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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 10
TO
SCHEDULE 14D-9
(AS AMENDED AND RESTATED AT JANUARY 6, 1998)
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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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INTRODUCTION
Safety-Kleen Corp. ("Safety-Kleen") hereby amends and supplements its
Solicitation/Recommendation Statement on Schedule 14D-9, as amended and
restated at January 6, 1998 and amended on January 9, 1998, January 12, 1998,
January 14, 1998, January 16, 1998, January 20, 1998, January 21, 1998,
January 26, 1998, January 27, 1998 and February 4, 1998 (as amended, the
"Schedule 14D-9"), with respect to the exchange offer made by LES Acquisition,
Inc. (the "Offeror"), a wholly-owned subsidiary of Laidlaw Environmental
Services, Inc. ("LLE"), for all of the outstanding Shares. Capitalized terms
not defined herein have the meanings assigned thereto in the Schedule 14D-9.
ITEM 2. TENDER OFFER OF THE BIDDER
Item 2 of the Schedule 14D-9 is hereby amended and restated to read as
follows:
On January 28, 1998, LLE filed an amended prospectus (the "Amended
Prospectus") with the Commission that amends and restates its exchange offer
to acquire all of the outstanding Shares. Under the terms and conditions
described in the Amended Prospectus, LLE and the Offeror offer to exchange
$18.00 net cash and that number of shares of LLE Common Stock equal to the
Amended Exchange Ratio (as defined below) (the cash and stock consideration is
sometimes collectively referred to herein as the "Amended LLE Offer
Consideration"), for each outstanding Share (the "Amended LLE Offer"). This
Statement relates to the Amended LLE Offer.
According to the Amended Prospectus, the "Amended Exchange Ratio" means the
quotient (rounded to the nearest 1/100,000) determined by dividing $12.00 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 Amended LLE Offer, provided,
that the Amended Exchange Ratio shall not be less than 2.24 nor greater than
2.80.
According to the Amended Prospectus: (i) the purpose of the Amended 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 Amended 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
Amended 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, although the matter is not free from doubt), 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 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
Amended LLE Offer Consideration would satisfy those fair price standards. See
"Item 8. Additional Information To Be Furnished--(c) State Takeover Statutes"
in the Schedule 14D-9 (as amended and restated at January 6, 1998).
According to the Amended Prospectus, the address of the principal executive
offices of the Offeror and LLE is 1301 Gervais Street, Suite 300, Columbia,
South Carolina 29201.
A special meeting of shareholders of Safety-Kleen (the "Special Meeting") is
scheduled for February 11, 1998 to vote on approval of 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. SK Parent is a newly-formed company owned
equally by Philip Services Corp.
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("Philip"), affiliates of Apollo Management, L.P. ("Apollo") and affiliates of
Blackstone Management Partners III L.L.C. ("Blackstone"). Pursuant to the
Philip Merger Agreement, SK Acquisition will merge with and into Safety-Kleen
and each holder of a Share will receive $27.00 cash for that Share.
On February 11, the Special Meeting will be adjourned to February 25, 1998
to provide shareholders with additional time to consider the information set
forth in this amended Schedule 14D-9 and in the supplement to the proxy
statement relating to that meeting, which were mailed to Safety-Kleen
shareholders on or about February 9, 1998. The Special Meeting will be
reconvened on Wednesday, February 25, 1998, at 3:00 p.m., central time, at the
Elgin Community College Business Conference Center, 1700 Spartan Drive, Elgin,
Illinois 60123.
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 4. THE SOLICITATION OR RECOMMENDATION
Item 4(a) of the Schedule 14D-9 is hereby amended and restated as follows:
(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 UNANIMOUSLY RECOMMENDS THAT ALL
SHAREHOLDERS OF SAFETY-KLEEN REJECT THE AMENDED LLE OFFER AND NOT TENDER THEIR
SHARES PURSUANT TO THE AMENDED LLE OFFER.
At a Board meeting held on January 31, 1998, the Board of Directors of
Safety-Kleen determined that given the uncertainties and risks affecting the
value of the LLE Common Stock and the other factors discussed under "-(b)(2)
Reasons For The Recommendation" below relating to the January 31st meeting, it
could not conclude the consideration payable in the Amended LLE Offer is
financially superior to the consideration payable in the Philip Merger or that
LLE is reasonably likely to make an offer that is financially superior to the
consideration payable in the Philip Merger. For this reason, and in light of
the Board's concerns with respect to the adverse effects which the Amended LLE
Offer would have on the interests of employees at Safety-Kleen's Elgin
facility and the Elgin community, and on other employees necessarily involved
in any attempts by LLE to achieve $100-$130 million in synergies, the Board
concluded that the Amended LLE Offer does not constitute a Superior Proposal
(as defined in the Philip Merger Agreement). In light of this decision, and in
accordance with the terms of the Philip Merger Agreement, the Board has
determined not to furnish information to, or participate in discussions or
negotiations with, LLE. At the same meeting, the Board unanimously reaffirmed
its determination that the terms of the Philip Merger Agreement are in the
best interests of Safety-Kleen and its shareholders.
On February 1, 1998, the Executive Committee of the Board of Directors of
Safety-Kleen met to consider additional information received from Philip
earlier that day bearing on the Board's belief at its January 31 meeting that
SK Parent would be able to fund the Philip Merger. The information received on
February 1 caused the Executive Committee to have concerns as to whether
Philip would be able to fund its equity commitment to SK Parent. The Executive
Committee determined that the actions of the Board at the January 31, 1998
meeting should not be given effect until the Board could reconvene to
determine the impact, if any, of this information on its actions. At a meeting
of the Board of Directors on February 3, 1998, the Board ratified the actions
of the Executive Committee and determined to defer its determination of its
recommendation with respect to the Amended LLE Offer pending further advice
from Philip.
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At a meeting on February 7, 1998, the Board reviewed the following letter
(the "Philip Letter") received from Philip:
[Philip Services Corp. letterhead]
February 7, 1998
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123
Gentlemen:
We have been asked to address the issue of our desire to
proceed with the SK Parent/Safety-Kleen merger and the status
of the funding of our portion of the equity for SK Parent.
Philip remains eager to proceed with and to consummate the
merger. The benefits and prospects for the transaction which
we originally outlined to your management have not been
altered. From the time the merger agreement was executed, SK
Parent has satisfied its obligations under the merger
agreement in an effort to further the transaction. Among other
things, we achieved the Hart-Scott-Rodino clearance, we
intervened in the Federal Court litigation, we retained and
have actively utilized a premiere proxy soliciting firm, and
we have been working closely with your attorneys. We are also
in the process of finalizing the documentation with Apollo and
Blackstone and with respect to the SK Parent credit agreement
for the debt financing necessary to consummate the merger.
With respect to the funding of our portion of the SK Parent
equity, as we told your attorneys, we are having discussions
with our banks regarding such funding. We have had extensive
discussions with our lead bankers, as well as discussions with
certain of the other syndicate members during the past two
weeks. These discussions are ongoing and we are making good
progress. We understand that you plan to have the shareholder
meeting to vote on the merger on February 25, 1998. Although
bank approvals must be obtained and formal agreements must be
prepared, on the basis of the discussions we have had, we are
confident that the commitment for funding our portion of the
SK Parent equity will be in place in advance of the
shareholder meeting and that our funding will be in place when
required.
We remain committed to the Safety-Kleen merger and are
acting diligently to consummate the merger and satisfy the
conditions to the merger. We continue to believe that the
merger is in the best interests of your shareholders,
employees and other constituencies. We appreciate your
continued support.
Sincerely,
Philip Services Corp.
