SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No._________)
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SAFETY-KLEEN CORP
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(Name of Registrant as Specified in Its Charter)
- - ------------------------------------------------------------------------------
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[LOGO]
March 28, 1997
DEAR SHAREHOLDER:
Our directors and officers join me in extending a cordial invitation to
attend the 1997 annual meeting of shareholders to be held at 10:00 A.M. on
Friday, May 9, 1997 at the Northern Illinois University Hoffman Estates
Education Center, 5555 Trillium Boulevard, Hoffman Estates, Illinois 60192.
In addition to the election of three directors, we will seek approval of an
amendment to the 1993 Stock Option Plan and the Company's Management Incentive
Plan as described in the accompanying Notice and Proxy Statement. We shall also
report on the business and affairs of the Company.
Our Annual Report, including financial statements for fiscal year 1996, is
being mailed with this letter.
Whether you plan to attend or not, we urge you to sign, date and return the
enclosed proxy so as many shares as possible may be represented at the meeting.
The vote of every shareholder is important and your cooperation in returning
your executed proxy promptly will be appreciated.
The continuing interest of the shareholders in the business of the Company
is gratefully acknowledged, and we hope many will attend the meeting.
Sincerely,
/S/ DONALD W. BRINCKMAN
----------------------------
DONALD W. BRINCKMAN
CHAIRMAN OF THE BOARD
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 1997
The 1997 annual meeting of shareholders of Safety-Kleen Corp.
("Safety-Kleen" or the "Company") will be held at the Northern Illinois
University Hoffman Estates Education Center, 5555 Trillium Boulevard, Hoffman
Estates, Illinois 60192, at 10:00 A.M., Chicago time, on Friday, May 9, 1997
for the following purposes:
1. To elect three persons to Safety-Kleen's Board of Directors to serve
three-year terms and until their successors are elected and qualified.
The Board of Directors recommends that shareholders vote FOR the three
incumbent directors nominated by the Board.
2. To approve an amendment to the Company's 1993 Stock Option Plan allowing
certain compensation paid to senior executives to be fully tax deductible to
the Company as "performance-based" compensation under Section 162(m) of the
Internal Revenue Code. The Board of Directors recommends that shareholders
vote FOR this proposal.
3. To approve the material terms of the Management Incentive Plan allowing
certain compensation paid to senior executives to be fully tax deductible
to the Company as "performance-based" compensation under Section 162(m) of
the Internal Revenue Code. The Board of Directors recommends that
shareholders vote FOR this proposal.
4. To transact such other business as may properly come before the
meeting.
A Proxy Statement containing information regarding the above appears on the
following pages.
Shareholders of record as of the close of business on March 13, 1997 are
entitled to receive notice of and to vote at the annual meeting.
We hope you can attend the meeting in person. However, even if you plan to
do so, WE URGE THAT YOU MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY to Safety-Kleen so that we may be assured of a quorum to transact
business. The proxy is revocable. Accordingly, your return of the enclosed proxy
form will not affect your right to vote in person at the meeting if you desire
to do so.
By Order of the Board of Directors
ROBERT W. WILLMSCHEN, JR.
SECRETARY
March 28, 1997
Elgin, Illinois
YOUR VOTE IS IMPORTANT
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
[LOGO]
--------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 1997
This Proxy Statement was first mailed on or about March 28, 1997 to
shareholders of Safety-Kleen Corp. ("Safety-Kleen" or the "Company") in
connection with the solicitation of proxies by Safety-Kleen's Board of Directors
(the "Board of Directors" or "Board") to be used at the 1997 annual meeting of
Safety-Kleen's shareholders and any adjournments thereof. The meeting will be
held on Friday, May 9, 1997, at 10:00 A.M., Chicago time, at the Northern
Illinois University Hoffman Estates Education Center, 5555 Trillium Boulevard,
Hoffman Estates, Illinois 60192.
PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors. The
cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, officers and regular employees of the Company may solicit
proxies by telephone, facsimile or in person without extra compensation.
Proxies in the accompanying form, properly executed and received by
Safety-Kleen's Secretary prior to the meeting and not revoked, will be voted as
directed thereon or, in the absence of such direction, will be voted as follows:
(i) FOR the election to the Board of Directors of the three persons nominated by
the Board; (ii) FOR approval of the amendment to the Company's 1993 Stock Option
Plan allowing certain compensation paid to senior executives to be fully tax
deductible to the Company as "performance-based" compensation under Section
162(m) of the Internal Revenue Code; (iii) FOR approval of the material terms of
the Management Incentive Plan allowing certain compensation paid to senior
executives to be fully tax deductible to the Company as "performance-based"
compensation under Section 162(m) of the Internal Revenue Code; and (iv) in
accordance with the judgment of the persons acting under the proxies with
respect to any other matters that may come before the meeting. Any such proxy
may be revoked by the person or persons giving it at any time before it has been
voted by giving written notice of such revocation to Safety-Kleen's Secretary,
by submitting prior to the vote a subsequently dated proxy or by attending the
meeting and voting in person. Attendance at the meeting by a shareholder will
not in itself revoke a previously delivered proxy.
RECORD DATE, SHARES OUTSTANDING AND VOTING
Shareholders of record as of the close of business on March 13, 1997 are
entitled to vote at the annual meeting. On March 13, 1997, 58,269,924 shares of
Safety-Kleen's common stock, par value $.10 per share (the "Common Stock"), were
outstanding and are entitled to be voted at the annual meeting. Each share of
Common Stock entitles the holder to one vote on each matter to be acted on. A
majority of the Common Stock outstanding on the record date will constitute a
quorum for the transaction of business at the annual meeting, but if a quorum
should not be present, the meeting may be adjourned from time to time until a
quorum is obtained. For quorum and voting purposes, abstentions are treated as
present and entitled to vote and thus have the effect of a vote against a
matter. The Company will treat broker non-votes as present for purposes of
establishing a quorum.
1
Broker non-votes as to any proposal will be treated as not entitled to vote
on that matter and thus not counted in determining whether a matter requiring
approval of a majority of the shares present and entitled to vote has been
approved or whether a plurality of the vote of the shares present and entitled
to vote has been cast.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Common Stock ownership as of February 26,
1997 of (i) shareholders who, to the knowledge of the Company, owned
beneficially more than 5% of the outstanding shares of Common Stock; (ii) each
of the Company's directors; (iii) each named executive officer and (iv) the
Company's directors and executive officers as a group.
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OWNED(1) COMMON STOCK(2)
---- ---------------- ---------------
FIVE PERCENT SHAREHOLDERS
FMR Corp.
82 Devonshire St., Boston, MA 02109 ......... 7,471,843 12.82%
EMERY FAMILY GROUP
- - ------------------
Joan Emery Lammers
1801 Seminary St., Alton, IL 62002 .......... 1,948,673(3) 3.34%
William H. Emery II
11388 SW Riverwoods Rd., Portland, OR 97219.. 1,665,202 2.86%
Lucy T. Otzen
100 Anchor Drive, #472, N. Key Largo,
FL 33037 .................................... 1,480,581(4) 2.54%
Edward W. Emery, Jr
Route 18, Box 13, Bedford, In 47421 ......... 102,171(5) .18%
Circle L Enterprises L.P.
