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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT PURSUANT
TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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SAFETY-KLEEN CORP.
(NAME OF SUBJECT COMPANY)
SAFETY-KLEEN CORP.
(NAMES OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
786484105
(CUSIP NUMBER OF CLASS OF SECURITIES)
DONALD W. BRINCKMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ONE BRINCKMAN WAY
ELGIN, ILLINOIS 60123-7857
(847) 697-8460
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
DENNIS N. NEWMAN, ESQ.
SONNENSCHEIN NATH & ROSENTHAL
SEARS TOWER
CHICAGO, ILLINOIS 60606
(312) 876-8000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Safety-Kleen Corp., a Wisconsin
corporation ("Safety-Kleen"). The address of the principal executive offices
of Safety-Kleen is One Brinckman Way, Elgin, Illinois 60123. The title of the
class of equity securities to which this Statement relates is the common
stock, par value $0.10 per share (the "Common Stock"), of Safety-Kleen,
including the associated common share purchase rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of November 9, 1988, as amended
(the "Rights Agreement"), between Safety-Kleen and The First National Bank of
Chicago, as Rights Agent. References herein to the "Shares" means shares of
the Common Stock and shall, unless the context requires otherwise, include the
Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the offer made by LES Acquisition, Inc. (the
"Offeror"), a Delaware corporation and wholly-owned subsidiary of Laidlaw
Environmental Services, Inc., a Delaware corporation ("LLE"), to exchange
$15.00 net in cash (subject to reduction as described below, the "Cash
Consideration") and that number of shares of common stock, par value $1.00 per
share, of LLE (the "LLE Common Stock") equal to the Exchange Ratio (as defined
below) (the "Stock Consideration" and, together with the Cash Consideration,
the "LLE Offer Consideration"), for each outstanding Share, upon the terms and
subject to the conditions disclosed in Amendment No. 2 to the Registration
Statement on Form S-4 filed by LLE with the Securities and Exchange Commission
(the "Commission") on December 16, 1997 (the "LLE Registration Statement").
Neither the Offeror nor any of its affiliates are affiliated with Safety-Kleen
and the LLE Offer was not solicited by Safety-Kleen.
According to the LLE Registration Statement, the Cash Consideration to be
paid pursuant to the LLE Offer shall be reduced by the quotient of (a) the
aggregate amount of (1) any termination fees or expenses paid or reimbursed
(or payable or reimbursable) by Safety-Kleen pursuant to the Agreement and
Plan of Merger, dated as of November 20, 1997 (the "Philip Merger Agreement"),
by and among SK Parent Corp. ("SK Parent"), SK Acquisition Corp. ("SK
Acquisition") and Safety-Kleen and (2) any incremental costs, including the
cost of new severance arrangements and other expenses Safety-Kleen may incur
in connection with the Philip Merger Agreement divided by (b) the number of
outstanding Shares (on a fully diluted basis) as of the expiration date of the
LLE Offer. LLE has estimated in solicitng materials filed with the Commission
that the portion of the deductions from the Cash Consideration for such
termination fees and expenses and such severance agreements is up to $2.14 per
Share.
According to the LLE Registration Statement, the "Exchange Ratio" means the
quotient (rounded to the nearest 1/100,000) determined by dividing $15.00 by
the weighted average trading prices for LLE Common Stock (as reported on the
New York Stock Exchange Inc. (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 of the LLE Offer, provided, that the
Exchange Ratio shall not be less than 2.80 nor greater than 3.50.
According to the LLE Registration Statement: (i) the purpose of the LLE
Offer is for LLE to obtain control of, and ultimately the entire equity
interest in, Safety-Kleen; (ii) LLE presently intends, as soon as practicable
after consummation of the LLE Offer, to propose and seek to have Safety-Kleen
effect a merger of the Offeror with and into Safety-Kleen; and (iii) the
consideration per Share in such merger would be identical to the LLE Offer
Consideration.
Shareholders should be aware that if Safety-Kleen is a "resident domestic
corporation" for purposes of the Wisconsin Statutes (which Safety-Kleen
believes it is), then unless LLE acquires beneficial ownership of at least 90%
of the outstanding Shares, the subsequent merger of the Offeror into Safety-
Kleen would have to be approved by both (a) the holders of at least 80% of the
outstanding Shares and (b) the holders of 66 2/3% of the
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outstanding Shares not held by LLE or its affiliates, unless certain fair price
standards are satisfied. There can be no assurance that LLE would obtain the
required shareholder approval or that the LLE Offer Consideration would satisfy
those fair price standards (see "Item 8. Additional Information To Be
Furnished--(c) State Takeover Statutes" below).
LLE has filed proxy materials with the Commission relating to the
solicitation of proxies by LLE and the Offeror for use at a special meeting of
shareholders of Safety-Kleen to be held on January 9, 1998 to consider
shareholder approval of a proposal to authorize, in accordance with Section
180.1150 of the Wisconsin Statutes, the restoration of full voting power to any
and all Shares acquired by LLE and the Offeror (or one or more subsidiaries of
LLE). For a description of Section 180.1150 of the Wisconsin Statutes, see
"Item 8. Additional Information To Be Furnished--(c) State Takeover Statutes."
According to the LLE Registration Statement, the address of the principal
executive offices of the Offeror and LLE is 1301 Gervais Street, Suite 300,
Columbia, South Carolina 29201.
THIS SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 DOES NOT
CONSTITUTE A SOLICITATION OF PROXIES FOR USE AT ANY MEETING OF SAFETY-KLEEN'S
SHAREHOLDERS OR OTHERWISE. ANY SUCH SOLICITATION WHICH SAFETY-KLEEN MAY MAKE
WILL BE MADE ONLY BY MEANS OF SEPARATE PROXY MATERIALS COMPLYING WITH THE
REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of Safety-Kleen, which is the person filing
this Statement, are set forth in Item 1 above.
(b)(1) General. Reference is made to the information contained under the
captions "DIRECTORS' COMMITTEES, MEETINGS AND COMPENSATION--Board
Compensation," "EXECUTIVE COMPENSATION--Summary Compensation Table," "--
Option/SAR Grants In Last Fiscal Year," "--Pension Plan," "--Employment
Contracts And Severance Arrangements," "--Compensation Committee Report or
Executive Compensation" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in
Safety-Kleen's Proxy Statement, dated March 28, 1997, relating to Safety-
Kleen's Annual Meeting of Shareholders. The relevant sections thereof are filed
as Exhibit 1 hereto and are incorporated herein by reference. The severance
agreements described under "--Employment Contracts and Severance Arrangements"
in Exhibit 1 have been replaced by new Change of Control Severance Agreements
described below. Reference is also made to the information under the caption
"SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" filed herewith as
Exhibit 2 and incorporated herein by reference. Except as described herein or
incorporated herein by reference, to the knowledge of Safety-Kleen as of the
date hereof, there are no contracts, agreements, arrangements or understandings
or any actual or potential conflicts of interest between Safety-Kleen or its
affiliates and (i) Safety-Kleen, its executive officers, directors or
affiliates or (ii) LLE or the Offeror or their respective executive officers,
directors or affiliates.
The Philip Merger. On November 20, 1997, Safety-Kleen signed the Philip
Merger Agreement, providing for the merger (the "Philip Merger") of SK
Acquisition with and into Safety-Kleen. SK Parent is a newly-formed company
owned equally by Philip Services Corp. ("Philip"), affiliates of Apollo
Management, L.P. ("Apollo") and affiliates of Blackstone Management Partners
III L.L.C. ("Blackstone").
In the Philip Merger, each holder of a Share will receive $27.00 cash for
that Share. Upon completion of the Philip Merger, Safety-Kleen will be the
surviving corporation (the "Surviving Corporation") and will be a wholly-owned
subsidiary of SK Parent. Upon consummation of the Philip Merger, which is a
taxable transaction to shareholders, Safety-Kleen shareholders will no longer
have an interest in the Surviving Corporation.
On December 22, 1997, Safety-Kleen announced that a special meeting of
shareholders of Safety-Kleen will be held on February 11, 1998 to vote on the
Philip Merger.
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The Philip Merger is subject to certain conditions, including the approval
of Safety-Kleen's shareholders at a special meeting to be held as soon as
practicable, the expiration of antitrust regulatory waiting periods and the
funding of financing arrangements.
The Philip Merger Agreement includes provisions prohibiting Safety-Kleen
from actively soliciting another purchaser, and provides for the payment of
certain fees and the reimbursement of certain expenses to SK Parent in the
event of a termination of the Philip Merger Agreement under certain
circumstances.
The foregoing description of the Philip Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Philip Merger
Agreement filed as Exhibit 3 hereto and incorporated herein by reference.
(b)(2) Certain Executive Compensation and Other Employee-Related Matters in
Connection with a Change of Control of Safety-Kleen. The consummation of
either the Philip Merger or the LLE Offer will affect the compensation and
benefits to the directors and executive officers of Safety-Kleen as follows:
Vesting of Stock Options. All of the outstanding stock options to purchase
Shares granted by Safety-Kleen (including stock options related to limited
stock appreciation rights) immediately vest and become exercisable upon a
"change of control", which would occur upon consummation of either the Philip
Merger or the LLE Offer. In addition, within three days of a "change of
control" of Safety-Kleen, holders of options related to limited stock
appreciation rights may receive for each Share subject to such option, an
amount in cash equal to the excess, if any, of the change of control value
(generally, the highest price at which the Shares trade in the 180 days prior
to such change of control) over the per Share exercise price of such option,
reduced by the amount of withholding or other taxes required by law to be
withheld. As of December 19, 1997, directors and executive officers held in
the aggregate options to purchase 2,446,265 Shares (including 2,251,265
options related to limited stock appreciation rights).
Change of Control Severance Agreements. In August, 1997, Safety-Kleen
entered into Change of Control Severance Agreements with its 14 executive
officers and five other employees of Safety-Kleen who are not executive
officers. The Board of Directors of Safety-Kleen approved the Change of
Control Severance Agreements in order to close the gap between the prior
change of control agreements adopted by Safety-Kleen in 1990 and current
competitive practices for change of control agreements. Each Change of Control
Severance Agreement provides for, among other things: (a) a three-year
employment period, beginning on the date of a Change of Control (as defined in
such agreements; a Change of Control would occur upon consummation of either
the Philip Merger or the LLE Offer) at a guaranteed annual base salary equal
to at least 12 times the highest base monthly salary payable during the 12-
month period immediately preceding the Change of Control, with increases
consistent with increases in base salary awarded to other peer executives of
Safety-Kleen; (b) a guaranteed bonus for each bonus plan performance period
(under each bonus arrangement) ending within such three year employment
period; (c) continued participation in the incentive, savings, retirement,
welfare and other fringe benefit plans sponsored by Safety-Kleen; (d) full
vesting on the date of the Change of Control of all stock options (or a lump
sum payment of the spread of all non-vested, forfeited options); and (e) full
payment on the date of the Change of Control, of the value of the executive's
accrued benefits under Safety-Kleen's excess benefit and supplemental
retirement plans.
If, during the three year employment period, the executive's employment is
terminated by Safety-Kleen (other than for Cause (as defined in such
agreements) or by reason of the executive's death or disability), or if the
executive terminates employment for Good Reason (as defined in such
agreements), the executive will receive: (i) guaranteed annual base salary,
guaranteed bonus and accrued vacation pay through the date of termination;
(ii) previously deferred and unpaid compensation; (iii) an amount equal to
three times the sum of the executive's guaranteed base salary and guaranteed
bonus in the year in which the termination occurs; (iv) the value of the
unvested portion of the executive's accounts under qualified Safety-Kleen
plans, (v) reimbursement for unpaid benefits which would have accrued if the
executive had remained employed by Safety-Kleen until three years after the
Change of Control under Safety-Kleen's excess benefit and supplemental plans;
and (vi) continuation of all medical, life insurance and other welfare
benefits for a period of three years from termination. The sum of the amounts
referred to in clauses (i) and (ii) is referred to as the "Accrued
Obligations".
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If, during the three year employment period, the executive's employment is
terminated (i) by Safety-Kleen for Cause, as defined, the executive is entitled
only to his guaranteed base salary through the date of termination, plus any
deferred compensation and accrued vacation pay not previously paid; (ii) by the
executive other than for Good Reason, the executive is entitled only to the
Accrued Obligations; (iii) by Safety-Kleen for disability, the executive is
entitled to receive the Accrued Obligations and disability and other benefits
at least equal to the greater of those provided to peer executives by Safety-
Kleen immediately prior to the executive's termination and those provided to
peer executives by Safety-Kleen at any time during the 90 day period
immediately preceding a Change of Control; and (iv) by the executive's death,
his estate is entitled to the Accrued Obligations and benefits at least equal
to the most favorable benefits provided by the Surviving Corporation to
survivors of peer executives, and at least as favorable in the aggregate as the
most favorable provided to the executive during the 90 days preceding a Change
of Control.
Each of the Change of Control Severance Agreements provides that if it is
determined that benefits received by the executive thereunder (or otherwise)
are subject to any excise tax under Section 4999 of the Internal Revenue Code
or any similar excise taxes, then Safety-Kleen will also pay the executive an
amount (the "Gross-up Payment") such that, after the payment of all income and
excise taxes, the executive will be in the same after-tax position that he
would have been in had no excise tax been imposed.
Each Change of Control Severance Agreement contains a non-compete provision
that during the period of the executive's employment and for one year
thereafter, prohibits the executive from certain participation in the business
of any company engaged in business that directly or materially competes with
Safety-Kleen, and certain other competitive activity. Each such agreement also
obligates the executive to maintain the confidentiality of Safety-Kleen's
Confidential Information (as defined in such agreement).
Payments that would be made to the persons who are parties to the Change of
Control Severance Agreements in the event they are all terminated during the
three year employment period after a Change of Control (other than for Cause or
by reason of the executive's death or disability) are approximately $46,036,306
for all officers with Change of Control Severance Agreements, including
approximately $3,845,937 for Mr. Brinckman.
The foregoing description of the Change of Control Severance Agreements does
not purport to be complete and is qualified in its entirety by reference to the
Change of Control Severance Agreement filed as Exhibit 4 hereto and
incorporated herein by reference.
Investment Banking Fees. Mr. Jannotta, a director of Safety-Kleen, is a
Senior Director of William Blair & Company L.L.C. ("William Blair"). William
Blair will receive a fee from Safety-Kleen upon consummation of the Philip
Merger or the LLE Offer. See "Item 5. Persons Retained, Employed Or To Be
Compensated."
(b)(3) Certain Executive Compensation and Other Employee-Related Matters in
Connection with the Philip Merger.
Indemnification and Insurance. Pursuant to the Philip Merger Agreement, SK
Parent has agreed that for a period of six years after the effective time of
the Philip Merger, the Surviving Corporation's articles of incorporation and
bylaws shall contain the provisions with respect to indemnification contained
in Safety-Kleen's articles of incorporation and by-laws on the date of the
Philip Merger Agreement, and that the Surviving Corporation's articles of
incorporation and by-laws shall not be amended in any manner that would
adversely affect the rights of persons who at any time prior to the effective
time of the Philip Merger was an employee, agent, director or officer of
Safety-Kleen or its subsidiaries ("Indemnified Parties") in respect of actions
or omissions occurring at or prior to the effective time of the Philip Merger.
SK Parent also agreed, subject to certain limitations, to cause to be
maintained in effect for not less than six years after the effective time of
the Philip Merger the current policies of directors' and officers' liability
insurance maintained by Safety-Kleen and its subsidiaries with respect to
matters occurring prior to the effective time of the Philip Merger. In
addition, the Philip Merger Agreement provides that, without limiting the
foregoing, in the event any Indemnified Party becomes involved in any capacity
in any action, proceeding or investigation based in whole or in part on, or
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arising in whole or in part out of, any matter, including the transactions
contemplated by the Philip Merger Agreement, existing or occurring at or prior
to the effective time of the Philip Merger, then to the extent permitted by
law, SK Parent will cause Safety-Kleen (or the Surviving Corporation if after
the effective time of the Philip Merger) to, and Safety-Kleen (or the
Surviving Corporation if after the effective time of the Philip Merger) shall,
periodically advance to such Indemnified Party its legal and other expenses
(including the cost of any investigation and preparation incurred in
connection therewith), subject to the provisions by such Indemnified Party of
an undertaking to reimburse the amounts so advanced in the event of a final
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled thereto. The Philip Merger Agreement also provides that SK
Parent must cause Safety-Kleen (or the Surviving Corporation if after the
effective time of the Philip Merger) will, pay all expenses, including
attorneys' fees, that may be incurred by any Indemnified Party in enforcing
such indemnity and other obligations provided for in the Philip Merger
Agreement.
SK Parent Letter. By letter dated November 19, 1997, SK Parent advised
Safety-Kleen's Board of Directors that, among other things, it looked forward
to discussing participation by current management of Safety-Kleen in the
equity of Safety-Kleen through stock option or similar plans and the potential
investment by members of management in SK Parent. However, there have been no
such discussions of these topics and it is not expected that there will be any
such discussion until after the effective time of the Philip Merger.
Philip Merger Agreement Provisions Relating to Benefit Plans. In accordance
with the Philip Merger Agreement, upon consummation of the Philip Merger, the
holders of outstanding stock options to purchase Shares will receive from
Safety-Kleen for each Share subject to an option, cash in an amount equal to
the excess of $27.00 over the exercise price of the option, reduced by the
amount of withholding or other taxes required by law to be withheld. However,
as required by the terms of Safety-Kleen's outstanding stock options, holders
of options related to limited stock appreciation rights will receive for each
Share subject to such option, an amount in cash equal to the excess, if any,
of the change of control value (generally, the highest price at which the
Shares trade in the 180 days prior to shareholder approval of the Philip
Merger) over the per Share exercise price of such option, reduced by the
amount of withholding or other taxes required by law to be withheld.
As of December 19, 1997, directors and executive officers held in the
aggregate options to purchase 2,446,265 Shares (including 2,251,265 options
related to limited stock appreciation rights), including options that will
vest upon consummation of the Philip Merger. Upon consummation of the Philip
Merger, (i) the directors who are not officers of Safety-Kleen who hold such
options would be entitled to receive approximately the following amounts:
Richard T. Farmer, $158,760, Russell A. Gwillim, $158,760, Edgar D. Jannotta,
$158,760, Karl G. Otzen, $158,760, Paul D. Schrage, $158,760, Marcia E.
Williams, $166,875, and W. Gordon Wood, $158,760; and (ii) assuming that the
Shares do not trade at a price in excess of $29 prior to shareholder approval
of the Philip Merger, all directors and executive officers who served at any
time since the beginning of Safety-Kleen's last fiscal year as a group would
collectively be entitled to receive approximately $25,690,713, including
approximately $5,371,445 for Mr. Brinckman.
The Philip Merger Agreement provides that for a period of two years
following the effective time of the Philip Merger, SK Parent intends to cause
the Surviving Corporation to provide employee benefit plans and programs for
the benefit of employees of the Surviving Corporation and its subsidiaries
that are in the aggregate no less favorable to such employees than the
employee benefit plans of Safety-Kleen and its affiliates existing on the date
of the Philip Merger Agreement. All service credited to each employee by
Safety-Kleen through the effective time of the Philip Merger shall be
recognized by SK Parent or the Surviving Corporation for purposes of
eligibility and vesting under any employee benefit plan provided directly or
indirectly by SK Parent or the Surviving Corporation for the benefit of the
employees and in which the respective employees participate. SK Parent has
expressed its present intention to continue management of Safety-Kleen in the
same positions as management of the Surviving Corporation, subject to joint
review by management of SK Parent and Safety-Kleen after the effective time of
the Philip Merger, but intends not to continue Mr. Brinckman as an officer or
employee of the Surviving Corporation. Safety-Kleen currently expects that
there will be no significant change in the level of management benefit plans
after the effective time of the Philip Merger.
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The Philip Merger Agreement also provides that SK Parent shall cause the
Surviving Corporation: (i) to honor (without modification) and assume the
written employment agreements, severance agreements and other agreements
listed on the disclosure schedule to the Philip Merger Agreement, all as in
effect on the date of the Philip Merger Agreement; and (ii) not to terminate
or adversely amend in any manner Safety-Kleen's 1997 and 1998 Management
Incentive Plans which adversely affects the benefits that participants in such
plans are entitled to thereunder with respect to any periods prior to and
including the effective time of the Philip Merger. The Philip Merger Agreement
also states that SK Parent intends to cause the Surviving Corporation to
continue to maintain its principal offices in Elgin, Illinois and to maintain
its charitable commitments and community involvement.
(b)(4) Arrangements with LLE, its Executive Officers, Directors or
Affiliates.
Other than 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 not material to
Safety-Kleen or its affiliates and LLE or its affiliates or to the
relationship between them and the sale of certain assets of a LLE subsidiary
to Safety-Kleen in February 1996 and the accompanying cooperative services
agreement which is in the process of being terminated, as of the date hereof
there are no contracts, agreements, arrangements or understandings or actual
or potential conflicts of interest between Safety-Kleen or its affiliates and
LLE, the Offeror or their respective executive officers, directors or
affiliates that are required to be disclosed pursuant to the rules and
regulations of the Commission.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation Of The Board Of Directors.
THE BOARD OF DIRECTORS OF SAFETY-KLEEN (THE "BOARD") CONTINUES TO BELIEVE
THAT THE PHILIP MERGER IS IN THE BEST INTERESTS OF SAFETY-KLEEN AND ITS
SHAREHOLDERS AND, THEREFORE, THE BOARD (WITH ONE DIRECTOR ABSENT DUE TO
ILLNESS) UNANIMOUSLY RECOMMENDS THAT ALL SHAREHOLDERS OF SAFETY-KLEEN REJECT
THE LLE OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE LLE OFFER.
The Board's determination, which was reached at a meeting held on December
20, 1997, was based on the Board's review and consideration of the interests
of Safety-Kleen and its shareholders. At the same meeting, the Board
unanimously (with one director absent due to illness) reaffirmed its
determination that the terms of the Philip Merger Agreement are in the best
interests of Safety-Kleen and its shareholders. The Board set February 11,
1998 as the date for a special meeting of shareholders to consider and approve
the Philip Merger Agreement. The record date for determination of shareholders
entitled to notice of and to vote at the special meeting was fixed as January
5, 1998.
A copy of the letter to Safety-Kleen's shareholders communicating the
Board's recommendation and the press release relating thereto are filed as
Exhibits 5 and 6, respectively, to this Schedule 14D-9 and are incorporated
herein by reference.
The LLE Offer is conditioned upon, among other things, the Board having
redeemed the Rights or amended the Rights Agreement so that the Rights are
inapplicable to the acquisition of Shares pursuant to the LLE Offer, or LLE
being otherwise satisfied in its sole discretion that the Rights are invalid
or are not applicable to the acquisition of Shares pursuant to the LLE Offer
and the proposed subsequent merger of the Offeror into Safety-Kleen. In light
of its decision discussed above, the Board determined not to take any action
to redeem the Rights in response to the LLE Offer. As more fully described
under "Item 8. Additional Information To Be Furnished--(a) Rights Agreement,"
the Board has adopted a resolution to delay the "Distribution Date" under the
Rights Agreement.
The LLE Offer is also conditioned upon LLE being satisfied, in its sole
discretion, either that the provisions of Section 180.1141 of the Wisconsin
Statutes are inapplicable to LLE, the Offeror and the transactions
contemplated by the LLE Registration Statement, or that the Wisconsin Statutes
will not prohibit for any period
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of time the consummation of the proposed merger or any other "Business
Combination" (as defined in such Statutes) involving Safety-Kleen and LLE or
the Offeror, or any of their respective affiliates. In light of its decision
discussed above, the Board has determined not to take any action that would
render Section 180.1141 of the Wisconsin Statutes so inapplicable.
(b)(1) Background.
On June 10, 1997, the Executive Committee of the Board, which consists of
Messrs. Donald W. Brinckman, Russell A. Gwillim and Edgar D. Jannotta (the
"Executive Committee"), met to discuss certain general expressions of interest
received by Safety-Kleen regarding possible business combinations with Safety-
Kleen. The Executive Committee instructed management to discuss the
expressions of interest with Safety-Kleen's legal advisor, Sonnenschein Nath &
Rosenthal, and with Safety-Kleen's financial advisor, William Blair, in
preparation for an Executive Committee meeting on June 24th.
At the Executive Committee meeting on June 24, 1997, after a presentation by
Safety-Kleen's legal advisors with respect to the legal framework for the
Board's deliberations, William Blair orally presented its preliminary view
that the per Share consideration Safety-Kleen could achieve in a sale
transaction was between $23 and $25. William Blair also discussed with the
directors financial and strategic buyers that might be interested in Safety-
Kleen if the Board were to decide to explore a possible sale transaction. The
Executive Committee determined to hold a special Board meeting on July 7th.
At the July 7th Board meeting, management presented to the Board Safety-
Kleen's recent financial results for the second quarter of fiscal 1997 and
Safety-Kleen's forecasted financial performance. The directors discussed with
management Safety-Kleen's past stock price performance and potential
difficulties in achieving Safety-Kleen's forecasted financial performance.
Safety-Kleen's legal advisors and William Blair then made the presentations
concerning the expressions of interest in Safety-Kleen and orally presented
its view on the valuation of Safety-Kleen. According to William Blair: (i) its
preliminary analysis of selected recent merger or acquisition transactions in
the environmental services industry indicated a valuation of the equity of
Safety-Kleen of between $19.46 and $22.48 per Share; and (ii) its preliminary
discounted cash flow analysis indicated a valuation of the equity of Safety-
Kleen of between $25.71 and $26.80 per Share. Based on the foregoing, William
Blair's preliminary judgment of the per Share consideration that Safety-Kleen
could achieve in a sale transaction was between $23 and $25. After extensive
discussions, the Board asked management, with the assistance of Safety-Kleen's
legal and financial advisors, to prepare and present further information to
the Board relating to various strategies to enhance shareholder value.
At the regularly scheduled August 8th Board meeting, the Board, management
and William Blair discussed the advisability of exploring strategic
alternatives, including a possible sale of Safety-Kleen. The Board, management
and William Blair also discussed other possible strategic alternatives such as
a stock buy-back program, acquisitions and/or operating the business in
accordance with Safety-Kleen's long range plan. William Blair orally presented
its view of the valuation of Safety-Kleen in a sale transaction and a
theoretical stock price analysis assuming that Safety-Kleen continues to
operate as an independent company. William Blair's view of the valuation of
Safety-Kleen was substantially the same as the view it presented to the Board
on July 7th except that, based on management revisions to its forecast of
Safety-Kleen's performance, William Blair's discounted cash flow analysis
indicated a valuation of the equity of Safety-Kleen of between $27.83 and
$29.01 per Share. Based on the foregoing and taking into account its view of
generally improved market conditions, William Blair's judgment of the per
Share consideration that Safety-Kleen could achieve in a sale transaction was
between $24 and $26. William Blair also discussed possible steps to be taken
by the Board in exploring strategic alternatives.
After extensive discussions of William Blair's valuation analysis, the Board
directed management to explore, with the assistance of Safety-Kleen's
advisors, strategic alternatives for enhancing shareholder value. The Board
also instructed management to retain William Blair to render financial
advisory and investment banking services to Safety-Kleen in connection with
the evaluation of strategic alternatives and, as part of the exploration of
strategic alternatives, authorized management and William Blair to contact
third parties that might be interested in acquiring all or a part of Safety-
Kleen to determine whether they would be interested in
7
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participating in the process by executing confidentiality and standstill
agreements in order to receive confidential information with respect to Safety-
Kleen and its subsidiaries.
On August 8, 1997, Safety-Kleen issued a press release stating that it had
engaged the services of William Blair to act as advisor to Safety-Kleen and
manage the process of exploring strategic options for enhancing shareholder
value. Safety-Kleen also announced the resignation of John G. Johnson, Jr.,
President and Chief Executive Officer of Safety-Kleen. Donald W. Brinckman,
Chairman of Safety-Kleen's Board of Directors, who had previously served as
Safety-Kleen's Chief Executive Officer from 1968 until December 31, 1994, was
appointed Chief Executive Officer. Mr. Joseph Chalhoub, President--Operations
of Safety-Kleen, was appointed President and Chief Operating Officer.
On August 19, 1997, Safety-Kleen retained Credit Suisse First Boston
Corporation ("CSFB") to perform certain financial advisory services in
connection with Safety-Kleen's exploration of strategic alternatives. CSFB
performed a preliminary review of Safety-Kleen's analyses of the strategic
alternatives to remaining independent. In addition, it assisted Safety-Kleen by
identifying certain potential buyers that were subsequently contacted by
William Blair and by discussing with management some of the possible strategies
which might be used to enhance shareholder value were Safety-Kleen to remain
independent. It was available to the Board for discussion of these strategies,
but did not furnish any reports or opinions to the Board, nor did it make any
presentation to the Board.
William Blair contacted, or as a result of the August 8th press release was
contacted by, 94 parties interested in considering the potential acquisition of
all or part of Safety-Kleen. Confidentiality and standstill agreements were
entered into with 50 potential buyers (including Philip and affiliates of
Apollo and Blackstone) and, beginning on September 5, 1997, copies of a
Confidential Memorandum describing Safety-Kleen and its operations were sent to
such potential buyers. Each potential buyer also received a letter setting
forth the deadline for submissions of preliminary indications of interest in
Safety-Kleen and other bidding requirements. Pursuant to the standstill
provisions of the confidentiality and standstill agreements entered into by
potential buyers, such buyers agreed not to make any unsolicited offer to
acquire Safety-Kleen or to take certain other actions, including purchasing any
Shares, for a period of from 18 to 24 months. Because Safety-Kleen was
considering various strategic alternatives, including the continued operation
of Safety-Kleen as an independent company, the Board felt it was important to
require that any potential buyer not only enter into a confidentiality
agreement, but also agree to the standstill provisions in order to prevent such
person from using Safety-Kleen's confidential non-public information to make an
unsolicited offer at a later date. Further, the Board believed that the
confidentiality and standstill agreements were necessary to create a stable,
orderly and cooperative process in which all potential buyers would be provided
information regarding Safety-Kleen on a level playing field.
One of the potential buyers which contacted William Blair shortly after the
August 8th announcement was LLE. LLE refused to execute the confidentiality and
standstill agreement that was signed by all of the other potential buyers in
the process and therefore did not receive a Confidential Memorandum. On
September 24, 1997, LLE delivered a letter to Safety-Kleen proposing a reverse
merger in which Safety-Kleen would issue one Share for three shares of LLE
Common Stock. A copy of the LLE letter is filed herewith as Exhibit 7 and is
incorporated herein by reference and the foregoing description is qualified in
its entirety by such exhibit. William Blair responded to LLE by repeating
Safety-Kleen's request that LLE execute the confidentiality and standstill
agreement and participate in the process like other potential buyers.
By early October 1997, Safety-Kleen had received 10 indications of interest
from potential buyers, nine of which expressed interest in acquiring Safety-
Kleen as a whole. At an Executive Committee meeting held on October 13, 1997,
the Executive Committee, with the assistance of William Blair and Safety-
Kleen's legal advisors, evaluated each indication of interest and selected four
potential buyers to proceed to the second stage of the process. On October 16,
1997, those four potential buyers received a second letter requesting that they
submit their best and highest written offer, including the price per share,
proposed transaction structure and amounts and sources of funds, by November
14, 1997. The potential buyers also received a draft merger agreement and were
instructed to submit their comments thereon with their written offer. Safety-
Kleen's letter stated that the certainty and timing of financing would be among
the factors considered in selecting a prospective purchaser.
8
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Shortly after the October 13th Executive Committee meeting, another
potential buyer which had previously executed a confidentiality and standstill
agreement submitted a preliminary indication of interest in Safety-Kleen.
Members of the Executive Committee, with the assistance of Safety-Kleen's
advisors, determined to invite this potential buyer to join the second stage
of the process.
The five potential buyers in the second stage of the process received access
to a special "Data Room" set up by Safety-Kleen, had the opportunity to meet
with management of Safety-Kleen and were able to visit various of Safety-
Kleen's facilities. From October 23rd through November 11, 1997, three of the
five potential buyers conducted meetings with management and visited selected
facilities. The remaining two potential buyers elected not to proceed further.
On November 3, 1997, Mr. James R. Bullock, Chairman of LLE, delivered to Mr.
Brinckman a letter which disclosed that the LLE's Board of Directors had
authorized and directed senior management of LLE to pursue the acquisition of
all the outstanding shares of Safety-Kleen for a per Share consideration of
$14.00 in cash and 2.4 shares of LLE Common Stock. The letter stated that LLE
was willing to execute a confidentiality agreement provided such agreement did
not contain a standstill provision. The text of the letter was included in a
press release that was issued by LLE on November 4, 1997. A copy of the LLE
letter is filed herewith as Exhibit 8 and is incorporated herein by reference
and the foregoing description is qualified in its entirety by such exhibit.
On November 3, 1997, after receipt of Mr. Bullock's letter, Mr. Brinckman
delivered a letter to Mr. Bullock requesting that LLE execute a
confidentiality and standstill agreement and informing Mr. Bullock that
Safety-Kleen's Board of Directors would fully consider the LLE proposal along
with others received by Safety-Kleen. In addition, Mr. Brinckman stated that
representatives of Safety-Kleen, together with its financial advisors, would
meet with representatives of LLE, together with its financial advisors, to
discuss information concerning LLE and its estimate of cost savings and
synergies.
On November 5, 1997, Mr. Bullock and a representative of the LLE financial
advisor met with Mr. Chalhoub, Roy D. Bullinger, Senior Vice President--
Business Management and Marketing, Andrew A. Campbell, Senior Vice President--
Finance, F. Henry Habicht II, Senior Vice President--Corporate Development and
Environment, John Lucks, Vice President--Industrial Marketing and Business
Management, and representatives of William Blair to discuss plans for Safety-
Kleen, including LLE's view of potential synergies that could be achieved
through a combination of the two companies. Mr. Brinckman and Mr. Chalhoub
stated that a substantial portion of those proposed synergies could not be
achieved. This statement was based on Mr. Brinckman's and Mr. Chalhoub's
belief that: (i) LLE's estimate of between $30 to $45 million of annual
savings from the consolidation of sales and service centers was significantly
overstated because, although some Safety-Kleen branches may be closed and
related facility costs and some branch management personnel expenses saved,
service representatives and trucks of those branches would continue to be
needed to service such customers. Furthermore, because these service personnel
and trucks would be forced to work out of branch facilities located further
from their customers, the savings from such closures would be partially offset
by the additional expense of transporting materials longer distances to and
from customers; (ii) LLE's estimate of between $14 to $24 million of annual
savings from the internalization of Safety-Kleen waste into LLE facilities was
inconsistent with the fact that Safety-Kleen spends only approximately $4
million annually on hazardous waste incineration. Most hazardous waste
materials collected by Safety-Kleen are blended into fuel that is reclaimed in
cement kilms at a significant lower cost than incineration; and (iii) LLE's
estimate of approximately $30 million of annual savings from reduction of
corporate and head office functions was aggressive since many of those
functions are essential to support Safety-Kleen's branch sales and service
infrastructure.
At the November 5th meeting, Mr. Bullock stated that LLE was prepared to
sign a mutual confidentiality agreement that did not contain a standstill
provision. Safety-Kleen again repeated its request that LLE, like every other
potential buyer in the process, sign a confidentiality and standstill
agreement.
On November 7th and 11th, respectively, Philip and one of the two other
remaining potential buyers informed William Blair that instead of submitting
an offer by the November 14th deadline, they desired to negotiate exclusively
with Safety-Kleen. Philip indicated that it was prepared to negotiate on this
basis for the acquisition of all Safety-Kleen's Shares at a price of at least
$26 per share (most of which would be payable in cash, with the remainder in
Philip stock) while the other potential buyer indicated a range of between
$24-$25 in cash in a leveraged recapitalization transaction. William Blair
told these two potential buyers that the Board of Directors would consider
their request at the November 14, 1997 Board meeting. This preference
reflected a
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Board view that, with the price of the Shares at an all-time high, it was
desirable to capture the certain value represented by cash for the shareholders
and allow them to redeploy their investment, rather than assuming the
uncertainties of investment in a continuing enterprise. On November 12, 1997,
the other remaining potential buyer elected not to proceed further.
At an Executive Committee meeting on November 10, 1997, the Executive
Committee received a progress report on the process and discussed the proposed
LLE offer. Management, with the assistance of William Blair, also discussed
strategic alternatives such as a possible stock buy-back program and pursing
Safety-Kleen's long-term business plan, including new business developments and
certain acquisitions and/or dispositions of assets.
On November 13, 1997, LLE announced that it had filed a registration
statement on Form S-4 with the Commission relating to its previously announced
intention to offer to acquire all outstanding Shares of Safety-Kleen. LLE also
delivered a notice to Safety-Kleen requesting that a special meeting of
shareholders under Wisconsin law be convened in order to negate the effect of a
Wisconsin statute providing that, under certain circumstances, a person
acquiring more than 20% of a corporation's stock can cast only 10% of the votes
to which shares in excess of 20% ownership would otherwise be entitled. A copy
of a LLE letter dated November 13, 1997 sent to Mr. Brinckman is filed herewith
as Exhibit 9 and is incorporated herein by reference, and the foregoing
description is qualified in its entirety by such exhibit. On November 17, 1997,
Safety-Kleen filed a lawsuit in Federal District Court for the Northern
District of Illinois against LLE seeking a declaratory judgment that LLE
violated the "gun-jumping" prohibitions of federal securities law by certain of
its public announcements made before the effectiveness of the registration
statement with the Commission relating to the shares of LLE Common Stock it
proposes to use in its offer for Safety-Kleen. The suit also challenged LLE's
asserted right under Wisconsin law to demand such a shareholders' meeting at
that time. A copy of Safety-Kleen's complaint is attached hereto as Exhibit 10
and is incorporated herein by reference, and the foregoing summary description
is qualified in its entirety by such exhibit.
On November 14, 1997, the Board of Directors of Safety-Kleen received a
progress report on the process and an analysis of strategic alternatives such
as a possible stock buy-back program and pursing Safety-Kleen's long-term
business plan, including new business developments and certain acquisitions
and/or dispositions of assets. William Blair informed the Board of the request
made earlier in the week by Philip and the other remaining bidder to negotiate
exclusively with Safety-Kleen. Based on subsequent conversations with Philip
and such other bidder, William Blair had been informed that Philip would
increase its consideration to $26.50 per share, payable all in cash, if Safety-
Kleen were to negotiate exclusively with Philip, and although the other bidder
might pay $25 per share, it would not increase its consideration any further.
The Board also discussed its concerns with respect to the proposed LLE offer.
Those concerns included: the lower per share consideration in such offer
(which, based on the closing price of the LLE Common Stock on November 13,
1997, was approximately $25.71); the substantial amount of LLE Common Stock
which was part of that offer and the absence of any downside protection for
Safety-Kleen shareholders if the market value of such stock decreased;
questions as to the liquidity of that stock in the marketplace given that a
very small percentage of the outstanding shares of LLE Common Stock trade
daily; the business and financial prospects for the ongoing company in which
Safety-Kleen shareholders would have a very large continuing interest,
including management's views that LLE would not be able to achieve the
synergies it had outlined in the November 5th meeting for the reasons discussed
above; the conditional nature of the financing for the proposed offer,
including the execution of definitive agreements relating to a merger and the
satisfactory completion of due diligence investigations; and LLE's intention
not to continue Safety-Kleen as a separate ongoing business, to move Safety-
Kleen's Elgin headquarters (which currently employs approximately 650 persons)
and thus reduce the number of Safety-Kleen employees.
The Board, with the assistance of management and Blair, determined that
management should negotiate exclusively with Philip provided that Philip
increased its per share price to $27 in cash. Philip informed William Blair
shortly after the Board meeting that it was prepared to negotiate a transaction
at $27 in cash provided that the definitive agreement provided for a
termination fee under certain circumstances.
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Negotiations with Philip began on November 15th and continued until November
20th. Early in the negotiations, Philip told Safety-Kleen that it desired to
have Apollo and Blackstone and participate in the proposed acquisition. On
November 17th, Mr. Brinckman, Mr. Chalhoub and representatives of William Blair
met with representatives of Apollo and Blackstone and of financial institutions
invited by Philip to consider providing a portion of the funds necessary to
effectuate the proposed acquisition of Safety-Kleen. Safety-Kleen and its
representatives were informed that Philip, Apollo and Blackstone proposed to
form a new entity namely, SK Parent, for the purpose of acquiring Safety-Kleen.
The parties extensively negotiated the proposed Merger Agreement, including
the conditions to the Merger and the provisions regarding termination events
and termination fees that would be contained in the Merger Agreement. During
the negotiations, on November 18 and 19, 1997, special meetings of the Board of
Directors were held to report on the status of the negotiations with Philip.
At a special meeting of the Board of Directors on November 20, 1997, William
Blair and Safety-Kleen's legal advisors advised the Board of the progress of
the negotiations with Philip. The Board, management and William Blair
extensively discussed the proposed Philip transaction, including its structure,
the participation of Apollo and Blackstone and the financing commitments. Mr.
Allen Fracassi, President and Chief Executive Officer of Philip, who had asked
to address the Board, summarized his expectations for the proposed Philip
Merger and confirmed SK Parent's intention, stated in the Merger Agreement, to
maintain Safety-Kleen's principal offices in Elgin, Illinois and to maintain
Safety-Kleen's charitable commitments and community relations. He also informed
the directors that SK Parent intended to maintain Safety-Kleen as an ongoing
business and not to absorb its operations into Philip.
Legal counsel reviewed the applicable legal principles and the form of the
Philip Merger Agreement presented for Board approval. The Board and its
advisors also discussed the terms of the commitment letter from the financial
institutions contacted by Philip to provide the necessary financing, as well as
the equity commitment letter executed by Philip, Apollo and Blackstone and
including the qualifications and conditions of such commitments. Copies of the
latest draft of the Philip Merger Agreement and letters evidencing such
commitments, and related term sheets, had previously been distributed to the
Board. William Blair then rendered to the Board its oral opinion (which opinion
was subsequently confirmed by delivery of a written opinion dated November 20,
1997) to the effect that, as of such date and based upon and subject to certain
matters stated in such opinion, the consideration to be received by the holders
of Shares in the Philip Merger is fair to such holders from a financial point
of view, and reviewed with the Board the financial analyses performed by it in
connection with its opinion (see "--(3) Opinions of Financial Advisor--November
20, 1997 Opinion"). The Board also considered the fact that SK Parent had
advised the Board that it looked forward to beginning discussions regarding the
participation by current management in the equity of the Surviving Corporation
through stock option or similar plans and the potential investment by Safety-
Kleen management in SK Parent. The Board's consideration of such possible
participation was part of its consideration of the effects of the Philip Merger
Agreement on Safety-Kleen's employees. Under Wisconsin law, directors, in
discharging their duties to the corporation and in determining what they
believe to be in its best interests, in addition to considering the interests
of shareholders, may consider, among other factors, the effects of proposed
actions on employees. In addition, the Board considered the fact that Mr.
Jannotta, a director of Safety-Kleen, is a Senior Director of William Blair.
For the reasons summarized above and taking into consideration the factors
listed below in this paragraph, and on the basis of the advice of William Blair
and its legal counsel, the Board voted unanimously to accept the offer from SK
Parent on the grounds that it was fair to, and in the best interests of,
Safety-Kleen's shareholders and was the best offer available at the end of a
comprehensive process of exploring strategic alternatives. In the course of
reaching its decision to approve the Philip Merger Agreement and the Philip
Merger, the Board consulted with Safety-Kleen's legal counsel and William Blair
and, applying the Board's familiarity with Safety-Kleen's business, financial
condition, prospects, current business strategy and opportunities and Safety-
Kleen's position in its industries, considered a number of factors, including,
among others, the following:
(i) presentations by Safety-Kleen's management relating to Safety-Kleen's
financial performance and future opportunities and prospects, including a
review of current financial performance, a preliminary report
11
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on a possible acquisition, possible writeoffs, progress in new businesses
such as comprehensive services involving treatment and recycling of aqueous
cleaning solutions and metal working and other fluids, and provision of
services through its Total Environmental Activity Management approach;
(ii) the presentation of William Blair at the November 20, 1997 Board
meeting and the written opinion of William Blair dated November 20, 1997
that, based upon and subject to the matters set forth therein and as of the
date thereof, the cash consideration to be received by Safety-Kleen's
shareholders in the Philip Merger is fair to Safety-Kleen's shareholders
from a financial point of view; the full text of the November 20, 1997
opinion of William Blair is included as Exhibit 11 hereto and should be
read in its entirety (see "--(3) Opinions of Financial Advisor--November
20, 1997 Opinion" below);
(iii) the fact that William Blair contacted a substantial number of
potential bidders over an extended period of time in a process designed to
elicit third party proposals to acquire Safety-Kleen and enhance
shareholder value and that participants in such process had been afforded
sufficient time and information to submit such a proposal had they wished
to do so;
(iv) the Board's review, based in part on presentations by Safety-Kleen's
management and financial advisors, of alternatives to the Philip Merger,
including a stock buy-back program, acquisitions and dispositions, and the
fact that none of such alternatives, even if successfully carried to
completion, would have resulted in a per share consideration payable to the
holders of Shares as high as the consideration payable in the Philip
Merger;
(v) the lower proposed cash and stock offer by LLE in the stated amount
of $26 per Share, and the Board's concerns with respect to that offer
discussed above;
(vi) historical market prices and trading information for Safety-Kleen's
Shares, including the fact that the $27.00 cash price represents a premium
of approximately 52% over the closing price of $17.81 per Share on August
7, 1997, the last trading day prior to the public announcement that Safety-
Kleen was considering strategic alternatives and had retained William
Blair;
(vii) the terms and conditions of the Philip Merger Agreement, including
(i) those relating to the fee of $50.0 million and/or expense
reimbursements (for documented out of pocket expenses and fees incurred in
connection with the Philip Merger up to a maximum of $25.0 million) to SK
Parent payable upon termination of the Agreement as a result of, among
other things, Safety-Kleen accepting a competing offer that is more
favorable to Safety-Kleen's shareholders; and (ii) those relating to the
ability of the Board to consider unsolicited offers from third parties
prior to the effectiveness of the Philip Merger; and
(viii) the interest of SK Parent in enhancing all of Safety-Kleen's
businesses, its knowledge of Safety-Kleen's markets and customers and its
intent to continue Safety-Kleen as an ongoing business and not absorb its
operations into Philip, to maintain Safety-Kleen's principal office in
Elgin; and SK Parent's intent to preserve Safety-Kleen's relationship with
its employees and to maintain Safety-Kleen's charitable commitments and
community investment.
Immediately following the November 20th Board meeting, Safety-Kleen, SK
Parent and SK Acquisition entered into the Philip Merger Agreement. Safety-
Kleen and Philip also issued press releases announcing the Philip Merger.
Later that day, Mr. Bullock of LLE delivered a letter to Safety-Kleen
advising Safety-Kleen of the LLE Offer. The letter disclosed that: (i) the $15
per share cash portion would be reduced by any incremental costs, such as
break-up fees, new severance arrangements and other expenses Safety-Kleen
might have incurred in connection with its agreement with Philip and others;
and (ii) the stock portion would be equal to $15 divided by the weighted
average trading price for shares of LLE Common Stock for 10 days selected by
lot from the 20 trading days ending three business days immediately prior to
the closing, provided that such number of shares shall not be less than 2.8
nor greater than 3.5. The text of the letter was included in a press release
that was issued by LLE on November 20, 1997. A copy of the LLE letter is filed
herewith as Exhibit 12 and is incorporated herein by reference, and the
foregoing description is qualified in its entirety by such exhibit. On
November 21, 1997, Safety-Kleen confirmed in a press release that it would
respond, in due course, to the LLE amended proposed offer to acquire Safety-
Kleen.
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At a November 24, 1997 special meeting of the Board of Directors, the Board,
with the assistance of William Blair and its legal counsel, reviewed the
November 20, 1997 letter from Mr. Bullock regarding the LLE Offer. The Board
noted that LLE had improved its proposal to what it stated to be a $30 per
share offer. In its preliminary evaluation of that revised offer, the Board
and its advisors discussed, among other things: (i) anticipated deductions
from the cash portion of that purchase price; (ii) factors reducing the value
of the LLE Common Stock, including, among other things: (a) the sustainability
of LLE's present market multiple and the impact on that multiple of the LLE
proposed combination with Safety-Kleen; (b) the effects both in terms of
dilution and market impact of the issuance of approximately 162 million to 202
million shares of LLE Common Stock in connection with its proposed combination
with Safety-Kleen; and (c) Safety-Kleen management's views, based on the
explanation given to Safety-Kleen's management by Mr. Bullock at the November
5th meeting between them, that LLE would not be able to achieve a significant
portion of the $100 to $130 million synergies it outlined in the LLE Offer;
and (iii) the conditional nature of the financing for the LLE Offer. The Board
also again noted the impact that LLE's stated intention to move Safety-Kleen's
Elgin headquarters (which currently employs approximately 650 persons) to
South Carolina would have on Safety-Kleen's employees and the surrounding
communities.
During the Board's review, a letter dated November 24, 1997 was received
from SK Parent expressing its views on the LLE Offer. That letter stated that
SK Parent does not believe the LLE Offer constitutes a Superior Proposal (as
that term is defined in the Philip Merger Agreement), or provided any
indication that LLE is reasonably likely to make a Superior Proposal. Parent
concluded in such letter that it would not be appropriate for Safety-Kleen to
engage in discussions or negotiations with LLE. SK Parent's interest in
acquiring Safety-Kleen pursuant to the Philip Merger Agreement (and its
interest in avoiding termination of the Philip Merger Agreement in favor of
the LLE Offer) is different from the interests of Safety-Kleen shareholders as
sellers of their Shares pursuant to the Philip Merger Agreement.
The Board determined to meet again to further discuss the LLE Offer and
authorized William Blair to continue its analysis of such offer and to report
on such analysis at the next Board meeting.
On November 24, 1997, LLE answered the complaint filed by Safety-Kleen on
November 17th with the United States District Court for the Northern District
of Illinois, denying liability and asserting several defenses. In addition,
LLE and its subsidiary filed counterclaims against Safety-Kleen and its
directors. The counterclaims seek a declaratory judgment that Safety-Kleen is
required to hold a special meeting under Wisconsin law, and assert claims
against Safety-Kleen for violation of certain Wisconsin statutes pertaining to
furnishing of shareholder lists and takeovers, and against the directors for
breach of fiduciary duty in failing to negotiate with LLE, and for failure to
amend the Rights Agreement, and a derivative claim for corporate waste.
Safety-Kleen believes that the LLE counterclaim is without merit and intends
to contest such action vigorously on behalf of Safety-Kleen and the Board of
Directors. A copy of LLE's answer and counterclaim is attached hereto as
Exhibit 13 and is incorporated herein by reference, and the foregoing summary
description is qualified in its entirety by such exhibit.
On November 26, 1997, Safety-Kleen filed preliminary proxy materials with
the Commission relating to the solicitation of proxies by Safety-Kleen for use
at a special meeting of shareholders of Safety-Kleen to consider shareholder
approval of the Philip Merger Agreement and the Philip Merger.
On December 4, 1997, the Federal District Court for the Northern District of
Illinois ruled that LLE can seek the approval of Safety-Kleen shareholders at
a special meeting to restore voting power to Shares that LLE may acquire in
excess of 20% of the outstanding Shares. The Court has also scheduled a
preliminary hearing for January 28, 1998 on LLE's request that the Rights
Agreement be amended to make it inapplicable to the LLE Offer and that the
Court void the termination fee and certain other provisions of the Philip
Merger Agreement.
On December 8, 1997, at a special meeting of the Board of Directors, the
Board set January 9, 1998 as the date for a special meeting of its
shareholders to consider and vote upon a proposal by LLE to restore full
voting power to any Shares that LLE may acquire in excess of 20% of the
outstanding Shares. The Board also determined to take no position concerning
the vote on such restoration of voting power and not to solicit proxies in
connection with such vote. The record date for determination of shareholders
entitled to notice of and to vote at the special meeting was fixed as December
19, 1997.
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On December 20, 1997, the Board met to consider the LLE Offer and took
actions referred to in this Item 4.
(2) Reasons For The Recommendation.
In reaching the conclusions with respect to the LLE Offer referred to in
Item 4(a), the Board considered numerous factors, including, but not limited
to:
(i) the review by Safety-Kleen's legal counsel of the provisions of the
Philip Merger Agreement relating to the ability of Safety-Kleen to furnish
information to, and participate in discussions or negotiations with, a
person making an unsolicited offer for Safety-Kleen if (x) the Board shall
conclude in good faith, after consultation with its financial advisor, that
such person has made or is reasonably likely to make a bona fide
acquisition proposal for a transaction more favorable to Safety-Kleen's
shareholders from a financial point of view than the transactions
contemplated by the Philip Merger Agreement, and (y) in the opinion of the
Board, only after receipt of advice from independent legal counsel to
Safety-Kleen, the failure to provide such information or access or to
engage in such discussions or negotiations would cause the Board to violate
its fiduciary duties to Safety-Kleen's shareholders under applicable law,
and, related to that review:
(a) the presentation by William Blair concerning Safety-Kleen, LLE
and the financial aspects of the LLE Offer and the written opinion of
William Blair to the effect that, as of December 20, 1997, William
Blair does not have a basis for concluding that the LLE Offer is
superior to the Philip Merger from a financial point of view (such
opinion having been expressed after review of the other factors
referred to herein and various financial criteria used in assessing the
LLE Offer, and having been based on various assumptions and subject to
various limitations reviewed for the Board as part of William Blair's
presentation). See "--(3) Opinions of Financial Advisor--December 20,
1997 Opinion" below; and
(b) the advice of Safety-Kleen's legal counsel that, in light of the
presentation by William Blair and the other factors considered by the
Board, failure to provide information or access to, or participate in
discussions or negotiations with LLE, would not cause the Board to
violate its fiduciary duties to Safety-Kleen's shareholders under
applicable law;
(ii) the presentation by Safety-Kleen's legal counsel of the Board's
fiduciary duties under applicable law, summarizing previous such
presentations that the Board had received in the course of its process of
considering Safety-Kleen's strategic alternatives, and the written opinion
of Safety-Kleen's special Wisconsin counsel that, subject to the
limitations and qualifications expressed therein, Safety-Kleen's directors
may take into account how a proposed transaction will affect other
constituencies, in addition to the shareholders of Safety-Kleen, in
carrying out their fiduciary duties; and that Wisconsin's business judgment
rule would be applicable to their judgment;
(iii) the fact that the value of the cash portion of the LLE Offer is
significantly less than $15 per Share due to the stated but unfixed
deductions for certain termination fees and expenses, new severance
agreements and certain other expenses, and that as to the portion of such
deductions for such termination fees and expenses and such severance
agreements, LLE had filed soliciting material with the Commission
estimating such deductions at from $1.28 to $2.14 per Share; and the advice
of Safety-Kleen's legal counsel that the provisions of the Philip Merger
Agreement relating to termination fees and expenses, the new severance
agreements and other expenses are valid and binding on Safety-Kleen;
(iv) the fact that the value of the stock portion of the LLE Offer could
be materially and adversely affected by, among other things: (a) the
pricing collar on the Exchange Ratio under which shareholders of Safety-
Kleen would have no downside protection in the event that the average price
of the LLE Common Stock used in determining the Exchange Ratio is less than
$4.29 per share (particularly given the fact that the LLE Common Stock
closed below $4.29 on December 10th, 11th, 17th and 18th); and (b) the
absence of any assurance that the LLE Common Stock, when ultimately
received by holders of Shares, would have a market value of, or could be
sold for the price of, the LLE Common Stock used in determining the
Exchange Ratio;
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<PAGE>
(v) the uncertain value of the LLE Common Stock, including uncertainties
resulting from:
(a) the views of Safety-Kleen's management, based on the explanation
given to Safety-Kleen's management by Mr. Bullock at the November 5th
meeting between them, that LLE would not be able to achieve a
significant portion of the $100 million to $130 million of synergies it
outlined in the LLE Offer, and the dilutive impact to LLE's earnings
per share that would result from the inability to achieve those
synergies;
(b) the risks related to the ability of LLE, which was formed through
the purchase by Rollins Environmental Services, Inc. of all of Laidlaw
Inc.'s hazardous and industrial waste operations on May 15, 1997, to
assimilate the operations of Safety-Kleen and to integrate the
departments, systems and procedures of Safety-Kleen;
(c) the fact that the LLE Common Stock has, in the past, traded at a
premium to relevant multiples of "comparable" companies, and there is
no assurance that this trading range can be maintained for shares of
the LLE Common Stock that would be received by Safety-Kleen's
shareholders in the LLE Offer;
(d) the fact that the LLE Offer would result in an entity that has
significantly more debt than does LLE currently, which would make
Laidlaw Environmental particularly susceptible to adverse changes in
its industry, the economy and the financial markets generally; and
(e) the risks of material adverse impact on the value of the LLE
Common Stock resulting from the issuance of approximately 162 million
to 202 million shares of the LLE Common Stock in connection with the
LLE Exchange Offer, as well as the substantial overhang from the 121
million shares of the LLE Common Stock owned by Laidlaw Inc. and the
$350 million 5% convertible debenture due 2009 (the "Laidlaw
Convertible Debenture") issued by LLE that may be converted at the
option of Laidlaw Inc. into the LLE Common Stock at a conversion price
of $3.75 per share beginning in 2002;
(vi) the fact that LLE's commitment letter with respect to the financing
of the LLE Offer is subject to numerous conditions, including the execution
of definitive agreements relating to a merger and its exchange offer and
the satisfactory completion of due diligence examinations and a comparison
of those conditions to the conditions of the Philip Merger Agreement;
(vii) the fact that LLE's Pro Forma Financial Information disclosed in
the LLE Registration Statement, does not fairly allocate the purchase price
so as to comply with generally accepted accounting principles. A review of
LLE's allocation discloses that:
(a) LLE's Pro Forma Financial Information reflects an adjustment of
$1.3 billion, writing up "certain Safety-Kleen property, plant and
equipment to fair value," stated to be allocated "primarily [to]
buildings, land, improvements and processing equipment". This write-up
increases Safety-Kleen's net property, plant and equipment from
$629,561,000 to $1,925,205,000 and records related depreciation expense
of $32,392,000, using a 40 year estimated life for the entire write-up.