/s/ Allen Fracassi
Allen Fracassi
President and Chief Executive Officer
The Board also reviewed the factors discussed under "-(b)(2) Reasons for the
Recommendation" below which it had considered at its January 31 meeting in
reaching its conclusions. The Board once more concluded that the Philip Merger
is in the best interests of Safety-Kleen and its shareholders and directed
that that position and the actions taken at the January 31 meeting should now
be given effect. Accordingly, the Board unanimously recommends that all
shareholders of Safety-Kleen reject the Amended LLE Offer and not tender their
Shares pursuant to the Amended LLE Offer.
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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 31 and 32, respectively, to this Schedule 14D-9 and are incorporated
herein by reference.
The Amended 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 Amended 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
Amended LLE Offer and the proposed subsequent merger of the Offeror into
Safety-Kleen. In light of its decision discussed above, the Board determined
at its January 31 meeting (and confirmed at its February 7 meeting) not to
take any action to redeem the Rights or amend the Rights Agreement in response
to the Amended LLE Offer.
The Amended 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 Amended Prospectus, or that the Wisconsin Statutes will
not prohibit for any period 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 determined at its January 31
meeting (and confirmed at its February 7 meeting) not to take any action that
would render Section 180.1141 of the Wisconsin Statutes so inapplicable.
Item 4(b) of the Schedule 14D-9 is hereby amended and supplemented by adding
the following:
(b)(1) Background.
On January 8, 1998, Safety-Kleen mailed its definitive proxy statement with
respect to its solicitation of proxies to approve the Philip Merger Agreement
at the Special Meeting scheduled for 3:00 p.m. (CST) on February 11, 1998.
On January 9, 1998, at a special meeting of Safety-Kleen shareholders,
shareholders approved a proposal under a provision of Wisconsin law to permit
LLE to vote with one vote per share all Shares held or acquired by LLE or its
subsidiaries.
On January 26, 1998, LLE issued a press release announcing the Amended LLE
Offer.
On January 27, 1998, Safety-Kleen issued a press release, previously filed
herewith as Exhibit 29 and incorporated herein by reference, advising Safety-
Kleen shareholders to defer taking any action with respect to the Amended LLE
Offer until the Board of Directors of Safety-Kleen has announced its position,
which position is reflected in this Amendment No. 9 to the Schedule 14D-9.
Safety-Kleen also announced that the Antitrust Division of the Department of
Justice has granted early termination of the waiting period associated with a
Hart-Scott-Rodino review concerning the Philip Merger. On January 28, 1998,
LLE announced that such early termination also has been granted with respect
to the Amended LLE Offer.
On February 4, 1998, the Federal District Court for the Northern District of
Illinois issued a ruling affirming the decision of the Board of Directors of
Safety-Kleen to leave the Rights Agreement in place with respect of the LLE
Offer. The Court's decision does not address Safety-Kleen's ability to leave
the Rights Agreement in place with respect to the Amended LLE Offer.
On February 5, 1998, the Court denied LLE's motion to find that the Board of
Directors of Safety-Kleen had violated the federal securities laws by not
responding to the Amended LLE Offer prior to February 5, 1998.
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On January 31, February 3 and February 7, 1998, the Board of Directors of
Safety-Kleen met to consider the Amended LLE Offer and took the actions
referred to above under Section (a) of this Item 4.
(2) Reasons For The Recommendation.
In the course of reaching its determination with respect to the Amended LLE
Offer referred to in Item 4(a), the Board, at its meeting on January 31, 1998,
considered numerous factors, including, but not limited to:
(i) the further review by Safety-Kleen's legal counsel of the provisions
of the Philip Merger Agreement (which had previously been reviewed by the
Board) 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 Amended LLE Offer and the written
opinion of William Blair to the effect that, as of January 31, 1998, it
is more likely than not that, as of the time of anticipated closing of
the Amended LLE Offer, the value of the consideration which would be
received under the Amended LLE Offer would exceed the value of the
consideration which would be received in the Philip Merger (such
opinion having been expressed after review of other factors referred to
herein and various financial criteria used in assessing the Amended 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). The William Blair opinion was received to assist the
Board in (i) determining Safety-Kleen's rights and duties under the
Philip Merger Agreement with respect to the Amended LLE Offer and (ii)
exercising its fiduciary duties with respect thereto. See "--(3)
Opinions of Financial Advisor--January 31, 1998 Opinion" below;
(b) the advice of Gregg A. Jarrell, Professor of Economics and
Finance at The William E. Simon Graduate School of Business
Administration at the University of Rochester ("Professor Jarrell"),
that, in his opinion, as of the anticipated closing of the Amended LLE
Offer, the Amended LLE Offer would not have an economic value superior
to the $27 per Share cash payable in the Philip Merger (such advice
having been given based on an analysis of the Amended LLE Offer leading
to the conclusion that the economic value of the $12 per Share stated
nominal value of the stock portion of the consideration payable in the
Amended LLE Offer should be substantially discounted for two
significant risk factors: the volatility of the LLE Common Stock and
the risk of inadequate synergistic gains. Both risk factors result in
the potential for adverse price movements in the LLE Common Stock that
would cause the actual value of the stock portion of the consideration
included in the Amended LLE Offer to decline by the time of
consummation of the Amended LLE Offer). The advice of Professor Jarrell
was received to assist the Board in (i) determining Safety-Kleen's
rights and duties under the Philip Merger Agreement with respect to the
Amended LLE Offer and (ii) exercising its fiduciary duties with respect
thereto. See "--(4) Advice of Economics Expert" below; and
(c) the advice of Safety-Kleen's legal counsel that, in light of the
Board's determination that it could not conclude that the consideration
payable in the Amended LLE Offer is financially superior to the
consideration payable in the Philip Merger and the Board's concerns
with respect to the adverse effects which the Amended LLE Offer would
have on the interests of employees at Safety-Kleen's Elgin facility and
the Elgin community, and on other employees necessarily involved in any
attempts by LLE to achieve $100-130 million in synergies, the Board
would be within the business judgment rule and would not breach its
fiduciary duty if it determined that the Amended LLE Offer does not
constitute a Superior Proposal (as defined in the Philip Merger
Agreement) and therefore determined not to furnish information to, or
participate in discussions or negotiations with, LLE;
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(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 stock portion of the Amended LLE
Offer could be materially and adversely affected by, among other things:
(a) the pricing collar on the Amended 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
Amended Exchange Ratio is less than $4.29 per share (particularly given the
fact that the LLE Common Stock has traded below $4.29 on all but one of the
trading days from January 8 to January 30, 1998, traded as low as $3.00 as
recently as August 8, 1997 and as low as $3.63 as recently as January 9,
1998, and closed at $3.94 on January 30, 1998); 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 Amended Exchange Ratio;
(iv) the uncertain value of the LLE Common Stock, including uncertainties
resulting from:
(a) the risks related to present market conditions. In that
connection, the Board noted the greater desirability of an all cash
transaction;
(b) the views of Safety-Kleen's management that LLE would not be able
to achieve more than $26.4 million to $28.4 million of the $100 million
to $130 million of synergies it outlined in the Amended LLE Offer
without significant reduction in service quality, revenue and profit,
and the fact that, based on William Blair's presentation to the Board,
the proposed business combination would have a significant dilutive
impact to LLE's earnings per share even if synergies of as much as
$50 million were achieved (see "--(3) Opinions of Financial Advisor--
January 31, 1998 Opinion--1. Possible revision in financial analysts'
estimates for accretion in LLE's fiscal 1998 EPS resulting from a
combination of Safety-Kleen and LLE");
(c) 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 (including possible
diversion of management's attention from the day-to-day business of the
combined companies and potential unanticipated costs or other
unanticipated adverse effects associated with the foregoing);
(d) 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 Amended LLE Offer (see "--(3) Opinions of Financial
Advisor--January 31, 1998 Opinion--2. Possible price/earnings multiple
contraction in the LLE Common Stock prior to closing");
(e) the fact that the Amended LLE Offer would result in an entity
that has debt of approximately $2.3 billion compared with LLE's current
debt of approximately $845 million, which would make LLE particularly
