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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(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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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 (the "LLE 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 had estimated in soliciting 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. On January 5, 1998, LLE publicly announced that in the interests of
clarity, it has adjusted the LLE Offer to limit the deductions from the cash
portion of such offer to up to $75 million of termination fees or expenses
pursuant to the Merger Agreement, which LLE has estimated could amount to
$1.17 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, 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
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fair price standards are satisfied. 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 LLE Offer Consideration did not 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 30, 1997, directors and executive officers held in the
aggregate options to purchase 2,375,614 Shares (including 2,180,614 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, supplemental retirement and any other nonqualified 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 to (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 30, 1997, directors and executive officers held in the
aggregate options to purchase 2,375,614 Shares (including 2,180,614 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 $24,452,904, 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 reviewed Safety-Kleen's recent operating results and the
pace at which Safety-Kleen's strategic plans were being implemented and
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
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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 that by mutual agreement, John G. Johnson,
Jr., President, Chief Executive Officer and director of Safety-Kleen, had
resigned as such, effective immediately. 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, Senior Vice 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
alternative of remaining independent, including the possibility of a
substantial increase in debt to finance a stock buy-back program and the
possible sale or write-off of certain operations. 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 reach any conclusions or 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
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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.
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 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. Brinckman, Mr. Chalhoub, 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.
In that meeting, Mr. Bullock communicated Laidlaw Environmental's estimate of
expected annual savings that would arise from such combination. Mr. Brinckman
and Mr. Chalhoub stated that a substantial portion of those proposed synergies
could not be achieved without significant reduction in service quality,
revenue and profit. 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 significantly 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.
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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 and told Philip that
there would be a strong preference for an all cash offer. This preference
reflected a Board view that, although a cash transaction would be taxable to
shareholders, with the Shares trading at their highest price since January
1993, 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
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investigations; and LLE's intention communicated to Safety-Kleen at the
November 5th meeting 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. 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 (the "Wisconsin
Constituency Statute").
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.
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 participate in the proposed acquisition. On
November 17th, 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 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
under the Wisconsin Constituency Statute of the effects of the Philip Merger
Agreement on Safety-Kleen's employees. In addition, the Board considered the
fact that Mr. Jannotta, a director of Safety-Kleen, is a Senior Director of
William Blair.
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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 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 attached hereto as Annex A 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 (including Parent's advice that it looked forward to
discussing participation by current management in the equity of Surviving
Corporation through stock option or similar plans and the potential
investment by Safety-Kleen management in SK Parent) 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.
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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
termination 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.
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 review of that revised offer, the Board and
its advisors preliminarily 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 million to $130 million synergies
it outlined in the LLE Offer without significant reduction in service quality,
revenue and profit; and (iii) the conditional nature of the financing for the
LLE Offer. As contemplated by the Wisconsin Constituency Statute, 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 in conflict with the interests of Safety-Kleen shareholders
as sellers of their Shares pursuant to the Philip Merger Agreement.
Accordingly, the Board considered the letter as a source of issues to be
independently considered when it considered the LLE Offer.
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 entering into
the Philip Merger Agreement, including the termination fees and expenses, and
for failure to amend the Rights Agreement to make it inapplicable to the LLE
Offer, 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.
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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.
On December 20, 1997, the Board met to consider the LLE Offer and took
actions referred to in this Item 4.
On January 5, 1998, LLE publicly announced that in the interests of clarity
it has adjusted the LLE Offer to limit the deductions from the cash portion of
such offer to up to $75 million in termination fees and expenses, which LLE
estimates to equal approximately $1.17 per Share on a fully diluted basis if
the entire $75 million were paid. The Board held a special meeting on January
6, 1998. At that meeting, William Blair confirmed to the Board that in
connection with its presentation to the Board on December 20th and the
rendering of its December 20th written opinion, it took into account the
possibility that the deductions from the cash portion of the LLE Offer could
be no more than $75 million in termination fees and expenses (see "--(3)
Opinions of Financial Advisor--December 20, 1997 Opinion"). Accordingly,
William Blair confirmed that the announced clarification of the LLE Offer does
not change its December 20th opinion. The Board also reviewed its December
20th deliberations with respect to the deductions from the cash portion of the
LLE Offer, confirmed that among the factors it had taken into account was the
possibility that such deductions might be no more than $75 million and
confirmed its rejection of the LLE Offer, notwithstanding LLE's announced
clarification of such offer. The Board also reaffirmed its determination that
the terms of the Philip Merger Agreement are in the best interests of Safety-
Kleen and its shareholders.
(2) Reasons For The Recommendation.