It appears to make little, if any, allocation to machinery and
equipment, autos and trucks, and leasehold improvements; and
(b) LLE's Pro Forma Combined Balance Sheet reflects no purchase price
allocation to identifiable intangible assets, notwithstanding the fact
that Safety-Kleen has significant identifiable intangible assets
including a publicly disclosed total of 400,000 customers, and
software.
The Board was advised that a reasonable allocation using the assumptions
set forth below produces a materially greater loss in combined continuing
operations, both before and after tax, and has a material negative impact
on pro forma combined tangible net worth. Such assumptions were:
(1) original cost, disclosed in Safety-Kleen's 1996 Annual Financial
Statements, for Safety-Kleen's property, plant and equipment and
equipment at customers (on the assumption that appraisal would restore
those depreciated assets to that level);
15
<PAGE>
(2) a value of approximately $300 million (calculated at an
approximate per customer purchase price derived from publicly available
information on number of customers and price paid for customers in
recent Safety-Kleen acquisitions); and
(3) the following useful lives (derived as reasonable estimates from
Safety-Kleen's publicly disclosed accounting policies (taking into
account the fact that property, plant and equipment is used): equipment
at customers--10 years, buildings and improvements--30 years, leasehold
improvements--10 years, machinery and equipment--10 years, autos and
trucks--4 years, goodwill--40 years, customer lists--6 years,
software--10 years.
(viii) the uncertainty as to the completion and timing of the LLE Offer
and any subsequent merger of the Offeror into Safety-Kleen;
(ix) the fact that Safety-Kleen's shareholders' exposure to the impact of
environmental liabilities would increase if the LLE Offer were consummated
because of differences between their respective environmental services
businesses:
(a) Safety-Kleen is in the reclamation and resource recovery part of
the hazardous waste business--i.e., collection, storage and processing
of hazardous wastes without underground storage;
In contrast, LLE is in the landfills and incinerators part of the
hazardous waste business--i.e., collection of hazardous waste for
burning or burying in hazardous waste landfills; this sector presents
greater long term liability risk since these landfills will contain
hazardous waste in perpetuity;
(b) For 230 facilities, Safety-Kleen provides financial assurance for
closure and post-closure care of $76.1 million, most of which is
covered on the strength of its balance sheet, and current reserves,
based on its actual experience in closing its own sites, of $49.2
million for remedial cleanup work, superfund site liability, and
closure activities;
In contrast, for 85 facilities, LLE, based on its 1997 Form 10-K, is
required to provide financial assurance of more than $450 million,
which it cannot satisfy on the strength of its balance sheet, and must
satisfy based on letters of credit, purchased insurance or guarantees
from its parent, Laidlaw Inc. Notwithstanding its financial assurance
obligation and its financial statement disclosure that it expects to
spend $280 million on environmental liabilities, LLE has reserved only
$183.1 million for environmental liabilities; and
(c) the statements in various analysts' reports reflecting Laidlaw
Inc.'s management's stated goal of deconsolidating with LLE;
(x) the fact that if the LLE Offer and the subsequent merger of the
Offeror into Safety-Kleen were consummated, Laidlaw Inc. would own between
32% and 36% of Laidlaw Environmental (without taking into account the
Laidlaw Convertible Debenture) and, therefore, would be able to exercise
significant influence over all matters requiring shareholder approval,
including the election of directors and approval of significant corporation
transactions; and
(xi) the fact that LLE has stated its intention to move Safety-Kleen's
Elgin headquarters to South Carolina and reduce Safety-Kleen's work force
and the adverse impact that would have on Safety-Kleen's employees.
The foregoing describes all material factors considered and given weight by
the Board in connection with its evaluation of the LLE Offer. In view of the
variety of factors considered in connection with its evaluation of the LLE
Offer, the Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determinations and recommendation. In addition, individual members
of the Board may have given different weight to different factors. The Board
viewed its position and recommendation as being based on the totality of the
information presented to and considered by it.
(3) Opinions of Financial Advisor.
General. Safety-Kleen retained William Blair to act as its financial advisor
in connection with Safety-Kleen's exploration of strategic alternatives for
enhancing shareholder value. No limitations were imposed by the Safety-Kleen
Board of Directors upon William Blair with respect to the investigations made
or the procedures
16
<PAGE>
followed by it in rendering its opinions to the Board. William Blair is a
nationally recognized firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of strategic combinations
and acquisitions. Safety-Kleen retained William Blair as its financial advisor
on the basis of William Blair's experience and expertise in transactions
similar to the Merger, its reputation in the investment banking community and
its existing investment banking relationship with Safety-Kleen. Edgar D.
Jannotta, Sr., a Senior Director of William Blair, serves as a member of the
Board of Directors of Safety-Kleen.
The summary set forth below does not purport to be a complete description of
the analyses performed by William Blair, but describes, in summary form, the
principal elements of the analyses made by William Blair in arriving at its
opinions. The preparation of a fairness opinion is a complex process and
involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances. Therefore, such an opinion is not readily
susceptible to summary description. The preparation of a fairness opinion does
not involve a mathematical evaluation or weighing of the results of the
individual analyses performed, but requires William Blair to exercise its
professional judgment, based on its experience and expertise in considering a
wide variety of analyses taken as a whole. Each of the analyses conducted by
William Blair was carried out in order to provide a different perspective on
the Philip Merger and add to the total mix of information available. William
Blair did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness. Rather, in reaching its conclusion, William Blair considered the
results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. William Blair
did not place particular reliance or weight on any individual analysis, but
instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, William Blair believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, may create an incomplete view of
the evaluation process underlying its opinions. In performing its analyses,
William Blair made numerous assumptions with respect to industry performance,
business and economic conditions and other matters. The analyses performed by
William Blair are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
November 20, 1997 Opinion. At the November 20, 1997 meeting of the Safety-
Kleen Board of Directors, William Blair rendered its oral opinion (which
opinion was subsequently confirmed by delivery of a written opinion dated
November 20, 1997) that, as of such date, and based upon and subject to the
factors and assumptions set forth in such opinion, the consideration to be
received by Safety-Kleen's shareholders in the Merger is fair to Safety-
Kleen's shareholders from a financial point of view. The full text of William
Blair's opinion to Safety-Kleen's Board of Directors dated as of November 20,
1997 is attached hereto as Exhibit 10 and is incorporated herein by reference
and should be read in its entirety in connection with this Statement. The
following summary of William Blair's opinion is qualified in its entirety by
reference to the full text of William Blair's opinion. William Blair's opinion
was addressed to the Safety-Kleen Board of Directors for the purposes of its
evaluation of the Philip Merger and does not constitute a recommendation to
any Safety-Kleen shareholder as to how such shareholder should vote at the
special meeting of shareholders to vote on the Philip Merger.
In connection with its opinion, William Blair reviewed a final draft of the
Merger Agreement, as well as certain financial and other information that was
publicly available or furnished to William Blair by Safety-Kleen, Philip,
Apollo and Blackstone, including certain internal financial analyses,
financial forecasts, reports and other information prepared by the management
of Safety-Kleen. William Blair held discussions with members of management of
Safety-Kleen concerning Safety-Kleen's historical and current operations,
financial condition and prospects. In addition, William Blair (i) compared the
financial position and operating results of Safety-Kleen with those of
publicly traded companies William Blair deemed relevant for its opinion; (ii)
compared certain financial terms of the Merger to certain financial terms of
other selected business combinations William Blair deemed relevant for its
opinion; and (iii) conducted such other financial studies, analyses and
investigations and reviewed such other factors as William Blair deemed
appropriate for the purposes of rendering its opinion.
17
<PAGE>
In rendering its opinion, William Blair relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that
was available to it from public sources and that was provided to William Blair
by Safety-Kleen. With respect to the financial projections supplied to William
Blair, William Blair assumed that they were reasonably prepared and reflected
the best currently available estimates and judgments of the management of
Safety-Kleen as to the future operating and financial performance of Safety-
Kleen. William Blair's opinion relates to financial fairness only; no opinion
is expressed as to the appropriateness of the financial structure or as to the
soundness of the financial condition of Safety-Kleen subsequent to the
effective time of the Philip Merger. William Blair did not assume any
responsibility for making any independent evaluation of Safety-Kleen's assets
or liabilities or for making any independent verification of any of the
information reviewed by William Blair.
William Blair's opinion was necessarily based on economic, market, financial
and other conditions as they existed on November 20, 1997, the date of William
Blair's opinion, and on the information made available to William Blair as of
such date. It should be understood that, although subsequent developments may
affect its opinion, William Blair does not have any obligation to update,
revise or reaffirm William Blair's opinion. The following is a summary of the
material factors considered and principal financial analyses performed by
William Blair to arrive at its opinion. William Blair performed certain
procedures, including each of the financial analyses described below, and
reviewed with the management of Safety-Kleen the assumptions upon which such
analyses were based, and other factors.
Summaries of Valuation Analyses. In connection with its opinion and the
presentation of its opinion to the Board of Directors of Safety-Kleen, William
Blair performed certain valuation analyses, including: (i) a comparison with
comparable publicly traded companies, (ii) a discounted cash flow analysis,
(iii) an analysis of certain comparable acquisitions and (iv) a premium
analysis. Such analyses are summarized below.
Analysis of Certain Publicly Traded Companies. William Blair reviewed and
compared certain financial information relating to Safety-Kleen to
corresponding financial information, ratios and public market multiples for ten
publicly traded companies in the environmental services industry. Six of these
companies are solid waste management companies (the "Solid Waste Comparables")
and four are in the industrial waste management industry (the "Industrial Waste
Comparables"). The Solid Waste Comparables are (i) Allied Waste Industries,
Inc., (ii) Browning-Ferris Industries, Inc., (iii) USA Waste Services, Inc.,
(iv) Waste Management, Inc., (v) Waste Management International plc and (vi)
Wheelabrator Technologies Inc. The Industrial Waste Comparables are (i) Clean
Harbors, Inc., (ii) Envirosource, Inc., (iii) Laidlaw Environmental and (iv)
Philip. William Blair selected these companies because they are publicly traded
companies which William Blair deemed most comparable to Safety-Kleen's
operations and financial condition. Although William Blair compared the trading
multiples of the selected companies at the date of William Blair's opinion to
the implied purchase multiples of Safety-Kleen, none of the selected companies
is identical to Safety-Kleen. The per Share price calculations based on such
multiples ranged from $21.61 to $29.07 per Share.
Among the information considered were revenue, operating income ("EBIT"),
earnings before interest, taxes, depreciation and amortization ("EBITDA"), net
income, earnings per share ("EPS"), gross profit margins, EBIT margins and net
income margins, growth in revenues and net income, return on assets and equity,
and capital structure. The multiples and ratios for Safety-Kleen and the
comparable companies were based on the most recent publicly available financial
information and on EPS estimates for 1997 and 1998 from First Call Corporation,
and the closing share prices as of November 14, 1997.
William Blair observed that the multiples of common stock share price
("Price") to EPS, as well as multiples of market value plus book value of total
debt (including minority interests and preferred stock) less cash and
equivalents ("Enterprise Value") to revenues, EBIT and EBITDA implied by the
terms of the Merger compared favorably, from Safety-Kleen's perspective, to the
median of the corresponding multiples of the comparable companies.
Specifically, the terms of the Merger implied 1.9x latest twelve month ("LTM")
revenues, 15.8x LTM EBIT and 9.4x LTM EBITDA. By comparison, the analysis of
selected environmental service companies resulted in a median multiple of 1.9x
for Enterprise Value to LTM revenues, 16.2x for Enterprise Value to LTM EBIT
and 7.7x for Enterprise Value to LTM EBITDA. The analysis of selected
18
<PAGE>
environmental service companies also resulted in a median multiple of 22.8x
for the Price to LTM EPS, 19.4x for Price to estimated calendar 1997 EPS and
16.7x for Price to estimated calendar 1998 EPS. The terms of the Philip Merger
implied 26.3x for Price to LTM EPS, 25.5x for Price to estimated fiscal 1997
EPS and 22.3x for Price to estimated fiscal 1998 EPS.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
analysis, William Blair estimated the net present value of the unleveraged
free cash flows that Safety-Kleen could produce on a stand-alone basis over a
five year period from 1998 to 2002. In estimating these cash flows the
management of Safety-Kleen made certain assumptions about the operating
performance of Safety-Kleen over the five year period. Such assumptions
included assumptions regarding unit growth and pricing in the markets in which
Safety-Kleen competes, drum volume for hazardous waste, lube oil pricing,
developments in the hazardous waste industry, and U.S. and international
economic conditions. Without limitation, these cash flow estimates assumed
that certain possible changes or developments in Safety-Kleen's business,
which could potentially favorably impact value, would not affect cash flow
during such period. In calculating the "terminal value", William Blair assumed
multiples of Enterprise Value to EBITDA ranging from 6.0x to 8.0x, which
multiples William Blair believed to be appropriate for such an analysis. The
annual and terminal free cash flows were discounted to determine a net present
value of the unleveraged equity value of Safety-Kleen. Discount rates in a
range of 10.0% to 12.0% were chosen based upon an analysis of the weighted
average cost of capital of the publicly traded comparable group of companies
described above. The DCF analysis indicated a valuation of the equity of
Safety-Kleen of between $1.5 billion to $1.8 billion, or $25.58 to $30.35 per
share. As a result, William Blair believes that the price to be paid on the
Philip Merger compares favorably, from Safety-Kleen's perspective, to the
values indicated by the DCF analysis.
Comparable Acquisitions. William Blair performed an analysis of selected
recent merger or acquisition transactions in the environmental services
industry. The selected transactions were chosen based on William Blair's
judgment that they were generally comparable, in whole or in part, to the
proposed transaction. In total William Blair examined twenty transactions that
were announced between September 10, 1993 and June 19, 1997 involving certain
environmental services companies. The selected transactions were not intended
to be representative of the entire range of possible transactions in the
environmental services industry. Although William Blair compared the
transaction multiples of these companies to the implied purchase multiples of
Safety-Kleen, none of the selected companies is identical to Safety-Kleen.
William Blair reviewed the consideration paid in such transactions in terms
of the Enterprise Value of such transactions as a multiple of revenues, EBIT
and EBITDA for the latest twelve months prior to the announcement of such
transactions. Additionally, William Blair reviewed the consideration paid in
such transactions in terms of the price paid for the common stock ("Equity
Purchase Price") of such transactions as a multiple of net income for the
twelve months prior to the announcement of such transactions. William Blair
observed that the multiples of Equity Purchase Price to net income, as well as
multiples of Enterprise Value to revenues, EBIT and EBITDA implied by the
terms of the Philip Merger compared favorably, from Safety-Kleen's
perspective, to the median of the corresponding multiples of the comparable
acquisitions.
Such analysis of the twenty acquisitions in the environmental services
industry resulted in a median multiple of 1.4x for Enterprise Value to LTM
revenues, 14.9x for Enterprise Value to LTM EBIT, 8.7x for Enterprise Value to
LTM EBITDA and 23.3x for Equity Purchase Price to LTM net income. In contrast,
the implied purchase multiples for Safety-Kleen were 1.9x for Enterprise Value
to LTM revenues, 15.8x for Enterprise Value to LTM EBIT, 9.4x for Enterprise
Value to LTM EBITDA and 26.3x for Equity Purchase Price to LTM net income.
Premium Analysis. In addition to evaluating multiples paid in transactions
in the environmental services industry, William Blair considered, for twenty-
two industrial transactions which were announced from March 29, 1996 to
September 29, 1997 and whose Enterprise Value ranged from $790.7 million to
$2.8 billion, the premiums paid over each company's stock price prior to the
announcement of a transaction. The median premium paid in those transactions
was 45.7%, 42.8% and 28.7%, respectively, over each company's stock price one
month, one week and one day before each respective announcement. In contrast,
the premium paid over the
19
<PAGE>
price of the Shares on July 8, 1997, August 1, 1997 and August 7, 1997 or one
month, one week and one day, respectively, prior to the announcement that
Safety-Kleen was evaluating strategic alternatives, was 56.5%, 53.2% and
51.6%, respectively. As a result, William Blair believes that the premium paid
over the price of the Shares compares favorably, from Safety-Kleen's
perspective, to the values indicated by the premium analysis.
December 20, 1997 Opinion. On December 20, 1997 the Safety-Kleen Board of
Directors requested William Blair's opinion as to the superiority, from a
financial point of view, of the consideration which would be received pursuant
to the terms of the LLE Offer as compared with the Philip Merger. Based on the
advice of Safety-Kleen's counsel, William Blair made that comparison based on
their respective anticipated values from a financial point of view as of
consummation.
At the December 20, 1997 meeting of the Safety-Kleen Board of Directors,
William Blair rendered its oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated as of December 20, 1997)
that, as of such date, and based upon and subject to the factors and
assumptions set forth in such written opinion, William Blair does not have a
basis for concluding that the LLE Offer is superior to the Philip Merger from
a financial point of view. The full text of William Blair's opinion to the
Safety-Kleen Board of Directors dated as of December 20, 1997 is attached
hereto as Exhibit 14 and is incorporated herein by reference and should be
read in its entirety in connection with this Statement. The following summary
of William Blair's opinion is qualified in its entirety by reference to the
full text of William Blair's opinion. William Blair's opinion was addressed to
the Safety-Kleen Board of Directors for the purposes of its evaluation of the
LLE Offer and does not constitute a recommendation to any Safety-Kleen
shareholder as to how such shareholder should vote at the special meeting to
vote on the Philip Merger.
In connection with William Blair's review of the LLE Offer and the Philip
Merger and the preparation of its opinion, William Blair: (a) reviewed the
terms and conditions of the Philip Merger Agreement and the financial terms as
set forth in the Philip Merger Agreement and the Preliminary Proxy Statement
dated November 26, 1997 filed by Safety-Kleen with the Commission; (b)
reviewed the terms and conditions of the LLE Offer and the financial terms as
set forth in the LLE Registration Statement; (c) analyzed the historical
revenue, operating earnings, net income, dividend capacity and capitalization
of both LLE and certain other publicly held companies that William Blair
believes to be comparable to LLE; (d) analyzed certain publicly available
financial and other information relating to LLE and the unaudited pro forma
combined financial information in the LLE Offer and performed a sensitivity
analysis on such pro forma financial information based upon variable synergy
assumptions; (f) reviewed the historical market prices and trading volume of
the LLE Common Stock as well as its stock ownership and analyzed factors which
could influence the trading price of the LLE Common Stock on the anticipated
closing date for the LLE Offer; (g) together with Safety-Kleen's management
met with Mr. Bullock, Chairman of LLE; and (h) performed such other analyses
as William Blair deemed appropriate.
William Blair's opinion with respect to the LLE Offer reflects only limited
access to LLE management and no access to internal LLE projections. Upon
consummation of either the Philip Merger or the LLE Offer, Safety-Kleen will
pay William Blair a transaction fee. The amount of such fee increases as the
consideration received by Safety-Kleen's shareholders increases.
In rendering its opinion, William Blair assumed that the Philip Merger or
the LLE Offer would be consummated on the terms described in the Philip Merger
Agreement or the LLE Registration Statement, respectively, without any waiver
of any material terms or conditions by Safety-Kleen and that obtaining the
necessary regulatory approvals for the Philip Merger or the LLE Offer would
not have an adverse effect on Safety-Kleen.
William Blair's opinion was necessarily based on economic, market, financial
and other conditions as they existed on December 20, 1997, the date of its
opinion, and on the information available to William Blair as of such date. It
should be understood that, although subsequent developments may affect its
opinion, William Blair does not have any obligation to update, revise or
reaffirm its opinion. The following is a summary of the material factors
considered and principal financial analyses performed by William Blair to
arrive at its opinion. William Blair performed certain procedures, including
each of the financial analyses described below, and reviewed with the Board of
Directors of Safety-Kleen the assumptions upon which such analyses were based.
20
<PAGE>
Factors Considered and Summary of Analyses Performed. In connection with its
opinion and the presentation of its opinion to the Board of Directors of
Safety-Kleen, William Blair reviewed certain factors and performed certain
analyses, including: (i) a comparison of the current purported nominal value
of the LLE Offer with the $27.00 per share cash consideration in the Merger;
(ii) an assessment of the factors which could influence the trading price of
the LLE Common Stock between the time of announcement of a transaction with
LLE and closing; and (iii) a discounted cash flow analysis of the value of the
LLE Common Stock on a pro forma basis following an acquisition of Safety-
Kleen. Such factors and analyses are reviewed below.
Summary of LLE Offer. William Blair reviewed the LLE Offer. Pursuant to its
terms, LLE and a subsidiary propose to exchange, for each outstanding Share,
cash in the amount of $15.00 less termination fees and expenses, new severance
agreements and other deal expenses plus that number of shares of LLE Common
Stock determined by the Exchange Ratio. In soliciting materials filed with the
Commission, LLE identified termination fees and expenses of $1.28 per share
and severance costs of $0.86 per share. The termination fees and expenses
would reduce the cash portion of the LLE Offer by $1.28, from $15.00 to $13.72
per share. Should the entire severance cost be deducted, the cash portion
would be further reduced by $0.86, from $13.72 to $12.86 per share. While LLE
has challenged these fees, William Blair assumed their validity for purposes
of rendering its opinion. William Blair noted that the Exchange Ratio provides
Safety-Kleen shareholders with LLE Common Stock with a market value of $15.00,
assuming that the LLE Common Stock price for randomly selected days among the
twenty trading days prior to closing of the LLE Offer averages between
$4.28571 and $5.35714 per share. Should the price of the LLE Common Stock as
selected for use in its Exchange Ratio be below $4.28571 at closing, the
Exchange Ratio would be fixed at 3.5 shares; should the price be above
$5.35714 the Exchange Ratio would be 2.8 shares. William Blair noted that on
December 19, 1997, the LLE Common Stock opened below the collar at $4.13 and
closed within the collar at $4.44 per share. In addition, William Blair noted
that the LLE Common Stock closed below the collar on December 10, December 11,
December 17 and December 18, 1997. An average stock price selected at the time
of closing for the Exchange Ratio of below $4.29 would result in the stock
portion of the consideration having a market value of less than $15.00 at that
time. Combining the cash portion of less than $13.72 and the stock portion of
$15.00, the nominal value would at most be $28.72. Assuming the termination
fees and expenses are deducted from the cash portion, LLE's average stock
price would have to decrease to $3.79 per share, or 14.6% below the closing
price on December 19, 1997 for the LLE Offer to have a market value equal to
the cash consideration of $27.00 per share in the Philip Merger; should the
entire severance cost be added to the deductions from the cash portion, LLE's
average share price would have to fall to $4.04 per share, or 9.0% from the
closing price on December 19, 1997 for the LLE Offer to have a market value
equal to the cash consideration of $27.00 per share in the Philip Merger.
Factors which could affect LLE's share price prior to closing of the LLE
Offer. William Blair advised the Safety-Kleen Board of Directors that the
following factors could affect the price of the LLE Common Stock:
1. Possible revision in financial analysts' estimates for accretion in LLE's
fiscal 1998 EPS resulting from a combination of Safety-Kleen and LLE
William Blair pointed out that research analysts as of December 17, 1997 are
of the view that a LLE acquisition of Safety-Kleen would result in substantial
accretion in its fiscal 1998 earnings per share ("EPS"). As of December 17,
1997, the mean estimate of nine research analysts for LLE's fiscal 1998 EPS is
$0.16. During a telephonic conference with institutional investors on November
4, 1997, following its announcement of a proposal to acquire all of the
outstanding Shares for a consideration per Share equal to $14 in cash and 2.4
shares of the LLE Common Stock, Mr. Bullock stated that the acquisition of
Safety-Kleen would be accretive and that one analyst's estimate of a combined
pro forma 1998 EPS of $0.28 was "in the ball park." This estimate indicated
accretion of approximately 75% to LLE resulting from the acquisition of
Safety-Kleen. The accretion was dependent on achieving annual synergies of
approximately $100 million. On November 5, 1997, a research analyst from
Merrill Lynch reported that the acquisition of Safety-Kleen would double his
estimate to $0.30 per share.
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William Blair noted that revised expectations by research analysts
concerning LLE's synergy assumption would reduce their estimates for 1998
results. William Blair performed a sensitivity analysis to determine the
accretion or (dilution) to EPS which would result from various assumed levels
of synergies. The table below shows the results of such analysis.
EPS ACCRETION (DILUTION)
<TABLE>
<CAPTION>
CALENDAR YEAR END
-----------------
ANNUAL SYNERGIES ACHIEVED 1998 1999
------------------------- ---- ----
<S> <C> <C>
$25 million (34.6)% (23.0)%
$50 million (14.7) (9.3)
$75 million 5.2 4.5
$100 million 25.1 18.3
</TABLE>
William Blair described the discussions regarding synergy expectations that
took place on November 5, 1997 between Mr. Bullock, members of management of
Safety-Kleen and their respective representatives. During that meeting, Mr.
Bullock presented the components of LLE's synergy expectations as follows:
. Internalization of Safety-Kleen waste into LLE's incineration
facilities--$14 to $24 million
. Closing of branch facilities--$37 million ($1.5 million annual savings
per branch)
. Closing of recycle centers--$12 to $15 million ($2 to $2.5 million annual
savings per center)
. Selling, general and administrative savings--the balance, which includes
potential closing of Elgin facility (approximately $30 million)
. Total synergies--$93 to $106 million
During that meeting, Safety-Kleen management expressed significant doubt as
to LLE's ability to achieve these levels of synergies, in particular the
realization of cost savings through the internalization of waste streams and
the closing of branch locations with resulting employee reductions which would
negatively impact service to customers.
Below are estimates prepared by Safety-Kleen management of synergies which
LLE might achieve, based solely on their knowledge of Safety-Kleen's business,
publicly available information regarding LLE and Safety-Kleen's meeting with
Mr. Bullock.
. Internalization of Safety-Kleen waste ($4.1 million total cost less LLE
process and transportation expense of approximately 50%)--approximately
$2.0 million
. Savings from consolidation with Safety-Kleen's operating facilities ($0.2
million per branch facilities and recycling centers)--$10 million to $12
million
. Selling, general and administrative expense savings--$14.4 million
. Total synergies--$26.4 to $28.4 million
For the purposes of its assessment of factors which could affect LLE's stock
price, William Blair assumed, with the consent of the Board of Directors of
Safety-Kleen, total synergies of $50 million. In arriving at this number, in
addition to the aforementioned opinions of synergies, William Blair took into
account the November 5, 1997 meeting of LLE, its financial advisor, Safety-
Kleen management and William Blair. Because annual synergies of $50 million
are substantially below analysts' expectations and would result in a dilutive
transaction to LLE, a downward revision of analysts' expectations could have
the impact of reducing LLE's share price.
2. Possible revision of pro forma financial statements
The LLE Registration Statement contains unaudited pro forma combined
financial information. William Blair reviewed the basis of presentation of
these financial statements. Among other things, William Blair noted that LLE
(based on its estimate of fair value) has allocated $1.9 billion of the
proposed purchase price to
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property, plant and equipment carried on Safety-Kleen's books, net of
depreciation, at $629 million. For accounting presentation purposes, LLE
depreciates such assets over a 40 year period, resulting in an annual
depreciation charge of $32.3 million. William Blair noted that LLE depreciates
buildings over periods of between 20 and 40 years and machinery over periods
of between 5 and 30 years. If LLE had prepared its pro forma financial
statements on a basis consistent with its historical reporting methodologies,
and were to change the depreciation period from 40 to 20 years, pretax income
would decrease by $32.3 million. While William Blair noted this in its
presentation to the Board, it did not reflect this change in any of its
analyses.
3. Possible price/earnings multiple contraction in LLE Common Stock prior to
closing
William Blair reviewed and compared certain financial information relating
to LLE and Safety-Kleen to corresponding financial information, ratios and
public market multiples for nine publicly traded companies in the
environmental services industry. Taken as a whole, this is the same group of
comparable companies listed under "--November 20, 1997 Opinion" above.
Although William Blair compared the trading multiples of the selected
companies as of December 17, 1997 to LLE, none of the selected companies is
identical to Safety-Kleen or the LLE Common Stock. William Blair observed the
LLE Common Stock currently trades at very high EPS and EBITDA multiples
relative to its peer group of comparable companies as well as its expected
earnings growth rate. At December 17, 1997, LLE's stock price is trading at
approximately 23.3x calendar 1998 EPS and 16.5x LTM EBITDA (the EBITDA figures
used for this calculation include the pro forma results of Rollins
Environmental Services) which represents a premium to the industry median of
approximately 38% for EPS, and 87% for LTM EBITDA. William Blair pointed out
that assuming $50 million of annual synergies, $1.28 of deductions from the
cash portion of the LLE Offer and a LLE share price within the collar, the
value of the LLE Offer applying the LLE multiple would be $28.72. But if
Safety-Kleen's multiple, the industry median multiple or the S&P 500 multiple
were used, the value to Safety-Kleen shareholders would be $22.41, $23.78 and
$26.39, respectively.
Additionally, LLE's calendar 1998 P/E ratio is at 1.6x its expected EPS
long-term growth rate of 15%, compared to the industry's 1998 P/E ratio to
growth rate of 1.2x. William Blair noted that Safety-Kleen's operating
characteristics and growth prospects would be a major component of a pro forma
combined entity. As indicated in the unaudited pro forma combination analysis
for the year ended August 31, 1997 provided by LLE in the LLE Registration
Statement, Safety-Kleen's operations provided 51.9% of the combined revenue
and 102.7% of the combined operating income (before the restructuring charge
taken by LLE related to the acquisition of Rollins in the amount of $331.7
million). William Blair also noted that estimated growth in earnings per share
reported by First Call for the 1999 calendar year for LLE and Safety-Kleen
were 22.2% and 12.4%, respectively. William Blair pointed out that after a
potential combination with Safety-Kleen, it was unlikely that LLE would be
able to retain its multiples given the contribution of the growth
characteristics of Safety-Kleen's business to the combined entity.
4. Trading Characteristics of the LLE Common Stock
William Blair noted that for any Exchange Ratio for average LLE Common Stock
prices within the collar, Safety-Kleen shareholders would receive LLE Common
Stock with a value at closing of approximately $870 million. William Blair
compared this with the common stock's historical trading characteristics of
the LLE Common Stock. Between February 7, 1997 and December 17, 1997,
approximately 29.2 million shares traded representing approximately $117
million in total dollar volume as compared with the $870 million proposed to
be issued to Safety-Kleen shareholders. The weighted average trading price for
the LLE Common Stock during this period is $4.01 per share. During this same
period, LLE's daily stock trading volume was less than 135,000 shares, or $0.5
million in dollar volume. William Blair expressed concern as to the ability of
the market for the pro forma combined entity to absorb the shares that would
be issued to Safety-Kleen shareholders in the LLE Offer.
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William Blair contrasted the $27.00 all cash offer of the Philip Merger with
the stock component of the LLE Offer and pointed out that the value of the LLE
Common Stock would be affected, up or down, by market conditions. On October
27, 1997, when the Dow Jones Industrial Average fell 554 points, or 7.2%. The
LLE Common Stock dropped 13.8%.
Safety-Kleen shareholders are affected by a substantial overhang from the 121
million shares owned by Laidlaw Inc., constituting approximately 67.4% of LLE's
outstanding shares. In addition, Laidlaw Inc. holds a $350 million 5%
subordinated convertible pay-in-kind debenture which becomes convertible into
93 million shares of the LLE Common Stock in 2002. Laidlaw Inc. has been
divesting itself of environmental assets since Mr. Bullock became its Chief
Executive Officer in 1993. Laidlaw Inc. management has a stated goal of wanting
to deconsolidate LLE and make it easier to potentially exit its LLE investment
by increasing the float. The sale by Laidlaw Inc. of a sizable block of its
stock could be detrimental to the trading value of the LLE Common Stock.
William Blair compared the institutional holdings of LLE and Safety-Kleen,
respectively. Based on Schedule 13-F filings, as of September 30, 1997, LLE's
25 largest institutional holders represented approximately 14% of its total
market capitalization (based on December 16, 1997 share prices), and
approximately 40% of LLE's total public float. This compares to 53% of Safety-
Kleen's total market capitalization which is held by its 25 largest
institutional holders as of September 30, 1997. William Blair also pointed out
during the December 20, 1997 Board meeting that there is little overlap in
institutional ownership for the LLE Common Stock in Safety-Kleen's common
stock. Safety-Kleen's institutional holders may assess ownership of the common
stock of the pro forma combined entity differently from ownership of Safety-
Kleen common stock, given their different investment characteristics, including
leverage, environmental risk, management, valuation and operations.
William Blair compared certain differences in operating, financial and other
characteristics between the ownership in Safety-Kleen common stock and common
stock of the pro forma combined entity. William Blair pointed out that LLE has
substantial assets in hazardous waste and incineration operations and that
different environmental risk could be attached to such operations as contrasted
to Safety-Kleen's operations. William Blair noted that in contrast to Safety-
Kleen, LLE does not pay a dividend. Furthermore, upon closing, the pro forma
combined entity, would have debt of approximately $2.1 billion as opposed to
Safety-Kleen's $246.1 million. Total debt to total capitalization would
increase from 33.2% for Safety-Kleen to 64.0% for the pro forma combined
entity. The ratio of calendar 1998 EBITDA to interest expense for Safety-Kleen
is 12.2x compared to 2.9x for the pro forma combined entity assuming $50
million of synergies. These factors could lead current Safety-Kleen
shareholders to either (i) sell the LLE Common Stock received in a transaction,
potentially affecting the price of that stock around the time of closing, (ii)
short the LLE Common Stock in advance of closing in order to hedge their
prospective position in the LLE Common Stock; and/or (iii) convey a desire to
sell the LLE Common Stock after closing, and thereby create a potential market
overhang.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF") analysis,
William Blair estimated the net present value of the unleveraged free cash
flows that LLE and Safety-Kleen could produce on a combined basis over a five
year period from 1998 to 2002. From this analysis William Blair derived an
intrinsic value for the combined entity as of the anticipated closing date. The
cash flows were based on the aforementioned projections prepared by Safety-
Kleen's management for Safety-Kleen on a stand-alone basis combined with (i)
estimates for LLE's cash flow for fiscal 1998 and 1999 as contained in a
research report dated September 25, 1997 prepared by Raymond James & Associates
("Raymond James"), arithmetically adjusted by William Blair to approximate a
calendar year and (ii) estimates for LLE's cash flow for the calendar years
2000, 2001 and 2002 prepared by William Blair by applying growth, margin and
capital requirement assumptions contained in the Raymond James report for the
fiscal 1999 year. For the reasons previously described, William Blair assumed
annual synergies achieved of $50 million. In calculating the terminal value,
William Blair assumed multiples of enterprise value to EBITDA ranging from 6.0x
to 8.0x which multiples William Blair believed to be appropriate for such an
analysis. The annual free cash flows and terminal values were discounted to
determine a net present value of the unleveraged equity value of the pro forma
combined entity. Discount rates in a range of 10.0% to
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12.0% were chosen based upon an analysis of the weighted average cost of
capital of the publicly traded comparable group of companies described above.
The DCF analysis indicated an intrinsic value of the pro forma combined entity
of between $1.3 billion and $1.8 billion, or $3.29 to $4.65 per share. William
Blair pointed out that the intrinsic value as derived in a DCF analysis
represents a value which assumes 100% control of the cash flows. An owner of a
single share, or a minority position, of a publicly traded stock does not
control the cash flow of that entity. Given that public shareholder ownership
is a non-control position, the intrinsic value normally exceeds public prices
by an amount described by William Blair as a "control premium." William Blair
referred to its premium analysis as described above in "--November 20, 1997
Opinion", in which William Blair considered, for 22 industrial transactions
which were announced from March 29, 1996 to September 29, 1997 and whose
enterprise value ranged from $790.7 million to $2.8 billion, the premiums paid
in such transactions over each company's stock price prior to the announcement
of a transaction. The median premium paid in those transactions was 45.7%,
42.8% and 28.7%, respectively, over each company's stock price one month, one
week and one day before each respective announcement. In order to compare the
intrinsic value per share with the market price of the LLE Common Stock,
William Blair selected a control premium of 25%, which would be an appropriate
discount from the low and high intrinsic value per share of the pro forma
combined entity. William Blair compared these intrinsic values (as discounted
for such control premium) with the collar contained in the LLE Offer and with
the $3.79 to $4.04 range of values per share for the LLE Common Stock required
to cause the LLE transaction to be equivalent to the Philip Merger, from a
financial point of view.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Safety-Kleen retained the services of William Blair pursuant to a letter
agreement (the "William Blair Letter Agreement") dated August 8, 1997, to
render certain financial advisory and investment banking services in
connection with Safety-Kleen's analysis of strategic options including a
possible business combination (through tender offer, merger, sale or exchange
of stock, sale of all or a substantial part of its assets or otherwise) of
Safety-Kleen with another party (the "Possible Transaction"). In exchange for
the services provided, Safety-Kleen agreed to pay William Blair a quarterly
retainer fee of $25,000, payable in advance (with the first installment due
upon execution of the William Blair Engagement Letter), and an opinion fee of
$300,000, payable in the event Blair renders a fairness opinion or advises the
Board of Directors that it is unable to render such an opinion. In addition,
Safety-Kleen agreed to pay William Blair an additional fee (subject to a
credit of the retainer fee and opinion fee) equal to 0.5% of the Total
Consideration (as defined in the William Blair Engagement Letter) received by
Safety-Kleen and its shareholders as a result of the consummation of any
Possible Transaction. The William Blair Engagement Letter also provides that
Safety-Kleen shall reimburse William Blair for all itemized out-of-pocket
expenses (including reasonable fees and expenses of William Blair's counsel
and any other independent experts retained by William Blair) reasonably
incurred by William Blair in connection with its engagement by Safety-Kleen.
Safety-Kleen and William Blair also entered into a separate letter agreement,
dated August 8, 1977, whereby Safety-Kleen agreed to indemnify William Blair
against certain liabilities in connection with William Blair's engagement
under the William Blair Engagement Letter.
William Blair rendered a written opinion to the Board dated November 20,
1997 that, based upon and subject to the matters set forth therein and as of
the date thereof, the cash consideration to be received by Safety-Kleen's
shareholders in the Philip Merger was fair to Safety-Kleen's shareholders from
a financial point of view.
William Blair has provided certain investment banking services to Safety-
Kleen from time to time which William Blair has received customary
compensation. Mr. Edgar D. Janotta, a director of Safety-Kleen, is a Senior
Director of William Blair. In the ordinary course of its business, William
Blair and its affiliates may actively trade the debt and equity securities of
both Safety-Kleen and LLE for their own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to a letter agreement dated August 19, 1997 (the "CSFB Engagement
Letter"), between Credit Suisse First Boston Corporation ("CSFB") and Safety-
Kleen, Safety-Kleen retained CSFB to meet with the Board of Directors to
discuss its analysis of a potential Sale of Safety-Kleen (as defined in the
CSFB Engagement Letter) and the Sale process and to perform such other
financial advisory services in connection with a potential Sale as Safety-
Kleen may reasonably request. The CSFB Engagement Letter provides for the
payment to CSFB
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of a financial advisory fee of $250,000, payable upon the execution of the CSFB
Engagement Letter, and a transaction fee of $1,000,000, payable upon the
closing of a Sale of Safety-Kleen. Safety-Kleen also agreed to reimburse CSFB
for CSFB's reasonable out-of-pocket expenses, including the fees and expenses
of CSFB's legal counsel. In addition, Safety-Kleen agreed to indemnify CSFB
against certain liabilities, including liabilities arising under federal
securities laws.
CSFB has provided certain investment banking services to Safety-Kleen from
time to time for which CSFB has received customary compensation. In the
ordinary course of its business, CSFB and its affiliates may actively trade the
debt and equity securities of both Safety-Kleen and LLE for their own accounts
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
Safety-Kleen has retained Chase Mellon Shareholder Services to distribute
information (including this Statement on Schedule 14D-9) on behalf of Safety-
Kleen in connection with the LLE Offer and related matters. Safety-Kleen has
also retained Hill & Knowlton as public relations advisor in connection with
the LLE Offer and related matters. Such firms will receive customary
compensation for services rendered and also will be reimbursed for their out-
of-pocket expenses.
Except as set forth above, neither Safety-Kleen nor any person acting on its
behalf has employed, retained or compensated any persons to make solicitations
or recommendations to shareholders with respect to the LLE Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best knowledge of Safety-Kleen, no transactions in the Common
Stock have been effected during the past 60 days by Safety-Kleen or any
executive officer, director, affiliate or subsidiary of Safety-Kleen.
(b) To the best knowledge of Safety-Kleen, its executive officers, directors,
affiliates and subsidiaries do not presently intend to tender, pursuant to the
LLE Offer, any Shares which are held of record or are beneficially owned by
such persons or to otherwise sell any such Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth or referenced in Items 3(b) or 4, no negotiation
is being undertaken or is underway by Safety-Kleen in response to the LLE Offer
which relates to or would result in:
(1) an extraordinary transaction such as a merger or reorganization,
involving Safety-Kleen or any subsidiary of Safety-Kleen;
(2) a purchase, sale or transfer of a material amount of assets by
Safety-Kleen or any subsidiary of Safety-Kleen;
(3) a tender offer for or other acquisition of securities by or of
Safety-Kleen; or
(4) any material change in the present capitalization or dividend policy
of Safety-Kleen.
(b) Except as described above, in Item 3(b), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the LLE
Offer which relate or would result in one or more of the matters referred to in
Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Rights Agreement. Each Right issued pursuant to the Rights Agreement
initially entitles the registered holder thereof to purchase one Share at a
price of $73.00 per Share, subject to adjustment. On the earlier of (i) the
tenth day following public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 20% or more of the
outstanding Shares (an "Acquiring Person") or (ii) the tenth business day (or
such later date as may be determined by action of Safety-Kleen's Board of
Directors prior to the time any person becomes an Acquiring Person) after the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of affiliated or associated persons of 20% or
more of such outstanding Shares
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<PAGE>
(the earlier of such dates being the "Distribution Date"), the Rights become
exercisable and trade separately from the Shares. In the event that a person
becomes an Acquiring Person, each holder of a Right (other than Rights
beneficially owned by the Acquiring Person (which will be void), will
thereafter have the right to receive, upon exercise of a Right, that number of
Shares having a market value of two times the exercise price of the Right. In
addition, if Safety-Kleen is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of common stock of the
acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. The Rights may be redeemed
at a price of $.67 per Right at any time prior to a person or group becoming an
Acquiring Person.
At a meeting held on November 14, 1997, the Board resolved that, for purposes
of the LLE Offer, the Distribution Date shall not occur until the earlier of
(i) the "Close of Business" (as defined in the Rights Agreement) on the tenth
day after the Shares Acquisition Date (as defined in the Rights Agreement) and
(ii) the Close of Business on such date on or after November 19, 1997 as may be
determined by the Board of Directors of Safety-Kleen before any Person becomes
an Acquiring Person. As a result of such action, the commencement of the LLE
Offer will not, in and of itself, result in the occurrence of a Distribution
Date.
On November 20, 1997, in connection with the execution and delivery of the
Philip Merger Agreement and the transactions contemplated thereby, the Board
authorized the execution and delivery of a Second Amendment, dated as of
November 20, 1997 (the "Second Amendment"), to the Rights Agreement. The Second
Amendment provides, among other things, that the execution, delivery and
performance of the Philip Merger Agreement will not (i) cause SK Parent, SK
Acquisition or any of their respective affiliates or associates to become an
Acquiring Person, (ii) give rise to a Distribution Date or (iii) trigger
certain other events specified in the Rights Agreement.
The foregoing description of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
and the amendments thereto which are filed as exhibits to the Safety-Kleen's
Form 8-A dated December 28, 1988, Safety-Kleen's Form 8 dated as of August 10,
1990 and the Form 8-A/A dated November 20, 1997, each as filed with the
Commission.
(b) Shareholder Litigation.
Between November 4 and 12, 1997, and on December 5, 1997, putative class
actions were filed against Safety-Kleen and its directors in the Circuit Court
of Cook County, Illinois, entitled William Steiner V. Donald W. Brinckman, Et
Al., No. 97 Ch 14053; Josh Kaplan V. Donald W. Brinckman, Et Al., No. 97 Ch
14097; Robin Fernhoff V. Safety Kleen Corp., Et Al., No. 97 Ch 14195; Larry
Hanon V. Safety Kleen Corp., Et Al., No. 97 Ch 14113; Epstein Family Trust, Et
Al. V. Safety Kleen Corp., Et Al. No. 97 Ch 14379; Gershon Knoll V. Richard T.
Farmer, Et Al, No. 97 CH 14111; and David Steinberg, Et Al. V. Safety-Kleen
Corp., Et Al., No. 97 Ch 15551 (collectively, the "Shareholder Actions"). In
general, the complaints in the Shareholder Actions allege, among other things,
that the director defendants (i) have refused to seriously consider the LLE's
offer, and have failed to maximize stockholder value by entertaining offers to
purchase Safety-Kleen, (ii) have breached their fiduciary and other common law
duties due to plaintiff and other class members in that they have not
exercised, and are not exercising, independent business judgment and (iii) are
acting to entrench themselves in their offices and positions and maintain their
salaries and prerequisites, all at the expense and to the detriment of the
public shareholders of Safety-Kleen. As relief, the complaints seek, among
other things: (i) a declaration that the action be certified as a proper class
action; (ii) injunctive relief requiring that the director defendants carry out
their fiduciary duties to plaintiff and other members of the class by
announcing their intention to, among other things, cooperate fully with any
entity or person, including LLE, having a bona fide interest in proposing any
transaction that would maximize stockholder value; and (iii) damages, costs,
and attorneys' fees. Safety-Kleen believes that the allegations contained in
the complaints are without merit and, if the plaintiffs elect to proceed with
their actions, intends to contest the actions vigorously on behalf of itself
and the Board of Directors.
On December 5, 1997, all of the Shareholder Actions, other than the action
filed on December 5th were consolidated into a single action.
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Copies of each of the Shareholder Actions are filed as Exhibits 15 through 21
and incorporated herein by reference, and the foregoing is qualified in its
entirety by reference to such exhibits.
(c) State Takeover Statutes. As a Wisconsin corporation, Safety-Kleen is
subject to the provisions of the Wisconsin Statutes affecting "business
combinations" (as defined in the Wisconsin Statutes) and other transactions
between corporations and their shareholders. In addition, Chapter 552 of the
Wisconsin Statutes provides further anti-takeover protection for certain
Wisconsin-based corporations.
Business Combination Statutes. Sections 180.1140 to 180.1144 of the Wisconsin
Statutes (the "Wisconsin Business Combination Statute") regulate a broad range
of "business combinations" between a Wisconsin resident domestic corporation
(which Safety-Kleen believes it is) and an "interested stockholder" (which LLE
would be if it consummated the LLE Offer). The Wisconsin Business Combination
Statute defines a "business combination" to include a merger or share exchange,
sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets equal to at least 5%, 10% of its earning power, or issuance of stock or
rights to purchase stock with a market value equal to at least 5% of the
outstanding stock, adoption "interested stockholder." An "interested
stockholder" is defined as a person who beneficially owns, directly or
indirectly, 10% of the voting power of the outstanding voting stock of a
corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting stock
within the last three years. The Wisconsin Business Combination Statute
prohibits a corporation from engaging in a business combination (other than a
business combination of a type specifically excluded from the coverage of the
statute) with an interested stockholder for a period of three years following
the date such person becomes an interested stockholder, unless the board of
directors approved the business combination or the acquisition of the stock
that resulted in a person becoming an interested stockholder before such
acquisition. Business combinations after the three-year period following the
stock acquisition date are permitted only if (i) the board of directors
approved the acquisition of the stock prior to the acquisition date; (ii) the
business combination is approved by a majority of the outstanding voting stock
not beneficially owned by the interested stockholder; or (iii) the
consideration to be received by shareholders meets certain requirements of the
statute with respect to form and amount.
Fair Price Statute. Sections 180.1130 to 180.1132 of the Wisconsin Statutes
provide that certain mergers, share exchanges or sales, leases, exchanges or
other dispositions of assets in a transaction involving a "significant
shareholder" (which LLE would be if it consummated the LLE Offer) and a
resident domestic corporation (which Safety-Kleen believes it is) are subject
to a supermajority vote of shareholders (the "Wisconsin Fair Price Statute"),
in addition to any approval otherwise required. A "significant shareholder" is
defined as a person who beneficially owns, directly or indirectly, 10% or more
of the voting stock of a corporation or an affiliate of the corporation which
beneficially owned, directly or indirectly, 10% or more of the voting stock of
the corporation within the last two years. Such business combination must be
approved by 80% of the voting power of the corporation's stock and at least
two-thirds of the voting power of the corporation's stock not beneficially held
by the significant shareholder that is party to the relevant transaction or any
of its affiliates or associates, in each case voting together as a single
group, unless the following fair price standards have been met: (i) the
aggregate value of the per share consideration is equal to the higher of (a)
the highest price paid for any common shares of the corporation by the
significant shareholder in the transaction in which it became a significant
shareholder or within two years before the date of the business combination;
(b) the market value of the corporation's shares on the date of commencement of
any tender offer by the significant shareholder, the date on which the person
became a significant shareholder or the date of the first public announcement
of the proposed business combination, whichever is higher; or (c) the highest
liquidation or dissolution distribution to which holders of the shares would be
entitled; and (ii) either cash, or the form of consideration used by the
significant shareholder to acquire the largest number of shares, is offered.
Control Share Statute. Under Section 180.1150 (the "Wisconsin Control Share
Statute") of the Wisconsin Statutes, the voting power of shares, including
shares issuable upon conversion of convertible securities or exercise of
options or warrants, of a "resident domestic corporation" held by any person or
persons acting as a group in excess of 20% of the voting power in the election
of directors is limited to 10% of the full voting power of those shares, unless
the articles of incorporation otherwise provide. This restriction does not
apply to shares
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acquired directly from the resident domestic corporation, in certain specified
transactions, or in a transaction in which the corporation's shareholders have
approved restoration of the full voting power of the otherwise restricted
shares.
Defensive Action Statute. Section 180.1134 (the "Wisconsin Defensive Action
Restrictions") of the Wisconsin Statutes provides that in addition to the vote
otherwise required by law or the articles of incorporation of a resident
domestic corporation the approval of the holders of a majority of the shares
entitled to vote is required before such a corporation can take certain action
while a takeover offer is being made or after the takeover offer has been
publicly announced and before it is concluded. Under the Wisconsin Defensive
Action Restrictions, shareholder approval is required for the corporation to
(i) acquire more than 5% of the outstanding voting shares at a price above the
market price from any individual or organization that owns more than 3% of the
outstanding voting shares and has held such shares for less than two years,
unless an equal offer is made to acquire all voting shares; or (ii) sell or
option assets of the corporation which amount to at least 10% of the market
value of the corporation, unless in the case of this clause (ii) the
corporation has at least three independent directors and a majority of the
independent directors vote to opt out of this provision.
Corporate Takeover Statute. In addition to the Wisconsin Corporation Law,
Chapter 552 of the Wisconsin Statutes (the "Wisconsin Corporate Takeover Law")
regulates a broad range of "takeover offers" (as defined in the Wisconsin
Corporate Takeover Law). The Wisconsin Corporate Takeover Law makes it unlawful
for any person to make a takeover offer involving a target company in
Wisconsin, or to acquire any equity securities of a target company pursuant to
the offer, unless a registration statement has been filed with the Wisconsin
commissioner of securities 10 days prior to the commencement of the takeover
offer or such takeover offer is exempted by rule or order of the commissioner.
However, the foregoing registration requirement applies only to a target
company that: (i) does not have any of its securities registered under Section
12 of the Securities Exchange Act of 1934, as amended; (ii) has at least 51% of
its registered securities held of record by residents of Wisconsin; or (iii)
has at least 33% of its registered securities held of record by residents of
Wisconsin, has its principal office in Wisconsin and its business or operations
have a substantial economic effect in Wisconsin. Although Safety-Kleen is a
"target company" for purposes of the Wisconsin Corporate Takeover Law, Safety-
Kleen does not satisfy the foregoing conditions. The Wisconsin Corporate
Takeover Law also imposes certain reporting and filing requirements on persons
making a takeover offer, imposes certain substantive requirements on the terms
of any takeover offer and makes unlawful certain fraudulent and deceptive
practices, all of which provisions may be applicable to the Offer.
(d) Regulatory Filing. On December 11, 1997, Safety-Kleen filed its
Notification and Report Form with respect to the LLE Offer under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act").
LLE filed a Notification and Report Form with respect to the LLE Offer on
November 26, 1997. Under the provisions of the HSR Act applicable to the LLE
Offer, the purchase of shares pursuant to the LLE Offer may not be consummated
until the expiration of a 30-calendar day waiting period following the LLE
filing under such HSR Act. Accordingly, assuming the filing made by LLE was not
deficient, the waiting period with respect to the LLE Offer will expire at
11:59 p.m., New York City time, on December 26, 1997, unless LLE receives a
request for additional information or documentary material or the Antitrust
Division and the Federal Trade Commission terminate the waiting period prior
thereto.
29
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
<C> <S> <C>
Exhibit 1 Excerpts from Safety-Kleen's Proxy Statement, dated March
28, 1997, relating to Safety-Kleen's 1997 Annual Meeting of
Shareholders.
Exhibit 2 Share Ownership of Certain Beneficial Owners and Management.
Exhibit 3 Agreement and Plan of Merger, dated as of November 20, 1997,
by and among SK Parent Corp., SK Acquisition Corp. and
Safety-Kleen Corp.
Exhibit 4 Change of Control Severance Agreement.
Exhibit 5* Letter to Shareholders of Safety-Kleen, dated December 22,
1997.
Exhibit 6 Press Release issued by Safety-Kleen Corp., dated December
22, 1997.
Exhibit 7 Text of September 24, 1997 letter from Laidlaw Environmental
Services, Inc.
Exhibit 8 Text of November 4, 1997 letter from Laidlaw Environmental
Services, Inc.
Exhibit 9 Text of November 13, 1997 letter from Laidlaw Environmental
Services, Inc.
Exhibit 10 Complaint filed by Safety-Kleen Corp. v. Laidlaw
Environmental Services, Inc. (dated November 17, 1997,
United States District Court for the Northern District of
Illinois Eastern Division).
Exhibit 11* Opinion of William Blair & Company L.L.C., dated November
20, 1997.
Exhibit 12 Text of November 20, 1997 letter from Laidlaw Environmental
Services, Inc.
Exhibit 13 Verified Answer, Affirmative Defenses, and Counterclaim
filed by Laidlaw Environmental Services, Inc. v. Safety-
Kleen Corp., et al. (dated November 24, 1997, United States
District Court for the Northern District of Illinois Eastern
Division).
Exhibit 14* Opinion of William Blair & Company L.L.C., dated December
20, 1997.
Exhibit 15 Complaint filed by William Steiner against Donald W.
Brinckman, et al. (dated November 4, 1997, Circuit Court of
Cook County, Illinois County Department, Chancery Division).
Exhibit 16 Complaint filed by Josh Kaplan against Donald W. Brinckman,
et al. (dated November 5, 1997, Circuit Court of Cook
County, Illinois County Department, Chancery Division).
Exhibit 17 Complaint filed by Gershon Knoll against Richard T. Farmer,
et al. (dated November 5, 1997, Circuit Court of Cook
County, Illinois County Department, Chancery Division).
Exhibit 18 Complaint filed by Larry Hanon against Safety-Kleen Corp.,
et al., (dated November 5, 1997, Circuit Court of Cook
County, Illinois County Department, Chancery Division).
Exhibit 19 Complaint filed by Robin Fernhoff against Safety-Kleen
Corp., et al. (dated November 6, 1997, Circuit Court of Cook
County, Illinois County Department, Chancery Division).
Exhibit 20 Complaint filed by Epstein Family Trust against Safety-Kleen
Corp., et al. (dated November 12, 1997, Circuit Court of
Cook County, Illinois County Department, Chancery Division).
