock of the kind received by
holders of Common Stock as a result of such Common Stock Fundamental
Change in an amount determined pursuant to the provisions which follow
in Section 7.4.3.2. The company formed by such consolidation or
resulting from such merger or which acquires such assets or which
acquires the Common Stock, as the case may be, shall enter into a
supplemental debenture with Laidlaw, satisfactory in form to Laidlaw and
executed and delivered to Laidlaw, the provisions of which shall
establish such right and provide for adjustments which, for events
subsequent to the effective date of such supplemental debenture, shall
be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The above provisions shall similarly
apply to successive recapitalizations, reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
7.4.2 Notwithstanding any other provisions in this Section 7 to the
contrary, if any Fundamental Change occurs, then the Conversion Price in
effect will be adjusted immediately following such Fundamental Change as
described below in Section 7.4.3. In addition, in the event of a Common
Stock Fundamental Change, the Debenture shall be convertible solely into
common stock of the kind received by holders of Common Stock as the
result of such Common Stock Fundamental Change as more specifically
provided below in Section 7.4.3.
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7.4.3 For purposes of calculating any adjustment to be made
pursuant to this Section 7 in the event of a Fundamental Change,
immediately following such Fundamental Change (and for such purposes a
Fundamental Change shall be deemed to occur on the earlier of (i) the
occurrence of such Fundamental Change and (ii) the date, if any, fixed
for determination of shareholders entitled to receive the cash,
securities, property or other assets distributable in such Fundamental
Change to holders of the Common Stock):
7.4.3.1 in the case of a Non-Stock Fundamental Change, the
Conversion Price per share of Common Stock shall be the lower of (i)
the Conversion Price in effect immediately prior to such Non-Stock
Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to this Section 7, and (ii) the
Applicable Price; and
7.4.3.2 in the case of a Common Stock Fundamental Change, the
Conversion Price per share of Common Stock shall be the Conversion
Price in effect immediately prior to such Common Stock Fundamental
Change, but after giving effect to any other adjustments effected
pursuant to this Section 7, multiplied by a fraction, the numerator
of which is the Purchaser Stock Price and the denominator of which
is the Applicable Price; provided, however, that in the event of a
Common Stock Fundamental Change in which (i) 100% of the value of
the consideration received by a holder of Common Stock (subject to
certain limited exceptions) is shares of common stock of the
successor, acquiror or other third party (and cash, if any, paid
with respect to any fractional interests in such shares of common
stock resulting from such Common Stock Fundamental Change) and (ii)
all of the Common Stock shall have been exchanged for, converted
into or acquired for shares of common stock (and cash, if any, with
respect to fractional interests) of the successor, acquiror or other
third party, the Conversion Price per share of Common Stock
immediately following such Common Stock Fundamental Change shall be
the Conversion Price in effect immediately prior to such Common
Stock Fundamental Change divided by the number of shares of common
stock of the successor, acquiror or other third party received by a
holder of one share of Common Stock as a result of such Common Stock
Fundamental Change.
7.4.4 In determining the amount and type of consideration received
by a holder of Common Stock in the event of a Fundamental Change,
consideration received by a holder of Common Stock pursuant to a
statutory right of appraisal will be disregarded.
7.5 Other Events. Upon the occurrence of any event similar to or
having the same economic effect on the Conversion Price as those events
specified in Sections 7.3 and 7.4, the Board shall make an appropriate
reduction in the Conversion Price.
7.6 Notice of Adjustments of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided, Rollins shall compute the
adjusted Conversion Price and shall prepare a certificate signed by the
chief financial officer or the treasurer of Rollins setting forth the
adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be
delivered to Laidlaw.
7.7 Prior Notice of Certain Events. In case:
7.7.1 Rollins shall (i) declare any dividend (or any other
distribution) on its Common Stock, other than (a) a dividend payable in
shares of Common Stock or (b) a dividend payable in cash that would not
require an adjustment pursuant to Section 7.3.3 or 7.3.4, or (ii)
authorize a tender or exchange offer that would require an adjustment
pursuant to Section 7.3.5;
7.7.2 Rollins shall authorize the granting to all holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of
stock of any class or series or of any other rights or warrants;
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7.7.3 of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which Rollins is a
party and for which approval of any stockholders of Rollins shall be
required, or of the sale or transfer of all or substantially all of the
assets of Rollins or of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or other property; or
7.7.4 of the voluntary or involuntary dissolution, liquidation or
winding up of Rollins; then Rollins shall cause to be mailed to Laidlaw,
at least 15 days prior to the applicable record or effective date
hereinafter specified, a notice stating (i) the date on which a record
(if any) is to be taken for the purpose of such dividend, distribution,
rights or warrants or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be determined or (ii)
the date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up (but no
failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to be
specified in such notice).
7.8 Dividend or Interest Reinvestment Plans.Notwithstanding the
foregoing provisions, the issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of Rollins and the investment of
additional optional amounts in shares of Common Stock under any such
plan, and the issuance of any shares of Common Stock or options or
rights to purchase such shares pursuant to any employee benefit plan or
program of Rollins or pursuant to any option, warrant, right or
exercisable, exchangeable or convertible security outstanding as of the
date the Debenture was first issued, shall not be deemed to constitute
an issuance of Common Stock or exercisable, exchangeable or convertible
securities by Rollins to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the
Conversion Price in case of the issuance of any stock (or securities
convertible into or exchangeable for stock) of Rollins except as
specifically described in this Section 7.
7.9 Certain Additional Rights. In case Rollins shall, by dividend
or otherwise, declare or make a distribution on its Common Stock
referred to in Section 7.3.3 or 7.3.4 (including, without limitation,
dividends or distributions referred to in the last sentence of Section
7.3.3), Laidlaw, upon the conversion of the Debenture subsequent to 5:00
p.m. (New York City time) on the date fixed for the determination of
stockholders entitled to receive such distribution and prior to the
effectiveness of the Conversion Price adjustment in respect of such
distribution, shall also be entitled to receive for each share of Common
Stock into which the Debenture is converted, the portion of the shares
of Common Stock, rights, warrants, evidences of indebtedness, shares of
capital stock, cash and assets so distributed applicable to one share of
Common Stock; provided, however, that, at the election of Rollins (whose
election shall be evidenced by a resolution of the Board), Rollins may,
in lieu of distributing to Laidlaw any portion of such distribution not
consisting of cash or securities of Rollins, pay Laidlaw an amount in
cash equal to the fair market value thereof (as determined in good faith
by the Board whose determination shall be conclusive and described in a
resolution of the Board). If any conversion of the Debenture described
in the immediately preceding sentence occurs prior to the payment date
for a distribution to holders of Common Stock which Laidlaw is entitled
to receive in accordance with the immediately preceding sentence,
Rollins may elect (such election to be evidenced by a resolution of the
Board) to distribute to Laidlaw a due bill for the shares of Common
Stock, rights, warrants, evidences
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of indebtedness, shares of capital stock, cash or assets to which
Laidlaw is so entitled, provided that such due bill (i) meets any
applicable requirements of the New York Stock Exchange or other market
on which the Common Stock is then traded and (ii) requires payment or
delivery of such shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets no later than the
date of payment or delivery thereof to holders of shares of Common Stock
receiving such distribution.
8. Events of Default. "Default" or "Event of Default" mean the occurrence
of one or more of the following:
8.1 Payment. Rollins fails to pay the outstanding principal or
accrued interest amount due on this Debenture on the Maturity Date or any
Interest Payment Date, respectively.
8.2 Voluntary Bankruptcy. Rollins (i) files a petition initiating a
voluntary Bankruptcy or Insolvency Proceeding, (ii) seeks, consents to, or
does not contest the appointment of a receiver or trustee for itself for
all or any substantial part of its property, (iii) is voluntarily
adjudicated a bankrupt or insolvent, (iv) makes a general assignment for
the benefit of its creditors, or (v) admits in writing its inability to pay
its debts as they mature.
8.3 Involuntary Bankruptcy. A petition filed against Rollins seeking
to initiate a Bankruptcy or Insolvency Proceeding and such petition is not
dismissed within 180 days after being filed, or a court of competent
jurisdiction enters an order, judgment or decree appointing a receiver or
trustee for Rollins, or for all or substantially all of its property, and
such order, judgment or decree is not discharged or stayed within 180 days
after its entry.
8.4 Acceleration of Other Indebtedness. An event of default occurs
and is continuing under the Credit Facility and, as a result thereof, the
Indebtedness outstanding pursuant to the Credit Facility is accelerated;
provided, however, that in the event the holders of such Indebtedness elect
to waive such event of default or to otherwise de-accelerate such
Indebtedness, no Default shall subsist hereunder.
9. Remedies of Laidlaw. Upon the occurrence and during the continuance of
a Default, Laidlaw shall have the following rights:
9.1 Acceleration. Subject to the provisions of Section 5 hereof,
Laidlaw may, at its option, declare the entire principal balance of this
Debenture, together with the accrued and unpaid interest thereon,
immediately due and payable without notice of Default, notice of intent to
accelerate, notice of acceleration, or any other notice, presentment,
protest, demand or action of any kind or nature whatsoever (each of which
is hereby expressly waived by Rollins), whereupon the entire Indebtedness
under this Debenture shall become immediately due and payable, provided,
however, that no such acceleration (except for an acceleration upon the
occurrence of a Default specified in Section 8.4) shall be effective or of
any force whatsoever and the holder of this Debenture may not take any
action against Rollins with respect to a Default hereunder if made during a
Blockage Period, or if such acceleration would result in a Blockage Period;
provided further,that in the event the Indebtedness under this Debenture is
accelerated upon the occurrence of a Default specified in Section 8.4 and
the holders of the Indebtedness outstanding pursuant to the Credit Facility
elect to waive the event of Default giving rise to the acceleration
thereunder or otherwise elect to de-accelerate such Indebtedness, Laidlaw
shall de-accelerate the obligations hereunder.