susceptible to adverse changes in its industry, the economy and the
financial markets generally. In that connection, the Board took into
account the fact that the Amended Prospectus acknowledges that,
"[a]fter consummation of its transaction, Laidlaw Environmental will be
highly leveraged with substantial debt service obligations, including
principal and interest obligations with respect to bank debt of as much
as $1.8 billion. Therefore, Laidlaw Environmental will be particularly
susceptible to adverse changes in its industry, the economy and the
financial markets generally. In addition, Laidlaw Environmental's
ability to obtain additional debt financing will be limited by
restrictive covenants under the terms of its credit agreements and any
other debt instruments and those limits on financing may therefore
limit Laidlaw Environmental's ability to service its existing debt
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obligations through additional debt financing if cash flow from
operations is insufficient to service such obligations." (emphasis
added); and
(f) the risks of material adverse impact on the value of the LLE
Common Stock resulting from the issuance of approximately 129 million
to 162 million shares of the LLE Common Stock in connection with the
Amended LLE 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 Denture") issued by LLE that may be converted at the option
of Laidlaw Inc. into LLE Common Stock at a conversion price of $3.75
per share in 2002 and the Board's view that the current market value of
the LLE Common Stock does not reflect such an adverse impact or the
effects of the various other uncertainties considered by the Board. The
likelihood of such an adverse impact is increased by (1) the
substantial holding of Shares by arbitrageurs, a number of whom have
communicated to William Blair, ChaseMellon Shareholder Services,
Safety-Kleen's proxy solicitation firm, and Safety-Kleen a
disinclination to hold the LLE Common Stock, and (2) the significant
differences between Safety-Kleen and LLE in terms of leverage and
nature of businesses, which could cause Safety-Kleen shareholders to be
disinclined to hold the LLE Common Stock;
(v) the fact that Safety-Kleen's shareholders' exposure to the impact of
environmental liabilities would increase if the Amended LLE Offer were
consummated, based on factors previously discussed at length with the
Board;
(vi) the fact that if the Amended LLE Offer and the subsequent merger of
the Offeror into Safety-Kleen were consummated, Laidlaw Inc. would own
between 33.6% and 37.3% of LLE (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 corporate
transactions;
(vii) the fact that a comparison of the conditions to the Amended LLE
Offer to the conditions to the Philip Merger indicated that both the Philip
Merger and the Amended LLE Offer are subject to risks of non-consummation.
In making this comparison, the Board recognized that the $250 to $275
million pre-tax one time year-end restructuring charge and physical
inventory adjustment announced by Philip (which prompted an announcement on
January 30 by Moody's that it had placed Philip debt ratings on review for
a possible downgrade) could adversely affect the ability of SK Parent to
obtain the equity and debt funding to consummate the Philip Merger.
However, the Board believed that each of Philip, Apollo and Blackstone,
respectively, were committed to the transaction and able to carry it out;*
(viii) the uncertainty as to the completion and timing of the Amended LLE
Offer and any subsequent merger of the Offeror into Safety-Kleen, including
the fact that unless LLE beneficially owns at least 90% of the outstanding
Shares after consummation of the LLE Offer, (a) the subsequent merger of
the Offeror into Safety-Kleen would have to be approved by Safety-Kleen
shareholders at a duly called meeting held after Safety-Kleen shareholders
have received a proxy statement filed with the Commission relating to such
merger, and (b) if Safety-Kleen is a "resident domestic corporation" for
purposes of the Wisconsin Statutes (which Safety-Kleen believes it is,
although the matter is not free from doubt), such merger would have to be
approved by both (1) the holders of at least 80% of the outstanding Shares
and (2) the holders of 66 2/3% of the outstanding Shares not held by LLE or
its affiliates, unless certain fair price standards are satisfied. Since
LLE has indicated its intent to offer the Amended LLE Offer Consideration
for each then outstanding Share in the subsequent merger of the Offeror
into Safety-Kleen, these fair price standards would not be satisfied if the
market value (as determined in accordance with the Wisconsin Statutes) of
the LLE Common Stock on certain dates prior to the consummation of such
merger together with the cash consideration included in the Amended LLE
Offer Consideration were less than the Amended LLE Offer Consideration
(valued in accordance with the Wisconsin Statutes). In addition, these fair
price standards would not be satisfied if the market value (as determined
in accordance with the Wisconsin Statutes) per Share on certain
- --------
*See the Philip Letter set forth under "--(a) Recommendation of The Board of
Directors" with respect to the current status of Philip's funding.
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dates prior to the consummation of such merger is greater than the
aggregate amount of cash consideration and the market value (as determined
in accordance with the Wisconsin Statutes) of the LLE Common Stock on
certain dates prior to consummation of such merger. Accordingly, if Safety-
Kleen is a "resident domestic corporation" (which Safety-Kleen believes it
is, although the matter is not free from doubt), there can be no assurance
that LLE would obtain the required shareholder approval if the
consideration paid in the subsequent merger of the Offeror into Safety-
Kleen did not satisfy those fair price standards; and
(ix) the fact that, at the November 5 meeting between Safety-Kleen and
LLE, LLE 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 and the surrounding
communities, as well as the adverse impact on other Safety-Kleen employees
necessarily involved in any attempt by LLE to realize $100 million-$130
million in synergies.
At the February 7th meeting, the Board once more concluded that the Philip
Merger is in the best interests of Safety-Kleen and its shareholders and
directed that that position and the actions referred under Section 4(a) of
this Item 4 should now be given effect. The Board concluded that while the
consideration payable pursuant to the Philip Merger Agreement and the Amended
LLE Offer were close in value, given the risks and uncertainties inherent in
the Amended LLE Offer, the $27 all cash consideration payable in the Philip
Merger is preferable. In reaching that conclusion the Board took into account
the Philip Letter and the factors it considered at the January 31, 1998
meeting, including management's views that LLE could not obtain more than
$26.4 to $28.4 million of synergies without significant reduction in service
quality, revenues and profit, environmental risks, the substantial leverage
that would result from LLE's transaction, and the fact that there are many
uncertainties in today's equity market which is near an all time high. The
Board also considered the effect of the Amended LLE Offer on Safety-Kleen
employees and communities, in contrast with the effect thereon of the Philip
Merger.
The foregoing describes all material factors considered and given weight by
the Board in connection with its evaluation of the Amended LLE Offer. In view
of the variety of factors considered in connection with its evaluation of the
Amended 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
January 31, 1998 Opinion. On January 31, 1998 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 Amended LLE Offer as compared with the Philip Merger.
Based on the advice of Safety-Kleen's counsel and as in the case of the
December 20, 1997 opinion of William Blair included as Annex B of the Schedule
14D-9 (as amended and restated at January 6, 1998) (the "December 20th
Opinion"), William Blair made that comparison based on their respective
anticipated values, from a financial point of view, as of consummation.
At the January 31, 1998 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 January 31, 1998) that,
as of such date, and based upon and subject to the factors and assumptions set
forth in such written opinion, William Blair believes that it is more likely
than not that, as of the time of the anticipated closing of the Amended LLE
Offer, the value of the consideration that would be received under the Amended
LLE Offer would exceed the value of the consideration which would be received
in the Philip Merger. The full text of William Blair's opinion to the Safety-
Kleen Board of Directors dated as of January 31, 1998 is attached hereto as
Annex A 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 Amended LLE
Offer and does not constitute a recommendation to any Safety-Kleen shareholder
as to how such shareholder should vote at the Special Meeting.
8
<PAGE>
In connection with William Blair's review of the Amended 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 Proxy Statement
dated January 6, 1998 filed by Safety-Kleen with the Commission and sent to
Safety-Kleen shareholders; (b) reviewed the terms and conditions of the
Amended LLE Offer and the financial terms as set forth in the Amended
Prospectus; (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 Amended LLE Offer and performed a sensitivity analysis on such pro forma
financial information based upon variable synergy assumptions; (e) 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
Amended LLE Offer; (f) together with Safety-Kleen's management met with Mr.
