<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LAIDLAW ENVIRONMENTAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
<PAGE> 2
PRELIMINARY COPY -- SUBJECT TO COMPLETION
DATED JANUARY 6, 1998
[LAIDLAW ENVIRONMENTAL SERVICES INC.]
JANUARY , 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
(the "Special Meeting") of Laidlaw Environmental Services, Inc. (the "Company"),
to be held on , , 1998, at a.m. eastern time, at
, Columbia, South Carolina 29201.
At the Special Meeting you will be asked to approve (i) the issuance (the
"Issuance") of up to shares of the Company's common stock, par value
$1.00 per share (the "Common Stock"), in connection with an exchange offer (the
"Offer") made by the Company to the stockholders of Safety-Kleen Corp., a
Wisconsin corporation ("Safety-Kleen"); and (ii) an amendment to the Company's
certificate of incorporation to increase the number of authorized shares of
Common Stock from 350,000,000 to 750,000,000 shares (the "Amendment"). If the
Offer is successful, the Company intends to effect a merger (the "Merger")
between Safety-Kleen and a wholly-owned subsidiary of the Company (formed solely
to effect such Merger), pursuant to which the Company intends to acquire (the
"Acquisition") all of the outstanding shares of common stock, par value $.10 per
share, of Safety Kleen (the "SK Shares").
Approval of the Issuance 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. Approval of
the Amendment requires the affirmative vote of a majority of the shares of
Common Stock entitled to vote on the Amendment, which vote would also require
that a quorum be present.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE ISSUANCE AND THE AMENDMENT
ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAS UNANIMOUSLY
APPROVED THE ISSUANCE AND THE AMENDMENT AND RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE ISSUANCE AND "FOR" APPROVAL OF THE AMENDMENT.
Detailed information regarding the Issuance and the Amendment is set forth
in the accompanying Proxy Statement.
In view of the importance of the actions to be taken at the Special
Meeting, 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.
We urge you to vote "FOR" approval of the Issuance and "FOR" approval of
the Amendment. If you should have any questions regarding the Issuance, the
Amendment or the Acquisition, please contact ,
, at (803) - .
Sincerely,
(Kenneth W. Winger)
Kenneth W. Winger
President and Chief Executive Officer
<PAGE> 3
LAIDLAW ENVIRONMENTAL SERVICES, INC.
1301 GERVAIS STREET, 19TH FLOOR
COLUMBIA, SOUTH CAROLINA 29201
(803) 933-4200
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
---------------------
TO THE STOCKHOLDERS OF LAIDLAW ENVIRONMENTAL SERVICES, INC.
Notice is hereby given that a special meeting (the "Special Meeting") of
the stockholders of Laidlaw Environmental Services, Inc. ("the Company"), will
be held on , , , 1998, at a.m. at , Columbia, South
Carolina 29201, for the following purposes:
1. To approve the issuance (the "Issuance") of up to shares
of the Company's common stock, par value $1.00 per share (the "Common
Stock"), in connection with an exchange offer (the "Offer") made by the
Company to the stockholders of Safety-Kleen Corp., a Wisconsin corporation
("Safety-Kleen");
2. To approve an amendment to the Company's certificate of
incorporation to increase the authorized number of shares of Common Stock
of the Company from 350,000,000 to 750,000,000 shares (the "Amendment");
and
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The approval of the Issuance 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 the Amendment requires the affirmative vote of a majority of the
shares of Common Stock entitled to vote on the Amendment, which vote would also
require that a quorum be present.
The Board of Directors has fixed the close of business on January , 1998
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Special Meeting and at any adjournment or
postponement thereof. From , 1998 until the date of the Special
Meeting, a list of stockholders entitled to vote at the Special Meeting will be
available for inspection by stockholders of record during business hours at the
place of the Special Meeting and also will be available at the Special Meeting.
Your attention is directed to the Proxy Statement delivered with this
Notice.
BY ORDER OF THE BOARD OF DIRECTORS,
--------------------------------------
--------------------------------------
Secretary
Columbia, South Carolina
January , 1998
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
PRELIMINARY COPY -- SUBJECT TO COMPLETION
DATED JANUARY 6, 1998
PROXY STATEMENT
OF
LAIDLAW ENVIRONMENTAL SERVICES, INC.
FOR THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
, 1998
This Proxy Statement is being furnished to holders (the "Stockholders") of
common stock, par value $1.00 per share (the "Common Stock"), of Laidlaw
Environmental Services, Inc. (the "Company") in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Board") for use at a
special meeting of the Stockholders to be held at on ,
, 1998, at 10 a.m., local time and at any adjournment or
postponement thereof (the "Special Meeting"). At the Special Meeting,
Stockholders will be asked to consider and vote upon proposals to approve (i)
the issuance (the "Issuance") of up to shares of Common Stock in
connection with an exchange offer (the "Offer") made by the Company to the
stockholders of Safety-Kleen Corp., a Wisconsin corporation ("Safety-Kleen");
and (ii) an amendment to the Company's certificate of incorporation (the
"Certificate") to increase the authorized number of shares of Common Stock from
350,000,000 to 750,000,000 (the "Amendment").
If the Issuance and the Amendment are approved by the Stockholders, the
Company proposes to issue
shares pursuant to the Offer. If the Offer is successful, the Company intends to
effect a merger (the "Merger") between Safety-Kleen and a wholly-owned
subsidiary of the Company (formed solely to effect such Merger), pursuant to
which the Company intends to acquire (the "Acquisition") all of the outstanding
shares of common stock, par value $.10 per share, of Safety Kleen (the "SK
Shares") in exchange for consideration equal to that paid in connection with the
Offer.
This Proxy Statement is first being mailed or otherwise delivered to
Stockholders on or about , 1998. The record date for the Special
Meeting is the close of business on January , 1998 (the "Record Date"). The
principal executive offices of the Company are located at 1901 Gervais Street,
19th Floor, Columbia, South Carolina 29201.
If you have any questions about the voting of Common Stock, the Issuance or
the Amendment, please contact at , , or by
telephone at .
THE SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Special Meeting will be held on , , 1998, at
a.m., eastern time, at , Columbia, South Carolina
29201. At the Special Meeting, Stockholders will be asked to consider and vote
upon proposals to approve (i) the Issuance and (ii) the Amendment.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of Common Stock at the close of business
on January , 1998 (the "Record Date"), are entitled to notice of and to vote
at the Special Meeting. As of such date, there were shares of Common
Stock issued and outstanding. Holders of record of Common Stock on the Record
Date are entitled to one vote per share on any matter that may properly come
before the Special Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The approval of the Issuance 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 the
<PAGE> 5
Amendment requires the affirmative vote of a majority of the shares of
outstanding Common Stock entitled to vote on the Amendment, which vote would
also constitute a quorum. Accordingly, a failure to vote or an abstention with
respect to the Amendment will have the same effect as a negative vote. As of the
Record Date, the executive officers and directors of the Company and their
affiliates beneficially owned an aggregate of shares of Common Stock, or
approximately % of the shares of Common Stock then outstanding, and Laidlaw
Inc. owned shares of Common Stock, or approximately % of the shares
of Common Stock then outstanding. All of the executive officers and directors of
the Company and Laidlaw Inc. have advised the Company that they intend to vote
their shares of Common Stock to approve the Issuance and the Amendment.
INTEREST OF CERTAIN PERSONS IN THE OFFER
James R. Bullock, John R. Grainger and Leslie W. Haworth, all of whom are
directors of the Company, are also officers of Laidlaw Inc.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the Special Meeting is enclosed with this Proxy
Statement. All shares of Common Stock held of record as of the Record Date
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies.
The Board is not aware of any other matters which may be presented for
action at the Special Meeting, but if other matters do come properly before the
Special Meeting it is intended that shares of Common Stock represented by
proxies in the accompanying form will be voted by the persons named in the proxy
in accordance with their best judgment.
Abstentions will be counted as present for purposes of determining whether
a quorum is present. If a broker or nominee indicates on its proxy that it does
not have discretionary authority to vote on a particular matter as to certain
shares, those shares will be counted as present for purposes of a quorum but
will not be considered as present and entitled to vote with respect to such
matter.
Any proxy on which no direction is specified will be voted: (i) FOR the
Issuance; (ii) FOR the Amendment; and (iii) in the discretion of the proxy
holder as to any other matter which may properly come before the Special
Meeting. A Stockholder may revoke a proxy by: (i) delivering to the Company
written notice of revocation, (ii) delivering to the Company a proxy signed on a
later date or (iii) appearing at the Special Meeting and voting in person.
The cost of soliciting proxies from Stockholders will be borne by the
Company. Proxies may be solicited by personal interview, mail and telephone by
certain of the Company's executive officers, directors and regular employees,
without additional compensation. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares of
Common Stock for their expenses in forwarding solicitation material to
beneficial owners.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents not presented
herein or delivered herewith. These documents (not including exhibits to such
documents that are not specifically incorporated by reference into such
documents) are available without charge upon request to: Corporate Secretary,
Laidlaw Environmental Services, Inc., 1301 Gervais Street, Suite 300, Columbia,
South Carolina 29201. Telephone requests may be directed to the corporate
secretary's department at (803) 933-4200. In order to ensure timely delivery of
such documents, any request for documents should be submitted not later than
, 1998.
The following documents filed with the Commission by the Company (File No.