Landmark Center, P.O. Box 1056, Lake
Geneva, WI 53147 ............................ 1,367,520(4) 2.35%
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Donald W. Brinckman ......................... 869,156(6) 1.48%
Joseph Chalhoub ............................. 350,683(7) *
David A. Dattilo ............................ 119,972(8) *
Richard T. Farmer ........................... 42,750(9) *
Russell A. Gwillim .......................... 197,981(10) *
F. Henry Habicht II ......................... 42,226(11) *
Edgar D. Jannotta ........................... 67,500(9) *
John G. Johnson, Jr ......................... 91,513(12) *
Karl G. Otzen ............................... 1,480,581(4) 2.54%
Paul D. Schrage ............................. 31,180(9) *
Marcia E. Williams .......................... 8,500(13) *
W. Gordon Wood .............................. 70,805(9) *
ALL DIRECTORS AND OFFICERS AS A GROUP
(22 individuals) ............................ 4,134,770(14) 6.91%
- - -----------------------
* Denotes less than one percent of shares outstanding.
(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
(2) Shares subject to options exercisable within 60 days of February 26, 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 February 26,
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, 431,091 shares subject to options
exercisable within 60 days of February 26, 1997 and 1,033 shares held in
the Company's 401(k) plan as to which he does not have voting control.
(7) 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 75,549 shares subject to options
exercisable within 60 days of February 26, 1997.
(8) Includes 88,627 shares subject to options exercisable within 60 days of
February 26, 1997.
(9) Includes 30,000 shares subject to options exercisable within 60 days of
February 26, 1997.
(10) Includes 30,223 shares owned by his wife and 30,000 shares subject to
options exercisable within 60 days of February 26, 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.
(11) Includes 39,712 shares subject to options exercisable within 60 days of
February 26, 1997 and 114 shares held in the Company's 401(k) plan as to
which he does not have voting control.
(12) Includes 700 shares owned by his wife, 81,962 shares subject to options
exercisable within 60 days of February 26, 1997 and 322 shares held in the
Company's 401(k) plan as to which he does not have voting control.
(13) Includes 7,500 shares subject to options exercisable within 60 days of
February 26, 1997.
(14) Includes 1,537,470 shares subject to options exercisable within 60 days of
February 26, 1997 and 1,798 shares held in the Company's 401(k) plan as to
which they do not have voting control.
PROPOSAL 1: ELECTION OF DIRECTORS
The Company's nine directors are divided into three classes with three
directors elected for a term expiring at the 1999 annual meeting, three
directors elected for a term expiring at the 1998 annual meeting and three
directors elected for a term expiring at the 1997 annual meeting. One class of
directors is elected each year for a three-year term. The terms of Messrs.
Farmer, Johnson and Schrage expire at the 1997 annual meeting, and they are
nominated for re-election to serve three-year terms expiring in 2000 and until
their successors are chosen and have qualified. Directors will be elected at the
annual meeting by a plurality of the votes cast at the meeting by the holders of
shares entitled to vote in the election represented in person or by proxy. If
any of the nominees should be
3
unable or unwilling to serve as a director, an event that is not anticipated,
the proxies will be voted for substitute nominees designated by the Board of
Directors. There is no cumulative voting as to any matter, including the
election of directors. The following sets forth information as to each of the
nominees for election at the meeting and each director continuing in office.
The Board of Directors recommends that shareholders vote FOR Proposal 1.
Proxies solicited by the Board of Directors will be so voted unless shareholders
specify in their proxies that such votes be withheld.
CLASS OF 2000: (NOMINEES)
Director since 1986
RICHARD T. FARMER Age 62
Mr. Farmer has been Chairman of Cintas Corporation, a uniform
manufacturer and supplier, since 1968. Mr. Farmer was also Chief Executive
Officer since 1968, but relinquished that post on August 1, 1995. He has been
employed by that company since 1957. He is also a director of Fifth Third
Bancorp, Cincinnati, Ohio. Mr. Farmer is Chairman of the Board Affairs and
Nominating Committee and a member of the Compensation Committee.
Director since 1993
JOHN G. JOHNSON, JR. Age 56
Mr. Johnson has been Chief Executive Officer of the Company since January 1,
1995. He was elected President and a director of the Company in May 1993. He
joined Safety-Kleen in January, 1993 as Assistant to the Chairman/CEO. Prior to
joining Safety-Kleen, Mr. Johnson was employed by ARCO since 1958. He served as
Senior Vice President of ARCO Chemical Company since 1986. In 1987, he became a
director and in 1988 was given the added responsibility of President of ARCO
Chemical Americas, a division of ARCO Chemical Company. He is also a director of
McWhorter Technologies, Carpentersville, Illinois.
Director since 1981
PAUL D. SCHRAGE Age 62
Mr. Schrage has been Senior Executive Vice President and Chief Marketing
Officer of McDonald's Corporation, a restaurant franchisor and operator, since
1984 and has been employed by that company since 1967. He is also a director of
McDonald's Corporation, Oak Brook, Illinois. Mr. Schrage is the Chairman of the
Audit Committee and a member of the Board Affairs and Nominating Committee and
the Environmental Committee.
CLASS OF 1999:
Director since 1968
DONALD W. BRINCKMAN Age 66
Mr. Brinckman relinquished his post as Chief Executive Officer of the
Company as of December 31, 1994, a position he held since 1968. He served as
President of the Company from 1968 to August 1990 and from December 1991
until May 1993. Mr. Brinckman was appointed Chairman of the Company's Board
of Directors in August 1990. He is also a director of Johnson Worldwide
Associates, Inc., Racine, Wisconsin; Paychex, Inc., Rochester, New York and
Snap-On Incorporated, Kenosha, Wisconsin. Mr. Brinckman is Chairman of the
Executive Committee and is a member of the Environmental Committee.
4
Director since 1994
MARCIA E. WILLIAMS Age 50
Ms. Williams has been President of Williams & Vanino, Inc., an
environmental management consulting firm since 1991. From 1988 until 1991,
Ms. Williams was Vice President, Environmental Policy and Planning for
Browning-Ferris Industries, Inc. Between 1970 and 1988 Ms. Williams served in
various positions with the United States Environmental Protection Agency,
including Director, Office of Solid Waste and Deputy Assistant Administrator,
Office of Pesticides and Toxic Substances. Ms. Williams chairs the
Environmental Committee.
Director since 1968
W. GORDON WOOD Age 71
Mr. Wood was Vice President of the Company from 1968 until he retired on
March 31, 1985. Mr. Wood is a member of the Audit Committee.
CLASS OF 1998:
Director since 1968
RUSSELL A. GWILLIM Age 74
Mr. Gwillim was employed by Chicago Rawhide Manufacturing Company, an oil
seals manufacturer, from 1948 until his retirement in 1984. He served as its
President and Chief Executive Officer from 1969 until his retirement. Mr.
Gwillim was named Chairman Emeritus in August, 1990. Prior thereto he was
Chairman of the Board of Directors of the Company since 1968. Mr. Gwillim is
the Chairman of the Compensation Committee and a member of the Executive
Committee.
Director since 1979
EDGAR D. JANNOTTA Age 65
Mr. Jannotta has been employed by William Blair & Company, an investment
banking firm, since 1959 and served as Managing Partner from September 1977
through December 1994. Mr. Jannotta was Senior Partner of William Blair &
Company from January 1, 1995 until January 2, 1996, at which time, the company
converted from a partnership to a limited liability company, William Blair &
Company, L.L.C., and Mr. Jannotta was named Senior Director. He is also a
director of AAR Corp., Elk Grove Village, Illinois; Aon Corporation, Chicago,
Illinois; Bandag, Incorporated, Muscatine, Iowa; Molex Incorporated, Lisle,
Illinois; Oil-Dri Corporation of America, Chicago, Illinois and Unicom
Corporation, Chicago, Illinois. Mr. Jannotta is a member of the Compensation
Committee and the Executive Committee.