In reaching the conclusions with respect to the LLE Offer referred to in
Item 4(a), the Board, at its meeting on December 20, 1997, 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
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Blair's presentation). While it reached that conclusion, William Blair
did not, and was not engaged to, render an opinion as to whether the
Philip Merger is superior to the LLE Offer from a financial point of
view. 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 LLE Offer and (ii) exercising its
fiduciary duties with respect thereto. 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;
(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 more than
$26.4 million to $28.4 million of the $100 million to $130 million of
synergies it outlined in the 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--December 20, 1997 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");
(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 (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);
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(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 (see "--(3) Opinions of Financial
Advisor--December 20, 1997 Opinion--3. Possible price/earnings multiple
contraction in LLE Common Stock prior to closing");
(d) the fact that the LLE Offer would result in an entity that has
debt of approximately $2.1 billion compared with LLE's current debt of
approximately $890 million, 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 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; a comparison of
the conditions to the LLE Offer, including the condition (the "Final
Judicial Determination Condition") that LLE receive a final judicial
determination (1) to the effect that Safety-Kleen is not obligated to, and
may not, pay any termination fees or expenses pursuant to the Philip Merger
Agreement or any incremental costs, including the cost of new severance
arrangements and other expenses Safety-Kleen may incur, in connection with
the Philip Merger or (2) stating the amount of such fees, expenses and
costs that Safety-Kleen is required to pay, to the conditions to the Philip
Merger indicated that although both the Philip Merger and the LLE Offer are
subject to significant risks of non-consummation, the Final Judicial
Determination Condition, unlike the conditions to the Philip Merger, is
unlikely to be satisfied before mid-1998;
(vii) the Board's disagreement, based upon an oral summary by Safety-
Kleen's legal counsel of information provided to counsel by Arthur Andersen
L.L.P., with LLE's Pro Forma Financial Information disclosed in the LLE
Registration Statement with respect to whether it fairly allocates the
purchase price and/or selects appropriate useful lives for Safety-Kleen's
assets so as to comply with generally accepted accounting principles. A
limited 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 $629.6
million to $1.9 billion and records related depreciation expense of
$32.4 million, 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 could be made using
the changes to LLE's assumptions set forth below. Such changes to LLE's
allocation (which changes were based primarily on publicly available
information and not on appraisals of Safety-Kleen's assets and liabilities)
materially increases the loss from combined continuing operations by an
amount estimated to be approximately $0.12 per share, after tax, and has a
material negative impact on pro forma combined tangible net worth. Such
changed assumptions (which did not include input from LLE as to its future
intended use of Safety-Kleen's assets or other actions) were:
(1) the value of Safety-Kleen's property, plant and equipment and
equipment at customers is its original cost as disclosed in Safety-
Kleen's 1996 Annual Financial Statements (on the assumption that
appraisal would restore those depreciated assets to that level);
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(2) a value of Safety-Kleen's customer list 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 (adjusted to
reflect 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, including the
fact that:
(a) the Final Judicial Determination Condition is unlikely to be
satisfied before mid-1998. A preliminary hearing on this matter has
been scheduled by the Federal District Court for the Northern District
of Illinois for January 28, 1998; however, there can be no assurance as
to the timing of any final judicial determination; and
(b) unless LLE beneficially owns at least 90% of the outstanding
Shares after consummation of the LLE Offer, (1) 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 (2) 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 (x) the holders
of a least 80% of the outstanding Shares and (y) 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 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 LLE Offer
Consideration were less than the 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 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 (see "Item 8.
Additional Information To Be Furnished--(c) State Takeover Statues--
Fair Price Statute");
(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;
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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, at the November 5th 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.
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 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 Philip 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.
Set forth below is a description, in summary form, of 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
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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 Philip 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 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 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
Philip 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 Philip 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.
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.
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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 Philip Merger compared favorably, from Safety-Kleen's
perspective, to the median of the corresponding multiples of the comparable
companies. Specifically, the terms of the Philip 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 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
include assumptions regarding volume growth and pricing in Safety-Kleen's
principal businesses. Over the five year period ending 2002, Safety-Kleen
management projected volume growth for three of Safety-Kleen's principal
businesses--North American Parts Cleaner Services, North American Industrial
Waste Services and Automotive Parts Cleaner Services--to be 3.2%, 5.0% and
0.0% and annual price increases to be 5.6%, 2.7% and 1.0%, respectively. In
its Oil Recovery Services business, Safety-Kleen management projected revenue
to increase at a compound annual rate of 11% over the five year period ending
2002. Approximately 62% of the Oil Recovery Services growth is expected to
result from increased sales of lubricating oils, primarily blended products.
Also, approximately 9% of the total increase in Oil Recovery Services revenue
over the same period reflects increases in base lubricating oil from $0.91 in
1998 to $1.00 by 2001. The balance of the increase reflects increases in oil
collection volume and price. The estimates for cash flows are based upon the
assumption that markets for the hazardous waste industry and the U.S. and
international economic conditions remain relatively stable. 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
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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 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
21
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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. See clause
(i)(a) of "--(2) Reasons for The Recommendation." 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 Annex B 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.
