SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. __________]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SAFETY-KLEEN CORP.
................................................................................
(Name of Registrant as Specified in Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(i)(ii), 14a-6(i)(1), 14a-6(i)(2) or
item 22(a)(2) of Schedule 14A.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $.10 per share, of Safety-Kleen Corp., including the
associated common stock purchase rights
(2) Aggregate number of securities to which transaction applies:
58,520,180 shares being acquired in the merger plus 5,271,343 shares
subject to outstanding stock options
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $27.00 (price per share being
paid for outstanding shares pursuant to the merger) or $8.53 (price
per outstanding stock option or warrant, based on $27.00 less the
weighted average exercise price per outstanding option or warrant)
(4) Proposed maximum aggregate value of transaction: $1,629,609,380
(5) Total fee paid: $325,922
[_] Fee previously paid with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:______________________________________________
(2) Form, Schedule or Registration Statement No.:________________________
(3) Filing Party:________________________________________________________
(4) Date Filed: _________________________
PRELIMINARY COPY DATED NOVEMBER 26, 1997
[LOGO]
December ___, 1997
Dear Shareholder:
Our directors and officers join me in extending a cordial invitation to
attend a Special Meeting of Shareholders (the "Special Meeting") to be held at
10:00 a.m., central time, on ___________, __________, 1998 at the First Chicago
Center, The First National Bank of Chicago Building, 38 South Dearborn Street,
Chicago, Illinois 60670.
As described in the accompanying Proxy Statement, at the Special Meeting
you will be asked to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of November 20, 1997 (the "Merger
Agreement"), which provides for the merger (the "Merger") of SK Acquisition
Corp. (the "Purchaser"), a wholly-owned subsidiary of SK Parent Corp.
("Parent"), with and into Safety-Kleen. Parent is a new corporation formed by
Philip Services Corp., affiliates of Apollo Management, L.P. and affiliates of
Blackstone Management Partners III L.L.C.
Under the terms of the Merger Agreement, each share of Safety-Kleen common
stock (including each associated Right as described in the accompanying Proxy
Statement) (other than shares owned by Parent, the Purchaser or any subsidiary
thereof and treasury shares) will be converted in the Merger into the right to
receive $27.00 in cash, without interest. Consummation of the Merger is subject
to certain conditions, including approval and adoption of the Merger Agreement
by the affirmative vote of the holders of two-thirds of the outstanding shares
of Safety-Kleen common stock.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement and has unanimously determined that the
Merger Agreement and the Merger are fair to and in the best interests of Safety-
Kleen and its shareholders, and has unanimously approved and adopted the Merger
Agreement. In addition, Safety-Kleen's financial advisor, William Blair &
Company, L.L.C., has rendered its opinion to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
consideration to be received by holders of Safety-Kleen's common stock in the
Merger was fair, from a financial point of view, to such holders. The Board of
Directors unanimously recommends that you vote "FOR" approval and adoption of
the Merger Agreement.
Detailed information concerning the proposed Merger is set forth in the
accompanying Proxy Statement. I urge you to read the enclosed material
carefully. It is very important that your shares be represented and voted at the
Special Meeting. Whether or not you plan to attend the Special Meeting, please
complete, date, sign and return the proxy card in the enclosed postage paid
envelope. If the Merger is approved, following consummation of the Merger each
shareholder of record will be mailed a transmittal form and instructions for
surrender of stock certificates for payment pursuant to the Merger Agreement.
Please do not surrender your stock certificates until you have received the
letter of transmittal and instructions thereto.