Director Since 1984
KARL G. OTZEN Age 55
Mr. Otzen has been President of Gerhard & Company, a product development
consulting firm, since June 1, 1984. He is also Chairman of Gerhard-Sorenson
Company, a consumer products design and manufacturing firm. Mr. Otzen is a
member of the Audit Committee and the Board Affairs and Nominating Committee.
5
ADOPTION OF CORPORATE GOVERNANCE PRINCIPLES
Safety-Kleen's Board of Directors and management are committed to
maintaining a professional, informed and effective Board that functions
independent of and actively evaluates the performance of management and itself
on an on-going basis. In February of 1997, Safety-Kleen's Board affirmed its
commitment to these principles by formally adopting a statement of the Board's
corporate governance policies. Following is a summary of the policies:
1. BOARD RESPONSIBILITIES AND ACCOUNTABILITY
DIRECTOR COMPENSATION. 100 percent of the directors' annual retainers will
be paid in Safety-Kleen stock or stock equivalents. Directors may elect to have
their meeting fees paid in stock or stock equivalents as well. All directors
will be required to own at least 1,000 shares of Safety-Kleen stock within one
year of their election. Safety-Kleen will not provide pension or retirement
plans to directors.
MANAGEMENT COMPENSATION. A significant portion of the officers' and key
managers' compensation should be tied to the Company's success in meeting
predetermined financial performance goals that are directly linked to corporate
performance and returns to shareholders.
MEETING PREPARATION. A Board meeting book containing written materials
covering the items to be discussed at full Board meetings will be distributed in
a timely manner prior to each meeting unless impracticable. Directors will
review these materials and be prepared to participate in Board meetings.
2. BOARD PROCESSES AND PROCEDURES
COMMITTEES. The Board will establish committees and delegate defined
responsibilities to such committees to maximize the operational efficiency of
the Board. All Board committee members will be selected by the Board. The Board
Affairs and Nominating Committee will meet as required to evaluate performance,
composition and operation of the Board and its committees, director succession
planning and corporate governance policies.
ACCESS TO MANAGEMENT. Directors should have open and direct access to
members of management.
3. DIRECTOR SELECTION
INDEPENDENCE. A majority of the directors should be independent. All
members of the Compensation and Board Affairs and Nominating committees
should be independent. A majority of the Audit committee members should be
independent.
SELECTION CRITERIA. When considering candidates for Board membership,
professional qualifications, independence and Board diversity should be the
primary selection criteria. There should be no interlocking directorships.
4. BOARD EVALUATION
NON-MANAGEMENT DIRECTOR EXECUTIVE SESSIONS. "Executive sessions" of
non-management directors will be included as agenda items at every full Board
meeting. In the event the Chairman of the Board is a member of management, the
Board will elect a lead director from among the independent directors to lead
the Board in critical independent director functions.
6
EVALUATION OF MANAGEMENT'S BUSINESS PLANS. Once each year, management will
present and the Board will critically assess and vote on an operating plan for
the next fiscal year and a long-range strategic business plan.
MANDATORY RETIREMENT. An individual that is 70 years of age or older shall
not be eligible for nomination as a director; provided, however, that those
individuals who were serving on the Board at the time this principle was adopted
shall be eligible for nomination as directors for one additional term after they
have attained the age of 70.
DIRECTORS' COMMITTEES, MEETINGS AND COMPENSATION
BOARD COMMITTEES
The Board of Directors has, pursuant to its powers, designated Compensation,
Board Affairs and Nominating, Audit, Environmental and Executive Committees of
the Board. The committee members have been identified
above.
COMPENSATION COMMITTEE. The Compensation Committee is responsible for acting
on behalf of the Board of Directors in connection with administering the
Company's Management Incentive Plan and the Company's stock option plans,
determining compensation of all officers of the Company and approving salary
grades of certain management positions. The Compensation Committee met once in
1996.
BOARD AFFAIRS AND NOMINATING COMMITTEE. In February of 1997, the Board of
Directors expanded the responsibilities of the Nominating Committee and renamed
the committee the "Board Affairs and Nominating Committee." The Board Affairs
and Nominating Committee's role is to identify and recommend qualified
candidates to the Board for election as directors, evaluate the performance,
composition and operation of the Board and its committees and review the Board's
corporate governance practices. The Board Affairs and Nominating Committee will
consider nominations of director candidates by shareholders, submitted in
accordance with the Company's bylaws. The bylaws currently require persons
submitting nominations to provide certain information not less than 60 nor more
than 90 days prior to the annual meeting, and in certain instances, within 10
days after the date of the annual meeting is announced. The first meeting of the
Board Affairs and Nominating Committee occurred in February of 1997. The
Nominating Committee did not meet during 1996.
AUDIT COMMITTEE. The primary functions of the Audit Committee are: to
recommend to the Board of Directors the selection of independent auditors; to
review the scope of the independent auditor's examination; to review with the
independent auditors the results of their audits; to review the adequacy of
internal controls with the independent auditors, the Company's internal auditors
and certain officers of the Company; and to perform such other duties as shall
from time to time be delegated to the Audit Committee by the Board. The Audit
Committee met twice in 1996.
ENVIRONMENTAL COMMITTEE. The primary function of the Environmental
Committee is to monitor the Company's environmental, health, and safety
performance and policies. The Environmental Committee met twice in 1996.
EXECUTIVE COMMITTEE. The Executive Committee exercises the powers of the
full Board of Directors with respect to the management of the Company's business
where it would be impractical to either convene a special meeting of the full
Board of Directors to deal with any matter or delay action until the next
regular meeting of the Board of Directors. The Executive Committee did not meet
in 1996.
7
BOARD MEETINGS
In 1996, The Board of Directors met six times. During 1996, each incumbent
director, except for Mr. Jannotta, attended at least 75%, in the aggregate, of
all meetings of the Board and the committee(s) on which such director served.
Mr. Jannotta attended five of the six board meetings and, although he was
consulted in connection with the business presented at the one Compensation
Committee meeting in 1996, he was unable to attend such meeting.
BOARD COMPENSATION
Directors who are employees of the Company receive no additional
compensation for their services as directors. In 1996, directors who were not
employees received $12,000, plus $2,000 for each Board or committee meeting
attended and were reimbursed for travel and other expenses related to attendance
at Board and committee meetings. In February 1988, a nonqualified stock option
plan for outside directors (the "Directors' Plan") was adopted by the Board and
approved by the shareholders at the 1988 annual meeting. The Directors' Plan
allows eligible directors of the Company to purchase up to an aggregate of
300,000 shares of Common Stock at a price equal to the fair market value of the
Common Stock on the date such options are granted. Only directors who are not
employees of the Company are eligible to participate in the Director's Plan.
Pursuant to the Directors' Plan, an option to purchase 15,000 shares of the
Company's Common Stock (i) was granted to each director serving on the Board on
the date the Directors' Plan was adopted and (ii) is granted to each new outside
director at the time such director is named or appointed to the Board. The
Director's Plan also provides for the automatic grant of a second option to
purchase 15,000 shares to each outside director on the fifth anniversary of the
initial grant of options to such director, but only if such director is still
serving on the Board at that time. Options are exercisable 25 percent annually,
on a cumulative basis, starting one year from date of grant and expire ten years
from date of grant.