1-8368) are incorporated herein by reference:
(a) The Company's Form 10-K for the fiscal year ended August 31, 1997 (the
"Company 1997 Form 10-K");
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<PAGE> 6
(b) the Company's Current Report on Form 8-K, dated November 5, 1997, as
amended, two Current Reports on Form 8-K, dated November 14, 1997, as amended, a
Current Report on Form 8-K, dated November 19, 1997, as amended, a Current
Report on Form 8-K, dated November 21, 1997, as amended, the Current Report on
Form 8-K dated November 25, 1997, as amended and a Current Report on Form 8-K
dated December 8, 1997 (the "Form 8-Ks");
(c) Laidlaw Environmental Proxy Statement, dated December 2, 1997, as
amended, for Safety-Kleen's Special Meeting to be held on January 9, 1998; and
(d) Laidlaw Environmental's Proxy Statement, dated December 16, 1997, for
Safety-Kleen's Special Meeting to be held on February 11, 1998.
The following documents filed with the Commission by Safety-Kleen (File No.
1-6513) are incorporated herein by reference:
(a) Safety-Kleen Form 10-K for the fiscal year ended December 28, 1996, as
amended by Form 10-K/A filed December 23, 1997 (except for the report of
Safety-Kleen's independent auditors contained therein which is not incorporated
herein by reference because the consent of Safety-Kleen's independent auditors
has not yet been obtained);
(b) Safety-Kleen Forms 10-Q for the quarterly periods ending March 22, June
14 and September 6, 1997;
(c) Safety-Kleen Current Reports on Form 8-K, dated August 8, 1997,
November 18, 1997 and November 21, 1997; and
(d) Safety-Kleen Schedule 14D-9 Solicitation Recommendation Statement dated
December 22, 1997, relating to the Offer.
All documents filed by either the Company or Safety-Kleen pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date hereof and prior to the
date of the Special Meeting shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing. See "Available
Information." Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
FORWARD-LOOKING INFORMATION
This Proxy Statement contains certain forward-looking statements (within
the meaning of the Private Securities Litigation Reform Act of 1995) that
involve substantial risks and uncertainties. When used in this Proxy Statement,
the words "believe" and "intend" and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. A number of important factors could cause the Company's actual
results, performance or achievements for fiscal 1998 and beyond to differ
materially from those expressed in such forward-looking statements. These
factors include, without limitation, failure to achieve anticipated synergies,
charges and costs related to acquisitions, environmental liabilities, attraction
and retention of key personnel, general economic and business conditions and
enhanced competition and new competitors.
3
<PAGE> 7
PROPOSAL 1
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
THE PROPOSED OFFER AND MERGER
GENERAL
Upon approval of the Issuance and the Amendment by the Stockholders, the
Company proposes to issue between 161,839,000 and 202,299,000 shares of Common
Stock pursuant to the Offer. If the Offer is successful, the Company intends to
effect the Merger between Safety-Kleen and a wholly-owned subsidiary of the
Company (formed solely to effect such Merger), pursuant to which the Company
intends to consummate the Merger in exchange for consideration per share equal
to the consideration paid in the Offer.
As of January , 1998, the Company had outstanding shares of
Common Stock. Assuming the Offer is successful and the Merger is consummated,
the Company would have outstanding post-Merger between shares and
shares of Common Stock (depending on the Exchange Ratio, as defined
below) of which between % and % would be owned by former holders of SK
Shares, and between % and % would be owned by existing Stockholders.
DESCRIPTION OF THE OFFER
The Company has offered, upon the terms and subject to the conditions set
forth in a Prospectus dated , 1998 (the "Prospectus") and an
accompanying letter of transmittal to exchange $15.00 in cash (subject to
reduction for break-up fees and certain other expenses as described below) (the
"Cash Consideration"), and a total number of shares of Common Stock equal to the
Exchange Ratio, as defined below (the "Stock Consideration"), for each
outstanding SK Share, including (unless and until the Company and LES
Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company ("LES Acquisition") declare that the Rights Condition (as defined below)
is satisfied) the associated Safety-Kleen common share purchase rights (each, a
"Right" and collectively, the "Rights") issued pursuant to the Rights Agreement,
dated as of November 9, 1988, between Safety-Kleen and First National Bank of
Chicago, as Rights Agent, as amended by a First Amendment to Rights Agreement,
dated as of August 10, 1990, and a Second Amendment to Rights Agreement, dated
as of November 20, 1997 (the "Rights Agreement"), validly tendered on or prior
to the expiration date of the Offer (the "Expiration Date") and not properly
withdrawn. Unless the context otherwise requires and unless and until the Rights
are redeemed, all references to SK Shares herein shall include the associated
Rights. All references herein to Rights shall include all benefits that may
inure to holders of the Rights pursuant to the Rights Agreement.
The Cash Consideration to be paid pursuant to the Offer will be reduced by
the quotient of (x) the aggregate amount of any break-up fees and certain other
expenses paid or reimbursed (or payable or reimbursable) (such fees and
expenses, the "Buyout Proposal Expenses"), by Safety-Kleen pursuant to an
Agreement and Plan of Merger, dated as of November 20, 1997 (the "Buyout Merger
Agreement") by and among SK Parent Corp. ("Parent"), SK Acquisition Corp.
("Purchaser"), two newly-formed affiliates of Philip Services Corp. ("Philip
Services"), Apollo Advisors, L.P. ("Apollo") and Blackstone Management
Associates III, L.P. ("Blackstone;" and together with Philip Services and
Apollo, the "Buyout Group"), pursuant to which Purchaser will merge with and
into Safety-Kleen in a transaction in which Safety-Kleen stockholders will
receive $27 in cash per SK Share (the "Buyout Proposal") divided by (y) the
number of outstanding SK Shares (on a fully diluted basis) as of the Expiration
Date. Based upon the terms of the Buyout Merger Agreement, Laidlaw Environmental
believes that the total Buyout Proposal Expenses cannot exceed $75 million ($50
million break-up fee and up to $25 million in expenses). Assuming that there are
outstanding on a fully diluted basis 64,072,067 SK Shares, the reduction in Cash
Consideration would be approximately $1.171 per SK Share.
"Exchange Ratio" means the quotient (rounded to the nearest 1/100,000)
determined by dividing $15.00 by the weighted average trading prices for Common
Stock (as reported on the NYSE Composite Transactions reporting system as
published in The Wall Street Journal or, if not published therein, in another
authoritative source) for ten NYSE trading days (each a "Trading Day") selected
by lot from the twenty Trading Days ending three business days immediately prior
to the Expiration Date (the "Common Stock Average Price"), provided,
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<PAGE> 8
that the Exchange Ratio shall not be less than 2.80 nor greater than 3.50.
Accordingly, subject to changes in the actual market value of Common Stock on
the date that SK Shares are actually exchanged, each SK Share will be exchanged
for (in addition to the Cash Consideration) Common Stock having a market value
of $15.00 if the Common Stock Average Price is between $4.28571 and $5.35714. If
the Common Stock Average Price is greater than $5.35714, each SK Share will be
exchanged for (in addition to the Cash Consideration) Common Stock having a
market value of more than $15.00, and, conversely, if the Common Stock Average
Price is less than $4.28571, each SK Share will be exchanged for (in addition to
the Cash Consideration) Common Stock having a market value of less than $15.00,
in each case subject to changes in the actual market value of Common Stock on
the date that SK Shares are actually exchanged. Cash will be paid in lieu of
fractional shares of Common Stock. On , 199 , the closing price of
Common Stock on the NYSE was $ . Based on such closing price, the
Exchange Ratio would be , and each SK Share would be converted into
$15.00 net in cash (subject to adjustment as described above) and
shares of Common Stock. The Exchange Ratio will change as the market price of
the Common Stock changes. The actual Common Stock Average Price and Exchange
Ratio will be calculated as of the third Trading Day immediately prior to the
Expiration Date, as described above, and a press release will be issued
announcing the actual Exchange Ratio prior to the opening of the second Trading
Day prior to the Expiration Date (as it may be extended from time to time).
CONDITIONS TO OFFER
The Company's obligation to exchange the Cash Consideration and the Stock
Consideration (collectively, the "Offer Consideration") for SK Shares pursuant
to the Offer is conditioned upon, among other things, the satisfaction or, where
applicable, waiver of the following conditions: (i) there being validly tendered
and not withdrawn prior to the Expiration Date a number of SK Shares which,
together with SK Shares owned by the Company and its affiliates, constitute at
least two-thirds of the total number of outstanding SK Shares on a fully diluted
basis (as though all options or other securities convertible into or exercisable
or exchangeable for SK Shares (other than the Rights) had been so converted,
exercised or exchanged) as of the date the SK Shares are accepted for exchange
by the Company pursuant to the Offer (the "Minimum Tender Condition"), (ii)
approval of the Issuance and the Amendment by the Stockholders (the "Stockholder
Approval Condition"), (iii) the Safety-Kleen board of directors having redeemed
the Rights or amended the Rights Agreement so that the Rights are inapplicable
to the acquisition of SK Shares pursuant to the Offer, or the Company being
otherwise satisfied in its reasonable discretion that the Rights are invalid or
are not applicable to the acquisition of SK Shares pursuant to the Offer (the
"Rights Plan Condition"), (iv) the Company being satisfied, in its reasonable
discretion, either that the provisions of Section 180.1141 and Section 180.1150
of the Wisconsin Statutes (the "Wisconsin Statutes") are inapplicable to the
Company and the Offer, or that (a) full voting rights for all SK Shares to be
acquired by the Company and its subsidiaries pursuant to the Offer have been
restored by the stockholders of Safety-Kleen pursuant to the Wisconsin Statutes
and (b) the Wisconsin Statutes will not prohibit for any period of time the
consummation of the Merger or any other "business combination" (as defined in
such statutes) involving Safety-Kleen and the Company and its subsidiaries, or
any of their respective affiliates (the "Wisconsin Statutory Conditions"); (v)
all regulatory approvals required to consummate the Offer having been obtained
and remaining in full force and effect, all statutory waiting periods in respect
thereof having expired and no such approval containing any conditions or
restrictions which the Board determines will or could be expected to materially
impair the strategic and financial benefits expected to result from the Offer
(the "Regulatory Approval Condition"); and (vi) a final judicial determination
either (a) to the effect that Safety-Kleen is not obligated to, and may not, pay
the Buyout Proposal Expenses or (b) stating the amount of Buyout Proposal
Expenses that are required to be paid by Safety-Kleen shall have been obtained
(the "Buyout Proposal Condition"). The Minimum Tender Condition, the Stockholder
Approval Condition, the Rights Plan Condition, the Wisconsin Statutory
Conditions, the Regulatory Approval Condition, the Buyout Expense Condition and
the other conditions of the Offer are referred to herein collectively as the
"Offer Conditions."