Sincerely,
/s/ Donald W. Brinckman
Donald W. Brinckman
Chairman Of The Board
and Chief Executive Officer
[LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ___________, 1998
A Special Meeting of Shareholders (the "Special Meeting") of Safety-Kleen
Corp., a Wisconsin corporation ("Safety-Kleen"), will be held at the First
Chicago Center, The First National Bank of Chicago Building, 38 South Dearborn
Street, Chicago, Illinois 60670, at 10:00 a.m., central time, on _________,
___________, 1998 for the following purpose:
To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger dated as of November 20, 1997 (the "Merger Agreement"),
among SK Parent Corp., a Delaware corporation ("Parent"), SK Acquisition
Corp., a Wisconsin corporation and wholly owned subsidiary of Parent
("Purchaser"), and Safety-Kleen, pursuant to which (a) the Purchaser will
be merged (the "Merger") with and into Safety-Kleen, with Safety-Kleen to
be the surviving corporation and to become a wholly-owned subsidiary of
Parent, and (b) each outstanding share of Safety-Kleen common stock, par
value $.10 per share (including, unless the context otherwise requires,
each associated Right as defined in the accompanying Proxy Statement, a
"Share" and, collectively, the "Shares") (other than Shares owned by
Parent, the Purchaser or any subsidiary thereof and treasury Shares), will
be converted into the right to receive $27.00, in cash, without interest.
December ___, 1997 has been fixed as the record date ("Record Date") for
the determination of shareholders entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof. Only holders of
record of Shares at the close of business on that date will be entitled to
notice of and to vote at the Special Meeting or any adjournments or
postponements thereof. A list of stockholders of record as of the Record Date
will be available at the Special Meeting.
The accompanying Proxy Statement describes the Merger Agreement (which is
included as Annex A thereto), the proposed Merger and certain actions to be
taken in connection with the Merger. To ensure that your vote will be counted,
please complete, date and sign the enclosed proxy card and return it promptly in
the enclosed postage-paid envelope, whether or not you plan to attend the
Special Meeting. You may revoke your proxy in the manner described in the
accompanying Proxy Statement at any time before it is voted at the Special
Meeting. Executed proxies with no instructions indicated thereon will be voted
"FOR" approval and adoption of the Merger Agreement.
By Order of the Board of Directors
/s/ Scott Krill
Scott Krill
Secretary
December ___, 1997
Elgin, Illinois
YOUR VOTE IS IMPORTANT
PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE
SURRENDER OF YOUR CERTIFICATES.
[LOGO]
__________________________
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ______________, 1998
This Proxy Statement is being furnished to shareholders of Safety-Kleen
Corp. ("Safety-Kleen") in connection with the solicitation of proxies by and on
behalf of Safety-Kleen's Board of Directors (the "Board of Directors" or
"Board") for use at a special meeting (the "Special Meeting") of Safety-Kleen's
shareholders to be held on ____________, _________, 1998, at 10:00 a.m., central
time, at the First Chicago Center, The First National Bank of Chicago Building,
38 South Dearborn Street, Chicago, Illinois 60670 , and at any adjournments or
postponements thereof. This Proxy Statement and the accompanying Notice and
Proxy Card are first being mailed to Safety-Kleen shareholders on or about
December ___, 1997.
At the Special Meeting, Safety-Kleen shareholders will be asked to consider
and act upon a proposal to approve and adopt the Agreement and Plan of Merger
dated as of November 20, 1997 (the "Merger Agreement") among SK Parent Corp., a
Delaware corporation ("Parent"), SK Acquisition Corp., a Wisconsin corporation
and wholly-owned subsidiary of Parent ("Purchaser"), and Safety-Kleen. A copy of
the Merger Agreement is attached hereto as Annex A. Pursuant to the Merger
Agreement (a) Purchaser will be merged (the "Merger") with and into Safety-
Kleen, which will be the surviving corporation ("Surviving Corporation") in the
Merger and will thereby become a wholly-owned subsidiary of Parent, and (b) each
share of Safety-Kleen common stock, par value $.10 per share (including, unless
the context otherwise requires, each associated common stock purchase right
("Right") issued pursuant to the Rights Agreement dated as of November 9, 1988,
as amended (the "Right Agreement"), between Safety-Kleen and The First National
Bank of Chicago, a "Share" and, collectively, the "Shares"), that is outstanding
immediately prior to the Merger (other than Shares owned by Parent, the
Purchaser or any subsidiary thereof or held in the treasury of Safety-Kleen or
any subsidiary of Safety-Kleen) will be converted into the right to receive
$27.00 in cash, without interest.