Exhibit 21 Complaint filed by David Steinberg against Safety-Kleen
Corp., et al. (dated December 5, 1997, Circuit Court of Cook
County, Illinois County Department, Chancery Division).
</TABLE>
- --------
*Included in copies mailed to shareholders.
30
<PAGE>
SIGNATURE
AFTER REASONABLE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I
CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND
CORRECT.
Safety-Kleen Corp.
/s/ Donald W. Brinckman
By: _________________________________
Name: Donald W. Brinckman
Title: Chairman and Chief
Executive Officer
Dated: December 21, 1997
31
<PAGE>
EXCERPTS FROM SAFETY-KLEEN'S ANNUAL MEETING PROXY STATEMENT EXHIBIT 1
DIRECTORS' COMMITTEES, MEETINGS AND COMPENSATION
Board Compensation
Directors who are employees of the Company receive no additional
compensation for their services as directors. In 1996, directors who were not
employees received $12,000, plus $2,000 for each Board or committee meeting
attended and were reimbursed for travel and other expenses related to attendance
at Board and committee meetings. In February 1988, a nonqualified stock option
plan for outside directors (the "Directors' Plan") was adopted by the Board and
approved by the shareholders at the 1988 annual meeting. The Directors' Plan
allows eligible directors of the Company to purchase up to an aggregate of
300,000 shares of Common Stock at a price equal to the fair market value of the
Common Stock on the date such options are granted. Only directors who are not
employees of the Company are eligible to participate in the Director's Plan.
Pursuant to the Directors' Plan, an option to purchase 15,000 shares of the
Company's Common Stock (i) was granted to each director serving on the Board on
the date the Directors' Plan was adopted and (ii) is granted to each new outside
director at the time such director is named or appointed to the Board. The
Director's Plan also provides for the automatic grant of a second option to
purchase 15,000 shares to each outside director on the fifth anniversary of the
initial grant of options to such director, but only if such director is still
serving on the Board at that time. Options are exercisable 25 percent annually,
on a cumulative basis, starting one year from date of grant and expire ten years
from date of grant.
-1-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table specifies the components of the compensation packages
of the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company (the "named executive officers")
for the last three fiscal years.
<TABLE>
<CAPTION>
Long Term
Comp.
-----------
Awards
Annual -----------
Compensation Securities
------------- Underlying All Other
Bonus Option/SARS Compensation
Name and Principal Position Year Salary (1)(2) (#)(2) (3)
- --------------------------- ---- ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
John G. Johnson, Jr.......... 1996 417,901 272,010 65,000 3,750
President and CEO 1995 391,661 119,170 50,000 2,625
1994 310,384 119,600 47,750 2,250
Donald W. Brinckman(4)....... 1996 417,062 183,968 37,750 3,750
Chairman 1995 404,615 84,840 30,000 2,625
1994 440,000 138,000 64,600 2,250
Joseph Chalhoub.............. 1996 220,221 141,976 28,650 3,750
Senior Vice President 1995 205,855 86,514 22,450 2,859
1994 183,594 66,420 28,600 4,510
David A. Dattilo............. 1996 191,470 137,502 25,800 3,750
Senior Vice President 1995 185,444 78,815 21,000 2,265
1994 178,500 68,850 29,550 2,250
F. Henry Habicht III......... 1996 190,916 128,019 25,050 3,750
Senior Vice President 1995 182,738 78,815 20,900 2,266
1994 162,765 66,900 24,350 1,145
</TABLE>
- -----------------------
(1) The amounts shown in the bonus column represent payments under the
Company's Management Incentive Plan described under the caption
"Compensation Committee Report."
(2) Bonuses are paid and stock options are granted in February of each year
based on performance during the prior year. Accordingly, bonus payments and
option grants are reported in this table for the year to which they relate,
instead of the year in which they were paid or granted.
(3) 1996 amounts reported represent Company contributions to the Savings and
Investment Plan, a defined contribution plan.
(4) Mr. Brinckman retired as an executive officer effective March 17, 1997. He
will continue to serve as Chairman of the Board.
-2-
<PAGE>
Option/SAR Grants In Last Fiscal Year
The following table provides information related to option/SARs granted to
the named executive officers during fiscal 1996.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Potential Realizable Value
Number of At Assumed Annual Rates
Securities % of Total of Stock Price
Underlying Options/SARS Exercise Appreciation for
Options/SARS Granted to or Base Option Term
Granted Employees Price Expiration ----------------------------
Name (#)(1) In Fiscal Year ($/SH) Date 5$($)(2) 10%($)(2)
- ---- ------------ -------------- -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
John G. Johnson, Jr. 50,000 5.82% $15.125 2/2/06 $ 475,598 $ 1,205,265
Donald W. Brinckman 30,000 3.49% 15.125 2/2/06 285,359 723,159
Joseph Chalhoub 22,450 2.61% 15.125 2/2/06 213,543 541,164
David A. Dattilo 21,000 2.44 15.125 2/2/06 199,751 506,211
F. Henry Habicht II 20,900 2.43% 15.125 2/2/06 198,800 503,801
Shareholders/(3)/ N/A N/A N/A N/A 554,046,703 1,404,063,125
</TABLE>
- ---------------
(1) All options are nonqualified, expire 10 years from date of grant, were
issued at fair market value on the date of grant and vest at the rate of
25% per year beginning one year from grant date. Options granted to
executive officers have a tandem limited stock appreciation right (LSAR)
which entitles the officer to elect to receive a "Change of Control Value"
(as described in the 1993 Stock Option Plan) of the option in cash in the
event a change of control occurs. Does not include options granted in
February of 1997 relating to fiscal 1996 and reported in the Summary
Compensation Table as compensation earned in 1996. See Note 2 to Summary
Compensation Table.
(2) The potential realizable value portion of the foregoing table illustrates
the gain that might be realized upon the exercise of the options
immediately prior to the expiration of their term, assuming the specified
compounded rates of appreciation of the Company's Common Stock over the
term of the option. Actual gains, if any, on the stock option exercises are
dependent on the future performance of the Common Stock, overall market
conditions, as well as the option holders' continued employment through the
vesting period. The amounts reflected in this table may not necessarily be
achieved.
(3) With respect to shareholders, the potential realizable value illustrates
the gain that might be realized on the 58,246,939 shares of Common Stock
issued and outstanding as of year end, assuming the specified compounded
rates of appreciation of the Company's Common Stock over the term of the
options. The value is calculated based on the Exercise or Base Price of the
option grant on February 2, 1996 of $15.125 per share.
-3-
<PAGE>
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-end Option/Sar
Values
The following table provides information related to options exercised by
the named executive officers during fiscal year 1996 and the number and value of
options held at fiscal year end.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options Held at In-The-Money Options At
Acquired Fiscal Year End(#)(1) Fiscal Year End ($)(1)(2)
on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John G. Johnson, Jr... 0 $0 47,474 104,126 $36,322 $105,513
Donald W. Brinckman... 0 0 390,141 109,601 67,218 95,974
Joseph Chalhoub....... 0 0 57,087 54,063 22,390 52,289
David A. Dattilo...... 0 0 70,214 53,401 22,479 50,382
F. Henry Habicht II... 0 0 25,749 49,251 19,650 47,523
</TABLE>
__________________
(1) Does not include options granted in February of 1997 relating to fiscal
1996 and reported in the Summary Compensation Table as compensation earned
in 1996. See Note 2 to Summary Compensation Table.
(2) Represents the difference between the per share exercise price and the
closing price of the Common Stock on December 27, 1996 ($16.625).
Pension Plan
The following table reflects annual pension benefits commencing at age 65
based upon assumed final pay amounts and years of credited service:
Estimated Annual Pension Based Upon
Indicated Years Of Credited Service For The
Pension Plan And The Excess Benefit Plan
<TABLE>
<CAPTION>
Assumed
Average
Annual 10 15 20 25 30 35 40
Final Pay Years Years Years Years Years Years Years
- --------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000 41,186 61,778 82,371 102,964 123,557 123,767 123,977
300,000 49,521 74,281 99,041 123,802 148,562 148,772 148,982
350,000 57,856 86,783 115,711 144,639 173,567 173,777 173,987
400,000 66,191 99,286 132,381 165,477 198,572 198,782 198,992
450,000 74,526 111,788 149,051 186,314 223,577 223,787 223,997
500,000 82,861 124,291 165,721 207,152 248,582 248,792 249,002
550,000 91,196 136,793 182,391 227,989 273,587 273,797 274,007
600,000 99,531 149,296 199,061 248,827 298,592 298,802 299,012
650,000 107,866 161,798 215,731 269,664 323,597 323,807 324,017
700,000 116,201 174,301 232,401 290,502 348,602 348,812 349,022
750,000 124,536 186,803 249,071 311,339 373,607 373,817 374,027
800,000 132,871 199,306 265,741 332,177 398,612 398,822 399,032
850,000 141,206 211,808 282,411 353,014 423,617 423,827 424,037
</TABLE>
-4-
<PAGE>
The Safety-Kleen Pension Plan for Salaried Employees (the "Pension Plan")
provides retirement benefits for life for salaried employees, including
executive officers, of the Company and its participating subsidiaries. Pensions
are based on final pay, which is defined as the average annual earnings
(including commissions and incentive compensation) for the five consecutive
years which yield the highest average. For the named executive officers, covered
compensation is substantially the same as the sum of the Salary and Bonus
columns for 1996 on the Summary Compensation Table. The pensions are payable
monthly commencing the first calendar month after retirement. Various provisions
under the Internal Revenue Code of 1986, as amended (the "Code") limit the
accrued benefit payable under the Pension Plan, currently to $120,000, and limit
the amount of annual compensation that may be taken into account in determining
pension benefits, currently to $150,000.
Under the Safety-Kleen Corp. Excess Benefit Plan (the "Excess Benefit
Plan"), executive officers are generally entitled to the difference between the
benefits actually paid to them under the Pension Plan and the benefits which
they would have received under the Pension Plan were it not for certain
restrictions imposed under the Code, discussed above. The Excess Benefit Plan
also provides that the executive officers' benefits are calculated on the
highest five of their last ten years' compensation and that any executive
officer who has attained both the age of 60 years and 30 years of service will
receive an unreduced pension benefit.
The amounts shown above are computed on straight-life annuity amounts and
are not subject to deduction for Social Security Benefits or other offset
amounts. The amounts are assumed payable under the Pension Plan option providing
lifetime benefits for the employee only, and would be reduced if the retiree
elected a surviving spouse's pension. Messrs. Johnson, Brinckman, Chalhoub,
Dattilo and Habicht had 4 years, 37 years, 19 years, 29 years and 4 years,
respectively, of credited service under the Pension Plan as of December 31,
1996. Mr. Chalhoub's benefits paid under the Pension Plan will be offset by
benefits payable under a defined contribution plan administered by Safety-Kleen
Canada, Inc. which he participated in for the first 17 years of his employment.
Employment Contracts And Severance Arrangements
The Company has agreed to provide executive life insurance to 37 of its
officers and key managers (including the named executive officers) whereby the
Company and executive contribute to a life insurance policy owned by the
executive; no such contributions were made during 1996.
The Company has entered into agreements with twenty of its officers and
other vice presidents, including the named executive officers, providing for the
payment of certain severance benefits in the event the officer or vice president
is terminated within three years after a change in control of the Company (which
is generally defined as the purchase by any person or group of persons of more
than 20% of the issued and outstanding Common Stock, a change in the majority of
the members of the Board over a 24-month period, or certain corporate
reorganizations) for reasons other than a voluntary termination or discharge for
cause (as both terms are defined in such contracts). Benefits under these
contracts include the payment of a lump sum severance benefit equal to three
times the executive's annual salary at the time of termination (or if greater,
at the time of the change in control), plus three times the greater of (i) the
bonus he received for the previous year or (ii) the maximum bonus to which he
could be entitled for the year in which the termination occurs.
Each of the severance agreements provides for a reduction of payments due
under such agreement, to the extent that such payments, together with all other
amounts payable to the executive other than payments attributable to options
granted him under the Company's stock option plans, constitute "excess parachute
payments" under federal tax law. The contract also provides that the Company
will reimburse the executive for any additional income taxes (including excise
taxes) he incurs as a result of payments upon termination
-5-
<PAGE>
(including payments attributable to options) being treated as excess parachute
payments under federal income tax law.
Compensation Committee Report On Executive Compensation
Pursuant to the rules regarding disclosures of Company policies concerning
executive compensation, this report is submitted by Messrs. Farmer, Gwillim, and
Jannotta in their capacity as the Board's Compensation Committee and addresses
the Company's compensation policies for 1996 as they affected Mr. Johnson, the
Chief Executive Officer ("CEO"), and the Company's other executive officers,
including the named executive officers.
Overview Of Executive Compensation Policy. The Company's compensation
philosophy is incentive oriented, particularly for executive officers. The key
elements of the Company's executive compensation program consist of salary,
annual bonus, and stock options. The annual bonus portion of the officers'
compensation is incentive based and is directly linked to corporate performance
and returns to shareholders. Accordingly, the Company has developed an overall
compensation strategy and specific compensation plans that tie a significant
portion of executive compensation to the Company's success in meeting specified
performance goals and to appreciation in the Company's stock price. The overall
objectives of this strategy are to motivate the CEO and the executive officers
to achieve the goals inherent in the Company's business strategy, to link
executive and shareholder interests through equity-based plans, and finally, to
provide a compensation package that recognizes individual contributions, as well
as overall business results.
In determining compensation, the Compensation Committee compares the
executive officers' compensation to the compensation paid to persons in
comparable positions at comparable companies. While the elements of compensation
described below are considered separately, the Compensation Committee takes into
account the full compensation package provided by the Company to the individual,
including pension benefits, supplemental retirement benefits, severance plans,
insurance, and other benefits. The comparable companies used for this comparison
are not the same companies that comprise the peer group index in the Stock
Performance Graph on page 15, because the Compensation Committee believes that
the Company's competitors for executive talent are not generally the companies
included in that index. For these purposes, comparable companies are
approximately 67 companies, surveyed by an outside consulting firm, whose sales,
assets, shareholders' equity, net income, return on equity, and total number of
employees are similar to those of the Company (the "Primary Survey Group"). For
purposes of evaluating compensation of the CEO and the other named executive
officers, the Compensation Committee also reviews data on a special survey group
(the "Special Survey Group"). The Special Survey Group reports the compensation
paid to the named executives holding comparable positions at publicly traded
industrial companies with sales between $800 million and $1.2 billion and with
earnings between $50 million and $80 million. For 1996, the Special Survey Group
consisted of 26 companies.
In addition, the Compensation Committee receives the recommendations of the
CEO for the compensation to be paid the executive officers, other than the CEO
and the Chairman of the Board. This process is designed to ensure consistency
throughout the executive compensation program.
Section 162(m) of the Internal Revenue Code precludes publicly-held
companies from taking income tax deductions for compensation paid to its CEO or
any of its four other most highly paid executive officers to the extent any such
individual's taxable compensation for the year exceeds $1 million. However,
compensation that qualifies as "performance-based" under Section 162(m) is not
subject to the $1 million deduction limit. To qualify as "performance-based,"
compensation payments must, among other things, be
-6-
<PAGE>
based on objective performance criteria established under a plan, the material
terms of which have been approved by shareholders.
The Compensation Committee intends to design the Company's compensation
programs to generally conform with Section 162(m) so that in the event total
compensation paid to any executive officer exceeds $1 million in any one year,
compensation payments in excess of $1 million should qualify as "performance-
based," and the Company will preserve its tax deduction with respect to those
payments. Pursuant to this policy, an amendment to the Company's 1993 Stock
Option Plan and the material terms of the Company's Management Incentive Plan
are being presented for shareholder approval so that amounts realized by
participants under such plans will qualify as "performance-based" under Section
162(m).
Salaries. Salaries for executive officers are determined by (i)
subjectively evaluating the responsibilities of the position held and the
experience and performance of the individual and (ii) comparing base salaries
for comparable positions at comparable companies. Salaries paid to the named
executive officers, including Mr. Johnson, in 1996 were below the fiftieth
percentile of the amount paid for comparable positions among the Special Survey
Group .
Annual Bonus. The Company's executive officers are eligible for an annual
cash bonus under the Company's Management Incentive Plan (the "Incentive Plan").
The purpose of the Incentive Plan is to supplement through an incentive bonus
the pay for executive officers (and other key management personnel) so that
overall total cash compensation (salary and bonus) is externally competitive and
properly rewards Incentive Plan participants for their efforts in achieving
certain specified performance goals. For 1996, if the Company had met these
performance goals, total cash compensation (salary and bonus) would have been
below the seventy-fifth percentile of the amount paid for comparable positions
among the Primary Survey Group.
The Incentive Plan operates as follows. In 1996, the Board of Directors
reviewed the profit plan (the "Profit Plan") for the year and created an
incentive fund, consisting of both a formula and personal performance fund,
based on earnings results relative to the Profit Plan. In order to qualify for
the minimum percentage of earnings allocable to the formula portion of the
incentive fund, Safety-Kleen had to attain consolidated net earnings equal to
80% of Profit Plan consolidated net earnings. In order to qualify for the
maximum percentage of earnings allocable to the formula portion of the incentive
fund, Safety-Kleen had to attain consolidated net earnings equal to at least
120% of Profit Plan consolidated net earnings. At the minimum consolidated net
earnings level, a formula incentive fund consisting of 1% of consolidated pretax
earnings would have been created. This factor rose on a graduated basis to a
maximum of 5.0% of consolidated pretax earnings at the maximum level. Each
participant was allocated a percentage of the bonus pool based on the
participant's responsibilities at the Company. At the beginning of 1996, the
Compensation Committee reviewed the CEO's recommendations for participants in
the Incentive Plan and determined the list of plan participants and the
percentage share of the formula pool for each participant. For 1996, there were
116 participants in the Incentive Plan
In addition to a share of the formula pool, Incentive Plan participants
were also eligible for personal performance bonuses payable in the discretion of
the Compensation Committee in an amount not to exceed 50% of his or her share of
the formula pool. Thus, the aggregate maximum annual bonus payments were 7.5% of
pre-tax earnings. After the Company received its audited year-end financial
statements and the size of the formula bonus pool was determined, the
Compensation Committee reviewed the CEO's recommendations for each participant's
discretionary award based on the participant's individual contributions to the
Company and determined the participants' discretionary shares. The Incentive
Plan also provided for the Board of Directors to make a determination,
notwithstanding the other plan provisions, regarding the amount of the bonus
pool and the awards to be paid to individual participants. This provision
permitted the
-7-
<PAGE>
Board of Directors to make whatever changes it deemed necessary to preserve the
purposes and objectives of the Incentive Plan.
For 1996, a formula pool of 3.3% of pre-tax earnings was allocated to
participants. Discretionary bonuses increased the size of the total pool
allocated to participants to 4.1% of pre-tax earnings. For 1996, Mr. Johnson
received 5.45% of the formula bonus pool under the Incentive Plan and a
discretionary bonus equal to 40% of his formula bonus.
For 1997, the Board of Directors approved a new Management Incentive Plan.
A bonus pool will be created in a manner similar to 1996. However, annual bonus
payments to participants for 1997 will be determined based on incremental
improvements in Economic Value Added(R) ("EVA(R)"). EVA measures a firm's true
economic profit after subtracting the cost of all capital employed by the firm.
EVA was selected to determine bonus payments to participants under the Company's
incentive plan because the Company believes improvements in EVA are closely
correlated to improvements in shareholders' total return.
Stock Options. Stock option grants under the 1993 Stock Option Plan are
designed to align the long-term interests of the Company's executives and its
shareholders and assist in the retention of executives. Stock options are
granted with an exercise price equal to the market price on the date of grant.
The Company's practice is to award options at the beginning of each year and
vest such options at the rate of 25% per year beginning at the one-year
anniversary of the grant. This approach is designed to create shareholder value
over the long-term because the full benefit of the options cannot be realized
unless stock price appreciation occurs over a number of years.
In February 1996, the Compensation Committee recommended and the Board of
Directors granted nonqualified stock options under the 1993 Stock Option Plan to
all executive officers, as well as certain other employees. The grants made to
each executive officer, including the CEO, were based on each executive's level
in the Company and immediate prior year's total cash compensation. The number of
options granted to each executive officer was determined by (i) multiplying the
executive's total cash compensation by a specified percentage (which ranged from
150% to 80%) depending upon the executive officer's level of responsibility
within the Company and (ii) dividing the product obtained in (i) by the
Company's average stock price for the prior year. Applying a 150% multiplier for
Mr. Johnson, he was granted 50,000 options. This formula approach, which is
indirectly based on competitive compensation data, provides for awards based on
current duties and responsibilities, as well as present and potential
contributions to the success of the Company.
Russell A. Gwillim, Chairman
Richard T. Farmer
Edgar D. Jannotta
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1987, the Company purchased its oil processing business from enterprises
controlled by Joseph Chalhoub. Mr. Chalhoub is now a Senior Vice President of
the Company and supervises, among other things, the Company's oil reprocessing
business. Mr. Chalhoub holds a 31% interest in Booth Oil Company, Inc.
("Booth"). Booth was the operator of an oil reprocessing facility in Buffalo,
New York which is owned by the Company (the "Facility"). Booth operated the
Facility until June of 1996, when the Company assumed responsibility for
operations. The Company paid Booth approximately $1.5 million for processing
services at the Facility during 1996. The Company believes that the prices it
paid for processing and
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<PAGE>
management services at the Facility were competitive with the prices it would
have been required to pay at other third party facilities.
During 1996, the Company paid approximately $150,000 to Williams & Vanino,
Inc., for environmental management consulting services. Marcia E. Williams, a
director of the Company, is President of Williams & Vanino. In addition, Marcia
Williams' husband is a partner with the law firm of Latham & Watkins. Safety-
Kleen utilized Latham & Watkins for legal services in 1996.
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<PAGE>
EXHIBIT 2
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Share ownership as of December 19, 1997
of (i) shareholders who, to the knowledge of Safety-Kleen, owned beneficially
more than 5% of the outstanding shares of Common Stock; (ii) each of Safety-
Kleen's directors; (iii) each executive officer and (iv) Safety-Kleen's
directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OWNED(1) SHARES(2)
---- ------------ -------------
<S> <C> <C>
FIVE PERCENT SHAREHOLDERS:
FMR Corp.
82 Devenonshire St., Boston, MA 02109....... 4,230,519 7.24%
Emery Family Group:
Joan Emery Lammers
1801 Seminary St., Alton, IL 62002........ 1,948,673(3) 3.32%
William H. Emery II
11388 SW Riverwoods Rd., Portland, OR
97219..................................... 1,645,510 2.81%
Lucy T. Otzen
100 Anchor Drive, #472, N. Key Largo, FL
33037..................................... 1,481,093(4) 2.53%
Edward W. Emery, Jr.
Route 18, Box 13, Bedford, IN 47421....... 60,521(5) .11%
Circle L. Enterprises L.P.
Landmark Center, P.O. Box 1056,
Lake Geneva, WI 53147.................... 1,367,520(4) 1.33%
DIRECTORS AND EXECUTIVE OFFICERS:
Donald W. Brinckman.......................... 907,100(6) 1.53%
Hyman K. Bielsky............................. 57,858(7) *
Roy D. Bullinger............................. 64,295(8) *
Robert J. Burian............................. 125,036(9) *
Andrew A. Campbell........................... -- *
Michael H. Carney............................ 137,244(10) *
Joseph Chalhoub.............................. 352,146(11) *
David A. Dattilo............................. 121,435(12) *
Lawrence Davenport........................... 8,158(13) *
Richard T. Farmer............................ 43,390(14) *
Scott E. Fore................................ 42,260(15) *
Russell A. Gwillim........................... 198,493(16) *
F. Henry Habicht II.......................... 47,118(17) *
Edgar D. Jannotta............................ 67,500(14) *
John G. Johnson, Jr.......................... 99,179(18) *
Scott D. Krill............................... 4,362(19) *
Karl G. Otzen................................ 1,481,093(4) 2.53%
Clark J. Rose................................ 79,914(20) *
Laurence M. Rudnick.......................... 45,590(21) *
Paul D. Schrage.............................. 31,180(14) *
C. James Schulz.............................. 17,300(22) *
Marcia E. Williams........................... 12,250(23) *
Robert W. Willmschen......................... 148,755(24) *
W. Gordon Wood............................... 71,317(14) *
All Directors and Officers as a Group (24
persons).................................... 4,212,953(25) 6.99%
</TABLE>
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*Denotes less than one percent of shares outstanding.
<PAGE>
(1) Under regulations of the Securities and Exchange Commission, persons who
own or have the power to vote or dispose of shares, either alone or
jointly with others, are deemed to be the beneficial owners of such
shares. Such persons are also deemed to be the beneficial owners of shares
beneficially owned by certain close family members.
(2) Shares subject to options exercisable within 60 days of December 19, 1997
are considered outstanding for the purpose of determining the percent of
the class held by the holder of such option, but not for the purpose of
computing the percentage held by others.
(3) The shares shown for Joan Emery Lammers include 683,760 shares contributed
by or on behalf of Mrs. Lammers in December 1992 to Circle L Enterprises
L.P. (the "Circle L Limited Partnership"). See Note (4).
(4) Karl G. Otzen and Lucy T. Otzen (the "Otzens") are husband and wife. For
purposes of this table, each is deemed to own shares owned by the other,
and accordingly the same shares are shown opposite each of their names. In
December 1992, the Otzens caused 683,760 of the shares shown opposite each
of their names to be contributed to Circle L Limited Partnership. The
general partner which controls the Partnership is a corporation in which
Karl G. Otzen, Lucy T. Otzen, Joan Emery Lammers and her husband (the
"Lammers") each own 25% of the voting stock and each occupies one of the
four positions on the Board of Directors. Because the Otzens and Lammers
share voting power over all of the shares held by the Partnership, each of
them may be deemed to "own" all shares in the Partnership under the
criteria governing this table. To enhance clarity of presentation,
however, the shares contributed to the Partnership by Joan Emery Lammers
are shown only opposite her name in the table and the shares contributed
by the Otzens are shown only opposite their respective names. The shares
shown opposite the Otzens' names also include: 757,721 shares owned by
trusts of which the Otzens are co-trustees, 9,100 shares owned by a trust
of which The Northern Trust Company is trustee and 30,000 shares subject
to options exercisable by Karl G. Otzen within 60 days of December 19,
1997.
(5) All shares are owned by a trust of which The Northern Trust Company is
trustee.
(6) Includes 73 shares owned by his wife, 537,492 shares subject to options
exercisable within 60 days of December 19, 1997 and 1,260 shares held in
Safety-Kleen's 401(k) plan as to which he does not have voting control.
(7) Includes 53,487 shares subject to options exercisable within 60 days of
December 19, 1997 and 1,686 shares held in Safety-Kleen's 401(k) plan as
to which he does not have voting control.
(8) Includes 53,537 shares subject to options exercisable within 60 days of
December 19, 1997.
(9) Includes 121,175 shares subject to options exercisable within 60 days of
December 19, 1997.
(10) Includes 90,775 shares subject to options exercisable within 60 days of
December 19, 1997.
(11) Includes 275,000 shares owned by Breslube Industries, Ltd. of which 100%
is owned by Mr. Chalhoub. Also included are 59 shares owned by his wife,
75 shares owned by his son and 77,012 shares subject to options
exercisable within 60 days of December 19, 1997.
(12) Includes 90,090 shares subject to options exercisable within 60 days of
December 19, 1997.
(13) Includes 8,137 shares subject to options exercisable within 60 days of
December 19, 1997 and 21 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(14) Includes 30,000 shares subject to options exercisable within 60 days of
December 19, 1997.
(15) Includes 89,999 shares subject to options exercisable within 60 days of
December 19, 1997 and 332 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(16) Includes 30,223 shares owned by his wife and 30,000 shares subject to
options exercisable within 60 days of December 19, 1997. Mr. Gwillim is
also a co-trustee for 45,827 shares held in an irrevocable trust for which
he has no beneficial ownership; such shares are not included in the table.
(17) Includes 44,500 shares subject to options exercisable within 60 days of
December 19, 1997 and 218 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
2
<PAGE>
(18) Includes 700 shares owned by his wife, 85,375 shares subject to options
exercisable within 60 days of December 19, 1997 and 532 shares held in the
Company's 401(k) plan as to which he does not have voting control. Mr.
Johnson resigned from the Company on August 8, 1997.
(19) Includes 3,974 shares subject to options exercisable within 60 days of
December 19, 1997 and 288 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(20) Includes 68,157 shares subject to options exercisable within 60 days of
December 19, 1997.
(21) Includes 43,849 shares subject to options exercisable within 60 days of
December 19, 1997.
(22) Includes 15,375 shares subject to options exercisable within 60 days of
December 19, 1997.
(23) Includes 11,250 shares subject to options exercisable within 60 days of
December 19, 1997.
(24) Includes 99,826 shares subject to options exercisable within 60 days of
December 19, 1997.
(25) Includes 1,674,010 shares subject to options exercisable within 60 days of
November 18, 1997 and 4,337 shares held in Safety-Kleen's 401(k) plan as
to which they do not have voting control.
3
<PAGE>
EXHIBIT 3
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 20, 1997,
BY AND AMONG
SK PARENT CORP.
SK ACQUISITION CORP.
AND
SAFETY-KLEEN CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I. THE MERGER................................................ 1
1.1. The Merger................................................ 1
1.2. Closing................................................... 1
1.3. Effective Time............................................ 1
1.4. Effects Of The Merger..................................... 2
1.5. Articles Of Incorporation; By-laws; Purposes.............. 2
1.6. Directors................................................. 2
1.7. Officers.................................................. 2
ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS................................. 2
2.1. Conversion of Shares...................................... 2
2.2. Employee Stock Options.................................... 2
2.3. Surrender of Certificates................................. 3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............ 4
3.1. Organization and Qualifications........................... 4
3.2. Capitalization............................................ 4
3.3. Authority and Absence of Conflict......................... 5
3.4. Reports................................................... 6
3.5. Absence of Certain Changes; Liabilities................... 6
3.6. Employee Benefit Plans.................................... 6
3.7. Litigation; Violation of Law.............................. 8
3.8. Labor..................................................... 8
3.9. Taxes..................................................... 8
3.10. Environmental Matters..................................... 9
3.11. Brokers................................................... 10
3.12. Title to Properties....................................... 10
3.13. Information Supplied...................................... 10
3.14. Opinion Of Financial Advisor.............................. 11
3.15. Board Recommendation...................................... 11
3.16. Required Company Vote..................................... 11
3.17. Rights Agreement.......................................... 11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER... 11
4.1. Organization and Qualification............................ 11
4.2. Capital Stock of Purchaser................................ 11
4.3. Authority and Absence of Conflict......................... 12
4.4. Brokers................................................... 12
4.5. Interim Operations Of Parent and Purchaser................ 12
4.6. Proxy Statement........................................... 12
4.7. Funds Available........................................... 13
4.8. Ownership of Shares....................................... 13
4.9. No Litigation............................................. 13
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
ARTICLE V. MERGER................................................... 13
5.1. Conduct Of Business Of The Company........................ 13
ARTICLE VI. ADDITIONAL AGREEMENTS.................................... 14
6.1. Preparation Of Proxy Statement; Shareholders Meeting...... 14
6.2. Access To Information; Confidentiality.................... 15
</TABLE>
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<TABLE>
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6.3. Filings; Commercially Reasonable Best Efforts............ 15
6.4. Public Announcements..................................... 16
6.5. Notification of Certain Matters.......................... 16
6.6. Employee Benefits........................................ 16
6.7. Indemnification And Insurance............................ 16
6.8. Solicitation............................................. 17
ARTICLE VII. CONDITIONS PRECEDENT.................................... 18
Conditions To Each Party's Obligation To Effect The
7.1. Merger................................................... 18
7.2. Conditions To Obligations Of Parent...................... 19
7.3. Conditions To Obligation Of The Company.................. 20
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER....................... 20
8.1. Termination.............................................. 20
8.2. Effect Of Termination.................................... 21
ARTICLE IX. GENERAL PROVISIONS...................................... 21
9.1. Nonsurvival Of Representations And Warranties............ 21
9.2. Payment Of Expenses...................................... 21
9.3. Notices.................................................. 22
9.4. Certain Definitions; Interpretation...................... 23
9.5. Entire Agreement......................................... 23
9.6. Counterparts............................................. 23
9.7. Severability............................................. 23
9.8. Captions................................................. 23
9.9. Amendment................................................ 23
9.10. Waiver................................................... 24
9.11. No Third-Party Beneficiaries; Assignability.............. 24
9.12. Best Knowledge........................................... 24
9.13. Governing Law............................................ 24
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
</TABLE>
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<TABLE>
<S> <C>
9.13. Governing Law.................................................. 35
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
</TABLE>
-iii-
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of November
20, 1997, is by and among SK Parent Corp., a Delaware corporation ("Parent"),
SK Acquisition Corp., a Wisconsin corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and Safety-Kleen Corp., a Wisconsin corporation (the
"Company").
WHEREAS, the respective Boards of Directors of the Company, Parent and
Purchaser have determined that the merger of Purchaser with and into the
Company (the "Merger"), upon the terms and subject to the conditions set forth
in this Agreement, would be fair and in the best interests of their respective
stockholders, and such Boards of Directors have approved such Merger, pursuant
to which each issued and outstanding share of common stock, par value $.10 per
share, of the Company and the Rights (as defined in Section 3.2) (the
"Shares") associated therewith (other than Shares owned, directly or
indirectly, by the Company or any subsidiary (as defined in Section 9.4) of
the Company or by Parent) will be converted into the right to receive $27 per
share in cash;
WHEREAS, the Merger and this Agreement require the vote of at least 66 2/3%
of the outstanding Shares for the approval thereof (the "Company Shareholder
Approval");
WHEREAS, Parent, as the sole stockholder of Purchaser, has voted all of its
Shares by a consent of sole stockholder, dated November 19, 1997, in favor of
the Merger;
WHEREAS, Parent, Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I.
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the provisions of the Wisconsin
Business Corporation Law (the "WBCL"), Purchaser shall be merged with and into
the Company at the Effective Time (as defined in Section 1.3). Upon the
Effective Time, the separate existence of Purchaser shall cease, and the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue, under the name "Safety-Kleen Corp.," to be
governed by the laws of the State of Wisconsin.
1.2. Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on the second business day after satisfaction of the conditions set
forth in Section 7.1 (or as soon as practicable thereafter following
satisfaction or waiver of the conditions set forth in Sections 7.2 and 7.3)
(the "Closing Date"), at the offices of Sonnenschein Nath & Rosenthal, 8000
Sears Tower, Chicago, Illinois 60606, unless another date, time or place is
agreed to in writing by the parties hereto.
1.3. Effective Time. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall file
appropriate Articles of Merger (the "Articles of Merger") as provided in the
WBCL and shall make such other filings, recordings or publications required
under the WBCL in connection with the Merger. The Merger shall become
effective upon the date on which the Articles of Merger have been received for
filing by the Secretary of the State of Wisconsin, or such later date as is
agreed upon by the parties and specified in the Articles of Merger, and the
time of such effectiveness is hereinafter referred to as the "Effective Time."
1
<PAGE>
1.4. Effects Of The Merger. The Merger shall have the effects set forth in
Section 180.1106 of the WBCL.
1.5. Articles Of Incorporation; By-laws; Purposes. (a) Subject to Section
6.7, at the Effective Time of the Merger, and without any further action on
the part of the Company, Parent or Purchaser, the Restated Articles of
Incorporation of Purchaser, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation,
until thereafter amended, subject to Section 6.7 of this Agreement, as
provided therein and under the WBCL.
(b) At the Effective Time of the Merger, and without any further action
on the part of the Company or Parent or Purchaser, the By-laws of Purchaser
as in effect at the Effective Time shall be the By-laws of the Surviving
Corporation until thereafter amended, subject to Section 6.7 of this
Agreement, as provided therein or by applicable law.
1.6. Directors. The directors of Purchaser at the Effective Time shall be
the initial directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
1.7. Officers. The officers of the Company at the Effective Time shall be
the initial officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected
or appointed and qualified, as the case may be.
ARTICLE II.
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1. Conversion of Shares. At the Effective Time and by virtue of the
Merger, and without any action on the part of the holders thereof:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares to be cancelled pursuant to Subsection 2.1(b)
below) shall be converted into the right to receive $27 in cash (the
"Merger Consideration"). All such Shares, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate representing any
such Shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration therefor, without interest, upon
the surrender of such certificate in accordance with Section 2.3.
(b) Each Share held in the treasury of the Company, if any, and each
Share owned by Parent, Purchaser or the Company, or by any direct or
indirect subsidiary of any of them, shall be cancelled and retired without
payment of any consideration therefor.
(c) All shares of common stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into that number of validly issued, fully paid and non-assessable
(except for certain statutory personal liability which may be imposed on
shareholders under Section 180.0622(2)(b) of the WBCL) shares of common
stock, par value $.01 per share, of the Surviving Corporation equal to the
aggregate number of shares of the Company issued and outstanding
immediately prior to the Effective Time.
2.2. Employee Stock Options. The Company shall (i) terminate its 1985 Stock
Option Plan, 1993 Stock Option Plan and 1988 Non-Qualified Stock Option Plan
for Outside Directors (collectively the "Option Plans"), immediately prior to
the Effective Time without prejudice to the rights of the holders of options
awarded pursuant thereto and (ii) grant no additional options or similar
rights under the Option Plans or otherwise on or after the date hereof. As
used hereafter in this Section 2.3, "Options" shall include each stock option
granted by the Company, whether pursuant to the Option Plans or otherwise.
2
<PAGE>
The Company shall use its best efforts to obtain the consent of each holder
of any Options (whether or not then exercisable) that it does not have the
right to cancel to the cancellation of his Options (irrespective of their
exercise price), and upon obtaining such consent, shall cancel the options
covered by such consent or, in the case of Options that the Company has the
right to cancel, shall cancel such Options, such cancellation (whether or not
consent is required therefor) to take effect immediately prior to the
Effective Time. In consideration of each cancellation of Options, the Company
shall agree to and shall pay to such holders, immediately prior to the
Effective Time, in respect of each Option (whether or not then exercisable) so
cancelled, an amount equal to the excess, if any, of the Merger Consideration
over the exercise price thereof, multiplied by the number of Shares subject
thereto, reduced by the amount of withholding or other taxes required by law
to be withheld (or, in the case of options related to limited stock
appreciation rights, the Change of Control Value as defined in the Option Plan
under which such options were issued).
2.3. Surrender of Certificates. (a) From and after the Effective Time, a
bank or trust company to be designated by Parent, with the prior approval of
the Company (the "Exchange Agent"), shall act as exchange agent in effecting
the exchange, for the Merger Consideration multiplied by the number of Shares
formerly represented thereby, of certificates (the "Certificates") that, prior
to the Effective Time, represented Shares entitled to payment pursuant to
Section 2.1. As of the Effective Time, Parent shall, on behalf of Purchaser,
deposit with the Exchange Agent, for the benefit of the holders of Shares
(excluding any Shares described in Section 2.1(b)), for the payment in
accordance with this Article II, through the Exchange Agent, cash in an amount
equal to the Merger Consideration multiplied by the number of outstanding
Shares immediately prior to the Effective Time (excluding any Shares described
in Section 2.1(b)) (such cash being hereinafter referred to as the "Payment
Fund"). Parent shall cause the Paying Agent, pursuant to irrevocable
instructions, to deliver the cash contemplated to be paid pursuant to Section
2.1(a) out of the Payment Fund. The Payment Fund shall not be used for any
other purpose. Upon the surrender of each Certificate and the delivery by the
Exchange Agent of the Merger Consideration in exchange therefor, such
Certificate shall forthwith be cancelled. Until so surrendered and exchanged,
each such Certificate (other than Certificates representing Shares held by
Parent, Purchaser or the Company or any direct or indirect subsidiary of
Parent, Purchaser or the Company) shall represent solely the right to receive
the Merger Consideration applicable to the Shares represented by such
Certificate multiplied by the number of Shares represented by such
Certificate. No interest shall be paid or shall accrue on any amount payable
on and after the Effective Time by reason of the Merger upon the surrender of
any such Certificate. Upon the surrender and exchange of such an outstanding
Certificate, the holder shall receive the Merger Consideration applicable to
the Shares represented thereby, without any interest thereon. If the Merger
Consideration is to be paid to a person other than the person in whose name
the Certificate representing Shares surrendered in exchange therefor is
registered, it shall be a condition to such payment or exchange that such
Certificate so surrendered be properly endorsed or otherwise be in proper form
for transfer, and that the person requesting such payment or exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of
the payment of such Merger Consideration to a person other than the registered
holder of the Certificate surrendered, or such person shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of Shares for any Merger
Consideration or interest delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(b) Promptly following the date of the first anniversary of the Effective
Time, the Exchange Agent shall return to the Surviving Corporation all cash in
its possession relating to the transactions described in this Agreement, and
the Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing Shares may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat
or similar laws) receive in exchange therefor the Merger Consideration
applicable to the Shares represented thereby, without any interest thereon,
but shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation under applicable
law.
(c) Promptly after the Effective Time, the Exchange Agent shall mail, to
each record holder of Certificates that immediately prior to the Effective
Time represented Shares, a form of letter of transmittal and instructions,
approved by Parent, for use in surrendering such Certificates and receiving
the Merger Consideration therefor.
3
<PAGE>
(d) At and after the Effective Time, holders of Certificates shall cease to
have any rights as shareholders of the Company except for the right to
surrender such Certificates in exchange for the Merger Consideration, and
there shall be no transfers on the stock transfer books of the Company or the
Surviving Corporation of any Shares that were outstanding immediately prior to
the Merger. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent, they shall be cancelled and
exchanged for the Merger Consideration, as provided in Section 2.1 hereof.
(e) The Exchange Agent shall invest any cash included in the Payment Fund,
as directed by the Surviving Corporation, provided that such investment shall
be (i) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof having
maturities of not more than six months from the Effective Time, (ii)
certificates of deposit, eurodollar time deposits and bankers' acceptances
with maturities not exceeding six months and overnight bank deposits with any
commercial bank, depository institution or trust company incorporated or doing
business under the laws of the United States of America, any state thereof or
the District of Columbia, provided that such commercial bank, depository
institution or trust company has, at the time of investment, (A) capital and
surplus exceeding $250 million and (B) outstanding short-term debt securities
which are rated at least A-1 by Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Services,
Inc. or carry an equivalent rating by a nationally recognized rating agency if
both of the two named rating agencies cease to publish ratings of investment,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (i) and (ii) above
entered into with any financial institution meeting the qualifications
specified in clause (ii) above, (iv) commercial paper having a rating in the
highest rating categories from Standard & Poor's Rating Group Division of The
McGraw-Hills Companies, Inc. or Moody's Investors Services, Inc. or carrying
an equivalent rating by a nationally recognized rating agency if both of the
two named rating agencies cease to publish ratings of investments and in each
case maturing within six months of the Effective Time and (v) money market
mutual or similar funds having assets in excess of $1 billion. Any interest
and other income resulting from such investments shall be paid to the
Surviving Corporation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser that, except as
specifically disclosed or reflected (including, in the case of financial
statements, provided for) in the Company Disclosure Schedule delivered
herewith to Parent and Purchaser, or in the Company's Form 10-K for the fiscal
year ended December 28, 1996 ("Form 10-K") as filed with the Securities and
Exchange Commission (the "Commission"), any subsequently filed Forms 10-Q and
Forms 8-K, the annual report to shareholders for the fiscal year ended
December 28, 1996 delivered to Parent (the "Annual Report"), and the proxy
statement for the 1997 Annual Meeting (such Forms, the Annual Report and such
proxy statement, including without limitation any financial statements and
related notes or schedules included in such documents and all exhibits and
schedules included or incorporated by reference therein, are herein
collectively referred to as the "SEC Reports"):
3.1. Organization and Qualifications. Each of the Company and its
Significant Subsidiaries (as defined in Section 9.4) is a corporation duly
incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated by it, or the business conducted by it, requires such qualification
and where failure to so qualify or be in good standing would have a Material
Adverse Effect (as defined in Section 9.4). Each of the Company and its
Significant Subsidiaries has the corporate power to carry on its respective
businesses as they are now being conducted. Copies of the charter and by-laws
of each of the Company and its Significant Subsidiaries, and all amendments
thereto as presently in effect, have been delivered to Parent, and such copies
are complete and correct as of the date hereof.
3.2. Capitalization. (a) The authorized capital stock of the Company
consists of (i) 300,000,000 Shares of which, as of November 18, 1997,
58,520,180 Shares were issued and outstanding and (ii) 1,000,000 Shares of
4
<PAGE>
preferred stock, par value $.10 per share, of the Company (the "Preferred
Stock"), none of which is issued and outstanding. As of November 18, 1997, (i)
5,271,343 Shares were reserved for issuance upon the exercise of outstanding
options granted pursuant to the Option Plans, 119,269 Shares are reserved for
issuance under the Employee Stock Purchase Plan and 220,000 Shares are
reserved for issuance under the Company's 1988 Non-Qualified Stock Option Plan
for outside directors and (ii) 64,330,792 Shares were reserved for issuance in
connection with the Common Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement dated as of November 9, 1988, as amended by a
First Amendment to Rights Agreement dated as of August 10, 1990 and Second
Amendment to Rights Agreement dated as of November 20, 1997 (as so amended,
the "Rights Agreement"), between the Company and The First National Bank of
Chicago, as Rights Agent. Except as set forth above, and except for warrants
dated January 27, 1995 issued to H. Wayne Huizenga to purchase up to 200,000
Shares, there are no outstanding options, warrants, agreements, contracts,
calls, commitments or demands of any character, preemptive or otherwise, other
than this Agreement, relating to any of the capital stock of the Company. All
of the outstanding Shares are duly authorized, validly issued, fully paid and
non-assessable (except as provided in Section 180.0622(2)(b) of the WBCL and
judicial interpretations thereof). The Company Disclosure Schedule lists each
subsidiary of the Company and the ownership interest therein of the Company.
All outstanding shares of capital stock of the Company's subsidiaries are
owned by the Company or a direct or indirect wholly owned subsidiary of the
Company, free and clear of all liens, charges, encumbrances, claims and
options of any nature.
(b) There are no voting trusts or other agreements or understandings to
which the Company or any of its subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the subsidiaries. None of
the Company or its subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its subsidiaries.
3.3. Authority and Absence of Conflict. (a) The Company has the requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly and
unanimously authorized by the Board of Directors of the Company, and, except
for the Company Shareholder Approval, no other corporate proceedings on the
part of the Company are necessary to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and (assuming
due authorization, execution and delivery by Parent and Purchaser) constitutes
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except to the extent that its enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general
equitable principles.
(b) Neither the execution and delivery of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the provisions hereof, will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate
the performance or payment required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or
any of its subsidiaries under, any of the terms, conditions or provisions of
(x) the charter or by-laws of the Company or any of its Significant
Subsidiaries, (y) the charter or by-laws of any of its Subsidiaries that are
not Significant Subsidiaries, or (z) any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
the Company or any of its subsidiaries is a party or to which any of them or
any of their respective properties or assets may be subject, or (ii) subject
to compliance with the statutes and regulations referred to in the next
subsection, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to the Company and its subsidiaries or
any of their respective properties or assets; except, in the case of each of
clauses (i)(y), (i)(z), and (ii) above, for such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens,
security interests, charges or encumbrances which would not have a Material
Adverse Effect or prevent or delay in any material respect the consummation of
the Merger.
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(c) Other than in connection with or in compliance with the provisions of
the WBCL, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the laws of any foreign country in which the Company or any
of its subsidiaries conducts any business or owns any property or assets, the
federal, state and local environmental, health or safety laws or regulations,
and to the best knowledge of the Company, certain state securities or
"takeover" statutes, no notice to, filing with, or authorization, consent or
approval of, any domestic or foreign public body or authority is necessary for
the consummation by the Company of the transactions contemplated by this
Agreement, except where the failure to give such notices, make such filings or
obtain such authorizations, consents or approvals would not have a Material
Adverse Effect or prevent or delay in any material respect the consummation of
the Merger.
3.4. Reports. The Company has filed all forms, reports and documents
required under Section 13(a) under the Exchange Act with the Commission since
December 31, 1995, and none of such forms, reports or documents, including
without limitation any financial statements or schedules included therein,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The consolidated balance sheet
(including the related notes) included in the Form 10-K and in the Form 10-Q
for the thirty-six weeks ended September 6, 1997 (the "Form 10-Q") fairly
presented the consolidated financial position of the Company and its
consolidated subsidiaries as of the date thereof, and the other related
statements (including the related notes) included therein fairly presented the
consolidated results of operations and the changes in consolidated financial
position of the Company and its consolidated subsidiaries for the fiscal
period set forth therein. Each of the financial statements (including the
related notes) included in the Form 10-K and in the Form 10-Q has been
prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as otherwise noted
therein and except that the quarterly financial statements do not contain all
footnotes required by generally accepted accounting principles. The
representations and warranties set forth in this Section 3.4 shall not apply
to any noncompliance, non-filings, misstatements, omissions or failures to
present fairly or conform to generally accepted accounting principles which
either (i) were corrected in a subsequent form, report or document filed with
the Commission prior to the date of this Agreement, or (ii) would not have a
Material Adverse Effect or prevent or delay in any material respect the
consummation of the Merger. None of the Company's subsidiaries is required to
file any forms, reports or other documents with the Commission.
3.5. Absence of Certain Changes; Liabilities. Since December 28, 1996, (i)
the Company and its Subsidiaries have conducted their respective businesses
and operations only in the ordinary and usual course, (ii) there has not been
any change in the financial condition, properties, business or results of
operations of the Company and its subsidiaries that has had a Material Adverse
Effect, (iii) neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations (secured or unsecured and whether accrued,
absolute, contingent, direct, indirect or otherwise) (the "Liabilities")
except Liabilities that do not have a Material Adverse Effect, and (iv)
neither the Company nor any of its subsidiaries has taken any of the actions
contemplated by Section 5 hereof.
3.6. Employee Benefit Plans. (a) With respect to all employees and former
employees of the Company, neither the Company nor any of its affiliates
presently maintains, sponsors, contributes to, is required to contribute to or
has any liability under: (i) any bonus, incentive compensation, profit
sharing, retirement, pension, group insurance, death benefit, cafeteria,
flexible spending account, medical, dependent care, stock option, stock
purchase, stock appreciation rights, savings, deferred compensation,
employment, consulting, severance or termination pay, funded vacation pay,
welfare or other employee compensation, benefit or fringe benefit plan,
program, agreement, or arrangement, the existence of which or the failure of
the Company or any of its affiliates to comply with which or to satisfy such
liability would have, either individually or in the aggregate, a Material
Adverse Effect; or (ii) any plan, program, agreement, or arrangement which is
an "employee pension benefit plan" as such term is defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
an "employee welfare benefit plan" as defined in Section 3(1) of ERISA, the
existence of which or the failure of the Company or any of its affiliates to
comply with which or to satisfy such liability would have, either individually
or in the aggregate, a Material Adverse Effect. The Company Disclosure
Schedule includes a list of all plans, programs, agreements, and arrangements
set forth in clauses (i) and (ii) of
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the preceding sentence which are maintained, sponsored, contributed to or
required to be contributed to by the Company or any of its affiliates (the
"Employee Benefit Plans"). The term "affiliate" for purposes of this Section
3.6 means any organization that would be aggregated with the Company under
Section 414(b), (c) or (m) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code").
(b) Each Employee Benefit Plan which is intended to comply with the
provisions of Section 401(a) of the Internal Revenue Code has been submitted
to the Internal Revenue Service (the "IRS") and received a determination
letter which states that such Employee Benefit Plan is so qualified, and to
the best of the Company's knowledge no event has occurred since the date of
such letter which would (i) cause such Employee Benefit Plan not to be so
qualified or (ii) cause any trust maintained under such Employee Benefit Plan
not to be exempt from taxation under Section 501(a) of the Internal Revenue
Code.
(c) To the best knowledge of the Company, with respect to each Employee
Benefit Plan which is subject to Title I of ERISA, neither the Company nor any
of its affiliates has failed to comply with any applicable reporting,
disclosure or other requirements of ERISA and the Internal Revenue Code,
except for such failures to comply which would not have, either individually
or in the aggregate, a Material Adverse Effect, and there has been no
"prohibited transaction" as described in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA the failure to correct which would have, either
individually or in the aggregate, a Material Adverse Effect.
(d) Neither the Company nor any affiliate maintains any Employee Benefit
Plans subject to the minimum funding standards of ERISA and the Internal
Revenue Code.
(e) Neither the Company nor any of its affiliates presently maintains,
contributes to or has any liability (including current or potential withdrawal
liability) with respect to any "multiemployer plan" as such term is defined in
Section 3(37) of ERISA.
(f) Neither the Company nor any of its affiliates has maintained an employee
pension benefit plan subject to Title IV of ERISA.
(g) There is no pending or, to the best knowledge of the Company, threatened
legal action, proceeding or investigation against or involving any Employee
Benefit Plan (other than routine claims for benefits), the adverse resolution
of which would have, either individually or in the aggregate, a Material
Adverse Effect.
(h) With respect to any employee or former employee of the Company, except
as required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), neither the Company nor any of its affiliates presently
sponsors, maintains, contributes to, is required to contribute to or has any
liability under any funded or unfunded medical, health or life insurance plan
or similar arrangement for present or future retirees or present or future
terminated employees the existence of which or the failure to satisfy which
would have, either individually or in the aggregate, a Material Adverse
Effect. Neither the Company nor any subsidiary or affiliate of the Company
maintains or contributes to a trust, organization or association described in
any of Sections 501(c)(9), 501(c)(17) or 501(c)(20) of the Internal Revenue
Code.
(i) With respect to each of the Employee Benefit Plans, the Company has
delivered or made reasonably available to Parent true and complete copies of:
(i) the plan documents, including any related trust agreements, insurance
contracts or other funding arrangements, or a written summary of the terms and
conditions of the plan if there is no written plan document; (ii) the most
recent IRS Form 5500; (iii) the most recent financial statement; (iv) the most
recent Summary Plan Description required under ERISA; (v) the most recent
actuarial report, if required under ERISA and (vi) the most recent
determination letter received from the IRS with respect to each Employee
Benefit Plan intended to qualify under Section 401 of the Internal Revenue
Code.
(j) To the best of the Company's knowledge, each Employee Benefit Plan has
been operated and administered in all material respects in accordance with its
terms and applicable law, including but not limited to ERISA and the Internal
Revenue Code.
(k) No liability under Title IV or Section 302 of ERISA has been incurred by
the Company or any affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any
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affiliate of incurring any such liability (other than for premiums due the
Pension Benefit Guaranty Corporation ("PBGC") (which premiums have been paid
when due)). Insofar as the representation made in this section 3.6(k) applies
to Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made with respect
to any employee benefit plan, program, agreement or arrangement subject to
Title IV of ERISA to which the Company or any affiliate made, or was required
to make, contributions during the five (5)-year period ending on the last day
of the most recent plan year ended prior to the Effective Time.
(l) The PBGC has not instituted proceedings to terminate any Employee
Benefit Plan subject to Title IV of ERISA ("Title IV Plan") and to the best of
the Company's knowledge no condition exists that presents a risk that such
proceedings will be instituted.
(m) With respect to the Title IV Plans, the present value of the accumulated
benefit obligation under such plan, calculated based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such plan's actuary with respect to such plan did not exceed, as
of its latest valuation date, the then fair value of the assets of such plans
in the aggregate as calculated pursuant to FAS 87.
(n) No Title IV Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Internal Revenue Code), whether or not waived, as of the
last day of the most recent fiscal year of each Title IV Plan ended prior to
the Effective Time. All contributions required to be made with respect to any
Employee Benefit Plan on or prior to the Effective Time have been (or will
have been) timely made.
(o) The consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with another event, entitle the current
and former employees and current and former officers of the Company and any
affiliates to severance pay, which, in the aggregate, will exceed $45,744,000
unless the Surviving Corporation does not offer employment to an employee who
is an eligible employee who is eligible for severance pay under the Safety-
Kleen Corp. Severance Pay Plan in a position with total compensation that is
within 15 percent of the employee's current total compensation and at a
location that is within a 30 mile radius of the employee's current work
location.
(p) All actions will have been taken, or which have failed to be taken, with
respect to the Employee Benefit Plans, would not, in the aggregate, have a
Material Adverse Effect.
3.7 Litigation; Violation of Law. (a) There are no claims, actions, suits or
proceedings or investigations pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries, nor is the
Company or any of its subsidiaries subject to any order, judgment, writ,
injunction or decree, except in either case for matters which would not have a
Material Adverse Effect or materially impair the ability of the Company to
consummate the Merger, and as of the date of this Agreement there are no such
matters involving a contingent liability, within the meaning of that term in
Financial Accounting Standards Bulletin No. 5, of more than $20,000,000.
(b) To the best knowledge of the Company, the businesses of the Company and
its subsidiaries are not being conducted in violation of any applicable law,
ordinance, rule, regulation, decree or order of any court or governmental
entity, except for violations which do not have a Material Adverse Effect.