9.2 Other Rights. Except as otherwise modified hereby, Laidlaw shall
have all rights and remedies available at law or equity and the same (i)
shall be cumulative and concurrent, (ii) may be pursued separately,
successively, or concurrently against Rollins, (iii) may be exercised as
often as occasion therefor shall arise, it being agreed by Rollins that the
exercise or failure to exercise any of the same shall in no event be
construed as a waiver or release thereof or of any other right or remedy,
and (iv) are intended to be, and shall be, nonexclusive.
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10. Consolidation, Merger, Conveyance, Transfer or Lease.
10.1 Rollins May Consolidate, Etc., Only on Certain Terms. Rollins
shall not consolidate with or merge with or into any other Person, or
directly or indirectly, convey, transfer or lease all or substantially all
of its properties and assets on a consolidated basis to any Person, unless:
10.1.1 the Person formed by such consolidation or into which
Rollins is merged or the Person which acquires by conveyance, transfer
or lease, all or substantially all of the properties and assets of
Rollins on a consolidated basis shall be a corporation, partnership or
trust, shall be organized and validly existing under the laws of the
United States of America, any State thereof or the District of Columbia
and shall expressly assume, by a supplement hereto in form reasonably
satisfactory to Laidlaw, the due and punctual payment of the principal
of (and premium, if any) and interest on the Debenture and the
performance or observance of every covenant of this Debenture on the
part of Rollins to be performed or observed and shall have provided for
conversion rights in accordance with Section 7;
10.1.2 immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of Rollins or a
Subsidiary as a result of such transaction as having been incurred by
Rollins or such Subsidiary at the time of such transaction, no Event of
Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be continuing;
and
10.1.3 Rollins has delivered to Laidlaw an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental debenture is
required in connection with such transaction, such supplemental
debenture, comply with this Section 10 and that all conditions precedent
hereto provided for relating to such transaction have been complied
with.
This Section 10 shall only apply to a merger or consolidation in which
Rollins is not the surviving corporation and to conveyances, leases and
transfers by Rollins as transferor or lessor.
10.2 Successor Substituted. Upon any consolidation of Rollins with,
or merger of Rollins into, any other Person or any conveyance, transfer or
lease of all or substantially all the properties and assets of Rollins on a
consolidated basis in accordance with Section 10.1, the successor Person
formed by such consolidation or into which Rollins is merged or to which
such conveyance, transfer or lease is made shall succeed to, be substituted
for and may exercise every right and power of Rollins under this Debenture
with the same effect as if such successor Person had been named as Rollins
herein, and thereafter the predecessor Person shall be relieved of all
obligations and covenants under this Debenture.
11. Indenture.
11.1 Indenture. Upon a written request by Laidlaw delivered to
Rollins, Rollins shall enter into an indenture or indentures for the
purpose of publicly registering the Debenture, adding any provisions to or
changing in any manner or eliminating any of the provisions of this
Debenture or of modifying in any manner the rights of Laidlaw under this
Debenture.
11.2 Conformity with Trust Indenture Act. Every indenture executed
pursuant to this Section 11 shall conform to the requirements of the Trust
Indenture Act.
11.3 Reference in Securities to Supplemental Indenture. Securities
authenticated and delivered after the execution of any indenture pursuant
to this Section 11, may, and shall if required by the trustee, bear a
notation in form approved by the trustee as to any matter provided for in
such indenture. If Rollins shall so determine, new securities so modified
as to conform, in the opinion of the trustee and Rollins, to any such
indenture may be prepared and executed by Rollins and authenticated and
delivered by the trustee in exchange for the Debenture.
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12. Covenants, Representations and Warranties.
12.1 Payment of Principal and Interest. Rollins will duly and
punctually pay the principal of (and premium, if any) and interest on the
Debenture, if any, in accordance with the terms of this Debenture.
12.2 Maintenance of Office or Agency. Rollins will maintain in the
United States an office or agency where the Debenture may be presented or
surrendered for payment, where the Debenture may be surrendered for
registration of transfer or exchange and where notices and demands to or
upon Rollins in respect of the Debenture may be served. Rollins will give
prompt written notice to Laidlaw of the location, and any change in the
location, of such office or agency.
Rollins may also from time to time designate one or more other offices
or agencies (in the United States) where the Debenture may be presented or
surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or
rescission shall in any manner relieve Rollins of its obligation to
maintain an office or agency in the United States for such purposes.
Rollins will give prompt written notice to Rollins of any such designation
or rescission and of any change in the location of any such other office or
agency.
12.3 Limitation on Dividends. Rollins covenants that so long as the
Debenture is outstanding, if there shall have occurred and be continuing
any event that with the giving of notice or the lapse of time or both,
would constitute an Event of Default, then Rollins shall (i) not declare or
pay dividends on, or make a distribution with respect to, or redeem or
purchase or acquire, or make a liquidation payment with respect to, any of
its capital stock (other than (a) purchases or acquisitions of shares of
Common Stock in connection with the satisfaction by Rollins of its
obligations under any employee benefit plans or the satisfaction by Rollins
of its obligations pursuant to any contract or security requiring Rollins
to purchase shares of Common Stock, (b) as a result of a reclassification
of Rollins' capital stock or the exchange or conversion of one class or
series of Rollins' capital stock for another class or series of capital
stock, (c) the purchase of fractional interests in shares of Rollins'
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged or (d) stock
dividends paid by Rollins where the dividend stock is the same stock as
that on which the dividend is paid), (ii) not make any payment of interest
on or principal of (or premium, if any, on) or repay, repurchase or redeem
any debt securities (including guarantees) issued by Rollins that rank pari
passu with or junior to the Debenture and (iii) not make any Guarantee
payments with respect to the foregoing.
12.4 Reservation of Stock. Rollins shall have reserved a sufficient
number of shares of Common Stock initially issuable upon conversion of the
Debenture and issuable during the Mandatory PIK Interest Payment Period and
the Optional PIK Interest Payment. All such shares of Common Stock, when
issued, shall be fully paid and non-assessable.
13. Non-Business Days. If the date on which any action (including the
delivery of notices) to be taken under this Debenture is to occur falls on a day
which is not a Business Day, such action will be deemed timely taken if taken on
the first Business Day following.
14. Notices. All notices or other communications which are required or may
be given under this Debenture shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by telecopier (with
receipt confirmed) to a party at the address or telecopy number, as applicable,
set forth below (as any such address or telecopier number may be changed from
time to time by notice similarly given):
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(i) if to Laidlaw, to:
Laidlaw Transportation, Inc.
3221 North Service Road
Burlington, Ontario
Canada L7R 3Y8
Attention: Ivan R. Cairns
Telecopy No.: (905) 332-6550
(ii) if to Rollins, to:
Rollins Environmental Services, Inc.
One Rollins Plaza
2200 Concord Pike
Wilmington, Delaware 19803
Attention: General Counsel
Telecopy No.: (302) 426-3555
15. Entire Agreement. This Debenture and its Exhibits upon their execution
and delivery as herein provided will constitute the entire agreement, and
supersede all of the prior agreements and undertakings, both written and oral
among the parties, or any of them, with respect to the subject matter of this
Debenture.
16. Transfer Restriction. This Debenture may not be sold, assigned,
transferred, pledged or hypothecated in any manner, directly or indirectly, by
Laidlaw or any other holder except to (i) any Affiliate of Laidlaw or (ii) any
Person not an Affiliate of Laidlaw if such transfer is of at least $50 million
in principal amount provided, however, in each case the assignee, transferee,
pledgee or hypothecatee has agreed in writing to be bound by the provisions of
this Debenture applicable to Laidlaw, including but not limited to the
provisions of Section 5 hereof.
17. Counterparts. This Debenture may be executed in counterparts which
together shall constitute a single agreement.
18. Governing Law; Jurisdiction. This Debenture and the rights and
obligations of the parties created hereby shall be governed by the internal laws
of the State of Delaware without regard to its conflict of law rules. The
parties irrevocably consent to the non-exclusive jurisdiction of the courts of
the State of Delaware in connection with any dispute between or among them
arising under this Debenture.
19. Severability of Provisions. If a provision of this Debenture or its
application to any Person or circumstance, is held invalid or unenforceable in
any jurisdiction, to the extent permitted by law, such provision or the
application of such provision to Persons or circumstances other than those as to
which it is held invalid or unenforceable and in other jurisdictions, and the
remaining provisions of this Debenture, shall not be affected.
20. Specific Performance. Each Party agrees that one or more other parties
would be irreparably damaged if any provision of this Debenture were not
performed in accordance with its specific terms or was otherwise breached.
Therefore, the parties agree that each party shall be entitled to an injunction
or injunctions to prevent breaches of this Debenture or any of its provisions
and to specifically enforce this Debenture, its terms and provisions in any
action instituted in the courts of the State of Delaware subject matter
jurisdiction, in addition to any other remedy to which a party may be entitled,
at law or in equity.