DESCRIPTION OF THE MERGER
If the Offer is successful and the Offer Conditions are satisfied, the
Company and its affiliates will own not less than two-thirds of the outstanding
SK Shares, and will have sufficient voting power to approve the Merger
independently of the votes of any other Safety-Kleen shareholders. If the Offer
is successful, the Company
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presently intends to propose and seek to have Safety-Kleen effect the Merger in
which LES Acquisition will merge with and into Safety-Kleen pursuant to the
provisions of the Wisconsin Statutes and the General Corporation Law of the
State of Delaware (the "DGCL"). LES Acquisition is a newly formed entity with no
operations other than in connection with the Company's efforts to acquire
Safety-Kleen.
The consideration paid for SK Shares in the Merger would be identical to
the consideration paid in the Offer. Safety-Kleen has not provided the Company
with information that might be relevant in structuring the Merger, and the
Company reserves the right to change the structure of the Offer and the Merger
upon receipt of such information.
Consummation of the Merger does not require approval by the Stockholders,
and other than approval of the Issuance as requested in this Proxy Statement the
Company does not intend to seek Stockholder approval of the Merger.
SOURCE AND AMOUNT OF FUNDS
Laidlaw Environmental estimates that the total amount of funds required
pursuant to the Laidlaw Environmental Offer to pay for the Cash Consideration in
connection with the exchange of all SK Shares outstanding on a fully diluted
basis, to refinance Laidlaw Environmental's existing bank debt, to refinance
Safety-Kleen's existing and outstanding indebtedness and to pay fees and
expenses related to the Laidlaw Environmental Offer will be approximately $1.5
billion. Laidlaw Environmental plans to obtain the outside funds necessary to
finance the Cash Consideration pursuant to credit facilities to be arranged by
TD Securities (USA), Inc. ("TDSI"). Laidlaw Environmental has received a written
financing commitment (the "Commitment Letter") from TDSI and Toronto-Dominion
Bank ("TD") to provide senior secured credit facilities in the aggregate
principal amount of up to $1.8 billion (the "Senior Credit Facilities"). The
terms of the definitive agreement for the Senior Credit Facilities (the "Loan
Agreement") have not yet been finalized. The following is a summary of the
anticipated principal terms of the Senior Credit Facilities based upon the
Commitment Letter. This summary is subject to finalization of the Loan Agreement
and is qualified in its entirety by reference to the Commitment Letter, which is
filed as Exhibit (4)(p) hereto.
The Credit Facilities will consist of four parts: (i) a $400,000,000 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 $500,000,000
6-year Senior Secured Amortizing Term Loan ("Facility B"), (iii) a $450,000,000
Minimally Amortizing 7-year Senior Secured Term Facility ("Facility C") and (iv)
a $450,000,000 Minimally Amortizing 8-year Senior Secured Term Loan ("Facility
D"); (Facility B, Facility C and Facility D, collectively, the "Term Loans").
The Credit Facilities will be secured by all of the tangible assets of the
combined companies. The Credit Facility will be syndicated to banks and other
financial institutions (collectively, the "Lenders") acceptable to Laidlaw
Environmental and the Agent. All of the capital stock of Laidlaw Environmental
and its subsidiaries, including the acquired Safety-Kleen subsidiaries, will be
pledged as part of such security for the Credit Facilities, and such
subsidiaries will guaranty the obligations of Laidlaw Environmental to the
Lenders. 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 $250,000,000 will be
available for loans, subject to an aggregate maximum of $400,000,000.
Facility A will have no scheduled amortization. The Term Loans will require
aggregate principal repayments of $84 million in each of years 1, 2, 3 and 4,
$109 million in each of years 5 and 6, $428 million in year 7 and $419 million
in year 8.
Borrowings under the Senior Credit Facilities will bear interest at a
floating rate based upon, at LES Acquisition's option, (i) the higher of the TD
prime rate and the federal funds rate plus 0.50% per annum, or (ii) the London
Interbank Offered Rate ("LIBOR") as determined by TD for the respective interest
period, in each case plus a margin based upon the total leverage ratio of LES
Acquisition. LES Acquisition also will pay administration fees, commitment fees,
re-syndication fees (under certain circumstances) and certain expenses and
provide certain indemnities, all of which LES Acquisition believes to be
customary for commitments of this type. The commitment fees have been paid or
will be payable, as applicable, in stages, beginning with the execution of
6
<PAGE> 10
the Commitment Letter and ending with a final payment upon consummation of the
financing. The Commitment Letter may be extended beyond its expiration date of
March 31, 1998 upon payment of an additional fee.
The Loan Agreement will contain conditions precedent, representations and
warranties, negative, affirmative and financial covenants (including financial
covenants limiting annual capital expenditures, restricting debt, guaranties,
liens, mergers and consolidations, sales of assets and payment of dividends, and
establishing a total leverage ratio test, a fixed charge coverage test, an
interest coverage ratio test and a maximum contingent obligation to operating
cash flow ratio test), events of default and other provisions customary for such
financings.
TD's commitment to provide the Senior Credit Facilities is conditioned on,
among other things, the following: the negotiation, execution and delivery of
the Loan Agreement; receipt of all necessary or desirable governmental,
shareholder and third-party consents; the absence of a material adverse change
in the business assets, operations, condition (financial or otherwise), or
prospects of LES Acquisition, Safety-Kleen and their respective subsidiaries on
a consolidated basis; the execution of definitive agreements relating to the
Merger and the Laidlaw Environmental Offer; satisfactory completion of due
diligence examinations; prior or contemporaneous repayment in full of all
existing indebtedness of each of LES Acquisition and Safety-Kleen; and the
successful syndication of $400 million of the $1.8 billion commitment; and after
consummation of the transactions at closing, either (i) Laidlaw Environmental
shall hold a sufficient number of shares to effect the Merger or (ii) the Merger
shall have been or, concurrently with the closing, shall be, consummated, and
the surviving corporation shall be a wholly-owned subsidiary of LES Acquisition.
It is anticipated that the indebtedness incurred through borrowings under
the Senior Credit Facilities will be repaid from funds generated internally by
LES Acquisition and its subsidiaries, and from other sources. No final decisions
have been made concerning the method LES Acquisition will employ to repay such
indebtedness. Such decisions when made will be based on LES Acquisition's review
from time to time of the advisability of particular actions, as well as on
prevailing interest rates and financial and other economic conditions.
After consummation of the Merger, Laidlaw Environmental will be highly
leveraged with substantial debt service obligations, including principal and
interest obligations with respect to bank debt of as much as $ . In
addition, Laidlaw Environmental's ability to obtain additional debt financing
will be limited by restrictive covenants under the terms of its credit
agreements and any other debt instruments and those limits on financing may
therefore limit Laidlaw Environmental's ability to service its existing debt
obligations through additional debt financing if cash flow from operations is
insufficient to service such obligations.
REASONS FOR THE ACQUISITION
The Company believes that both Stockholders and Safety-Kleen shareholders
will benefit in several ways from the Acquisition.
Strategic Fit. Laidlaw Environmental believes the combination of Laidlaw
Environmental and Safety-Kleen will bring together complimentary assets that on
a combined basis will be better able to compete in the hazardous waste
management marketplace. A service center network that links Laidlaw
Environmental's customers to its treatment and disposal facilities such as
landfills and incinerators is one of Laidlaw Environmental's primary operational
strengths. These service centers differentiate Laidlaw Environmental from its
competitors and allow for both responsiveness and accountability in managing a
customer's hazardous waste stream. Laidlaw Environmental believes the
acquisition of Safety-Kleen will further increase vertical integration of the
Laidlaw Environmental business and enhance its service centers' recovery
capabilities by processing waste streams collected by Safety-Kleen. In addition,
Laidlaw Environmental believes that its acquisition of Safety-Kleen will result
in a further strengthening of Laidlaw Environmental's market position by:
- providing additional service center market coverage in key geographic
regions including Kentucky, Minnesota, and New Jersey:
- introducing a smaller-sized customer base to compliment Laidlaw
Environmental's existing customer base of medium- and large-sized
customers; and
- providing significant expansion into the solvent recycling market.
7
<PAGE> 11
Synergies. Upon consummation of the Offer, Laidlaw Environmental intends
to build upon Safety-Kleen's leading market presence and quality brand equity.
Laidlaw Environmental's management believes that annual cost savings of
approximately $100 to $130 million would result from the combination of the two
companies due to an anticipated elimination of duplicative head office and
regional office general and administrative and other public company costs, the
closure of forty (40) to fifty (50) overlapping service center facilities, the
increased utilization of those facilities that remain open from such
efficiencies as improved transportation route density, for example, and the
internalization of various waste streams.
These estimated cost savings from synergies are described in detail below.