8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table specifies the components of the compensation packages of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company (the "named executive officers")
for the last three fiscal years.
LONG-TERM
ANNUAL COMPENSATION COMP.
--------------------- ---------
AWARDS
----------
SECURITIES
UNDERLYING ALL OTHER
OPTION/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1)(2) (#)(2) (3)
--------------------------- ---- ------ ----------- ------ ------
John G. Johnson, Jr.................. 1996 417,901 272,010 65,000 3,750
President and CEO 1995 391,661 119,170 50,000 2,625
1994 310,384 119,600 47,750 2,250
Donald W. Brinckman (4).............. 1996 417,062 183,968 37,750 3,750
Chairman 1995 404,615 84,840 30,000 2,625
1994 440,000 138,000 64,600 2,250
Joseph Chalhoub...................... 1996 220,221 141,976 28,650 3,750
Senior Vice President 1995 205,855 86,514 22,450 2,859
1994 183,594 66,420 28,600 4,510
David A. Dattilo..................... 1996 191,470 137,502 25,800 3,750
Senior Vice President 1995 185,444 78,815 21,000 2,625
1994 178,500 68,850 29,550 2,250
F. Henry Habicht II.................. 1996 190,916 128,019 25,050 3,750
Senior Vice President 1995 182,738 78,815 20,900 2,266
1994 162,765 66,900 24,350 1,145
- - ---------------------
(1) The amounts shown in the bonus column represent payments under the Company's
Management Incentive Plan described under the caption "Compensation
Committee Report."
(2) Bonuses are paid and stock options are granted in February of each year
based on performance during the prior year. Accordingly, bonus payments and
option grants are reported in this table for the year to which they relate,
instead of the year in which they were paid or granted.
(3) 1996 amounts reported represent Company contributions to the Savings and
Investment Plan, a defined contribution plan.
(4) Mr. Brinckman retired as an executive officer effective March 17, 1997.
He will continue to serve as Chairman of the Board.
9
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information related to option/SARs granted to
the named executive officers during fiscal 1996.
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL POTENTIAL REALIZABLE VALUE
UNDERLYING OPTIONS/SARS EXERCISE AT ASSUMED ANNUAL RATES
OPTIONS/SARS GRANTED TO OR BASE OF STOCK PRICE
GRANTED EMPLOYEES PRICE EXPIRATION APPRECIATION FOR OPTION TERM
(#)(1) IN FISCAL YEAR ($/SH) DATE --------------------------------
NAME 5%($)(2) 10%($)(2)
---- ----------- -------------- -------- ---------- -------- ---------
John G. Johnson, Jr 50,000 5.82% $ 15.125 2/2/06 $ 475,598 $ 1,205,265
Donald W. Brinckman 30,000 3.49% 15.125 2/2/06 285,359 723,159
Joseph Chalhoub 22,450 2.61% 15.125 2/2/06 213,543 541,164
David A. Dattilo 21,000 2.44% 15.125 2/2/06 199,751 506,211
F. Henry Habicht II 20,900 2.43% 15.125 2/2/06 198,800 503,801
Shareholders(3) N/A N/A N/A N/A 554,046,703 1,404,063,125
- - ------------
(1) All options are nonqualified, expire 10 years from date of grant, were
issued at fair market value on the date of grant and vest at the rate of 25%
per year beginning one year from grant date. Options granted to executive
officers have a tandem limited stock appreciation right (LSAR) which
entitles the officer to elect to receive a "Change of Control Value" (as
described in the 1993 Stock Option Plan) of the option in cash in the event
a change of control occurs. Does not include options granted in February of
1997 relating to fiscal 1996 and reported in the Summary Compensation Table
as compensation earned in 1996. See Note 2 to Summary Compensation Table.
(2) The potential realizable value portion of the foregoing table illustrates
the gain that might be realized upon the exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation of the Company's Common Stock over the term of the
option. Actual gains, if any, on the stock option exercises are dependent on
the future performance of the Common Stock, overall market conditions, as
well as the option holders' continued employment through the vesting period.
The amounts reflected in this table may not necessarily be achieved.
(3) With respect to shareholders, the potential realizable value illustrates the
gain that might be realized on the 58,246,939 shares of Common Stock issued
and outstanding as of year end, assuming the specified compounded rates of
appreciation of the Company's Common Stock over the term of the options. The
value is calculated based on the Exercise or Base Price of the option grant
on February 2, 1996 of $15.125 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information related to options exercised by the
named executive officers during fiscal year 1996 and the number and value of
options held at fiscal year end.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END (#)(1) FISCAL YEAR END ($)(1)(2)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXCERSISABLE EXERCISABLE UNEXERCISABLE
---- ------- -------- ---------- -------------- ----------- -------------
John G. Johnson, Jr......... 0 $0 47,474 104,126 $36,322 $105,513
Donald W. Brinckman......... 0 0 390,141 109,601 67,218 95,974
Joseph Chalhoub............. 0 0 57,087 54,063 22,390 52,289
David A. Dattilo............ 0 0 70,214 53,401 22,479 50,382
F. Henry Habicht II......... 0 0 25,749 49,251 19,650 47,523
- - ----------------
(1) Does not include options granted in February of 1997 relating to fiscal 1996
and reported in the Summary Compensation Table as compensation earned in
1996. See Note 2 to Summary Compensation Table.
(2) Represents the difference between the per share exercise price and the
closing price of the Common Stock on December 27, 1996 ($16.625).
10
PENSION PLAN
The following table reflects annual pension benefits commencing at age 65
based upon assumed final pay amounts and years of credited service:
ESTIMATED ANNUAL PENSION BASED UPON
INDICATED YEARS OF CREDITED SERVICE FOR THE
PENSION PLAN AND THE EXCESS BENEFIT PLAN
ASSUMED
AVERAGE
ANNUAL 10 15 20 25 30 35 40
FINAL PAY YEARS YEARS YEARS YEARS YEARS YEARS YEARS
- - -------- -------- -------- -------- -------- -------- -------- --------
$250,000 41,186 61,778 82,371 102,964 123,557 123,767 123,977
300,000 49,521 74,281 99,041 123,802 148,562 148,772 148,982
350,000 57,856 86,783 115,711 144,639 173,567 173,777 173,987
400,000 66,191 99,286 132,381 165,477 198,572 198,782 198,992
450,000 74,526 111,788 149,051 186,314 223,577 223,787 223,997
500,000 82,861 124,291 165,721 207,152 248,582 248,792 249,002
550,000 91,196 136,793 182,391 227,989 273,587 273,797 274,007
600,000 99,531 149,296 199,061 248,827 298,592 298,802 299,012
650,000 107,866 161,798 215,731 269,664 323,597 323,807 324,017
700,000 116,201 174,301 232,401 290,502 348,602 348,812 349,022
750,000 124,536 186,803 249,071 311,339 373,607 373,817 374,027
800,000 132,871 199,306 265,741 332,177 398,612 398,822 399,032
850,000 141,206 211,808 282,411 353,014 423,617 423,827 424,037
The Safety-Kleen Pension Plan for Salaried Employees (the "Pension Plan")
provides retirement benefits for life for salaried employees, including
executive officers, of the Company and its participating subsidiaries. Pensions
are based on final pay, which is defined as the average annual earnings
(including commissions and incentive compensation) for the five consecutive
years which yield the highest average. For the named executive officers, covered
compensation is substantially the same as the sum of the Salary and Bonus
columns for 1996 on the Summary Compensation Table. The pensions are payable
monthly commencing the first calendar month after retirement. Various provisions
under the Internal Revenue Code of 1986, as amended (the "Code") limit the
accrued benefit payable under the Pension Plan, currently to $120,000, and limit
the amount of annual compensation that may be taken into account in determining
pension benefits, currently to $150,000.