Bullock, Chairman of LLE; and (g) performed such other analyses as William
Blair deemed appropriate.
William Blair's opinion with respect to the Amended 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 Amended 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 Amended LLE Offer would be consummated on the terms described in the
Philip Merger Agreement or the Amended Prospectus, respectively, without any
waiver of any material terms or conditions by Safety-Kleen and that obtaining
the necessary regulatory approvals, if any are still required, for the Philip
Merger or the Amended 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 January 31, 1998, 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.
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 updated the analyses presented to the Board for
the December 20th Opinion and reviewed certain factors and performed certain
analyses, including: (i) a comparison of the current purported nominal value
of the Amended LLE Offer with the $27.00 per Share cash consideration in the
Philip 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.
Comparison of Current Nominal Value Received in the Amended LLE Offer with
the Philip Merger. William Blair reviewed the Amended LLE Offer. Pursuant to
its terms, LLE and a subsidiary propose to exchange, for each outstanding
Share, cash in the amount of $18.00 plus that number of shares of LLE Common
Stock determined by an exchange ratio subject to a collar. William Blair noted
that LLE has accepted the validity of break-up fees and expenses totaling $75
million and would incur such costs should its offer be consummated. William
Blair noted that the exchange ratio provides Safety-Kleen shareholders with
LLE Common Stock with a market value of $12.00 per Share, assuming that the
LLE Common Stock price for ten randomly selected days among the twenty trading
days prior to closing of the Amended 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 2.8 shares; should the price be above $5.35714 the exchange
ratio would be 2.24 shares. William Blair noted that on January 30, 1998, the
LLE Common Stock closed below the collar at $3.938 per share. In addition,
William Blair noted that the LLE
9
<PAGE>
Common Stock closed below the collar on eight of thirteen trading days from
January 13, 1998 to January 30, 1998 and that the average closing price during
this period was $4.26. An average stock price selected at the time of closing
for the exchange ratio of below $4.29 would result in the stock portion having
a market value of less than $12.00 per Share at that time. At the market close
on January 30, 1998, the nominal value comparison of the Amended LLE Offer was
$29.03 per Share as compared with $27.00 per Share in the Philip Merger. For
the Amended LLE Offer to have a market value equal to the cash consideration
of $27.00 per Share in the Philip Merger, the LLE Common Stock price would
have to decrease to $3.21 per share, or 18.5% below the closing price on
January 30, 1998, or 25.7% below the average of the twenty trading days ending
on January 30, 1998.
Factors which could affect LLE's share price prior to closing of the Amended
LLE Offer. As was the case with the December 20th Opinion, William Blair
identified several factors which could place downward pressure on the price of
the LLE Common Stock prior to the closing of the Amended LLE Offer. The
analysis utilized the same assumptions as put forth under "Item 4. The
Solicitation or Recommendation--(b)(3) Opinions of Financial Advisor--December
20, 1997 Opinion" in the Schedule 14D-9 (as amended and restated at January 6,
1998). The principal factors include:
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 noted in the December 20th Opinion that research analysts as
of December 17, 1997 were of the view that a LLE acquisition of Safety-Kleen
would result in substantial accretion in its fiscal 1998 earnings per share,
but that revised expectations by research analysts concerning LLE's synergy
assumption would reduce their estimates for 1998 results. William Blair noted
that because of the increase in the cash portion of the offer and the payment
by LLE of break-up fees and expenses totaling $75 million in the Amended LLE
Offer, LLE's 1998 EPS would suffer more dilution than in their prior proposal
depending on the annual synergies achieved. 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.................... (46.4)% (27.7)%
$50 million.................... (24.1) (12.3)
$75 million.................... (1.9) 3.0
$100 million................... 20.3 18.4
</TABLE>
2.Possible price/earnings multiple contraction in the 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 "Item 4. The Solicitation or
Recommendation--(b)(3) Opinions of Financial Advisor--November 20, 1997
Opinion" in the Schedule 14D-9 (as amended and restated at January 6, 1998).
Although William Blair compared the trading multiples of the selected
companies as of January 28, 1998 to LLE, none of the selected companies is
identical to Safety-Kleen or LLE. William Blair observed that the LLE Common
Stock currently trades at high EPS and EBITDA multiples relative to its peer
group of comparable companies. At January 28, 1998, the LLE Common Stock price
was trading at approximately 20.0x calendar 1998 EPS and 15.8x 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 EPS and EBITDA multiples of approximately 36%, and 126%, respectively,
for LTM EBITDA. William Blair pointed out that assuming $50 million of annual
10
<PAGE>
synergies and the LLE Common Stock price within the collar, the value of the
Amended LLE Offer applying the LLE multiple would be $26.40 per Share. If the
industry median multiple or the S&P 500 multiple were used, the value to
Safety-Kleen shareholders would be $24.17 per Share and $27.03 per Share,
respectively.
3. The substantial market overhang resulting from the fact that Safety-Kleen
shareholders would receive up to 162 million shares of the LLE Common
Stock in the Amended LLE Offer.
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 Amended LLE Offer. William Blair also noted that
Safety-Kleen shareholders would be affected by a substantial overhang from the
121 million shares owned by Laidlaw, Inc., which constitutes approximately
67.4% of LLE's currently 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.
4. The potential impact of an overall market correction.
William Blair contrasted the $27.00 per Share all cash offer of the Philip
Merger with the stock component of the Amended 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%.
Discounted Cash Flow Analysis. As a check, William Blair derived an
intrinsic value for the combined entity as of the anticipated closing date. To
estimate an intrinsic value, William Blair performed a discounted cash flow
("DCF") analysis using the assumptions described in the December 20, 1997
Opinion (see "Item 4. The Solicitation or Recommendation--(b)(3) Opinions of
Financial Advisor--December 20, 1997 Opinion" in the Schedule 14D-9 (as
amended and restated at January 6, 1998)) and reflecting the changes made by
the Amended LLE Offer. Independent of the potential trading price of the LLE
Common Stock at closing, the intrinsic value of shares received at closing
(based upon the DCF analysis) would be in a range of $2.45 to $3.66 per share,
after a control premium discount of 25%. William Blair pointed out that the
DCF analysis supports the view that there would be downward pressure on the
value of the LLE Common Stock; however, it is not meant to predict a trading
range. William Blair noted that these factors have already been communicated
to the marketplace and may already be influencing the LLE Common Stock price
to the extent it is believed that LLE will consummate the Amended LLE Offer.
William Blair noted further that the fall in the LLE Common Stock price
required to make the Amended LLE Offer and the Philip Merger of equal value is
greater now both as a percentage and in dollars per share (under the LLE
Offer, parity required only a 14.6% drop or $0.65 per share).
Based upon the foregoing, William Blair concluded that it is likely that
there would be some downward movement in the LLE Common Stock price following
an announcement of negotiations or a definitive agreement with LLE. However,
William Blair opined that it is unlikely that such downward movement would be
of such magnitude as to cause the entire current nominal value disparity
($2.03 per Share based upon the closing price of the LLE Common Stock on
January 30, 1998) to be eliminated. Accordingly, William Blair issued an
opinion (see Annex A) that the Amended LLE Offer is more likely than not to
have a value at closing in excess of the cash consideration of $27.00 per
Share in the Philip Merger.