The Board of Directors unanimously recommends that shareholders vote "FOR"
approval and adoption of the Merger Agreement.
Additional copies of this Proxy Statement and the Proxy Card to be returned
for the Special Meeting can be obtained from Safety-Kleen Corp., One Brinckman
Way, Elgin, Illinois 60123, Attention: Investor Relations, telephone (847) 697-
8460. Questions or requests for assistance in completing and submitting Proxy
Cards should be directed to Chase Mellon Shareholder Services, at 1-888-
224-2734.
All information contained in this Proxy Statement concerning Parent and its
affiliates, including Purchaser, Philip, Apollo and Blackstone, has been
supplied by Parent and has not been independently verified by Safety-Kleen.
Except as otherwise indicated, all other information contained in this Proxy
Statement (or, as permitted by applicable rules and regulations of the
Securities and Exchange Commission, incorporated by reference herein) has been
supplied or prepared by Safety-Kleen.
The date of this Proxy Statement is December ___, 1997.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.............................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................... 1
SUMMARY............................................................ 2
Parties to the Merger Agreement............................... 2
Safety-Kleen Shareholders' Meeting............................ 3
The Merger.................................................... 4
SELECTED FINANCIAL DATA OF SAFETY-KLEEN............................ 8
THE SPECIAL MEETING................................................ 9
General....................................................... 9
Matter to be Considered at the Special Meeting................ 9
Vote Required................................................. 9
Record Date; Voting at the Special Meeting.................... 9
Proxies....................................................... 9
Recess or Adjournment of Meeting and Other Matters............ 10
Information Concerning the Solicitation....................... 10
THE MERGER......................................................... 11
Background of the Merger...................................... 11
Reasons for the Merger; Recommendation of Board of Directors.. 20
Opinion of Financial Advisor.................................. 22
Engagement of Financial Advisors.............................. 26
Interests of Certain Persons in the Merger.................... 27
Financing of the Merger....................................... 30
Accounting Treatment.......................................... 33
Certain Federal Income Tax Consequences....................... 33
Regulatory Approvals.......................................... 34
Appraisal Rights.............................................. 35
THE MERGER AGREEMENT............................................... 35
General....................................................... 35
Conversion of Securities...................................... 35
Stock Options................................................. 36
Directors and Officers; Articles of Incorporation and Bylaws.. 36
Representations and Warranties................................ 37
Conduct of Business Pending the Merger........................ 37
No Solicitation of Proposals.................................. 39
Conditions to Consummation of the Merger...................... 41
Termination, Amendment And Waiver............................. 42
Fees And Expenses............................................. 44
Effect on Benefit Plans and Related Matters................... 44
Notices....................................................... 45
Exchange of Shares for Cash................................... 45
-i-
THE COMPANIES...................................................... 45
Safety-Kleen.................................................. 45
Parent........................................................ 46
Purchaser..................................................... 47
MARKET PRICE OF SHARES AND DIVIDEND POLICY......................... 47
SHARES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....... 49
INDEPENDENT ACCOUNTANTS............................................ 52
CERTAIN LEGAL MATTERS.............................................. 52
SHAREHOLDER PROPOSALS.............................................. 53
ANNEXES
Annex A - Agreement and Plan of Merger............................. A-1
Annex B - Opinion of William Blair & Company, L.L.C................ B-1
Annex C - Participant Information.................................. C-1
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement regarding matters
that are not historical facts are forward-looking statements. When used in
this Proxy 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; 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 Proxy Statement, Safety-Kleen's Annual Report on Form 10-K
and other documents Safety-Kleen has filed with the Securities and Exchange
Commission (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.