Under the Safety-Kleen Corp. Excess Benefit Plan (the "Excess Benefit
Plan"), executive officers are generally entitled to the difference between the
benefits actually paid to them under the Pension Plan and the benefits which
they would have received under the Pension Plan were it not for certain
restrictions imposed under the Code, discussed above. The Excess Benefit Plan
also provides that the executive officers' benefits are calculated on the
highest five of their last ten years' compensation and that any executive
officer who has attained both the age of 60 years and 30 years of service will
receive an unreduced pension benefit.
The amounts shown above are computed on straight-life annuity amounts and
are not subject to deduction for Social Security Benefits or other offset
amounts. The amounts are assumed payable under the Pension Plan option providing
lifetime benefits for the employee only, and would be reduced if the retiree
elected a surviving spouse's pension. Messrs. Johnson, Brinckman, Chalhoub,
Dattilo and Habicht had 4 years, 37 years, 19 years, 29 years and 4 years,
respectively, of credited service under the Pension Plan as of December 31,
1996. Mr. Chalhoub's benefits paid under the Pension Plan will be offset by
benefits payable under a defined contribution plan administered by Safety-Kleen
Canada, Inc. which he participated in for the first 17 years of his employment.
11
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
The Company has agreed to provide executive life insurance to 37 of its
officers and key managers (including the named executive officers) whereby the
Company and executive contribute to a life insurance policy owned by the
executive; no such contributions were made during 1996.
The Company has entered into agreements with twenty of its officers and
other vice presidents, including the named executive officers, providing for the
payment of certain severance benefits in the event the officer or vice president
is terminated within three years after a change in control of the Company (which
is generally defined as the purchase by any person or group of persons of more
than 20% of the issued and outstanding Common Stock, a change in the majority of
the members of the Board over a 24-month period, or certain corporate
reorganizations) for reasons other than a voluntary termination or discharge for
cause (as both terms are defined in such contracts). Benefits under these
contracts include the payment of a lump sum severance benefit equal to three
times the executive's annual salary at the time of termination (or if greater,
at the time of the change in control), plus three times the greater of (i) the
bonus he received for the previous year or (ii) the maximum bonus to which he
could be entitled for the year in which the termination occurs.
Each of the severance agreements provides for a reduction of payments due
under such agreement, to the extent that such payments, together with all other
amounts payable to the executive other than payments attributable to options
granted him under the Company's stock option plans, constitute "excess parachute
payments" under federal tax law. The contract also provides that the Company
will reimburse the executive for any additional income taxes (including excise
taxes) he incurs as a result of payments upon termination (including payments
attributable to options) being treated as excess parachute payments under
federal income tax law.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Pursuant to the rules regarding disclosures of Company policies concerning
executive compensation, this report is submitted by Messrs. Farmer, Gwillim, and
Jannotta in their capacity as the Board's Compensation Committee and addresses
the Company's compensation policies for 1996 as they affected Mr. Johnson, the
Chief Executive Officer ("CEO"), and the Company's other executive officers,
including the named executive officers.
OVERVIEW OF EXECUTIVE COMPENSATION POLICY. The Company's compensation
philosophy is incentive oriented, particularly for executive officers. The key
elements of the Company's executive compensation program consist of salary,
annual bonus, and stock options. The annual bonus portion of the officers'
compensation is incentive based and is directly linked to corporate performance
and returns to shareholders. Accordingly, the Company has developed an overall
compensation strategy and specific compensation plans that tie a significant
portion of executive compensation to the Company's success in meeting specified
performance goals and to appreciation in the Company's stock price. The overall
objectives of this strategy are to motivate the CEO and the executive officers
to achieve the goals inherent in the Company's business strategy, to link
executive and shareholder interests through equity-based plans, and finally, to
provide a compensation package that recognizes individual contributions, as well
as overall business results.
In determining compensation, the Compensation Committee compares the
executive officers' compensation to the compensation paid to persons in
comparable positions at comparable companies. While the elements of compensation
described below are considered separately, the Compensation Committee takes into
account the full compensation package provided by the Company to the individual,
including pension benefits, supplemental retirement benefits, severance plans,
insurance, and other benefits. The comparable companies used for this comparison
are not the same companies that comprise the peer group index in the Stock
Performance Graph on page 15, because the
12
Compensation Committee believes that the Company's competitors for
executive talent are not generally the companies included in that index.
For these purposes, comparable companies are approximately 67 companies,
surveyed by an outside consulting firm, whose sales, assets, shareholders'
equity, net income, return on equity, and total number of employees are similar
to those of the Company (the "Primary Survey Group"). For purposes of
evaluating compensation of the CEO and the other named executive officers, the
Compensation Committee also reviews data on a special survey group
(the "Special Survey Group"). The Special Survey Group reports the compensation
paid to the named executives holding comparable positions at publicly traded
industrial companies with sales between $800 million and $1.2 billion and with
earnings between $50 million and $80 million. For 1996, the Special Survey Group
consisted of 26 companies.
In addition, the Compensation Committee receives the recommendations of the
CEO for the compensation to be paid the executive officers, other than the CEO
and the Chairman of the Board. This process is designed to ensure consistency
throughout the executive compensation program.
Section 162(m) of the Internal Revenue Code precludes publicly-held
companies from taking income tax deductions for compensation paid to its CEO or
any of its four other most highly paid executive officers to the extent any such
individual's taxable compensation for the year exceeds $1 million. However,
compensation that qualifies as "performance-based" under Section 162(m) is not
subject to the $1 million deduction limit. To qualify as "performance-based,"
compensation payments must, among other things, be based on objective
performance criteria established under a plan, the material terms of which have
been approved by shareholders.
The Compensation Committee intends to design the Company's compensation
programs to generally conform with Section 162(m) so that in the event total
compensation paid to any executive officer exceeds $1 million in any one year,
compensation payments in excess of $1 million should qualify as
"performance-based," and the Company will preserve its tax deduction with
respect to those payments. Pursuant to this policy, an amendment to the
Company's 1993 Stock Option Plan and the material terms of the Company's
Management Incentive Plan are being presented for shareholder approval so that
amounts realized by participants under such plans will qualify as
"performance-based" under Section 162(m).
SALARIES. Salaries for executive officers are determined by (i) subjectively
evaluating the responsibilities of the position held and the experience and
performance of the individual and (ii) comparing base salaries for comparable
positions at comparable companies. Salaries paid to the named executive
officers, including Mr. Johnson, in 1996 were below the fiftieth percentile of
the amount paid for comparable positions among the Special Survey Group.
ANNUAL BONUS. The Company's executive officers are eligible for an annual
cash bonus under the Company's Management Incentive Plan (the "Incentive Plan").
The purpose of the Incentive Plan is to supplement through an incentive bonus
the pay for executive officers (and other key management personnel) so that
overall total cash compensation (salary and bonus) is externally competitive and
properly rewards Incentive Plan participants for their efforts in achieving
certain specified performance goals. For 1996, if the Company had met these
performance goals, total cash compensation (salary and bonus) would have been
below the seventy-fifth percentile of the amount paid for comparable positions
among the Primary Survey Group.