Safety-Kleen's counsel asked William Blair to provide additional guidance as
to the likely range where the consideration offered by LLE might most likely
be valued at closing. William Blair pointed out that, while it is possible
that the Amended LLE Offer could result in a value at closing below $27.00 per
Share, it is also possible that it could be valued above $29.03 per Share, the
nominal value as of January 30, 1998. William Blair regarded either outcome as
fairly unlikely. William Blair also cautioned that any attempt to predict with
any precision a
11
<PAGE>
future stock price, or a stock trading range, during a very brief period of
time is inherently difficult. Even given the difficulty of predicting a stock
trading range, William Blair pointed out that a 5% to 10% fall from the
current price of the LLE Common Stock would not be out of the question,
particularly if the market questions the synergies (and therefore accretion)
assertions of LLE and also if current LLE or current Safety-Kleen shareholders
who wish to sell the stock were to do so in an undisciplined fashion.
(4) Advice of Economics Expert
General. Safety-Kleen retained Professor Jarrell to assist the Board in
evaluating the Amended LLE Offer. No limitations were imposed by the Safety-
Kleen Board of Directors upon Professor Jarrell with respect to the procedures
followed by him in rendering his advice to the Board. Professor Jarrell is
Professor of Economics and Finance at The William E. Simon Graduate School of
Business Administration at the University of Rochester. Safety-Kleen retained
Professor Jarrell on the basis of his experience and expertise in valuing
businesses and securities and his existing relationship with Safety-Kleen as
an economic expert on various matters relating to the Philip Merger Agreement
in the litigation between Safety-Kleen and LLE. Safety-Kleen has agreed to pay
Professor Jarrell $250,000 for advising the Board with respect to the Amended
LLE Offer. Professor Jarrell is also compensated by Safety-Kleen based on an
hourly rate and reimbursement for out-of-pocket expenses for his litigation
services. Such compensation for his litigation services through February 1,
1998 is approximately $100,000.
Set forth below is a description, in summary form, of the principal elements
of the analyses made by Professor Jarrell in arriving at his advice to the
Board. The analyses performed by Professor Jarrell are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
January 31, 1998 Advice. At the January 31, 1998 meeting of the Safety-Kleen
Board of Directors, Professor Jarrell rendered his oral opinion that, as of
the anticipated closing of the Amended LLE Offer, the Amended LLE Offer would
not have an economic value superior to the $27 cash payable in the Philip
Merger. Professor Jarrell's advice was addressed to the Safety-Kleen Board of
Directors for the purposes of its evaluation of the Amended LLE Offer and does
not constitute a recommendation to any Safety-Kleen shareholder as to how such
shareholder should vote at the Special Meeting.
In connection with his opinion, Professor Jarrell reviewed the Proxy
Statement dated January 6, 1998 filed by Safety-Kleen with the Commission and
sent to Safety-Kleen shareholders, the Amended Prospectus, publicly available
information relating to Safety-Kleen and LLE, the historical market prices and
trading volume of the LLE Common Stock and certain financial analyses prepared
by William Blair and previously presented to the Board.
Based on Professor Jarrell's review, he estimated that the economic value of
the stock portion of the Amended LLE Offer as of the anticipated closing of
the Amended LLE Offer would be at least 25% less than
its stated nominal value of $12 per Share. Professor Jarrell attributes this
discount to at least two significant risk factors: the volatility of the LLE
Common Stock and the risk of inadequate synergistic gains. Both risk factors
contribute to the potential for adverse price movements in the LLE Common
Stock that would cause the actual value of the stock portion of the Amended
LLE Offer to decline by the time the Amended LLE Offer closes. The nominal $12
per Share value of LLE's stock portion is predicated on LLE's (weighted
average) stock price being at least $4.29 at the time of such closing. Thus,
if LLE's (weighted average) stock price is below $4.29 at closing, then the
stock portion of the Amended LLE Offer will be below $12 per Share. For
example, if LLE's (weighted average) price were to decline to $3, then the
stock portion would be worth only $8.40 per Share.
Professor Jarrell observed that a review of recent actual prices during 1997
for the LLE Common Stock reveals that it has traded well below $4.29 for much
of the time period from May 16, 1997 (the date the present LLE was created) to
November 3, 1997 (the day before announcement of LLE's first publicly
announced offer). The closing stock price of the LLE Common Stock was $2.625
on May 16, 1997, and thereafter it never closed above $4 until August 20,
1997.
12
<PAGE>
Statistically speaking, Professor Jarrell viewed the LLE Common Stock as a
relatively volatile stock during 1997. Based on its daily closing prices
during the period May 16 to November 3, 1997, Professor Jarrell calculated the
LLE Common Stock's annualized standard deviation of returns (a standard
statistical measure of volatility) at 67.7%. Following basic statistical
probability theory, applying a 67.7% annual standard deviation to the recent
range of the LLE Common Stock trading prices, he calculated the probability
that its price six months from now will be less than $3.50 as approximately
40%; the probability is over 30% that the LLE Common Stock price six months
from now will be less than $3.00. In this event, the stock portion of the
Amended LLE Offer would be worth $8.40 per Share, which represents a 30%
discount from its $12.00 per Share nominal value. If a period of less than six
months were used for this analysis, the probabilities set forth above would be
reduced.
Professor Jarrell views the second risk factor as arising because the
economic value of the Amended LLE Offer is predicated on the uncertain
prospects for attaining future "synergies". Synergies refer to cost savings
(or other economic benefits) that LLE hopes to realize from its proposed
combination. Synergy risk exists for selling Safety-Kleen shareholders only
because of the presence of the stock portion of the Amended LLE Offer.
Professor Jarrell noted that corporate finance theory holds that, in
general, if an acquirer cannot achieve future synergistic gains that have a
present economic value equal to the premium paid for the target company, then
the market price of the bidder's stock will decline as a result of the
acquisition (holding all else equal).
Professor Jarrell prepared Annex B attached to this Statement showing, in
part, that if LLE were to hypothetically acquire Safety-Kleen under the terms
of the Amended LLE Offer, the hypothetical value of the LLE Common Stock at
closing, before giving effect to any synergies, would be $2.24 per share. In
this event, the value of the Amended LLE Offer would be $24.27 per Share. The
stock portion of the Amended LLE Offer would be worth $6.27 per Share, which
represents a 48% discount to its nominal value of $12 per Share. (Annex B
assumes that the maximum 2.8 shares of LLE Common Stock would be issued on
closing of the Amended LLE Offer.)
The exact magnitude of synergies that can be achieved in a proposed
combination is generally not known until well after the closing date of a
merger. Rather, the expected synergies must be estimated before the merger,
and such estimates are often subject to considerable uncertainty and
speculation. When the acquirer pays cash for a target company, the risk that
synergies will not be achieved falls entirely on the acquirer's stockholders.
But when the acquirer uses its stock as consideration, then a portion of this
"synergy risk" is borne by the target company's stockholders as well.
Professor Jarrell observed that the magnitude of estimated synergies that
could be realized by LLE is disputed and subject to a wide range. LLE claims
annual pre-tax synergies of at least $100 million annually from combining
Safety-Kleen and LLE, William Blair assumed annual before- tax synergies of
$50 million, and Safety-Kleen believes the synergies would be no more than
$28.4 million.
Annex B shows Professor Jarrell's calculation of the effect of two
alternative synergy assumptions on the hypothetical LLE Common Stock value at
closing of the Amended LLE Offer and on the implied value of the Amended LLE
Offer. Based on William Blair's annual synergy assumption of $50 million,
Professor Jarrell's analysis concluded that the hypothetical value of the LLE
Common Stock ranges from $2.68 to $2.95 per share. The range occurs for a
given annual synergy estimate because of alternative methods of discounting
the assumed annual synergies to a present economic value. (See Annex B.) Under
these conditions, the implied value of the Amended LLE Offer ranges from
$25.56 to $26.26 per Share, with a mid-point of $25.91 per Share. By this
analysis, the stock portion of the Amended LLE Offer has an implied value of
approximately $7.91 per Share, which represents a 34% discount to its nominal
$12 per Share value.