21. Joint Drafting. This Debenture and its Exhibit have been jointly
drafted by the parties and their counsel. Neither this Debenture nor its Exhibit
shall be construed against any party based on its authorship.
22. Captions. The article and section headings in this Debenture are for
convenience only, and shall not affect the meaning or interpretation of this
Debenture.
A-A-18
<PAGE>
NOTICE: THE RIGHTS AND OBLIGATIONS OF ROLLINS AND LAIDLAW SHALL BE
DETERMINED SOLELY FROM WRITTEN AGREEMENTS, DOCUMENTS, AND INSTRUMENTS, AND ANY
PRIOR ORAL AGREEMENTS BETWEEN ROLLINS AND LAIDLAW ARE SUPERSEDED BY AND MERGED
INTO SUCH WRITINGS. THIS DEBENTURE (AS AMENDED IN WRITING FROM TIME TO TIME)
REPRESENTS THE FINAL AGREEMENT BETWEEN ROLLINS AND LAIDLAW AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL AGREEMENTS BY ROLLINS
AND LAIDLAW. THERE ARE NO UNDERWRITTEN ORAL AGREEMENTS BETWEEN ROLLINS AND
LAIDLAW.
ROLLINS ENVIRONMENTAL SERVICES, INC.
a Delaware corporation
By:
-------------------------------------
President and Chief Executive Officer
Agreed and Accepted:
LAIDLAW TRANSPORTATION, INC.
a Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
A-A-19
<PAGE>
EXHIBIT A
to the 5% Subordinated
Convertible Pay-In-Kind
Debenture Due 2009 Issued by
Rollins Environmental Services, Inc.
in favor of Laidlaw Transportation, Inc.
[DATE]
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
Gentlemen:
Reference is made to the 5% Subordinated Convertible, Pay-In-Kind Debenture
Due 2009 dated _________, 1997 (the "Subordinated Debenture"), in the original
principal amount of $350 million issued by Rollins Environmental Services, Inc.,
a Delaware corporation ("Rollins"), in favor of Laidlaw Transportation, Inc., a
Delaware corporation, and the [DESCRIBE SENIOR INDEBTEDNESS] (the "Subject
Indebtedness"), being issued contemporaneously herewith by Rollins in favor of
[IDENTITY OF HOLDER OF HOLDERS OF SUBJECT INDEBTEDNESS] (whether one or more,
the "Senior Creditor"). Hereinafter, capitalized words and phrases used herein
which are defined in the Subordinated Debenture are used herein as therein
defined.
The undersigned (the "Subordinated Creditor") hereby represents and
warrants to the Senior Creditor that the Subordinated Creditor is the owner and
holder of the Subordinated Debenture and that the Subordinated Creditor is
entitled to make the agreements herein contained. The Subordinated Creditor
hereby acknowledges and agrees that the principal of, premium, if any, interest
on (including interest that, but for the filing of a petition initiating any
Bankruptcy or Insolvency Proceeding would accrue on such obligations at the time
provided in the agreements or instruments creating or evidencing the respective
obligations, whether or not such claim is allowed in such Bankruptcy or
Insolvency Proceeding) and all other amounts of every kind or nature (including,
but not limited to, fees, indemnities and expenses and any interest rate swaps
or other interest rate hedging products entered into in connection with the
Subject Indebtedness) due or in connection with the Subject Indebtedness,
whether outstanding on the date hereof or hereafter created, incurred, assumed,
guaranteed or in effect guaranteed by Rollins (including all renewals,
extensions or refundings of, or amendments, modifications or supplements to, the
foregoing) are in all respects Senior Indebtedness, that the Senior Creditor
(and any other Person who from time to time is a holder of the Subject
Indebtedness) is entitled to the benefits of Sections 5, 6 and 12 of the
Subordinated Debenture and that the Senior Creditor (and any other Person who
from time to time is a holder of the Subject Indebtedness) may enforce the terms
and provisions of the Subordinated Debenture to the same extent that Laidlaw or
any other holder of Senior Indebtedness would be able to do so.
The Subordinated Creditor hereby agrees that the Subordinated Debenture
will not be sold, assigned, transferred, pledged or hypothecated in any manner,
directly or indirectly, by the Subordinated Creditor, unless the assignee,
transferee, pledgee or hypothecatee has agreed in writing to be bound by the
provisions of this agreement.
The Subordinated Creditor has executed this agreement in the space provided
below in order to induce the Senior Creditor to advance funds or extend credit
to Rollins, and this agreement is intended by the Subordinated Creditor to be
binding and enforceable undertaking by the Subordinated Creditor in favor of the
Senior Creditor.
A-A-20
<PAGE>
The rights credited hereby of the Senior Creditor and of any subsequent
holder of the Senior Indebtedness will be assigned automatically, and without
any further act, by the Senior Creditor or such holder upon any sale,
assignment, conveyance or other transfer of all or any part of the Senior
Indebtedness to the extent of the interest sold, assigned, conveyed or otherwise
transferred, unless and to the extent the Senior Creditor or such holder
expressly provides otherwise in the instrument pursuant to which such interest
is conveyed.
Very truly yours,
[NAME OF SUBORDINATED CREDITOR]
By:
-----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Accepted and agreed to as of
the date first above written:
[NAME OF SENIOR CREDITOR]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
A-A-21
<PAGE>
EXHIBIT B TO ANNEX A
STOCK REGISTRATION AGREEMENT
This Stock Registration Agreement dated , 1997 (this
"Registration Agreement"), is among Rollins Environmental Services, Inc., a
Delaware corporation ("Rollins"), Laidlaw Transportation, Inc., a Delaware
corporation ("LTI") and Laidlaw Inc., a Canadian corporation ("Laidlaw" and
together with LTI, the "Laidlaw Parties").
W I T N E S S E T H:
WHEREAS, under a Stock Purchase Agreement dated as of , 1997
(the "Stock Purchase Agreement"), among Rollins and the Laidlaw Parties, Rollins
is this date issuing to LTI (i) 120,000,000 shares (the "Rollins Common Shares")
of Common Stock, $1.00 par value per share (the "Common Stock"), of Rollins and
(ii) a 5%, 12 year $350 million principal amount, convertible, pay-in-kind
debenture (the "Rollins Convertible Debenture"), which is convertible into
shares of Common Stock and pursuant to which interest and principal payments can
be made in shares of Common Stock (collectively, the "Additional Rollins Common
Shares");
WHEREAS, the Stock Purchase Agreement requires that this Registration
Agreement be entered into among Rollins and the Laidlaw Parties upon the
issuance to the Laidlaw Parties of such securities of Rollins; and
WHEREAS, the parties hereto (the "Parties") deem it desirable to enter into
this Registration Agreement to establish certain rights and restrictions with
respect to the management of the Company and the voting, sale and registration
of the shares of Common Stock,
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree that:
ARTICLE I
DEFINITIONS
1.1. Definitions. In this Registration Agreement:
"Affiliate" means, with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person, with the terms
"control" and "controlled" meaning, for purposes of this definition, the
power to direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities or
partnership or other ownership interests, or by contract or otherwise.
"Canadian Securities Acts" means the applicable securities legislation
of each of the provinces and territories of Canada, and the regulations,
rules and policies made thereunder or issued by the Commissions
administering such legislation, as the same may hereafter be amended or
replaced.
"Commissions" means the securities commissions or similar regulatory
authorities of each of the provinces and territories of Canada and any
successor regulatory authorities having similar powers.
"Designated Jurisdictions" has the meaning specified in Section 2.2.
"Elected Jurisdictions" has the meaning specified in Section 2.1.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC promulgated
thereunder.
"Inspectors" has the meaning specified in Section 2.4.
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<PAGE>
"Offering Expenses" means all expenses incidental to Rollins's
performance of or compliance with its obligations under Section 2.2 in
connection with the qualification by prospectus of Registrable Securities
under any of the Canadian Securities Acts, including, without limitation,
all filing fees, all fees and expenses of complying with the applicable
Canadian Securities Acts, all printing and translation expenses, all fees
and disbursements of counsel to any Laidlaw Party and all fees and
disbursements of Canadian counsel to Rollins and any underwriting fees and
commissions and applicable transfer taxes, if any, relating to the
distribution of the Registrable Securities under any Canadian Securities
Acts.
"Offering Notice" has the meaning specified in Section 4.4.
"Offering Registration Statement" has the meaning specified in Section
4.4.
"Offering Termination Date" has the meaning specified in Section 4.4.
"Person" means an individual, corporation, partnership, association,
joint stock company, limited liability company, governmental entity,
business trust, unincorporated organization or other legal entity.
"Registrable Securities" means (i) the Rollins Common Shares, (ii) the
Rollins Convertible Debenture, (iii) the Additional Rollins Common Shares
and (iv) any shares of Common Stock issued in connection with any stock
dividend on, or any stock split, reclassification or reorganization of,
shares of Common Stock referenced in subparagraphs (i), (ii) or (iii)
above.
"SEC" means the United States Securities and Exchange Commission or
any successor agency.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Selling Laidlaw Party" has the meaning specified in Section 2.4.
"Specified Securities" has the meaning specified in Section 2.1.