3.8. Labor. There is no material dispute, grievance, controversy, strike or
request for union representation pending, or, to the best knowledge of the
Company, threatened, against either the Company or any of its Significant
Subsidiaries.
3.9. Taxes. (a) The Company and each subsidiary of the Company have timely
filed (or have had timely filed on their behalf) or will file or cause to be
timely filed, all Tax Returns required by applicable law to be filed by any of
them prior to or as of the Effective Time, except where the failure to do so
would not have a Material Adverse Effect. All material Tax Returns are, or
will be at the time of filing, true, complete and correct in all material
respects.
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(b) The Company and each subsidiary of the Company have paid (or have had
paid on their behalf) or, where payment is not yet due, have established (or
have had established on their behalf and for their sole benefit and recourse)
or will establish or cause to be established on or before the Effective Time
an adequate accrual for the payment of all Taxes due with respect to any
period ending prior to or as of the Effective Time, except where the failure
to pay or establish adequate reserves would not have a Material Adverse
Effect.
(c) No deficiencies for any material Taxes have been proposed, asserted or
assessed against the Company or any subsidiary of the Company, and no requests
for waivers of the time to assess any such material Taxes are pending. The
Federal Income Tax Returns of the Company and each subsidiary of the Company
consolidated in such Tax Returns are not currently being examined for years
prior to the year ended December 31, 1992 and the statute of limitations has
run for years prior to December 31, 1992.
(d) There are no material Liens for Taxes upon the assets of the Company
except (i) with respect to matters beings contested in good faith and (ii)
Liens for Taxes not yet due.
(e) There are no material United States federal, state, local or foreign
audits or other administrative proceedings or court proceedings presently
pending with regard to any Taxes or Tax Returns of the Company.
(f) The Company is not a party to any agreement or arrangement (written or
oral) providing for the allocation or sharing of Taxes.
(g) The Company has not filed a consent pursuant to Section 341(f)(2) of the
Internal Revenue Code or agreed to have Section 341(f)(2) of the Internal
Revenue Code apply to any disposition of a subsection (f) asset (as such term
is defined in Section 341(f)(4) of the Internal Revenue Code) owned by the
Company.
(h) The Company is a corporation within the meaning of (S)7701(a)(3) of the
Internal Revenue Code.
(i) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Taxes" shall mean all United States Federal, state, territorial,
local and foreign taxes, and other assessments of a similar nature (whether
imposed directly or through withholding), including any interest, additions
to tax, or penalties applicable thereto.
(ii) "Tax Returns" shall mean all United States Federal, state,
territorial, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns and any amended tax
return relating to Taxes.
3.10. Environmental Matters. (a) Except for violations of the following
clauses (i) through (vii) that would not have a Material Adverse Effect on the
Company, to the best knowledge of the Company, (i) the Company and its
subsidiaries have conducted their respective businesses in compliance with all
applicable Environmental Laws and are currently in compliance with all such
laws, including, without limitation, having all permits, licenses and other
approvals and authorizations necessary for the operation of their respective
businesses as presently conducted, (ii) none of the properties currently or
formerly owned or operated by the Company or any of its subsidiaries contains
any Hazardous Substance in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) neither the Company nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any court or governmental entity or third party indicating
that the Company or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
their businesses, including, without limitation, liability relating to sites
not owned or operated by the Company or any of its subsidiaries, (iv) there
are no civil, criminal or administrative actions, suits, demands, claims,
hearings, investigations or proceedings, pending or threatened, against the
Company or any subsidiaries relating to any violation of or liability under,
or alleged violation of or liability under, any Environmental Law, (v) all
reports that are required to be filed by the Company or any of its
subsidiaries concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law have been so filed,
(vi) no Hazardous Substance has been disposed of, released or transported in
violation of or under circumstances that could create liability under any
applicable Environmental Law from any properties owned by the Company or any
of its subsidiaries as a result of any activity of the
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Company or any of its subsidiaries during the time such properties were owned,
leased or operated by the Company or any subsidiaries, (vii) neither the
Company, any of its subsidiaries nor any of their respective properties are
subject to any material liabilities or expenditures (fixed or contingent)
relating to any suit, settlement, court order, administrative order,
regulatory requirement, judgment or claim asserted or arising under any
Environmental Law, and (viii) the Company has provided Parent with each
environmental audit, test or analysis performed within the last three years of
any property currently or formerly owned or operated by the Company or any of
its subsidiaries (x) sufficient to put the Parent on notice of any condition
of environmental impairment which would give rise to a Material Adverse Effect
and (y) of which the Company has knowledge.
(b) As used herein, "Environmental Law" means any United States Federal,
territorial, state, local or foreign law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent, legal
doctrine, order, judgment, decree, injunction, requirement or agreement with
any governmental entity relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or to
human health or safety or (ii) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each
case as amended and as in effect on the date hereof. The term "Environmental
Law" includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act and the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Occupational Safety and Health Act of 1970,
each as amended and as in effect on the date hereof, and (ii) any common law
or equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of, effects of or exposure to any
Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance presently
listed, defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation,
any toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos, or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated byphenyls.
3.11. Brokers. No agent, broker, investment banker, financial advisor or
other person or entity is or will be entitled to any brokerage commission,
finder's fee or like payment in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
3.12. Title to Properties. The Company and its subsidiaries have good, valid
and marketable title to the properties and assets listed on the most recent
consolidated balance sheet included in the SEC Reports (the "Balance Sheet")
as owned by it (other than properties and assets disposed of in the ordinary
course of business since the date of the Balance Sheet), and all such
properties and assets are free and clear of any liens, except as described in
the SEC Reports and the financial statements included therein or in the
Company Disclosure Schedule and other than liens for current taxes not yet due
and other liens, security interests, charges, encumbrances, easements,
covenants, restrictions or title imperfections that do not have a Material
Adverse Effect.
3.13. Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement (as defined in Section 6.1(a)) will, at the date it is first
mailed to the Company's shareholders or at the time of the Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and
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the rules and regulations promulgated thereunder, except that no
representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied in writing by
or on behalf of Parent or Purchaser specifically for inclusion therein.
3.14. Opinion Of Financial Advisor. The Company has received the opinion of
William Blair & Company L.L.C., dated the date of this Agreement, to the
effect that, as of such date, the consideration to be received in the Merger
by the Company's shareholders (other than Parent or any affiliate thereof) is
fair to such holders of Shares from a financial point of view.
3.15. Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has duly and unanimously, subject to the terms
and conditions set forth herein, (i) determined that this Agreement and the
transactions contemplated hereby, including the Merger, are fair to and in the
best interests of the shareholders of the Company and (ii) subject to the
other provisions hereof, resolved to recommend that the holders of Shares
approve this Agreement and the transactions contemplated herein, including the
Merger.
3.16. Required Company Vote. The Company Shareholder Approval, being the
affirmative vote of at least 66 2/3% of the outstanding Shares, is the only
vote of the holders of any class or series of the Company's securities
necessary to approve this Agreement, the Merger and the other transactions
contemplated hereby (assuming for purposes of this representation the accuracy
of representations contained in Section 4.8).
3.17. Rights Agreement. The Board of Directors of the Company has amended
the Rights Agreement prior to the execution of this Agreement so that neither
the execution nor the delivery of this Agreement nor the consummation of the
Merger will (i) cause any Rights issued pursuant to the Rights Agreement to
become exercisable or to separate from the stock certificates to which they
are attached, (ii) cause Parent or any of its affiliates to be an Acquiring
Person (as such term is defined in the Rights Agreement) or (iii) trigger
other provisions of the Rights Agreement, including giving rise to a
Distribution Date (as such term is defined in the Rights Agreement).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser each represent and warrant, jointly and severally, to
the Company that, except as disclosed or reflected in the Parent Disclosure
Schedule delivered herein to the Company:
4.1. Organization and Qualification. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated by it, or the business conducted by it, requires such qualification
and where failure to so qualify or be in good standing would have a material
adverse effect on the financial condition or business of Parent and its
subsidiaries, taken as a whole. Each of Parent and Purchaser has the corporate
power to carry on its respective businesses as they are now being conducted.
Copies of the respective charter documents and by-laws of Parent and Purchaser
have heretofore been delivered to the Company, and such copies are complete
and correct as of the date hereof.
4.2. Capital Stock of Parent and Purchaser. As of the date hereof, and at
all times thereafter up to and including the Effective Time, all of the
outstanding shares of common stock, par value $.01 per share, of Purchaser
shall be duly authorized, validly issued, fully paid, non-assessable and owned
directly by Parent, free and clear of all liens, claims and encumbrances and
subject to compliance with the HSR Act, all of the outstanding shares of
common stock of Parent shall be duly authorized, validly issued, fully paid
and non-assessable and owned equally by Philip Services Corp.; Blackstone
Capital Partners III Merchant Banking Fund L.P. and Blackstone Offshore
Capital Partners III L.C. (collectively, "Blackstone"); and Apollo Investment
Fund III, L.P., Apollo Overseas Partners III, L.P. and Apollo (U.K.) Partners,
L.P. and one or more other investment funds under common management
(collectively, "Apollo").
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4.3. Authority and Absence of Conflict. (a) Each of Parent and Purchaser has
the requisite corporate power and authority to enter into this Agreement and
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent
and Purchaser and the consummation by Parent and Purchaser of the transactions
contemplated hereby have been duly authorized by the respective Boards of
Directors of Parent and Purchaser, and by Parent as sole shareholder of
Purchaser, and no other corporate proceedings on the part of Parent or
Purchaser are necessary to authorize the execution, delivery and performance
of this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and Purchaser and (assuming due
authorization, execution and delivery by the Company) constitutes a valid and
binding obligation of each of them, enforceable against each of them in
accordance with its terms except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general
equitable principles.
(b) Neither the execution and delivery of this Agreement by Parent or
Purchaser, or Philip Services Corp. nor the consummation by them of the
transactions contemplated hereby, nor compliance by Parent or Purchaser with
any of the provisions hereof, will (i) violate, conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or Purchaser or any other direct or indirect subsidiary or
affiliate of Parent under any of the terms, conditions or provisions of (x)
the charter documents or by-laws of Parent or Purchaser or any other direct or
indirect subsidiary or affiliate of Parent or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent or Purchaser or any other direct or indirect
subsidiary of Parent is a party, or to which any of them, or any of their
respective properties or assets, may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next subsection, violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or Purchaser or any other direct or indirect
subsidiary or affiliate of Parent or any of their respective properties or
assets; except, in the case of each of clauses (i)(y) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances which, in the
aggregate, would not have a material adverse effect upon the business or
financial condition of Parent and Purchaser taken as a whole or of any
affiliate of Parent or Purchaser or prevent or delay in any material respect
the consummation of the Merger.
(c) Other than in connection with or in compliance with the provisions of
the WBCL the HSR Act (with respect to the formation of Parent), the HSR Act
(with respect to the transactions contemplated hereby, if applicable), the
Exchange Act, certain state securities or "takeover" statutes and the
environmental, health or safety laws or regulations of various states, no
notice to, filing with, or authorization, consent or approval of, any domestic
or foreign public body or authority is necessary for the consummation by
Parent and Purchaser of the transactions contemplated by this Agreement,
except where the failure to give such notices, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, have a material
adverse effect upon the business or financial condition of Parent and
Purchaser taken as a whole or prevent or delay in any material respect the
consummation of the Merger.
4.4. Brokers. No agent, broker, investment banker, financial advisor or
other person or entity is or will be entitled to any brokerage commission,
finder's fee or like payment in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Purchaser.
4.5. Interim Operations Of Parent and Purchaser. Each of Parent and
Purchaser was formed on November 18, 1997 solely for the purpose of engaging
in the transactions contemplated hereby, has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
4.6. Proxy Statement. None of the information supplied in writing by Parent
or Purchaser specifically for inclusion in the Proxy Statement will, at the
date it is first mailed to the shareholders of the Company or at the
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time of the Shareholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.7. Funds Available. Parent has received equity and debt commitment letters
("Commitment Letters") in an aggregate amount sufficient to fund the Merger
and the transactions contemplated thereby and has delivered copies of such
letters to the Company.
4.8. Ownership of Shares. Neither Parent nor Purchaser is a "significant
shareholder," as defined in Section 180.1130 of the WBCL, of the Company and
neither Parent nor Purchaser is an affiliate, as defined in Section 180.0103
of the WBCL, of a significant shareholder of the Company.
4.9. No Litigation. There are no claims, actions, suits or proceedings or
investigations pending or, to the best knowledge of Parent, threatened against
Parent, Purchaser or any of their respective affiliates, nor is Parent,
Purchaser or any of their respective affiliates subject to any order,
judgment, writ, injunction or decree, in either case which would materially
impair the ability of Parent or Purchaser to consummate the Merger.
ARTICLE V.
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1. Conduct Of Business Of The Company. Except as otherwise contemplated
hereby or as set forth in the Disclosure Schedule, the Company covenants and
agrees that, unless Parent shall otherwise agree in writing (which agreement
shall not be unreasonably withheld), prior to the Effective Time:
(a) The business of the Company and its subsidiaries shall be conducted
only in, and the Company and its subsidiaries shall not take any action
except in, the ordinary and usual course of business, and the Company shall
use its reasonable best efforts to maintain and preserve intact its and its
subsidiaries' business organization, assets, employees, officers and
consultants and advantageous business relationships.
(b) Neither the Company nor any of its subsidiaries shall directly or
indirectly do any of the following: (i) except in the ordinary course of
business, sell, pledge, dispose of or encumber any assets of the Company or
of any of its subsidiaries; (ii) amend its charter or by-laws or similar
organizational documents; (iii) split, combine or reclassify any shares of
its capital stock or declare, set aside, make or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to
any of its capital stock (except as contemplated by the Rights Agreement
and except for (x) cash dividends to shareholders of the Company declared
in the ordinary course of business and consistent with past practice and
(y) dividends by wholly-owned subsidiaries of the Company); (iv) redeem,
purchase or otherwise acquire or offer to redeem, purchase or otherwise
acquire any capital stock of the Company; (v) adopt a plan of liquidation
or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of the Company; or (vi) authorize or
propose any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
(c) Neither the Company nor any of its subsidiaries shall, directly or
indirectly, (i) except for Shares (and the associated Rights) issuable upon
exercise of options outstanding under the Option Plans on the date hereof,
issue, sell, pledge, dispose of or encumber, or authorize, propose or agree
to the issuance, sale, pledge, disposition or encumbrance of, any shares
of, or any options, warrants or rights of any kind to acquire any shares of
or any securities convertible into or exchangeable or exercisable for any
shares of, its capital stock of any class or any other securities in
respect of, in lieu of, or in substitution for Shares outstanding on the
date hereof; (ii) make any material acquisition, by means of merger,
consolidation or otherwise, or material disposition (other than disposition
of assets in the ordinary course of business), of assets or securities, or
make any loans, advances or capital contributions to, or investment in, any
individual or entity (other than to the Company or a wholly-owned
subsidiary of the Company); (iii) except in the ordinary course of
business, and other than indebtedness to or guarantees for the benefit of
the Company or any affiliate of the Company and (B) borrowings to fund
payments contemplated in Section 2.2 hereof, incur
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any indebtedness or issue any debt securities or assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently
or otherwise) for, the obligations of any other individual or entity; (iv)
change the capitalization of the Company (other than the incurrence of
indebtedness otherwise permitted in this Agreement); (v) except in the
ordinary course, change any assumption underlying, or method of
calculating, any bad debt, contingency or other reserve; (vi) pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, contingency or otherwise), other than the payment, discharge or
satisfaction of liabilities in the ordinary course of business or as
required by applicable law; (vii) waive, release, grant or transfer any
rights of value or modify or change in any material respect any existing
license, lease, contract or other document, other than in the ordinary
course of business; or (viii) authorize any of the foregoing, or enter into
or modify any contract, agreement, commitment or arrangement to do any of
the foregoing.
(d) Subject to Section 2.2, neither the Company nor any of its
subsidiaries shall (except for salary increases or other employee benefit
arrangements in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company and its subsidiaries, taken
as a whole, or as may be required pursuant to any agreements in effect at
the date hereof) adopt or amend or take any actions to accelerate any
rights or benefits under (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment, severance, termination or other employee benefit
plan, agreement, trust, fund or other arrangement for the benefit or
welfare of any employee or any officer or director or former employee or,
except in the ordinary course of business, consistent with past practice,
increase the compensation or fringe benefits of any employee or former
employee or pay any benefit not permitted by any existing plan, arrangement
or agreement.
(e) Except in the ordinary course of business, neither the Company nor
any of its subsidiaries shall make any tax election or, except in the
ordinary course of business, settle or compromise any federal, state, local
or foreign income tax liability.
(f) Except in the ordinary course of business, neither the Company nor
any of its subsidiaries shall permit any insurance policy naming it as
beneficiary or a loss payee to be cancelled or terminated without notice to
Parent.
(g) Neither the Company nor any of its subsidiaries shall agree, in
writing or otherwise, to take any of the foregoing actions or any action
which would make any representation or warranty in Article III hereof
untrue or incorrect so as to result in a Material Adverse Effect.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1. Preparation Of Proxy Statement; Shareholders Meeting. (a) Promptly
following the date of this Agreement, the Company shall prepare a proxy
statement relating to the Shareholders Meeting (the "Proxy Statement"), and
the Company shall prepare and file with the Commission the Proxy Statement.
Parent will cooperate with the Company in connection with the preparation of
the Proxy Statement including, but not limited to, furnishing to the Company
any and all information regarding Parent or Purchaser and their affiliates as
may be required to be disclosed therein. The information provided and to be
provided by Parent and the Company, respectively, for use in the Proxy
Statement shall, at the date it is first mailed to the Company's shareholders
and on the date of the Shareholders Meeting referred to below, be true and
correct in all material respects and shall not omit to state any material fact
required to be stated therein or necessary in order to make such information
not misleading, and the Company and Parent each agree to correct any
information provided by it for use in the Proxy Statement which shall have
become false or misleading.
(b) The Company will as promptly as practicable notify Parent of (i) the
receipt of any comments from the Commission and (ii) any request by the
Commission for any amendment to the Proxy Statement or for additional
information. All filings by the Company with the Commission, including the
Proxy Statement and any
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amendment thereto, and all mailings to the Company's shareholders in
connection with the Merger, including the Proxy Statement, shall be subject to
the prior review, comment and approval of Parent (such approval not to be
unreasonably withheld or delayed). Parent will furnish to the Company the
information relating to it and its affiliates, including Purchaser, required
by the Exchange Act and the rules and regulations promulgated thereunder to be
set forth in the Proxy Statement.
(c) The Company will: (i) as promptly as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Shareholders Meeting") for the purpose of approving this
Agreement and the transactions contemplated hereby to the extent required by
the WBCL and the Company's Restated Articles of Incorporation; (ii) through
its Board of Directors, and subject to the other provisions hereof, recommend
to its shareholders approval of the foregoing matters; and (iii) use its
reasonable best efforts to obtain the necessary approval of this Agreement and
the transactions contemplated hereby by its shareholders; provided, however,
that, subject to Section 6.8(b), the Company may fail to make or withdraw or
modify such recommendation and shall not be obligated to use its reasonable
best efforts or take any action pursuant to this Section 6.1 if the Company
shall have concluded in good faith, based on advice from outside legal counsel
to the Company, that such actions would be in breach of the Company's Board
and Directors' fiduciary duties under applicable law. Any such recommendation,
together with a copy of the opinion referred to in Section 3.14, shall be
included in the Proxy Statement.
6.2. Access To Information; Confidentiality. (a) From and after the date of
this Agreement and until the earlier of the Effective Time or termination of
this Agreement, the Company shall, and shall cause its subsidiaries, officers,
directors, employees and agents to, afford to Parent, and to the officers,
employees and agents of Parent, complete access at all reasonable times to the
officers, employees, agents, properties, books, records and contracts of the
Company and its subsidiaries, and shall furnish Parent and its respective
officers, employees and agents, all financial, operating and other data and
information as Parent may reasonably request.
(b) Parent hereby confirms to the Company that the confidentiality agreement
dated as of August 28, 1997 by and between Philip Services Corp. ("Philip")
and the Company ("the Confidentiality Agreement") is in full force and effect.
Parent hereby agrees to be bound by and to comply with the Confidentiality
Agreement to the same extent as Philip is bound thereby, and agrees that it
will cause Purchaser and the affiliates of Parent and Purchaser to be bound by
and to comply with that Agreement to the same extent that Philip is bound
thereby, and Parent shall cause Parent's, Purchaser's and such affiliates'
officers, employees, agents and representatives, including, without
limitation, attorneys, accountants, consultants, financial advisers and
lenders and their respective counsel to comply therewith as though they were
parties thereto.
6.3. Filings; Commercially Reasonable Best Efforts. (a) Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use its
commercially reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations or otherwise to consummate and
effect the transactions contemplated by this Agreement, including but not
limited to (i) determining whether any filings are required to be made or
consents, approvals, waivers, licenses, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of
default, termination or acceleration of any agreement) under any applicable
law or regulation or from any governmental entities or third parties,
including parties to loan agreements or other debt instruments, in connection
with the transactions contemplated by this Agreement, including the Merger and
the transactions contemplated thereby, (ii) promptly making any such filings,
furnishing information required in connection therewith and timely seeking to
obtain any such consents, approvals, permits or authorizations and (iii) doing
all things necessary, proper or advisable to remove any injunctions or other
impediments or delays, legal or otherwise, to the consummation of the Merger
and the other transactions contemplated by this Agreement. Notwithstanding the
foregoing, the Company will not be required to commit to a divestiture
transaction that is to be consummated prior to the Effective Time.
(b) Notwithstanding the foregoing, none of Parent, Purchaser or the Company
shall be obligated to use its commercially reasonable best efforts or take any
action pursuant to this Section 6.3 if it determines in good faith,
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based on the advice of outside legal counsel, that such actions would be in
breach of its Board of Directors' fiduciary duties under applicable law.
6.4. Public Announcements. Parent, Purchaser and the Company shall consult
with each other before issuing any press release or otherwise making any
public statements with respect to the Merger, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with a national
securities exchange.
6.5. Notification of Certain Matters. The Company, Parent and Purchaser each
agree to give prompt notice (a "Default Notice") to each other at any time
from the date hereof to the Effective Time of the obtaining by it of actual
knowledge as to the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause a breach of any covenant,
representation or warranty contained in this Agreement so as to result in a
Material Adverse Effect or in a material adverse effect upon Parent or any of
its affiliates. If any party receiving a Default Notice shall not object
thereto within 5 business days after receiving such Default Notice, then such
party shall be deemed to have waived all rights accruing to it as a result of
such breach. A party shall object to a Default Notice by giving timely notice
of such party's objection thereto as provided herein to the party giving such
Default Notice. For purposes of this Section 6.5, an "actual knowledge" of a
party to this Agreement shall mean the best actual knowledge of its chairman
of the board, president and chief financial officer.
6.6. Employee Benefits, etc. (a) For a period of two years following the
Effective Time, Parent intends to cause the Surviving Corporation to, and upon
being so caused, the Surviving Corporation shall, provide employee benefit
plans and programs for the benefit of employees of the Surviving Corporation
and its subsidiaries that are in the aggregate no less favorable to such
employees than the Employee Benefit Plans. All service credited to each
employee by the Company through the Effective Time shall be recognized by
Parent or the Surviving Corporation for purposes of eligibility and vesting
under any employee benefit plan provided directly or indirectly by Parent or
the Surviving Corporation for the benefit of the employees and in which the
respective employees participate.
(b) Notwithstanding anything in this Agreement to the contrary, Parent shall
cause the Surviving Corporation to honor (without modification) and assume the
written employment agreements, severance agreements and other agreements
listed on the Disclosure Schedule, all as in effect on the date of this
Agreement.
(c) Parent shall cause the Surviving Corporation not to, and the Surviving
Corporation shall not, terminate or adversely amend in any manner which
adversely affects the benefits that participants in such Plans are entitled to
thereunder with respect to any periods prior to and including the Effective
Time.
(d) Parent intends to cause the Surviving Corporation to continue to
maintain its principal offices in Elgin, Illinois and to maintain its
charitable commitments and community involvement.
6.7. Indemnification And Insurance. (a) The Articles of Incorporation and
by-laws of the Company (and the Surviving Corporation after the Effective
Time) shall contain the provisions with respect to indemnification set forth
in the Restated Articles of Incorporation and By-Laws of the Company on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights thereunder of any individual who
at any time prior to the Effective Time was an employee, agent, director or
officer of the Company or any of the Company's subsidiaries, together with
each such person's heirs, representatives, successors and assigns
(individually, an "Indemnified Party" and collectively the "Indemnified
Parties") in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated
by the Agreement). Parent shall cause the Company (or the Surviving
Corporation if after the Effective Time) to, and the Company (or the Surviving
Corporation if after the Effective Time) shall, maintain in effect for not
less than 6 years after the Effective Time the current policies of directors'
and officers' liability insurance maintained by the Company and the Company's
subsidiaries on the date hereof (provided that the Company may
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substitute therefor policies having at least substantially the same coverage
and containing terms and conditions which are no less advantageous in any
material respect to the persons currently covered by such policies as
insureds) with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums for
such insurance at any time during such period shall exceed 300% of the per
annum rate of premium currently paid by the Company and its subsidiaries for
such insurance on the date of this Agreement, then Parent shall cause the
Company (or the Surviving Corporation if after the Effective Time) to, and the
Company (or the Surviving Corporation if after the Effective Time) shall,
provide the maximum coverage that shall then be available at an annual premium
equal to 300% of such rate. The Company represents to Parent that such per
annum rate of premium currently paid by the Company and its subsidiaries is
approximately $400,000. Without limiting the foregoing, in the event any
Indemnified Party becomes involved in any capacity in any action, proceeding
or investigation based in whole or in part on, or arising in whole or in part
out of, any matter, including the transactions contemplated hereby, existing
or occurring at or prior to the Effective Time, then to the extent permitted
by law, Parent shall cause the Company (or the Surviving Corporation if after
the Effective Time) to, and the Company (or the Surviving Corporation if after
the Effective Time) shall, periodically advance to such Indemnified Party its
legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by
such Indemnified Party of an undertaking to reimburse the amounts so advanced
in the event of a final determination by a court of competent jurisdiction
that such Indemnified Party is not entitled thereto. Parent shall cause the
Company (or the Surviving Corporation if after the Effective Time) to, and the
Company (or the Surviving Corporation if after the Effective Time) shall, pay
all expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other obligations provided
for in this Section 6.7.
(b) The provisions of this Section 6.7 are intended for the benefit of, and
shall be enforceable by, the respective Indemnified Parties and shall be
binding on all successors and assigns of Parent, Purchaser, the Company and
the Surviving Corporation.
(c) Notwithstanding anything herein to the contrary, if any claim, action,
suit, proceeding or investigation (whether arising before, at or after the
Effective Time) is made or threatened against any Indemnified Party on or
prior to the sixth anniversary of the Effective Time, the provisions of this
Section 6.7 shall continue in effect until the final disposition of such
claim, action, suit, proceeding or investigation.
6.8. Solicitation. (a) The Company (and its subsidiaries and affiliates)
will not, and the Company (and its subsidiaries and affiliates) will use their
best efforts to ensure that their respective directors, officers, employees,
representatives and agents do not, directly or indirectly, solicit or initiate
inquiries or proposals from, or provide any confidential information to, or
participate in any discussions or negotiations with, any person or entity
(other than Parent and its subsidiaries and their respective directors,
officers, employees, representatives and agents) concerning (i) any merger,
sale of assets not in the ordinary course (except for any sale of assets
otherwise permitted under the terms of this Agreement), or other similar
transaction involving the Company or any subsidiary or division of the
Company, or the sale of any equity interest in the Company or any subsidiary,
or (ii) any sale by the Company or its subsidiaries of authorized but unissued
Shares or of any shares (whether or not outstanding) of any of the Company's
subsidiaries (all such inquiries and proposals being referred to herein as
"Acquisition Proposals"), provided, however, that nothing contained in this
Section 6.8 shall prohibit the Company or its Board of Directors from (i)
subject to the provisions of Section 6.4, issuing a press release or otherwise
publicly disclosing the terms of this Agreement, including, without
limitation, this Section 6.8; (ii) proceeding with the transactions
contemplated by this Agreement; (iii) communicating to the Company's
shareholders a position as contemplated by Rule 14e-2 promulgated under the
Exchange Act; (iv) making any disclosure to the Company's shareholders which,
in the judgment of the Board of Directors of the Company, with the advice of
outside counsel, should reasonably be made under applicable law (including,
without limitation, laws relating to the fiduciary duties of directors) or (v)
taking any non-appealable, final action ordered to be taken by the Company by
any court of competent jurisdiction; and, provided, further, that the Board of
Directors of the Company may, on behalf of the Company, furnish or cause to be
furnished information and may direct the Company, its directors, officers,
employees, representatives or agents to furnish information, in each case
pursuant to appropriate confidentiality agreements, and to participate in
discussions or negotiations with any
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person or entity concerning any Acquisition Proposal which was not solicited
by the Company or any of its subsidiaries or affiliates or any of their
respective directors, officers, employees, representatives or agents, or which
did not otherwise result from a breach of this Section 6.8, if (x) the Board
of Directors of the Company shall conclude in good faith, after consultation
with its financial advisor, that such person or entity has made or is
reasonably likely to make a bona fide Acquisition Proposal for a transaction
more favorable to the Company's shareholders from a financial point of view
than the transactions contemplated hereby, and (y), in the opinion of the
Board of Directors of the Company, only after receipt of advice from
independent legal counsel to the Company, the failure to provide such
information or access or to engage in such discussions or negotiations would
cause the Board of Directors of the Company to violate its fiduciary duties to
the Company's stockholders under applicable law (an Acquisition Proposal which
satisfies clauses (x) and (y) being referred to herein as a "Superior
Proposal"). The Company will immediately notify Parent of the terms of any
proposal, discussion, negotiation or inquiry (and will disclose any written
materials received by the Company in connection with such proposal, discussion
negotiation, or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction unless the
Board of Directors of the Company determines, based on the advice of outside
legal counsel to the Company, that giving such notice would cause the Board of
Directors of the Company to violate its fiduciary duties to the Company's
shareholders under applicable law. The Company agrees not to release any
person or entity from, or waive any provision of, any standstill agreement to
which it is a party or any confidentiality agreement between it and another
person or entity, unless the Company's Board of Directors shall conclude in
good faith, after consultation with its financial advisor, that such person or
entity has made or is reasonably likely to make a bona fide Acquisition
Proposal for a transaction more favorable to the Company's shareholders from a
financial point of view than the transactions contemplated hereby. The Company
shall, and shall cause each subsidiary to, immediately cease and cause to be
terminated any existing activities, discussions or negotiations by the
Company, any subsidiary of the Company or any officer, director or employee
of, or investment banker, attorney, accountant or other advisor or
representative of, the Company or any subsidiary with parties conducted
heretofore with respect to any of the foregoing.
(b) Except as set forth herein, neither the Board of Directors of the
Company nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or the Purchaser, the
approval or recommendation by the Board of Directors of the Company or any
such committee of this Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal, or (iii) enter into
any agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, the Board of Directors of the Company may (subject to the terms of
this and the following sentence) withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or recommend a
Superior Proposal or enter into an agreement with respect to a Superior
Proposal at any time after the second business day following Parent's receipt
of written notice advising Parent that the Board of Directors of the Company
has received a Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the person making such Superior
Proposal; provided that the Company shall not enter into an agreement with
respect to a Superior Proposal unless the Company shall have furnished Parent
with written notice not later than noon (New York time) two business days in
advance of any date that it intends to enter into such agreement and shall
have caused its financial and legal advisors to negotiate with Parent to make
such amendments to the terms and conditions of this Agreement as would make
this Agreement as so amended at least as favorable to the Company's
shareholders from a financial point of view as the Superior Proposal. In
addition, if the Company proposes to enter into an agreement with respect to
any Acquisition Proposal, it shall concurrently with entering into such
agreement pay, or cause to be paid, to Parent the Termination Amount (as
defined in Section 9.2) subject to the provisions of Section 9.2.
ARTICLE VII.
CONDITIONS PRECEDENT
7.1. Conditions To Each Party's Obligation To Effect The Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Shareholder Approval. The Company Shareholder Approval shall
have been obtained.
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(b) Antitrust. The waiting periods (and any extensions thereof)
applicable to the formation of Parent under the HSR Act shall have been
terminated or shall have expired and, if applicable, the waiting periods
(and any extensions thereof) applicable to the transactions contemplated by
this Agreement under the HSR Act shall have been terminated or shall have
expired. Any consents, approvals and filings required under the Competition
Act (Canada) and any other applicable foreign law shall have been obtained
or made, as applicable.
(c) Statutes. No statute, rule, order, decree or regulation shall have
been enacted or promulgated by any domestic government or any governmental
agency or authority of competent jurisdiction which prohibits the
consummation of the Merger.
(d) Violation of Law. Consummation of the Merger shall not result in
violation of any applicable United States federal or state law providing
for criminal penalties.
(e) Litigation. No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the
United States preventing the consummation of the Merger shall be in effect;
provided, however, that the parties hereto shall use their best efforts to
have any such injunction or order vacated.
7.2. Conditions To Obligations Of Parent. The obligations of Parent to
effect the Merger are further subject to the following conditions:
(a) Representations And Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in each
case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not have a Material Adverse
Effect; provided that, notwithstanding any other term or provision hereof,
the entering into or modification or amendment of any contract or
agreement, in form and substance mutually agreeable to the parties hereto,
in contemplation of the completion of the Merger (including, without
limitation, employment agreements (and the options granted pursuant
thereto), any option plan, any corporation services agreement and any
indemnity agreements) shall not be deemed to cause any breach of, or
inaccuracy in, any of the representations and warranties or covenants of
the Company contained in this Agreement.
(b) Performance Of Obligations Of The Company. The Company shall have
performed the obligations required to be performed by it under this
Agreement at or prior to the Closing Date (except for such failures to
perform as have not had a Material Adverse Effect), and Parent shall have
received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such
effect, to their best knowledge.
(c) No Litigation. There shall not be instituted or pending any suit,
action or proceeding (having a substantial likelihood of success) against
Parent, Purchaser, the Company or any subsidiary of the Company (i)
challenging the acquisition by Parent or Purchaser of any Shares, seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from the
Company, Parent or Purchaser any damages that are material in relation to
the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit
or limit the ownership or operation by the Company, Parent or any of their
respective subsidiaries of any material portion of the business or assets
of the Company, Parent or any of the respective subsidiaries or to compel
the Company, Parent or any of their respective subsidiaries to dispose of
or hold separate any material portion of the business or assets of the
Company or Parent and their respective subsidiaries, in each case taken as
a whole, (iii) seeking to impose material limitations on the ability of
Parent or Purchaser to acquire or hold, or exercise full rights of
ownership of, the shares of capital stock of the Surviving Corporation,
including the right to vote such capital stock on all matters properly
presented to the stockholders of the Surviving Corporation, (iv) seeking to
prohibit or impose material limitations on the ability of Parent to
effectively control in any material respect the business or operations of
the Company or its subsidiaries or (v) which otherwise is reasonably likely
to have a Material Adverse Effect.
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(d) Statutes. There shall not be any statute, rule, regulation, judgment,
order or injunction enacted, entered, enforced, promulgated, or deemed
applicable, pursuant to an authoritative interpretation by or on behalf of
a governmental entity, to the Merger, or any other action shall be taken by
any governmental entity, other than the application or the Merger of
applicable waiting periods under HSR Act and the Canadian Competitition Act
or any other applicable foreign law, that is substantially likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of Section 7.2(c) above.
(e) Funding. Parent shall have received sufficient funds pursuant to the
Commitment Letters to consummate the Merger and the transactions
contemplated thereby, provided that such failure to receive funds shall not
have resulted from the failure of Parent to use its reasonable commercial
efforts to consummate the transactions contemplated by the Commitment
Letters.
7.3. Conditions To Obligation Of The Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
(a) Representations And Warranties. The representations and warranties of
Parent and Purchaser set forth in this Agreement shall be true and correct,
in each case as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth therein) would not reasonably be expected to
individually or in the aggregate have a material adverse effect on the
financial condition or business of Parent or adversely affect the ability
of Parent to consummate the Merger.
(b) Performance Of Obligations Of Parent. Parent shall have performed the
obligations required to be performed by it under this Agreement at or prior
to the Closing Date (except for such failures to perform as have not had,
either individually or in the aggregate, a material adverse effect on the
financial condition or business of Parent or adversely affect the ability
of Parent to consummate the Merger).
(c) Solvency Opinion. The Company shall have received an opinion or
certificate of a reputable expert firm confirming the solvency of the
Company after the Merger and related financings addressed to or for the
benefit of the Board of Directors of the Company so that the Board of
Directors of the Company is entitled to rely thereon.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1. Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the shareholders of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any governmental body or
regulatory authority of the United States of America shall have issued an
order, decree or ruling or taken any other action, in each case permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and non-appealable;
provided that the right to terminate this Agreement pursuant to this
Section 8.1(b) shall not be available to any party that has breached its
obligations under Section 6.3; or
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before June 30, 1998 (other than due to the failure of
the party seeking to terminate this Agreement) to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time); or
(d) by either Parent or the Company if at the duly held meeting of the
shareholders of the Company (including any adjournment thereof) held for
the purpose of voting on the Merger, this Agreement and the
20
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consummation of the transactions contemplated hereby, the holders at least
of 66 2/3% of the outstanding Shares shall not have approved the Merger,
this Agreement and the consummation of the transactions contemplated
hereby; or
(e) by the Board of Directors of Parent, (i) if the Company shall have
breached any of its representations and warranties or failed to comply with
any of the covenants or agreements (without, in each instance, giving
effect to any limitation as to "materiality" or "material adverse effect"
set forth therein) contained in this Agreement to be complied with or
performed by the Company at or prior to consummation of the Merger and such
breach or failure shall have resulted in a Material Adverse Effect, or (ii)
the Company shall have received from a third party a bona fide Acquisition
Proposal, and the Board of Directors of the Company, shall have accepted
such a proposal or (iii) the Board of Directors of the Company shall have
failed to recommend to the Company Shareholders that they give the Company
Shareholder Approval or shall have withdrawn or modified in a manner
adverse to Parent or Purchaser its approval or recommendation with respect
to the Merger, or
(f) by the Board of Directors of the Company, if (i) Parent or Purchaser
shall have breached in any material respect any of its representations and
warranties or failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be complied with or
performed by Parent or Purchaser, or (ii) if the Company enters into a
written agreement concerning a transaction that constitutes a Superior
Proposal, provided that the Company shall have complied with the provisions
of Section 6.8(a) and (b) hereof (including the payment of the Termination
Amount) or (iii) the condition set forth in Section 7.2(e) cannot be
satisfied.
8.2 . Effect Of Termination. In the event of termination of this Agreement
by either the Company or Parent as provided in Section 8.1, no party hereto
(or any of its directors, officers, employees, agents, legal and financial
advisors or other representatives) shall have any liability or further
obligation to any other party to this Agreement, except as provided in this
Section 8.1 and Sections 6.2(b), 9.1 and 9.2 of this Agreement, and except
that nothing herein will relieve any party from liability for its wilful
breach of this Agreement.
ARTICLE IX.
GENERAL PROVISIONS
9.1. Nonsurvival Of Representations And Warranties. The representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall expire with, and be terminated and extinguished upon,
consummation of the Merger. This Section 9.1 have no effect upon any other
obligation of the parties hereto, whether to be performed before or after the
Effective Time. The Confidentiality Agreement shall survive the termination of
this Agreement and the provisions of such Confidentiality Agreement shall
apply to all information and material delivered by any party hereunder.
9.2. Payment Of Certain Fees and Expenses. (a) All costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses.
(b) Notwithstanding the foregoing, if this Agreement is terminated pursuant
to Section 8.1(e)(ii) or (iii) or 8.1(f)(ii) hereof, or prior to the
termination of the Agreement, any person other than Parent, Purchaser or an
affiliate thereof acquires in excess of 20% of the issued and outstanding
Shares, then the Company shall pay to Parent (i) concurrently with such
termination, an amount equal to U.S. $50 million (the "Termination Fee"), plus
(ii) promptly, but in no event later than two days after being furnished
documentation in respect thereto by Parent ("Documentation"), Parent's or its
affiliates' out-of-pocket fees and expenses (including legal, investment
banking, financing commitment fees, and commercial banking fees and expenses)
actually incurred in connection with the Merger, due diligence investigation,
the negotiation and execution of this Agreement and the transactions
contemplated hereby up to a maximum amount of $25 million (the "Termination
Expenses", and
21
<PAGE>
together with the Termination Fee, the "Termination Amount"). In addition, if
this Agreement is terminated pursuant to Section 8.1(d) and at the time of
such termination, Parent is not in material breach of this Agreement, then the
Company shall pay to Parent, promptly but in no event later than two days
after being furnished Documentation by Parent, the Termination Expenses, and,
if the Company shall thereafter, within nine months after such termination,
enters into an agreement with respect to an Acquisition Proposal or a third
party acquires more than 50% of the Company's outstanding shares or more than
50% of the Company's assets, then the Company shall pay the Termination Fee to
Parent concurrently with entering into such agreement. Any payments required
to be made pursuant to this Section shall be made by wire transfer of same day
funds to an account designated by Parent. Notwithstanding anything to the
contrary herein, in no event shall there be more than one payment each of the
Termination Fee and Termination Expenses, provided that Termination Expenses
may be paid from time to time upon submission of Documentation.
9.3. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such
as Federal Express, to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(a)If to Parent or Purchaser:
Philip Services Corp.
100 King Street West
P.O. Box 2440, LCD #1
Hamilton, Ontario
L8N 4J6
Attention: Allen Fracassi
Telecopy No. (905) 521-9160
Apollo Management, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, California 90067
Attention: David B. Kaplan
Telecopy No. (310) 201-4198
The Blackstone Group
345 Park Avenue
New York, New York 10154
Attention: Howard A. Lipson
Telecopy No. (212) 754-8703
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Jeffrey Tindel
Telecopy: (212) 735-2000
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Attention: Alison Ressler
Telecopy No.: (213) 683-0457
22
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(b) If to the Company:
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123
Attention: Chairman
Telecopy No.: (847) 468-8561
with a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Donald G. Lubin
Telecopy No.: (312) 876-7934
9.4. Certain Definitions; Interpretation. When a reference is made in this
Agreement to subsidiaries of Parent, Purchaser or the Company, the word
"subsidiaries" means any corporation 50 percent or more of whose outstanding
voting securities, or any partnership, joint venture or other entity 50
percent or more of whose total equity interest, is directly or indirectly
owned by Parent, Purchaser or the Company, as the case may be. The words
"Significant Subsidiaries" shall have the meaning ascribed to it under Rule 1-
02 of Regulation S-X of the Commission. As used in this Agreement, the term
"affiliate(s)" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act. (Without limiting the generality of the foregoing, Philip,
Blackstone, Apollo shall be deemed to be affiliates of Parent and Purchaser.)
As used in this Agreement, "Material Adverse Effect" means any change(s) or
effect(s) that, individually, or in the aggregate, are materially adverse to
the financial condition, properties, business of the Company and its
subsidiaries, taken as a whole, or that would prevent or materially delay the
Company from performing its obligations under this Agreement. Whenever this
Agreement requires Purchaser to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause Purchaser to
take such performance and a guarantee of the performance thereof.
9.5. Entire Agreement. This Agreement (including the Disclosure Schedule and
the exhibits hereto) and the Confidentiality Agreement contain the entire
agreement between the parties with respect to the transactions contemplated
hereby, and supersedes all written or oral negotiations, representations,
warranties, commitments, offers, bids, bid solicitations, and other
understandings prior to the date hereof, except to the extent expressly
confirmed or provided herein.
9.6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.7. Severability. If any provision hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and
shall not affect the validity or effect of any other provision hereof.
9.8. Captions. The captions of the various Articles and Sections of this
Agreement have been inserted only for convenience of reference and shall not
be deemed to modify, explain, enlarge or restrict any provision of this
Agreement or affect the construction hereof.
9.9. Amendment. Subject to the applicable provisions of the WBCL, this
Agreement may be amended by the parties hereto, at any time before or after
any required approval of matters presented in connection with the Merger by
the shareholders of the Company; provided, however, that after any such
approval, there shall be made no amendment that by law requires further
approval by such shareholders without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
23
<PAGE>
9.10. Waiver. Subject to the applicable provisions of the WBCL, at any time
prior to the Effective Time, any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, or (b) subject to the proviso of Section 9.9, waive compliance with
any of the agreements or conditions contained herein. In addition to the
provisions contained in Section 6.5 hereof, at any time prior to consummation
of the Merger any party hereto may waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant hereto. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by such party.
9.11. No Third-Party Beneficiaries; Assignability. Except for Sections 2.2,
2.3, 6.6 and 6.7 (which are intended for the benefit of, and may be enforced
by, the persons or entities specified therein), this Agreement is not intended
to confer or impose upon any person not a party hereto any rights, remedies,
obligations or liabilities hereunder. This Agreement shall not be assigned by
any party hereto, by operation of law or otherwise. Subject to the preceding
two sentences, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
assigns.
9.12. Best Knowledge. When used with respect to the Company in this
Agreement, the term "best knowledge" shall mean to the best actual knowledge
of any of the Company's Chairman of the Board, President and chief financial
officer.
9.13. Governing Law. (a) The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of Wisconsin,
without giving effect to the principles of conflict of laws thereof.
(b) Each of the parties hereto (i) consents to submit itself to the personal
jurisdiction of any federal court located in the State of Illinois or any
Illinois state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that it will not bring
any action relating to this Agreement or any of the transactions contemplated
hereby in any court other than a federal or state court sitting in the State
of Illinois.
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their
respective officers thereunder duly authorized.
Safety-Kleen Corp.
/s/ Donald W. Brinckman
By: _________________________________
Donald W. Brinckman
Chairman and Chief
Executive Officer
SK Parent Corp.
/s/ Colin Soule
By: _________________________________
Colin Soule
President
SK Acquisition Corp.
/s/ Colin Soule
By: _________________________________
Colin Soule
President
24
<PAGE>
EXHIBIT 4
---------
SAFETY-KLEEN CORP.
CHANGE OF CONTROL SEVERANCE AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. - PURPOSES....................................................... 1
ARTICLE II. - CERTAIN DEFINITIONS........................................... 1
2.1 "Accrued Obligations"........................................... 1
2.2 "Agreement Term"................................................ 1
2.3 "Article"....................................................... 2
2.4 "Beneficial Owner".............................................. 2
2.5 "Cause"......................................................... 2
2.6 "Change of Control"............................................. 2
2.7 "Code".......................................................... 2
2.8 "Disability".................................................... 2
2.9 "Effective Date"................................................ 2
2.10 "Good Reason"................................................... 3
2.11 "Gross-up Payment".............................................. 3
2.12 "Imminent Change of Control Date"............................... 3
2.13 "IRS"........................................................... 3
2.14 "1934 Act"...................................................... 3
2.15 "Notice of Termination"......................................... 3
2.16 "Plans"......................................................... 3
2.17 "Policies"...................................................... 3
2.18 "Post-Change Period"............................................ 3
2.19 "SEC"........................................................... 3
2.20 "Section"....................................................... 3
2.21 "Subsidiary".................................................... 3
2.22 "Termination Date".............................................. 3
2.23 "Termination Performance Period"................................ 4
2.24 "Voting Securities"............................................. 4
ARTICLE III. - POST-CHANGE PERIOD PROTECTIONS............................... 4
3.1 Position and Duties............................................. 4
3.2 Compensation.................................................... 5
3.3 Stock Options................................................... 7
ARTICLE IV. - TERMINATION OF EMPLOYMENT..................................... 7
4.1 Disability...................................................... 7
4.2 Death........................................................... 8
4.3 Cause........................................................... 8
4.4 Good Reason..................................................... 9
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TABLE OF CONTENTS
-----------------
Page
----
ARTICLE V. - OBLIGATIONS OF THE COMPANY UPON TERMINATION.................... 10
5.1 If by the Executive for Good Reason or by the Company Other
Than for Cause or Disability................................. 10
5.2 If by the Company for Cause..................................... 11
5.3 If by the Executive Other Than for Good Reason.................. 11
5.4 If by the Company for Disability................................ 11
5.5 If upon Death................................................... 12
ARTICLE VI. - NON-EXCLUSIVITY OF RIGHTS..................................... 12
6.1 Waiver of Other Severance Rights................................ 12
6.2 Other Rights.................................................... 12
ARTICLE VII. - CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY................... 12
7.1 Gross-up for Certain Taxes...................................... 12
7.2 Determination by the Executive.................................. 13
7.3 Additional Gross-up Amounts..................................... 14
7.4 Gross-up Multiple............................................... 14
7.5 Opinion of Counsel.............................................. 14
7.6 Amount Increased or Contested................................... 15
7.7 Refunds......................................................... 16
ARTICLE VIII. - EXPENSES AND INTEREST....................................... 16
8.1 Legal Fees and Other Expenses................................... 16
8.2 Interest........................................................ 16
ARTICLE IX. - NO SET-OFF OR MITIGATION...................................... 17
9.1 No Set-off by Company........................................... 17
9.2 No Mitigation................................................... 17
ARTICLE X. - CONFIDENTIALITY AND NONCOMPETITION............................. 17
10.1 Confidentiality................................................. 17
10.2 Noncompetition/Nonsolicitation.................................. 18
10.3 Remedy.......................................................... 18
ARTICLE XI. - MISCELLANEOUS................................................. 19
11.1 No Assignability................................................ 19
11.2 Successors...................................................... 19
11.3 Payments to Beneficiary......................................... 19
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TABLE OF CONTENTS
-----------------
Page
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11.4 Non-alienation of Benefits...................................... 19
11.5 Severability.................................................... 19
11.6 Amendments...................................................... 20
11.7 Notices......................................................... 20
11.8 Counterparts.................................................... 20
11.9 Governing Law................................................... 20
11.10 Captions........................................................ 20
11.11 Tax Withholding................................................. 20
11.12 No Waiver....................................................... 20
11.13 Entire Agreement................................................ 21
11.14 Cancellation.................................................... 21
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<PAGE>
EXHIBIT 4
SAFETY-KLEEN CORP.
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT dated as of August 18, 1997, is made between SAFETY-KLEEN
CORP., a Wisconsin corporation having its principal place of business in Elgin,
Illinois (the "Company"), and _____________________ (the "Executive"), a
resident of Illinois.
The Company and the Executive agree that this Agreement supersedes the
Safety-Kleen Corp. Severance Agreement (the "Prior Agreement") dated February 3,
1995, between the Company and the executive which is hereby cancelled.
ARTICLE I.
PURPOSES
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued service of the Executive, despite the
possibility or occurrence of a change of control of the Company. The Board
believes it is imperative to reduce the distraction of the Executive that would
result from the personal uncertainties caused by a pending or threatened change
of control, to encourage the Executive's full attention and dedication to the
Company, and to provide the Executive with compensation and benefits
arrangements upon a change of control which ensure that the expectations of the
Executive will be satisfied and are competitive with those of similarly-situated
corporations. This Agreement is intended to accomplish these objectives.
ARTICLE II.
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall have the
following meanings:
2.1 "Accrued Obligations" -- see Section 5.3.
2.2 "Agreement Term" means the period commencing on the date of this
Agreement and ending on the date which is twelve (12) months following the date
that the Company gives notice of cancellation pursuant to Section 11.14 hereof
(the "Expiration Date"); provided, however, that if an Imminent Change of
Control Date occurs before the Expiration Date, then the Agreement Term shall
automatically extend to a date which is twelve (12) months after the date of the
Imminent Change of Control Date, as further extended under the terms of this
sentence should any Imminent Change of Control Date occur prior to the
expiration of the Agreement Term as from time to time so extended; and
<PAGE>
provided further, that if a Change of Control occurs before the Expiration Date,
the Expiration Date shall automatically be extended to the last day of the Post-
Change Period.
2.3 "Article" means an article of this Agreement.
2.4 "Beneficial owner" means such term as defined in Rule 13d-3 of the SEC
under the 1934 Act.
2.5 "Cause" -- see Section 4.3(b).
2.6 "Change of Control" means, except as otherwise provided below, the
occurrence of any of the following:
a. any person (as such term is used in Rule 13d-5 of the SEC under
the 1934 Act) or group (as such term is defined in Section 13(d) of the
1934 Act), other than a Subsidiary or any employee benefit plan (or any
related trust) of the Company or a Subsidiary, becomes the beneficial owner
of 20% or more of the common stock of the Company or of Voting Securities
representing 20% or more of the combined voting power of all Voting
Securities of the Company;
b. within a period of 24 months or less, the individuals who, as of
any date, constitute the Board (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board unless at the end of
such period, the majority of individuals then constituting the Board were
nominated upon the recommendation of a majority of the Incumbent Directors.
c. approval by the stockholders of the Company of any of the
following:
(1) a merger, reorganization or consolidation ("Merger") with
respect to which the individuals and entities who were the respective
beneficial owners of the stock and Voting Securities of the Company
immediately before such Merger do not, after such Merger,
beneficially own, directly or indirectly, more than 80% of,
respectively, the common stock and the combined voting power of the
Voting Securities of the corporation resulting from such Merger in
substantially the same proportion as their ownership immediately
before such Merger, or
(2) the sale or other disposition of all or substantially all of
the assets of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Disability" -- see Section 4.1(b).
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2.9 "Effective Date" means the first date on which a Change of Control
occurs during the Agreement Term. Despite anything in this Agreement to the
contrary, if the Company terminates the Executive's employment before the date
of a Change of Control, and if the Executive reasonably demonstrates that such
termination of employment (a) was at the request of a third party who had taken
steps reasonably calculated to effect the Change of Control or (b) otherwise
arose in connection with or anticipation of the Change of Control, then
"Effective Date" shall mean the date immediately before the date of such
termination of employment.
2.10 "Good Reason" -- see Section 4.4(b).
2.11 "Gross-up Payment" -- see Section 7.1.
2.12 "Imminent Change of Control Date" means any date on which occurs (a)
a presentation to the Company's stockholders generally or any of the Company's
directors or executive officers of a proposal or offer for a Change of Control,
or (b) the public announcement (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) of a proposal or offer for
a Change of Control, or (c) such proposal or offer remains effective and
unrevoked.
2.13 "IRS" means the Internal Revenue Service.
2.14 "1934 Act" means the Securities Exchange Act of 1934.
2.15 "Notice of Termination" means a written notice given in accordance
with Section 12.7 which sets forth (a) the specific termination provision in
this Agreement relied upon by the party giving such notice, (b) in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under such termination provision and (c) if the
Termination Date is other than the date of receipt of such Notice of
Termination, the Termination Date.
2.16 "Plans" means plans, programs, policies or practices of the Company.
2.17 "Policies" means policies, practices or procedures of the Company.
2.18 "Post-Change Period" means the period commencing on the Effective
Date and ending on the third anniversary of such date.
2.19 "SEC" means the Securities and Exchange Commission.
2.20 "Section" means, unless the context otherwise requires, a section of
this Agreement.
2.21 "Subsidiary" means a corporation as defined in Section 424(f) of the
Code with the Company being treated as the employer corporation for purposes of
this definition.
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<PAGE>
2.22 "Termination Date" means the date of receipt of the Notice of
Termination or any later date specified in such notice (which date shall be not
more than 15 days after the giving of such notice), as the case may be;
provided, however, that (a) if the Company terminates the Executive's employment
other than for Cause or Disability, then the Termination Date shall be the date
of receipt of such Notice of Termination and (b) if the Executive's employment
is terminated by reason of death or Disability, then the Termination Date shall
be the date of death of the Executive or the Disability Effective Date, as the
case may be.
2.23 "Termination Performance Period" -- see Section 3.2(b)(2)(B).
2.24 "Voting Securities" of a corporation means securities of such
corporation that are entitled to vote generally in the election of directors of
such corporation.
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS
3.1 Position and Duties.
a. During the Post-Change Period, (1) the Executive's position
(including offices, titles, reporting requirements and responsibilities),
authority and duties shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at
any time during the 90-day period immediately before the Effective Date and
(2) the Executive's services shall be performed at the location where the
Executive was employed immediately before the Effective Date or any other
location less than 40 miles from such former location.
b. During the Post-Change Period (other than any periods of
vacation, sick leave or disability to which the Executive is entitled), the
Executive agrees to devote the Executive's full attention and time to the
business and affairs of the Company and, to the extent necessary to
discharge the duties assigned to the Executive in accordance with this
Agreement, to use the Executive's best efforts to perform faithfully and
efficiently such duties. During the Post-Change Period, the Executive may
(1) serve on corporate, civic or charitable boards or committees, (2)
deliver lectures, fulfill speaking engagements or teach at educational
institutions and (3) manage personal investments, so long as such
activities are consistent with the Policies of the Company at the Effective
Date and do not significantly interfere with the performance of the
Executive's duties under this Agreement. To the extent that any such
activities have been conducted by the Executive before the Effective Date
and were consistent with the Policies of the Company at the Effective Date,
the continued conduct of such activities (or activities similar in nature
and scope) after the Effective Date shall not be deemed to interfere with
the performance of the Executive's duties under this Agreement.