Laidlaw Environmental believes these estimated savings are achievable and has
fully considered the contrary arguments asserted by Safety-Kleen in its Schedule
14D-9.
Waste internalization. Laidlaw Environmental has estimated from publicly
available sources that Safety-Kleen spends approximately $17 million annually
for outside disposal of hazardous wastes it generates, consisting of fuel blend
material, as well as waste disposed of at hazardous waste incinerators,
landfills and wastewater treatment facilities. Laidlaw Environmental currently
receives an insignificant amount of waste material for disposal from
Safety-Kleen.
Laidlaw Environmental would internalize the incinerable and wastewater
waste materials for disposal at company owned facilities. The fuel blend
material would be either used as a fuel source or blended with solid waste
material for burning at Laidlaw Environmental's three solid hazardous waste
incinerator facilities. When used as a fuel source, Laidlaw Environmental avoids
incurring the cost of purchasing conventional fuel from third parties.
Based on the above, and taking into account an estimate for possible
incremental transportation costs, Laidlaw Environmental estimates the cost
savings from waste internalization to be $13.5 million to $25 million.
Facility consolidation. Laidlaw Environmental estimates that 40 to 50
processing and service center facilities can be rationalized and closed due to
the overlapping coverage areas of Laidlaw Environmental and Safety-Kleen
operations. These facility closure estimates are based upon a thorough review of
the 53 existing Laidlaw Environmental service center and processing facilities
and the 167 existing Safety-Kleen North American branch network and recycling
facilities.
Laidlaw Environmental obtained information on the Safety-Kleen facilities
from a variety of public sources to determine each facility's geographic
coverage and permit capabilities. The Safety-Kleen facilities were then
overlayed against the existing Laidlaw Environmental facilities to determine the
redundant operating locations. Based on this analysis, Laidlaw Environmental has
estimated that 5 processing facilities and 35 to 45 service center operations
could be closed.
Laidlaw Environmental estimates that the cost savings from these facility
closings would be approximately $2.0 to $2.5 million per processing facility and
$1.0 to $1.5 million per service center facility based on its historical
experience in cost savings achieved by Laidlaw Environmental following the
acquisition of Rollins Environmental Services, Inc. ("Rollins") and other cost
studies.
The cost savings per location are based on the concept that waste
collection and routing efficiencies would be achieved by combining the
transportation resources of the overlapping operating locations and reducing the
total number of vehicles and drivers required to service the existing combined
customer base. The closure of redundant facilities would also result in cost
savings related to the personnel and property costs associated with such
facilities.
Selling, general and administrative cost savings. Laidlaw Environmental
estimates that selling, general and administrative cost savings of approximately
$45 million to $60 million would be achieved through the elimination of
duplicative regional and head office costs. Laidlaw Environmental intends to
incorporate the Safety-Kleen operations directly into Laidlaw Environmental's
existing operational organization, which will result in the elimination of all
duplicate administrative support functions. These estimates are based on the
reduction of 600 to 800 personnel at annualized savings of $75,000 each.
8
<PAGE> 12
Based on the estimated cost savings identified by Laidlaw Environmental
management, Laidlaw Environmental believes that it can achieve annualized
benefits of approximately $100 to $130 million. Laidlaw Environmental expects to
begin achieving cost savings within three months of the Merger, and to fully
implement the cost savings within the first year after consummation of the
Merger. Laidlaw Environmental will also consider the sale of Safety-Kleen's
European operations and its oil recovery business. This rationalization is
expected to strengthen Laidlaw Environmental's market position, improve the
overall industry fundamentals through capacity reduction and result in immediate
cost savings. Laidlaw Environmental management estimates that Laidlaw
Environmental will incur one time costs of not more than $100 million relating
to facilities closure and severance expenses incurred in connection with
achieving these synergies. Through the successful merger with Rollins, which
took place in May of 1997, Laidlaw Environmental has demonstrated its ability to
manage the integration of an acquisition and capitalize on the benefits that can
accrue to merged companies in its industry. To date, Laidlaw Environmental
believes synergies achieved in the Rollins merger, on an annualized basis, total
approximately $90 million. There can be no assurance, however, that after
consummation of the Merger the projected cost savings will be achieved or will
be equal to those achieved in the Rollins acquisition.
THE COMPANY AND SAFETY-KLEEN COMPARATIVE PER SHARE DATA
The following table sets forth comparative per share data of the Company
and Safety-Kleen on both a historical and pro forma combined basis. This table
should be read in conjunction with each entity's historical financial statements
and notes thereto as set forth in the filings incorporated by reference herein
(but which in the case of Safety-Kleen are not covered by the report of
Safety-Kleen's independent accountants for purposes of this Proxy Statement),
and in conjunction with the unaudited pro forma combined financial information
appearing elsewhere in this Proxy Statement. See "Company and Safety-Kleen
Unaudited Pro Forma Combined Financial Information."
The pro forma information set forth below gives effect to (a) the
acquisition of Rollins, and (b) the Rollins acquisition, the Laidlaw
Environmental Offer, the Merger and the other transactions described herein
under the heading "The Company, Rollins and Safety-Kleen Unaudited Pro Forma
Combined Financial Information", as if each had occurred as of September 1,
1996. Both the Rollins acquisition and the Merger and pending acquisitions have
been presented using the purchase method of accounting. This information does
not reflect the estimated cost savings of the Rollins acquisition, nor the cost
savings of approximately $100 to $130 million that Laidlaw Environmental
management believes may result from the Merger. The pro forma combined per share
data is not necessarily indicative of actual results of operations of Laidlaw
Environmental, Rollins, and Safety-Kleen had the transactions assumed therein
occurred on the dates specified, nor are they indicative of future expected
results.
<TABLE>
<CAPTION>
LAIDLAW LAIDLAW
ENVIRONMENTAL/ ENVIRONMENTAL/
LAIDLAW ROLLINS SAFETY-KLEEN SAFETY-KLEEN
ROLLINS ENVIRONMENTAL PRO FORMA SAFETY-KLEEN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED HISTORICAL COMBINED(1) EQUIVALENT(2)
---------- ------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Book value per common
share:
August 31, 1997...... N/A $ 1.82 $ 1.82 $8.49 $ 3.34 $10.28
Year ended August 31,
1997:
Income (loss) per
common share from
continuing
operations........ (0.26) (1.33) (1.61) 1.04 (0.64) (1.98)
Cash dividends(3).... 0.00 0.00 0.00 0.36 0.00 0.00
</TABLE>
- ---------------
(1) See "Company, Rollins and Safety-Kleen Selected Unaudited Pro Forma
Financial Information."
(2) The Safety-Kleen pro forma equivalent represents the Laidlaw
Environmental/Safety-Kleen pro forma combined book value, dividends and
income (loss) per common share multiplied by an Exchange Ratio of 3.077,
which assumes a Laidlaw Environmental share price of $4.875.
(3) Laidlaw Environmental has not paid cash dividends during the past two fiscal
years and does not presently anticipate paying any cash dividends in the
future. In addition, Laidlaw Environmental's existing credit facility, and
its proposed credit facility to be arranged through TD Securities (USA),
Inc., preclude the payment of cash dividends.
9
<PAGE> 13
RELATIONSHIPS WITH SAFETY-KLEEN
Except as to the transactions described below effected on the NYSE by a
wholly owned subsidiary of the Company, neither the Company nor any of its
subsidiaries, nor to the best of its knowledge, any of its or their directors or
executive officers nor any associate of any of such persons, beneficially owns
or has a right to acquire any equity securities of Safety-Kleen nor to the best
knowledge of the Company have any of such persons effected any transaction in
such equity securities during the last 60 days.
<TABLE>
<CAPTION>
NUMBER OF SK
DATE PURCHASED SHARES BROUGHT PRICE PER SHARE
-------------- -------------- ---------------
<S> <C> <C>
10/02/97.................................................. 100 $23.8750
10/28/97.................................................. 78,000 $20.5000
10/28/97.................................................. 85,000 $20.7500
10/28/97.................................................. 43,000 $21.5000
10/28/97.................................................. 23,000 $19.7500
10/28/97.................................................. 10,000 $20.2600
10/28/97.................................................. 2,000 $19.5000
10/29/97.................................................. 191,000 $22.0000
10/29/97.................................................. 91,000 $21.9375
10/29/97.................................................. 25,100 $21.8750
10/29/97.................................................. 38,200 $21.8125
10/29/97.................................................. 9,700 $21.7500
10/29/97.................................................. 5,000 $21.6250
</TABLE>
Neither the Company nor, to the best of its knowledge, any of its directors
or executive officers has (i) any contract, arrangement, understanding or
relationship with any other person with respect to any securities of
Safety-Kleen, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies; (ii) had any contacts or negotiations with Safety-Kleen or its
affiliates concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets, except as described herein; or (iii)
has had any transaction with Safety-Kleen or any of its executive officers,
directors or affiliates that would require disclosure under the rules and
regulations of the Commission applicable to the Offer except existing and
present business relationships (e.g., providing services to each other or
considering the purchase or sale of discrete assets or operations or alliances)
in the ordinary course of business none of which are material, the sale of
certain assets of a Company subsidiary to Safety-Kleen in February 1996 and the
accompanying cooperative services agreement which is in the process of being
terminated.
ACCOUNTING TREATMENT
The Company will account for the Merger using the purchase method of
accounting. Accordingly, the purchase price will be allocated to assets acquired
and liabilities assumed based on their estimated fair values at the Merger date.