ARTICLE II
REGISTRATION RIGHTS
2.1. Incidental Rights. If at any time or from time to time Rollins
proposes to file (i) with the SEC a registration statement (whether on Form S-1,
S-2, or S-3, or any equivalent form then in effect) for the registration under
the Securities Act of any shares of Common Stock for sale, or (ii) a prospectus
under any of the Canadian Securities Acts in order to qualify a distribution
under any of the Canadian Securities Acts of any securities, for cash
consideration, to the public by Rollins or on behalf of one or more shareholders
of Rollins (excluding any sale of securities convertible into or exercisable for
Common Stock, and any shares of Common Stock issuable by Rollins upon the
exercise of employee stock options, or to any employee stock ownership plan, or
in connection with any acquisition made by Rollins, any securities exchange
offer, dividend reinvestment plan, employee benefit plan, corporate
reorganization, or in connection with any amalgamation, merger or consolidation
of Rollins with one or more other corporations if Rollins is the surviving
corporation), Rollins shall give the Laidlaw Parties at least 20 days' prior
written notice of the proposed filing (or if 20 days' notice is not practicable,
a reasonable shorter period of not less than seven days), which notice shall
outline the nature of the proposed distribution and the U.S. and Canadian
jurisdictions in which Rollins proposes to qualify and offer such securities
(the "Elected Jurisdictions"). On the written request of a Laidlaw Party
received by Rollins within 15 days (or within 7 days if 20 days' notice cannot
practicably be given by Rollins) after the date of Rollins's delivery to the
Laidlaw Parties of the notice of intended registration (which request shall
specify the Registrable Securities sought to be disposed of by each Laidlaw
Party and the intended method or methods by which dispositions are intended to
be made), Rollins shall, under the terms and subject to the conditions of this
Article II, at its own expense as provided in Section 4.2, (a) use its
reasonable efforts to include in the coverage of
A-B-2
<PAGE>
such U.S. registration statement (or in a separate U.S. registration statement
concurrently filed) and qualify for sale under the blue sky or securities laws
of the various states, and (b) use its reasonable efforts to effect the
qualification under the Canadian Securities Acts, in the Elected Jurisdictions
the number of Registrable Securities (herein called the "Specified Securities")
held by such Laidlaw Party and which such Laidlaw Party has so requested to be
registered or qualified for distribution, to the extent required to permit the
distribution (in accordance with the intended method or methods thereof as
aforesaid) in the Elected Jurisdictions requested by such Laidlaw Party of such
Registrable Securities.
If the distribution proposed to be effected by Rollins involves an
underwritten offering of the securities being so distributed by or through one
or more underwriters, and if the managing underwriter of such underwritten
offering indicates in writing its reasonable opinion that including all or part
of the Specified Securities in the coverage of such registration statement or in
the distribution to be effected by such prospectus will materially and adversely
affect the sale of securities proposed to be sold (which statement of the
managing underwriter shall also state the maximum number of shares, if any,
which can be sold by the Laidlaw Party requesting registration under this
Section 2.1 without materially and adversely affecting the sale of the shares
proposed to be sold), then the number of Specified Securities which the
requesting Laidlaw Party shall have the right to include in such registration
statement or to have qualified by such prospectus shall be reduced to the
maximum number of shares specified by the managing underwriter. In all cases,
priority shall be afforded to securities covered by a registration statement
and/or qualified for distribution by a prospectus filed in response to the
exercise of a demand registration or qualification right by a holder of Common
Stock other than a holder exercising rights under this Registration Agreement
and no securities proposed to be sold by such other holder shall be so reduced
until all securities proposed to be sold by all other parties have been entirely
eliminated. As to all other proposed selling shareholders of Common Stock,
including the Laidlaw Party requesting to include Registrable Securities in the
coverage of such a registration statement or prospectus, any such reduction in
the number of shares of Common Stock proposed to be sold by the selling
shareholders shall be effected on a pro rata basis in accordance with the
relationship which the number of shares of Common Stock proposed to be sold by
each selling shareholder bears to the number of shares of Common Stock proposed
to be sold by all selling shareholders.
Rollins shall have the sole right to select any underwriters, including the
managing underwriter, of any public offering of shares of Common Stock subject
to this Section 2.1.
Each Laidlaw Party may request to have Common Stock included in an
unlimited number of registrations, and qualified by an unlimited number of
prospectuses, under this Section 2.1. Registration rights under this Section 2.1
shall extend only to the incidental registrations of Common Stock.
2.2. Mandatory Rights. Upon written request of a Laidlaw Party made at any
time, Rollins shall, under the terms and subject to the conditions set forth in
this Section 2.2 and in Section 2.4, (i) at Rollins' expense, file (and use its
reasonable efforts to cause to become effective) a U.S. registration statement
covering, and use its reasonable efforts to qualify for sale under the blue sky
or securities laws of the various U.S. states as may be requested by such
Laidlaw Party (except any such state in which, in the opinion of the managing
underwriter of the offering, the failure to so qualify would not materially and
adversely affect the proposed offering), and (ii) at such Laidlaw Party's
expense, use its reasonable efforts to effect the qualification for distribution
under the Canadian Securities Acts, in accordance with the intended method or
methods of disposition set forth in that notice, such number of Registrable
Securities, as may be designated by such Laidlaw Party in its request, or that
portion thereof designated in said request for registration or qualification in
each of the Designated Jurisdictions (as defined below). A request for
registration under this Section 2.2 shall specify the number of shares to be
registered, the United States and Canadian jurisdiction in which such
registration or qualification is to be effected (the "Designated Jurisdictions")
and the proposed manner of sale, including the name and address of any proposed
underwriter; provided, that all offerings contemplated by a request for
registration under this Section 2.2 shall be underwritten offerings involving
either a distribution of Registrable Shares to the public where no single buyer,
A-B-3
<PAGE>
acting individually or with others, acquires more than 10% of such offering, or
a distribution by way of dividend or other distribution to holders of Common
Stock in the capital of Rollins where such dividend or other distribution is
made pro rata between the holders of all such classes of shares according to the
number of shares of either class held by each of them. The principal underwriter
or underwriters for any such offering shall be selected by the Laidlaw Party
requiring registration, subject to Rollins's approval, which may not
unreasonably be withheld.
If the distribution proposed to be effected pursuant to this Section 2.2
involves an underwritten offering of the securities being so distributed by or
through one or more underwriters, and if the managing underwriter of such
underwritten offering indicates in writing its reasonable belief that including
all or part of the Registrable Securities in the coverage of such registration
statement or in the distribution to be effected by such prospectus will
materially and adversely affect the sale of the securities proposed to be sold,
then the number of securities proposed to be sold shall be reduced to the
maximum number of securities specified by the managing underwriter. In such a
case, priority shall be afforded to Registrable Securities and the securities
that are not Registrable Securities shall be completely eliminated from
inclusion in such offering before the number of Registrable Securities is
reduced.
Rollins may delay the filing or effectiveness of any registration
statement, or any preliminary prospectus or (final) prospectus required to
effect a qualification for distribution, requested under this Section 2.2, or
delay its effectiveness, for a reasonable period (but not longer than 120 days)
if, in the sole judgment of Rollins's Board of Directors, (i) a delay is
necessary in light of pending financing transactions, corporate reorganizations
or other major events involving Rollins, or (ii) filing at the time requested
would materially and adversely affect the business or prospects of Rollins in
view of disclosures that may thereby be required. Once the cause of the delay is
eliminated, Rollins shall promptly notify the Laidlaw Parties requiring
registration or qualification, and promptly after a Laidlaw Party notifies
Rollins to proceed, Rollins shall, as required in connection with the Designated
Jurisdictions selected by the relevant Laidlaw Parties, file a registration
statement or a preliminary prospectus and/or (final) prospectus and begin
performance of its other obligations under this Section 2.2.
The Laidlaw Parties shall be entitled to request three registrations or
qualifications under this Section 2.2 from the date hereof until the fifth
anniversary of the date hereof and three additional registrations or
qualifications under this Section 2.2 from the fifth anniversary of the date
hereof until the twelfth anniversary of the date hereof (provided that the
filing of a registration statement and a preliminary prospectus or (final)
prospectus in more than one Designated Jurisdictions in connection with a
concurrent or substantially concurrent distribution shall be deemed for the
purposes hereof to be a single registration and qualification). However, if a
Laidlaw Party requests a registration under this Section 2.2, but no
registration statement or (final) prospectus becomes effective with respect to
the Registrable Securities covered by such request, then such request shall not
count as a request for purposes of determining the number of requests for
registration or qualification the Laidlaw Parties may make under this Section
2.2.