The Incentive Plan operates as follows. In 1996, the Board of Directors
reviewed the profit plan (the "Profit Plan") for the year and created an
incentive fund, consisting of both a formula and personal performance fund,
based on earnings results relative to the Profit Plan. In order to qualify for
the minimum percentage of earnings allocable to the formula portion of the
incentive fund, Safety-Kleen had to attain consolidated net earnings equal to
80% of Profit Plan consolidated net earnings. In order to qualify for the
maximum percentage of earnings allocable to the formula
13
portion of the incentive fund, Safety-Kleen had to attain consolidated
net earnings equal to at least 120% of Profit Plan consolidated net earnings.
At the minimum consolidated net earnings level, a formula incentive
fund consisting of 1% of consolidated pretax earnings would have been created.
This factor rose on a graduated basis to a maximum of 5.0% of
consolidated pretax earnings at the maximum level. Each
participant was allocated a percentage of the bonus pool based on the
participant's responsibilities at the Company. At the beginning of 1996, the
Compensation Committee reviewed the CEO's recommendations for participants in
the Incentive Plan and determined the list of plan participants and the
percentage share of the formula pool for each participant. For 1996, there were
116 participants in the Incentive Plan
In addition to a share of the formula pool, Incentive Plan participants were
also eligible for personal performance bonuses payable in the discretion of the
Compensation Committee in an amount not to exceed 50% of his or her share of the
formula pool. Thus, the aggregate maximum annual bonus payments were 7.5% of
pre-tax earnings. After the Company received its audited year-end financial
statements and the size of the formula bonus pool was determined, the
Compensation Committee reviewed the CEO's recommendations for each participant's
discretionary award based on the participant's individual contributions to the
Company and determined the participants' discretionary shares. The Incentive
Plan also provided for the Board of Directors to make a determination,
notwithstanding the other plan provisions, regarding the amount of the bonus
pool and the awards to be paid to individual participants. This provision
permitted the Board of Directors to make whatever changes it deemed necessary to
preserve the purposes and objectives of the Incentive Plan.
For 1996, a formula pool of 3.3% of pre-tax earnings was allocated to
participants. Discretionary bonuses increased the size of the total pool
allocated to participants to 4.1% of pre-tax earnings. For 1996, Mr. Johnson
received 5.45% of the formula bonus pool under the Incentive Plan and a
discretionary bonus equal to 40% of his formula bonus.
For 1997, the Board of Directors approved a new Management Incentive Plan. A
bonus pool will be created in a manner similar to 1996. However, annual bonus
payments to participants for 1997 will be determined based on incremental
improvements in Economic Value Added(R) ("EVA(R)"). EVA measures a firm's true
economic profit after subtracting the cost of all capital employed by the firm.
EVA was selected to determine bonus payments to participants under the Company's
incentive plan because the Company believes improvements in EVA are closely
correlated to improvements in shareholders' total return.
STOCK OPTIONS. Stock option grants under the 1993 Stock Option Plan are
designed to align the long-term interests of the Company's executives and its
shareholders and assist in the retention of executives. Stock options are
granted with an exercise price equal to the market price on the date of grant.
The Company's practice is to award options at the beginning of each year and
vest such options at the rate of 25% per year beginning at the one-year
anniversary of the grant. This approach is designed to create shareholder value
over the long-term because the full benefit of the options cannot be realized
unless stock price appreciation occurs over a number of years.
In February 1996, the Compensation Committee recommended and the Board of
Directors granted nonqualified stock options under the 1993 Stock Option Plan to
all executive officers, as well as certain other employees. The grants made to
each executive officer, including the CEO, were based on each executive's level
in the Company and immediate prior year's total cash compensation. The number of
options granted to each executive officer was determined by (i) multiplying the
executive's total cash compensation by a specified percentage (which ranged from
150% to 80%) depending upon the executive officer's level of responsibility
within the Company and (ii) dividing the product obtained in (i) by the
Company's average stock price for the prior year. Applying a 150% multiplier for
14
Mr. Johnson, he was granted 50,000 options. This formula approach, which is
indirectly based on competitive compensation data, provides for awards based on
current duties and responsibilities, as well as present and potential
contributions to the success of the Company.
Russell A. Gwillim, Chairman
Richard T. Farmer
Edgar D. Jannotta
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Common Stock during the five fiscal years ended December 28, 1996 with the
cumulative total return on the Standard & Poor's 500 Index and the Smith Barney
Shearson Hazardous Waste Index. The comparison assumes $100 was invested on
December 31, 1991 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
SAFETY-KLEEN CORP, STANDARD & POOR'S 500 INDEX AND SMITH BARNEY
SHEARSON HAZARDOUS WASTE INDEX
[GRAPH]
1991 1992 1993 1994 1995 1996
- - -------------------------------------------------------------------------
SAFETY KLEEN CORP $100 $ 94 $ 66 $ 61 $ 66 $ 71
SMITH BARNEY SHEARSON HAZARDOUS
WASTE INDEX 100 94 74 61 65 55
STANDARD & POOR'S 500 INDEX 100 108 118 120 165 203
15
PROPOSALS TO PRESERVE THE COMPANY'S TAX DEDUCTION FOR CERTAIN COMPENSATION
PAID TO SENIOR EXECUTIVES UNDER SECTION 162(M)
OF THE INTERNAL REVENUE CODE
The Board of Directors of the Company has adopted, subject to shareholder
approval, an amendment to the 1993 Stock Option Plan (the "Option Plan") and the
Management Incentive Plan (the "Incentive Plan") so that annual incentive awards
given to senior executives will qualify as "performance-based" compensation
under Section 162(m) of the Internal Revenue Code. Section 162(m) generally
provides that the amount which the Company may deduct on its tax return for
compensation paid to its chief executive officer and the four other most
highly-compensated executive officers in any taxable year is limited to $1
million per individual. However, compensation that qualifies as
"performance-based" is not subject to the $1 million deduction limit. In order
for compensation under the Option Plan to be considered "performance-based," the
maximum number of shares with respect to which options or stock appreciation
rights may be granted to an individual under the Option Plan during a given time
period must be stated in the plan. In order for compensation under the Incentive
Plan to qualify as "performance-based," the material terms of the Incentive Plan
must be disclosed to and approved by the shareholders.
PROPOSAL 2: APPROVAL OF PROPOSED AMENDMENT TO THE 1993 STOCK OPTION PLAN
In order to qualify compensation resulting from the exercise of stock
options under the Option Plan as "performance-based" under Section 162(m), the
Board adopted an amendment to the Option Plan, subject to shareholder approval.
The amendment provides that the number of shares of Common Stock that may be
subject to stock options or stock appreciation rights granted to any participant
under the Option Plan in any fiscal year may not exceed 500,000 shares. The
effectiveness of the amendment is contingent on shareholder approval at the
annual meeting, and if so approved, the amendment will be effective when
approved by shareholders and until the Option Plan is terminated.
Except for the limit placed on the number of shares underlying stock options
that may be granted under the Option Plan, the amendment will not affect the
other provisions of the Option Plan and, in particular, will not increase the
number of shares available under or extend the term of the plan, which expires
on December 31, 2002. A summary of the material features of the Option Plan, as
amended, is set forth in Appendix 1 attached hereto. A copy of the plan may be
obtained by sending a written request to the Corporate Secretary.
Adoption of the foregoing proposal requires the affirmative vote of the
majority of the shares of Common Stock present or represented, and entitled to
vote at the annual meeting of shareholders.
The Board of Directors recommends that shareholders vote FOR Proposal 2.