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3.2 Compensation.
a. Base Salary. During the Post-Change Period, the Company shall
pay or cause to be paid to the Executive an annual base salary in cash
("Guaranteed Base Salary"), which shall be paid in a manner consistent with
the Company's payroll practices in effect immediately before the Effective
Date at a rate at least equal to 12 times the highest monthly base salary
paid or payable to the Executive by the Company in respect of the 12-month
period immediately before the Effective Date. During the Post-Change
Period, the Guaranteed Base Salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary awarded to other
peer executives of the Company. Any increase in Guaranteed Base Salary
shall not limit or reduce any other obligation of the Company to the
Executive under this Agreement. After any such increase, the Guaranteed
Base Salary shall not be reduced and the term "Guaranteed Base Salary"
shall thereafter refer to the increased amount.
b. Target Bonus. During the Post-Change Period, the Company shall
pay or cause to be paid to the Executive a bonus (the "Guaranteed Bonus")
for each Performance Period which ends during the Post-Change Period.
"Performance Period" means each period of time designated in accordance
with any bonus arrangement ("Bonus Plan") which is based upon performance
and approved by the Board or any committee of the Board. The Guaranteed
Bonus shall be at least equal to the greatest of:
(1) the On Plan Bonus, which shall mean the cash bonus which the
Executive would accrue under any Bonus Plan for the Performance Period for
which the Guaranteed Bonus is awarded ("Current Performance Period") as if
the performance achieved 100% of plan established pursuant to such Bonus
Plan and the maximum level of the discretionary portion is achieved;
(2) the Actual Bonus, which shall mean the cash bonus which
Executive would accrue under any Bonus Plan for the Current Performance
Period if the performance during the Current Performance Period were
measured by actual performance; provided, however, that for purposes of
Section Article V of this Agreement, the Actual Bonus for the Performance
Period in which the Termination Date occurred (the "Termination Performance
Period") shall not be less than the cash bonus which the Executive would
accrue under any Bonus Plan if performance during that Termination
Performance Period were measured by the actual performance during the
Termination Performance Period before the Termination Date projected to the
last day of such Performance Period and the maximum level of the
discretionary portion is achieved; and
(3) the Historical Bonus, which shall mean the bonus that the
Executive accrued in the last Performance Period that ended before the
Post-Change Period; provided, however, that for purposes of Article V of
this Agreement, the
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Historical Bonus for the Performance Period in which the Termination Date
occurred shall not be less than the cash bonus that the Executive accrued
in the last Performance Period that ended before the Termination Date.
c. Incentive, Savings and Retirement Plans. In addition to
Guaranteed Base Salary and Guaranteed Bonus payable as provided in this
Section, the Executive shall be entitled to participate during the Post-
Change Period in all incentive (including long-term incentives), savings
and retirement Plans applicable to other peer executives of the Company,
but in no event shall such Plans provide the Executive with incentive
(including long-term incentives), savings and retirement benefits which, in
any case, are less favorable, in the aggregate, than the most favorable of
those provided by the Company to the Executive or to peer executives under
such Plans as in effect at any time during the 90-day period immediately
before the Effective Date.
d. Welfare Benefit Plans. During the Post-Change Period, the
Executive and the Executive's family shall be eligible to participate in,
and receive all benefits under, welfare benefit Plans provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, individual life, group life, dependent
life, accidental death and travel accident insurance Plans) and applicable
to other peer executives of the Company and their families, but in no event
shall such Plans provide benefits which in any case are less favorable, in
the aggregate, than the most favorable of those provided to the Executive
or to peer executives under such Plans as in effect at any time during the
90-day period immediately before the Effective Date.
e. Fringe Benefits. During the Post-Change Period, the Executive
shall be entitled to fringe benefits and other executive perquisites in
accordance with the most favorable Plans applicable to peer executives of
the Company, but in no event shall such Plans provide fringe benefits and
other executive perquisites which in any case are less favorable, in the
aggregate, than the most favorable of those provided by the Company to the
Executive or to peer executives under such Plans in effect at any time
during the 90-day period immediately before the Effective Date.
f. Expenses. During the Post-Change Period, the Executive shall be
entitled to prompt reimbursement of all reasonable employment-related
expenses incurred by the Executive upon the Company's receipt of
accountings in accordance with the most favorable Policies applicable to
peer executives of the Company, but in no event shall such Policies be less
favorable, in the aggregate, than the most favorable of those provided by
the Company to the Executive or to peer executives under such Policies in
effect at any time during the 90-day period immediately before the
Effective Date.
g. Office and Support Staff. During the Post-Change Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance in
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accordance with the most favorable Policies applicable to peer executives
of the Company, but in no event shall such Policies be less favorable, in
the aggregate, than the most favorable of those provided by the Company to
the Executive or to peer executives under such Policies in effect at any
time during the 90-day period immediately before the Effective Date.
h. Vacation. During the Post-Change Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable Policies
applicable to peer executives of the Company, but in no event shall such
Policies be less favorable, in the aggregate, than the most favorable of
those provided by the Company to the Executive or to peer executives under
such Policies in effect at any time during the 90-day period immediately
before the Effective Date.
3.3 Stock Options.
In addition to the other benefits provided in this Section, on the
Effective Date, the Executive shall become fully vested in any and all
outstanding stock options granted to Executive for shares of common stock
of the Company or to the extent that such options are not vested, shall
receive a lump-sum cash payment equal to the spread of all non-vested,
forfeited options as of the date such options are forfeited.
3.4 Excess/Supplemental Plans.
In addition to the other benefits provided in this Section, on the
Effective Date, the Company shall pay to Executive an amount equal to the
value (determined using the actuarial assumptions then applied by the
Pension Benefit Guaranty Corporation for determining immediate annuity
present values) of the Executive's accrued benefits under (1) the Safety-
Kleen Corp. Excess Benefit Plan, (2) the Safety-Kleen Supplemental
Executive Retirement Plan, or (3) any such successor plan or other
nonqualified unfunded retirement Plan as may be in effect as of (or as may
have been in effect at any time during the 90-day period immediately
before) the Effective Date (the "Excess/Supplemental Plans").
ARTICLE IV.
TERMINATION OF EMPLOYMENT
4.1 Disability.
a. During the Post-Change Period, the Company may terminate the
Executive's employment upon the Executive's Disability (as defined in
Section 4.1(b) by giving the Executive or his legal representative, as
applicable, (1) written notice in accordance with Section 12.7 of the
Company's intention to terminate the Executive's employment pursuant to
this Section and (2) a certification of the Executive's Disability by a
physician selected by the Company or its insurers and reasonably acceptable
to the Executive or the Executive's legal representative. The
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Executive's employment shall terminate effective on the 30th day (the
"Disability Effective Date") after the Executive's receipt of such notice
unless, before the Disability Effective Date, the Executive shall have
resumed the full-time performance of the Executive's duties.
b. "Disability" means any medically determinable physical or mental
impairment that has lasted for a continuous period of not less than six
months and can be expected to be permanent or of indefinite duration, and
that renders the Executive unable to perform the essential functions
required under this Agreement with or without reasonable accomodation.
4.2 Death. The Executive's employment shall terminate automatically upon
the Executive's death during the Post-Change Period.
4.3 Cause.
a. During the Post-Change Period, the Company may terminate the
Executive's employment for Cause.
b. "Cause" means any of the following: (i) commission by the
Executive of any felony which includes as an element of the crime a
premeditated intention to commit the act, (ii) Executive's inability to
perform his duties due to habitual alcohol or drug addiction, (iii) serious
misconduct involving dishonesty in the course of Executive's employment, or
(iv) the Executive's habitual neglect of his duties; except that Cause
shall not mean:
(1) bad judgment or negligence other than habitual neglect of
duty;
(2) any act or omission believed by the Executive in good faith
to have been in or not opposed to the interest of the Company (without
intent of the Executive to gain, directly or indirectly, a profit to which
the Executive was not legally entitled);
(3) any act or omission with respect to which a determination
could properly have been made by the Board that the Executive met the
applicable standard of conduct for indemnification or reimbursement under
the Company's by-laws, any applicable indemnification agreement, or
applicable law, in each case in effect at the time of such act or omission;
or
(4) any act or omission with respect to which notice of
termination of employment of the Executive is given more than 12 months
after the earliest date on which any member of the Board, not a party to
the act or omission, knew or should have known of such act or omission.
c. Any termination of the Executive's employment by the Company for
Cause shall be communicated to the Executive by Notice of Termination.
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4.4 Good Reason.
a. During the Post-Change Period, the Executive may terminate his or
her employment for Good Reason.
b. "Good Reason" means any of the following:
(1) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including offices,
titles, reporting requirements or responsibilities), authority or
duties as contemplated by Section 3.1(a)(1), or any other action by
the Company which results in a diminution or other material adverse
change in such position, authority or duties;
(2) any failure by the Company to comply with any of the
provisions of Article III;
(3) the Company's requiring the Executive to be based at any
office or location other than the location described in Section
3.1(a)(2);
(4) any other material adverse change to the terms and
conditions of the Executive's employment; or
(5) any purported termination by the Company of the Executive's
employment other than as expressly permitted by this Agreement (any
such purported termination shall not be effective for any other
purpose under this Agreement).
Any reasonable determination of "Good Reason" made in good faith by the
Executive shall be conclusive.
c. Any termination of employment by the Executive for Good Reason
shall be communicated to the Company by Notice of Termination. A passage
of time prior to delivery of Notice of Termination or a failure by the
Executive to include in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of
the Executive under this Agreement or preclude the Executive from asserting
such fact or circumstance in enforcing rights under this Agreement.
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ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company Other Than for
Cause or Disability. If, during the Post-Change Period, the Company shall
terminate Executive's employment other than for Cause or Disability, or if the
Executive shall terminate employment for Good Reason, the Company shall
immediately pay the Executive, in addition to all vested rights arising from the
Executive's employment as specified in Article III, a cash amount equal to the
sum of the following amounts:
a. to the extent not previously paid, the Guaranteed Base Salary and
any accrued vacation pay through the Termination Date;
b. the difference between (1) the product of (A) the Guaranteed
Bonus, multiplied by (B) a fraction, the numerator of which is the number
of days in the Termination Performance Period which elapsed before the
Termination Date, and the denominator of which is the total number of days
in the Termination Performance Period, and (2) the amount of any Guaranteed
Bonus paid to the Executive with respect to the Termination Performance
Period;
c. all amounts previously deferred by or an accrual to the benefit
of the Executive under any nonqualified deferred compensation or pension
plan, together with any accrued earnings thereon, and not yet paid by the
Company;
d. an amount equal to the product of (1) three (3.0) multiplied by
(2) the sum of (A) Guaranteed Base Salary and (B) the Guaranteed Bonus;
e. an amount equal to the sum of the value of the unvested portion
of the Executive's accounts or accrued benefits under any qualified plan
maintained by the Company as of the Termination Date;
f. the difference between (1) an amount equal to the value
(determined using the actuarial assumptions then applied by the Pension
Benefit Guaranty Corporation for determining immediate annuity present
values) of the Executive's accrued benefits under the Excess/Supplemental
Plans (as defined in Section 3.4) calculated as though the Executive (A)
continued to accrue benefits under the Excess/Supplemental Plans for a
period of three years after the Termination Date, and (B) received
compensation during each year of such three-year period equal to the sum of
the Guaranteed Base Salary and the highest Guaranteed Bonus paid (or
payable) to the Executive in the two years preceding the Termination Date,
and (C) if Executive is at least age fifty-five (55) and has least ten (10)
years of service with the Company, Executive were three (3) years older
than his age at the Termination Date and (2) the amount actually previously
paid by the Company to Executive pursuant to Section 3.4; and
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g. pay on behalf of Executive all fees and costs charged by the
outplacement firm selected by the Executive to provide outplacement
services or at the election of the Executive, cash equal to the fees and
expenses such outplacement firm would charge.
Until the third anniversary of the Termination Date or such later date as any
Plan of the Company may specify, the Company shall continue to provide to the
Executive and the Executive's family welfare benefits (including, without
limitation, medical, prescription, dental, disability, salary continuance,
individual life, group life, accidental death and travel accident insurance
plans and programs), fringe benefits and other executive perquisites which are
at least as favorable as the most favorable Plans of the Company applicable to
the Executive and other peer executives and their families as of the Termination
Date, but which are in no event less favorable than the most favorable Plans of
the Company applicable to the Executive and other peer executives and their
families during the 90-day period immediately before the Effective Date. The
cost of such welfare benefits shall not exceed the cost of such benefits to the
Executive immediately before the Termination Date or, if less, the Effective
Date. Notwithstanding the foregoing, if the Executive is covered under any
medical, life, or disability insurance plan(s) provided by a subsequent
employer, then the amount of coverage required to be provided by the Employer
hereunder shall be reduced by the amount of coverage provided by the subsequent
employer's medical, life, or disability insurance plan(s). The Executive's
rights under this Section shall be in addition to, and not in lieu of, any post-
termination continuation coverage or conversion rights the Executive may have
pursuant to applicable law, including without limitation continuation coverage
required by Section 4980 of the Code.
5.2 If by the Company for Cause. If the Company terminates the
Executive's employment for Cause during the Post-Change Period, this Agreement
shall terminate without further obligation by the Company to the Executive,
other than the obligation immediately to pay the Executive in cash the
Executive's Guaranteed Base Salary through the Termination Date, plus the amount
of any compensation previously deferred by the Executive, plus any accrued
vacation pay, in each case to the extent not previously paid.
5.3 If by the Executive Other Than for Good Reason. If the Executive
terminates employment during the Post-Change Period other than for Good Reason,
Disability or death, this Agreement shall terminate without further obligations
by the Company, other than the obligation immediately to pay the Executive in
cash all amounts specified in clauses (a), (b) and (c) of the first sentence of
Section 5.1 (such amounts collectively, the "Accrued Obligations").
5.4 If by the Company for Disability. If the Company terminates the
Executive's employment by reason of the Executive's Disability during the Post-
Change Period, this Agreement shall terminate without further obligations to the
Executive, other than
(a) the Company's obligation immediately to pay the Executive in cash
all Accrued Obligations, and
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(b) the Executive's right after the Disability Effective Date to
receive disability and other benefits at least equal to the greater of (1)
those provided under the most favorable disability Plans applicable to
disabled peer executives of the Company in effect immediately before the
Termination Date or (2) those provided under the most favorable disability
Plans of the Company in effect at any time during the 90-day period
immediately before the Effective Date.
5.5 If upon Death. If the Executive's employment is terminated by reason
of the Executive's death during the Post-Change Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than the obligation immediately to pay the
Executive's estate or beneficiary in cash all Accrued Obligations. Despite
anything in this Agreement to the contrary, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company to the surviving families of peer executives of the
Company under such Plans, but in no event shall such Plans provide benefits
which in each case are less favorable, in the aggregate, than the most favorable
of those provided by the Company to the Executive under such Plans in effect at
any time during the 90-day period immediately before the Effective Date.
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS
6.1 Waiver of Other Severance Rights. To the extent that payments are
made to the Executive pursuant to Section 5.1, the Executive hereby waives the
right to receive severance payments under any other Plan or agreement of the
Company.
6.2 Other Rights. Except as provided in Section 6.1, this Agreement shall
not prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other Plans, provided by the Company or any of its
Subsidiaries and for which the Executive may qualify, nor shall this Agreement
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its Subsidiaries. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any Plan of the Company or any of its Subsidiaries and any other payment or
benefit required by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly modified by this
Agreement.
ARTICLE VII.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
7.1 Gross-up for Certain Taxes. If it is determined (by the reasonable
computation of the Company's independent auditors, which determinations shall be
certified to by such auditors and set forth in a written certificate
("Certificate") delivered to the Executive) that
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any benefit received or deemed received by the Executive from the Company
pursuant to this Agreement or otherwise (collectively, the "Payments") is or
will become subject to any excise tax under Section 4999 of the Code or any
similar tax payable under any United States federal, state, local or other law
(such excise tax and all such similar taxes collectively, "Excise Taxes"), then
the Company shall, immediately after such determination, pay the Executive an
amount (the "Gross-up Payment") equal to the product of
(a) the amount of such Excise Taxes
multiplied by
(b) the Gross-up Multiple (as defined in Section 7.4).
The Gross-up Payment is intended to compensate the Executive for the Excise
Taxes and any federal, state, local or other income or excise taxes or other
taxes payable by the Executive with respect to the Gross-up Payment.
The Executive or the Company may at any time request the preparation and
delivery to the Executive of a Certificate. The Company shall, in addition to
complying with Section 7.2, cause all determinations and certifications under
the Article to be made as soon as reasonably possible and in adequate time to
permit the Executive to prepare and file the Executive's individual tax returns
on a timely basis.
7.2 Determination by the Executive.
a. If the Company shall fail to deliver a Certificate to the
Executive (and to pay to the Executive the amount of the Gross-up Payment,
if any) within 14 days after receipt from the Executive of a written
request for a Certificate, or if at any time following receipt of a
Certificate the Executive disputes the amount of the Gross-up Payment set
forth therein, the Executive may elect to demand the payment of the amount
which the Executive, in accordance with an opinion of counsel to the
Executive ("Executive Counsel Opinion"), determines to be the Gross-up
Payment. Any such demand by the Executive shall be made by delivery to the
Company of a written notice which specifies the Gross-up Payment determined
by the Executive and an Executive Counsel Opinion regarding such Gross-up
Payment (such written notice and opinion collectively, the "Executive's
Determination"). Within 14 days after delivery of the Executive's
Determination to the Company, the Company shall either (1) pay the
Executive the Gross-up Payment set forth in the Executive's Determination
(less the portion of such amount, if any, previously paid to the Executive
by the Company) or (2) deliver to the Executive a Certificate specifying
the Gross-up Payment determined by the Company's independent auditors,
together with an opinion of the Company's counsel ("Company Counsel
Opinion"), and pay the Executive the Gross-up Payment specified in such
Certificate. If for any reason the Company fails to comply with clause (2)
of the preceding sentence, the Gross-up
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Payment specified in the Executive's Determination shall be controlling for
all purposes.
b. If the Executive does not make a request for, and the Company
does not deliver to the Executive, a Certificate, the Company shall, for
purposes of Section 7.3, be deemed to have determined that no Gross-up
Payment is due.
7.3 Additional Gross-up Amounts. If, despite the initial conclusion of
the Company and/or the Executive that certain Payments are neither subject to
Excise Taxes nor to be counted in determining whether other Payments are subject
to Excise Taxes (any such item, a "Non-Parachute Item"), it is later determined
(pursuant to the subsequently-enacted provisions of the Code, final regulations
or published rulings of the IRS, final judgment of a court of competent
jurisdiction or the Company's independent auditors that any of the Non-Parachute
Items are subject to Excise Taxes, or are to be counted in determining whether
any Payments are subject to Excise Taxes, with the result that the amount of
Excise Taxes payable by the Executive is greater than the amount determined by
the Company or the Executive pursuant to Section 7.1 or 7.2, as applicable, then
the Company shall pay the Executive an amount (which shall also be deemed a
Gross-up Payment) equal to the product of
(a) the sum of (1) such additional Excise Taxes and (2) any interest,
fines, penalties, expenses or other costs incurred by the Executive as a
result of having taken a position in accordance with a determination made
pursuant to Section 7.1
multiplied by
(b) the Gross-up Multiple.
7.4 Gross-up Multiple. The Gross-up Multiple shall equal a fraction, the
numerator of which is one (1.0), and the denominator of which is one (1.0) minus
the sum, expressed as a decimal fraction, of the rates of all federal, state,
local and other income and other taxes and any Excise Taxes applicable to the
Gross-up Payment; provided that, if such sum exceeds 0.75, it shall be deemed
equal to 0.75 for purposes of this computation. (If different rates of tax are
applicable to various portions of a Gross-up Payment, the weighted average of
such rates shall be used.)
7.5 Opinion of Counsel. "Executive Counsel Opinion" means a legal opinion
of nationally recognized executive compensation counsel that there is a
reasonable basis to support a conclusion that the Gross-up Payment determined by
the Executive has been calculated in accord with this Article and applicable
law. "Company Counsel Opinion" means a legal opinion of nationally recognized
executive compensation counsel that (a) there is a reasonable basis to support a
conclusion that the Gross-up Payment set forth of the Certificate of Company's
independent auditors has been calculated in accord with this Article and
applicable law, and (b) there is no reasonable basis for the calculation of the
Gross-up Payment determined by the Executive.
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7.6 Amount Increased or Contested. The Executive shall notify the Company
in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by the Company of a Gross-up Payment.
Such notice shall include the nature of such claim and the date on which such
claim is due to be paid. The Executive shall give such notice as soon as
practicable, but no later than 10 business days, after the Executive first
obtains actual knowledge of such claim; provided, however, that any failure to
give or delay in giving such notice shall affect the Company's obligations under
this Article only if and to the extent that such failure results in actual
prejudice to the Company. The Executive shall not pay such claim less than 30
days after the Executive gives such notice to the Company (or, if sooner, the
date on which payment of such claim is due). If the Company notifies the
Executive in writing before the expiration of such period that it desires to
contest such claim, the Executive shall:
a. give the Company any information that it reasonably requests
relating to such claim,
b. take such action in connection with contesting such claim as the
Company reasonably requests in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
c. cooperate with the Company in good faith to contest such claim,
and
d. permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including related interest
and penalties, imposed as a result of such representation and payment of costs
and expenses. Without limiting the foregoing, the Company shall control all
proceedings in connection with such contest and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner. The Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify the Executive, on an after-tax basis, for any Excise Tax or income
tax, including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. The Company's control of the contest shall be limited to
issues with
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respect to which a Gross-up Payment would be payable. The Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
IRS or other taxing authority.
7.7 Refunds. If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 7.6, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 7.6) promptly pay the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7.6, a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such determination before the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-up Payment required to be paid. Any contest of a denial of
refund shall be controlled by Section 7.6.
ARTICLE VIII.
EXPENSES AND INTEREST
8.1 Legal Fees and Other Expenses.
a. If the Executive incurs legal, accounting and other fees or other
expenses in a good faith effort to obtain benefits under this Agreement
(including, without limitation, the fees and other expenses of the
Executive's legal counsel and the accounting and other fees and expenses in
connection with the delivery of the Opinion referred to in Article VII),
regardless of whether the Executive ultimately prevails, the Company shall
reimburse the Executive on a monthly basis upon the written request for
such fees and expenses to the extent not reimbursed under the Company's
officers and directors liability insurance policy, if any. The existence
of any controlling case or regulatory law which is directly inconsistent
with the position taken by the Executive shall be evidence that the
Executive did not act in good faith.
b. Reimbursement of legal fees and expenses shall be made monthly
upon the written submission of a request for reimbursement together with
evidence that such fees and expenses are due and payable or were paid by
the Executive. If the Company shall have reimbursed the Executive for
legal fees and expenses and it is later determined that the Executive was
not acting in good faith, all amounts paid on behalf of, or reimbursed to,
the Executive shall be promptly refunded to the Company.
8.2 Interest. If the Company does not pay any amount due to the Executive
under this Agreement within three days after such amount became due and owing,
interest shall
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accrue on such amount from the date it became due and owing until the date of
payment at a annual rate equal to two percent (2.0%) above the base commercial
lending rate announced by The Northern Trust Company in effect from time to time
during the period of such nonpayment.
ARTICLE IX.
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to receive when due the
payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Time is of the essence in the performance by the Company of its
obligations under this Agreement. Any claim which the Company may have against
the Executive, whether for a breach of this Agreement or otherwise, shall be
brought in a separate action or proceeding and not as part of any action or
proceeding brought by the Executive to enforce any rights against the Company
under this Agreement.
9.2 No Mitigation. The Executive shall not have any duty to mitigate the
amounts payable by the Company under this Agreement by seeking new employment
following termination. Except as specifically otherwise provided in this
Agreement, all amounts payable pursuant to this Agreement shall be paid without
reduction regardless of any amounts of salary, compensation or other amounts
which may be paid or payable to the Executive as the result of the Executive's
employment by another employer.
ARTICLE X.
CONFIDENTIALITY AND NONCOMPETITION
10.1 Confidentiality. Executive acknowledges that it is the policy of the
Company and its subsidiaries to maintain as secret and confidential all valuable
and unique information and techniques acquired, developed or used by the Company
and its subsidiaries relating to their business, operations, employees and
customers, which gives the Company and its subsidiaries a competitive advantage
in the businesses in which the Company and its subsidiaries are engaged
("Confidential Information"). Executive recognizes that all such Confidential
Information is the sole and exclusive property of the Company and its
subsidiaries, and that disclosure of Confidential Information would cause damage
to the Company and its subsidiaries. Executive agrees that, except as required
by the duties of his employment with the Company and/or its subsidiaries and
except in connection with enforcing the Executive's rights under this Agreement
or if compelled by a court or governmental agency, he will not, without the
consent of the Company, disseminate or otherwise disclose any Confidential
Information obtained during his employment with the Company and/or its
subsidiaries for so long as such information is valuable and unique.
-17-
<PAGE>
10.2 Noncompetition/Nonsolicitation.
a. Executive agrees that, during the period of his employment with
the Company and/or its subsidiaries and, if Executive's employment is
terminated for any reason, thereafter for a period of one (1) year,
Executive will not at any time directly or indirectly, in any capacity,
engage or participate in, or become employed by or render advisory or
consulting or other services in connection with any Prohibited Business as
defined in Section 10.2(d).
b. Executive agrees that, during the period of his employment with
the Company and/or its subsidiaries and, if Executive's employment is
terminated for any reason, thereafter for a period of one (1) year,
Executive shall not make any financial investment, whether in the form of
equity or debt, or own any interest, directly or indirectly, in any
Prohibited Business. Nothing in this Section 10.2(b) shall, however,
restrict Executive from making any investment in any company whose stock is
listed on a national securities exchange or actively traded in the over-
the-counter market; provided that (1) such investment does not give
Executive the right or ability to control or influence the policy decisions
of any Prohibited Business, and (2) such investment does not create a
conflict of interest between Executive's duties hereunder and Executive's
interest in such investment.
c. Executive agrees that, during the period of his employment with
the Company and/or its subsidiaries and, if Executive's employment is
terminated for any reason, thereafter for a period of one (1) year,
Executive shall not (1) employ any employee of the Company and/or its
subsidiaries or (2) interfere with the Company's or any of its
subsidiaries' relationship with, or endeavor to entice away from the
Company and/or its subsidiaries any person, firm, corporation, or other
business organization who or which at any time (whether before or after the
date of Executive's termination of employment), was an employee, customer,
vendor or supplier of, or maintained a business relationship with, any
business of the Company and/or its subsidiaries which was conducted at any
time during the period commencing one year prior to the termination of
employment.
d. For the purpose of this Section 10.2, "Prohibited Business" shall
be defined as any entity and any branch, office or operation thereof, which
is a direct and material competitor of the Company wherever the Company
does business, in the United States or abroad.
10.3 Remedy. Executive and the Company specifically agree that, in the
event that Executive shall breach his obligations under this Article X, the
Company and its subsidiaries will suffer irreparable injury and no adequate
remedy for such breach, and shall be entitled to injunctive relief therefor, and
in particular, without limiting the generality of the foregoing, the Company
shall not be precluded from pursuing any and all remedies it may have at law or
in equity for breach of such obligations; provided, however, that such breach
shall not in any manner or degree whatsoever limit, reduce or otherwise affect
the
-18-
<PAGE>
obligations of the Company under this Agreement, and in no event shall an
asserted breach of the Executive's obligations under this Article X constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
ARTICLE XI.
MISCELLANEOUS
11.1 No Assignability. This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
11.2 Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Any successor to the business
and/or assets of the Company which assumes or agrees to perform this Agreement
by operation of law, contract, or otherwise shall be jointly and severally
liable with the Company under this Agreement as if such successor were the
Company.
11.3 Payments to Beneficiary. If the Executive dies before receiving
amounts to which the Executive is entitled under this Agreement, such amounts
shall be paid in a lump sum to the beneficiary designated in writing by the
Executive, or if none is so designated, to the Executive's estate.
11.4 Non-alienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, before actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
under this Agreement shall be void.
11.5 Severability. If any one or more articles, sections or other
portions of this Agreement are declared by any court or governmental authority
to be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.
-19-
<PAGE>
11.6 Amendments. Except as provided in Sections 2.2 and 11.14 hereof,
this Agreement shall not be altered, amended or modified except by written
instrument executed by the Company and Executive.
11.7 Notices. All notices and other communications under this Agreement
shall be in writing and delivered by hand or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
----------------------------
----------------------------
----------------------------
If to the Company:
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
11.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
11.9 Governing Law. This Agreement shall be interpreted and construed in
accordance with the laws of the State of Illinois without regard to its choice
of law principles.
11.10 Captions. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
11.11 Tax Withholding. The Company may withhold from any amounts payable
under this Agreement any federal, state or local taxes that are required to be
withheld pursuant to any applicable law or regulation.
11.12 No Waiver. The Executive's failure to insist upon strict compliance
with any provision of this Agreement shall not be deemed a waiver of such
provision or any other provision of this Agreement. A waiver of any provision
of this Agreement shall not be deemed a waiver of any other provision, and any
waiver of any default in any such provision shall not be deemed a waiver of any
later default thereof or of any other provision.
-20-
<PAGE>
11.13 Entire Agreement. This Agreement contains the entire understanding
of the Company and the Executive with respect to its subject matter.
11.14 Cancellation. The Company may, at any time prior to a Change in
Control, unilaterally cancel this Agreement on behalf of all parties hereto by
notifying the Executive of such cancellation in writing at least twelve (12)
months prior to the effective date of the cancellation, provided however that no
such notice may be given after an Imminent Change of Control Date.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date first above written.
________________________________________
SAFETY-KLEEN CORP.
By: ____________________________________
Title:
-21-
<PAGE>
EXHIBIT 5
[SAFETY-KLEEN LOGO]
Dear Safety-Kleen Shareholder:
We, the Board of Directors, realize the enormous responsibility of
evaluating the offers for your Company. We believe that the $27 all-cash merger
agreement we have approved (the "Philip Merger") offers Safety-Kleen
shareholders value superior to the Laidlaw Environmental proposal. The Philip
Merger Agreement was entered into after your Board carefully evaluated the risks
and benefits of the alternatives available and unanimously agreed the Philip
Merger Agreement is in the best interests of the shareholders and other
constituencies which your Board considered.
Laidlaw Environmental Services claims that the offer it made on November 20
is worth $30 per share, consisting of $15 in Laidlaw Environmental stock and $15
cash, subject to certain adjustments. We firmly believe that it is not worth
$30 per share.
. The stock portion of their offer is uncertain and could be worth significantly
less than its claimed $15 value. Consider the following:
- Laidlaw says it expects to achieve an estimated $100-130 million of
"synergies". However, there is little overlap between Safety-Kleen's core
service business and Laidlaw's landfill and incineration business. As a
result, we do not believe that Laidlaw can accomplish even $50 million of
synergies without significant reductions in service quality, revenue and
profit.
- The value of the stock portion of Laidlaw Environmental's offer is
dependent upon its stock trading above $4.29 per share. As recently as
last week, the stock traded below the minimum level.
- We believe that Laidlaw Environmental has materially underestimated the
charges for depreciation and amortization that would result from its
transaction. Accordingly, Laidlaw's future earnings would be significantly
reduced.
- Up to approximately 200 million Laidlaw Environmental shares would be
issued in the transaction, which could quadruple the stock available in the
public markets. It is questionable whether the market could absorb this
substantial stock issuance without adversely affecting Laidlaw's stock
price.
. Laidlaw Environmental provides no guaranty as to how much will be paid in cash
to Safety-Kleen shareholders. The nominal $15 in cash portion is subject to
reduction, which based on Laidlaw's own estimates, could amount to between $1.28
and $2.14 per share.
. Considering the conditions in Laidlaw's offer, it is unlikely that its
proposed transaction would close before mid-1998 at the earliest.
Your Board also carefully considered the significant differences between
the business operations of Safety-Kleen and Laidlaw Environmental. Safety-Kleen
recycles; Laidlaw incinerates and puts wastes in the ground. The latter results
in much greater potential environmental liability. As a result of the
transaction, Laidlaw, Inc., the parent company, would remove the potential
liabilities and environmental risks of Laidlaw Environmental from its balance
sheet. Safety-Kleen shareholders, who could become owners of more than 50% of
Laidlaw Environmental if the transaction were completed, would become subject to
those risks.
<PAGE>
We have called a special meeting of shareholders to approve the Philip
Merger which will be held on February 11, 1998. In the next few weeks, we will
forward to you proxy materials containing details on this merger.
The Board of Directors and management team at Safety-Kleen has, and will
continue to act with your best interests in mind. We appreciate your support
and confidence and will keep you fully informed of the process.
Sincerely,
Donald W. Brinckman
Founder, Chairman and Chief Executive Officer
For the Board of Directors
<PAGE>
EXHIBIT 6
FOR IMMEDIATE RELEASE Contact: Maureen Fisk
847-468-2452
SAFETY-KLEEN BOARD REJECTS
LAIDLAW ENVIRONMENTAL OFFER
December 22, 1997 -- Elgin, Illinois -- The Safety-Kleen Corp. Board of
Directors today announced that it has rejected Laidlaw Environmental Services,
Inc.'s hostile exchange offer.
In a letter to shareholders, Donald W. Brinckman, Chairman and Chief
Executive Officer of Safety-Kleen, said the Board had thoroughly reviewed the
Laidlaw offer and concluded that it does not provide value superior to the $27
all cash agreement to merge Safety-Kleen with SK Parent Corp., a new company
formed by Philip Services Corp., and affiliates of Apollo Management, L.P. and
affiliates of Blackstone Management Partners III L.L.C.
Brinckman stated, "The Directors have significant concern as to the value
that Safety-Kleen shareholders will realize from the Laidlaw Environmental
common stock which would be issued to Safety-Kleen shareholders in this
transaction. In addition, the cash portion of the purchase price is subject to
reduction, which according to Laidlaw's own estimates, could amount to between
$1.28 and $2.14 per share. Under these circumstances, the Board was convinced
that the $27 all-cash merger agreement with the Philip Group, which it expects
can be closed shortly after shareholder approval at a meeting to be held
February 11, is superior for all shareholders and the Board remains committed to
seeking approval of that agreement. Furthermore," Brinckman added, "we believe
that the ultimate objective of Laidlaw Environmental's hostile exchange offer is
to allow Laidlaw, Inc., the parent company, to deconsolidate and remove the
liabilities and environmental exposure of Laidlaw Environmental from its
financial statements. If their deal were consummated, these risks would be
passed on to Safety-Kleen shareholders." Brinckman concluded.
The text of Brinckman's letter follows:
Dear Safety-Kleen Shareholder:
We, the Board of Directors, realize the enormous responsibility of
evaluating the offers for your Company. We believe that the $27 all-cash merger
agreement we have approved (the "Philip Merger") offers Safety-Kleen
shareholders value superior to the Laidlaw Environmental proposal. The Philip
Merger Agreement was entered into after your Board carefully evaluated the risks
and benefits of the alternatives available and unanimously agreed the Philip
Merger Agreement is in the best interests of the shareholders and other
constituencies which your Board considered.
Laidlaw Environmental Services claims that the offer it made on November 20
is worth $30 per share, consisting of $15 in Laidlaw Environmental stock and $15
cash, subject to certain adjustments. We firmly believe that it is not worth
$30 per share.
- MORE -
<PAGE>
Safety-Kleen Corp.
Add One
. The stock portion of their offer is uncertain and could be worth significantly
less than its claimed $15 value. Consider the following:
- Laidlaw says it expects to achieve an estimated $100-130 million of
"synergies". However, there is little overlap between Safety-Kleen's core
service business and Laidlaw's landfill and incineration business. As a
result, we do not believe that Laidlaw can accomplish even $50 million of
synergies without significant reductions in service quality, revenue and
profit.
- The value of the stock portion of Laidlaw Environmental's offer is
dependent upon its stock trading above $4.29 per share. As recently as
last week, the stock traded below the minimum level.
- We believe that Laidlaw Environmental has materially underestimated the
charges for depreciation and amortization that would result from its
transaction. Accordingly, Laidlaw's future earnings would be significantly
reduced.
- Up to approximately 200 million Laidlaw Environmental shares would be
issued in the transaction, which could quadruple the stock available in the
public markets. It is questionable whether the market could absorb this
substantial stock issuance without adversely affecting Laidlaw's stock
price.
. Laidlaw Environmental provides no guaranty as to how much will be paid in cash
to Safety-Kleen shareholders. The nominal $15 in cash portion is subject to
reduction, which based on Laidlaw's own estimates, could amount to between $1.28
and $2.14 per share.
. Considering the conditions in Laidlaw's offer, it is unlikely that its
proposed transaction would close before mid-1998 at the earliest.
Your Board also carefully considered the significant differences between
the business operations of Safety-Kleen and Laidlaw Environmental. Safety-Kleen
recycles; Laidlaw incinerates and puts wastes in the ground. The latter results
in much greater potential environmental liability. As a result of the
transaction, Laidlaw, Inc., the parent company, would remove the potential
liabilities and environmental risks of Laidlaw Environmental from its balance
sheet. Safety-Kleen shareholders, who could become owners of more than 50% of
Laidlaw Environmental if the transaction were completed, would become subject to
those risks.
We have called a special meeting of shareholders to approve the Philip
Merger which will be held on February 11, 1998. In the next few weeks, we will
forward to you proxy materials containing details on this merger.
The Board of Directors and management team at Safety-Kleen has, and will
continue to act with your best interests in mind. We appreciate your support
and confidence and will keep you fully informed of the process.
Sincerely,
Donald W. Brinckman
Founder, Chairman and Chief Executive Officer
For the Board of Directors
PARTICIPANT INFORMATION
Safety-Kleen Corp. ("Safety-Kleen") and the persons named below may be
deemed to be participants in the solicitation of proxies in connection with the
merger of SK Acquisition Corp. (the "Purchaser"), a wholly-owned subsidiary of
SK Parent Corp. ("Parent"), with and into Safety-Kleen (the "Merger") and
pursuant to which each share of Safety-Kleen common stock (including each
associated common stock purchase right) (other than shares owned by Parent, the
Purchaser or any subsidiary thereof and treasury shares) will be converted in
the Merger into the right to receive $27.00 in cash, without interest. Parent is
a new corporation formed by Philip Services Corp. ("Philip"), affiliates of
Apollo Management, L.P. ("Apollo") and affiliates of Blackstone Management
Partners III L.L.C. ("Blackstone").
Safety-Kleen. Participants in this solicitation may include the directors
of Safety-Kleen (Donald W. Brinckman, Richard T. Farmer, Russell A. Gwillim,
Edgar D. Jannotta, Karl G. Otzen, Paul D. Schrage, Marcia E. Williams, and W.
Gordon Wood); the following executive officers of Safety-Kleen: Joseph Chalhoub,
David A. Dattilo, F. Henry Habicht II, Hyman K. Bielsky, Scott E. Fore, Scott D.
Krill, Clark J. Rose, Andrew A. Campbell, Laurence M. Rudnick, C. James Schulz
and Maureen Fisk (collectively, the "Safety-Kleen Participants"). The above-
referenced individuals beneficially own an aggregate of 3,580,944 shares of
Safety-Kleen common stock (including shares subject to stock options exercisable
within 60 days). Messrs. Brinckman and Otzen beneficially own 907,100 shares and
1,481,093 shares of Safety-Kleen common stock, respectively (including shares
subject to stock options exercisable within 60 days). None of the remaining
Safety-Kleen Participants beneficially owns in excess of 1% of Safety-Kleen's
outstanding equity securities. The address of each of the Safety-Kleen
participants is c/o Safety-Kleen Corp., One Brinckman Way, Elgin, Illinois
60123.
William Blair. Safety-Kleen has retained William Blair & Company, L.L.C.
("William Blair") to act as its financial advisors in connection with the
Merger, for which it has received and may receive substantial fees, as well as
reimbursement of reasonable out-of-pocket expenses. In addition, Safety-Kleen
has agreed to indemnify William Blair and certain related persons against
certain liabilities, including certain liabilities under the federal securities
laws, arising out of their engagement. Certain employees of William Blair may
also assist in the solicitation of proxies, including by communicating in
person, by telephone, or otherwise with a limited number of institutions,
brokers, or other persons who are stockholders of Safety-Kleen. William Blair
will not receive any separate fee for any such solicitation activities. William
Blair is an investment banking firm that provides a full range of financial
services for institutional and individual clients. William Blair does not admit
that it or any of its directors, officers or employees is a "participant" as
defined in Schedule 14A promulgated under the Exchange Act, in the solicitation,
or that Schedule 14A requires the disclosure of certain information concerning
William Blair. In the normal course of its business, William Blair regularly
buys and sells Safety-Kleen securities for its own account and for the accounts
of its customers which may result from time to time in William Blair and its
associates having a net "long" or net "short" position in Safety-Kleen
securities. Additionally, in the normal course of its business, William Blair
may finance its securities positions by bank and other borrowings and repurchase
and securities borrowing transactions. Employees of William Blair who may be
deemed "participants" in this solicitation include: E. David Coolidge III, John
L. Carton, Jeffrey W. Corum and Brent W. Felitto. The business address of such
persons is William Blair & Company, L.L.C., 222 West Adams Street, Chicago,
Illinois 60606.
Safety-Kleen anticipates that certain officers, directors, employees or
affiliates of Philip, Apollo, Blackstone, Parent and Merrill Lynch & Co.,
Parent's financial advisor ("Merrill Lynch"), may communicate in person, by
telephone or otherwise with shareholders of Safety-Kleen for the purpose of
assisting in the solicitation of proxies. These efforts would be in furtherance
of Parent's efforts to consummate the Merger. None of such persons will be
compensated by Safety-Kleen in connection with such solicitation activities.
Except as noted below with respect to Merrill Lynch, none of such persons
beneficially owns, individually or in the aggregate, in excess of 1% of Safety-
Kleen's outstanding common stock. Additional information concerning such
participants is set forth below.
Philip Services Corp. Unless otherwise indicated, the information below
refers to such person's position with Philip Services Corp. The business
address of each executive officer is Philip Services Corp., 100 King Street
West, P.O. Box 2440, LCD #1, Hamilton, Ontario, L8N 4J6. Persons who may be
deemed to be participants in this solicitation include: Allen Fracassi,
President, Chief Executive Officer and Director; Philip Fracassi, Executive
Vice-President, Chief Operating Officer and Director; Howard Beck, Chairman and
Director; Roy Cairns, Director; Derrick Rolfe, Director; Norman Foster,
Director; Felix Pardo, Director; Herman Turkstra, Director; William E. Haynes,
Director; Robert Waxman, President, Metals Recovery Group and Director; Robert
L. Knauss, Director; Marvin Boughton, Executive Vice-President and Chief
Financial Officer; Robert M. Chiste, President, Industrial Services Group; Peter
Chodos, Executive Vice-President, Corporate Development; Colin Soule, Executive
Vice-President, General Counsel & Corporate Secretary (also a director of
Parent); Antonio Pingue, Executive Vice President, Corporate and Regulatory
Affairs; and John Woodcroft, Executive Vice-President, Operations.
Apollo. Persons who may be deemed to be participants in this solicitation
include: Apollo Management, L.P., Apollo Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., Apollo (U.K.) Partners III, L.P., Antony P.
Ressler, Investment Manager and Director of Parent, and David B. Kaplan,
Investment Manager.
Blackstone. Persons who may be deemed to be participants in this
solicitation include: Blackstone Capital Partners III Merchant Banking Fund
L.P., Blackstone Offshore Capital Partners III L.P., Blackstone Management
Associates III L.P., Blackstone Management Partners III L.L.C., Howard A.
Lipson, Investment Manager, a Director of Parent, and Lawrence H. Guffey,
Investment Manager.
SK Parent Corp. Persons who may be deemed to be participants in this
solicitation include: Colin Soule (see Philip above), Antony P. Ressler (see
Apollo above), and Howard A. Lipson (see Blackstone above).
Merrill Lynch. Certain employees of Merrill Lynch & Co. may also assist in
the solicitation of proxies, including by communicating in person, by telephone,
or otherwise with a limited number of institutions, brokers, or other persons
who are stockholders of Safety-Kleen. Merrill Lynch will not receive any
separate fee for its solicitation activities. Merrill Lynch is an investment
banking firm that provides a full range of financial services for institutional
and individual clients. Merrill Lynch does not admit that it or any of its
directors, officers or employees is a "participant" as defined in Schedule 14A
promulgated under the Exchange Act, in the solicitation, or that Schedule 14A
requires the disclosure of certain information concerning Merrill Lynch. In the
normal course of its business, Merrill Lynch regularly buys and sells Safety-
Kleen securities for its own account and for the accounts of its customers which
may result from time to time in Merrill Lynch and its associates having a net
"long" or net "short" position in Safety-Kleen securities. Additionally, in the
normal course of its business, Merrill Lynch may finance its securities
positions by bank and other borrowings and repurchase and securities borrowing
transactions. Employees of Merrill Lynch who may be deemed "participants" in
this solicitation include: Mark Shafir and Drago Rajkovic. The business
address of such persons is Merrill Lynch & Co., 101 California Street, Suite
1200, San Francisco, California 94111.
* * *
CERTAIN ADDITIONAL INFORMATION
Certain members of Safety-Kleen's management and of the Board will receive
economic benefits as a result of the Philip Merger, including payments with
respect to stock options and limited stock appreciation rights, maintenance of
directors' and officers' insurance coverage and employee benefits by the
surviving corporation of the Philip Merger for specified periods of time,
indemnification rights, benefits under Change of Control Severance Agreements,
and possible continued employment by the surviving corporation of the Philip
Merger. They may also have the opportunity to make investments in the surviving
corporation of the Philip Merger.
- END -
<PAGE>
EXHIBIT 7
[Letterhead of Raymond James & Associates, Inc.]
September 24, 1997
Mr. Jeffrey W. Corum
William Blair & Company
222 West Adams Street
Chicago, Illinois 60606
Dear Jeff:
As we have discussed, our client, Laidlaw Environmental Services Inc.
("LESI") is interested in pursuing a transaction with Safety-Kleen Corp. ("SK").
We would hope to have a meeting between top management of LESI, Laidlaw, Inc.
and SK to outline our proposed structure and discuss the advantages to SK
shareholders in depth. In anticipation of this meeting we would like to outline
that structure and the benefits.
We propose a reverse merger in which SK would issue one share of its stock
for three shares of LESI stock. The resultant company would have approximately
120 million shares outstanding, approximately half-owned by each of the
precedent company's existing shareholders. Surviving senior management would be
the existing LESI management team, although we would certainly envision that the
best of the combined teams would stay with the combined company.
The key initial advantage of the transaction lies in the tremendous cost
synergies available from combining the operations of SK and LESI. Our estimates
are that these savings could range from $100-130 million annually. These would
arise from the elimination of duplicate general and administrative and other
public company costs, from the closure of overlapping service center facilities,
from increased utilization of those facilities that remain open, and from the
internalization of various waste streams. Our experience with the merger of
Rollins' and Laidlaw's hazardous waste businesses, in which ultimate realizable
savings would exceed our originally projected $75 million annually (now expected
to be approximately $90 million), gives us a high level of confidence that we
can achieve these synergies.
Your client's board and shareholders should find this to be a very
compelling opportunity. They would have ownership of a company with tremendous
economic opportunity via the increased earnings available from cost savings. Our
estimates show an accretion in SK's EPS from $1.05 to $1.25, which would yield
an additional $4 in value at SK's existing multiple. We believe it likely the
combined companies would trade at an even higher level, reflecting LESI's
multiple or a blend of the LESI and SK multiples. The company would be driven by
a management team with a proven record of achieving similar consolidation
savings and increasing shareholder value, as evidenced by the doubling of LESI's
share price since the date of the Rollins transaction earlier this year.
<PAGE>
We would point out several unique features in our proposed transaction that
we believe distinguishes it from other alternatives:
(i) the annual potential savings of $130 million;
(ii) the relative ease of completing the transaction based on
Laidlaw Inc.'s ownership position (66 1/2% in LESI);
(iii) the absence of any new funding requirements by the combined
company; and
(iv) the financial strength of the combined balance sheet, cash
flow, and operating margins.
We would like to explore this with you in more detail. We will call you
later today or tomorrow to set up a meeting between our clients.
Sincerely,
/s/David E. Thomas, Jr.
Senior Managing Director
cc: Kenneth W. Winger
James R. Bullock
attachment: Forbes article dated October 6, 1997
<PAGE>
EXHIBIT 8
November 3, 1997
Mr. Donald W. Brinckman
Chairman & Chief Executive Officer
Safety-Kleen Corp.
900 North Randall Road
Elgin, Illinois
USA 60123
Dear Mr. Brinckman:
I am writing to you in my capacity as Chairman of Laidlaw Environmental
Services, Inc. Since your August 8th announcement that you would explore
strategic alternative to enhance shareholder value, we have sought
unsuccessfully, directly through phone calls to you and indirectly through your
advisors, to meet with you to pursue the combination of our companies. Six weeks
ago, at the request of your financial advisor, we submitted a preliminary merger
proposal to which you have yet to respond. Needless to say, we are frustrated by
your continuing unwillingness to engage in constructive dialogue.
As you are aware, your advisors have insisted that we sign an agreement
that would permit us to propose strategic alternatives that maximize value for
your shareholders only if you "shall have requested in writing in advance the
submission of such proposal". We have made clear on numerous occasions our
willingness to sign a confidentiality agreement that protects nonpublic
information you choose to share with us. In light of our experience to date,
however, we will not sign any agreement that does not ensure that your
shareholders have the opportunity to consider our offer and to maximize the
value of their stock.
In response to your continuing unwillingness to meet or commence
discussions with us in a meaningful way, our Board of Directors today authorized
and directed senior management of Laidlaw Environmental Services, Inc. to pursue
the acquisition of Safety-Kleen Corp. We have executed commitment letters with
the Toronto-Dominion Bank to provide all the necessary financing for this
acquisition. We have engaged Bear Stearns & Co., Inc. and Raymond James and
Associates Inc. to serve as our financial advisors and Katten Muchin and Zavis
to serve as our legal counsel.
Our offer for each share of Safety-Kleen Corp. is a combination of $14.00
in cash and 2.4 common shares of Laidlaw Environmental Services, Inc. stock.
This represents approximately an 18.2% premium to Safety-Kleen's closing price
on Friday and a 46% premium to Safety-Kleen's trading price prior to your August
8th announcement. Please note that our offer is not subject to due diligence or
a financing contingency. We have fully committed financing sufficient to
complete the combination. We believe our offer represents
<PAGE>
a full and fair price based on the publicly available information we have
reviewed. However, should you be willing to meet with us, we are prepared to
consider any additional information you may wish to provide that demonstrates
that a higher valuation is warranted. We continue to prefer a negotiated
transaction.
Together our companies can create greater shareholder value than can either
of us alone. We estimate annual cost savings and synergy's will exceed $90
million. We believe the stock market will embrace this transaction and will
reward the combined company with enhanced stock performance. Our offer ensures
your shareholders participate in this exciting future.
We believe it is in the best interests of our companies to proceed
immediately to negotiate a definitive agreement, containing customary public
company terms and conditions, and to consummate a transaction by year-end. Given
the importance we place on this combination, we are prepared to commit the
resources necessary to see its timely completion. We and our advisors would be
pleased to meet you and your advisors in Chicago either later today or tomorrow
to complete the necessary papers.
In recognition of the strategic nature and compelling financial benefits of
our proposed combination to your shareholders and our willingness to consider
modifications to our offer as warranted, we expect you not to enter into any
binding merger or similar agreement with any other party without first exploring
with us the full merits of combining our two companies.
Our Board of Directors unanimously supports this merger. We trust you and
the other members of Safety-Kleen's Board of Directors will consider the best
interests of Safety-Kleen's shareholders and will agree to meet with us promptly
to achieve a mutually-beneficial transaction.
We look forward to hearing from you later today.
Sincerely,
/s/James R. Bullock
James R. Bullock, Chairman
cc: Safety-Kleen, Board of Directors
Laidlaw Environmental Services, Inc., Board of Directors
Douglas T. Lake, Bear Stearns & Co. Inc.
David E. Thomas, Jr., Raymond James & Associates Inc.
Herbert S. Wander, Katten Muchin & Zavis
William Blair & Company, LLC
<PAGE>
EXHIBIT 9
November 13, 1997
Mr. Donald W. Brinckman
Chairman & Chief Executive Officer
Safety-Kleen Corp.
1000 North Randall Road
Elgin, Illinois
USA 60123
Dear Mr. Brinckman:
We continue to be frustrated at the lack of progress in engaging in
substantive dialogue with you due to your continuing insistence that we sign a
standstill agreement. We believe our offer of $14.00 in cash and 2.4 shares of
Laidlaw Environmental Services, Inc. common stock represents outstanding value
for your shareholders.
The combination of our two companies is of compelling strategic importance
to both our shareholders. We have repeatedly sought to work with you in a
cooperative manner to achieve a mutually beneficial transaction. Unfortunately,
our efforts have come to naught.
As we discussed in Chicago, under the securities laws we are required to
file a registration statement relating to our offer with the Securities and
Exchange Commission. We took that step today. As a courtesy, we are enclosing a
copy of these materials for you. As soon as we are permitted to so, we will make
our offer directly to Safety-Kleen Corp. shareholders. We strongly believe that
Safety-Kleen Corp. shareholders, the owners of the company to whom your Board
owes fiduciary duties, are the ones who should ultimately decide whether our
offer and the strategic benefits the combination promises are as compelling to
them as they are to us.
As you will appreciate, in order for Safety-Kleen Corp. shareholders to
accept our offer, we must be assured that all antitakeover devices put in place
by your Board or otherwise applicable under Wisconsin law will not apply to our
offer. Accordingly, we hereby request that your Board amend your poison pill to
make it inapplicable to an acquisition of Safety-Kleen Corp. shares pursuant to
our offer, approve our acquisition of Safety-Kleen Corp. shares pursuant to our
offer for purposes of Section 180.1141 of the Wisconsin Statutes and take or
agree to take any other action necessary or appropriate to eliminate all
antitakeover devices.
In addition, we are furnishing you with the resolution and notice
contemplated by Section 180.1150(4) of the Wisconsin Statutes. We request that,
as required by statute, your
<PAGE>
Board call a special meeting of Safety-Kleen Corp. shareholders to vote on the
resolution and that such meeting be held no sooner than 30 nor later than 50
days from the date hereof. In this connection, we are enclosing a request that
you furnish us with a list of Safety-Kleen Corp. shareholders so that we can
communicate with them directly and solicit proxies for the special meeting.
We do not take these actions lightly. Your failure to work with us leave us
no alternative. We remain hopeful your board, after due consideration, will
determine to engage us in negotiations that lead to a mutually beneficial merger
of our two outstanding companies.
Yours very truly,
/s/James R. Bullock
James R. Bullock
Chairman
<PAGE>
Exhibit 10
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SAFETY-KLEEN CORPORATION, )
)
Plaintiff, )
)
v. ) NO.
)
LAIDLAW ENVIRONMENTAL SERVICES, )
INC., )
)
Defendant. )
COMPLAINT
---------
Plaintiff Safety-Kleen Corporation ("Safety-Kleen") for its complaint
against Laidlaw Environmental Services, Inc. ("Laidlaw"), states:
SUMMARY
-------
On November 13, 1997, Laidlaw demanded the right to inspect and copy
Safety-Kleen's record of shareholders to solicit proxies and communicate with
shareholders regarding Laidlaw's exchange offer for Safety-Kleen stock, made
that same day. The securities that comprise a substantial portion of the
consideration in the exchange offer have not yet been registered with the
Securities and Exchange Commission. Accordingly, Laidlaw is barred by Section
5(b)(1) of the Securities Act of 1933, 15 U.S.C. (S) 77e(b)(1), from
communicating with Safety-Kleen's shareholders about those securities through
written means other than through a prospectus complying with Sections 5(b)(1)
and 10 of the Securities Act of 1933, 15 U.S.C. (S)(S) 77e(b)(1) and 77j. To
require Safety-Kleen to provide its shareholder list under these
<PAGE>
circumstances would be to require Safety-Kleen to facilitate a violation of the
federal securities laws. Safety-Kleen therefore seeks a declaration from this
Court that it need not provide Laidlaw with access to its shareholder lists.
This is a problem of Laidlaw's own creation since Laidlaw did not have to
initiate the calling of a special meeting before its securities were subject to
an effective registration statement.
Safety-Kleen further seeks a declaration from this Court that Laidlaw's
request for a shareholder meeting regarding its voting rights under Wis. Stat.
(S) 180.1150 fails to satisfy the notice requirements of Wis Stat. (S)
180.1150(4)(e), which requires detailed disclosure of the financing arrangements
for its exchange offer.
Jurisdiction and Venue
----------------------
1. This action arises under Section 5(b)(1) of the Securities Act of
1933, 15 U.S.C. (S) 77e(b)(1), and Wis. Stat. (S) 180.1150.