2.3. Registration Conditions. Notwithstanding any other provision of this
Registration Agreement, Rollins shall not be required to effect a registration
or qualification of any securities under this Article II, or file any
post-effective amendment to such a registration statement or prospectus relating
to such a qualification:
2.3.1. unless the requesting Laidlaw Party agrees to (a) sell and
distribute a portion or all of its Registrable Securities in accordance
with the plan or plans of distribution adopted by and through underwriters,
if any, acting for Rollins, and (b) bear a pro rata share of underwriter's
discounts and commissions;
2.3.2. if a registration or qualification requested under Section 2.2,
or any post-effective amendment to the registration statement and/or
prospectus filed in connection therewith, requires, under applicable
statutes and rules, a special audit (other than a normal fiscal year-end
audit) of any financial statements, unless the requesting Laidlaw Party
agrees to pay its proportionate share
A-B-4
<PAGE>
(determined by the number of shares to be sold by such Laidlaw Party in the
offering in proportion to the total number of shares to be sold by Rollins
and all other participants in such offering) of the reasonable fees and
expenses of accountants incurred in connection with the special audit and
which would otherwise not be incurred;
2.3.3. if, in the case of a request for registration or qualification
under Section 2.1 or 2.2, in the reasonable opinion of counsel for Rollins,
(i) the Registrable Securities for which registration under the Securities
Act has been requested may be disposed of without adversely affecting the
market price of such Registrable Securities within a comparable time frame
without registration under the Securities Act and (ii) upon such
disposition all legends on certificates representing such shares which
restrict their transfer under the Securities Act and applicable state
securities laws may be removed, and the sale by the applicable Laidlaw
Party of any Registrable Securities for which qualification for
distribution under any Canadian Securities Acts has been requested (a) will
not constitute a "distribution" (or the corresponding term) under the
applicable Canadian Securities Acts, or (b) may be effected in the method
requested (or in a method having a substantially similar economic effect,
as to which such counsel may make any reasonable assumption for the
purposes of such opinion) without qualification by prospectus; provided
that the first trade of such Registrable Securities by the purchaser
thereof from the Laidlaw Party in such sale would not constitute a
"distribution" (or the corresponding term) under the applicable Canadian
Securities Acts (but for (I) any unusual effort made to prepare the market
or to create a demand for such securities made by or on behalf of such
purchaser), (II) any extraordinary commission or consideration paid or to
be paid in respect of such first trade, or (III) such purchaser being a
Person described in clause (III) of the definition of "distribution" set
forth in section 1(1) of the Securities Act (Ontario) in relation to
Rollins (or any corresponding provision of any other applicable Canadian
Securities Act);
2.3.4. if, in the case of a request for registration under Section
2.2, other than with respect to a distribution by way of dividend or other
distribution to holders of common stock in the capital of Laidlaw where
such dividend or other distribution is made pro rata between the holders of
all such classes of shares according to the number of shares of either
class held by each of them (i) any registration statement or prospectus
covering securities regarding which a Laidlaw Party could have exercised
registration rights under Section 2.1 of this Registration Agreement has
become effective under the Securities Act or, with respect to a (final)
prospectus, a receipt has been issued therefor under the applicable
Canadian Securities Acts within six months preceding the date of such
request, (ii) a registration statement or prospectus requested by a Laidlaw
Party pursuant to Section 2.2 has become effective under the Securities Act
or, with respect to a (final) prospectus, a receipt has been issued
therefor under the applicable Canadian Securities Acts within twelve months
preceding the date of such request or (iii) Rollins has given notice under
Section 2.1 of its intention to file a registration statement under the
Securities Act or a prospectus under any Canadian Securities Acts and has
not completed or abandoned the proposed offering; and
2.3.5. unless Rollins has received from the Laidlaw Party requesting
registration or qualification all information Rollins has reasonably
requested concerning such Laidlaw Party and its method of distribution of
its Registrable Securities, so as to enable Rollins to include in the
registration statement or prospectus all facts required to be disclosed in
it.
2.4. Covenants and Procedures. If Rollins becomes obligated under this
Article II to effect a registration or qualification of Registrable Securities
on behalf of a Laidlaw Party requesting registration or qualification under this
Article II (hereinafter called a "Selling Laidlaw Party"), then (as applicable
to the jurisdictions for which such registration or qualification is to be
made):
2.4.1. Rollins, (i) at its expense as provided in Section 4.2, shall
prepare and file with the SEC a registration statement covering and, as
applicable, (ii) at its expense as provided in Section 4.2 if such
registration is triggered pursuant to Section 2.1, or at the expense of the
requesting Selling Laidlaw Party as provided in Section 4.3 if such
registration is triggered pursuant to
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<PAGE>
Section 2.2, prepare and file with the applicable Commissions (in the
English and French languages, as applicable) a preliminary prospectus
qualifying such securities and such other related documents as may be
necessary or appropriate relating to the proposed distribution, and shall
use reasonable efforts to cause the registration statement to become
effective and (with respect to Canadian jurisdictions) after any comments
of the Commissions have been satisfied with respect thereto, to prepare and
file in accordance with the relevant Canadian Securities Acts, a (final)
prospectus in the English and French languages, as appropriate, and receive
receipts therefor and shall take all other steps and proceedings that may
be necessary in order to qualify the applicable Registrable Securities for
distribution under such Canadian Securities Acts by registrants who comply
with the relevant provisions of such Canadian Securities Acts. Rollins will
also (a) with respect to any U.S. registration statement, file such
post-effective amendments to the registration statement (and use reasonable
efforts to cause it to become effective) and such supplements as are
necessary so that current prospectuses are at all times available for a
period of at least 90 days after the effective date of the registration
statement or for such longer period, not to exceed 180 days, as may be
required under the plan or plans of distribution set forth in the
registration statement, and (b) with respect to any Canadian prospectus,
file with the Commissions such amendments and supplements to such
preliminary prospectus and (final) prospectus as may be necessary to comply
with the provisions of the Canadian Securities Acts applicable to the
proposed distribution until the earlier of (I) such time as all of
Registrable Securities proposed to be sold thereunder have been disposed of
in accordance with the intended method or methods of disposition by the
Selling Laidlaw Party thereof, and (II) the expiration of a period of at
least 90 days after the issuance by the Commissions in all applicable
Canadian jurisdictions for the (final) prospectus or such longer period,
not to exceed 180 days, as may be required under the plan or plans of
distribution set forth in such (final) prospectus. Each Selling Laidlaw
Party shall promptly provide Rollins with such information with respect to
such Selling Laidlaw Party's Registrable Securities to be so registered and
qualified and, if applicable, the proposed terms of their offering, as is
required for the registration or qualification. If the Registrable
Securities to be covered by the registration statement and/or prospectus
are not to be sold to or through underwriters acting for Rollins, Rollins
shall:
(x) deliver to each Selling Laidlaw Party, as promptly as
practicable, as many copies of preliminary prospectuses as each Selling
Laidlaw Party may reasonably request (in which case each Selling Laidlaw
Party shall keep a written record of the distribution of the preliminary
prospectuses and shall refrain from delivery of the preliminary
prospectuses in any manner or under any circumstances which would
violate the Securities Act, the applicable Canadian Securities Acts or
the securities laws of any other jurisdiction, including the various
states of the United States);
(y) deliver to each Selling Laidlaw Party, as soon as practicable
after the effective date of the U.S. registration statement, or, as
applicable, the date on which all applicable Commissions shall have
issued a receipt for the Canadian (final) prospectus, and from time to
time thereafter during the applicable period described in paragraph
2.4.1(i) or (ii), as many copies of the relevant prospectuses (including
any (final) prospectus as such Selling Laidlaw Party may reasonably
request); and
(z) in case of the happening, after the effective date of the
registration statement and during the applicable 90 or 180 day period
described in the second sentence of paragraph 2.4.1, of any event or
occurrence as a result of which the prospectus (including any
preliminary prospectus or (final) prospectus), as then in effect, would
include an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make any
statement therein not misleading in the light of the circumstances in
which it was made, give each Selling Laidlaw Party written notice of the
event or occurrence and prepare and furnish to each Selling Laidlaw
Party, in such quantities as it may reasonably request, copies of an
amendment of or a supplement to such prospectus as may be necessary so
that the prospectus, as so amended or supplemented and thereafter
delivered to
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<PAGE>
purchasers of the securities, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.4.2. Rollins will notify each Selling Laidlaw Party of any action by
the SEC or any Commission to suspend the effectiveness of any registration
statement or prospectus filed pursuant hereto or the initiation or
threatened initiation of any proceeding for such purpose or the receipt by
Rollins of any notification with respect to the suspension of the
qualification of the securities covered by a prospectus filed pursuant
hereto for sale in any jurisdiction. Immediately upon receipt of any such
notice, the Laidlaw Parties shall cease to offer or sell any Registrable
Securities pursuant to the registration statement or prospectus in the
jurisdiction to which such order or suspension relates. Rollins will also
notify each Selling Laidlaw Party promptly of the occurrence of any event
or the existence of any state of facts that, in the judgment of Rollins,
should be set forth in such registration statement or prospectus.
Immediately upon receipt of such notice, the Laidlaw Parties shall cease to
offer or sell any Registrable Securities pursuant to such registration
statement or prospectus, cease to deliver or use such registration
statement or prospectus and, if so requested by Rollins, return to Rollins
at Rollins's expense all copies of such registration statement or
prospectus. Rollins will as promptly as practicable take such action as may
be necessary to amend or supplement such registration statement or
prospectus in order to set forth or reflect such event or state of facts
and provide copies of such proposed amendment or supplement to each Selling
Laidlaw Party.
2.4.3. On or before the date on which the registration statement is
declared effective, or a receipt is issued by all Commissions for the
(final) prospectus, Rollins shall use its reasonable efforts to:
(i) register or qualify (and cooperate with each Selling Laidlaw
Party, the underwriter or underwriters, if any, and their counsel, in
connection with the registration or qualification of) the securities
covered by the registration statement for offer and sale under the
securities or blue sky laws of each state and other U.S. or Canadian
jurisdiction as any Selling Laidlaw Party or underwriter reasonably
requests;
(ii) use its reasonable efforts to keep each such registration or
qualification effective, including through new filings, or amendments or
renewals, during the period the registration statement or prospectus is
required to be kept effective; and
(iii) do any and all other acts or things necessary or advisable to
enable the disposition in all such jurisdictions of the Common Stock
covered by the applicable registration statement or prospectus, provided
that Rollins will not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified.