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 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.
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
22
<PAGE>
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.
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 Ended
-------------------------------------
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>
23
<PAGE>
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. 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 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
24
<PAGE>
"--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, which has a 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.
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
25
<PAGE>
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 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.
However, 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%.
William Blair believes that 25% is an appropriate control premium because it is
less
26
<PAGE>
than the median premiums in the 22 industrial transactions, and therefore a
conservative discount from the low and high intrinsic value per share of the
pro forma combined entity. William Blair compared the aforementioned intrinsic
values of $3.29 to $4.65 per share (as discounted for such control premium to
$2.63 to $3.72 per share) 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. William Blair noted that the range of discounted
intrinsic value of shares of the pro forma combined entity is below the values
necessary to result in the consideration in the LLE transaction equalling the
consideration in the Philip Merger.
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 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.
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<PAGE>
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 (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
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<PAGE>
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.
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.
29
<PAGE>
(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 Statute. 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, although the matter is not free from doubt)
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 of a
plan of liquidation and certain other transactions involving an "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. A "resident domestic
corporation" is generally defined as a domestic corporation that satisfies any
of the following: (i) its principal offices are located in Wisconsin; (ii) it
has significant business operations located in Wisconsin; (iii) more than 10%
of the holders of record of its shares are residents of Wisconsin; or (iv) more
than 10% of its shares are held of record by residents of Wisconsin. 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, although the
matter is not free from doubt) 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
30
<PAGE>
exercise of options or warrants, of a resident domestic corporation (which
Safety-Kleen believes it is, although the matter is not free from doubt) 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 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 LLE 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 would have expired
at 11:59 p.m., New York City time, on December 26, 1997, except that Laidlaw
Inc., the parent of LLE, and Safety-Kleen have received a request for
additional information from the Antitrust Division. The result of this second
request is that the waiting period is extended until 20 calendar days after the
requested material has been provided by Laidlaw Inc. to the Antitrust Division,
unless the Division terminates the waiting period prior thereto. A similar
request for additional information has been received with respect to the Philip
Merger, with respect to which the waiting period will expire 20 calender days
after the requested material has been provided by Safety-Kleen, Philip, Apollo
and Blackstone to the Antitrust Division, unless the Division terminates the
waiting period prior thereto. Safety-Kleen cannot predict the expiration date
of such waiting periods.
31
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain information contained in this Statement regarding matters that are
not historical facts, including any statements, forecasts, projections and
descriptions of anticipated synergies or other effects of the Philip Merger or
the LLE Offer, are forward-looking statements. When used in this Statement,
the words "believes," "anticipates," "may," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to risks, uncertainties and assumptions, including
those identified below. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. There are
many factors that could cause actual results to differ materially, such as:
adoption of new environmental laws and regulations and changes in the way
environmental laws and regulations are interpreted and enforced; general
business conditions, such as the level of competition, changes in demand for
Safety-Kleen's services and the strength of the economy in general; prices for
petroleum based products; changes in control of Safety-Kleen; the difficulties
of predicting synergies from the integration of businesses following a change
of control; changes in management; and the occurrence of natural disasters and
other occurrences beyond the control of Safety-Kleen. These and other factors
are discussed in this Statement, Safety-Kleen's Annual Report on Form 10-K and
other documents Safety-Kleen has filed with the Commission. Safety-Kleen
undertakes no obligation to update any such factors or to publicly announce
the result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments, except as may be required in
periodic filings with the Commission under the Securities Exchange Act of
1934, as amended.
32
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Except as noted below, the following Exhibits have been previously filed in
connection with this Statement:
<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
(refiled herewith).
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).
</TABLE>
- --------
*Included in copies mailed to shareholders and refiled herewith.
33
<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: January 6, 1998
34
<PAGE>
EXHIBIT 2
SHARES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Share ownership as of December 30, 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 7.15%
Emery Family Group:
Joan Emery Lammers
1801 Seminary St., Alton, IL 62002........ 1,942,673(3) 3.28%
William H. Emery II
11388 SW Riverwoods Rd., Portland, OR
97219..................................... 1,645,510 2.78%
Lucy T. Otzen
100 Anchor Drive, #472, N. Key Largo, FL
33037..................................... 1,481,093(4) 2.50%
Edward W. Emery, Jr.
Route 18, Box 13, Bedford, IN 47421....... 69,621(5) .12%
Circle L. Enterprises L.P.