Safety-Kleen's financial position and results of operations will not be included
in the Company's consolidated accounts prior to the consummation date of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of all the material anticipated federal
income tax consequences of the Offer and the Merger. It does not address any tax
consequences of the Offer and the Merger to persons who exercise appraisal
rights, if any, to the Merger. This discussion may not apply to certain classes
of persons subject to special tax treatment, such as foreign persons, insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities, persons who acquired SK Shares pursuant to the exercise of employee
stock options or rights or otherwise as compensation and persons who hold SK
Shares as part of a straddle or conversion transaction. This discussion is based
upon laws, regulations, rulings and decisions, all of which are
10
<PAGE> 14
subject to change (possibly with retroactive effect), and no ruling has been or
will be requested from the Internal Revenue Service (the "Service") on the tax
consequences of the Offer and the Merger.
The exchange of SK Shares for Common Stock and cash pursuant to the Offer
and Merger will be a taxable transaction to the holders of SK Shares for U.S.
federal income tax purposes and may also be taxable under applicable state,
local and foreign tax laws. In general, for U.S. federal income purposes, each
Safety-Kleen shareholder will realize gain or loss equal to the difference
between (x) the amount of cash and the fair market value of the shares of Common
Stock received and (y) the Safety-Kleen shareholder's adjusted tax basis in the
SK Shares exchanged therefor. Such gain or loss will be capital gain or loss if
the Safety-Kleen shareholder holds the SK Shares as a capital asset and will be
long-term gain or loss if the Safety-Kleen shareholder's holding period for the
SK Shares is more than eighteen months. The Safety-Kleen shareholder will have a
tax basis in the Common Stock received equal to the fair market value thereof
and the shareholder's holding period for the Common Stock will begin on the day
following the date of the exchange.
If the Board of Directors of Safety-Kleen agrees to the Offer, the Merger
may be restructured as a partially tax-free merger for U.S. federal income tax
purposes. Neither the Offer nor the Merger will have any federal income tax
consequences on present Stockholders.
DILUTION OF EXISTING STOCKHOLDERS
The exchange of SK Shares for shares of Common Stock will cause substantial
dilution to the voting power and interests of current Stockholders and,
possibly, lead to a change in control of the Company. Based upon the
shares of Common Stock outstanding as of , 1998, the
shares of Common Stock issuable upon consummation of the Offer and the Merger
will constitute between % and % of the Common Stock outstanding on a
fully diluted basis, assuming the exercise of currently outstanding vested
options and warrants and the conversion of currently outstanding debt
securities. Assuming a Common Stock Average Price of $ , the ownership
interest of directors and executive officers of the Company and their affiliates
(including, Laidlaw Inc.) would decrease to between % to % and the
ownership interests of other Stockholders would decrease to between % to
%, in each case on the fully diluted basis described above.
MARKET PRICES
The Common Stock is listed and principally traded on the NYSE under the
symbol "LLE" and is also traded on the Pacific Exchange, Inc. The SK Shares are
listed and traded on the NYSE under the Symbol "SK." The following table sets
forth the range of high and low sales prices as reported on the NYSE Composite
Tape.
<TABLE>
<CAPTION>
COMMON STOCK SK SHARES
PRICE RANGE PRICE RANGE
------------------- -------------------
HIGH LOW HIGH LOW
-------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
First Quarter........................................ $ 5 1/2 $ 4 $17 7/8 $14 1/2
Second Quarter....................................... 5 4 1/8 18 1/8 15
Third Quarter........................................ 5 1/4 4 1/4 18 12 7/8
Fourth Quarter....................................... 4 1/2 2 3/4 15 3/4 13 3/4
1996
First Quarter........................................ 3 1/8 2 15 7/8 13 3/8
Second Quarter....................................... 4 1/2 2 1/4 17 1/2 14 1/2
Third Quarter........................................ 4 1/2 2 5/8 18 5/8 15 1/8
Fourth Quarter....................................... 2 7/8 1 5/8 17 1/4 14 3/4
1997
First Quarter........................................ 3 3/8 1 3/4 18 3/8 14 1/2
Second Quarter....................................... 5 1/4 2 5/8 17 11/16 14 1/8
Third Quarter........................................ 5 15/16 2 7/8 26 16
Fourth Quarter (through December , 1997)...........
</TABLE>
11
<PAGE> 15
On August 7, 1997, the date prior to the date Safety-Kleen announced its
retention of William Blair, the closing price per SK Share, as reported on the
NYSE Composite Tape, was $17.8125, and the closing price per share of Common
Stock, as reported on the NYSE Composite Tape, was $3.1875. On November 3, 1997,
the date prior to the date of the public announcement of the Company's intention
to acquire Safety-Kleen, the closing price per SK Share, as reported on the NYSE
Composite Tape, was $21.9375, and the closing price per share of Common Stock,
as reported on the NYSE Composite Tape, was $4.9375.
On November 19, 1997, the last trading day prior to the public announcement
of the Buyout Proposal and the Company's Offer, the closing sales price per
share of Common Stock was $ and the closing sales price per SK Share
was $26.0625. On , 1998, the last trading day prior to the date of
this Proxy Statement, the closing price per share of Common Stock was
$ , and the closing price per share of an SK Share was $ .
Past price performance is not necessarily indicative of likely future price
performance. Stockholders are urged to obtain current market quotations for SK
Shares and for shares of Common Stock.
The Company has not paid cash dividends during the past two fiscal years
and does not presently anticipate paying any cash dividends in the future. The
Company's existing credit facility precludes the payment of cash dividends.
According to the Safety-Kleen 1996 Form 10-K, there were, as of December
28, 1996, 8,042 holders of record of SK Shares. As of October 7, 1997, there
were 6,234 holders of record of shares of Common Stock.
DESCRIPTION OF LAIDLAW ENVIRONMENTAL CAPITAL STOCK
The authorized capital stock of Laidlaw Environmental consists of
350,000,000 shares of Common Stock and 1,000,000 shares of Laidlaw Environmental
Preferred Stock, par value $1.00 per share ("Preferred Stock").
Laidlaw Environmental Common Stock. As of January , 1998, there were
shares of Common Stock issued and outstanding. In connection with
the Offer, the Company is seeking approval from its shareholders to increase the
amount of authorized shares of Common Stock to 750,000,000 shares. The holders
of Common Stock are entitled to one vote per share on all matters requiring
stockholder action. The holders of the Common Stock participate ratably in
liquidation, subject to the payment to the holders of any outstanding class of
Preferred Stock of the preferential amounts to which they are entitled.
Dividends on the Common Stock may be declared and paid only out of surplus
or net profits legally available for the payment of dividends. The Company has
not paid cash dividends during the past two fiscal years and does not presently
anticipate paying any cash dividends in the future. The Company's existing
credit facility precludes the payment of cash dividends.
Laidlaw Environmental Preferred Stock. The Company is authorized to issue
1,000,000 shares of Preferred Stock, which may be issued from time to time in
one or more series, each such series to have such distinctive designation or
title as may be fixed by the Company's Board of Directors prior to the issuance
of any shares thereof. Each series may differ from each other series already
outstanding as may be declared from time to time by the Company's Board of
Directors in the following respects: (i) the rate of dividend; (ii) the amount
per share, if any, which the Preferred Stock shall be entitled to receive upon
redemption, liquidation, distribution or sale of assets, dissolution or winding
up of the Company; (iii) terms and conditions of conversions, if any; and (iv)
terms of sinking fund, redemption or purchase account, if any. As of January ,
1998, the Company had no Preferred Stock outstanding.
SELECTED FINANCIAL DATA
The summary below sets forth selected historical financial data and
selected unaudited pro forma combined financial data. This financial data should
be read in conjunction with the historical financial statements and notes
thereto contained in the filings incorporated by reference herein (but which, in
the case of Safety-Kleen, are not covered by the report of Safety-Kleen's
independent accountants for purposes of this Proxy Statement), and in
conjunction with the unaudited pro forma combined financial information and
notes thereto appearing elsewhere in this Proxy Statement.
12
<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The selected historical financial data of the Company set forth below has
been derived from financial statements of the Company as they appeared in the
Company's Form 10-K for the year ended August 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues............................... $ 678,619 $ 652,973 $ 599,241 $517,804 $511,554
Income (loss) from continuing
operations(1)....................... $ (183,452) $ 6,714 $ 16,765 $ 22,531 $ 11,654
Income (loss) per share from continuing
operations(1)....................... $ (1.329) $ 0.056 $ 0.140 $ 0.188 $ 0.097
Cash dividends per common share........ -- -- -- -- --
Balance Sheet Data:
Working capital........................ $ 76,095 $ 40,677 $ 60,075 $ 90,831 $119,522
Total assets........................... $1,610,878 $1,491,294 $1,367,411 $974,053 $947,976
Long-term debt......................... $ 540,096 $ 55,838 $ 64,256 $ 18,454 $ 24,253
Stockholders' equity(2)................ $ 327,965 $1,094,777 $1,056,266 $798,597 $795,887
Weighted average common and common
stock equivalents outstanding
(000's)............................. 138,033 120,000 120,000 120,000 120,000
</TABLE>
- ---------------
(1) Fiscal year 1997 includes restructuring charge, net of tax benefit, of $200
million ($332 million pre-tax) or $1.45 per share.
(2) For fiscal years 1993 to 1996 inclusive, stockholders' equity represents the
net investment of Laidlaw Inc. in the Company.
SELECTED HISTORICAL FINANCIAL DATA OF SAFETY-KLEEN
The selected historical financial data of Safety-Kleen set forth below has
been derived from financial statements of Safety-Kleen as they appeared in
Safety-Kleen's Form 10-K filed with the Commission for each of the five fiscal
years in the period ended December 28, 1996 and the Safety-Kleen Form 10-Q for
the period ended September 6, 1997. The Safety-Kleen 1996 Form 10-K should also
be read in conjunction with Safety-Kleen's selected historical financial data.