2.4.4. Rollins shall use its reasonable efforts to cause all
Registrable Securities of a Selling Laidlaw Party included in the
registration statement or qualified by prospectus to be listed, by the date
of the first sale of such shares pursuant to such registration statement or
prospectus, on each securities exchange on which the securities as then
listed or proposed to be listed, if any.
2.4.5. Rollins shall make generally available to each Selling Laidlaw
Party and any underwriter participating in the offering conducted pursuant
to the registration statement an earnings statement satisfying Section
11(a) of the Securities Act no later than 45 days after the end of the
12-month period beginning with the first day of Rollins's first fiscal
quarter commencing after the effective date of the registration statement.
The earnings statement shall cover such 12-month period. This requirement
will be deemed to be satisfied if Rollins timely files complete and
accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act,
and otherwise complies with Rule 158 under the Securities Act as soon as
practicable. In addition, in the event that Rollins shall have become a
reporting issuer (or have the corresponding status) under any of the
Canadian Securities Acts, Rollins shall comply with the continuous
disclosure
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obligations of a reporting issuer (or the obligations attendant upon such
corresponding status) prescribed by each Canadian Securities Act under
which it has such status.
2.4.6. Rollins shall cooperate with each Selling Laidlaw Party and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be sold under the
registration statement or prospectus, and to enable such securities to be
in such denominations and registered in such names as the managing
underwriter or underwriters, if any, or the Selling Laidlaw Party, may
request, subject to the underwriters' obligation to return any certificates
representing unsold securities.
2.4.7. Rollins shall use its reasonable efforts to cause Registrable
Securities covered by the registration statement or prospectus to be
registered with or approved by such other governmental agencies or
authorities in the U.S. or Canada (including the registration of
Registrable Securities under the Exchange Act) as may be necessary to
enable the Selling Laidlaw Parties or the underwriter or underwriters, if
any, to consummate the disposition of such securities.
2.4.8. Rollins shall, during normal business hours and upon reasonable
notice, make available for inspection by each Selling Laidlaw Party, any
underwriter participating in any offering pursuant to the registration
statement or prospectus, and any attorney, accountant or other agent
retained by a Selling Laidlaw Party or any such underwriter (collectively,
the "Inspectors"), all nonconfidential financial and other records,
pertinent corporate documents, and properties of Rollins, as shall be
reasonably necessary to enable the Inspectors to exercise their due
diligence responsibilities and as they may reasonably consider to be
necessary for the purpose of establishing their due diligence defense (as
applicable) as contemplated by the Canadian Securities Acts and in order to
enable any such underwriters to execute the certificate on any prospectus
required pursuant to any Canadian Securities Acts to be executed by them.
Rollins shall also cause its officers, directors, and employees to supply
all nonconfidential information reasonably requested by any Inspector in
connection with the registration statement.
2.4.9. Rollins shall use its reasonable efforts to obtain a "cold
comfort" letter and, as applicable, a "long-form comfort letter" from
Rollins's independent public accountants, and an opinion of counsel for
Rollins, each in customary form and covering such matters of the type
customarily covered by cold comfort letters and long form comfort letters
and legal opinions in connection with public offerings of securities, as
the Selling Laidlaw Party reasonably requests, and consents from all
parties from whom such consents would be required under the applicable
Canadian Securities Acts.
2.4.10. Rollins shall provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities for the term of this
Registration Agreement.
2.4.11. Rollins shall use all reasonable efforts to cause the
Registrable Securities covered by the registration statement to continue to
be listed for a period of three years after the registration statement is
declared effective on at least one national securities exchange on which
the Common Stock is listed.
2.4.12. Rollins shall reasonably cooperate, at the Selling Laidlaw
Party's expense, with the Selling Laidlaw Party participating in the
disposition of the Registrable Securities and its respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc.
2.4.13. Rollins shall make available to the managing underwriters
certain of its officers (subject to the reasonable demands of its business)
for the purpose of participating in one "road show" presentation in
connection with underwritten offerings. The Selling Laidlaw Parties agree
that they will bear all incremental expenses incurred by Rollins in
complying with this Section 3.4.13 if such registration is triggered
pursuant to a request under Section 2.2.
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2.4.14. Rollins shall enter into such customary agreements (including,
if applicable, an underwriting agreement) and take such other actions as
each Selling Laidlaw Party shall reasonably request in order to expedite or
facilitate the disposition of the Registrable Securities; provided that
such customary agreements, if any, shall be reasonably satisfactory in form
and substance to Rollins. Laidlaw shall be a party to such underwriting
agreement and may, at its option, require that Rollins make to and for the
benefit of Laidlaw the representations, warranties and covenants of Rollins
which are being made to and for the benefit of such underwriters and which
are of the type customarily provided to institutional investors in
secondary offerings.
2.4.15. Rollins shall deliver promptly to Laidlaw and each
underwriter, if any, copies of all correspondence between the SEC, on the
one hand, and Rollins, its counsel or auditors, on the other hand, and all
memoranda relating to discussions with the SEC or its staff, with respect
to any registration statement, other than those portions of any such
correspondence and memoranda which contain information subject to
attorney-client privilege with respect to Rollins, and, upon receipt of
such confidentiality agreements as Rollins may reasonably request, make
reasonably available for inspection by any Selling Laidlaw Party covered by
such registration statement, by any underwriter, if any participating in
any disposition to be effected pursuant to such registration statement and
by any attorney, accountant or other agent retained by any Selling Laidlaw
Party or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of Rollins, and cause all of
Rollins' officers, directors and employees to supply all information
reasonably requested by any such Selling Laidlaw Party, underwriter,
attorney, accountant or agent in connection with such registration
statement.
ARTICLE III
INDEMNIFICATION
3.1. Indemnification by Rollins. In the event of any registration or
qualification under the Securities Act or any Canadian Securities Act by any
registration agreement or prospectus pursuant to rights herein granted of
Registrable Securities held by a Laidlaw Party who becomes a Selling Laidlaw
Party, Rollins will hold harmless such Selling Laidlaw Party and each
underwriter of such securities and each other Person, if any, who controls such
Selling Laidlaw Party or such underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities (including legal fees
and costs of court), joint or several, to which such Selling Laidlaw Party or
such underwriter or controlling Person becomes subject under the Securities Act,
the applicable Canadian Securities Acts or otherwise, insofar as such losses,
claims, damages or liabilities (or any actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on its effective date, in any registration statement
under which such securities were registered under the Securities Act, or in any
related preliminary or (final) prospectus, or in any preliminary prospectus or
(final) prospectus under which such securities were qualified for distribution
under any Canadian Securities Act, or any amendment or supplement to any of the
foregoing, or which arise out of or are based upon the omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse such Selling
Laidlaw Party and each such underwriter and each such controlling Person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage or liability; provided,
however, that Rollins shall not be liable to such Selling Laidlaw Party or its
underwriters or controlling Persons in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary or (final) prospectus or such amendment
or supplement, in reliance upon and in conformity with information furnished to
Rollins through a written instrument duly executed by such Selling Laidlaw Party
or such underwriter specifically for use in the preparation thereof or results
from any improper conduct of such Selling Laidlaw Party or any such underwriter
or controlling Person.
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3.2. Indemnification by Selling Laidlaw Parties. It shall be a condition
precedent to the obligation of Rollins to include in any registration statement
or to qualify by prospectus any Registrable Securities of a Selling Laidlaw
Party that Rollins shall have received from such Selling Laidlaw Party an
undertaking, reasonably satisfactory to Rollins and its counsel, to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
Section 4.1) Rollins, each director of Rollins, each officer of Rollins who
shall sign the registration statement or prospectus and any Person who controls
Rollins within the meaning of the Securities Act, (i) with respect to any
statement or omission from such registration statement, any related preliminary
or (final) prospectus or any amendment or supplement to any of the foregoing, if
such statement or omission was made in reliance upon and in conformity with
information furnished to Rollins through a written instrument duly executed by
such Selling Laidlaw Party specifically for use in the preparation of such
registration statement, preliminary or (final) prospectus or amendment or
supplement and (ii) with respect to compliance by such Selling Laidlaw Party
with applicable laws in effecting the sale or other disposition of the
securities covered by such registration statement; provided, however, that the
aggregate amount which any such Selling Laidlaw Party shall be required to pay
pursuant to this Section 3.2 shall in no case be greater than the amount of the
net proceeds received by such Selling Laidlaw Party upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim.
3.3. Indemnification Procedures. Promptly after receipt by an indemnified
party of notice of the commencement of any action involving a claim referred to
in the preceding Sections of this Article III, the indemnified party will, if a
resulting claim is to be made or may be made against an indemnifying party, give
written notice to the indemnifying party of the commencement of the action. If
any such action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume the defense of the action with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to such indemnified party of its election to assume
defense of the action, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses incurred by the latter in
connection with the action's defense. An indemnified party shall have the right
to employ separate counsel in any action or proceeding and participate in the
defense thereof, but the fees and expenses of such counsel shall be at such
indemnified party's expense unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, which
authorization shall not be unreasonably withheld, (ii) the indemnifying party
has not assumed the defense and employed counsel reasonably satisfactory to the
indemnified party within 30 days after notice of any such action or proceeding
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include the indemnified party and the indemnifying party and
the indemnified party shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnified party that are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to assume the defense of such
action or proceeding on behalf of the indemnified party), it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to all local counsel which is necessary, in the good
faith opinion of both counsel for the indemnifying party and counsel for the
indemnified party in order to adequately represent the indemnified parties) for
the indemnified party and that all such fees and expenses shall be reimbursed as
they are incurred upon written request and presentation of invoices. Whether or
not a defense is assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term the giving by the
claimant or plaintiff, to the indemnified party, of a release from all liability
in respect of such claim or litigation.