-ii-
AVAILABLE INFORMATION
Safety-Kleen is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. The reports, proxy statements and other information filed by
Safety-Kleen with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and also are available for inspection at the
Commission's Regional Offices at Seven World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also may be obtained, at prescribed rates, from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, Safety-Kleen is required to file electronic
versions of certain material with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission
maintains a site on the Internet's World Wide Web at http://www.sec.gov. that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The Shares
are listed and traded on the New York Stock Exchange, Inc. (the "NYSE") and such
reports, proxy statements and other information concerning Safety-Kleen may also
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
No person is authorized to provide any information or to make any
representations with respect to the matters described in this Proxy Statement
other than those contained herein or in the documents incorporated by reference
herein. Any information or representations with respect to such matters not
contained herein or therein must not be relied upon as having been authorized by
Safety-Kleen. The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that there has been no change in the
affairs of Safety-Kleen since the date hereof or that the information contained
in this Proxy Statement or in the documents incorporated by reference herein is
correct as of any time subsequent to the date hereof or thereof, as the case may
be.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Safety-Kleen with the
Commission pursuant to the Exchange Act are incorporated herein by reference and
made a part hereof: (a) Safety-Kleen's Annual Report on Form 10-K for the year
ended December 28, 1996; (b) Safety-Kleen's Quarterly Reports on Form 10-Q for
the quarters ended March 22, June 14, and September 6, 1997; and (c) Safety-
Kleen's Current Reports on Form 8-K dated August 11, November 18 and November
21, 1997. All documents subsequently filed by Safety-Kleen pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this Proxy
Statement and prior to the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
document. Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
Safety-Kleen will provide without charge to any person, including any
beneficial owner of Shares, to whom this Proxy Statement is delivered, upon
written or oral request of such person, a copy of any and all of the documents
referred to above which have been incorporated by reference in this Proxy
Statement (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Scott Krill, Assistant General Counsel and Secretary,
Safety-Kleen Corp., One Brinckman Way, Elgin, Illinois 60123.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere, or incorporated by reference, in this Proxy Statement and
the Annexes hereto. Shareholders are urged to read this Proxy Statement and the
Annexes hereto carefully and in their entirety.
Parties to the Merger Agreement
Safety-Kleen.................. Safety-Kleen is a leader in servicing the
recycling and waste needs of companies in the
automotive/retail repair, industrial, imaging
and other business sectors. Over 2,800 Safety-
Kleen specialists service customers from a
branch network that extends across North America
and Western Europe.
Focusing primarily on the needs of small
businesses, Safety-Kleen performed nearly five
million individual services and reclaimed more
than 300 million gallons of contaminated fluid
through a network of 230 branches worldwide in
1996. Safety-Kleen collects and recycles used
products at thirteen recycle centers, two lube
oil refineries and three fuel-blending
facilities.
Safety-Kleen operates in the continental U.S.,
Canada, the United Kingdom, the Republic of
Ireland, Puerto Rico, Belgium, France, Italy,
Spain and Germany. Safety-Kleen has licensee
operations in Japan and Korea.
Safety-Kleen was incorporated in Wisconsin in
July 1963 and its principal offices and
corporate headquarters are located at One
Brinckman Way, Elgin, Illinois 60123, telephone:
(847) 697-8460.
SK Parent Corp................ Parent, a Delaware corporation, was organized in
November 1997, and has not engaged in any
activities except in connection with the
proposed Merger. Parent is to be owned equally
by Philip Services Corp. ("Philip"), affiliates
of Apollo Management, L.P. ("Apollo"), and
affiliates of Blackstone Management Partners III
L.P. ("Blackstone"). Philip is a fully
integrated resource recovery and industrial
services company with operations throughout the
United States, Canada and the United Kingdom.
Apollo comprises a number of private securities
investment funds managed by Apollo Management,
L.P. which, together with its affiliates,
manages a portfolio of in excess of $5 billion
of investments. Blackstone is a private
investment bank, affiliates of which sponsor
private corporate equity and real estate funds
with aggregate commitments in excess of $5
billion.