<TABLE>
<CAPTION>
36 WEEKS ENDED
--------------------------- FISCAL YEAR
SEPTEMBER 6, SEPTEMBER 7, -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992(3)
------------ ------------ ---------- ---------- -------- --------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues.................. $ 680,172 $626,176 $ 923,126 $ 859,251 $791,267 $ 795,508 $ 794,542
Income (loss) from
continuing operations... $ 40,297 $ 40,685 $ 61,109 $ 53,303 $ 50,094 $(101,346)(1) $ 45,637(2)
Net income (loss) per
share from continuing
operations.............. $ 0.69 $ 0.70 $ 1.05 $ 0.92 $ 0.87 $ (1.76)(1) $ 0.79(2)
Cash dividends per common
share................... $ 0.27 $ 0.27 $ 0.36 $ 0.36 $ 0.36 $ 0.36 $ 0.34
Balance Sheet Data:
Working capital........... $ 74,795 $ 72,340 $ 43,532 $ 31,766 $ 53,472 $ 47,729
Total assets.............. $1,037,192 $1,044,823 $1,009,050 $973,444 $ 950,664 $1,006,446
Long-term debt............ $ 246,080 $ 276,954 $ 283,715 $284,125 $ 288,633 $ 300,724
Stockholders' equity...... $ 495,718 $ 480,290 $ 433,435 $396,336 $ 362,664 $ 492,095
Weighted average common
and common stock
equivalents (000's)..... 58,490 58,078 58,152 57,857 57,541 57,679 57,768
</TABLE>
- ---------------
(1) Includes restructuring and special charges, net of tax benefit, of $136
million ($229 million pre-tax) or $2.36 per share.
13
<PAGE> 17
(2) Includes $300,000 ($.01 per share) increase in net earnings from cumulative
effect of prior years effect of adopting Statement of Financial Accounting
Standards (SFAS) No. 106 on accounting for post-retirement benefits and SFAS
No. 109 on accounting for income taxes.
(3) Fiscal year 1992 was a fifty-three week year. All other years presented were
fifty-two weeks.
COMPANY, ROLLINS AND SAFETY-KLEEN SELECTED UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated income statements of the Company and Rollins, and the
consolidated balance sheets and income statements of the Company and
Safety-Kleen as if the acquisition of Rollins by the Company on May 15, 1997
(the "Rollins Acquisition"), the Offer, the Merger and the other transactions
described herein had occurred for all periods presented. These statements are
prepared on the basis of accounting for the Rollins Acquisition and the Merger
as a purchase and are based on the assumptions set forth in the notes thereto.
These statements and the pro forma information presented below do not reflect
the estimated cost savings of approximately $100 to $130 million the Company
believes will result from the Merger or the estimated cost savings of the
Rollins Acquisition. The following information is not necessarily indicative of
the financial position or the actual results of operation that would have
occurred had the transactions assumed herein occurred on such dates or of
expected future results. This information should be read in conjunction with and
is qualified in its entirety by the consolidated financial statements and
accompanying notes of the Company and Safety-Kleen included in the documents
described under "Incorporation of Certain Documents by Reference" (but which, in
the case of Safety-Kleen, are not covered by the reports of Safety-Kleen's
independent accountants for purposes of this Prospectus), the consolidated
financial statements and accompanying notes of Rollins, and the pro forma
combined financial
14
<PAGE> 18
statements and accompanying discussion and notes set forth under "Unaudited Pro
Forma Combined Financial Information."
<TABLE>
<CAPTION>
PRO FORMA COMBINED
YEAR ENDED AUGUST 31, 1997
------------------------------------------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C>
Statement of Income Data:
Revenue................................................... $1,802,627
Income (loss) from continuing operations.................. (233,288)
Income (loss) from discontinued operations................ 20
-------------
Net income (loss)................................. $ (233,268)
=============
Per share data(1):
Income (loss) from continuing operations.................. $ (0.644)
Income (loss) from discontinued operations................ .000
-------------
Net income (loss)................................. $ (0.644)
=============
Weighted average common and common stock equivalents
(000).................................................. 362,289
=============
<CAPTION>
PRO FORMA COMBINED
AS OF AUGUST 31, 1997
----------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C>
Balance Sheet Data:
Assets
Total current assets................................... $ 491,921
Total assets...................................... 4,475,043
Liabilities
Total current liabilities.............................. 412,945
Long term debt......................................... 1,639,615
Subordinated convertible debenture..................... 350,000
Total liabilities................................. 3,280,084
Stockholders' Equity...................................... 1,194,959
</TABLE>
- ---------------
(1) Assumes an Exchange Ratio of 3.077.
15
<PAGE> 19
THE COMPANY, ROLLINS AND SAFETY-KLEEN
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated income statements of the Company and Rollins and the
consolidated balance sheets and income statements of the Company and
Safety-Kleen as if the Rollins Acquisition, the Company Offer, the Merger and
the other transactions described herein had occurred for all periods presented.
These statements are prepared on the basis of accounting for the Acquisition and
the Merger as a purchase and are based on the assumptions set forth in the notes
thereto. These statements do not reflect the estimated cost savings of the
Rollins Acquisition, nor the cost savings of approximately $100 to $130 million
the Company believes will result from the Merger. This information should be
read in conjunction with and is qualified in its entirety by the consolidated
financial statements and accompanying notes of the Company and Safety-Kleen
included in the documents described under "Incorporation of Certain Documents by
Reference" (but which, in the case of Safety-Kleen, are not covered by the
reports of Safety-Kleen's independent accountants for purposes of this
Prospectus), the Rollins financial statements included herein and the pro forma
accompanying discussion and notes set forth under this section.
The following information is being presented for illustrative purposes only
and is not necessarily indicative of the financial position or operating results
that would have occurred had the transactions assumed herein been consummated at
the beginning of the periods for which the transactions are being given effect,
nor is it necessarily indicative of future operating results or financial
position.
THE COMPANY, ROLLINS AND SAFETY-KLEEN
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA
HISTORICAL LAIDLAW ADJUSTMENTS LAIDLAW SAFETY- ADJUSTMENTS PRO FORMA
ROLLINS ENVIRONMENTAL DR/(CR) ENVIRONMENTAL KLEEN DR/(CR) COMBINED
---------- ------------- ----------- ------------- ---------- ----------- ----------
(UNAUDITED $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $150,985 $ 678,619 $ 4,099(Da) $ 825,505 $977,122 -- $1,802,627
Expenses:
Operating................. 149,791 485,062 (4,099)(Da) 630,754 645,488 33,722(D1) 1,276,242
Depreciation and
amortization............ 22,606 53,506 (6,345)(Db) 69,767 77,741 -- 181,230
Selling, general and
administrative.......... 22,371 73,068 95,439 137,961 -- 233,400
Restructuring charge...... -- 331,697 331,697 -- 331,697
-------- --------- ------- ---------- -------- -------- ----------
Total expenses...... 194,768 943,333 (10,444) 1,127,637 861,190 33,722 2,022,569
-------- --------- ------- ---------- -------- -------- ----------
Operating income (loss)..... (43,783) (264,714) (6,345) (302,152) 115,932 33,722 (219,942)
Allocated interest
expense................... -- 24,030 24,030 -- -- 24,030
Interest expense............ 5,856 20,243 9,625(Dc) 35,724 18,504 85,136(D2) 139,364
Other income................ -- 2,865 2,865 1,587 -- 4,452
-------- --------- ------- ---------- -------- -------- ----------
Income (loss) from
continuing operations
before income tax......... (49,639) (306,122) 3,280 (359,041) 99,015 118,858 (378,884)
Income tax expense
(benefit)................. (17,460) (122,789) 3,251(Dd) (136,998) 38,294 (47,011)(D3) (145,715)
-------- --------- ------- ---------- -------- -------- ----------
Income (loss) from
continuing operations
before minority
interest.................. (32,179) (183,333) 6,531 (222,043) 60,721 71,847 (233,169)
Minority interest (net of
tax)...................... -- (119) -- (119) -- -- (119)
-------- --------- ------- ---------- -------- -------- ----------
Income (loss) from
continuing operations..... $(32,179) $(183,452) $ 6,531 $ (222,162) $ 60,721 $ 71,847 $ (233,288)
======== ========= ======= ========== ======== ======== ==========
Loss per share from
continuing operations
(Note D5)................. $ (1.329) $ (0.644)
Weighted average common and
common stock equivalents
outstanding (000s)........ 138,033 362,289(D4)
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Information.