Professor Jarrell's analysis concluded that, based on LLE's annual synergy
figure of $100 million, the hypothetical value of the LLE Common Stock ranges
from $3.12 to $3.66 per share. (See Annex B.) Under these
13
<PAGE>
conditions, the implied value of the Amended LLE Offer ranges from $26.72 to
$28.26 per Share, with a mid-point of $27.49 per Share. By this analysis, the
stock portion of the Amended LLE Offer has an implied value of approximately
$9.49 per Share, which represents a 20.9% discount to its nominal $12 per
Share value.
Thus, Professor Jarrell concluded, on the basis of his analysis described
above, that the synergy risk inherent in the Amended LLE Offer creates a
significant risk to Safety-Kleen shareholders of adverse price movement in the
LLE Common Stock before closing of the Amended LLE Offer. He noted that,
assuming hypothetically that there is a 50% probability that LLE's estimated
synergies are correct, and a 50% probability that William Blair's synergy
assumption is correct, then the implied value of the stock portion of the
Amended LLE Offer is $8.70 per Share, which represents a 27.5% discount to its
nominal $12 per Share value.
Accordingly, Professor Jarrell concluded that, in his opinion, the two risk
factors discussed above make it reasonable to apply a discount of at least 25%
to the stock portion of the Amended LLE Offer. Based on this analysis and his
review of the relevant materials, he advised the Board that it is his opinion
that, as of the anticipated closing of the Amended LLE Offer, the Amended LLE
Offer would not have an economic value greater than $27 per Share.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Item 8(b) and (d) of the Schedule 14D-9 is hereby amended and supplemented
by adding the following:
(b) Shareholder Litigation.
On January 28, 1998, the Federal District Court for the Northern District of
Illinois began a preliminary hearing on LLE's request that the Rights
Agreement be amended to make it inapplicable to the Amended LLE Offer, that
the Court order Safety-Kleen's Board of Directors to take action to make the
Wisconsin Business Combination Statute inapplicable to the Amended LLE Offer
and the merger contemplated thereby, and that the Court void the termination
fee and certain other provisions of the Philip Merger Agreement. The Court
granted LLE's request to withdraw its challenge to the termination fee. LLE
also advised the Court that it would not seek to delay the Safety-Kleen
shareholders meeting on February 11, 1998.
On February 4, 1998, the Federal District Court for the Northern District of
Illinois issued a ruling affirming the decision of the Board of Directors of
Safety-Kleen to leave the Rights Agreement in place with respect to the LLE
Offer. The Court's decision does not address Safety-Kleen's ability to leave
the Rights Agreement in place with respect to the Amended LLE Offer.
On February 5, 1998, the Court denied LLE's motion to find that the Board of
Directors of Safety-Kleen had violated the federal securities laws by not
responding to the Amended LLE Offer prior to February 5, 1998.
(d) Regulatory Filing.
On January 27, 1998, Safety-Kleen announced that the Antitrust Division of
the Department of Justice has granted early termination of the waiting period
associated with a Hart-Scott-Rodino review concerning the Philip Merger. On
January 28, 1998, Laidlaw Environmental announced that such early termination
also has been granted with respect to the Amended LLE Offer.
14
<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: February 8, 1998
15
<PAGE>
EXHIBIT INDEX
Except as noted below, the following Exhibits have been previously filed in
connection with this Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------
<C> <S>
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 Form of Change of Control Severance Agreement.
Exhibit 5 Letter to Shareholders of Safety-Kleen, dated January 6, 1998.
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).
Exhibit 22 Press Release issued by Safety-Kleen Corp., dated January 8, 1998.
Exhibit 23 Press Release issued by Safety-Kleen Corp., dated January 9, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------
<C> <S>
Exhibit 24 Definitive Additional Materials.
Exhibit 25 Press Release issued by Safety-Kleen Corp., dated January 15,
1998.
Exhibit 26 Definitive Additional Materials.
Exhibit 27 Definitive Additional Materials.
Exhibit 28 Definitive Additional Materials.
Exhibit 29 Press Release issued by Safety-Kleen Corp., dated January 27,
1998.
Exhibit 30 Press Release issued by Safety-Kleen Corp., dated February 4,
1998.
Exhibit 31* Letter to Shareholders of Safety-Kleen, dated February 2, 1998.
Exhibit 32* Press Release issued by Safety-Kleen Corp., dated February 2,
1998.
Exhibit 33* Opinion of William Blair & Company L.L.C., dated January 31, 1998.
</TABLE>
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*Filed herewith.
<PAGE>
ANNEX A
LOGO
January 31, 1998
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123-78567
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 current proposed offer (the "Current 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
relevant time for comparison is at the respective anticipated closing dates
for the Current LLE Offer and the Merger.
Pursuant to the terms of the Current LLE Offer, LLE and a subsidiary propose
to exchange cash in the amount of $18.00 plus that number of shares of LLE
common stock equal to the Exchange Ratio of not less than 2.24 shares and no
greater than 2.8 shares for each outstanding Common Share of the Company.
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 the outstanding Common Shares of the Company will be converted
into a right for the Shareholder to receive $27.00 per share in cash.
On two prior occasions, you requested our opinion with respect to two
previously proposed offers from LLE. On both occasions (December 20, 1997 and
January 6, 1998) we stated that, based upon the analysis indicated, we did not
have a basis for concluding that at the anticipated closing date of the
proposed offers they would be superior from a financial point of view to the
Merger. The indicated analysis included an assessment of factors which could
influence the trading price of the common stock of LLE on the anticipated
closing dates. We have updated the various analyses for purposes of rendering
this opinion. Then, as now, our opinion reflects only limited access to LLE
management and no access to internal LLE projections.
In rendering this opinion, we have assumed that the merger or the Current
LLE Offer would be consummated on the terms described in the Merger Agreement
or the LLE prospectus dated January 28, 1998, respectively, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Merger or the Current 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 1997 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 the rendering of our fairness
opinion as it relates to the Merger. Upon the consummation of either the
Merger or the Current LLE 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.
A-1
<PAGE>
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 Current LLE Offer, as the case may be.
As of the date hereof, based upon and subject to the foregoing, it is our
opinion as investment bankers that it is more likely than not that, as of the
time of anticipated closing of the Current LLE Offer, the value of the
consideration which would be received under the Current LLE Offer would exceed
the value of the consideration which would be received in the Merger.
Very truly yours,
William Blair & Company, L.L.C.
A-2
<PAGE>
ANNEX B
MARKET VALUE OF EQUITY OF COMBINED LLE/SAFETY-KLEEN ENTITY BASED ON
ASSUMED STAND-ALONE MARKET VALUES
<TABLE>
<CAPTION>
[1] [2] [3] [4] [5] [6]
NUMBER OF TOTAL ASSUMED TOTAL
COMMON SHARES IN STAND- MARKET
SHARES IN EXCHANGE COMBINED ALONE EQUITY
STAND-ALONE RATIO OF OLD ENTITY MARKET VALUE
COMPANIES SHARES TO (MILLIONS) OWNERSHIP VALUE PER ($ MILLIONS)
(MILLIONS)(1) NEW SHARES [1] X [2] AS A PERCENT SHARE(3) [1] X [5]
------------- ------------ ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
LLE..................... 180.5 1.0 180.5 52.5% $ 5.00 $ 902.5
Safety-Kleen............ 58.4 2.8(2) 163.5 47.5% $17.00 992.8
----- ----- --------
Total................. na na 344.0 100.0% na $1,895.3
Deduct: Total Cash Compensation(4) [7]................................... 1,051.2
Termination Fee and Expenses[8].......................................... 75.0
--------
TOTAL COMBINED VALUE BEFORE GIVING EFFECT TO ANY SYNERGIES[9]............ $ 769.1
========
PER-SHARE VALUE BEFORE GIVING EFFECT TO ANY SYNERGIES[9]/344.0........... $ 2.24
</TABLE>
- --------
(1) Source: Amended Prospectus.