PROPOSAL 3: APPROVAL OF MATERIAL TERMS OF THE MANAGEMENT INCENTIVE PLAN
The material terms of the Incentive Plan must be approved by shareholders in
order for certain payments made to senior officers under the Incentive Plan to
be considered "performance-based" and deductible by the Company for income tax
purposes. The material terms of the Incentive Plan are described below.
16
MATERIAL TERMS OF THE MANAGEMENT INCENTIVE PLAN. The Company's executive
officers and other key management personnel, as determined by the Compensation
Committee, are eligible for cash bonuses under the Incentive Plan. Bonuses under
the plan are paid out of a bonus pool that is established by the Compensation
Committee based on the Company's actual performance compared to one or more
Performance Measures (as defined below).
No later than 90 days after the beginning of each fiscal year, the
Compensation Committee will select the persons who will be eligible to
participate in the Incentive Plan. At that time, the Compensation Committee will
also allocate the bonus pool among the participants, which allocation may be
based on one or more Performance Measures and satisfaction of written
performance goals with respect to each selected Performance Measure. The
Incentive Plan performance goals may be based on any one or more of the
following criteria (the "Performance Measures") or a combination thereof: (i)
net earnings; (ii) earnings per share; (iii) earnings before interest, taxes,
depreciation and/or amortization; (iv) pre-tax operating income; (v) return on
equity; (vi) return on assets; (vii) cash flows; (viii) return on invested
capital; (ix) Economic Value Added; and (x) total shareholder return. These
criteria can be applied on either an absolute or relative (with respect to the
Company's operating plans, the Company's past performance or the performance of
other companies) basis, and on either a consolidated or business unit level. In
addition, to the extent consistent with the goal of providing for deductibility
under Section 162(m), the Compensation Committee may consider other performance
criteria in determining the level of actual payouts from the bonus pool. The
Compensation Committee has the discretion to payout less than the full amount of
the bonus pool.
The maximum amount of compensation that may be paid under the Incentive Plan
to any participant in any given fiscal year is the lesser of 200% of the
participant's base salary or $900,000. The Compensation Committee may not
increase the amount of any participant's bonus under the Incentive Plan as so
determined, but may reduce, or totally eliminate, such bonus if the Compensation
Committee determines that such a reduction or elimination is appropriate in
order to reflect the participant's performance or other factors.
All payments pursuant to the Incentive Plan are to be made in cash, unless
the Compensation Committee determines otherwise, and only after the Compensation
Committee certifies that the pre-established performance goals for that
particular year have been satisfied.
The Incentive Plan shall be in effect for the Company's fiscal year ended
January 3, 1998 and will continue in effect for subsequent years unless and
until terminated by the Compensation Committee in accordance with the provisions
of the plan. The Board may suspend, amend or terminate the Incentive Plan
without shareholder approval at any time, except to the extent Section 162(m)
requires shareholder approval thereof.
Adoption of the foregoing proposal requires the affirmative vote of the
majority of the shares of Common Stock present or represented, and entitled to
vote at the annual meeting of shareholders.
The Board of Directors recommends that shareholders vote FOR Proposal 3.
17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers and directors are required to file under
the Exchange Act reports of ownership and changes of ownership with the
Securities and Exchange Commission and the New York Stock Exchange.
Based solely on information provided to the Company by executive officers
and directors, the Company believes that during the preceding year all filing
requirements applicable to executive officers and directors under Section 16(a)
of the Exchange Act have been satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1987, the Company purchased its oil processing business from enterprises
controlled by Joseph Chalhoub. Mr. Chalhoub is now a Senior Vice President of
the Company and supervises, among other things, the Company's oil reprocessing
business. Mr. Chalhoub holds a 31% interest in Booth Oil Company, Inc.
("Booth"). Booth was the operator of an oil reprocessing facility in Buffalo,
New York which is owned by the Company (the "Facility"). Booth operated the
Facility until June of 1996, when the Company assumed responsibility for
operations. The Company paid Booth approximately $1.5 million for processing
services at the Facility during 1996. The Company believes that the prices it
paid for processing and management services at the Facility were competitive
with the prices it would have been required to pay at other third party
facilities
During 1996, the Company paid approximately $150,000 to Williams & Vanino,
Inc., for environmental management consulting services. Marcia E. Williams, a
director of the Company, is President of Williams & Vanino. In addition, Marcia
Williams' husband is a partner with the law firm of Latham & Watkins.
Safety-Kleen utilized Latham & Watkins for legal services in 1996.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent public
accountants, as auditors for its fiscal year ending January 3, 1998, upon the
recommendation of its Audit Committee.
The firm of Arthur Andersen LLP has audited the accounts of the Company
since 1968. A representative of the firm of Arthur Andersen LLP will be in
attendance at the annual meeting with the opportunity to make a statement if
such representative desires to do so and will be available to respond to
shareholder questions.
18
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the Proxy Statement relating to
the 1998 annual shareholders' meeting, any proposal by a shareholder must be
received by the Company at its principal executive office in Elgin, Illinois, no
later than November 21, 1997. Any such proposals, as well as any questions
related thereto, should be directed to the Secretary of the Company.
Pursuant to the Company's bylaws, shareholder nominations and proposals for
business to be brought before a meeting of shareholders of the Company must
satisfy certain advance notice provisions set forth in the bylaws. These
provisions require timely notice of shareholder nominations and proposals to be
given in writing to the Company, generally not less than 60 days nor more than
90 days prior to the date of the meeting to which such notice relates.
OTHER INFORMATION
Safety-Kleen's management does not know of any other matters that will be
presented for action at the 1997 annual meeting. Should any other matter come
before the meeting, however, the proxies will be voted with respect to such
matter in accordance with the judgment of the persons acting under the proxies.
A COPY OF SAFETY-KLEEN'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 28, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MAY BE
OBTAINED WITHOUT CHARGE BY SENDING A WRITTEN REQUEST FOR SUCH REPORT TO:
ROBERT W. WILLMSCHEN, JR.
SR. VICE PRESIDENT AND SECRETARY
SAFETY-KLEEN CORP.
1000 NORTH RANDALL RD.
ELGIN, ILLINOIS 60123
By Order of the Board of Directors
Robert W. Willmschen, Jr.
SECRETARY
March 28, 1997
Elgin, Illinois
19
APPENDIX 1
MATERIAL TERMS OF THE 1993 STOCK OPTION PLAN
Options granted under the 1993 Stock Option Plan (the "1993 Plan") may be
either incentive options qualified under Section 422 of the Code ("ISOs") or
nonqualified options ("NQOs"). The 1993 Plan will be administered by the
Compensation Committee or other committee constituted by the Company's Board of
Directors (the "Committee"). The maximum number of shares of Common Stock which
may be issued pursuant to exercise of options under the 1993 Plan is 5,250,000.
The number of shares which may be issued under the 1993 Plan is subject to
adjustment as described below. At February 26, 1997, the closing price of the
Company's Common Stock was $18.00.
The Committee will determine the employees to whom options may be granted,
the number of shares of Common Stock to be covered thereby and the other terms
and provisions of such grant. Employees who are members of the Committee and
Directors of the Company who are not also employees of the Company or any of its
subsidiaries will not be eligible to participate in the 1993 Plan. Executive
officers and other key employees of the Company will be eligible to participate
in the 1993 Plan.