2. This Court has jurisdiction over this action pursuant to 28 U.S.C. (S)
1331, under the supplemental jurisdiction provisions of 28 U.S.C. (S) 1367, and
under the declaratory judgment provisions of 28 U.S.C. (S)(S) 2201 and 2202.
3. Venue lies in the Northern District of Illinois pursuant to 28 U.S.C.
(S) 1391(b) and (c), in that the defendant is subject to the personal
jurisdiction of the United States District Court for the Northern District of
Illinois, and initiated its demand for a meeting in this District.
-2-
<PAGE>
The Parties
-----------
4. Plaintiff Safety-Kleen is a Wisconsin corporation with its principal
place of business in Elgin, Illinois.
5. Defendant Laidlaw is a Delaware corporation with its principal place
of business in Columbia, South Carolina.
The Laidlaw Exchange Offer
--------------------------
6. On November 13, 1997, Laidlaw filed a Form S-4 with the Securities and
Exchange Commission for the purpose of registering Laidlaw shares. (See Exhibit
A.) By that filing, Laidlaw announced its offer to acquire each outstanding
share of Safety-Kleen in exchange for $14 and 2.4 shares of the stock subject to
the S-4.
7. Pursuant to Section 8(a) of the Securities Act of 1933, 15 U.S.C. (S)
77h(a), "the effective date of a registration statement shall be the 20th day
after the filing thereof." However, Laidlaw has requested a delay in the
effectiveness of its registration. (See Exhibit A, at 2.) Accordingly, Laidlaw's
registration is not yet effective, and it is not presently determinable when
that registration will become effective.
The Wisconsin Control Share Voting Restriction Statute
------------------------------------------------------
8. Section 180.1150(2) of the Wisconsin Statutes provides that "the
voting power of shares of an issuing public corporation held by any person . . .
in excess of 20% of the voting power in the election of directors shall be
limited to 10% of the full voting power of those shares." As a Wisconsin
corporation, Safety-Kleen is subject to the provisions of (S) 180.1150(2).
-3-
<PAGE>
9. Pursuant to Wis. Stat. (S) 180.1150(5)(c), regular voting power may be
restored if, at a shareholder meeting at which a quorum is present, "a majority
of the voting power of shares represented at the meeting and entitled to vote on
the subject matter approve[s] [a] resolution" calling for a restoration of
regular voting power. Under Wis. Stat. (S) 180.1150(5)(a), such a shareholder
meeting must be scheduled within certain time limits once proper notice and a
proposed resolution are presented to a corporation. The required notice must
comply with certain disclosure requirements set forth in Wis. Stat. (S)
180.1150(4).
10. On November 13, 1997, Laidlaw delivered to Safety-Kleen a document
captioned "Notice Pursuant to Section 180.1150 of the Wisconsin Statutes." (See
Exhibit B.) Laidlaw attached to this document a proposed shareholder resolution
providing that "regular voting power shall be restored for all Shares now held
or hereafter acquired by any of the Laidlaw Parties in accordance with Section
180.1150(5)(c) of the Wisconsin Statutes." (See Exhibit C.)
11. Wis. Stat. (S) 180.1602(2)(c) permits a shareholder who has validly
requested a shareholder meeting pursuant to (S) 180.1150 to obtain the "record
of shareholders" of a corporation.
12. On November 13, 1997, Laidlaw also delivered to Safety-Kleen a letter
demanding the right to inspect and copy Safety-Kleen's records of its
shareholders purportedly pursuant to Wis. Stat. (S) 180.1602(2)(c). (See Exhibit
D.) According to the
-4-
<PAGE>
letter, "The purposes of this demand are to enable Laidlaw to communicate with
its fellow Company shareholders on matters relating to their mutual interests as
shareholders, including, but not limited to, (a) communicating with the
shareholders of the Company regarding the Notice dated November 13, 1997, and
served on the Company, pursuant to Section 180.1150(4) of the Wisconsin Statutes
and (b) soliciting proxies in connection with the special shareholders' meeting
to be called as a consequence of the foregoing Notice."
13. Laidlaw publicly announced its request for a shareholder meeting "to
consider permitting [Laidlaw] to vote all shares acquired under its offer." (See
Exhibit E.) This public announcement was a continuation of Laidlaw's prior
unlawful efforts to condition the market as to its exchange offer with public
statements and press releases dating to at least November 4, 1997, more than a
week before Laidlaw even filed its registration statement.
14. Laidlaw's exchange offer will be conditioned upon full restoration of
voting rights as to all shares of Safety-Kleen which Laidlaw holds. Laidlaw
seeks to achieve restoration of the voting rights by soliciting proxies of
Safety-Kleen shareholders in connection with the requested special meeting, and
so has demanded Safety-Kleen's shareholder list.
-5-
<PAGE>
COUNT I - DECLARATORY RELIEF
----------------------------
15. Safety-Kleen restates the allegations set forth in paragraphs 1
through 14, inclusive, as though fully set forth herein.
16. An actual, immediate, and justiciable controversy exists between
Safety-Kleen and Laidlaw concerning the rights and obligations of the parties as
to Laidlaw's demand for access to Safety-Kleen's shareholder records.
17. Pursuant to (S) 5(b) of the Securities Act of 1933, 15 U.S.C. (S)
77e(b), "It shall be unlawful for any person, directly or indirectly: (1) To
make use of any means or instruments of transportation or communication in
interstate commerce or of the mails to carry or transmit any prospectus relating
to any security with respect to which a registration statement has been filed
under this title, unless such prospectus meet the requirements of Section 10" of
the Securities Act of 1933.
18. A "prospectus" is broadly defined under Section 2(10) of the
Securities Act of 1933, 15 U.S.C. (S) 77b(10), for purposes of securities whose
registration is not yet effective, as "any prospectus, notice, circular,
advertisement, letter, or communication, written or by radio or television,
which offers any security for sale or confirms the sale of any security . . .."
19. An "offer" is broadly defined under Section 2(3) of the Securities Act
of 1933, 15 U.S.C. (S) 77b(3), as "every attempt or offer to dispose of, or
solicitation of an offer to buy, a
-6-
<PAGE>
security or interest in a security, for value." This definition is designed to
preclude "attractive descriptions" of new securities and their issuer. See
Chris-Craft Industries, Inc. v. Bangor Punta Corp., 426 F.2d 569, 574 (2d Cir.
1970).
20. Laidlaw's proxy solicitation, which has already commenced through
Laidlaw's public pronouncements and press releases, and which is designed to
facilitate and promote Laidlaw's exchange offer, constitutes an "offer to sell"
within the meaning of Section 2(3) of the Securities Act of 1933, 15 U.S.C. (S)
77b(3), and a "prospectus" within the meaning of Section 2(10) of the Securities
Act of 1933, 15 U.S.C. (S) 77b(10).
21. Laidlaw's proxy solicitation and the individual press releases fail to
comply with the requirements of Sections 5(b)(1) and 10 of the Securities Act of
1933, 15 U.S.C. (S)(S) 77e(b)(1) and 77j, and thus constitute "premature
offer[s]" within the meaning of Chris-Craft Industries, 426 F.2d at 574. See
also Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1131 (7th Cir. 1993) ("The
'33 Act permits issuers . . . to engage in `free writing' once the registration
statement becomes effective." (emphasis added)).
22. Safety-Kleen should not be obligated to turn over to Laidlaw its
shareholder records since Laidlaw desires such access to continue its premature
offers in violation of Section 5(b)(1) of the Securities Act of 1933, 15 U.S.C.
(S) 77e(b)(1). Safety-Kleen should not be required to facilitate acts in
violation of federal law.
-7-
<PAGE>
WHEREFORE, Safety-Kleen respectfully requests that this Court enter an
order declaring that Laidlaw's actions to date and its intended proxy
solicitation are in violation of Section 5(b)(1) of the Securities Act of 1933,
15 U.S.C. (S) 77e(b)(1), and that Safety-Kleen need not comply with Laidlaw's
demand for shareholder records.
COUNT II - DECLARATORY RELIEF
-----------------------------
23. Safety-Kleen restates the allegations set forth in paragraphs 1
through 22, inclusive, as though fully set forth herein.
24. An actual, immediate, and justiciable controversy exists between
Safety-Kleen and Laidlaw concerning the rights and obligations of the parties as
to Laidlaw's demand for a shareholder meeting to alter Laidlaw's voting rights
under Wis. Stat. (S) 180.1150.
25. Pursuant to Wis. Stat. (S) 180.1150(4), a person desiring a
shareholder meeting for purposes of restoring regular voting power must provide
notice containing, inter alia, "the circumstances, terms and conditions under
which shares representing in excess of 20% of the voting power were acquired or
are proposed to be acquired, set forth in reasonable detail, including the
source of funds or other consideration and other details of the financial
arrangements of the transactions."
26. Laidlaw's purported "Notice Pursuant to Section 180.1150" attempts to
provide the required notice of financial
-8-
<PAGE>
arrangements by reference to an attached prospectus. (See Exhibit B.)
27. Laidlaw's prospectus fails to detail the actual financial arrangements
relating to its exchange offer, despite Laidlaw's repeated public statements
that its financing was in place. For instance, on November 3, 1997, Laidlaw
wrote to Safety-Kleen and released a letter stating, "We have fully committed
financing to complete the combination." (Exhibit A, at 26.)
28. According to the prospectus, "the terms of the definitive agreement"
relating to the financing "have not yet been finalized." (See Exhibit A, at 44.)
Without knowledge of these terms, Safety-Kleen's shareholders cannot fairly
evaluate Laidlaw's proxy solicitation and exchange offer.
29. The prospectus further states that the commitment of Laidlaw's lender
to provide the necessary credit for the exchange offer "is conditioned on, among
other things, 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 Offer;
satisfactory completion of due diligence examinations; prior or contemporaneous
repayment in full of all existing indebtedness of
-9-
<PAGE>
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
transaction 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." (Id. at 44-
45 (emphasis added).)
30. As of today, there is no financing of the exchange offer, as
acknowledged in the prospectus, and Laidlaw fails to satisfy the requirements of
Wis. Stat. 180.1150(4)(e). Laidlaw is premature in its request for a meeting. As
a result of the long, and expressly nonexclusive, list of conditions necessary
to secure the financing Laidlaw requires, Safety-Kleen's shareholders cannot
reasonably anticipate whether the financing described in the prospectus will be
available under the terms set forth therein. Until they can, there is no right
to a special shareholder meeting.
31. As a result of the foregoing, Safety-Kleen will not provide a
shareholder list until the Court determines that a valid demand for a meeting
has been served.
WHEREFORE, Safety-Kleen respectfully requests that this Court enter an
order declaring that Laidlaw's purported "Notice Pursuant to Section 180.1150 of
the Wisconsin Statutes" fails to comply with the requirements of Wis. Stat. (S)
180.1150(4)(e), and that accordingly Safety-Kleen is not obligated to schedule a
-10-
<PAGE>
shareholder meeting pursuant to Wis. Stat. (S) 180.1150(5)(a) or to provide
access to a shareholder list.
Respectfully submitted,
SAFETY-KLEEN CORPORATION
By:
------------------------
One of its Attorneys
Dated: November 17, 1997
OF COUNSEL
- ----------
HAROLD C. HIRSHMAN, ESQ.
Attorney No. 1226290
CHRISTOPHER Q. KING, ESQ.
Attorney No. 6189835
GERALD E. FRADIN, ESQ.
Attorney No. 6204247
SONNENSCHEIN NATH & ROSENTHAL
8000 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606-6404
(312) 876-8000
Attorneys for Plaintiff
-11-
<PAGE>
EXHIBIT 11
OPINION OF WILLIAM BLAIR & COMPANY, L.L.C.
November 20, 1997
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, IL 60123-7857
Dear Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders (the "Shareholders") of Safety-Kleen Corp. (the
"Company") of the consideration to be received pursuant to the terms of the
Agreement and Plan of Merger dated as of November 20, 1997 (the "Merger
Agreement") by and among the Company, SK Parent Corp. ("Parent") and SK
Acquisition Corp., a wholly-owned subsidiary of Parent ("Purchaser"). Pursuant
to the terms of, and subject to the conditions of, the Merger Agreement,
Purchaser will be merged into the Company in a merger in which each of the
outstanding shares of common stock of the Company will be converted into a
right for the Shareholder to receive $27.00 per share of common stock in cash
(the "Transaction").
We have acted as financial advisor to the Company in connection with the
Transaction. In connection with our review of the Transaction and the
preparation of our opinion herein, we have: (a) reviewed the terms and
conditions of the Merger Agreement and the financial terms of the Transaction
as set forth in the Merger Agreement; (b) analyzed the historical revenue,
operating earnings, net income, dividend capacity and capitalization, of both
the Company and certain other publicly held companies in businesses we believe
to be comparable to the Company; (c) analyzed certain financial and other
information relating to the prospects of the Company provided to us by the
Company's management, including financial projections; (d) discussed the past
and current operations and financial condition and prospects of the Company
with senior executives of the Company; (e) reviewed the historical market
prices and trading volume of the common stock of the Company; (f) reviewed the
financial terms, to the extent publicly available, of selected actual business
combinations we believe to be relevant; and (g) performed such other analyses
as we have deemed appropriate.
We have assumed the accuracy and completeness of all such information and
have not attempted to verify independently any of such information, nor have
we made or obtained an independent valuation or appraisal of any of the assets
or liabilities of the Company. With respect to financial information, we have
assumed that it has been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the Company's management, as to
the future financial performance of the Company. We assume no responsibility
for, and express no view as to, such forecasts or the assumptions on which
they are based. Our opinion relates to financial fairness only, and we express
no opinion as to the appropriateness of the financial structure or the
soundness of the financial condition of the Company subsequent to the
consummation of the Merger. We understand that other professionals who are
expert in those areas will be providing advice on those subjects. Our opinion
is necessarily based solely upon information available to us and business,
market, economic and other conditions as they exist on, and can be evaluated
as of, the date hereof.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Transaction will not have an adverse
effect on the Company.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of
1
<PAGE>
this opinion, the Company will pay us a fee, a significant portion of which is
contingent upon consummation of the Transaction, and indemnify us against
certain liabilities. William Blair & Company has provided investment banking
and financial advisory services to the Company in the past for which we have
received customary compensation. Edgar D. Jannotta, Sr., Senior Director of
William Blair & Company, serves as a member of the Board of Directors of the
Company.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors. It is understood that this letter may not be
disclosed or otherwise referred to without our prior written consent, except
that this opinion may be included in a proxy statement mailed to shareholders
by the Company with respect to the Transaction.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of November 20, 1997, the consideration to be paid to the
Shareholders of the Company in the Transaction pursuant to the Merger
Agreement is fair, from a financial point of view, to such Shareholders.
Very truly yours,
William Blair & Company, L.L.C.
2
<PAGE>
EXHIBIT 12
November 20, 1997
Mr. Donald W. Brinckman
Chairman of the Board
Safety-Kleen Corp.
1000 North Randall Road
Elgin, Illinois 60123
Dear Mr. Brinckman:
Your announcement this morning resolves any ambiguity on the issue of
whether the Safety-Kleen Board of Directors recognizes that the best route to
maximizing shareholder value is through the sale of the company. Under these
circumstances it is equally apparent the Safety-Kleen Board has a fiduciary duty
to act as a responsible auctioneer.
I am writing to advise that we are increasing our offer to acquire Safety-
Kleen to $30.00 per share consisting of $15.00 each and $15.00 in Laidlaw
Environmental common stock. The cash portion will be reduced by any incremental
costs, such as break-up fees, new severance arrangements and other expenses,
Safety-Kleen may have incurred in connection with its agreement with Philip
Services and others. We presume these costs are insignificant given your
fiduciary duties to Safety-Kleen shareholders, our long standing offer to
negotiate all aspects of our proposal including price and the lack of any
mention of these costs in your public announcement. The exchange ratio of the
stock portion of our offer will be between 2.8 and 3.5 shares based on the
weighted average trading price for Laidlaw Environmental shares for 10 days
selected by lot from the 20 trading days ending three business days immediately
prior to closing.
Our offer ensures Safety-Kleen shareholders will have the opportunity to
share directly in the value this combination creates. In addition, the stock
portion of our offer can be delivered to Safety-Kleen shareholders on a tax
deferred basis with the value of our shares protected by the collar.
Although I remain puzzled by your lack of interest in our offers to date,
clearly with the terms now embodied in this letter it is time for us to put
behind us the posturing over standstill agreements or litigation on procedural
issues. We trust you and the other members of Safety-Kleen's Board of Directors
will consider the best interests of Safety-Kleen shareholders and agree to meet
with us immediately to negotiate a definitive agreement. We reiterate our
willingness to enter into a mutual confidentiality agreement to facilitate
negotiations.
As time is of the essence, may we hear from you promptly.
Yours very truly,
Laidlaw Environmental Services, Inc.
James R. Bullock
Chairman of the Board
<PAGE>
Exhibit 13
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SAFETY-KLEEN CORPORATION, )
)
Plaintiff, )
)
v. ) No. 97 C 8003
)
LAIDLAW ENVIRONMENTAL SERVICES, INC., ) Judge Joan B. Gottschall
)
Defendant. )
_____________________________________ )
)
LAIDLAW ENVIRONMENTAL SERVICES, INC. )
and LES ACQUISITION, INC., )
)
Counterplaintiffs, )
)
v. )
)
SAFETY-KLEEN CORPORATION, )
)
Counterdefendant, and )
)
RICHARD T. FARMER, PAUL D. SCHRAGE, )
DONALD W. BRINCKMAN, MARCIA E. )
WILLIAMS, W. GORDON WOOD, RUSSELL A. )
GWILLIM, EDGAR D. JANNOTA and )
KARL G. OTZEN, )
)
Counterdefendants. )
VERIFIED ANSWER, AFFIRMATIVE DEFENSES,
AND COUNTERCLAIM OF
LAIDLAW ENVIRONMENTAL SERVICES, INC. AND LES ACQUISITION, INC.
--------------------------------------------------------------
Defendant Laidlaw Environmental Services, Inc. ("Laidlaw Environmental")
answers the Complaint of plaintiff Safety-Kleen Corporation ("Safety-Kleen"), as
follows:
<PAGE>
Complaint
---------
On November 13, 1997, Laidlaw demanded the right to inspect and copy
Safety-Kleen's record of shareholders to solicit proxies and communicate
with shareholders regarding Laidlaw's exchange offer for Safety-Kleen
stock, made that same day. The securities that comprise a substantial
portion of the consideration in the exchange offer have not yet been
registered with the Securities and Exchange Commission. Accordingly,
Laidlaw is barred by Section 5(b)(1) of the Securities Act of 1933, 15
U.S.C. (S) 77e(b)(1), from communicating with Safety-Kleen's shareholders
about those securities through written means other than through a
prospectus complying with Sections 5(b)(1) and 10 of the Securities Act of
1933, 15 U.S.C. (S)(S) 77e(b)(1) and 77j. To require Safety-Kleen to
provide its shareholder list under these circumstances would be to require
Safety-Kleen to facilitate a violation of the federal securities laws.
Safety-Kleen therefore seeks a declaration from this Court that it need not
provide Laidlaw with access to its shareholder lists. This is a problem of
Laidlaw with access to its shareholder lists. This is a problem of
Laidlaw's own creation since Laidlaw did not have to initiate the calling
of a special meeting before its securities were subject to an effective
registration statement.
Safety-Kleen further seeks a declaration from this Court that Laidlaw's
request for a shareholder meeting regarding its voting rights under Wis.
Stat. (S) 180.1150 fails to satisfy the notice requirements of Wis. Stat.
(S) 180.1150(4)(e), which requires detailed disclosure of the financing
arrangements for its exchange offer.
Answer
------
The Complaint purports to set forth a "Summary" of its contents. This
"Summary" fails to comply with the requirements of Rule 10(b) of the Federal
Rules of Civil Procedure, and thus no answer is required.
Complaint (P)1
--------------
This action arises under Section 5(b)(1) of the Securities Act of 1933, 15
U.S.C. (S) 77e(b)(1), and Wis. Stat. (S) 180.1150.
Answer (P)1
-----------
Laidlaw Environmental admits that Safety-Kleen purports to allege that this
action arises under Section 5(b)(1) of the Securities Act of 1933, 15 U.S.C. (S)
77e(b)(1), and Wis. Stat.
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(S) 180.1150 but denies that any such action lies in favor of Safety-Kleen.
Laidlaw Environmental denies the remaining allegations contained in paragraph 1
of the Complaint.
Complaint (P)2
--------------
This Court has jurisdiction over this action pursuant to 28 U.S.C. (S)
1331, under the supplemental jurisdiction provisions of 28 U.S.C. (S) 1367,
and under the declaratory judgment provisions of 28 U.S.C. (S)(S) 2201 and
2202.
Answer (P)2
-----------
Laidlaw Environmental admits that Safety-Kleen purports to base
jurisdiction on the statutes identified in paragraph 2 of the Complaint and the
principles of supplemental jurisdiction. Laidlaw Environmental denies the
remaining allegations contained in paragraph 2 of the Complaint.
Complaint (P)3
--------------
Venue lies in the Northern District of Illinois pursuant to 28 U.S.C. (S)
1391(b) and (c), in that the defendant is subject to the personal
jurisdiction of the United States District Court for the Northern District
of Illinois, and initiated its demand for a meeting in this District.
Answer (P)3
-----------
Laidlaw Environmental admits the allegations contained in paragraph 3 of
the Complaint.
Complaint (P)4
--------------
Plaintiff Safety-Kleen is a Wisconsin corporation with its principal place
of business in Elgin, Illinois.
Answer (P)4
-----------
Laidlaw Environmental admits the allegations contained in paragraph 4 of
the Complaint.
Complaint (P)5
--------------
Defendant Laidlaw is a Delaware corporation with its principal place of
business in Columbia, South Carolina.
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Answer (P)5
-----------
Laidlaw Environmental admits the allegations contained in paragraph 5 of
the Complaint.
Complaint (P)6
--------------
On November 13, 1997, Laidlaw filed a Form S-4 with the Securities and
Exchange Commission for the purpose of registering Laidlaw shares. (See
Exhibit A.) By that filing, Laidlaw announced its offer to acquire each
outstanding share of Safety-Kleen in exchange for $14 and 2.4 shares of the
stock subject to the S-4.
Answer (P)6
-----------
Laidlaw Environmental admits the allegations contained in the first
sentence of paragraph 6 of the Complaint. Laidlaw Environmental further admits
that Safety-Kleen purports to attach a copy of the Form S-4 filed by Laidlaw
Environmental on November 13, 1997 as Exhibit A to the Complaint. Laidlaw
Environmental denies the remaining allegations contained in paragraph 6 of the
Complaint.
Complaint (P)7
--------------
Pursuant to Section 8(a) of the Securities Act of 1933, 15 U.S.C. (S)
77h(a), "the effective date of a registration statement shall be the 20th
day after the filing thereof." However, Laidlaw has requested a delay in
the effectiveness of its registration. (See Exhibit A, at 2.)
Accordingly, Laidlaw's registration is not yet effective, and it is not
presently determinable when that registration will become effective.
Answer (P)7
-----------
Laidlaw Environmental admits the allegations contained in paragraph 7 of
the Complaint.
Complaint (P)8
--------------
Section 180.1150(2) of the Wisconsin Statutes provides that "the voting
power of shares of an issuing public corporation held by any person ... in
excess of 20% of the voting power in the election of directors shall be
limited to 10% of the full voting power of those shares." As a Wisconsin
corporation, Safety-Kleen is subject to the provisions of (S) 180.1150(2).
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Answer (P)8
-----------
Laidlaw Environmental admits that Safety-Kleen purports to quote from a
statute in paragraph 8 of the Complaint, but denies that Safety-Kleen has
accurately done so. Laidlaw Environmental lacks sufficient information to form
a belief as to whether Safety-Kleen is subject to the provisions of (S)
180.1150(2), but denies that Safety-Kleen is subject to that provision solely on
the basis of Safety-Kleen's status as a Wisconsin corporation. Laidlaw
Environmental denies the remaining allegations contained in paragraph 8 of the
Complaint.
Complaint (P)9
--------------
Pursuant to Wis. Stat. (S) 180.1150(5)(c), regular voting power may be
restored if, at a shareholder meeting at which a quorum is present, "a
majority of the voting power of shares represented at the meeting and
entitled to vote on the subject matter approve[s] [a] resolution" calling
for a restoration of regular voting power. Under Wis. Stat. (S)
180.1150(5)(a), such a shareholder meeting must be scheduled within certain
time limits once proper notice and a proposed resolution are presented to a
corporation. The required notice must comply with certain disclosure
requirements set forth in Wis. Stat. (S) 180.1150(4).
Answer (P)9
-----------
Laidlaw Environmental admits that Safety-Kleen purports to quote from a
statute in paragraph 9 of the Complaint. Laidlaw Environmental states that the
remaining allegations of paragraph 9 of the Complaint constitute the legal
conclusions of the pleader as to which no answer is required. To the extent an
answer is necessary, Laidlaw Environmental admits such allegations.
Complaint (P)10
---------------
On November 13, 1997, Laidlaw delivered to Safety-Kleen a document
captioned "Notice Pursuant to Section 180.1150 of the Wisconsin Statutes."
(See Exhibit B.) Laidlaw attached to this document a proposed shareholder
resolution providing that "regular voting power shall be restored for all
Shares now held or
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hereafter acquired by any of the Laidlaw Parties in accordance with Section
180.1150(5)(c) of the Wisconsin Statutes." (See Exhibit C.)
Answer (P)10
------------
Laidlaw Environmental admits the allegations contained in paragraph 10 of
the Complaint.
Complaint (P)11
---------------
Wis. Stat. (S) 180.1602(2)(c) permits a shareholder who has validly
requested a shareholder meeting pursuant to (S) 180.1150 to obtain the
"record of shareholders" of a corporation.
Answer (P)11
------------
Laidlaw Environmental admits the allegations contained in paragraph 11 of
the Complaint.
Complaint (P)12
---------------
On November 13, 1997, Laidlaw also delivered to Safety-Kleen a letter
demanding the right to inspect and copy Safety-Kleen's records of its
shareholders purportedly pursuant to Wis. Stat. (S) 180.1602(2)(c). (See
Exhibit D.) Accordingly to the letter, "The purposes of this demand are to
enable Laidlaw to communicate with its fellow Company shareholders on
matters relating to their mutual interests as shareholders, including, but
not limited to, (a) communicating with the shareholders of the Company
regarding the Notice dated November 13, 1997, and served on the Company,
pursuant to Section 180.1150(4) of the Wisconsin Statutes and (b)
soliciting proxies in connection with the special shareholders' meeting to
be called as a consequence of the foregoing Notice."
Answer (P)12
------------
Laidlaw Environmental admits the allegations contained in paragraph 12 of
the Complaint.
Complaint (P)13
---------------
Laidlaw publicly announced its request for a shareholder meeting "to
consider permitting [Laidlaw] to vote all shares acquired under its offer."
(See Exhibit E.)
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This public announcement was a continuation of Laidlaw's prior unlawful
efforts to condition the market as to its exchange offer with public
statements and press releases dating to at least November 4, 1997, more
than a week before Laidlaw even filed its registration statement.
Answer (P)13
------------
Laidlaw Environmental admits that it publicly announced the filing of a
Form S-4 on November 13, 1997. Laidlaw Environmental further admits that in
paragraph 13 of the Complaint, Safety-Kleen purports to quote from Laidlaw
Environmental's November 13, 1997, press release and to attach a copy of the
press release as Exhibit E to the Complaint. Laidlaw Environmental denies the
remaining allegations contained in paragraph 13 of the Complaint.
Complaint (P)14
---------------
Laidlaw's exchange offer will be conditioned upon full restoration of
voting rights as to all shares of Safety-Kleen which Laidlaw holds.
Laidlaw seeks to achieve restoration of the voting rights by soliciting
proxies of Safety-Kleen shareholders in connection with the requested
special meeting, and so has demanded Safety-Kleen's shareholder list.
Answer (P)14
------------
Laidlaw Environmental admits the allegations contained in paragraph 14 of
the Complaint.
Count I - Declaratory Relief
----------------------------
Complaint (P)15
---------------
Safety-Kleen restates the allegations set forth in paragraphs 1 through 14,
inclusive, as though fully set forth herein.
Answer (P)15
------------
Laidlaw Environmental restates and realleges its answers set forth in
paragraphs 1 through 14, inclusive, as though fully set forth herein.
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Complaint (P)16
---------------
An actual, immediate, and justiciable controversy exists between Safety-
Kleen and Laidlaw concerning the rights and obligations of the parties as
to Laidlaw's demand for access to Safety-Kleen's shareholder records.
Answer (P)16
------------
Laidlaw Environmental admits the allegations contained in paragraph 16 of
the Complaint.
Complaint (P)17
---------------
Pursuant to (S) 5(b) of the Securities Act of 1933, 15 U.S.C. (S) 77e(b),
"It shall be unlawful for any person, directly or indirectly: (1) To make
use of any means or instruments of transportation or communication in
interstate commerce or of the mails to carry or transmit any prospectus
relating to any security with respect to which a registration statement has
been filed under this title, unless such prospectus meet the requirements
of Section 10" of the Securities Act of 1933.
Answer (P)17
------------
Laidlaw Environmental admits that in paragraph 17 of the Complaint, Safety-
Kleen purports to cite and quote from a statute.
Complaint (P)18
---------------
A "prospectus" is broadly defined under Section 2(10) of the Securities Act
of 1933, 15 U.S.C. (S) 77b(10), for purposes of securities whose
registration is not yet effective, as "any prospectus, notice, circular,
advertisement, letter, or communication, written or by radio or television,
which offers any security for sale or confirms the sale of any
security. . ."
Answer (P)18
------------
Laidlaw Environmental admits that in paragraph 18 of the Complaint, Safety-
Kleen purports to cite and quote from a statute. Laidlaw Environmental states
that the remaining allegations contained in paragraph 18 of the Complaint
constitute the legal conclusions or
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conclusions of the pleader as to which no answer is required. To the extent an
answer is necessary, Laidlaw Environmental denies such allegations.
Complaint (P)19
---------------
An "offer" is broadly defined under Section 2(3) of the Securities Act of
1933, 15 U.S.C. (S) 77b(3), as "every attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest in a security, for
value." This definition is designed to preclude "attractive descriptions"
of new securities and their issuer. See Chris-Craft Industries, Inc. v.
Bangor Punta Corp., 426 F.2d 569, 574 (2d Cir. 1970).
Answer (P)19
------------
Laidlaw Environmental admits that in paragraph 19 of the Complaint, Safety-
Kleen purports to cite and quote from a statute. Laidlaw Environmental states
that the remaining allegations contained in paragraph 19 of the Complaint
constitute the conclusions or opinions of the pleader as to which no answer is
required. To the extent an answer is necessary, Laidlaw Environmental denies
such allegations.
Complaint (P)20
---------------
Laidlaw's proxy solicitation, which has already commenced through Laidlaw's
public pronouncements and press releases, and which is designed to
facilitate and promote Laidlaw's exchange offer, constitutes an "offer to
sell" within the meaning of Section 2(3) of the Securities Act of 1933, 15
U.S.C. (S) 77b(3), and a "prospectus" within the meaning of Section 2(10)
of the Securities Act of 1933, 15 U.S.C. (S) 77b(10).
Answer (P)20
------------
Laidlaw Environmental states that the allegations contained in paragraph 20
of the Complaint constitute the legal conclusions of the pleader as to which no
answer is required. To the extent an answer is necessary, Laidlaw Environmental
denies such allegations.
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Complaint (P)21
---------------
Laidlaw's proxy solicitation and the individual press releases fail to
comply with the requirements of Sections 5(b)(1) and 10 of the Securities
Act of 1933, 15 U.S.C. (S)(S) 77e(b)(1) and 77j, and thus constitute
"premature offer[s]" within the meaning of Chris-Craft Industries, 426 F.2d
at 574. See also Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1131 (7th
Cir. 1993) ("The '33 Act permits issuers . . . to engage in 'free writing',
once the registration statement becomes effective." (emphasis added)).
Answer (P)21
------------
Laidlaw Environmental states that the allegations contained in paragraph 21
of the Complaint constitute the legal conclusions of the pleader as to which no
answer is required. To the extent an answer is necessary, Laidlaw Environmental
denies such allegations.
Complaint (P)22
---------------
Safety-Kleen should not be obligated to turn over to Laidlaw its
shareholder records since Laidlaw desires such access to continue its
premature offers in violation of Section 5(b)(1) of the Securities Act of
1933, 15 U.S.C. (S) 77e(b)(1). Safety-Kleen should not be required to
facilitate acts in violation of federal law.
Answer (P)22
------------
Laidlaw Environmental states that the allegations contained in paragraph 22
of the Complaint constitute the conclusions or opinions of the pleader as to
which no answer is required. To the extent an answer is necessary, Laidlaw
Environmental denies such allegations.
Count II - Declaratory Relief
-----------------------------
Complaint (P)23
---------------
Safety-Kleen restates the allegations set forth in paragraphs 1 through 22,
inclusive, as though fully set forth herein.
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Answer (P)23
------------
Laidlaw Environmental restates and realleges its answers set forth in
paragraphs 1 through 22, inclusive, as though fully set forth herein.
Complaint (P)24
---------------
An actual, immediate, and justiciable controversy exists between Safety-
Kleen and Laidlaw concerning the rights and obligations of the parties as
to Laidlaw's demand for a shareholder meeting to alter Laidlaw's voting
rights under Wis. Stat. (S) 180.1150.
Answer (P)24
------------
Laidlaw Environmental admits the allegations contained in paragraph 24 of
the Complaint.
Complaint (P)25
---------------
Pursuant to Wis. Stat. (S) 180.1150(4), a person desiring a shareholder
meeting for purposes of restoring regular voting power must provide notice
containing, inter alia, "the circumstances, terms and conditions under
which shares representing in excess of 20% of the voting power were
acquired or are proposed to be acquired, set forth in reasonable detail,
including the source of funds or other consideration and other details of
the financial arrangements of the transactions."
Answer (P)25
------------
Laidlaw Environmental admits that Safety-Kleen purports to cite and quote
from a statute in paragraph 25 of the Complaint. Laidlaw Environmental states
that the remaining allegations of paragraph 25 of the Complaint constitute legal
conclusions as to which no answer is required. To the extent an answer is
necessary, Laidlaw Environmental denies such allegations.
Complaint (P)26
---------------
Laidlaw's purported "Notice Pursuant to Section 180.1150" attempts to
provide the required notice of financial arrangements by reference to an
attached prospectus. (See Exhibit B.)
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Answer (P)26
------------
Laidlaw Environmental affirmatively states that the November 13, 1997,
Notice satisfies all requirements set forth in Wis. Stat. (S) 180.1150. Laidlaw
Environmental denies the allegations contained in paragraph 26 of the Complaint
to the extent that they vary from this affirmative statement.
Complaint (P)27
---------------
Laidlaw's prospectus fails to detail the actual financial arrangements
relating to its exchange offer, despite Laidlaw's repeated public
statements that its financing was in place. For instance, on November 3,
1997, Laidlaw wrote to Safety-Kleen and released a letter stating, "We have
fully committed financing to complete the combination." (Exhibit A, at
26.)
Answer (P)27
------------
Laidlaw Environmental admits that it sent a letter to Safety-Kleen dated
November 3, 1997, from which paragraph 27 purports to quote quotes. Laidlaw
Environmental denies the remaining allegations contained in paragraph 27 of the
Complaint.
Complaint (P)28
---------------
According to the prospectus, "the terms of the definitive agreement"
relating to the financing "have not yet been finalized." (See Exhibit A,
at 44.) Without knowledge of these terms, Safety-Kleen's shareholders
cannot fairly evaluate Laidlaw's proxy solicitation and exchange offer.
Answer (P)28
------------
Laidlaw Environmental admits that in paragraph 28 of the Complaint, Safety-
Kleen purports to quote from the prospectus included in the Form S-4 filed by
Laidlaw Environmental on November 13, 1997. Laidlaw Environmental denies the
remaining allegations contained in paragraph 28 of the Complaint.
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Complaint (P)29
---------------
The prospectus further states that the commitment of Laidlaw's lender to
provide the necessary credit for the exchange offer "is conditioned on,
among other things, 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 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 transaction 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." (Id. at 44-45 (emphasis added).)
Answer (P)29
------------
Laidlaw Environmental admits that in paragraph 29 of the Complaint, Safety-
Kleen purports to quote from the prospectus included in the Form S-4 filed by
Laidlaw Environmental on November 13, 1997. Laidlaw Environmental denies the
remaining allegations contained in paragraph 29 of the Complaint.
Complaint (P)30
---------------
As of today, there is no financing of the exchange offer, as acknowledged
in the prospectus, and Laidlaw fails to satisfy the requirements of Wis.
Stat. 180.1150(4)(e) [sic]. Laidlaw is premature in its request for a
meeting. As a result of the long, and expressly nonexclusive, list of
conditions necessary to secure the financing Laidlaw requires, Safety-
Kleen's shareholders cannot reasonably anticipate whether the financing
described in the prospectus will be available under the terms set forth
therein. Until they can, there is no right to a special shareholder
meeting.
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Answer (P)30
------------
Laidlaw Environmental denies the allegations contained in the first, second
and third sentences of paragraph 30 of the Complaint. Laidlaw Environmental
states that the remaining allegations contained in paragraph 30 of the Complaint
constitute the conclusions or opinions of the pleader as to which no answer is
required. To the extent that an answer is necessary, Laidlaw Environmental
denies such allegations.
Complaint (P)31
---------------
As a result of the foregoing, Safety-Kleen will not provide a shareholder
list until the Court determines that a valid demand for a meeting has been
served.
Answer (P)31
------------
Laidlaw Environmental states that paragraph 31 of the Complaint contains
the declared intentions of the pleader as to which no answer is required. To
the extent an answer is necessary, Laidlaw Environmental admits that Safety-
Kleen has refused to provide Laidlaw Environmental with its record of
shareholders.
AFFIRMATIVE DEFENSES
--------------------
First Affirmative Defense
-------------------------
The Complaint fails to state a claim against Laidlaw Environmental upon
which relief can be granted.
Second Affirmative Defense
--------------------------
Safety-Kleen lacks standing to assert the claims contained in the
Complaint.
Third Affirmative Defense
-------------------------
The claims asserted against Laidlaw Environmental are barred, in whole or
in part, by the doctrine of unclean hands.
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COUNTERCLAIM
------------
Defendant-counterplaintiff, Laidlaw Environmental Services, Inc.
("Laidlaw Environmental"), and additional counterplaintiff LES Acquisition, Inc.
("LES"), for their counterclaim against the plaintiff-counterdefendant Safety-
Kleen Corp. ("Safety-Kleen") and the additional counterdefendants Richard T.
Farmer, Paul D. Schrage, Donald W. Brinckman, Marcia E. Williams, W. Gordon
Wood, Russell A. Gwillim, Edgar D. Jannota and Karl G. Otzen (the "Director
Defendants"), allege the following:
(Nature of the Action)
1. Counterplaintiffs Laidlaw Environmental and LES bring these claims
directly and derivatively to redress and enjoin the unlawful conduct of the
Director Defendants and Safety-Kleen designed to frustrate any offer by Laidlaw
Environmental to acquire Safety-Kleen. The Director Defendants have persisted
in a course of wrongful conduct by using corporate resources to avoid complying
with their obligations under Wisconsin law and, in the latest of a series of
violations of their fiduciary duties of loyalty and care to the Safety-Kleen
shareholders, have agreed to sell Safety-Kleen for an inadequate price of $27
per share in a leveraged buyout transaction (the "Buyout Transaction") after a
sales "process" that unlawfully excluded Laidlaw Environmental, which had
already offered approximately $26 per share and had informed Safety-Kleen of its
willingness to consider making a higher offer. Laidlaw Environmental has now
offered $30 per share to all Safety-Kleen shareholders. The proposed acquiror
in the Buyout Transaction is a highly leveraged shell corporation (the "Buyout
Vehicle") created by Philip Services Corp. ("Philip"), Blackstone Management
Associates III, L.P. ("Blackstone") and Apollo Advisors L.P. ("Apollo")
(collectively, the "Buyout Group"). The
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principal feature of the Buyout Transaction is that, while Safety-Kleen's public
shareholders would receive an inferior price for their shares, Safety-Kleen's
management would retain their positions and compensation. Indeed, there have
been reports that members of management will become investors in the Buyout
Group.
2. As part of this unlawful and unfair Buyout Transaction, and in
order to make it prohibitively expensive for Laidlaw Environmental or anyone
else to outbid that transaction, Safety-Kleen has agreed to pay the Buyout Group
an unnecessary, excessive and unreasonable "break-up" fee of up to $75 million.
That break-up fee would be payable if, among other circumstances, the Safety-
Kleen shareholders voted to reject the inadequate Buyout Transaction, and
Safety-Kleen subsequently entered into a merger with Laidlaw Environmental. The
unlawful break-up fee constitutes a gross waste of corporate assets of Safety-
Kleen, as well as a "poll tax" upon Safety-Kleen shareholders should they choose
to vote against the pending merger in order to accept Laidlaw Environmental's
higher offer. In addition, because Laidlaw Environmental's $30 per share offer
is subject to reduction for any break-up fee paid to the Buyout Group, this
breakup fee would come out of the pockets of Safety-Kleen's shareholders.
3. Counterplaintiffs seek declaratory and injunctive relief
preventing Safety-Kleen and the Director Defendants from proceeding with the
unfair and unlawful Buyout Transaction and from carrying out the terms of
Safety-Kleen's merger agreement with the Buyout Group, particularly including
the unlawful break-up fee and expense reimbursement provisions contained
therein. Counterplaintiffs also seek an order requiring the Director Defendants
to account to Safety-Kleen for all damages caused by their approval of the
Buyout
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Transaction and an order declaring that the Director Defendants may not be
indemnified by Safety-Kleen for any judgments, settlements or attorneys' fees in
this action.
4. This action also seeks declaratory and injunctive relief requiring
Safety-Kleen to call a special meeting of shareholders, as requested by Laidlaw
Environmental pursuant to Wis. Stat. (S) 180.1150(4), and to provide Laidlaw
Environmental with a copy of Safety-Kleen's shareholder list, as required by
Wis. Stat. (S) 180.101.
(Parties)
5. Counterplaintiff Laidlaw Environmental is a Delaware corporation
with its principal place of business in Columbia, South Carolina. Laidlaw
Environmental provides hazardous and industrial waste management services
throughout North America. It is the beneficial owner of 601,100 shares of
Safety-Kleen common stock. Counterplaintiffs LES is an indirect, wholly-owned
subsidiary of Laidlaw Environmental formed for the purpose of carrying out the
proposed acquisition of Safety-Kleen by Laidlaw Environmental. LES is a
Delaware corporation with its principal place of business in Columbia, South
Carolina.
6. Counterdefendant Safety-Kleen is a Wisconsin corporation with its
principal place of business in Elgin, Illinois. Safety-Kleen provides recycling
and waste services to automotive/retail repair, industrial, imaging and other
business sectors. Safety-Kleen has a class of stock that is registered and
traded on a national securities exchange.
7. The Director Defendants are members of Safety-Kleen's Board of
Directors. Counterplaintiffs are informed and believe that none is a resident
of the state of Delaware or South Carolina.
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(Jurisdiction and Venue)
8. This Court has jurisdiction over this counterclaim pursuant to
the declaratory judgment statute, 28 U.S.C. (S)(S) 2201-02, and 28 U.S.C. (S)
1332(a)(1), as the amount in controversy exceeds the sum of $75,000, exclusive
of interest and costs, and the suit is between citizens of different states. The
claims at issue in this lawsuit arises out of the same transactions and
occurrences that are the subject matter of the lawsuit filed by Safety-Kleen
against Laidlaw Environmental, giving this Court supplemental jurisdiction over
the state law claims alleged herein under Fed. R. Civ. P. 13(a) and 28 U.S.C.
(S) 1367(a).
9. Venue as to Safety-Kleen is proper within this judicial district
under 28 U.S.C. (S) 1391(b) and (c), because Safety-Kleen is a corporation whose
principal place of business is in this district, and it is subject to
jurisdiction here. It is therefore deemed to reside in this district.
10. Venue as to the Director Defendants is proper within this
judicial district under 28 U.S.C. (S) 1391(a) because at least one of the
counterdefendants resides within this judicial district and a substantial part
of the events and omissions giving rise to the claims occurred in this judicial
district.
(Conduct Complained Of)
11. On August 8, 1997, Safety-Kleen announced that its Board of
Directors had engaged the services of William Blair & Company ("William Blair"),
an investment banking firm, to advise Safety-Kleen and to manage the process of
"exploring strategic options for enhancing shareholder value." That phrase is
generally understood by the financial markets to mean that the company will
entertain merger and acquisition offers. That is how the market
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treated Safety-Kleen's announcement, as the price of its stock jumped over seven
percent from the day prior, to the day following the announcement.
12. As part of its efforts to solicit merger and acquisition offers
for Safety-Kleen, William Blair sent a proposed confidentiality and "standstill"
agreement (the "Standstill Agreement") to potential bidders. Because Laidlaw
Environmental was one -- indeed probably the most -- logical candidate to
acquire Safety-Kleen, one of Laidlaw Environmental's investment bankers, Raymond
James & Associates, Inc. ("Raymond James"), obtained the Standstill Agreement
from William Blair. This Standstill Agreement would have prohibited Laidlaw
Environmental from making any offer to acquire Safety-Kleen during the next two
years without the approval of Safety-Kleen's directors. William Blair stated
that a confidential offering circular describing Safety-Kleen and its business
would be distributed only to parties that executed the Standstill Agreement.
Laidlaw Environmental was willing to sign a confidentiality agreement, but would
not agree to give Safety-Kleen's directors the ability to prohibit any offer by
Laidlaw Environmental for two years. Safety-Kleen thereupon refused to provide
Laidlaw Environmental with a copy of the offering circular.
13. During September and October 1997, Laidlaw Environmental
repeatedly requested a meeting of the two companies and their advisors so that
Laidlaw Environmental could fully describe why a business combination was in
both companies' shareholders' best interests. Safety-Kleen continued to refuse
to discuss a possible transaction unless Laidlaw Environmental signed the
Standstill Agreement, which would give Safety-Kleen's directors absolute control
over Laidlaw Environmental's ability to make an offer.
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14. On November 3, 1997, the Board of Directors of Laidlaw
Environmental approved making an offer to exchange each outstanding common share
of Safety-Kleen for $14 net per share in cash and 2.4 shares of common stock of
Laidlaw Environmental (the "Initial Offer"), to be followed by a merger of
Laidlaw Environmental and Safety-Kleen. The Initial Offer had a value of
approximately $26 per share based on the closing price of Laidlaw Environmental
common stock on that day. James R. Bullock, the Chairman of Laidlaw
Environmental, sent a letter to Donald W. Brinckman, the Chairman and Chief
Executive Officer of Safety-Kleen informing Safety-Kleen of Laidlaw
Environmental's proposal and offering to executive a confidentiality agreement,
provided such agreement did not contain a standstill provision. The letter also
informed Mr. Brinckman that Laidlaw Environmental had executed a commitment
letter with Toronto-Dominion Bank to provide all necessary financing for the
Initial Offer and again asked Mr. Brinckman and the Safety-Kleen Board of
Directors to meet with representatives of Laidlaw Environmental to discuss the
possibility of a mutually beneficial negotiated transaction.
15. Later on November 3, 1997, after receipt of Mr. Bullock's letter,
Mr. Brinckman delivered a letter to Mr. Bullock again insisting that if Laidlaw
Environmental executed a Standstill Agreement the Safety-Kleen Board of
Directors would consider Laidlaw Environmental's proposal along with others
received by Safety-Kleen.
16. On November 4, 1997, Laidlaw Environmental publicly announced its
intention to pursue the Initial Offer.
17. On November 5, 1997, following the public announcement of the
Initial Offer, Mr. Brinckman and other representatives of Safety-Kleen finally
met with Mr. Bullock
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and a representative of Bear Stearns, an investment banking firm advising
Laidlaw Environmental. Mr. Bullock proposed that Laidlaw Environmental and
Safety-Kleen sign a mutual confidentiality agreement that did not contain a
standstill provision so that they could share information with each other, but
Safety-Kleen rejected this proposal and no substantive discussions occurred.
(Laidlaw Environmental's Request for
a Shareholders' Meeting and Shareholder List)
18. Wisconsin's control shares voting statute provides that "the
voting power of shares of a resident domestic corporation held by any person
. . . in excess of 20% of the voting power in the election of directors shall
be limited to 10% of the full voting power of those shares." Wis. Stat.
(S) 180.1150(2) (1997). A shareholder which anticipates acquiring in excess of
20% of the voting power may request a vote in advance to restore the voting
power of its shares by delivering a Notice of Meeting and Resolution to the
Company. Wis. Stat. (S) 180.1150(4) (1997).
19. Because Safety-Kleen may be a "resident domestic corporation" as
that term is defined by Wis. Stat. (S) 180.1150(1)(c), the Initial Offer was
conditioned on Safety-Kleen's shareholders voting to restore the voting rights
of shares to be acquired by Laidlaw Environmental. On November 13, 1997,
Laidlaw Environmental sent a proper Notice of Meeting and Resolution to Safety-
Kleen (the "November 13, 1997 Notice") in order to obtain such a vote of Safety-
Kleen's shareholders. A copy of the November 13, 1997 Notice is attached as
Exhibit A. Although the statute does not give a Wisconsin resident domestic
corporation any discretion to refuse such a request, Safety-Kleen has refused to
hold a special shareholders' meeting.
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<PAGE>
20. Safety-Kleen also has unlawfully refused to provide Laidlaw
Environmental with Safety-Kleen's record of shareholders in order to frustrate
Laidlaw Environmental's ability to communicate with its fellow shareholders with
respect to its exchange offer. Wisconsin law requires corporations organized
under the laws of the State of Wisconsin to maintain a record of its
shareholders. Each corporation must make this record available to any
shareholder who requests it pursuant to applicable Wisconsin statutes. Wis.
Stat. (S) 180.1601 (1997). Accordingly, on November 13, 1997, Laidlaw
Environmental also wrote to Mr. Brinckman exercising its right, as a shareholder
of Safety-Kleen, to inspect and copy the record of shareholders of Safety-Kleen
and to inspect other documents. Laidlaw Environmental offered to bear the
reasonable costs incurred by Safety-Kleen in connection with the production of
that information. Laidlaw Environmental explained that the purpose of its
demand was to enable Laidlaw Environmental to communicate with its fellow
Safety-Kleen shareholders on matters relating to their mutual interests as
shareholders including, but not limited to: (a) communicat ing with the
shareholders of Safety-Kleen regarding the November 13, 1997 Notice pursuant to
Section 180.1150 of the Wisconsin Business Corporation Law; and (b) soliciting
proxies in connection with the Special Shareholders' Meeting to be called
pursuant to the November 13, 1997 Notice. A copy of Laidlaw Environmental's
demand is attached as Exhibit B. Safety-Kleen has rejected Laidlaw
Environmental's demand for its shareholder list.
21. On November 17, 1997 Safety-Kleen filed this action seeking a
declaration that it was not required to call the special meeting of shareholders
or give the shareholder list to Laidlaw Environmental.
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<PAGE>
(The Buyout Transaction)
22. On November 20, 1997, without ever discussing with Laidlaw
Environmental whether it would increase the Initial Offer (which it had
indicated it was willing to consider), Safety-Kleen announced that its Board had
approved a definitive merger agreement (the "Merger Agreement") with the Buyout
Vehicle, pursuant to which Safety-Kleen's shareholders would receive $27 per
share. In so doing, the Director Defendants not only approved the acquisition
of Safety-Kleen at an inadequate price, knowing that Laidlaw Environmental was
willing to consider increasing its bid, but also agreed to numerous one-sided,
onerous conditions that benefit the Buyout Group and impose substantial
obstacles, including prohibitive additional costs, on a competing bidder, in
breach of the Director Defendants' fiduciary duties to the public shareholders
of Safety-Kleen. A copy of the Merger Agreement is attached as Exhibit C.
23. The Merger Agreement includes the following provisions that have
the purpose and effect of improperly benefiting the Buyout Group and/or the
Director Defendants and impeding competing offers, all to the detriment of
Safety-Kleen's shareholders:
(a) If the Merger Agreement is terminated by Safety-Kleen under a
variety of circumstances, including a decision by Safety-Kleen to accept a
better offer, Safety-Kleen must pay the Buyout Group a fee of $50 million
plus up to an additional $25 million to cover the Buyout Group's purported
expenses (the "break-up fee"). This break-up fee totals nearly 5% of the
total value of the transaction, twice the level approved by courts in other
transactions. The break-up fee is to be paid even if the Safety-Kleen
share-
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<PAGE>
holders exercise their rights to vote down the Buyout Transaction in order
to accept a better offer from Laidlaw Environmental or someone else.
(b) If Safety-Kleen receives an offer that is superior to the Buyout
Proposal, it may not accept that offer without first giving the Buyout
Group the chance to match it. This imposes a strong disincentive for any
competing bidder, which is required to make a proposal or negotiate with
Safety-Kleen (if Safety-Kleen agrees to negotiate) knowing that the Buyout
Group can win any bidding contest simply by agreeing to match the best
other offer.
(c) The Merger Agreement acknowledges that Safety-Kleen may pay up to
$45.7 million in "severance pay" to Safety-Kleen's officers and employees
even if all of them remain employed at the same salaries and in the same
locations. The Merger Agreement provides no information about the amount
of "severance pay" that Safety-Kleen may pay if officers or employees
actually lose their jobs or are transferred to another location.
24. The Director Defendants did not agree to these provisions in
return for a fully-priced, beneficial transaction for Safety-Kleen's
shareholders. Rather, the Buyout Transaction offers a $27 per share price that
only slightly exceeds Laidlaw Environmental's Initial Offer and is significantly
below the $30 per share that Laidlaw Environmental has since offered (as
described below), and would have offered if Safety-Kleen had entered into
negotiations. Moreover, although the Merger Agreement imposes huge penalties on
Safety-Kleen if its shareholders decide to reject the Buyout Transaction in
favor of a better deal, the Buyout Transaction itself is subject to numerous
contingencies:
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<PAGE>
(a) The Buyout Transaction is contingent upon the Buyout Group
obtaining both equity and debt financing for the merger. Philip, Apollo
and Blackstone are under no obligation to ensure that financing is
available. Such a condition is virtually unheard of in a public company
acquisition.
(b) Because the Buyout Vehicle will be so highly leveraged (i.e., will
have an unusually large amount of debt financing), the Buyout Transaction
is contingent upon Safety-Kleen receiving an expert's opinion conforming
that it will remain solvent after the acquisition, so that the Director
Defendants will not be exposed to liability to Safety Kleen's creditors for
participating in a fraudulent conveyance. This condition is also highly
unusual in a public company acquisition.
(c) Unlike most public company merger agreements, which require the
parties to close the transaction unless there is an outstanding court order
prohibiting them from doing so, the Merger Agreement gives the Buyout Group
the right not to close if there is any litigation "instituted or pending"
that challenges the Buyout Transaction and has a "substantial likelihood of
success."
(d) The Merger Agreement was executed on behalf of the Buyout Group
only by the Buyout Vehicle, a shell corporation. Philip, Apollo and
Blackstone are not parties to the Merger Agreement and have no obligation
to proceed with the Buyout Transaction. Thus, even if the Buyout Group
breaches the Merger Agreement, Safety-Kleen's only recourse would be
against an empty shell corporation.
25. Taken together, these provisions demonstrate that the Director
Defendants, while refusing to negotiate or discuss a merger with Laidlaw
Environmental, agrees to a one-
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<PAGE>
sided deal at an inadequate price which makes it difficult, if not impossible,
for Safety-Kleen's shareholders to reap the benefits of a better proposal from
Laidlaw Environmental or another bidder. Both the nature of the Buyout
Transaction and the process by which the Director Defendants approved it make
clear that the Director Defendants have acted on an uninformed basis and that
their actions are not the product of a valid business judgment. Their conduct
is subject to enhanced scrutiny as a result.
(Laidlaw Environmental's New Offer)
26. On November 20, 1997, within hours after Safety-Kleen's
announcement of the Buyout Transaction, Laidlaw Environmental's Mr. Bullock
wrote to Safety-Kleen's Mr. Brinckman and increased Laidlaw Environmental's
offer to $30 per share, consisting of $15 in cash and $15 in Laidlaw
Environmental common stock (the "New Offer"). This proposal, which was made
before Safety-Kleen publicly filed the Merger Agreement and thus without
knowledge of its specific terms and conditions, is subject to adjustment for any
"break-up fees, new severance arrangements and other expenses Safety-Kleen may
have incurred in connection with its agreement with Philip Services and others."
27. Despite Laidlaw Environmental's New Offer, which represents a 68%
premium to Safety-Kleen's closing price on the date prior to Safety-Kleen's
August 8th announcement and an 11% premium over the price to be paid in the
Buyout Transaction, and despite a subsequent announcement by the Buyout Group
that it will not increase its price, Safety-Kleen has continued to refuse to
negotiate with Laidlaw Environmental.