(2) Assumes that the maximum 2.8 shares of LLE common stock would be issued on
closing of the Amended LLE Offer.
(3) Approximate trading price of Safety-Kleen in late July, 1997 (before
Safety-Kleen announced it was exploring strategic alternatives) and of LLE
in late October and early November, 1997 (before LLE's first publicly
announced offer).
(4) Total cash compensation equals $18 per share multiplied by 58.4 million
shares.
B-1
<PAGE>
HYPOTHETICAL VALUE OF THE AMENDED LLE OFFER
<TABLE>
<CAPTION>
BASED ON BLAIR'S ASSUMPTION BASED ON LLE'S ESTIMATE
OF $50 MILLION PRE-TAX OF $100 MILLION PRE-TAX
ANNUAL SYNERGIES ANNUAL SYNERGIES
---------------------------- -----------------------
DISCOUNTED AT : 10 YEARS PERPETUITY 10 YEARS PERPETUITY
--------------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
[10]
Present Value of
Synergies 11% $ 159.2 $ 245.7 $ 318.3 $ 491.4
($ millions)(1) 12% $ 151.3 $ 223.2 $ 302.7 $ 446.4
[11]
Total Combined Value
With $ 928.3 $ 1,014.8 $ 1,087.4 $ 1,260.5 [9]+[10]
Synergies ($ millions) $ 920.4 $ 992.3 $ 1,071.8 $ 1,215.5
[12]
Total Combined Value per
Combined $ 2.70 $ 2.95 $ 3.16 $ 3.66 [11]/344.0
Shares (344.0 m.
shares) $ 2.68 $ 2.88 $ 3.12 $ 3.53
[13]
Total Value of Safety-
Kleen's Shares in $ 441.23 $ 482.36 $ 516.88 $ 599.14 [12]x163.5
Combined Entity (for
163.5 m. shares) $ 437.51 $ 471.67 $ 509.44 $ 577.77
[14]
Total Value of the
Amended LLE Offer $ 1,492.43 $ 1,533.56 $ 1,568.08 $ 1,650.34 [13]+[7]
($ millions) $ 1,488.71 $ 1,522.87 $ 1,560.64 $ 1,628.97
[15]
Value of the Amended LLE
Offer per Share of $ 25.56 $ 26.26 $ 26.85 $ 28.26 [14]/58.4
Safety-Kleen (58.4 m.
shares) $ 25.49 $ 26.08 $ 26.72 $ 27.89
</TABLE>
- -------
(1) Assumes that Synergies are not realized until the second year.
10-year Synergies: S * (1-t) * ((1/r)-(1/r)/(1+r)/1//0/) * (1/(1+r))
Perpetuity Synergies; S * (1-t) * (1/r) * (1/(1+r))
where, S = pre-tax annual synergies, t = tax rate of 40%, r = discount rate.
B-2
<PAGE>
LOGO
February 9, 1998
Dear Shareholder:
The Board of Directors of Safety-Kleen continues to believe that the $27.00
all cash Merger Agreement with the Philip Group is in the best interests of
Safety-Kleen and its shareholders, and, therefore, has unanimously recommended
that all shareholders of Safety-Kleen reject the Amended Laidlaw Environmental
Exchange Offer. The Board reached its conclusions at meetings on January 31,
1998, February 3, 1998 and February 7, 1998, in which it thoroughly reviewed
the Amended Laidlaw Environmental Exchange Offer with the assistance of its
advisors. At its February 7 meeting, the Board received the advice of Philip
Services Corp. that, although bank approvals are required, it is "confident
that the commitment for funding [Philip's] portion of the SK Parent entity
will be in place in advance of the shareholder meeting and that [Philip's]
funding will be in place when required." The full text of Philip's letter is
set forth in the accompanying proxy supplement.
Despite Laidlaw Environmental's late January changes to its proposal, the
ultimate value of that proposal is still substantially affected by the value
of its stock and many of the Board's initial concerns remain. As a result of
the transaction, the combined entity would carry more than $2.3 billion of
debt resulting in a debt-to-equity ratio of more than 71% compared to Safety-
Kleen's ratio of approximately 29%. Safety-Kleen shareholders would own a
substantial portion of the stock in the highly-leveraged company.
The Board remains convinced that Laidlaw Environmental cannot achieve its
estimated $100-$130 million of synergies due to our conviction that there is
very little overlap between Safety-Kleen's core service business and Laidlaw's
landfill and incineration business. We do not believe that Laidlaw can
accomplish more than $26.4 million to $28.4 million of synergies without
significant reductions in service quality, revenue and profit. Laidlaw
Environmental's proposed transaction would not prove accretive to shareholders
without Laidlaw Environmental achieving significant synergies. It is important
to emphasize that Laidlaw Environmental has a base of 18,000 mid to large-size
customers compared with Safety-Kleen's nearly 400,000 customers consisting
primarily of smaller-quantity generators. Safety-Kleen has a very transaction-
driven business performing over five million services annually.
Your Directors also considered the value of the $12.00 common stock portion
of Laidlaw Environmental's offer which is dependent upon its stock trading
above $4.29 per share. The Laidlaw Environmental stock, which has frequently
traded below this minimum level, was viewed by the Board as relatively
volatile. On February 6, 1998, Laidlaw Environmental common stock closed at
$4.19 per share. The Board is concerned about the potential impact on the
market price of Laidlaw Environmental stock from the massive issuance of 129
million to 162 million shares that would result from this transaction and
other risks relating to Laidlaw Environmental stock described in the proxy
supplement, as well as general economic and market uncertainties. The Board
believes that given the risks inherent in taking Laidlaw Environmental Stock
at this time, an all cash $27 per share transaction is preferable.
The significant differences between the business operations of Safety-Kleen
and Laidlaw Environmental were also evaluated as well as the expressed desire
of its parent, Laidlaw, Inc., to deconsolidate Laidlaw Environmental from its
balance sheet. Safety-Kleen recycles; Laidlaw Environmental incinerates and
puts wastes in landfills. The Board believes the latter results in much
greater potential environmental liability. If the Laidlaw Environmental
transaction were completed, Safety-Kleen shareholders would become subject to
these environmental risks from hazardous waste landfills and incinerators.
The Board, together with the principals of the Philip Group, remains
committed to seeking approval of the Merger Agreement at a special meeting of
shareholders. That meeting was originally scheduled for February 11.
<PAGE>
However, in order to provide shareholders with additional time to consider the
information set forth in the accompanying proxy supplement and Schedule 14D-9
Amendment, the February 11 meeting will be adjourned to Wednesday, February
25, 1998, at 3:00 p.m., central time, at the Elgin Community College Business
Conference Center, 1700 Spartan Drive, Elgin, Illinois 60123. Accordingly, no
action on the Merger Agreement will be taken at the February 11 meeting.
I urge you to read the enclosed material carefully, especially the section
headed "Recent Developments--Reasons for the Recommendation", which addresses
in greater detail the concerns noted in this letter. It is very important that
your shares be represented and voted at the special meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE GOLD-STRIPED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE REGARDLESS
OF WHETHER YOU HAVE PREVIOUSLY SUBMITTED THE GREEN-STRIPED PROXY CARD SENT TO
YOU BY LAIDLAW ENVIRONMENTAL. PLEASE NOTE THAT ALTHOUGH THE ENCLOSED GOLD-
STRIPED PROXY CARD CONTINUES TO REFER TO THE FEBRUARY 11, 1998 SPECIAL
MEETING, AS SET FORTH ABOVE AND IN THE ACCOMPANYING PROXY SUPPLEMENT, THE
SPECIAL MEETING WILL BE ADJOURNED TO FEBRUARY 25. If the Merger Agreement is
approved, following consummation of the Merger each shareholder of record will
be mailed a transmittal form and instructions for surrender of stock
certificates for payment pursuant to the Merger Agreement. Please do not
surrender your stock certificates until you have received the letter of
transmittal and instructions thereto.