3.4. Contribution. If the indemnification required by this Article IV from
the indemnifying party is unavailable to or insufficient to hold harmless an
indemnified party in respect of any indemnifiable losses, claims, damages,
liabilities or expenses, then the indemnifying party shall
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<PAGE>
contribute to the amount paid or payable by the indemnified party as a result of
such losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect (i) the relative benefit of the indemnifying and
indemnified parties and (ii) if the allocation in clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect the relative
benefit referred to in clause (i) and also the relative fault of the indemnified
and indemnifying parties, in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact, has been made by, or relates to information supplied by,
such indemnifying party or parties, and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damage,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding. Rollins and the Laidlaw Parties agree that it
would not be just and equitable if contribution pursuant to this Section 3.4
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
prior provisions of this Section 3.4.
Notwithstanding the provisions of this Section 3.4, no indemnifying party
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities were offered to the public by the
indemnifying party exceeds the amount of any damages which the indemnifying
party has otherwise been required to pay by reason of an untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act or the Criminal Code (Canada)) shall be
entitled to contribution from any Person who was not guilty of such a fraudulent
misrepresentation.
ARTICLE IV
OTHER AGREEMENTS
4.1. Other Registration Rights. Rollins agrees that it will not grant to
any Person registration rights which would allow such Person to limit Laidlaw's
priority for the sale or distribution of Registrable Securities upon the
exercise of mandatory registration rights pursuant to Section 2.2.
4.2. Expenses. All expenses incurred by Rollins in connection with any
U.S. registration statement covering Registrable Securities offered by a Laidlaw
Party, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), printing expenses, fees and disbursements of counsel
(except for the fees and disbursements of counsel for such Laidlaw Party) and of
the independent certified public accountants (except, in the case of any special
audits, if required in connection with any such registration, such Laidlaw
Party's proportionate share of its expense as provided in Section 2.3) and the
expense of qualifying such shares under state blue sky laws, shall be borne by
Rollins; provided, however, that Rollins shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 2.2 if the
registration request is subsequently withdrawn at the request of a Laidlaw Party
(in which case such Laidlaw Party shall bear such expenses), unless the Laidlaw
Parties agree to forfeit their right to one demand registration pursuant to
Section 2.2; provided further, that if at the time of such withdrawal, such
Laidlaw Party has learned of a material adverse change in the condition,
business or prospects of Rollins from that known at the time of its request,
then such Laidlaw Party shall not be required to pay any of such expenses and
shall retain its rights pursuant to Section 2.2. Rollins's obligations under
this Section 4.2 shall apply to each registration under the Securities Act or
state blue sky legislation pursuant to Section 2.2.
4.3. Offering Expenses. The Laidlaw Party selling any Registrable
Securities pursuant to any prospectus filed with any Commission in connection
with the satisfaction by Rollins of its obligations under Section 2.2 shall
reimburse Rollins for all Offering Expenses reasonably incurred by or on behalf
of Rollins upon receipt by such Laidlaw Party of a written request from Rollins
in respect of same,
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<PAGE>
together with invoices outlining in reasonable detail the expenses to be borne
by the Laidlaw Party or Laidlaw Parties. In addition, the relevant Laidlaw
Parties shall be responsible for any additional expenses reasonably incurred by
Rollins as a result of such Laidlaw Parties' participation in any offering
proposed to be completed by Rollins in any Canadian jurisdiction as contemplated
in Section 2.1 upon receipt by the relevant Laidlaw Parties of a written request
from Rollins in respect of the same, together with appropriate documentation
outlining all expenses incurred by Rollins in respect of that distribution and
the proportion of the same to be borne by the relevant Laidlaw Parties, together
with a brief explanation as to the reasons why the expenses so charged to the
Laidlaw Parties would not have been incurred by Rollins in the absence of the
participation by the Laidlaw Parties in that distribution.
4.4. Dispositions During Registration. The Laidlaw Parties and their
Affiliates hereby agree that from the date of receipt of written notice (the
"Offering Notice") from Rollins that Rollins intends to file a registration
statement or prospectus (the "Offering Registration Statement") covering shares
of Common Stock or securities convertible into or exercisable for Common Stock
until the Offering Termination Date (defined below), the Laidlaw Parties and
their Affiliates will not sell or otherwise dispose of any securities owned by
such Laidlaw Party or Affiliate except for Registrable Shares included in the
Offering Registration Statement. As used herein, the "Offering Termination Date"
shall occur on (i) the lapse of 60 days from the date of receipt of the Offering
Notice if the Offering Registration Statement is not declared effective (or, if
the Offering Registration Statement is a (final) prospectus to be filed under
any Canadian Securities Act, a receipt is not issued therefor by the applicable
Commissions) before such lapse, (ii) the lapse of 120 days from the date of
effectiveness of the Offering Registration Statement (or, if the Offering
Registration Statement is a (final) prospectus to be filed under any Canadian
Securities Act, the date a receipt has been issued therefor by all applicable
Commissions) if any Registrable Shares are included in the Offering Registration
Statement or (iii) the lapse of 90 days from the date of effectiveness of the
Offering Registration Statement (or, if the Offering Registration Statement is a
(final) prospectus to be filed under any Canadian Securities Act, the date a
receipt has been issued therefor by all applicable Commissions) if no
Registrable Shares are included in the Offering Registration Statement.
4.5. Transfer of Rights. The incidental registration and qualification
rights or benefits and mandatory registration and qualification rights or
benefits, including indemnification by Rollins, shall be freely transferable by
the Laidlaw Parties (i) to any Laidlaw Affiliate and (ii) to any Person which
after such transfer would hold at least 10% of the issued and outstanding Common
Stock of Rollins. Upon any transfer of the registration and qualification rights
or benefits of this Registration Agreement, the assigning Laidlaw Party shall
give Rollins written notice prior to or promptly following such transfer stating
the name and address of the transferee and identifying the securities with
respect to which such rights are being assigned. Such notice shall include or be
accompanied by a written undertaking by the transferee to comply with the
obligations imposed hereunder. In the event any registration and qualification
rights or benefits are transferred in accordance with the terms hereof, any
actions required to be taken by the Laidlaw Parties will be taken with the
approval of the holders of such registration and qualification rights or
benefits who hold a majority of the Registrable Securities, whose actions shall
bind all such holders of such registration and qualification rights or benefits.
4.6. Termination of Registration Rights. The Laidlaw Parties and their
permitted assigns shall be entitled to exercise any right provided for in this
Registration Agreement until the twelfth anniversary of the date hereof,
provided, however, such rights shall terminate one year from the date 80% of the
Rollins Convertible Debenture has been converted or redeemed.
4.7. Multijurisdictional Disclosure System. Nothing in this Registration
Agreement shall be construed to limit or restrict in any manner whatsoever the
ability of Rollins to make use of the Multijurisdictional Disclosure System (as
set forth in National Policy No. 45 of the Canadian Securities Administrators)
with respect to the qualification, distribution or sale in Canada of any
securities of Rollins, including pursuant to request made pursuant to Section
2.1 or Section 2.2 hereof.
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ARTICLE V
MISCELLANEOUS
5.1. Notices. All notices or other communications which are required or
may be given under this Registration Agreement shall be in writing and shall be
deemed to have been duly given when delivered in Person or transmitted by
telecopier (with receipt confirmed) to a party at the address or telecopy
number, as applicable, set forth below (as any such address or telecopier number
may be changed from time to time by notice similarly given):
(i) if to any Laidlaw Party, to:
Laidlaw Inc.
3221 North Service Road
Burlington, Ontario
Canada L7R 3YS
Attention: Ivan R. Cairns
Telecopier No.: (905) 332-6550
(ii) if to Rollins, to:
Rollins Environmental Services, Inc.
One Rollins Plaza
2200 Concord Pike
Wilmington, Delaware 19803
Attention: General Counsel
Telecopier No.: (302) 426-3555
5.2. Section Headings. The article and section headings in this
Registration Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Registration Agreement. References in this
Registration Agreement to a designated "Article" or "Section" refer to an
Article or Section of this Registration Agreement unless otherwise specifically
indicated.
5.3. Governing Law. This Registration Agreement shall be construed and
enforced in accordance with and governed by the laws of State of Delaware
without regard to its conflict of law rules.
5.4. Amendments. This Registration Agreement may be amended only by an
instrument in writing executed by all of the Parties.
5.5. Entire Agreement. This Registration Agreement constitutes the entire
agreement between the Parties concerning its subject matter.
5.6. Severability. The invalidity or unenforceability of any specific
provision of this Registration Agreement shall not invalidate or render
unenforceable any of its other provisions. Any provision of this Registration
Agreement held invalid or unenforceable shall be deemed reformed, if
practicable, to the extent necessary to render it valid and enforceable and to
the extent permitted by law and consistent with the intent of the Parties to
this Registration Agreement.