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<PAGE>
Count I
-------
(Declaratory Relief)
28. Laidlaw Environmental and LES repeat and reallege the allegations
paragraphs 1 through 27, inclusive.
29. Laidlaw Environment's November 13, 1997 Notice fully complies
with Wis. Stat. (S) 180.1150(4).
30. Laidlaw Environmental's November 13, 1997 Notice properly
contained: (a) the identity of the person desiring a shareholder vote; (b) a
statement that the Resolution and Notice were submitted under Wis. Stat. (S)
180.1150(4); (c) the number of shares of Safety-Kleen that are owned by Laidlaw
Environmental; (d) a specification of the voting power Laidlaw Environmental
proposes to acquire and for which shareholder approval is sought; (e) the
circumstances, terms and conditions under which shares representing in excess of
20% of the voting power are proposed to be acquired, including the source of
funds and other details of the financial arrangement of the transaction; and (f)
the terms of the proposed transaction.
31. Pursuant to Wis. Stat. (S) 180.1150(5)(a), the board of directors
has 10 days after receipt of the notice and resolution to fix the date on which
the special shareholders' meeting will be held. Such meeting must be held no
later than 50 days after receipt of the notice and resolution.
32. On November 17, 1997, Safety-Kleen filed a complaint against
Laidlaw Environmental, seeking a declaratory order that Safety-Kleen has no
obligation to call a special shareholders' meeting in response to Laidlaw
Environmental's Notice of Meeting and Resolution.
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<PAGE>
33. An actual, immediate and justiciable controversy exists between
Safety-Kleen and Laidlaw Environmental concerning Laidlaw Environmental's right
to demand that Safety-Kleen call a special shareholders' meeting, and an order
should be issued declaring that Safety-Kleen is obliged to hold such a special
shareholders' meeting.
Count II
--------
(Violation of Wis. Stat. (S) 180.1602(2)(c))
34. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 1 through 33, inclusive.
35. Laidlaw Environmental's November 13, 1997, demand to inspect and
copy Safety-Kleen's shareholder list was properly submitted to Safety-Kleen in
accordance with Wis. Stat. (S) 180.0141.
36. Laidlaw Environmental's demand was made in good faith and for a
proper purpose.
37. Laidlaw Environmental cannot effectively communicate with its
fellow Safety-Kleen shareholders and prepare for the special shareholders'
meeting, which Safety-Kleen is obligated to call, without a copy of the
shareholder lists. Safety-Kleen's failure to provide Laidlaw Environmental with
a copy of its shareholder lists puts Laidlaw Environmental at an unlawful
disadvantage in its efforts to effect a merger with Safety-Kleen.
38. Pursuant to Wis. Stat. (S) 180.1604, Laidlaw Environmental is
entitled to a copy of Safety-Kleen's shareholder lists.
-28-
<PAGE>
Count III
---------
(Fraudulent and Deceptive Practices;
Violation of Wis. Stat. (S) 552.09)
39. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 1 through 38, inclusive.
40. Safety-Kleen has willfully and unlawfully refused to allow
Laidlaw Environmental to examine its list of stockholders and to extract
information therefrom, pursuant to Wis. Stat. (S) 180.1602(2)(c) for the purpose
of making a takeover offer and to mail solicitation materials published by
Laidlaw Environmental to Safety-Kleen's shareholders.
41. Safety-Kleen's refusal to provide Laidlaw Environmental with the
shareholder list to which it is entitled constitutes a fraudulent, deceptive and
manipulative act in connection with a take-over offer, in violation of Wis.
Stat. (S) 552.09.
Count IV
--------
(Breach of Fiduciary Duty for Failure to Negotiate
and Failure to Maximize Shareholder Value)
42. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 1 through 27, inclusive.
43. The Director Defendants agreed to sell Safety-Kleen after a sales
process that unfairly and without justification excluded Laidlaw Environmental,
the most logical bidder for the Company. They have refused to negotiate with
Laidlaw Environmental concerning its Initial Offer or its New Offer. Instead,
they have caused Safety-Kleen to enter into the inadequate, unfair and highly
contingent Buyout Transaction, which does not maximize the value
-29-
<PAGE>
to be received by Safety-Kleen's shareholders but which ensures the continued
employment of Safety-Kleen's current management.
44. The Director Defendants' refusal to negotiate with Laidlaw
Environmental has deprived and will continue to deprive the Company's public
shareholders of the substantial premium which Laidlaw Environmental is prepared
to pay, and has deprived Laidlaw Environmental and Safety-Kleen of the
substantial cost savings and enhanced future profitability that a merger of the
two companies would produce.
45. In addition, by approving the Merger Agreement containing an
exorbitant and unlawful break-up fee, the Director Defendants have substantially
impeded the ability of Safety-Kleen's shareholders to obtain the best value
reasonably available for their shares.
46. Wisconsin law prohibits a "resident domestic corporation" from
engaging in a variety of business combinations, including mergers, with an
"interested shareholder" (which Laidlaw Environmental will be upon completion of
its exchange offer) for a three year period from the date the shareholder became
an "interested shareholder" unless the interested shareholder receives prior
approval of the company's board of directors. Wis. Stat. (S) 180.1141. In
order to create a level playing field and obtain the best value reasonably
available for its shareholders, Safety-Kleen's Board of Directors must grant
such approval to Laidlaw Environmental's New Offer. The Director Defendants'
failure to do so is a violation of their fiduciary duties.
47. By reason of the foregoing, the Director Defendants have violated
their fiduciary duties to obtain the best value reasonably available to Safety-
Kleen's shareholders and
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<PAGE>
are not properly exercising their business judgment. Their conduct is subject to
enhanced scrutiny as a result.
Count V
-------
(Derivative Claim for Corporate Waste)
48. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 42 through 47, inclusive.
49. Laidlaw Environmental fairly and adequately represents the
interests of the shareholders of Safety-Kleen in enforcing the rights of the
corporation with respect to this Count.
50. Laidlaw Environmental has not made a demand upon the Safety-Kleen
board to cause Safety-Kleen to bring suit against the Director Defendants for
breach of fiduciary duty and waste of corporate assets because any such demand
would be futile and therefore should be excused in this action because, among
other things:
(a) The Director Defendants' actions complained about herein have been
undertaken for the primary purpose of entrenching themselves in office, and
the Director Defendants therefore are self-interested directors and cannot
exercise the requisite independence to decide to commence an action to
redress the corporate waste and breaches of fiduciary duty alleged herein.
(b) The Director Defendants' decision to exclude Laidlaw Environmental
from the sales process of Safety-Kleen makes clear that the Director
Defendants' actions are not the product of a valid exercise of business
judgment. The Director Defendants refused even to consider Laidlaw
Environmental's proposal unless it would agree to enter
-31-
<PAGE>
into the Standstill Agreement that would have provided the Director
Defendants with the power to veto any offer by Laidlaw for two years. The
Director Defendants also participated in and/or approved of Safety-Kleen's
unlawful refusal of Laidlaw Environmental's request for a special meeting
of Safety-Kleen shareholders, its unlawful refusal to provide Laidlaw
Environmental with Safety-Kleen's record of shareholders, and Safety-
Kleen's commencement of a declaratory action against Laidlaw Environmental.
(c) The nature of the Buyout Transaction approved by the Director
Defendants and the process by which they approved it make clear that the
Director Defendants' actions are not the product of a valid exercise of
business judgment. For example, the Director Defendants accepted the
inadequate offer and agreed to the one-sided Merger Agreement, including
the excessive and unreasonable break-up fee, barely two weeks after
refusing even to discuss Laidlaw Environmental's proposal. Moreover, the
Director Defendants agreed to the Buyout Transaction without even
contacting Laidlaw Environmental to inquire whether it would increase or
amend its offer. In these circumstances, any director exercising reasonable
business judgment would not conduct a sales process that excluded Laidlaw
Environmental nor agree to a one-sided Merger Agreement that committed
Safety-Kleen to pay a break-up fee of up to $75 million.
(d) The Director Defendants have knowledge of and participated in
and/or approved the wrongs alleged herein, and did so in violation of their
duties to Safety-Kleen and its shareholders, and failed to take action to
protect Safety-Kleen or to recover amounts due to Safety-Kleen by virtue of
the misconduct alleged herein.
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<PAGE>
(e) The Director Defendants have irreconcilable conflicts of interests
regarding the prosecution of this action against themselves and cannot
exercise the requisite independence to make a good faith business judgment
whether to prosecute the claims herein in the name of Safety-Kleen.
51. This action is not a collusive one to confer jurisdiction on a
court of the United States which it would not otherwise have.
52. By agreeing to the excessive and unnecessary "break-up fee" and,
upon information and belief, excessive and unnecessary "severance pay" and other
compensation for Safety-Kleen's management, the Director Defendants have caused
the gross waste of corporate assets of Safety-Kleen.
53. The Director Defendants should be required to account to Safety-
Kleen for this waste of corporate assets and all other damages caused by their
approval of the Buyout Transaction.
Count VI
--------
(Breach of Fiduciary Duty
for Failure to Amend Rights Plan)
54. Laidlaw Environmental repeats and realleges the allegations in
paragraphs 48 through 53, inclusive.
55. On November 9, 1988, the Safety-Kleen Board issued what is
commonly referred to as a "Poison Pill," by adopting a "Rights Plan" and
declaring a dividend of one common share purchase right ("Right") on each
outstanding share, payable to Safety-Kleen shareholders of record on November
21, 1988 (the "Record Date"). Each Right entitles the holder thereof to buy one
share at an exercise price of $73.33, subject to adjustment. Because
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<PAGE>
Safety-Kleen's stock never has traded anywhere near the $73.33 per share
exercise price, it is clear that the Rights never were intended to provide the
holders thereof with a meaningful opportunity to purchase the common stock
authorized under the Poison Pill. Instead, Safety Kleen's Board instituted the
Poison Pill solely so that its "flip-in" and "flip-over" provisions (as
described below) could be deployed when necessary to make any offer not approved
by the directors prohibitively expensive by drastically diluting Safety-Kleen's
outstanding shares or ravaging the capital structure of the potential acquirer.
56. The "flip-in" rights are triggered when a person or entity
becomes the beneficial owner of 20% or more of Safety-Kleen's outstanding
shares. Once the Rights flip in, all Rights holders, except the potential
acquirer, may exercise each Right to purchase shares of Safety-Kleen common
stock at an immense discount -- namely for 50% of the then-market price of the
stock. Any rights held by the potential acquirer, however, become void. Thus,
all Rights holders other than the acquirer would be entitled to purchase Safety-
Kleen's common stock for one-half of its then-market price. In this way, the
"flip-in" feature flagrantly discriminates against an acquirer by diluting its
stock holdings and increasing substantially the number of shares the acquirer
would have to purchase in order to consummate a merger.
57. The "flip-over" rights are triggered if:
(i) Safety-Kleen is acquired in a merger or other business
combination; or
(ii) more than 50% of Safety-Kleen's assets or earning power is sold.
Upon the occurrence of any of these "flip-over" events, all Rights holders,
except the acquirer, may exercise each Right to purchase shares of common stock
of the acquiring company at 50% of its market value. In this way, the "flip-
over" feature subjects the acquiring company to a
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<PAGE>
massive half-price sale of its own stock, drastically impairing its capital
structure. The obvious purpose of the Poison Pill is to render an attempted
acquisition of Safety-Kleen financially impossible without the blessing of the
directors.
58. The Director Defendants have the power to amend the terms of the
Rights to cause them not to be triggered. In addition, at any time prior to the
acquisition by a person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding shares, the Director
Defendants may redeem the Rights in whole, but not in part, at a price of $.0067
per Right, subject to adjustment (the "Redemption Price"). Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of the Rights will be to receive the Redemption
Price.
59. The Rights will cause substantial dilution to a person or group
of persons that attempts to acquire Safety-Kleen in a manner which causes the
Rights to become exercisable.
60. On November 14, 1997, Safety-Kleen's Board of Directors adopted a
resolution delaying implementation of the Rights Plan with respect to Laidlaw
Environmental's Initial Offer, but did not exempt the Initial Offer from the
Rights Plan or redeem the Rights under the Rights Plan.
61. On November 20, 1997, the Director Defendants amended the Rights
Plan to provide that the flip-in and flip-over provisions of the Rights would
not be triggered by the Buyout Transaction. The Director Defendants have failed
to take similar action with respect to Laidlaw Environmental's New Offer,
notwithstanding that it offers a higher price than the Buyout Transaction.
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<PAGE>
WHEREFORE, Laidlaw Environmental and LES demand judgment against
Safety-Kleen:
1. dismissing Safety-Kleen's Complaint in its entirety with
prejudice;
2. entering an order:
(i) compelling Safety-Kleen to hold a special shareholders'
meeting to vote on the Resolution proposed by Laidlaw
Environmental in accordance with Wis. Stat (S)
1150(5)(a);
(ii) compelling Safety-Kleen to produce promptly and at
Safety-Kleen's expense its shareholder lists;
(iii) declaring that the Director Defendants have breached
their fiduciary dudes to Safety-Kleen's shareholders,
including Laidlaw Environmental, by refusing to negotiate
with Laidlaw Environmental, entering into the Buyout
Transaction, and agreeing to the unlawful provisions of
the merger agreement, including the breakup fee;
(iv) compelling the Director Defendants to carry out their
fiduciary duties to Safety-Kleen's shareholders,
including Laidlaw Environmental, by implementing and
adhering to procedures under which the transaction
providing the best value reasonably available can be
obtained for Safety-Kleen's shareholders;
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<PAGE>
(v) enjoining Safety-Kleen and the Director Defendants from
proceeding with the Buyout Transaction or paying a
"break-up fee" to the Buyout Group;
(vi) requiring the Director Defendants to account to Safety-
Kleen for the waste of corporate assets and all other
damages caused by their approval of the Buyout
Transaction;
(vii) directing the Director Defendants to amend the Rights
Plan to make it inapplicable to the New Offer or to
redeem the Rights; and
(viii) directing the Director Defendants to negotiate with
Laidlaw Environmental regarding its exchange offer;
3. awarding Laidlaw Environmental its reasonable costs and expenses
of this action, including its attorneys' fees;
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<PAGE>
4. granting such other and further relief as this Court deems just
and proper.
Dated: November 24, 1997
LAIDLAW ENVIRONMENTAL SERVICES, INC.
and LES ACQUISITION, INC.
By: ________________________________
One of Their Attorneys
James E. Hanlon, Jr.
William W. Davis
Lisa M. Noller
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
(312) 902-5200
-38-
<PAGE>
EXHIBIT 14
[LETTERHEAD OF WILLIAM BLAIR & COMPANY]
December 20, 1997
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, IL 60123-7857
Dear Directors:
You have requested our opinion as to the superiority, from a financial
point of view, of the consideration which would be received pursuant to the
terms of the amended proposed offer ("Proposed LLE Offer") made by Laidlaw
Environmental Services, Inc. ("LLE") as compared with the consideration which
would be received pursuant to the terms of the Agreement and Plan of Merger
dated as of November 20, 1997 (the "Merger Agreement") by and among the
Safety-Kleen Corp. (the "Company"), SK Parent Corp. ("Parent") and SK
Acquisition Corp., a wholly-owned subsidiary of Parent ("Purchaser") (the
"Merger"). Based on the advice of your counsel, we understand that the Proposed
LLE Offer and the Merger should be compared based on their respective values
upon consummation.
Pursuant to the terms of the Proposed LLE Offer, LLE and a subsidiary
propose to exchange, for each outstanding Common Share of the Company, cash in
the amount of $15.00 less certain expenses (no less than $1.28 per share and
estimated by LLE to be up to $2.14 per share) plus that number of LLE common
stock equal to the Exchange Ratio of not less than 2.8 shares and no greater
than 3.5 shares. Pursuant to the terms of, and subject to the conditions of, the
Merger Agreement, in the Merger, Purchaser will be merged into the Company in a
merger in which each of the outstanding shares of common stock of the Company
will be converted into a right for the Shareholder to receive $27.00 per share
of common stock in cash.
We have acted as financial advisor to the Company in connection with the
Merger and the Proposed LLE Offer. In connection with our review of the Merger
and the Proposed LLE Offer and the preparation of our opinion herein, we have:
(a) reviewed the terms and conditions of the Merger Agreement and the financial
terms as set forth in the Merger Agreement and the Preliminary Copy of the Proxy
Statement dated November 26, 1997 as filed by the Company with the Securities
Exchange Commission ("SEC"); (b) reviewed the terms and conditions of the
Proposed LLE Offer and the financial terms as set forth in the Amendment No. 2
to the Exchange Offer as filed by LLE with the SEC ("Amended Exchange Offer");
(c) analyzed the historical revenue, operating earning, net income, dividend
capacity and capitalization of both LLE and certain other publicly held
companies we believe to be comparable to LLE; (d) analyzed certain publicly
available financial and other information relating to LLE and the pro forma
combination analysis in the Amended Exchange Offer and performed a sensitivity
analysis on such pro formas based upon variable synergy assumptions; (f)
reviewed the historical market prices and trading volume of the common stock of
LLE as well as its stock ownership and analyzed factors which could influence
the trading price of the common stock of LLE on the anticipated closing date for
the proposed LLE Offer; (g) together with the Company's management met with Jim
Bullock, Chairman of LLE; and (h) performed such other analyses as we have
deemed appropriate.
222 WEST ADAMS STREET CHICAGO, ILLINOIS 60606 312.236.1600
<PAGE>
Board of Directors -2- December 20, 1997
Safety-Kleen Corp.
Our opinion with respect to the Proposed LLE Offer reflects only limited
access to LLE management and no access to internal LLE projections.
In rendering our opinion, we have assumed that the Merger or the Proposed
LLE Offer would be consummated on the terms described in the Merger Agreement or
the Amended Exchange Offer, respectively, without any waiver of any material
terms or conditions by the Company and that obtaining the necessary regulatory
approvals for the Merger or Proposed LLE Offer would not have an adverse effect
on the Company.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. During August of this year we were
retained by the Company to render financial advisory and investment banking
services in connection with the evaluation of its strategic alternatives. The
Company has paid us a fee in connection with rendering our fairness opinion as
it relates to the Merger. Upon the consummation of either the Merger or the
Proposed LEE Offer, the Company will pay us a transaction fee. The amount of
such fee increases as the consideration received by the Company's stockholders
increases.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors. It is understood that this letter may not be
disclosed or otherwise referred to without our prior written consent, except
that this opinion may be included in a proxy statement or other disclosure
document mailed to shareholders by the Company with respect to the Merger or the
Proposed LLE Transaction, as the case may be.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of December 20, 1997, we do not have a basis for concluding
that the Proposed LLE Offer is superior to the Merger from a financial point of
view.
Very truly yours,
WILLIAM BLAIR & COMPANY, L.L.C.
<PAGE>
Exhibit 15
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
WILLIAM STEINER, Individually )
And On Behalf Of All Others )
Similarly Situated, )
)
Plaintiff, )
)
-against- ) No.
)
DONALD W. BRINCKMAN, GORDON W. )
WOOD, RUSSELL A. GWILLIM, )
EDGAR D. JANNOTTA, RICHARD T. )
FARMER, PAUL D. SCHRAGE, )
MARCIA E. WILLIAM, KARL G. )
OTZEN, and SAFETY-KLEEN CORP., )
)
Defendants. )
COMPLAINT
---------
Plaintiff, by his attorneys, alleges upon personal knowledge as to his own
acts and upon information and belief as to all other matters, as follows:
NATURE OF THE ACTION
--------------------
1. Plaintiff brings this action individually and as a class action on
behalf of all persons, other than defendants and persons or entities related to
it, who own the common stock of Safety-Kleen Corp. ("Safety-Kleen" or the
"Company") who have been, and continue to be, deprived of the opportunity to
realize fully the benefits of their investment in the Company. The individual
defendants have wrongfully refused to take the steps necessary to maximize
stockholder value, including properly considering a bona fide offer for the
Company from Laidlaw Environmental Services Inc. ("Laidlaw"). By failing and
refusing to take such steps, including adequately considering an offer by
Laidlaw to purchase those shares of Safety-Kleen in a transaction valued at $1.8
billion, defendants have breached their
<PAGE>
fiduciary duties to plaintiff and the class. The individual defendants are using
their fiduciary positions of control over Safety-Kleen to thwart others in their
legitimate attempts to acquire Safety-Kleen, and the individual defendants are
trying to entrench themselves in their positions with the Company.
PARTIES
-------
2. Plaintiff is a resident of the state of New York and, at all relevant
times, has been the owner of Safety-Kleen common stock.
3. Safety-Kleen is a corporation duly organized and existing under the
laws of the State of Wisconsin. Safety-Kleen provides cleaning services to
vehicular, industrial and related markets, and provides cleaning and other
supplies to restaurants and automotive and body repair shops. Safety-Kleen
maintains its principal executive offices at 1 Brinckman Way, Elgin, Illinois.
Safety-Kleen has approximately 58.3 million shares of common stock outstanding
and thousands of stockholders of record. Safety-Kleen stock trades on the New
York Stock Exchange.
4. Defendant Donald W. Brinckman ("Brinckman"), at all times material
hereto, has been the Chairman of the Board and is Chief Executive Officer of the
Company.
5. Defendant Gordon W. Wood ("Wood"), at all times material hereto, has
been a director of Safety-Kleen. Wood was a former vice-president of the
Company.
6. Defendant Russell A. Gwillim ("Gwillim"), at all times material hereto,
has been a director of Safety-Kleen. Gwillim is the Company's former Chairman of
the Board.
-2-
<PAGE>
7. Defendant Edgar D. Jannotta ("Jannotta"), at all times material hereto,
has been a director of Safety-Kleen. Jannotta is the senior director of William
Blair & Co. LLC, an investment banking firm retained by Safety-Kleen to explore
strategic alternatives.
8. Defendants Richard T. Farmer, Paul D. Schrage, Marcia E. Williams, and
Karl G. Otzen are directors of Safety-Kleen.
9. The defendants named in paragraphs 4 through 8 are hereinafter referred
to as the "Individual Defendants."
10. Because of their positions as officers/directors, defendants owe
fiduciary duties of loyalty and due care to plaintiff and the other members of
the Class.
11. Each defendant herein is sued individually as a conspirator, as well as
in their capacity as an officer, director and/or controlling shareholder of the
Company, and the liability of each arises from the fact that each defendant has
engaged in all or part of the unlawful acts, plans, schemes, or transactions
complained of herein.
CLASS ACTION ALLEGATIONS
------------------------
12. Plaintiff brings this case in his own behalf and as a class action,
pursuant to 735 ILCS 5/2-801 et seq., on behalf of all stockholders of the
Company, except defendants herein and any person, firm, trust, corporation, or
other entity related to or affiliated with any of the defendants, or any of the
Company's principal stockholders, who will be threatened with injury arising
from defendants' actions as is described more fully below.
13. This action is properly maintainable as a class action.
-3-
<PAGE>
14. The Class is so numerous that joinder of all members is impracticable.
The Company has approximately 58.3 million shares of common stock. There are
thousands of record and beneficial stockholders.
15. There are questions of law and fact common to the Class including,
inter alia, whether:
a. defendants have breached and will continue to breach their
fiduciary and other common law duties owed by them to plaintiff and the members
of the Class; and
b. plaintiff and the other members of the Class would be irreparably
damaged by the wrongs complained of herein.
16. Plaintiff is committed to prosecuting the action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Plaintiff is an adequate
representative of the Class.
17. The prosecution of separate actions by individual members of the Class
would create the risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications or substantially impair or
impede their ability to protect their interests.
18. The defendants have acted, or refused to act, on grounds generally
applicable to, and causing injury to, the Class and, therefore, preliminary and
final injunctive relief on behalf of the Class as a whole is appropriate.
-4-
<PAGE>
SUBSTANTIVE ALLEGATIONS
-----------------------
19. By the acts, transactions, and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme and/or aiding
and abetting one another in total disregard of their fiduciary duties, are
attempting to deprive plaintiff and the Class unfairly of the opportunity to
maximize the value of their investment in Safety-Kleen.
20. On November 4, 1997, Bloomberg reported that Laidlaw made a $1.8
billion hostile bid to purchase Safety-Kleen in cash, stock and assumed debt. It
was reported that the offer is valued at $25.85 a share, an 18% premium over the
closing price before the hostile tender offer was announced.
21. Safety-Kleen put itself up for sale in August 1997 and hired William
Blair to explore strategic alternatives. As reported in Bloomberg, Safety-
Kleen's oil-recovery business has lost money in recent quarters and may have
prompted the decision to hire William Blair.
22. Laidlaw commenced the hostile tender offer in response to the board of
directors' unwillingness to negotiate with Laidlaw in a meaningful way.
Previously, analysts predicted that an all-cash deal was very unlikely due to
the Company's book value which is estimated at $8.30 per share because a cash
transaction would result in the creation of $920 million in goodwill. Laidlaw's
offer is $14 in cash and 2.4 of its shares for each of Safety-Kleen's 58.3
million outstanding shares.
23. Defendants' failure to act promptly upon Laidlaw's offer has no valid
business purpose, and simply evidences their disregard for the premium being
offered to Safety-Kleen stockholders. By failing to meet and negotiate with
Laidlaw, defendants are depriving
-5-
<PAGE>
plaintiff and the Class of their right to receive the maximum value for their
Safety-Kleen shares.
24. Safety-Kleen represents a highly attractive acquisition candidate.
Defendants' conduct is depriving Safety-Kleen's stockholders of the premium that
Laidlaw is prepared to pay, or of the enhanced premium that further negotiation
or exposure of Safety-Kleen to the market could provide.
25. Defendants owe fundamental fiduciary obligations to Safety-Kleen's
stockholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the Individual Defendants have the responsibility
to act independently so that the interests of Safety-Kleen's public stockholders
will be protected, to seriously consider all bona fide offers for the Company,
and to conduct fair and active bidding procedures or other mechanisms for
checking the market to assure that the highest possible price is achieved.
Further, the directors of Safety-Kleen must adequately ensure that no conflict
of interest exists between the Individual Defendants' own interests and their
fiduciary obligations to maximize stockholder value or, if such conflicts exist,
to insure that all such conflicts will be resolved in the best interests of the
Company's stockholders.
26. Because defendants dominate and control the business and corporate
affairs of Safety-Kleen and because they are in possession of private corporate
information concerning Safety-Kleen's assets, businesses and future prospects,
there exists an imbalance and disparity of knowledge of economic power between
defendants and the public shareholders of Safety-Kleen. This discrepancy makes
it grossly and inherently unfair for defendants to refrain from taking those
steps necessary to maximize stockholder value. Defendants have refused
-6-
<PAGE>
to seriously consider Laidlaw's offer, and have failed to maximize stockholder
value by entertaining offers to purchase the Company.
27. The Individual Defendants have breached their fiduciary and other
common law duties owed to plaintiff and other members of the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of the Class.
28. The Individual Defendants are acting to entrench themselves in their
offices and positions and maintain their substantial salaries and perquisites,
all at the expense and to the detriment of the public stockholders of Safety-
Kleen.
29. As a result of the actions of the Individual Defendants, plaintiff and
the other members of the Class have been and will be damaged in that they have
not and will not receive their fair proportion of the value of Safety-Kleen's
assets and businesses and/or have been and will be prevented from obtaining a
fair and adequate price for their shares of Safety-Kleen's common stock.
30. Plaintiff seeks preliminary and permanent injunctive relief preventing
defendants from inequitably and unlawfully depriving plaintiff and the Class of
their rights to realize a full and fair market value for their stock at a
premium over the market price, by unlawfully entrenching themselves in their
positions of control, and to compel defendants to carry out their fiduciary
duties to maximize stockholder value.
31. Only through the exercise of this Court's equitable powers can
plaintiff and the Class be fully protected from the immediate and irreparable
injury that defendants' actions threaten to inflict. Defendants are precluding
the enjoyment by Safety-Kleen stockholders of
-7-
<PAGE>
the full economic value of their investment by failing to proceed expeditiously
and in good faith to evaluate and pursue a premium acquisition proposal that
would provide consideration for all shares at a premium price.
32. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to plaintiff and the members of the Class, and/or aid and
abet and participate in such breaches of duty, and will prevent the sale of
Safety-Kleen at a substantial premium, all to the irreparable harm of plaintiff
and other members of the Class.
33. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) Declaring this to be a proper class action and certifying
plaintiff as a class representative;
(b) Ordering the Individual Defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by announcing their
intention to:
(i) cooperate fully with any entity or person, including Laidlaw,
having a bona fide interest in proposing any transaction that would maximize
stockholder value including, but not limited to, a merger or acquisition of
Safety-Kleen;
(ii) immediately undertake an appropriate evaluation of Safety-
Kleen's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance Safety-Kleen's value
and attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose Safety-
Kleen to the marketplace in an effort to create an active auction of the
Company;
-8-
<PAGE>
(v) act independently so that the interests of the Company's
public stockholders will be protected; and
(vi) adequately ensure that no conflicts of interest exist
between the Individual Defendants' own interest and their fiduciary obligation
to maximize stockholder value or, in the event such conflicts exist, to ensure
that all conflicts of interest are resolved in the best interests of the public
stockholders of Safety-Kleen;
(c) Ordering the Individual Defendants, jointly and severally to
account to plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
(d) Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
-9-
<PAGE>
(e) Granting such other and further relief as may be just and proper.
Dated: November 4, 1997
Respectfully Submitted,
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
------------------------------------
Michael J. Freed, Esq.
Carol V. Gilden, Esq.
200 North LaSalle Street
Suite 2100
Chicago, IL 60601-1095
(312) 346-3100
Firm No.: 80580
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
805 Third Avenue
New York, NY 10022
(212) 935-7400
-10-
<PAGE>
EXHIBIT 16
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
JOSH KAPLAN, Individually And on )
Behalf Of All Others Similarly Situated )
)
Plaintiff, )
) No.: 97 CH 14097
- against - )
)
DONALD W. BRINCKMAN, GORDON W. WOOD, )
RUSSELL A. GWILLIM, EDGAR D. )
JANNOTTA, RICHARD T. FARMER, PAUL D. )
SCHRAGE, MARCIA E. WILLIAM, KARL G. )
OTZEN and SAFETY-KLEEN CORP., )
)
Defendants. )
COMPLAINT
---------
Plaintiff, by his attorneys alleges upon personal knowledge as to his
own acts and upon information and belief as to all other matters, as follows:
NATURE OF THE ACTION
--------------------
1. Plaintiff brings this action individually and as a class action on
behalf of all persons, other than defendants and persons or entities related to
it, who own the common stock of Safety-Kleen Corp. ("Safety-Kleen" or the
"Company") who have been, and continue to be, deprived of the opportunity to
realize fully the benefits of their investment in the Company. The individual
defendants have wrongfully refused to take the steps necessary to maximize
stockholder value, including properly considering a bona fide offer for the
Company from Laidlaw Environmental Services, Inc. ("Laidlaw"). By failing and
refusing to take such steps, including adequately considering an offer by
Laidlaw to purchase those shares of Safety-Kleen in a transaction valued at $1.8
billion, defendants have breached their fiduciary duties to plaintiff and the
class. The individual defendants are using their fiduciary positions of control
<PAGE>
over Safety-Kleen to thwart others in their legitimate attempts to acquire
Safety-Kleen, and the individual defendants are trying to entrench themselves in
their positions with the Company.
PARTIES
-------
2. Plaintiff is a resident of the state of New York and, at all relevant
times, has been the owner of Safety-Kleen common stock.
3. Safety-Kleen is a corporation duly organized and existing under the
laws of the State of Wisconsin. Safety-Kleen provides cleaning services to
vehicular, industrial and related markets, and provides cleaning and other
supplies to restaurants and automotive and body repair shops. Safety-Kleen
maintains its principal executive offices at 1 Brinckman Way, Elgin, Illinois.
Safety-Kleen has approximately 58.3 million shares of common stock outstanding
and thousands of stockholders of record. Safety-Kleen stock trades on the New
York Stock Exchange.
4. Defendant Donald W. Brinckman ("Brinckman"), at all times material
hereto, has been the Chairman of the Board and is Chief Executive Officer of the
Company.
5. Defendant Gordon W. Wood ("Wood"), at all times material hereto, has
been a director of Safety-Kleen. Wood was a former vice-president of the
Company.
6. Defendant Russell A. Gwillim ("Gwillim"), at all times material hereto,
has been a director of Safety-Kleen. Gwillim is the Company's former Chairman
of the Board.
7. Defendant Edgar D. Jannotta ("Jannotta"), at all times material hereto,
has been a director of Safety-Kleen. Jannotta is the senior director of William
Blair & Co. LLC, an investment banking firm retained by Safety-Kleen to explore
strategic alternatives.
-2-
<PAGE>
8. Defendants Richard T. Farmer, Paul D. Schrage, Marcia E. Williams, and
Karl G. Otzen are directors of Safety-Kleen.
9. The defendants named in paragraphs 4 through 8 are hereinafter referred
to as the "Individual Defendants."
10. Because of their positions as officers/directors, defendants owe
fiduciary duties of loyalty and due care to plaintiff and the other members of
the Class.
11. Each defendant herein is sued individually as a conspirator, as well
as in their capacity as an officer, director and/or controlling shareholder of
the Company, and the liability of each arises from the fact that each defendant
has engaged in all part of the unlawful acts, plans, schemes, or transactions
complained of herein.
CLASS ACTION ALLEGATIONS
------------------------
12. Plaintiff brings this case in his own behalf and as a class action,
pursuant to 735 ILCS 5/2-801 et seq., on behalf of all stockholders of the
Company, except defendants herein and any person, firm, trust, corporation, or
other entity related to or affiliated with any of the defendants, or any of the
Company's principal stockholders, who will be threatened with injury arising
from defendants' actions as is described more fully below.
13. This action is properly maintainable as a class action.
14. The Class is so numerous that joinder of all members is impracticable.
The Company has approximately 58.3 million shares of common stock. There are
thousands of record and beneficial stockholders.
15. There are questions of law and fact common to the Class including,
inter alia, whether:
-3-
<PAGE>
a. defendants have breached and will continue to breach their
fiduciary and other common law duties owed by them to plaintiff and the members
of the Class; and
b. plaintiff and the other members of the Class would be irreparably
damaged by the wrongs complained of herein.
16. Plaintiff is committed to prosecuting the action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Plaintiff is an adequate
representative of the Class.
17. The prosecution of separate actions by individual members of the Class
would create the risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications or substantially impair or
impede their ability to protect their interests.
18. The defendants have acted, or refused to act, on grounds generally
applicable to, and causing injury to, the Class and, therefore, preliminary and
final injunctive relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
-----------------------
19. By the acts, transactions, and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme and/or aiding
and abetting one another in total disregard of their fiduciary duties, are
attempting to deprive plaintiff and the Class unfairly of the opportunity to
maximize the value of their investment in Safety-Kleen.
-4-
<PAGE>
20. On November 4, 1997, Bloomberg reported that Laidlaw made a $1.8
billion hostile bid to purchase Safety-Kleen in cash, stock and assumed debt.
It was reported that the offer is valued at $25.85 a share, an 18% premium over
the closing price before the hostile tender offer was announced.
21. Safety-Kleen put itself up for sale in August 1997 and hired William
Blair to explore strategic alternatives. As reported in Bloomberg Safety-Kleen's
oil-recovery business has lost money in recent quarters and may have prompted
the decision to hire William Blair.
22. Laidlaw commenced the hostile tender offer in response to the board of
directors' unwillingness to negotiate with Laidlaw in a meaningful way.
Previously, analysts predicted that an all-cash deal was very unlikely due to
the Company's book value which is estimated at $8.30 per share because a cash
transaction would result in the creation of $920 million in goodwill. Laidlaw's
offer is $14 in cash and 2.4 of its shares for each of Safety-Kleen's 58.3
million outstanding shares.
23. Defendants' failure to act promptly upon Laidlaw's offer has no valid
business purpose, and simply evidences their disregard for the premium being
offered to Safety-Kleen stockholders. By failing to meet and negotiate with
Laidlaw, defendants are depriving plaintiff and the Class of their right to
receive the maximum value for their Safety-Kleen shares.
24. Safety-Kleen represents a highly attractive acquisition candidate.
Defendants' conduct is depriving Safety-Kleen's stockholders of the premium that
Laidlaw is prepared to pay, or of the enhanced premium that further negotiation
or exposure of Safety-Kleen to the market could provide.
-5-
<PAGE>
25. Defendants owe fundamental fiduciary obligations to Safety-Kleen's
stockholders to take all necessary and appropriate steps to maximize the value
of their shares. In addition, the Individual Defendants have the responsibility
to act independently so that the interests of Safety-Kleen's public stockholders
will be protected, to seriously consider all bona fide offers for the Company,
and to conduct fair and active bidding procedures or other mechanisms for
checking the market to assure that the highest possible price is achieved.
Further, the directors of Safety-Kleen must adequately ensure that no conflict
of interest exists between the Individual Defendants' own interests and their
fiduciary obligations to maximize stockholder value or, if such conflicts exist,
to insure that all such conflicts will be resolved in the best interests of the
Company's stockholders.
26. Because defendants dominate and control the business and corporate
affairs of Safety-Kleen and because they are in possession of private corporate
information concerning Safety-Kleen's assets, businesses and future prospects,
there exists an imbalance and disparity of knowledge of economic power between
defendants and the public shareholders of Safety-Kleen. This discrepancy makes
it grossly and inherently unfair for defendants to refrain from taking those
steps necessary to maximize stockholder value. Defendants have refused to
seriously consider Laidlaw's offer, and have failed to maximize stockholder
value by entertaining offers to purchase the Company.
27. The Individual Defendants have breached their fiduciary and other
common law duties owed to plaintiff and other members of the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of the Class.
-6-
<PAGE>
28. The Individual Defendants are acting to entrench themselves in their
offices and positions and maintain their substantial salaries and perquisites,
all at the expense and to the detriment of the public stockholders of Safety-
Kleen.
29. As a result of the actions of the Individual Defendants, plaintiff and
the other members of the Class have been and will be damaged in that they have
not and will not receive their fair proportion of the value of Safety-Kleen's
assets and businesses and/or have been and will be prevented from obtaining a
fair and adequate price for their shares of Safety-Kleen's common stock.
30. Plaintiff seeks preliminary and permanent injunctive relief
preventing defendants from inequitably and unlawfully depriving plaintiff and
the Class of their rights to realize a full and fair value for their stock at a
premium over the market price, by unlawfully entrenching themselves in their
positions of control, and to compel defendants to carry out their fiduciary
duties to maximize stockholder value.
31. Only through the exercise of this Court's equitable powers can
plaintiff and the Class be fully protected from the immediately and irreparable
injury that defendants' actions threaten to inflict. Defendants are precluding
the enjoyment by Safety-Kleen stockholders of the full economic value of their
investment by failing to proceed expeditiously and in good faith to evaluate and
pursue a premium acquisition proposal that would provide consideration for all
shares at a premium price.
32. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to plaintiff and the members of the Class, and/or aid and
abet and participate in
-7-
<PAGE>
such breaches of duty, and will prevent the sale of Safety-Kleen at a
substantial premium, all to the irreparable harm of plaintiff and other members
of the Class.
33. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) Declaring this to be a proper class action and certifying
plaintiff as a class representative;
(b) Ordering the Individual Defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by announcing their
intention to:
(i) cooperate fully with any entity or person, including Laidlaw,
having a bona fide interest in proposing any transaction that would maximize
stockholder value including, but not limited to, a merger or acquisition of
Safety-Kleen;
(ii) immediately undertake an appropriate evaluation of Safety-
Kleen's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance Safety-Kleen's value
and attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose Safety-
Kleen to the marketplace in an effort to create an active auction of the
Company;
(v) act independently so that the interests of the Company's
public stockholders will be protected; and
(vi) adequately ensure that no conflicts of interest exist
between the Individual Defendants' own interest and their fiduciary obligation
to maximize stockholder
-8-
<PAGE>
value or, in the event such conflicts exist, to ensure that all conflicts of
interest are resolved in the best interests of the public stockholders of
Safety-Kleen;
(c) Ordering the Individual Defendants, jointly and severally to
account to plaintiff and the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
(d) Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
(e) Granting such other and further relief as may be just and proper.
Dated: November 4, 1997
Respectfully Submitted,
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
___________________________________
Michael J. Freed, Esq.
Carol v. Gilden, Edq.
200 North LaSalle Street, Suite 2100
Chicago, IL 60601-1095
(312) 346-3100
Firm No.: 80580
FARUQI & FARUQI, L.L.P.
Nadeem Faruqi, Esq.
415 Madison Avenue
New York, NY 10017
(212) 986-1074
-9-
<PAGE>
EXHIBIT 17
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
- --------------------------------------x
GERSHON KNOLL,
Plaintiff,
- against - No. 97CH1411
RICHARD T. FARMER, PAUL D. SCHRAGE, CLASS ACTION COMPLAINT
DONALD W. BRINKMAN, MARCIA E. WILLIAMS, ----------------------
W. GORDON WOOD, RUSSELL A. GWILLIM,
EDGAR D. JANNOTA, KARL G. OTZEN, and
SAFETY-KLEEN, CORP., JURY TRIAL DEMANDED
-------------------
Defendants.
- --------------------------------------x
Plaintiff, by his attorneys, for his complaint against defendants, alleges
upon information and belief, except for paragraph 2 hereof, which is alleged
upon knowledge, as follows:
1. Plaintiff brings this action pursuant to Section 2-801 of the Illinois
Code of Civil Procedure, 735 ILCS 5/2-001, on his behalf and as a nationwide
class action on behalf of all persons, other than defendants and those in
privity with them, who own the common stock of Safety-Kleen, Corp.,
("Safety-Kleen" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company since
prior to the transaction herein complained of and continuously to date.
3. Safety-Kleen is a corporation duly organized and existing under the
laws of the State of Wisconsin. The Company provides parts and cleaning
services to vehicular, industrial and related markets, provides grease filters,
cleaning equipment, and other supplies to restaurants and provides supplies,
materials and services to the automotive paint and body
<PAGE>
repair market. Safety-Kleen maintains it principal executive offices at 1000
North Randall Road, Elgin, Illinois.
4. Defendant Donald W. Brinkman ("Brinkman") is Chief Executive Officer
and the Chairman of the Company's Board of Directors.
5. Defendant Richard T. Farmer ("Farmer") is a director of the Company.
6. Defendant Paul D. Schrage ("Schrage") is a director of the Company.
7. Defendant Marcia E. Williams ("Williams") is a director of the Company.
8. Defendant W. Gordon Wood ("Wood") is a director of the Company.
9. Defendant Russell A. Gwillim ("Gwillim") is a director of the Company.
10. Defendant Edgar D. Jannotta ("Jannotta") is a director of the Company.
11. Defendant Karl G. Otzen ("Otzen") is a director of the Company.
12. Defendants Farmer, Schrage, Brinkman, Williams, Wood, Gwillin,
Jannotta and Otzen are sometimes collectively referred to herein as the
"Individual Defendants."
13. The Individual Defendants, by reason of their corporate directorships
and executive positions, stand in a fiduciary position relative to the Company's
public shareholders, whose fiduciary duties, at all times relevant herein,
required them to exercise their best judgment, and to act in a prudent manner,
and in the best interest of the Company's minority shareholders. Said
defendants owed the public shareholders of Safety-Kleen the highest duty of good
faith, fair dealing, due care, loyalty, and full, candid and adequate
disclosure.
-2-
<PAGE>
CLASS ACTION ALLEGATIONS
------------------------
14. Plaintiff brings this action on his own behalf and as a nationwide
class action, pursuant to Section 2-801 of the Illinois Code of Civil Procedure,
on behalf of all security holders of the Company (except the defendants herein
and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants) and their successors in interest, who are
or will be threatened with injury arising from defendants' actions as more fully
described herein.
15. This action is properly maintainable as a class action.
16. The class is so numerous that joinder of all members is impracticable.
As of June 14, 1997, there were approximately 50,273,410 shares of Safety-Kleen
common stock outstanding, owned by shareholders located throughout the country.
17. There are questions of law and fact which are common to the class and
which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following: (a) whether defendants
have breached their fiduciary and other common law duties owed by them to
plaintiff and the members of the class; (b) whether defendants are unlawfully
impeding a takeover attempt and improperly seeking to entrench themselves in
their own positions at the expense of the public stockholders of Safety-Kleen;
(c) whether the said proposed acquisition, hereinafter described, constitutes a
breach of the duty of fair dealing with respect to the plaintiff and the other
members of the class; and (d) whether the class is entitled to injunctive relief
or damages as a result of the wrongful conduct committed by defendants.
-3-
<PAGE>
18. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are typical of the claims of other members of the class and plaintiff
has the same interests as the other members of the class. Plaintiff will fairly
and adequately represent the class.
19. Defendants have acted in a manner which affects plaintiff and all
members of the class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the class as a whole.
20. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
----------------
21. On August 6, 1997, the Company announced that it was considering
strategic alternatives, including the possible sale of the Company. The Company
also announced that it had retained William Blair & Co. to advise it regarding
its strategic options.
22. On November 4, 1997, Laidlaw Environmental Services, Inc. ("Laidlaw"),
announced a $.0 billion hostile bid for Safety-Kleen. Laidlaw is controlled by
its majority shareholder Laidlaw Inc. Under the terms of the proposed
transaction, Laidlaw will offer $14 in cash and 2.4 Laidlaw shares for each of
Safety-Kleen's outstanding common shares. Additionally, Laidlaw will assume
approximately $300 million of Safety-Kleen debt. If the proposed transaction is
consummated, Laidlaw Inc. will own approximately 39 percent of the successor
corporation.
23. Each share of Safety-Kleen common stock is valued at $26 per share.
Laidlaw's offer represents an 18 percent premium to the closing price of the
Company's
-4-
<PAGE>
stock on the last trading day before Laidlaw's offer was announced and a
46 percent premium to the Company's stock price from when the Company was put
into play.
24. On November 5, 1997, the Wall Street Journal reported that "Laidlaw
Environmental said it sought meetings on several occasions with Safety- Kleen
and its advisers to discuss a possible merger, but was rebuffed after refusing
to agree not to make its offer public without first getting the support of
Safety-Kleen." The news article also stated that "We feel Safety-Kleen has
suggested it's up for sale...and under those circumstances we wanted the
opportunity to present our offer to the shareholders of Safety-Kleen, said James
Bullock, president and Chief Executive at Laidlaw, Inc.
25. Defendants, however, refused to fulfill their fiduciary duties to
Safety-Kleen's public shareholders and immediately begin good faith negotiations
with Laidlaw. Instead, as reported by the Wall Street Journal, a spokesman for
Safety-Kleen stated that it would "consider Laidlaw Environmental's proposal,
along with those of others and other strategic alternatives." The news article
continued: "A spokesman declined to identify any other bidders. She said
Safety-Kleen is considering a sale of all or part of the Company or a share
repurchase program."
26. The Individual Defendants have refused to negotiate with Laidlaw in
order to protect their own substantial salaries, and pre-requisites and to
entrench themselves in their positions of authority and control with the
Company. Instead of fulfilling their fiduciary duties to the public
shareholders of Safety-Kleen by immediately beginning negotiations with Laidlaw
to maximize shareholder value, defendants have adopted a course of delay in
order to protect their own interests.
-5-
<PAGE>
27. Defendants' refusal to negotiate has deprived and will continue to
deprive the Company's public shareholders of the very substantial premium which
Laidlaw is prepared to pay or the enhanced premium which further negotiation
could secure.
28. Moreover, defendants have refused to take those steps necessary to
ensure that the Company's shareholders will receive maximum value for their
shares of Safety-Kleen stock. Defendants have refused to seriously consider the
pending Laidlaw offer, and have not announced their intention to conduct an
active auction or to establish an open bidding process in order to maximize
shareholder value in selling the Company.
29. The Individual Defendants are acting to entrench themselves in their
offices and positions and maintain their substantial salaries and perquisites,
all at the expense and to the detriment of the public shareholders of
Safety-Kleen.
30. By virtue of the acts and conduct alleged herein the Individual
Defendants, who control the actions of the Company, have carried out a
preconceived plan and scheme to place their own personal interests ahead of the
interests of the shareholders of Safety-Kleen and thereby entrench themselves in
their offices and positions within the Company. the Individual Defendants have
violated their fiduciary duties owed to plaintiff and the Class in that they
have not and are not exercising independent business judgment and have acted and
are acting to the detriment of the Company's public shareholders for their own
personal benefit.
31. As a result of the actions of the Individual Defendants, plaintiff and
the other members of the Class have been and will be damaged in that they have
not and will not receive their fair proportion of the value of Safety-Kleen's
assets and businesses and/or have
-6-
<PAGE>
been and will be prevented from obtaining a fair and adequate price for their
shares of Safety-Kleen's common stock.
32. By reason of all of the foregoing, each defendant herein has willfully
participated in unfair dealing toward the plaintiff and the other members of the
Class in breach of the fiduciary duties owed by each of them to the Class.
33. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class, and will succeed in
their plan to entrench themselves and deprive the Class of the opportunity to
maximize the value of their Safety-Kleen holdings either in a transaction with
Laidlaw or some other bona fide offer or, all to the irreparable harm of the
Class.
34. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the class by announcing their
intention to:
1) cooperate fully with any person or entity, having a bona fide
interest in proposing any transaction which would maximize shareholder value,
including, but not limited to, a buyout or takeover of the Company by Laidlaw;
2) undertake an appropriate evaluation of Safety-Kleen's worth as a
merger/acquisition candidate;
3) take all appropriate steps to enhance Safety-Kleen's value and
attractiveness as a merger/acquisition candidate;
-7-
<PAGE>
4) take all appropriate steps to effectively expose Safety-Kleen to
the marketplace in an effort to create an active auction for Safety-Kleen;
5) act independently so that the interests of Safety-Kleen's public
stockholder will be protected; and
6) adequately ensure that no conflicts of interest exist between the
Individual Defendants' interest and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all conflicts are
resolved in the best interests of Safety-Kleen's public stockholders'
C. ordering the Individual Defendants, jointly and severally, to account
to plaintiff and the class for all damages suffered and to be suffered by them
as a result of the acts and transactions alleged herein;
D. preliminary and permanently enjoining defendants from proceeding with
any action that will entrench the Individual Defendants to the detriment of
maximizing the value to the Company's public shareholders;
F. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
-8-
<PAGE>
G. granting such other and further relief as may be just and proper in the
premises.
Dated: November 5, 1997
-------------------------------------
One of the Attorneys for Plaintiff
Stanley D. Bernstein
BERNSTEIN, LIEBHARD & LIFSHITE
274 Madison Avenue
New York, NY 10016
(212) 779-1414
Robert D. Allison
ROBERT D. ALLISON & ASSOCIATES
122 South Michigan Avenue
Suite 1850
Chicago, Illinois 60603
(312) 427-4500
Attorney I.d. 26784
Attorneys for Plaintiff
-9-
<PAGE>
EXHIBIT 18
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
- ---------------------------------X
:
LARRY HANON, : No.
:
Plaintiff, :
: CLASS ACTION COMPLAINT
: ----------------------
-against- :
:
SAFETY KLEEN CORP., PAUL SCHRAGE,:
DONALD BRINCKMAN, RICHARD T. :
FARMER, MARCIA WILLIAMS, GORDON :
WOOD, RUSSELL GWILLIM, EDGAR :
JANNOTTA and KARL OTZEN, :
:
Defendants. :
:
- ---------------------------------X
Plaintiff, by his attorneys, alleges upon information and belief, except as
to paragraph 1 which plaintiff alleges upon knowledge, as follows:
1. Plaintiff Larry Hanon is a shareholder of defendant Safety Kleen Corp.
("Safety Kleen" or the "Company").
2. Defendant Safety Kleen is a corporation duly organized and existing
under the laws of the state of Wisconsin, with its principal offices located at
1000 North Randall Road, Elgin, Illinois. Safety Kleen cleans and maintains
equipment and parts for auto service stations and other industries, supplies
materials and services to the automotive paint and body repair market, and
reclaims waste solvents for large industrial users and dry cleaners. Safety
Kleen conducts business in this County. As of September 6, 1997, the Company had
more than 58 million shares of common stock outstanding which trade on the New
York Stock Exchange.
<PAGE>
3. Defendants Paul Schrage, Donald Brinckman, Richard T. Farmer, Marcia
Williams, Gordon Wood, Russell Gwillim, Edgar Jannotta and Karl Otzen are
directors of the Company and are referred to herein as the "Individual
Defendants."
4. As officers and/or directors of Safety Kleen, the Individual Defendants
have a fiduciary relationship and responsibility to plaintiff and the other
minority shareholders of Safety Kleen and owe to plaintiff and the other class
members the highest obligations of good faith, loyalty, fair dealing, due care
and candor.
CLASS ACTION ALLEGATIONS
------------------------
5. Plaintiff brings this action on his own behalf and as a class action
pursuant to Section 2-801 of the Rules governing the Courts of the State of
Illinois, on behalf of all common shareholders of Safety Kleen, or their
successors in interest, who are being and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are the defendants and
their affiliates.
6. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. There are thousands of Safety Kleen shareholders of record who
are located throughout the United States;
b. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual Class members,
including: whether defendants have engaged or are continuing to act in a manner
calculated to harm Safety Kleen's minority shareholder; and whether plaintiff
and the other Class members
-2-
<PAGE>
would be irreparably damaged if the defendants are not enjoined in the manner
described below;
c. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Accordingly, plaintiff is
an adequate representative of the Class and will fairly and adequately protects
the interests of the Class; and
d. Plaintiff anticipates that there will be no difficulty in the
management of this litigation.
7. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
----------------
8. In late 1996 and early 1997, Safety Kleen's earnings were stagnant and
repeatedly failed to meet analysts' expectations.
9. On July 10, 1997 Safety Kleen issued a press release announcing its
fiscal second quarter results. In that press release, Safety Kleen reported
that its second quarter net income was $13.3 million, down 2% from $13.6
million, in the year-earlier period. For the first six weeks of fiscal 1997
Safety Kleen said earnings fell approximately 6%, to $25.2 million, or 43 cents
per share, from $26.7 million, or 46 cents per share, in the first half of 1996.
10. In a press release, dated August 8, 1997, Safety Kleen announced that
its President and Chief Executive Officer, John Johnson, resigned effective
immediately.
-3-
<PAGE>
Commenting on Johnson's sudden resignation, Safety Kleen spokesman Paul Wyche
said "there were a number of factors involved . . . . The board took a look at
historical performance and looked at performance today and were quite concerned
about shareholder value." In the press release, Safety Kleen also announced
that it was exploring "strategic options" and had retained William Blair & Co.
to explore those options.
11. Maureen Fisk, a Safety Kleen spokesperson, said that Safety Kleen's
board was not satisfied with the speed of recent efforts to boost profits. She
also said that Safety Kleen "had plans for new business and goals we haven't
met" and called Johnson's resignation "a mutual decision."
12. These announcements were a strong indication that Safety Kleen now was
poised for improved financial performance and made it a likely acquisition
candidate. Immediately the market reacted favorably to the improved financial
results and to the possibility that a bidder for Safety Kleen would emerge.
13. The day of the announcement, Safety Kleen's shares increased $1.75, or
9.8%, on approximately five times its average daily volume.
14. On August 11, 1997, an article in The Wall Street Journal quoted a
Safety Kleen spokesman as saying that Mr. Johnson's departure was a "mutual
decision" and "new leadership . . . was necessary to accelerate growth plans."
15. On August 13, 1997, Standard & Poor's Credit Wire announced that it
had revised the outlook on Safety Kleen to "developing" from "positive"
following Safety Kleen's August 8, 1997 press release. The August 13, 1997
announcement stated that the:
ratings on Safety Kleen reflect its leading positions in several niches of
the environmental services industry and prudent financial management . . .
-4-
<PAGE>
Business prospects are enhanced by a growth strategy focused on expanding
existing operations, introducing related services, and entering new markets
through acquisition that would utilize the company's infrastructure.
Indeed, performance has upward potential, benefiting from broadening of the
customer base, leveraging the company's assets, and selective price
increases. In addition, funds flow coverage of debt of about 55% and debt
to capital of low 40% are somewhat strong for the rating, providing an
added measure of flexibility for growth or rewarding shareholders.
16. During August and September, 1997, Safety Kleen's stock price
consistently increased in response to the Company's improving financial
condition and the possibility of an offer being made for Safety Kleen. By
September 25, 1997, Safety Kleen stock closed at $23.8125 per share.
17. On September 29, 1997, in a press release carried by the PR Newswire,
Safety Kleen announced results for its third quarter ended September 6, 1997.
In the press release, Safety Kleen reported that its revenue for the quarter was
$230 million, an increase of 8% compared with the similar period in 1996. It
also reported that Safety Kleen's net earnings rose to $15.1 million, an
increase of 8% over the $14 million reported in the third quarter of 1996. On a
per share basis, earnings were $0.26 compared with $0.24 in the same quarter one
year ago.
18. On October 31, 1997, Safety Kleen announced that it had acquired a
majority stake in 3E Company. Commenting on the acquisition, defendant
Brinckman said, "By combining Safety-Kleen's collection and recycling resources
with 3E's electronic data network and outstanding people, we are providing one-
stop convenience and value-added solutions for the hundreds of thousands of
businesses we serve."