16
<PAGE> 20
COMPANY AND SAFETY-KLEEN
UNAUDITED
PRO FORMA COMBINED BALANCE SHEET
AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL HISTORICAL ------------------------- PRO FORMA
COMPANY SAFETY-KLEEN DR CR COMBINED
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 11,160 $ 13,273 $ $ $ 24,433
Trade and other accounts receivable... 210,914 141,597 -- -- 352,511
Inventories........................... 7,927 48,853 -- -- 56,780
Other current assets.................. 21,539 36,658 -- -- 58,197
---------- ---------- ---------- ---------- ----------
Total current assets........... 251,540 240,381 -- -- 491,921
Property, plant and equipment, net...... 1,236,569 629,561 1,295,644(D6) -- 3,161,774
Goodwill................................ 70,527 136,479 537,965(D7) -- 744,971
Other assets............................ 52,242 30,771 6,636(D8) 76,377
---------- ---------- ---------- ---------- ----------
Total assets................... $1,610,878 $1,037,192 $1,833,609 $ 6,636 $4,475,043
========== ========== ========== ========== ==========
LIABILITIES
Current liabilities:
Accounts payable...................... $ 48,148 $ 63,563 $ $ $ 111,711
Accrued liabilities................... 115,211 102,023 -- -- 217,234
Current portion of long-term debt..... 12,086 -- -- 71,914(D10) 84,000
---------- ---------- ---------- ---------- ----------
Total current liabilities...... 175,445 165,586 -- 71,914 412,945
Deferred items:
Income taxes.......................... 49,790 57,361 518,258(D14) 625,409
Other................................. 179,668 72,447 -- 252,115
Long-term debt.......................... 528,010 246,080 -- 865,525(D10) 1,639,615
Subordinated convertible debenture...... 350,000 -- -- 350,000
---------- ---------- ---------- ---------- ----------
Total liabilities.............. 1,282,913 541,474 1,455,697 3,280,084
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
Common stock.......................... 180,435 5,839 -- 172,006(D11) 358,280
Additional paid-in capital............ 385,200 194,977 -- 494,172(D12) 1,074,349
Retained earnings (accumulated
deficit)............................ (237,670) 294,902 294,902(D13) -- (237,670)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity..... 327,965 495,718 294,902 666,178 1,194,959
---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity......... $1,610,878 $1,037,192 $ 294,902 $2,121,875 $4,475,043
========== ========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Information.
17
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
A. SUMMARY OF OFFER
The Company has offered to exchange the Offer Consideration for each
outstanding SK Share validly tendered on or prior to the Expiration Date and not
properly withdrawn. The Offer Consideration per SK Share consists of $15.00 net
in cash (subject to reduction) and that number of shares of Common Stock equal
to the Exchange Ratio. The cash portion will be reduced by any break-up fees and
certain expenses (up to an aggregate maximum of $75 million) Safety-Kleen may
have incurred in connection with the Buyout Merger Agreement. "Exchange Ratio"
means the quotient (rounded to the nearest 1/100,000) determined by dividing
$15.00 by the weighted average trading prices for Common Stock (as reported on
the NYSE Composite Transactions reporting system as published in The Wall Street
Journal or, if not published therein, in another authoritative source) (the
"Common Stock Average Price") for ten NYSE Trading Days selected by lot from the
twenty trading days ending three business days immediately prior to the
Expiration Date, provided, that the Exchange Ratio shall not be less than 2.80
nor greater than 3.50. Accordingly, subject to changes in the actual market
value of Common Stock on the date that SK Shares are actually exchanged, each SK
Share will be exchanged for (in addition to the Cash Consideration) Common Stock
having a market value of $15.00 if the Common Stock Average Price is between
$4.28571 and $5.35714. If the Common Stock Average Price is greater than
$5.35714, each SK Share will be exchanged for (in addition to the Cash
Consideration) Common Stock having a market value of more than $15.00, and,
conversely, if the Common Stock Average Price is less than $4.28571, each SK
Share will be exchanged for (in addition to the Cash Consideration) Common Stock
having a market value of less than $15.00, in each case subject to changes in
the actual market value of Common Stock on the date that SK Shares are actually
exchanged. Cash will be paid in lieu of any fractional shares of Common Stock.
According to the Safety-Kleen Form 10-Q for the period ended September 6,
1997, as of September 6, 1997, there were 58,400,729 SK Shares outstanding. The
Company beneficially owns 601,100 SK Shares, or approximately 1.03% of the
outstanding SK Shares.
In contemplation of the Acquisition, the Company has received a commitment
letter from TD to provide the Senior Credit Facilities. The Senior Credit
Facilities will consist of four parts: (i) a $400 million 6-year Senior Secured
Revolving Credit Facility with a $200 million letter of credit sublimit (the
"Revolving Credit Facility" or "Facility A"), (ii) a $500 million 6-year Senior
Secured Amortizing Term Loan ("Facility B"), (iii) a $450 million Minimally
Amortizing 7-year Senior Secured Term Loan ("Facility C") and (iv) a $450
million Minimally Amortizing 8-year Senior Secured Term Loan ("Facility D");
(Facility B, Facility C and Facility D, collectively, the "Term Loans"). The
Senior Credit Facilities will be secured by all of the tangible assets of the
combined companies. The Credit Facilities will be syndicated to banks and other
financial institutions (collectively, the "Lenders") acceptable to Laidlaw
Environmental and the Agent. All of the capital stock of the Company's
subsidiaries, including the acquired Safety-Kleen subsidiaries, will be pledged
as part of such security for the Senior Credit Facilities, and such subsidiaries
will guaranty the obligations of the Company to the Lenders. 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 million will be
available for letters of credit and $250 million will be available for loans,
subject to an aggregate maximum of $400 million. Interest per annum on the
Senior Credit Facilities will vary depending on the particular facility, whether
the Company chooses to borrow under LIBOR or non-LIBOR loans and, with respect
to Facilities A and B the current total leverage ratio. Under the terms of the
Senior Credit Facilities, the Company will be required to use interest rate
swaps to manage the risk of interest rate fluctuations. The terms of such
interest rate swaps have not been established.
B. ACCOUNTING TREATMENT ($ IN THOUSANDS)
If the Merger is consummated, it will be accounted for using the purchase
method of accounting applied in accordance with generally accepted accounting
principles. Accordingly, the assets and liabilities of Safety-Kleen 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 Safety-Kleen from and after the closing date of the Merger. (The following
assumes no Buyout Proposal Expenses are paid by Safety-Kleen.)
18
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The aggregate purchase price totals $1,804,443 and is comprised as follows:
<TABLE>
<S> <C>
SK Shares outstanding at September 6, 1997 according to
Safety-Kleen's September 6, 1997 Form 10-Q................ 58,400,729
SK Shares previously acquired by the Company................ (601,100)
------------
SK Shares remaining to be acquired.......................... 57,799,629
------------
Cash cost at $15.00 per SK Share (Note 1)................... $ 866,994
Cost of additional shares of Common Stock to be issued:
Number of shares of Common Stock to be issued (Note 2).... 177,844,924
Price per share........................................... $ 4.875
Total cost........................................ 866,994
------------
1,733,988
Cost of SK Shares previously acquired by the Company........ 13,000
Cost of "in-the-money" Safety-Kleen stock options that are
assumed to fully vest..................................... 57,445
------------
Total purchase price.............................. $ 1,804,433
============
</TABLE>
- ---------------
Note 1: If the Buyout Proposal Expenses are paid by Safety-Kleen, the cash cost
of the Safety-Kleen Shares will be reduced by the amount of such
expenses, and an additional item titled "Cost of Buyout Proposal
Expenses" will be included in the table. Payment of the Buyout Proposal
Expenses will have no effect on the Total Merger Purchase Price.
Note 2: Range of possible Exchange Ratios between 2.8 and 3.5 could result in
the number of shares of Common Stock ranging between 161,838,961 and
202,298,702.
The price per share of the additional shares of Common Stock to be issued
of $4.875 is the average of the closing NYSE market price for the five trading
days before and after November 20, 1997, the date the Company increased the
amount of the Offer.
The purchase price has been allocated to the assets acquired and
liabilities assumed based on estimated fair values at August 31, 1997, as
follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 240,381
Property, plant and equipment............................... 1,925,205
Goodwill.................................................... 674,444
Other assets................................................ 24,135
Current liabilities......................................... (165,586)
Deferred income taxes....................................... (575,619)
Other deferred items........................................ (72,447)
Long-term debt.............................................. (246,080)
----------
Total purchase price.............................. $1,804,433
==========
</TABLE>
C. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined balance sheet gives effect to
the Laidlaw Environmental Offer, the Merger and the other transactions described
herein as if they had occurred on August 31, 1997. The unaudited pro forma
combined statement of income for the year ended August 31, 1997 gives effect to
(a) the Rollins Acquisition under the heading "Pro Forma Laidlaw Environmental,"
and (b) the Rollins Acquisition, the Company Offer, the Merger and the other
transactions described herein as if each had occurred as of September 1, 1996.
The unaudited pro forma combined balance sheet at August 31, 1997 includes
the balance sheet of the Company at August 31, 1997 and the balance sheet of
Safety-Kleen at September 6, 1997. Since the August 31,
19
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
1997 balance sheet of the Company reflects the acquisition of Rollins on May 15,
1997, no pro forma disclosure is required. The unaudited pro forma combined
statement of income for the year ended August 31, 1997 includes the Company for
the year ended August 31, 1997, Rollins for the period September 1, 1996 to May
15, 1997, and for Safety-Kleen, the aggregate of the 16 weeks ended December 28,
1996 plus the 36 weeks ended September 6, 1997. Because Safety-Kleen does not
report depreciation and amortization expense in its unaudited interim financial
statements, the Company's management has estimated Safety-Kleen's historical
depreciation and amortization expense for this period on the basis that it is
the same as that reported for the year ended December 31, 1996.
Both the recent and pending acquisitions have been presented using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon management's best
preliminary estimate of their fair values, based upon publicly available
documents and information. The preliminary allocation of the purchase price with
respect to Safety-Kleen will be subject to further adjustments as the Company
finalizes the allocation of the purchase price in accordance with generally
accepted accounting principles. Management does not anticipate that the final
allocation of the purchase price will result in a material change to income. The
goodwill acquired is being amortized over 40 years on a straight-line basis.
During the report periods there were no material transactions between the
Company and Safety-Kleen.
The unaudited combined pro forma financial information does not purport to
be indicative of the combined financial position or combined results of
operations of the Company, Rollins and Safety-Kleen had the transactions assumed
therein occurred on the dates specified, nor are they indicative of future
financial position or results of operations. The unaudited pro forma financial
information does not give effect to potential cost savings of the Rollins
Acquisition, nor the cost savings of approximately $100 to $130 million that the
Company management believes may be realized as a result of the Merger. There can
be no assurances that such cost savings, if any, will be achieved.