-2-
SK Acquisition Corp........... Purchaser, a Wisconsin corporation, was recently
organized at the direction of Parent for the
purpose of effecting the Merger. It has not
engaged in any activities except in connection
with the proposed Merger. Purchaser is a direct
wholly-owned subsidiary of Parent.
Safety-Kleen Shareholders' Meeting
Time, Date, and Place......... The Special Meeting will be held on
_____________, 1998, at 10:00 a.m., central
time, at First Chicago Center, The First
National Bank of Chicago Building, 38 South
Dearborn Street, Chicago, Illinois 60670
Purpose....................... At the Special Meeting, shareholders will
consider and vote upon a proposal to approve and
adopt the Merger Agreement. See "The Special
Meeting -- Matter to Be Considered at the
Special Meeting."
Record Date; Voting at the Only holders of record of Shares at the close
Special Meeting............... of business on December ___, 1997 (the "Record
Date"), will be entitled to notice of and to
vote at the Special Meeting or any postponements
or adjournments thereof. At the close of
business on the Record Date, there were
__________ Shares outstanding and entitled to
vote. Shareholders of record on the Record Date
are entitled to one vote per Share, exercisable
in person or by properly executed proxy, upon
the Merger. No other matters may be properly
submitted for the vote of shareholders at the
Special Meeting. The presence, in person or by
properly executed proxy, of the holders of a
majority of the outstanding Shares is necessary
to constitute a quorum at the Special Meeting.
The affirmative vote by the holders of two-
thirds of the outstanding Shares is required to
approve the Merger Agreement and the Merger.
Abstentions and broker non-votes will have the
effect of votes against the proposal to approve
and adopt the Merger Agreement. See "The Special
Meeting -- Record Date; Voting at the Special
Meeting."
Proxies....................... This Proxy Statement is being furnished to
shareholders of record at the close of business
on the Record Date in connection with the
solicitation of proxies by and on behalf of the
Board for use at the Special Meeting. All Shares
which are represented at the Special Meeting by
properly executed proxies received and not duly
and timely revoked will be voted at the Special
Meeting in accordance with the instructions
contained therein. In the absence of contrary
instructions, such Shares will be voted "FOR"
the approval and adoption of the Merger
Agreement.
-3-
A proxy may be revoked prior to its being voted
by: (i) delivering to the Secretary of Safety-
Kleen, at or before the Special Meeting, a
written instrument bearing a later date than the
proxy which instrument, by its terms, revokes
the proxy; (ii) duly executing a subsequent
proxy relating to the same Shares and delivering
it to the Secretary of Safety-Kleen at or before
the Special Meeting; or (iii) attending the
Special Meeting and voting in person. Attendance
at the Special Meeting by a shareholder will not
in and of itself revoke a previously delivered
proxy. See "The Special Meeting --Proxies."
The Merger
General....................... Upon consummation of the Merger, the Purchaser
will be merged into Safety-Kleen and Safety-
Kleen will become a wholly-owned subsidiary of
Parent. Each Share outstanding immediately prior
to the Merger (other than Shares owned by
Parent, the Purchaser or any subsidiary thereof
or held in the treasury of Safety-Kleen or any
subsidiary of Safety-Kleen) will be converted
into the right to receive $27.00 in cash,
without interest.
Effective Time................ It is expected that the Merger will become
effective as promptly as practicable following
approval of the Merger Agreement by the
requisite vote of the Safety-Kleen shareholders
and the satisfaction or waiver of the other
conditions to the Merger.
Treatment of Stock Options.... All outstanding options to purchase Shares will
be accelerated and fully vested as a result of
the Merger, and the holders of such options will
receive from Safety-Kleen upon the Merger, 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, 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 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. See "The Merger
Agreement -- Stock Options."