WE FIRMLY BELIEVE THAT APPROVAL OF THE MERGER AGREEMENT IS THE BEST DECISION
FOR ALL SHAREHOLDERS AND URGE YOU TO VOTE "FOR" THE PROPOSAL.
Your Board of Directors and I greatly appreciate your continued support and
encouragement.
Sincerely,
LOGO
Donald W. Brinckman
Chairman Of The Board and Chief
Executive Officer
<PAGE>
FOR IMMEDIATE RELEASE Contact: Maureen Fisk
847-468-2452
SAFETY-KLEEN BOARD REJECTS REVISED
LAIDLAW ENVIRONMENTAL OFFER;
WILL ADJOURN SPECIAL MEETING TO FEBRUARY 25
February 9, 1998 -- Elgin, Illinois - Safety-Kleen Corp. (SK/NYSE)
today announced that its Board of Directors has rejected Laidlaw Environmental
Services, Inc.'s ("LLE") revised hostile exchange offer. In a letter issued to
shareholders, Safety-Kleen Chairman and Chief Executive Officer Donald W.
Brinckman outlined the Board's review of the revised Laidlaw Environmental
exchange offer. The text of the letter follows:
Dear Shareholder:
The Board of Directors of Safety-Kleen continues to believe that the $27.00
all cash Merger Agreement with the Philip Group is in the best interests of
Safety-Kleen and its shareholders, and, therefore, has unanimously recommended
that all shareholders of Safety-Kleen reject the Amended Laidlaw Environmental
Exchange Offer. The Board reached its conclusions at meetings on January 31,
1998, February 3, 1998 and February 7, 1998, in which it thoroughly reviewed the
Amended Laidlaw Environmental Exchange Offer with the assistance of its
advisors. At its February 7 meeting, the Board received the advice of Philip
Services Corp. that, although bank approvals are required, it is "confident that
the commitment for funding [Philip's] portion of the SK Parent entity will be in
place in advance of the shareholder meeting and that [Philip's] funding will be
in place when required." The full text of Philip's letter is set forth in the
proxy supplement being transmitted to shareholders today.
Despite Laidlaw Environmental's late January changes to its proposal, the
ultimate value of that proposal is still affected by the value of its stock and
many of the Board's initial concerns remain. As a result of the transactions,
the combined entity would carry more than $2.3 billion of debt resulting in a
debt-to-equity ratio of more than 71% compared to Safety-Kleen's ratio of
approximately 29%. Safety-Kleen shareholders would own a substantial portion of
the stock in the highly-leveraged company.
The Board remains convinced that Laidlaw Environmental cannot achieve its
estimated $100-$130 million of synergies due to our conviction that there is
very little overlap between Safety-Kleen's core service business and Laidlaw's
landfill and incineration business. We do not believe that Laidlaw can
accomplish more than $26.4 million to $28.4 million of synergies without
significant reduction in service quality, revenue and profit. Laidlaw
Environmental's proposed transaction would not prove accretive to shareholders
without Laidlaw Environmental achieving significant synergies. It is important
to emphasize that Laidlaw Environmental has a base of 18,000 mid to large-size
customers compared with Safety-Kleen's nearly 400,000 customers consisting
primarily of smaller-quantity generators. Safety-Kleen has a very transaction-
driven business performing over five million services annually.
Your Directors also considered the value of the $12.00 common stock portion
of Laidlaw Environmental's offer which is dependent upon its stock trading above
$4.29 per share. The Laidlaw Environmental stock, which has frequently traded
below this minimum level, was viewed by the Board as relatively volatile. On
February 6, 1998, Laidlaw Environmental common stock closed at $4.19 per share.
The Board is concerned about the potential impact on the market price of Laidlaw
Environmental stock from the massive issuance of 129 million to 162 million
shares that would result from this
<PAGE>
transaction and other risks relating to Laidlaw Environmental stock described in
the proxy supplement, as well as general economic and market uncertainties. The
Board believes that given the risks inherent in taking Laidlaw Environmental
stock at this time, an all cash $27 per share transaction is preferable.
The significant differences between the business operations of Safety-Kleen
and Laidlaw Environmental were also evaluated as well as the expressed desire of
its parent, Laidlaw, Inc., to deconsolidate Laidlaw Environmental from its
balance sheet. Safety-Kleen recycles; Laidlaw Environmental incinerates and
puts wastes in landfills. The Board believes the latter results in much greater
potential environmental liability. If the Laidlaw Environmental transaction
were completed, Safety-Kleen shareholders would become subject to these
environmental risks from hazardous waste landfills and incinerators.
The Board, together with the principals of the Philip Group, remains
committed to seeking approval of the Merger Agreement at a special meeting of
shareholders. That meeting was originally scheduled for February 11. However, in
order to provide shareholders with additional time to consider the information
set forth in the proxy supplement and Schedule 14D-9 Amendment, the February 11
meeting will be adjourned to Wednesday, February 25, 1998, at 3:00 p.m., central
time, at the Elgin Community College Business Conference Center, 1700 Spartan
Drive, Elgin, Illinois 60123. Accordingly, no action on the Merger Agreement
will be taken at the February 11 meeting.
We firmly believe that approval of the Merger Agreement is the best
decision for all shareholders and urge you to vote "FOR" the proposal.
Your Board of Directors and I greatly appreciate your continued support and
encouragement.
Sincerely,
/s/ Donald W. Brinckman
Donald W. Brinckman
Chairman Of The Board
and Chief Executive Officer
Safety-Kleen stated today that it is filing with the Securities and Exchange
Commission supplemental proxy materials and an amended Schedule 14D-9, which
discusses in detail the factors considered by the Board (including those noted
in Mr. Brinckman's letter) in reaching its determination and conclusions. These
materials will be mailed to shareholders promptly.
Safety-Kleen is a leading environmental and industrial service company dedicated
to helping nearly 400,000 automotive and industrial businesses recycle and
process their waste streams.
<PAGE>
ANNEX A
LOGO
January 31, 1998
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123-78567
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 current proposed offer (the "Current 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
relevant time for comparison is at the respective anticipated closing dates
for the Current LLE Offer and the Merger.
Pursuant to the terms of the Current LLE Offer, LLE and a subsidiary propose
to exchange cash in the amount of $18.00 plus that number of shares of LLE
common stock equal to the Exchange Ratio of not less than 2.24 shares and no
greater than 2.8 shares for each outstanding Common Share of the Company.
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 the outstanding Common Shares of the Company will be converted
into a right for the Shareholder to receive $27.00 per share in cash.
On two prior occasions, you requested our opinion with respect to two
previously proposed offers from LLE. On both occasions (December 20, 1997 and
January 6, 1998) we stated that, based upon the analysis indicated, we did not
have a basis for concluding that at the anticipated closing date of the
proposed offers they would be superior from a financial point of view to the
Merger. The indicated analysis included an assessment of factors which could
influence the trading price of the common stock of LLE on the anticipated
closing dates. We have updated the various analyses for purposes of rendering
this opinion. Then, as now, our opinion reflects only limited access to LLE
management and no access to internal LLE projections.
In rendering this opinion, we have assumed that the merger or the Current
LLE Offer would be consummated on the terms described in the Merger Agreement
or the LLE prospectus dated January 28, 1998, respectively, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Merger or the Current 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 1997 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 the rendering of our fairness
opinion as it relates to the Merger. Upon the consummation of either the
Merger or the Current LLE 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.
A-1
<PAGE>
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 Current LLE Offer, as the case may be.
As of the date hereof, based upon and subject to the foregoing, it is our
opinion as investment bankers that it is more likely than not that, as of the
time of anticipated closing of the Current LLE Offer, the value of the
consideration which would be received under the Current LLE Offer would exceed
the value of the consideration which would be received in the Merger.
Very truly yours,
William Blair & Company, L.L.C.
A-2