The unaudited pro forma financial information should be read in conjunction
with the historical consolidated financial statements of the Company, Rollins
and Safety-Kleen and the notes thereto included elsewhere herein.
D. PRO FORMA ADJUSTMENTS ($ AND SHARES IN THOUSANDS)
The following adjustments and elimination entries have been made to the
unaudited pro forma combined statement of income to reflect the Rollins
Acquisition, as of the beginning of fiscal year 1997 using the purchase method
of accounting:
(a) To eliminate transactions between combined companies.
(b) To eliminate depreciation to reflect the fair value adjustment of
property and equipment and to reflect the effects of the Rollins
Acquisition upon goodwill amortization.
(c) To adjust expense to reflect financing costs associated with the
Rollins Acquisition.
(d) To adjust income taxes (benefit) to record the pro forma income
taxes (benefits) as computed under Statement of Financial Accounting
Standard No. 109 on pro forma pre-tax income (loss).
20
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The following adjustments and elimination entries have been made to the
unaudited pro forma combined statement of income to reflect the acquisition of
Safety-Kleen by the Company using the purchase method of accounting for the
Merger:
1. To adjust depreciation and amortization expense to reflect the fair
value adjustment of property, plant and equipment and the effect of the
Merger on goodwill amortization, as follows:
<TABLE>
<S> <C>
To eliminate Safety-Kleen's estimated historical intangible
and other asset amortization expense...................... $(15,531)
To record amortization expense related to goodwill arising
as a result of the Merger................................. 16,861
To record depreciation expense related to certain
Safety-Kleen property, plant and equipment (primarily
buildings, land, improvements and processing equipment)
written up to estimated fair value........................ 32,392
--------
Total adjustment.................................. $ 33,722
========
</TABLE>
2. To adjust interest expense for the impact of the additional
long-term debt associated with the Merger, as follows:
<TABLE>
<S> <C>
To eliminate historical Safety-Kleen interest expense....... $(18,504)
To record interest expense on $1,183,519(1) of borrowings at
8.76%(2) under the Senior Credit Facilities............... 103,640
--------
Total adjustment.................................. $ 85,136
========
</TABLE>
- ---------------
(1) Includes additional long-term debt associated with Merger (Note D10) and
anticipated refinancing of Safety-Kleen historical long-term debt of
$246,080.
(2) At current rates pursuant to the terms of the Senior Credit Facilities.
3. To adjust income taxes (benefits) to record the pro forma income
taxes (benefits) as computed under SFAS 109 on pro forma pre-tax income
(loss).
4. Pro forma weighted average common and common stock equivalents
outstanding comprise:
<TABLE>
<CAPTION>
EXCHANGE RATIO
-----------------------------
<S> <C> <C> <C>
2.8 3.077 3.5
Laidlaw Environmental weighted average
historical for year ended August 31, 1997... 138,033 138,033 138,033
Adjustment for Rollins Acquisition............ 46,411 46,411 46,411
Additional Laidlaw Environmental Shares to be
issued in connection with the Merger (see
Note B)..................................... 161,839 177,845 202,299
------- ------- -------
Percentage of Laidlaw Environmental Shares
held by former Safety-Kleen Shareholders
after the Merger............................ 47.0% 48.7% 52.6%
Laidlaw Environmental Shares outstanding at
March 30, 1997.............................. 182,000 182,000 182,000
Additional Laidlaw Environmental Shares to be
issued in connection with the Merger (See
Note B)..................................... 161,839 177,845 202,299
Pro forma Laidlaw Environmental Shares at
March 30, 1997.............................. 344,021 365,027 334,481
Pro forma total..................... 346,283 362,289 386,743
======= ======= =======
Pro forma loss per share............ $(0.674) $(0.644) $(0.603)
</TABLE>
21
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
5. Fully diluted earnings per share amounts, which would include the
dilutive effect of the subordinated convertible debenture, have not been
included as the effect of such inclusion would be to increase earnings per
share, and thus be anti-dilutive.
The following adjustments and elimination have been made to the unaudited
pro forma combined balance sheet to reflect the Acquisition using the purchase
method of accounting for the Merger:
6. To write up certain Safety-Kleen property, plant and equipment to
fair value.
7. To eliminate the historical book value of Safety-Kleen's intangible
assets and record the goodwill resulting from the Merger as follows:
<TABLE>
<S> <C>
Eliminate historical Safety-Kleen intangible assets......... $(136,479)
Record goodwill arising from the Acquisition (See Note A)... 674,444
---------
Net goodwill adjustment..................................... $ 537,965
=========
</TABLE>
8. To write-off the estimated book value of Safety-Kleen's other
assets.
9. The Company's management estimates that approximately $100,000 of
costs related to facility closures, severance costs and other direct
acquisition costs would be incurred in connection with the Merger; these
estimates of costs are not yet based on sufficient factual information so
as to be included as pro forma adjustments and are subject to change as
additional information becomes available.
10. To record the additional long-term debt associated with the Merger
(see Note B), as follows:
<TABLE>
<S> <C>
Cash component of acquiring outstanding Safety-Kleen
Shares.................................................... $866,994
Cost of SK Shares previously acquired....................... 13,000
Cost of stock options....................................... 57,445
--------
Total long-term debt adjustment............................. $937,439
Less: current portion adjustment............................ (71,914)
--------
Net long-term debt adjustment............................. $865,525
========
</TABLE>
11. To record the additional common stock associated with the Merger,
as follows:
<TABLE>
<S> <C>
Eliminate historical SK common stock........................ $ (5,839)
Issuance of additional shares of Common Stock (Note B)...... 177,845
--------
Total Common Stock adjustment............................. $172,006
========
</TABLE>
12. To record the impact on additional paid-in capital associated with
the Merger, as follows:
<TABLE>
<S> <C>
Eliminate historical Safety-Kleen additional paid-in
capital................................................... $(194,977)
Issuance of additional shares of Common Stock (Note B)...... 689,149
---------
Total additional historical paid-in capital adjustment.... $ 494,172
=========
</TABLE>
13. To eliminate historical Safety-Kleen retained earnings.
14. To record the incremental change in the Company's tax liability
and benefit which results from the adjustment of certain assets and the
recording of certain liabilities utilizing the Federal statutory rate of
35% plus an effective state rate of 5%.
E. ADDITIONAL PRO FORMA INFORMATION
On May 15, 1997, the Company completed the Rollins Acquisition. As a result
of this acquisition being accounted for as a reverse acquisition, the historical
financial information of the Company included in this unaudited pro forma
combined financial information is that of the accounting acquiror and includes
the results of operations of Rollins from the date of acquisition, May 15, 1997.
22
<PAGE> 26
Condensed unaudited pro forma combined statement of income data, as if the
Rollins Acquisition and the Acquisition had occurred as of September 1, 1996, is
as follows ($ in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1997
---------------
<S> <C>
Revenue..................................................... $1,802,627
Income (loss) from continuing operations.................... (233,288)
Income (loss) from discontinued operations.................. 20
----------
Net income (loss)........................................... $ (233,268)
==========
Per share data:
Income (loss) from continuing operations.................... $ (0.644)
Income (loss) from discontinued operations.................. .000
----------
Net income (loss)........................................... $ (0.644)
==========
Weighted average common and common stock equivalents
(000)..................................................... 362,289
</TABLE>
RECOMMENDATION OF THE BOARD
The Board has determined that the Issuance is in the best interests of the
Company and the Stockholders, has approved the Issuance and recommends that the
Stockholders vote "FOR" the proposal to approve the Issuance.
PROPOSAL 2
AMENDMENT OF CERTIFICATE
GENERAL
The Company is currently authorized to issue 350,000,000 shares of Common
Stock. The Amendment, if approved, would increase the number of authorized
shares of Common Stock to 750,000,000 shares. Assuming that the Amendment is
approved and adopted and the Acquisition is consummated, as of ,
199 , between and shares of authorized Common Stock would
remain available for future issuance. The Company currently does not have a
sufficient number of authorized but unissued shares of Common Stock to
consummate the Acquisition. If the proposed Amendment is approved, the newly
authorized shares of Common Stock will have voting and other rights identical to
the currently authorized shares of Common Stock.
The Board believes that it is in the Company's best interests to have the
flexibility to issue additional shares of Common Stock. At present, the Company
has no agreements, understandings or plans for the issuance or use of the
additional shares of Common Stock proposed to be authorized. However, the Board
of Directors believes that the current number of authorized and unreserved
shares of Common Stock may be insufficient to meet the Company's future needs.
The availability of additional shares will enhance the Company's flexibility in
connection with possible future acquisition opportunities, financing needs and
other business opportunities, to effect stock dividends or stock splits and to
provide appropriate equity-based compensation. The Board could issue such
additional shares of Common Stock at such times and on such terms and conditions
as it deems appropriate and desirable without the possible expense and delay of
a special meeting of the Stockholders, unless such approval were required by
applicable law, the Certificate, the Bylaws or any stock exchange or market on
which the Company's securities may then be listed or traded.
If the Stockholders approve the Amendment, it will be adopted regardless of
whether the Acquisition is consummated.
Although the Board will authorize the issuance of additional shares of
Common Stock only when it considers doing so to be in the best interests of
Stockholders, the issuance of additional shares of Common Stock may, among other
things, have a dilutive effect on the earnings per share of Common Stock and on
the equity and voting rights of holders of shares of Common Stock. The issuance
of additional shares, or the perception in the
23