5.7. Counterparts. This Registration Agreement may be executed in multiple
counterparts, all of which together shall constitute the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Registration Agreement
as of the date first above written.
ROLLINS ENVIRONMENTAL SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LAIDLAW INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LAIDLAW TRANSPORTATION, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
ANNEX B
January 31, 1997
Board of Directors
Rollins Environmental Services, Inc.
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Rollins Environmental Services, Inc. ("Rollins" or the "Company") of
a business combination (the "Transaction") in which Rollins will acquire all of
the stock of Laidlaw Chem-Waste, Inc. ("LES") (comprised of Laidlaw
Environmental Services, Ltd. and Laidlaw Environmental Services, Inc. and
subsidiaries, but excluding its JTM Industries Inc. and KUK Enterprises, Inc.
subsidiaries) from Laidlaw, Inc. (the "Seller"). The terms of the Transaction
are embodied in an executed Letter of Intent dated January 6, 1997 and the draft
definitive agreement (the "Stock Purchase Agreement") dated January 29, 1997.
The terms of the Transaction include, among other things, that Rollins will
acquire the stock of LES in exchange for $400,000,000 in cash or the assumption
of LES indebtedness, 120,000,000 shares of Rollins common stock, par value $1.00
per share and $350,000,000 principal amount of the Company's 5% 12-Year
Subordinated, Convertible, Pay-In-Kind Debenture (collectively, the
"Consideration").
In connection with our review of the Transaction and the preparation of
this opinion, we have examined (i) the financial terms and conditions of the
Transaction as contained in the executed Letter of Intent and the Stock Purchase
Agreement, (ii) the audited financial statements of the Company and its
subsidiaries for the years ended September 30, 1995 and 1996, (iii) the
unaudited financial statements of LES for the years ended August 31, 1994
through August 31, 1996, (iv) the unaudited interim financial statements of the
Company for the period ended December 31, 1996 and LES for the period ended
November 30, 1996, (v) certain internal financial forecasts and projections
prepared by the management of the Company for the Company and its subsidiaries
and the management of LES for LES and its subsidiaries, (vi) certain internal
financial forecasts and projections provided by management of both LES and
Rollins for the Company assuming the Transaction occurs and certain cost savings
and other synergies are achieved, and (vii) certain other publicly available
financial information. Additionally, we held discussions with senior management
of the Company and LES regarding past and current operations and the financial
condition and prospects of the Company and its subsidiaries. LES and its
subsidiaries and the combined operations of LES and the Company and considered
other matters which we deemed relevant to our inquiry.
We have assumed and relied upon the accuracy and completeness of all such
information and have not independently made any attempt to verify such
information. We have not made any attempt to make or obtain an independent
appraisal of the value of the assets or the liabilities (contingent or
otherwise) of the Company or its subsidiaries or LES and its subsidiaries. This
opinion is not meant to be an indication of the price at which Rollins' common
stock will trade at any time or a recommendation as to any action a Rollins
shareholder should take. With respect to all information provided by management
of either Rollins or LES, we have assumed that it represents the best currently
available knowledge and judgment of such management and has been reasonably
prepared. We have relied on the management of Rollins and LES to advise us
promptly if any information previously provided became inaccurate or was
required to be updated during the period of our review.
We have also been assured by Rollins' management that neither the Company
nor its subsidiaries are party to any pending material transactions including,
but not limited to, any external financing, recapitalizations, acquisitions or
merger discussions, other than the Transaction. Likewise, we have been assured
by LES's management that neither LES nor its subsidiaries are party to any
pending material transactions including, but not limited to, any external
financing, recapitalizations, acquisitions or merger discussions, other than the
Transaction. Our opinion is based on market,
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<PAGE>
financial, economic and other conditions existing as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
We express no opinion as to the underlying business decision to conduct the
Transaction or the availability or advisability of any alternatives to the
Transaction. Raymond James did not structure the Transaction or negotiate the
terms of the Transaction.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, cash flow, net income and capitalization of the Company and LES and
certain other companies we believe to be comparable to the Company and LES, (ii)
the current financial position and operating results of the Company and its
subsidiaries and LES and its subsidiaries and forecasted results of such
entities, (iii) the historical market prices and trading activities of the
Company's common stock, (iv) reported financial terms of business combinations
comparable to the Transaction, (v) the value of the Consideration to be paid to
the Seller, (vi) the projected pro forma operating results and financial
position for the Company assuming the Transaction had occurred and (vii) the
general condition of the securities markets.
Raymond James & Associates, Inc. is actively involved in investment banking
activities and regularly undertakes the evaluation of investment securities in
connection with public offerings, private placements, business combinations and
similar transactions. Raymond James has served as a financial advisor to Laidlaw
within the past twelve months and has been paid fees for services provided
pursuant to those engagements. Raymond James will be paid a fee for this
opinion, a portion of which has already been paid, a portion of which will be
paid upon delivery of this opinion and the remainder of which will be paid upon
closing of the Transaction. In addition, the Company has agreed to indemnify
Raymond James against certain liabilities arising out of issuance of this
opinion.
In the ordinary course of business, Raymond James may trade in the
securities of Laidlaw and Rollins for Raymond James' own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Rollins. This letter does not constitute a recommendation of any
type to any shareholder. This opinion is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purpose, without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion that as of
January 31, 1997, the terms of the Transaction are fair, from a financial point
of view, to the Company.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
B-2
<PAGE>
REVOCABLE PROXY
ROLLINS ENVIRONMENTAL SERVICES, INC.
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS
Tuesday, April 29, 1997, 9:00 a.m., local time
The undersigned hereby constitutes and appoints John W. Rollins, Jr. and
Michael B. Kinnard, and each of them jointly and severally, proxies with full
power of substitution, to vote all shares of Common Stock which the undersigned
is entitled to vote at the Special Meeting of Shareholders of the Company to be
held on Tuesday, April 29, 1997, 9:00 a.m., local time, the Sheraton Suites
Hotel, 422 Delaware Avenue, Wilmington, Delaware, or at any adjournment thereof,
on all matters set forth in the Notice of Special Meeting and Proxy Statement
dated [Date] as follows:
(Mark only one box for each proposal)
----------------------------------
Please be sure to sign and date Date
this Proxy in the box below
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- ----Stockholder sign above--------------Co-holder (if any) sign above----
<TABLE>
<S> <C> <C> <C>
1. To approve the acquisition (the "Acquisition") contemplated by the Stock FOR AGAINST ABSTAIN
Purchase Agreement (the "Stock Purchase Agreement") dated as of February 6, 1997
among Rollins Environmental Services, Inc., a Delaware corporation ("Rollins"), / / / / / /
Laidlaw, Inc., a Canadian corporation ("Laidlaw"), and Laidlaw Transportation,
Inc., a Delaware corporation and indirect wholly owned subsidiary of Laidlaw
("LTT").
The Board recommends a vote "FOR" this proposal.
2. To approve the issuances (the "Issuances") of (i) at the closing (the FOR AGAINST ABSTAIN
"Closing") of the Acquisition, 120,000,000 shares (the "Stock Consideration") of
Rollins' common stock, par value $1.00 per share (the "Common Stock") and (ii) / / / / / /
at a time after the Closing, a currently indeterminate number of shares of
Common Stock, issuable pursuant to the terms of 5% Subordinated Convertible
Pay-in-kind Debenture due 2009 in the original principal amount of $350,000,000
(the "PIK Debenture").
The Board recommends a vote "FOR" this proposal.
3. To approve the amendment to Rollins' certificate of incorporation which will FOR AGAINST ABSTAIN
increase the number of authorized shares of Common Stock available for issuance
from 120,000,000 to 350,000,000 shares. / / / / / /
The Board recommends a vote "FOR" this proposal.
4. To approve the amendment to Rollins' certificate of incorporation which will FOR AGAINST ABSTAIN
change the name of Rollins to Laidlaw Environmental Services, Inc. as of the
Closing. / / / / / /
The Board recommends a vote "FOR" this proposal.
5. To approve the amendment to Rollins' Certificate of Incorporation which will FOR AGAINST ABSTAIN
increase the size of the Board of Directors of Rollins from eight to ten
members. / / / / / /
The Board recommends a vote "FOR" this proposal.
6. At their discretion, upon such matters as may properly come before the
Special Meeting or any adjournment thereof.
</TABLE>
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Detach above card, sign, date and mail in postage paid envelope provided.
ROLLINS ENVIRONMENTAL SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ROLLINS
ENVIRONMENTAL SERVICES, INC. AND THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO CHOICE IS SPECIFIED BY YOU,
THIS PROXY WILL BE VOTED FOR ITEM NO. 1, FOR ITEMS NO. 2 (i) and (ii), FOR ITEM
NO. 3, FOR ITEM NO. 4 AND FOR ITEM NO. 5.
The undersigned acknowledges receipt of the aforesaid Notice of Special Meeting
and Proxy Statement, each dated [DATE], grants authority to any of said proxies,
or their substitutes, to act in the absence of others, with all the powers which
the undersigned would possess if personally present at such meeting, and hereby
ratifies and confirms all that said proxies, or their substitutes, may lawfully
do in the undersigned's name, place and stead.
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Signature(s) should conform to name(s) and title(s) stenciled hereon.
Executors, administrators, trustees, guardians and attorneys should add their
title(s) on signing.
PLEASE ACT PROMPTLY
SIGN, DATE, & MAIL YOUR PROXY CARD TODAY
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