Each option granted pursuant to the 1993 Plan will be evidenced by a stock
option agreement which will state the total number of shares of Common Stock to
which it pertains, the price, the time or times at which such option shall
become exercisable and such other terms and provisions as shall comply with the
1993 Plan. The price at which each share of Common Stock may be purchased may
not be less than the per share market value on the grant date except if any
person shall become employed by the Company or any of its subsidiaries by reason
of the acquisition by the Company of the business by which such person was
previously employed or if the Company or any subsidiary shall hire a person who
was previously employed by an employer other than the Company or any of its
subsidiaries, then a stock option may be granted to such person having an
aggregate spread at the grant date equal to the aggregate spread (as reasonably
determined by the Committee) on any options granted to such person by such
person's former employer which shall be canceled or given up by such person in
connection with such acquisition or change of employment.
The Committee may grant options that provide that if the grantee delivers
shares to satisfy all or part of the exercise price upon exercise of the option,
such person will automatically be granted a new option entitling the holder to
purchase a number of shares equal to the number of shares delivered in
connection with the exercise of such option at a purchase price equal to the per
share market value on the exercise date of the exercise. The Committee has never
granted options with this feature.
The 1993 Plan contains provisions regarding Limited Stock Appreciation
Rights ("LSARs") and Stock Appreciation rights ("SARs"). The LSARs provide that
if there is a Change of Control of the Company, then each person holding an LSAR
will, on exercise of the LSAR, receive a cash payment for the Change of Control
Value of the options held. The Change of Control Value is based upon the
difference between the exercise price of the option and the highest per share
market value of the Company's Common Stock during the 180 days preceding the
exercise of the LSAR or, if greater, the highest price per share paid for the
Common Stock in connection with the Change of Control. The 1993 Plan provides
that unless the Committee otherwise determines, LSARs will automatically be
granted in tandem with stock options granted under the 1993 Plan to officers who
become subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") and that such LSARs will automatically be deemed exercised on
the date of the Change of Control. The Committee also has, but to date has not
exercised, the authority to grant SARs which are exercisable even if no Change
of Control has occurred provided that the payment on exercise of such SARs would
be equal to the difference between the exercise price of the related stock
option and the market value of the
A-1
Company's Common Stock on the date of exercise. LSARs and SARs
may only be granted in tandem with purchase options so
that the number of shares available under the option will be reduced by the
number of shares for which the LSAR or SAR is exercised and vice versa.
Each option granted under the 1993 Plan will expire 10 years after it is
granted (unless the Committee specifies an earlier expiration date). No LSAR or
SAR may be exercised after the expiration of the stock option with respect to
which it was granted. If for any reason any shares remain subject to any LSAR,
SAR or option when it expires, those shares may be used again for options
thereafter granted under the 1993 Plan. In addition, if the holder of any option
satisfies all or part of the purchase price payable upon exercise of the option
by the delivery of shares already owned by the option holder, then the shares so
delivered may be used (in addition to all shares otherwise available under the
1993 Plan) for options subsequently granted under the 1993 Plan.
The Committee shall adjust the number of shares available and options
granted under the 1993 Plan and the price at which shares may be purchased upon
exercise of such options to reflect stock splits, mergers and other similar
events.
The Board of Directors may at any time terminate the 1993 Plan or make such
changes or amendments as it deems advisable. However, the Board of Directors may
not, without the approval of holders of a majority of the shares of Common Stock
of the Company, increase the number of shares subject to the 1993 Plan other
than to reflect a change in capitalization or lower the minimum exercise price.
If not earlier terminated by the Board of Directors, the 1993 Plan will
terminate on December 31, 2002. No options may be granted under the 1993 Plan
after it terminates, but options granted prior to the termination of the 1993
Plan may be exercised after termination at any time during the option term.
The maximum number of shares of Common Stock underlying options that may be
subject to stock options or stock appreciation rights granted to any one
employee in any fiscal year under the 1993 Plan, as amended, is 500,000 shares.
A-2
[LOGO] Printed on Recycled paper.
[X] Please mark your 2897
votes as in this -----
example.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTORS AND FOR PROPOSALS 2 AND 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
FOR WITHHELD
1. Election [_] [_] R. T. Farmer,
of Directors, J. G. Johnson, Jr.
nominees: and P. D. Schrage
For, except vote withheld from the following nominee(s):
- - ------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
FOR AGAINST ABSTAIN
2. Approve amendment to the 1993 [_] [_] [_]
Stock Option Plan.
3. Approve the Management
Incentive Plan. [_] [_] [_]
[_] Change of
Address Comments
on Reverse Side
SIGNATURE(S) ________________ DATE _______ The signer hereby revokes all
proxies heretofore given by the
signer to vote at said meeting
or any adjournments thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- - -------------------------------------------------------------------------------
FOLD AND DETACH HERE
[LOGO]
March 28, 1997
DEAR SHAREHOLDER:
Our directors and officers join me in extending a cordial invitation to
attend the 1997 annual meeting of shareholders to be held at 10:00 A.M. on
Friday, May 9, 1997 at the Northern Illinois University Hoffman Estates
Education Center, 5555 Trillium Boulevard, Hoffman Estates, Illinois 60192.
In addition to the election of three directors, we will seek approval of
an amendment to the 1993 Stock Option Plan and the Company's Management
Incentive Plan as described in the accompanying Notice and Proxy Statement. We
shall also report on the business and affairs of the Company.
Our Annual Report, including financial statements for fiscal year 1996,
is being mailed with this letter.
Whether you plan to attend or not, we urge you to sign, date and return
the enclosed proxy so as many shares as possible may be represented at the
meeting. The vote of every shareholder is important and your cooperation in
returning your executed proxy promptly will be appreciated.
The continuing interest of the shareholders in the business of the
Company is gratefully acknowledged, and we hope many will attend the meeting.
Sincerely,
/S/ DONALD W. BRINCKMAN
DONALD W. BRINCKMAN
CHAIRMAN OF THE BOARD
[LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P Russell A. Gwillim and Karl G. Otzen, and either of them are appointed
R Proxies, with power of substitution, to vote all stock of the undersigned
O at the annual meeting of shareholders to be held May 9, 1997 at 10:00 a.m.
X at the Hoffman Estates Education Center, 5555 Trillium Boulevard, Hoffman
Y Estates, Illinois 60192, and at any adjournment thereof, upon the matters
mentioned hereafter, and in their discretion upon such matters as may
properly come before said meeting. Receipt of Notice, dated March 28, 1997
of Annual Meeting and accompanying Proxy Statement is acknowledged, and any
Proxy previously given is revoked.
Election of Directors, Nominees:
Richard T. Farmer, John G. Johnson, Jr. and
Paul D. Schrage
COMMENTS: (change of address)
----------------------------
----------------------------
----------------------------
----------------------------
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
[SEE REVERSE SIDE]
-----------------------------------------------------------------------------
FOLD AND DETACH HERE
DIRECTIONS TO SAFETY-KLEEN CORP'S ANNUAL MEETING OF SHAREHOLDERS
NORTHERN ILLINOIS UNIVERSITY - HOFFMAN ESTATES EDUCATION CENTER
[MAP]
EASILY ACCESSIBLE FROM INTERSTATE 90
- - ------------------------------------
Exit Route 59 north to Higgins Road (Rt.72)
Turn west (left) onto Higgins Road
Turn south (left) onto Trillium Boulevard
Stay on Trillium as it winds toward Beverely Road.
Go to the last building on the left side of Trillium. Look for light brick
building with the barrel roof and a glass tower.
[Note: NIU campus is located on left side of Trillium, Sears campus is
located on the right side.]