-4-
Recommendation of Board of
Directors.................... The Board of Directors of Safety-Kleen has
unanimously determined that the Merger Agreement
and the Merger are fair to and in the best
interests of Safety-Kleen and its shareholders
and has approved and adopted the Merger
Agreement. Accordingly, the Board of Directors
unanimously recommends that shareholders vote
"FOR" approval and adoption of the Merger
Agreement. In reaching its determination that
the Merger Agreement and the Merger are fair to
and in the best interests of Safety-Kleen and
its shareholders, the Board considered a number
of factors, as more fully described under "The
Merger -- Reasons for the Merger; Recommendation
of the Board of Directors."
Opinion of Financial Advisor.. On November 20, 1997, William Blair & Company,
L.L.C. ("William Blair") rendered an opinion to
the Board of Directors of Safety-Kleen 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 Merger was fair, from a
financial point of view, to such holders. The
full text of the opinion of William Blair, which
includes the assumptions made, matters
considered and the scope and limitations on the
reviews undertaken in rendering such opinion, is
attached as Annex B to this Proxy Statement and
should be read in its entirety. See "The Merger --
Opinion of Financial Advisor."
Interests of Certain Persons.. Certain members of Safety-Kleen's management and
of the Board will receive economic benefits as a
result of the Merger, including payments with
respect to stock options and limited stock
appreciation rights, maintenance of directors'
and officers' insurance coverage and employee
benefits by the Surviving Corporation for
specified periods of time, indemnification
rights, benefits under Change of Control
Severance Agreements, and possible continued
employment by the Surviving Corporation and
investments in the Surviving Corporation. For
information concerning such benefits, see "The
Merger -- Interests of Certain Persons in the
Merger."
Financing of the Merger....... Parent is expected to pay approximately $1.95
billion for all outstanding Shares, stock
options, and amounts necessary to refinance
Safety-Kleen's outstanding debt obligations. At
the time of the Merger Agreement, Parent
represented that it had received equity and debt
commitment letters in the aggregate amount
sufficient to fund the Merger and the
transactions contemplated thereby and delivered
copies of such letters to Safety-Kleen. See "The
Merger -- Financing of the Merger." See "The
Merger Agreement -- Fees and Expenses."
-5-
Conditions to the Merger...... The Merger is subject to certain conditions, including the
approval of Safety-Kleen shareholders at the Special Meeting,
the expiration of applicable anti-trust regulatory waiting
periods, and the funding of financing commitments. See "The
Merger Agreement -- Conditions to Consummation of the
Merger."
Termination................... The Merger Agreement will be subject to termination at any
time prior to the Effective Time by the mutual consent of
Safety-Kleen and Parent or by either Safety-Kleen or Parent if:
(i) any governmental body takes any action prohibiting the
Merger and such action has become final and non-appealable;
(ii) the Merger is not consummated by June 30, 1998; or
(iii) the Merger Agreement is not approved at the Special
Meeting by the holders of at least 66-2/3% of the outstanding
Shares.
The Merger Agreement also will be subject to termination by
either Parent or Safety-Kleen under certain other circumstances
described herein. See "The Merger Agreement -- Termination,
Amendment and Waiver." If the Merger Agreement is
terminated by Safety-Kleen or Parent under certain
circumstances described herein, Safety-Kleen will be obligated
to pay Parent a termination fee of $50 million and transaction
expenses of up to $25 million. See "The Merger Agreement --
Fees and Expenses."
Appraisal Rights.............. Safety-Kleen shareholders are not entitled to any appraisal
rights under Wisconsin law in connection with the Merger. See
"The Merger -- Appraisal Rights."
Certain Federal Income Tax
Consequences................. The receipt of cash for Shares pursuant to the Merger will be a
taxable transaction for federal income tax purposes with respect
to which gain or loss, if any, will be recognized. See "The
Merger -- Certain Federal Income Tax Consequences."