19. On November 1, 1997, the Dow Jones News Service reported that Philip
Services and Laidlaw Environmental Services were among the bidders for Safety
Kleen.
-5-
<PAGE>
20. As made clear in a letter, dated November 3, 1997 from Laidlaw
Environmental Services, Inc. ("Laidlaw") to Safety Kleen, since Safety Kleen's
"August 8th announcement that [Safety Kleen] would explore strategic
alternatives to enhance shareholder value, [Laidlaw has] sought unsuccessfully,
directly through phone calls to [Donald Brinckman, Safety Kleen's Chairman and
Chief Executive Officer] and indirectly through [Safety Kleen's] advisors, to
meet with [Safety Kleen] to pursue the combination of [the two] companies." In
that letter, James Bullock, the Chairman of Laidlaw, said:
Six weeks ago, at the request of your financial advisor, we submitted a
preliminary merger proposal to which you have yet to respond. Needless to
say, we are frustrated by your continuing unwillingness to engage in
constructive dialogue.
As you are aware, your advisors have insisted that we sign an agreement
that would permit us to propose strategic alternatives that maximize value
for your shareholders only if you "shall have requested in writing in
advance the submission of such proposal". We have made clear on numerous
occasions our willingness to sign a confidentiality agreement that protects
nonpublic information you choose to share with us. In light of our
experience to date, however, we will not sign any agreement that does not
ensure that your shareholders have the opportunity to consider our offer
and to maximize the value of their stock.
In response to your continuing unwillingness to meet or commence
discussions with us in a meaningful way, our board of Directors today
authorized and directed senior management of Laidlaw Environmental
Services, Inc. to pursue the acquisition of Safety-Kleen Corp. We have
executed commitment letters with the Toronto-Dominion Bank to provide all
the necessary financing for this acquisition. We have engaged Bear Stearns
& Co. Inc. and Raymond James and Associates Inc. to serve as our financial
advisors and Katten Muchin and Zavis to serve as our legal counsel.
Our offer for each share of Safety-Kleen Corp. is a combination of $14.00
in cash and 2.4 common shares of Laidlaw Environmental Services, Inc.
stock. This represents approximately an 18.2% premium to Safety-Kleen's
closing price on Friday and a 46% premium to Safety-Kleen's trading price
prior to your August 8th announcement. Please note that our offer is not
subject to due diligence or a financing contingency. We have fully
committed financing
-6-
<PAGE>
sufficient to complete the combination. We believe our offer represents a
full and fair price based on the publicly available information we have
reviewed. However, should you be willing to meet with us, we are prepared
to consider any additional information you may wish to provide that
demonstrates that a higher valuation is warranted. We continue to prefer a
negotiated transaction.
Together our companies can create greater shareholder value than can either
of us alone. We estimate annual cost savings and synergies will exceed
$100 million. We believe the stock market will embrace this transaction
and will reward the combined company with enhanced stock performance. Our
offer ensures your shareholders participate in this exciting future.
We believe it is in the best interests of our companies to proceed
immediately to negotiate a definitive agreement, containing customary
public company terms and conditions, and to consummate a transaction by
year-end. Given the importance we place on this combination, we are
prepared to commit the resources necessary to see its timely completion.
We and our advisors would be pleased to meet you and your advisors in
Chicago either later today or tomorrow to complete the necessary papers.
In recognition of the strategic nature and compelling financial benefits o
four proposed combination to your shareholders and our willingness to
consider modifications to our offer as warranted, we expect you not to
enter into any binding merger or similar agreement with any other party
without first exploring with us the full merits of combining our two
companies.
Our Board of Directors unanimously supports this merger. We trust you and
the other members of Safety-Kleen's shareholders and will agree to meet
with us promptly to achieve a mutually beneficial transaction.
We look forward to hearing from you later today.
21. This letter reveals that Safety Kleen's board has refused to negotiate
with Laidlaw, failed to maximize shareholder value, and has attempted to place
unwarranted and improper restrictions on the bidding process for Safety Kleen.
22. On November 3, 1997, Safety Kleen common stock closed at $21.94 per
share.
-7-
<PAGE>
23. On November 4, 1997, Safety Kleen issued a press release confirming
that it had received an offer to be acquired by Laidlaw for $14 in cash and 2.4
Laidlaw common shares for each share of Safety Kleen. Laidlaw's common stock
closed at $5 per share on November 4, 1997, making its offer for Safety Kleen
worth approximately $26 per share, representing a significant premium to Safety
Kleen's closing price before the offer was announced and a 46% premium to Safety
Kleen's trading price before the Company's August 8th announcement that it was
exploring strategic alternatives.
24. Safety Kleen's response to the offer represents the continuation of an
improper and unlawful course of conduct commenced by the management of Safety
Kleen to favor their own interests over the interests of the public stockholders
who own the large majority part of the shares of the Company. These acts of
Safety Kleen management compel the conclusion that their primary interest is to
protect their positions and perquisites, and that the Director Defendants have
in the past and will continue to reject and oppose even bona fide and fair
offers and negotiations to acquire Safety Kleen.
25. By failing to discuss acquisition proposals with legitimate potential
acquires, such as Laidlaw, the Defendants Directors have not acted in the best
interests of Safety Kleen stockholders.
26. It is the Defendant Directors' fiduciary obligation to take any steps
necessary to maximize stockholder value, including, but not limited to
cooperating with any person or entity, such as Laidlaw, having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company.
-8-
<PAGE>
27. In refusing to give fair consideration to Laidlaw's interest in
acquiring Safety Kleen, defendants have violated their fiduciary duties owed to
the public stockholders of Safety Kleen and instead, have acted to put their own
personal interests ahead of the interests of the rest of Safety Kleen's public
stockholders. They have used and are using their control positions as officers
and directors of Safety Kleen for the purpose of entrenching themselves in their
offices, to the detriment of plaintiff and the other members of the Class.
28. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
a. Undertake an appropriate evaluation of Safety Kleen's worth as an
acquisition candidate;
b. Act independently so that the interests of Safety Kleen's minority
shareholders will be protected;
c. Take all appropriate steps to enhance Safety Kleen's value and
attractiveness as a merger/acquisition candidate;
d. Take all appropriate steps to effectively expose Safety Kleen to
the marketplace in an effort to create an active auction for Safety Kleen,
including but not limited to engaging in serious negotiations with Laidlaw or
its representatives; and
e. Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize shareholder
value or, if such conflicts exist, to ensure that all conflicts be resolved in
the best interests of Safety Kleen's minority shareholders.
-9-
<PAGE>
29. As a result of defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their proportionate share of the value
of the Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
30. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to plaintiff and the members of the Class, all to the
irreparable harm of the members of the Class.
31. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
B. Ordering defendants to carry out their fiduciary and other duties to
plaintiff and the other members of the Class including but not limited to
announcing their intention to:
(1) cooperate fully with any person or entity having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company; and
(2) undertake an appropriate evaluation of Safety Kleen's worth as a
merger/acquisition candidate.
C. Entering an order requiring defendants to take the steps set forth
hereinabove;
D. Awarding costs and disbursements, including plaintiff's counsel's fees
and experts' fees; and
-10-
<PAGE>
E. Granting such other and further relief as to the Court may seem just
and proper.
Dated: November 5, 1997
SCHIFFRIN & CRAIG, LTD.
By:
-----------------------------
Michael D. Craig
William M. Sweetnam
Khalil Cox
750 West Lake Cook Road
Suite 190
Buffalo Grove, Illinois 60089
(847) 419-7700
Counsel for Plaintiff
OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
Mark C. Gardy
Stephen J. Fearon, Jr.
212 East 39th Street
New York, New York 10016
(212) 889-3700
LAW OFFICES OF CURTIS V. TRINKO
Curtis V. Trinko
310 Madison Avenue, 14th Floor
New York, New York 10017
(212) 490-9550
-11-
<PAGE>
Exhibit 19
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
- -----------------------------------X
:
ROBIN FERNHOFF, :
:
Plaintiff, : No. 97CH14195
:
-against- :
:
SAFETY KLEEN CORP., PAUL SCHRAGE, : CLASS ACTION COMPLAINT
DONALD BRINCKMAN, RICHARD T. : ----------------------
FARMER, MARCIA WILLIAMS, GORDON :
WOOD, RUSSELL GWILLIM, EDGAR :
JANNOTTA and KARL OTZEN, :
:
Defendants. :
:
:
- -----------------------------------X
Plaintiff, by her attorneys, alleges upon information and belief,
except as to paragraph 1 which plaintiff alleges upon knowledge, as follows:
1. Plaintiff Robin Fernhoff was at all times relevant hereto a
shareholder of defendant Safety Kleen Corp. ("Safety Kleen" or the "Company").
2. Defendant Safety Kleen is a corporation duly organized and existing
under the laws of the State of Wisconsin, with its principal offices located at
1000 North Randall Road, Elgin, Illinois. Safety Kleen is in the business of
servicing and maintaining equipment and parts for auto service stations and
other industries, supplies materials and services to the automotive paint and
body repair market, and reclaims waste solvents for large industrial users and
dry cleaners. As of September 6, 1997, the Company had more than 58 million
shares of common stock outstanding which trade on the New York Stock Exchange.
Safety Kleen conducts business in this County.
<PAGE>
3. Defendants Paul Schrage, Donald Brinckman, Richard T. Farmer,
Marcia Williams, Gordon Wood, Russell Gwillim, Edgar Jannotta and Karl Otzen are
directors of the Company and are referred to herein as the "Individual
Defendants."
4. As officers and/or directors of Safety Kleen, the Individual
Defendants have a fiduciary relationship and responsibility to plaintiff and the
other minority shareholders of Safety Kleen and owe to plaintiff and the other
class members the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
------------------------
5. Plaintiff brings this action on her own behalf and as a class
action pursuant to Section 2-801 of the Rules governing the Courts of the State
of Illinois, on behalf of all common shareholders of Safety Kleen, or their
successors in interest, who are being and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are the defendants and
their affiliates.
6. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. There are thousands of Safety Kleen shareholders of record who
are located throughout the United States;
b. There are questions of law and fact which are common to the
Class and which predominate over questions affecting any individual Class
members, including: whether
2
<PAGE>
defendants have engaged or are continuing to act in a manner calculated to harm
Safety Kleen's minority shareholder; and whether plaintiff and the other Class
members would be irreparably damaged if the defendants are not enjoined in the
manner described below;
c. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. Plaintiff's
claims are typical of the claims of the other members of the Class and plaintiff
has the same interests as the other members of the Class. Accordingly, plaintiff
is an adequate representative of the Class and will fairly and adequately
protects the interests of the Class; and
d. Plaintiff anticipates that there will be no difficulty in the
management of this litigation.
7. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
----------------
8. Safety Kleen, a provider of environmental control services to auto
service stations and others, has in the recent past suffered from marginal
financial performance, nominal growth and has been criticized for poor
management and depressed stock price performance. Despite its poor performance,
the Company has become an attractive acquisition candidate by reason of hidden
value in its businesses and synergies available to acquisition partners. As set
forth below, despite the fact that opportunities for strategic transactions
which are in the best
3
<PAGE>
interests of shareholders have now arisen, Safety Kleen's Board of Directors
(the "Board") has failed to negotiate with potential buyers and has otherwise
entrenched itself. These acts, which violate the defendants' fiduciary duties to
the minority shareholders, also are directly contrary to public representations
by the Company which assured equity owners that management would explore all
alternatives which would maximize value.
9. Indeed, in a press release, dated August 8, 1997, Safety Kleen
announced that its President and Chief Executive Officer, John Johnson, had
resigned effective immediately. Commenting on Johnson's sudden resignation,
Safety Kleen spokesman Paul Wyche said "there were a number of factors involved
. . . . The board took a look at historical performance and looked at
performance today and were quite concerned about shareholder value." Safety
Kleen also announced that it was exploring "strategic options" and had retained
William Blair & Co. to explore those options.
10. Maureen Fisk, a Safety Kleen spokesperson, said that Safety
Kleen's board was not satisfied with the speed of recent efforts to boost
profits. She also said that Safety Kleen "had plans for new business and goals
we haven't met" and called Johnson's resignation "a mutual decision." These
announcements were a strong indication that Safety Kleen now was positioning
itself for improved financial performance and made it a likely acquisition
candidate because of the depressed levels at which the common shares were
trading.
4
<PAGE>
11. On August 13, 1997, Standard & Poor's Credit Wire announced that
it had revised the outlook on Safety Kleen to "developing" from "positive"
following Safety Kleen's recent disclosures.
12. During August and September, 1997, Safety Kleen's stock price
consistently increased in response to the Company's improving financial
condition and the possibility of an offer being made for Safety Kleen. By
September 25, 1997, Safety Kleen stock closed at $23.8125 per share.
13. On November 1, 1997, Dow Jones reported that bidders including
Laidlaw Environmental Services, Inc. ("Laidlaw") had made expressions of
interest to acquire Safety Kleen. As set forth in a letter dated November 3,
1997 from Laidlaw to Safety Kleen, however, the Company's Board has failed to
act diligently and has failed to inform itself as to the terms of this and other
potential transactions. According to the correspondence, since Safety Kleen's
"August 8th announcement that [Safety Kleen] would explore strategic
alternatives to enhance shareholder value, [Laidlaw has] sought unsuccessfully,
directly through phone calls to [Donald Brinckman, Safety Kleen's Chairman and
Chief Executive officer] and indirectly through [Safety Kleen's] advisors, to
meet with [Safety Kleen] to pursue the combination of [the two] companies." The
correspondence, signed by Laidlaw's Chairman James Bullock, further details the
Board's lack of responsiveness and sets forth a specific acquisition proposal
which the Board has, as of this date, failed to consider:
5
<PAGE>
Six weeks ago, at the request of your financial advisor, we submitted
a preliminary merger proposal to which you have yet to respond.
Needless to say, we are frustrated by your continuing unwillingness to
engage in constructive dialogue.
* * *
As you are aware, your advisors have insisted that we sign an
agreement that would permit us to propose strategic alternatives that
maximize value for your shareholders only if you "shall have requested
in writing in advance of the submission of such proposal". We have
made clear on numerous occasions our willingness to sign a
confidentiality agreement that protects nonpublic information you
choose to share with us. In light of our experience to date, however,
we will not sign any agreement that does not ensure that your
shareholders have the opportunity to consider our offer and to
maximize the value of their stock.
In response to your continuing unwillingness to meet or commence
discussions with us in a meaningful way, our Board of Directors today
authorized and directed senior management of Laidlaw Environmental
Services, Inc. to pursue the acquisition of Safety-Kleen Corp.
* * *
Our offer for each share of Safety-Kleen Corp. is a combination of
$14.00 in cash and 2.4 common shares of Laidlaw Environmental
Services, Inc. stock. This represents approximately an 18.2% premium
to Safety-Kleen's closing price on Friday and a 46% premium to Safety-
Kleen's trading price prior to your August 8th announcement. Please
note that our offer is not subject to due diligence or a financing
contingency. We have fully committed financing sufficient to complete
the combination. We believe our offer represents a full and fair price
based on the publicly available information we have reviewed. However,
should you be willing to meet with us, we are prepared to consider any
additional information you may wish to provide that demonstrates that
a higher
6
<PAGE>
valuation is warranted. We continue to prefer a negotiated
transaction.
* * *
We believe it is in the best interests of our companies to proceed
immediately to negotiate a definitive agreement, containing customary
public company terms and conditions, and to consummate a transaction
by year-end. Given the importance we place on this combination, we are
prepared to commit the resources necessary to see its timely
completion. We and our advisors would be pleased to meet you and your
advisors in Chicago either later today or tomorrow to complete the
necessary papers.
14. On November 4, 1997, Safety Kleen issued a press release
confirming that it had received an offer to be acquired by Laidlaw for $14 in
cash and 2.4 Laidlaw common shares for each share of Safety Kleen. Laidlaw's
common stock closed at $5 per share on November 4, 1997, making its offer for
Safety Kleen worth approximately $26 per share, representing a significant
premium to Safety Kleen's closing price before the offer was announced and a 46%
premium to Safety Kleen's trading price before the Company's August 8th
announcement that it was exploring strategic alternatives.
15. Safety Kleen's response to the offer represents the continuation
of an improper and unlawful course of conduct commenced by the management of
Safety Kleen to favor their own interests over the interests of the public
stockholders who own the large majority part of the shares of the Company. These
acts of Safety Kleen management compel the conclusion that their primary
interest is to protect their positions and perquisites, and that the Director
Defendants have in the past and will
7
<PAGE>
continue to reject and oppose even bona fide and fair offers and negotiations to
acquire Safety Kleen.
16. By failing to discuss acquisition proposals with legitimate
potential acquirers, such as Laidlaw, the defendant Directors have not acted in
the best interests of Safety Kleen stockholders.
17. It is the Defendants fiduciary obligation to take any steps
necessary to maximize stockholder value, including, but not limited to
cooperating with any person or entity, such as Laidlaw, having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company.
18. In refusing to give fair consideration to Laidlaw's interest in
acquiring Safety Kleen, defendants have violated their fiduciary duties owed to
the public stockholders of Safety Kleen and instead, have acted to put their own
personal interests ahead of the interests of the rest of Safety Kleen's public
stockholders. They have used and are using their control positions as officers
and directors of Safety Kleen for the purpose of entrenching themselves in their
offices, to the detriment of plaintiff and the other members of the Class.
19. In light of the foregoing, the Individual Defendants must, as
their fiduciary obligations require:
a. Undertake an appropriate evaluation of Safety Kleen's worth as
an acquisition candidate;
b. Act independently so that the interests of Safety Kleen's
minority shareholders will be protected;
8
<PAGE>
c. Take all appropriate steps to enhance Safety Kleen's value and
attractiveness as a merger/acquisition candidate;
d. Take all appropriate steps to effectively expose Safety Kleen
to the marketplace in an effort to create an active auction for Safety Kleen,
including but not limited to engaging in serious negotiations with Laidlaw or
its representatives; and
e. Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize shareholder
value or, if such conflicts exist, to ensure that all conflicts be resolved in
the best interests of Safety Kleen's minority shareholders.
20. As a result of defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their proportionate share of the value
of the Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
21. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the members of the Class, all to
the irreparable harm of the members of the Class.
22. Plaintiff and the other members of the Class have no adequate
remedy at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
9
<PAGE>
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
B. Ordering defendants to carry out their fiduciary and other duties
to plaintiff and the other members of the Class including but not limited to
announcing their intention to:
(1) cooperate fully with any person or entity having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company; and
(2) undertake an appropriate evaluation of Safety Kleen's worth
as a merger/acquisition candidate.
C. Entering an order requiring defendants to take the steps set forth
hereinabove;
D. Awarding costs and disbursements, including plaintiff's counsel's
fees and experts' fees; and
10
<PAGE>
E. Granting such other and further relief as to the Court may seem
just and proper.
Dated: November 6, 1997
SCHIFFRIN & CRAIG, LTD.
By:
----------------------------------
Michael D. Craig
William M. Sweetnam
Khalil Cox
SCHIFFRIN & CRAIG, LTD.
750 West Lake-Cook Road
Suite 190
Buffalo Grove, Illinois 60089
(847) 419-7700
Counsel for Plaintiff
OF COUNSEL:
BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
Vincent R. Cappucci
Robert S. Gans
1285 Avenue of the Americas
New York, NY 10019
(212) 554-1400
11
<PAGE>
Exhibit 20
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
------------------------------------X
:
EPSTEIN FAMILY TRUST, dated :
December 7, 1992, Eleanor Epstein, :
Jerry Epstein and Benny Buchansky, :
Trustees, :
:
Plaintiffs, : Civil Action No.
: 97 CH 014379
:
-against- :
:
SAFETY-KLEEN CORP., PAUL SCHRAGE, : CLASS ACTION COMPLAINT
DONALD BRINCKMAN, RICHARD T. : ----------------------
FARMER, MARCIA WILLIAMS, GORDON :
WOOD, RUSSELL GWILLIM, EDGAR :
JANNOTTA and KARL OTZEN, :
:
Defendants. :
:
- -------------------------------------X
Plaintiff, the Epstein Family Trust, dated December 7, 1992, Eleanor
Epstein, Jerry Epstein and Benny Buchansky, Trustees (the "Epstein Family
Trust"), by its undersigned attorneys, alleges for its Complaint, upon
information and belief (except as to paragraph 1 hereof, which is alleged upon
personal knowledge), as follows:
SUMMARY OF ACTION
-----------------
1. Plaintiff brings this action on behalf of itself and all other
shareholders of defendant Safety-Kleen Corp. ("Safety-Kleen" or the "Company")
against Safety-Kleen and the directors of Safety-Kleen for breaching their
fiduciary duties to Safety-Kleen's public shareholders. These defendants have
been and are continuing to refuse to negotiate concerning an offer to Safety-
Kleen shareholders (the "Offer") by Laidlaw Environmental Services, Inc.
("Laidlaw") to purchase Safety-Kleen for
<PAGE>
approximately $1.8 billion in cash and Laidlaw stock and assumed debt, despite
the fact that the Offer represents a potential economic opportunity for Safety-
Kleen's shareholders to realize the full value of their investment in Safety-
Kleen. Defendants' refusal to negotiate with Laidlaw forecloses a potential
opportunity for shareholders to realize the full value of their Safety-Kleen
shares that would otherwise not be available to them. Plaintiff seeks, inter
alia, an order enjoining defendants from summarily rejecting the Offer without
giving it fair consideration, becoming fully informed as to the fairness of the
Offer and taking all steps necessary to maximize shareholder value. Plaintiff
further seeks an Order compelling defendants to fully and fairly inform Safety-
Kleen's shareholders concerning the Offer.
THE PARTIES
-----------
2. Plaintiff Epstein Family Trust owns shares of common stock of
defendant Safety-Kleen and has been the owner continuously of such shares since
prior to the wrongs complained of herein.
3. Defendant Safety-Kleen is a Wisconsin corporation with its
principal executive offices located at 1000 North Randall Road, Elgin, Illinois
60123-7857. Safety-Kleen provides environmental control services to auto-
service stations, manufacturers and other industries in the cleaning and
maintenance of small parts and equipment. The Company is also in the business
of the recovery of oil and other fluids, re-refining of lubricating oils and the
sale of paint refinishing products.
-2-
<PAGE>
Safety-Kleen conducts business in this County. As of September 6, 1997, there
were approximately 58,400,729 shares of Safety-Kleen common stock issued and
outstanding. The Company's shares trade on the New York Stock Exchange.
4. Defendants Edgar D. Jannotta, Donald W. Brinckman, Richard T.
Farmer, Russell A. Gwillim, Karl G. Otzen, Paul D. Schrage, Marcia E. Williams
and Gordon Wood are directors of the Company.
5. The above-named individual defendants (collectively, the "Director
Defendants"), as officers and/or directors of Safety-Kleen, owe fiduciary duties
of good faith, loyalty, fair dealing, due care, and candor to plaintiff and the
other members of the Class (as defined below).
CLASS ACTION ALLEGATIONS
------------------------
6. Plaintiff brings this lawsuit on behalf of itself and as a class
action, pursuant to Section 2-801 of the Rules governing the Courts of the State
of Illinois, on behalf of all other common shareholders of Safety-Kleen, or
their successors-in-interest, who are or will be harmed by defendants' actions
as described below (the "Class"). Excluded from the Class are the defendants
herein and any person, firm, trust, corporation or other entity related to or
affiliated with any of the defendants.
7. This action is properly maintainable as a class action for the
following reasons, among others:
(1) the Class of shareholders for whose benefit this action is
brought is so numerous that joinder of all Class members is impracticable. While
the exact number of Class
-3-
<PAGE>
members is unknown to plaintiff at this time and can only be ascertained through
appropriate discovery, there are more than 58 million shares of Safety-Kleen
common stock outstanding which are held by thousands of shareholders of record.
The holders of these shares are believed to be geographically dispersed
throughout the United States;
(2) there are questions of law and fact which are common to
members of the Class and which predominate over questions affecting only
individual Class members. The common questions include, inter alia, the
following:
1. whether defendants have engaged or are continuing to
engage in conduct constituting unfair dealing to the detriment of the Class;
2. whether defendants are engaging in a plan or scheme to
thwart and/or summarily reject offers that may maximize the value of
shareholders' investment in Safety-Kleen to the detriment of the Class;
3. whether defendants are engaging in a plan or scheme to
entrench themselves at the expense of public stockholders of Safety-Kleen and/or
unfairly to obtain for themselves the benefits and perquisites of the Company;
4. whether defendants have breached fiduciary and other
common law duties owed by them to the Class;
5. whether defendants have failed to take appropriate
measures to ensure the realization of the maximum value of the Safety-Kleen
stock held by the Class; and
-4-
<PAGE>
6. whether plaintiff and the other Class members would be
irreparably damaged if the defendants are not enjoined in the manner described
below;
(3) plaintiff's claims are typical of the claims of the other
members of the Class and plaintiff has no interest that is adverse or
antagonistic to the interests of the Class;
(4) plaintiff is committed to the vigorous prosecution of this
action and has retained counsel competent and experienced in litigation of this
nature. Plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class;
(5) the prosecution of separate actions by individual members of
the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for the party opposing the Class;
(6) defendants have acted and are about to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
relief or corresponding declaratory relief with respect to the Class as a whole;
and
(7) plaintiff anticipates that there will be no difficulty in the
management of this litigation. A class action is superior to other available
methods for the fair and efficient adjudication of this controversy.
SUBSTANTIVE ALLEGATIONS
-----------------------
8. Throughout the latter part of 1996 and through early 1997, Safety-
Kleen's earnings were stagnant and repeatedly
-5-
<PAGE>
failed to meet analyst expectations, due in large part to a slump in Safety-
Kleen's oil-recovery business, which was losing money despite substantial
investments in said business by the Company.
9. On or about April 11, 1997, Safety-Kleen issued a press release
announcing earnings for the Company's first fiscal quarter ended March 22, 1997.
Net earnings were reported at $11.8 million, or $0.20 per share, down from $13.1
million, or $0.23 per share, for the first quarter of the prior fiscal year. In
this press release, the Company also stated:
As expected and announced in a company press release issued March 11,
1997, the company's Oil Recovery Services (ORS) earnings decreased
reflecting the continued depressed pricing in the lube oil market.
ORS reported a revenue increase of 8% compared with one year ago;
however, it posted an after tax loss of approximately $730,000
compared to after tax earnings of $860,000 reported in the first
quarter of 1996.
10. On or about July 8, 1997, Safety-Kleen issued a press release
announcing its fiscal second quarter results. In that press release, Safety-
Kleen reported that its second quarter net income was $13.3 million, down 2%
from $13.6 million in the prior year comparable quarter. Net earnings for the
first two quarters of 1997 fell approximately 6% to $25.2 million, or $0.43 per
share, from $26.7 million, or $0.46 per share, in the first half of 1996. The
Company's President and Chief Executive Officer at the time, John Johnson, Jr.,
was quoted as saying that "The Company's margins have been impacted by the
start-up costs associated with our new businesses. We believe these services
will begin to contribute to the earnings momentum by year-end.
-6-
<PAGE>
Our results also continue to be negatively affected by the depressed lube oil
pricing...."
11. In a press release, dated August 8, 1997, Safety-Kleen announced
that its President and Chief Executive Officer, John Johnson, resigned effective
immediately. Commenting on Johnson's sudden resignation, Safety-Kleen spokesman
Paul Wyche said, "there were a number of factors involved. . . . The board took
a look at historical performance and looked at performance today and were quite
concerned about shareholder value." In the press release, Safety-Kleen also
announced that it was exploring "strategic options" and had retained William
Blair & Co. to explore those options. Such options included the sale of all or
part of the Company.
12. In connection with the Company's announcement of Johnson's
resignation, Maureen Fisk, a Safety-Kleen spokesperson, stated that Safety-
Kleen's board was not satisfied with the speed of recent efforts to boost
profits. She also stated that Safety-Kleen "had plans for new business and
goals we haven't met" and termed Johnson's resignation "a mutual decision."
13. These announcements were a strong indication that Safety-Kleen
now was poised for improved financial performance and that the Company was a
likely acquisition candidate. Immediately the market reacted favorably to the
improved financial results and to the possibility that a bidder for Safety-Kleen
would emerge.
-7-
<PAGE>
14. The day of the August 8th announcement, Safety-Kleen's shares
increased $1.75, or 9.8%, on approximately five times its average daily volume.
15. On August 11, 1997, an article in The Wall Street Journal quoted
a Safety-Kleen spokesman as saying that Mr. Johnson's departure was a "mutual
decision" and "new leadership . . . was necessary to accelerate growth plans."
16. On August 13, 1997, Standard & Poor's Credit Wire announced that
it had revised the outlook on Safety-Kleen to "developing" from "positive"
following Safety-Kleen's August 8, 1997 press release. The August 13, 1997
announcement stated that the:
[r]atings on Safety-Kleen reflect its leading positions in several
niches of the environmental services industry and prudent financial
management . . . Business prospects are enhanced by a growth strategy
focused on expanding existing operations, introducing related
services, and entering new markets through acquisitions that would
utilize the company's infrastructure. Indeed, performance has upward
potential, benefiting from broadening of the customer base, leveraging
the company's assets, and selective price increases. In addition,
funds flow coverage of debt of about 55% and debt to capital of low
40% are somewhat strong for the rating, providing an added measure of
flexibility for growth or rewarding shareholders.
17. During August and September, 1997, Safety-Kleen's stock price
consistently increased in response to the Company's improving financial
condition and the possibility of an offer being made for Safety-Kleen (up from
the $15-$17 range in June
-8-
<PAGE>
and July 1997). By September 25, 1997, Safety-Kleen stock closed at $23.8125
per share.
18. On September 29, 1997, in a press release carried by the PR
Newswire, Safety-Kleen announced results for its third quarter ended September
6, 1997. In the press release, Safety-Kleen reported that its revenue for the
quarter was $230 million, an increase of 8% compared with the similar period in
1996. It also reported that Safety-Kleen's net earnings rose to $15.1 million,
an increase of 8% over the $14 million reported in the third quarter of 1996.
On a per share basis, earnings were $0.26 compared with $0.24 in the prior year
comparable quarter, beating analyst estimates by $0.02 per share.
19. On October 31, 1997, Safety-Kleen announced that it has acquired
a majority stake in 3E Company, a company which provides businesses with 24 hour
fax-on-demand and electronic data for environmental, health and safety
information, regulatory reporting and inventory information; shipping
documentation; emergency response guidance; poison control information and
environmental services coordination. Commenting on the acquisition, defendant
Brinckman said, "By combining Safety-Kleen's collection and recycling resources
with 3E's electronic data network and outstanding people, we are providing one-
stop convenience and value-added solutions for the hundreds of thousands of
businesses we serve."
20. On September 30, 1997, the Bloomberg News Service reported that
Philip Services Corp. and Laidlaw were among the bidders for Safety-Kleen.
-9-
<PAGE>
21. As revealed in a letter, dated November 3, 1997, from Laidlaw to
Safety-Kleen, from the time of Safety-Kleen's August 8th announcement that
[Safety-Kleen] would explore strategic alternatives to enhance shareholder
value, "[Laidlaw has] sought unsuccessfully, directly through phone calls to
[Donald Brinckman, Safety-Kleen's Chairman and Chief Executive Officer] and
indirectly through [Safety-Kleen's] advisors, to meet with [Safety-Kleen] to
pursue the combination of [the two] companies." In that letter, James R.
Bullock, the Chairman of Laidlaw, stated to Safety-Kleen Chairman, defendant
Brinckman:
Six weeks ago, at the request of your financial advisor, we submitted
a preliminary merger proposal to which you have yet to respond.
Needless to say, we are frustrated by your continuing unwillingness to
engage in constructive dialogue.
As you are aware, your advisors have insisted that we sign an
agreement that would permit us to propose strategic alternatives that
maximize value for your shareholders only if you "shall have requested
in writing in advance of the submission of such proposal". We have
made clear on numerous occasions our willingness to sign a
confidentiality agreement that protects nonpublic information you
choose to share with us. In light of our experience to date, however,
we will not sign any agreement that does not ensure that your
shareholders have the opportunity to consider our offer and to
maximize the value of their stock.
In response to your continuing unwillingness to meet or commence
discussions with us in a meaningful way, our Board of Directors today
authorized and directed senior management of Laidlaw Environmental
Services, Inc. to pursue the acquisition of Safety-Kleen Corp. We have
executed commitment letters with the Toronto-Dominion Bank to provide
all the necessary financing for this acquisition. We have engaged Bear
Stearns & Co., Inc. and
-10-
<PAGE>
Raymond James and Associates Inc. to serve as our financial advisors
and Katten Muchin and Zavis to serve as our legal counsel.
Our offer for each share of Safety-Kleen Corp. is a combination of
$14.00 in cash and 2.4 common shares of Laidlaw Environmental
Services, Inc. stock. This represents approximately an 18.2% premium
to Safety-Kleen's closing price on Friday and a 46% premium to Safety-
Kleen's trading price prior to your August 8th announcement. Please
note that our offer is not subject to due diligence or a financing
contingency. We have fully committed financing sufficient to complete
the combination. We believe our offer represents a full and fair price
based on the publicly available information we have reviewed. However,
should you be willing to meet with us, we are prepared to consider any
additional information you may wish to provide that demonstrates that
a higher valuation is warranted. We continue to prefer a negotiated
transaction.
Together our companies can create greater shareholder value that can
either of us alone. We estimate annual cost savings and synergies will
exceed $100 million. We believe the stock market will embrace this
transaction and will reward the combined company with enhanced stock
performance. Our offer ensures your shareholders participate in this
exciting future.
We believe it is in the best interests of our companies to proceed
immediately to negotiate a definitive agreement, containing customary
public company terms and conditions, and to consummate a transaction
by year-end. Given the importance we place on this combination, we are
prepared to commit the resources necessary to see its timely
completion. We and our advisors would be pleased to meet you and your
advisors in Chicago either later today or tomorrow to complete the
necessary papers.
In recognition of the strategic nature and compelling financial
benefits of our proposed combination to your shareholders and our
willingness to consider modifications to our offer as warranted, we
expect you not to
-11-
<PAGE>
enter into any binding merger or similar agreement with any other
party without first exploring with us the full merits of combining our
two companies.
Our Board of Directors unanimously supports this merger. We trust you
and the other members of Safety-Kleen's Board of Directors will
consider the best interests of Safety-Kleen's shareholders and will
agree to meet with us promptly to achieve a mutually beneficial
transaction.
We look forward to hearing from you today.
22. This letter makes clear that Safety-Kleen's board has refused to
negotiate with Laidlaw, failed to maximize shareholder value, and has attempted
to place unwarranted and improper restrictions on the bidding process for
Safety-Kleen.
23. On November 3, 1997, Safety-Kleen common stock closed at $21.94
per share.
24. On November 4, 1997, Safety-Kleen issued a press release
confirming that it had received an offer to be acquired by Laidlaw for $14 in
cash plus 2.4 Laidlaw common shares for each share of Safety-Kleen. Laidlaw's
common stock closed at $5 per share on November 4, 1997 making its Offer for
Safety-Kleen worth approximately $26 per share, representing a significant
premium to Safety-Kleen's closing price before the Offer was announced and a 46%
premium to Safety-Kleen's trading price before the Company's August 8th
announcement that it was exploring strategic alternatives.
25. Safety-Kleen's response to the Offer represents the continuation
of an improper and unlawful course of conduct commenced by the management of
Safety-Kleen to favor their own
-12-
<PAGE>
interests over the interests of the public stockholders who own the larger
majority part of the shares of the Company. These acts of Safety-Kleen
management compel the conclusion that their primary interests is to protect
their positions and perquisites, and that the Director Defendants have in the
past and will continue to reject and oppose even bona fide and fair offers and
negotiations to acquire Safety-Kleen.
26. By failing to discuss acquisition proposals with legitimate
potential acquirers, such as Laidlaw, the Director Defendants have not acted in
the best interests of the Safety-Kleen stockholders.
27. It is the Director Defendants' fiduciary obligation to take any
steps necessary to maximize stockholder value, including, but not limited to,
cooperating with any person or entity, such as Laidlaw, having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company. As reflected
above, the Director Defendants have failed to do so.
28. In refusing to give fair consideration to Laidlaw's interest in
acquiring Safety-Kleen, defendants have violated their fiduciary duties owed to
the public stockholders of Safety-Kleen and, instead, have acted to put their
own personal interests ahead of the interests of the rest of Safety-Kleen's
public stockholders. They have used and are using their control positions as
officers and/or directors of Safety-Kleen for the purpose of entrenching
themselves in their offices, to the detriment of plaintiff and the other members
of the Class.
-13-
<PAGE>
29. The Offer presents plaintiff and the Class an outstanding
opportunity to maximize the value of their Safety-Kleen shares for the following
reasons, among others:
(1) Safety-Kleen has struggled with declining or stagnant
earnings and net income, as described above, as a result of which, in order to
mollify the investing public, the Company announced it would explore "strategic
options" and hire an investment advisor to consider such options, including the
sale of all or part of the Company, thus signaling that the Company was "in
play" as a potential acquisition target;
(2) the market showed great enthusiasm for the August 8, 1997
announcement signaling that the Company was "in play" as a potential acquisition
target, resulting in an increase in the price of Safety-Kleen's common shares of
9/8%; further, the Company's stock jumped $5 5/16 from $21 15/16 on November 3,
1997 to $26 5/8 on November 6, 1997 after the November 3 announcement of
Laidlaw's Offer to acquire Safety-Kleen;
(3) the Offer presents a possible opportunity to maximize
shareholder value even in excess of the approximately $1.8 billion offered
through negotiation of the Offer and putting Safety-Kleen up for auction; and
(4) the Offer consisting of $14.00 in cash and 2.4 common shares
of Laidlaw stock represents a premium of 18.2% to Safety-Kleen's closing price
on Friday, October 31, 1997, before Laidlaw's Monday, November 3, 1997 letter to
Safety-Kleen, and a 46% premium to Safety-Kleen's August 8, 1997 announcement of
its intent to explore "strategic options".
-14-
<PAGE>
CAUSE OF ACTION AGAINST ALL DEFENDANTS
--------------------------------------
30. In light of the foregoing, the Director Defendants must, as their
fiduciary obligations require:
(1) Undertake an appropriate evaluation of Safety-Kleen's worth
as an acquisition candidate;
(2) Act independently so that the interests of Safety-Kleen's
minority shareholders will be protected;
(3) Take all appropriate steps to enhance Safety-Kleen's value
and attractiveness as a merger/acquisition candidate;
(4) Take all appropriate steps to effectively expose Safety-Kleen
to the marketplace in an effort to create an active auction for Safety-Kleen,
including, but not limited to, engaging in serious negotiations with Laidlaw or
its representatives; and
(5) Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize shareholder
value or, if such conflicts exist, to ensure that all conflicts be resolved in
the best interests of Safety-Kleen's minority shareholders.
31. As a result of defendants' failure to take such steps to date,
plaintiffs and other members of the Class have been or will be damaged in that
they have not and will not receive their proportionate share of the value of the
Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
-15-
<PAGE>
32. The Director Defendants have breached their fiduciary duties to
plaintiff and the Class by refusing to negotiate with Laidlaw to date without
fully evaluating or becoming fully informed with regard to the Offer and without
taking any steps to maximize shareholder value for plaintiff and the members of
the Class.
33. By virtue of the acts and conduct herein, the Director Defendants
are not acting in good faith and have breached their fiduciary and other common
law duties which they owe to plaintiff and the other members of the Class, have
engaged in unfair dealing for their own benefit and the detriment of the Class,
and have pursued a course of conduct designed to entrench themselves in their
positions of control within the Company.
34. The Director Defendants have violated their fiduciary duties owned
to plaintiff and the other members of the Class in that they have not and are
not exercising independent business judgment and have acted and are acting to
the detriment of the Class in order to benefit themselves and solidify their
positions of control and enjoyment of the perquisites of office.
35. As a result of the foregoing, defendants' summary rejection of the
Offer is a breach of the defendants' fiduciary duties and should be enjoined.
36. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the members of the Class, all to
the irreparable harm of the members of the Class.
WHEREFORE, plaintiff demands judgment as follows:
-16-
<PAGE>
(a) declaring this action to be a proper class action and certifying
plaintiff as the representative of the Class;
(b) declaring defendants' refusal to negotiate with Laidlaw or any
other potential acquiror to be a breach of defendants' fiduciary duties of
loyalty, due care, good faith, fair dealing, and candor to plaintiff and the
Class;
(c) ordering the Director Defendants to carry out their fiduciary
duties to plaintiff and the other members of the Class by:
(i) requiring defendants to consider the Offer in good faith, to
take all possible measures maximizing the value of Safety-Kleen stock by, for
example, engaging in a course of due diligence and negotiating with Laidlaw, or
otherwise maximizing the value of the Company to plaintiff and the Class;
(ii) requiring defendants to make full and fair disclosure of the
Offer, the negotiations between Safety-Kleen and Laidlaw, and all other matters
concerning a possible acquisition or merger of Safety-Kleen which a reasonable
investor would consider important;
(iii) requiring defendants to cooperate fully with any person or
entity having a bona fide interest in proposing any transaction which would
maximize stockholder value, including, but not limited to, a buyout or takeover
of the Company; and
(iv) requiring defendants to undertake an appropriate evaluation
of Safety-Kleen's worth as a merger/acquisition candidate;
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<PAGE>
(d) ordering defendants, jointly and severally, to pay to plaintiff
and other members of the Class all damages suffered and to be suffered by them
as a result of the acts and transactions alleged herein;
(e) entering an order requiring defendants to take the steps set forth
hereinabove;
(f) awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys and experts' fees;
and
(g) granting such other and further relief as the Court may deem just
and equitable.
Dated: November 10, 1997
SCHIFFRIN & CRAIG, LTD.
By:
-------------------------------------
Michael D. Craig
SCHIFFRIN & CRAIG, LTD.
750 West Lake-Cook Road
Suite 190
Buffalo Grove, Illinois 60089
(847) 419-7700
Attorneys for Plaintiff
OF COUNSEL:
WOLF POPPER, LLP
845 Third Avenue
New York, New York 10022
(212) 759-4600
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<PAGE>
EXHIBIT 21
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
DAVID STEINBERG and )
CHAILE STEINBERG, )
)
Plaintiffs, )
)
vs. ) No.
)
SAFETY KLEEN CORP., PAUL SCHRAGE, )
DONALD BRINCKMAN, RICHARD T. )
FARMER, MARCIA WILLIAMS, GORDON )
WOOD, RUSSELL GWILLIM, EDGAR )
JANNOTTA and KARL OTZEN, )
)
Defendants. )
CLASS ACTION COMPLAINT
Plaintiffs, by their attorneys, alleges upon information and belief,
except as to paragraph 1 which plaintiffs allege upon knowledge, as follows:
1. Plaintiffs are and have been for more than five years shareholders of
defendant Safety Kleen Corp. ("Safety Kleen" or the "Company").
2. Safety Kleen is a corporation duly organized and existing under the laws
of the state of Wisconsin, with its principal offices located at 1000 North
Randall Road, Elgin, Illinois. Safety Kleen cleans and maintains equipment and
parts for auto service stations and other industries, supplies materials and
services to the automotive paint and body repair market, and reclaims waste
solvents for large industrial users and dry cleaners. Safety Kleen conducts
business in this County. As of September 6, 1997, the Company had more than 58
million shares of common stock outstanding which trade on the New York Stock
Exchange.
<PAGE>
3. Paul Schrage, Donald Brinckman, Richard T. Farmer, Marcia Williams,
Gordon Wood, Russell Gwillim, Edgar Jannotta and Karl Otzen are directors of the
Company and are referred to herein as the "Individual Defendants."
4. As officers and/or directors of Safety Kleen, the Individual Defendants
have a fiduciary relationship and responsibility to plaintiff and the other
minority shareholders of Safety Kleen and owe to plaintiff and the other class
members the highest obligations of good faith, loyalty, fair dealing, due care
and candor.
CLASS ACTION ALLEGATIONS
------------------------
5. Plaintiffs bring this action on their own behalf and as a class action
pursuant to Illinois Code of Civil Procedure, Section 2-801, et seq. on behalf
of all common shareholders of Safety Kleen, or their successors in interest, who
are being and will be harmed by defendants' actions described below (the
"Class"). Excluded from the Class are the defendants and their affiliates.
6. This action is properly maintainable as a class action because:
a. The Class is so numerous and geographically dispersed so that
joinder of all members is impracticable. The identify of each member of the
Class is not currently known to plaintiffs but is within the knowledge of Safety
Kleen or its transfer agent and is, therefore, readily ascertainable;
b. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual Class members,
including: whether defendants have engaged or are continuing to act in a manner
calculated to harm Safety
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<PAGE>
Kleen's minority shareholder; and whether plaintiffs and the other Class members
would be irreparably damaged if the defendants are not enjoined in the manner
described below;
c. Plaintiffs are committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. Plaintiffs'
claims are not antagonistic to the claims of the other members of the Class.
Accordingly, plaintiffs are adequate representatives of the Class and will
fairly and adequately protects the interests of the Class; and
d. Plaintiffs do not anticipate difficulty in the management of this
litigation.
7. A class action is an appropriate method for the fair and efficient
adjudication of this controversy.
CLAIM FOR RELIEF
----------------
8. In late 1996 and early 1997, Safety Kleen's earnings were stagnant and
repeatedly failed to meet analysts' expectations.
9. On July 10, 1997 Safety Kleen issued a press release announcing its
fiscal second quarter results. In that press release, Safety Kleen reported that
its second quarter net income was $13.3 million, down 2% from $13.6 million, in
the year-earlier period. For the first six weeks of fiscal 1997 Safety Kleen
said earnings fell approximately 6%, to $25.2 million, or 43 cents per share,
from $26.7 million, or 46 cents per share, in the first half of 1996.
10. In a press release, dated August 8, 1997, Safety Kleen announced that
its President and Chief Executive Officer, John Johnson, resigned effective
immediately.
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<PAGE>
Commenting on Johnson's sudden resignation, Safety Kleen spokesman Paul Wyche
said "there were a number of factors involved . . . . The board took a look at
historical performance and looked at performance today and were quite concerned
about shareholder value. In the press release, Safety Kleen also announced
that it was exploring "strategic options" and had retained William Blair & Co.
to explore those options.
11. Maureen Fisk, a Safety Kleen spokesperson, said that Safety Kleen's
board was not satisfied with the speed of recent efforts to boost profits. She
also said that Safety Kleen "had plans for new business and goals we haven't
met" and called Johnson's resignation "a mutual decision."
12. These announcements were a strong indication that Safety Kleen now was
poised for improved financial performance and made it a likely acquisition
candidate. Immediately the market reacted favorably to the improved financial
results and to the possibility that a bidder for Safety Kleen would emerge.
13. The day of the announcement, Safety Kleen's shares increased $1.75, or
9.8%, on approximately five times its average daily volume.
14. On August 11, 1997, an article in The Wall Street Journal quoted a
Safety Kleen spokesman as saying that Mr. Johnson's departure was a "mutual
decision" and "new leadership . . . was necessary to accelerate growth plans."
15. On August 13, 1997, Standard & Poor's Credit Wire announced that it had
revised the outlook on Safety Kleen to "developing" from "positive" following
Safety Kleen's August 8, 1997 press release. The August 13, 1997 announcement
stated that the:
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<PAGE>
ratings on Safety Kleen reflect its leading positions in several niches of
the environmental services industry and prudent financial management . . .
Business prospects are enhanced by a growth strategy focused on expanding
existing operations, introducing related services, and entering new markets
through acquisition that would utilize the company's infrastructure.
Indeed, performance has upward potential, benefiting from broadening of the
customer base, leveraging the company's assets, and selective price
increases. In addition, funds flow coverage of debt of about 55% and debt
to capital of low 40% are somewhat strong for the rating, providing an
added measure of flexibility for growth or rewarding shareholders.
16. During August and September, 1997, Safety Kleen's stock price
consistently increased in response to the Company's improving financial
condition and the possibility of an offer being made for Safety Kleen. By
September 25, 1997, Safety Kleen stock closed at $23.8125 per share.
17. On September 29, 1997, in a press release carried by the PR Newswire,
Safety Kleen announced results for its third quarter ended September 6, 1997. In
the press release, Safety Kleen reported that its revenue for the quarter was
$230 million, an increase of 8% compared with the similar period in 1996. It
also reported that Safety Kleen's net earnings rose to $15.1 million, an
increase of 8% over the $14 million reported in the third quarter of 1996. On a
per share basis, earnings were $0.26 compared with $0.24 in the same quarter one
year ago.
18. On October 31, 1997, Safety Kleen announced that it had acquired a
majority stake in 3E Company. Commenting on the acquisition, defendant Brinckman
said, "By combining Safety-Kleen's collection and recycling resources with 3E's
electronic data network and outstanding people, we are providing one-stop
convenience and value-added solutions for the hundreds of thousands of
businesses we serve."
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<PAGE>
19. On November 1, 1397, the Dow Jones News Service reported that Philip
Services and Laidlaw Environmental Services were among the bidders for Safety
Kleen.
20. As made clear in a letter, dated November 3, 1997 from Laidlaw
Environmental Services, Inc. ("Laidlaw") to Safety Kleen, since Safety Kleen's
"August 8th announcement that [Safety Kleen] would explore strategic
alternatives to enhance shareholder value, [Laidlaw has] sought unsuccessfully,
directly through phone calls to [Donald Brinckman, Safety Kleen's Chairman and
Chief Executive officer] and indirectly through [Safety Kleen's] advisors, to
meet with [Safety Kleen] to pursue the combination of [the two] companies." In
that letter, James Bullock, the Chairman of Laidlaw, said:
Six weeks ago, at the request of your financial advisor, we submitted a
preliminary merger proposal to which you have yet to respond. Needless to
say, we are frustrated by your continuing unwillingness to engage in
constructive dialogue.
As you are aware, your advisors have insisted that we sign an agreement
that would permit us to propose strategic alternatives that maximize value
for your shareholders only if you "shall have requested in writing in
advance the submission of such proposal". We have made clear on numerous
occasions our willingness to sign a confidentiality agreement that protects
nonpublic information you choose to share with us. In light of our
experience to date, however, we will not sign any agreement that does not
ensure that your shareholders have the opportunity to consider our offer
and to maximize the value of their stock.
In response to your continuing unwillingness to meet or commence
discussions with us in a meaningful way, our board of Directors today
authorized and directed senior management of Laidlaw Environmental
Services, Inc. to pursue the acquisition of Safety-Kleen Corp. We have
executed commitment letters with the Toronto-Dominion Bank to provide all
the necessary financing for this acquisition. We have engaged Bear Stearns
& Co. Inc. and Raymond James and Associates Inc. to serve as our financial
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<PAGE>
advisors and Katten Muchin and Zavis to serve as our legal counsel.
Our offer for each share of Safety-Kleen Corp. is a combination of $14.00
in cash and 2.4 common shares of Laidlaw Environmental Services, Inc.
stock. This represents approximately an 18.2% premium to Safety Kleen's
closing price on Friday and a 46% premium to Safety-Kleen's trading price
prior to your August 8th announcement. Please note that our offer is not
subject to due diligence or a financing contingency. We have fully
committed financing sufficient to complete the combination. We believe our
offer represents a full and fair price based on the publicly available
information we have reviewed. However, should you be willing to meet with
us, we are prepared to consider any additional information you may wish to
provide that demonstrates that a higher valuation is warranted. We continue
to prefer a negotiated transaction.
Together our companies can create greater shareholder value than can either
of us alone. We estimate annual cost savings and synergies will exceed $100
million. We believe the stock market will embrace this transaction and will
reward the combined company with enhanced stock performance. Our offer
ensures your shareholders participate in this exciting future.
We believe it is in the best interests of our companies to proceed
immediately to negotiate a definitive agreement, containing customary
public company terms and conditions, and to consummate a transaction by
year-end. Given the importance we place on this combination, we are
prepared to commit the resources necessary to see its timely completion. We
and our advisors would be pleased to meet you and your advisors in Chicago
either later today or tomorrow to complete the necessary papers.
In recognition of the strategic nature and compelling financial benefits of
our proposed combination to your shareholders and our willingness to
consider modifications to our offer as warranted, we expect you not to
enter into any binding merger or similar agreement with any other party
without first exploring with us the full merits of combining our two
companies.
Our Board of Directors unanimously supports this merger. We trust you and
the other members of Safety-Kleen's shareholders
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<PAGE>
and will agree to meet with us promptly to achieve a mutually beneficial
transaction. We look forward to hearing from you later today.
21. This letter reveals that Safety Kleen's board has refused to
negotiate with Laidlaw, failed to maximize shareholder value, and has attempted
to place unwarranted and improper restrictions on the bidding process for Safety
Kleen.
22. On November 3, 1997, Safety Kleen common stock closed at $21.94 per
share.
23. On November 4, 1997, Safety Kleen issued a press release confirming
that it had received an offer to be acquired by Laidlaw for $14 in cash and 2.4
Laidlaw common shares for each share of Safety Kleen. Laidlaw's common stock
closed at $5 per share on November 4, 1997, making its offer for Safety Kleen
worth approximately $26 per share, representing a significant premium to Safety
Kleen's closing price before the offer was announced and a 46% premium to Safety
Kleen's trading price before the Company's August 8th announcement that it was
exploring strategic alternatives.
24. Safety Kleen's response to the offer represents the continuation of an
improper and unlawful course of conduct commenced by the management of Safety
Kleen to favor their own interests over the interests of the public stockholders
who own the large majority part of the shares of the Company. These acts of
Safety Kleen management compel the conclusion that their primary interest is to
protect their positions and perquisites, and that the Director Defendants have
in the past and will continue to reject and oppose even bona fide and fair
offers and negotiations to acquire Safety Kleen.
-8-
<PAGE>
25. By failing to discuss acquisition proposals with legitimate
potential acquirers, such as Laidlaw, the Defendants Directors have not acted in
the best interests of Safety Kleen stockholders.
26. It is the Defendant Directors' fiduciary obligation to take any
steps necessary to maximize stockholder value, including, but not limited to
cooperating with any person or entity, such as Laidlaw, having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company.
27. In refusing to give fair consideration to Laidlaw's interest in
acquiring Safety Kleen, defendants have violated their fiduciary duties owed to
the public stockholders of Safety Kleen and instead, have acted to put their own
personal interests ahead of the interests of the rest of Safety Kleen's public
stockholders. They have used and are using their control positions as officers
and directors of Safety Kleen for the purpose of entrenching themselves in their
offices, to the detriment of plaintiffs and the other members of the Class.
28. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
a. Undertake an appropriate evaluation of Safety Kleen's worth as an
acquisition candidate;
b. Act independently so that the interests of Safety Kleen's minority
shareholders will be protected;
c. Take all appropriate steps to enhance Safety Kleen's value and
attractiveness as a merger/acquisition candidate;
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<PAGE>
d. Take all appropriate steps to effectively expose Safety Kleen to
the marketplace in an effort to create an active auction for Safety Kleen,
including but not limited to engaging in serious negotiations with Laidlaw or
its representatives; and
e. Adequately ensure that no conflicts of interest exist
between defendants' own interests and their fiduciary obligation to maximize
shareholder value or, if such conflicts exist, to ensure that all conflicts be
resolved in the best interests of Safety Kleen's minority shareholders.
29. As a result of defendants' failure to take such steps to date,
plaintiffs and the Class have been and will be damaged in that they have not and
will not receive their proportionate share of the value of the Company's assets
and business, and have been and will be prevented from obtaining a fair price
for their common stock.
30. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owed to plaintiffs and the members of the Class, all to
the irreparable harm of the members of the Class.
31. Plaintiffs and the Class have no adequate remedy at law.
WHEREFORE, plaintiffs pray for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiffs as the Class representatives;
B. Ordering defendants to carry out their fiduciary and other duties
to plaintiffs and the Class including but not limited to announcing their
intention to:
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<PAGE>
(1) cooperate fully with any person or entity having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company; and
(2) undertake an appropriate evaluation of Safety Kleen's worth
as a merger/acquisition candidate.
C. Entering an order requiring defendants to take the steps set
forth hereinabove;
D. Awarding costs and disbursements, including plaintiffs' counsel's
fees and experts' fees; and
E. Granting such other and further relief as to the Court may seem
just and proper.
Dated: December 5, 1997
DAVID STEINBERG and CHAILE STEINBERG
By: __________________________________
MARVIN A. MILLER
MILLER FAUCHER CHERTOW
CAFFERTY and CHERTOW
30 N. LaSalle St.
Suite 3200
Chicago, IL 60602
(312) 782-4880
Michael D. Craig
SCHIFFRIN & CRAIG, LTD.
750 W. Lake-Cook Road
Suite 190
Buffalo Grove, Illinois 60089
(847) 419-7700
Counsel for Plaintiff
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<PAGE>
OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
Mark C. Gardy
Stephen J. Fearon, Jr.
212 East 39th Street
New York, New York 10016
(212) 889-3700
LAW OFFICES OF CURTIS V. TRINKO
Curtis V. Trinko
310 Madison Avenue, 14th Floor
New York, New York 10017
(212) 490-9550
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