Landmark Center, P.O. Box 1056,
Lake Geneva, WI 53147.................... 1,367,520(4) 2.31%
DIRECTORS AND EXECUTIVE OFFICERS:
Donald W. Brinckman.......................... 907,105(6) 1.52%
Hyman K. Bielsky............................. 75,914(7) *
Roy D. Bullinger............................. 80,325(8) *
Robert J. Burian............................. 145,348(9) *
Andrew A. Campbell........................... -- *
Michael H. Carney............................ 155,918(10) *
Joseph Chalhoub.............................. 375,071(11) *
David A. Dattilo............................. 143,522(12) *
Lawrence Davenport........................... 15,047(13) *
Richard T. Farmer............................ 43,390(14) *
Scott E. Fore................................ 110,452(15) *
Russell A. Gwillim........................... 198,493(16) *
F. Henry Habicht II.......................... 67,345(17) *
Edgar D. Jannotta............................ 67,500(14) *
John G. Johnson, Jr.......................... 135,338(18) *
Scott D. Krill............................... 8,641(19) *
Karl G. Otzen................................ 1,481,093(4) 2.50%
Clark J. Rose................................ 95,763(20) *
Laurence M. Rudnick.......................... 53,816(21) *
Paul D. Schrage.............................. 31,180(14) *
C. James Schulz.............................. 23,050(22) *
Marcia E. Williams........................... 12,250(23) *
Robert W. Willmschen......................... 50,537(24) *
W. Gordon Wood............................... 71,317(14) *
All Directors and Officers as a Group (24
persons).................................... 4,348,415(25) 7.13%
</TABLE>
- --------
*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 30, 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 30,
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 30, 1997 and 1,265 shares held in
Safety-Kleen's 401(k) plan as to which he does not have voting control.
(7) Includes 71,537 shares subject to options exercisable within 60 days of
December 30, 1997 and 1,692 shares held in Safety-Kleen's 401(k) plan as
to which he does not have voting control.
(8) Includes 69,587 shares subject to options exercisable within 60 days of
December 30, 1997.
(9) Includes 141,487 shares subject to options exercisable within 60 days of
December 30, 1997.
(10) Includes 22,000 shares owned by his wife and 109,449 shares subject to
options exercisable within 60 days of December 30, 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 99,937 shares subject to options
exercisable within 60 days of December 30, 1997.
(12) Includes 112,177 shares subject to options exercisable within 60 days of
December 30, 1997.
(13) Includes 15,025 shares subject to options exercisable within 60 days of
December 30, 1997 and 22 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 30, 1997.
(15) Includes 21 shares owned by his wife and 108,187 shares subject to options
exercisable within 60 days of December 30, 1997 and 336 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 30, 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 64,724 shares subject to options exercisable within 60 days of
December 30, 1997 and 221 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
2
<PAGE>
(18) Includes 130,912 shares subject to options exercisable within 60 days of
December 30, 1997 and 539 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 8,249 shares subject to options exercisable within 60 days of
December 30, 1997 and 292 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(20) Includes 84,006 shares subject to options exercisable within 60 days of
December 30, 1997.
(21) Includes 52,075 shares subject to options exercisable within 60 days of
December 30, 1997.
(22) Includes 21,125 shares subject to options exercisable within 60 days of
December 30, 1997.
(23) Includes 11,250 shares subject to options exercisable within 60 days of
December 30, 1997.
(24) Includes 50,537 shares subject to options exercisable within 60 days of
December 30, 1997.
(25) Includes 1,867,756 shares subject to options exercisable within 60 days of
December 30, 1997 and 4,367 shares held in Safety-Kleen's 401(k) plan as
to which they do not have voting control.
3
<PAGE>
[SAFETY-KLEEN LOGO]
January 6, 1998
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.
As more fully discussed in clauses (v), (vii) and (viii) of "Item 4. The
Solicitation Or Recommendation--(b)(2) Reasons For The Recommendation" and
"--(b)(1) Background" in the attached Schedule 14D-9:
. 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
December 17th and 18th, the stock closed 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 Laidlaw has estimated could amount to $1.17
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 no longer own more than
50% of Laidlaw Environmental and therefore would remove from its balance sheet
the potential liabilities and environmental risks of Laidlaw Environmental,
which are discussed in clause (ix) of "Item 4. The Solicitation or
Recommendation--(b)(2) Reasons For The Recommendation" in the attached
Schedule 14D-9. 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. Detailed information
concerning this merger is set forth in the Proxy Statement enclosed herewith.
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,
/s/ Donald W. Brinckman
Donald W. Brinckman
Founder, Chairman and Chief
Executive Officer
For the Board of Directors
<PAGE>
ANNEX A
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 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
<PAGE>
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.
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<PAGE>
ANNEX B
[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 and 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.
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.
<PAGE>
Board of Directors December 20, 1997
Safety-Kleen Corp.
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 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.
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.
2