Regulatory Approvals.......... The formation of Parent and the consummation of the Merger
are subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the rules and regulations thereunder, which provide
that certain transactions may not be consummated until required
information and materials are furnished to the Antitrust Division
of the Department of Justice (the "Antitrust Division") and the
Federal Trade Commission (the "FTC") and the requisite
waiting period expires or terminates. In addition, certain
aspects of the Merger may require notification to, and filings
with, certain federal, state and foreign governmental authorities.
See "The Merger -- Regulatory Approvals."
Accounting Treatment.......... As required by generally accepted accounting principles, Parent
will use the purchase method of accounting to account for the
Merger. See "The Merger -- Accounting Treatment."
-6-
Market Price of Shares........ The Shares are quoted and traded on the NYSE under the
symbol "SK." On August 7, 1997, the last trading day before
the public announcement that Safety-Kleen was exploring
strategic alternatives, the high and low sale prices of the Shares
on the NYSE were $18.18 and $17.69 per Share, respectively.
On November 19, 1997, the last trading day before the public
announcement of the Merger Agreement, the high and low sale
prices of the Shares on the NYSE were $26.06 and $25.94 per
Share, respectively. On December __, 1997, the last full
trading day prior to the date of this Proxy Statement, the high
and low sale prices of the Shares on the NYSE were $______
and $______ per Share, respectively. Shareholders are urged to
obtain current market quotations for the Shares prior to making
any decision with respect to the Merger. See "Market Price of
Shares and Dividend Policy."
-7-
SELECTED FINANCIAL DATA OF SAFETY-KLEEN
The selected consolidated financial data of Safety-Kleen for the five
fiscal years ended December 28, 1996 have been taken or derived from the audited
consolidated financial statements of Safety-Kleen and its subsidiaries that are
contained in or incorporated by reference into Safety-Kleen's Annual Reports on
Form 10-K for the fiscal years then ended, as filed with the Commission. The
selected consolidated financial data of Safety-Kleen for the thirty-six weeks
ended September 6, 1997 and September 7, 1996 have been taken or derived from
the unaudited consolidated financial statements of Safety-Kleen and its
subsidiaries that are contained in Safety-Kleen's Quarterly Reports on Form 10-Q
for such fiscal periods, as filed with the Commission. Such data should be read
in conjunction with the consolidated financial statements of Safety-Kleen and
related Notes thereto incorporated by reference in this Proxy Statement.
Fiscal Year Thirty-Six Weeks Ended
-------------------------------------------------------------- ----------------------
Sept. 7, Sept. 6,
1992/(1)/ 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- --------- ---------
(in thousands, except per share data and percentages)
Statement of Operations Data:
Revenues............................... $ 794,542 $795,508 $791,267 $ 859,251 $ 923,126 $ 626,176 $ 680,172
Net earnings (loss).................... 45,637/(2)/ (101,346)/(3)/ 50,094 53,303 61,109 40,685 40,297
Net earnings (loss) per share.......... 0.79/(2)/ (1.76)/(3)/ 0.87 0.92 1.05 0.70 0.69
Cash dividends per share............... 0.34 0.36 0.36 0.36 0.36 0.27 0.27
Balance Sheet Data (at end of period):
Current assets......................... $ 188,717 $202,887 $197,221 $ 206,208 $ 230,133 $ 237,630 $ 240,381
Current liabilities.................... 140,988 149,415 165,455 162,676 157,793 176,739 165,586
Working capital........................ 47,729 53,472 31,766 43,532 72,340 60,891 74,795
Total assets........................... 1,006,446 950,664 973,444 1,009,050 1,044,823 1,055,201 1,037,192
Long-term debt......................... 300,724 288,633 284,125 283,715 276,954 289,896 246,080
Shareholders' equity................... 492,095 362,664 396,336 433,435 480,290 462,349 495,718
- ----------------
(1) Fiscal year 1992 was a fifty-three week year. All other years presented
were fifty-two weeks.
(2) Includes $300,000 ($.01 per share) increase in net earnings from cumulative
effect of prior years effect of adopting Statement of Financial Accounting
Standards (SFAS) No. 106 on accounting for post-retirement benefits and
SFAS No. 109 on accounting for income taxes.
(3) Includes restructuring and special charges, net of tax benefit, of $136
million ($229 million pre-tax) or $2.36 per share.
-8-
THE SPECIAL MEETING
General
This Proxy Statement is being furnished to shareholders of Safety-Kleen in
connection with the solicitation of proxies by and on behalf of Safety-Kleen's
Board of Directors for use at the Special Meeting and any adjournments or
postponements thereof. The Special Meeting will be held on ____________,
_______, 1998, at 10:00 a.m., central time, at the First Chicago Center, The
First National Bank of Chicago Building, 38 South Dearborn Street, Chicago,
Illinois 60670.
Matter to be Considered at the Special Meeting
At the Special Meeting, Safety-Kleen shareholders will be asked to
consider and act upon a proposal to approve and adopt the Merger Agreement.
The Board unanimously has determined that the Merger Agreement and the Merger
are fair to and in the best interests of Safety-Kleen and its shareholders and
has approved and adopted the Merger Agreement. The Board of Directors
unanimously recommends that shareholders vote "FOR" approval and adoption of
the Merger Agreement. See "The Merger -- Background of the Merger" and "--
Reasons for the Merger; Recommendation of the Board of Directors."
Shareholders are requested to promptly complete, date, sign and return the
accompanying Proxy Card to Safety-Kleen in the enclosed postage-paid envelope.
Failure to return a properly executed Proxy Card or to vote at the Special
Meeting will have the same effect as a vote "against" the Merger Agreement.
Vote Required
Approval of the Merger requires the affirmative vote of the holders of
two-thirds of the outstanding Shares. Each holder of Shares outstanding as of
the Record Date is entitled to one vote for each Share held.
Record Date; Voting at the Special Meeting
The Board has fixed December ___, 1997 as the record date for determining
shareholders entitled to notice of and to vote at the Special Meeting (the
"Record Date"). Only shareholders of record at the close of business on the
Record Date will be entitled to notice of and to vote at the Special Meeting.
On the Record Date, ____________ Shares were outstanding and are entitled to be
voted at the Special Meeting.
Each holder of Shares on the Record Date will be entitled to one vote for
each Share held of record upon each matter properly submitted at the Special
Meeting. A majority of the Shares outstanding on the record date will
constitute a quorum for the transaction of business at the Special Meeting.
See "--Recess or Adjournment of Meeting and Other Matters." For quorum and
voting purposes, abstentions and broker non-votes are treated as present and
entitled to vote, but have the effect of a vote "against" the Merger Agreement.
A "broker non-vote" occurs when a broker holding Shares for a beneficial owner
returns a proxy that does not vote on the proposal because the broker has not
received instructions from the beneficial owner and does not have discretionary
power.
Proxies
If the enclosed Proxy Card is properly executed and received by Safety-
Kleen in time to be voted at the Special Meeting and not revoked, the Shares
represented thereby will be voted in accordance with the
-9-
instructions marked thereon. Executed proxies with no instructions indicated
thereon will be voted (i) "FOR" approval and adoption of the Merger Agreement
and the Merger and (ii) on such other business or matters which may properly
come before the Special Meeting in accordance with the best judgment of the
persons named as proxies in the enclosed form of proxy.
A proxy may be revoked prior to its being voted by: (i) delivering to the
Secretary of Safety-Kleen, at or before the Special Meeting, a written
instrument bearing a later date than the proxy which instrument, by its terms,
revokes the proxy; (ii) duly executing a subsequent proxy relating to the same
Shares and delivering it to the Secretary of Safety-Kleen at or before the
Special Meeting; or (iii) attending the Special Meeting and voting in person.
Attendance at the Special Meeting by a shareholder will not in and of itself
revoke a previously delivered proxy. Any written instrument revoking a proxy
should be sent to: Safety-Kleen Corp., One Brinckman Way, Elgin, Illinois
60123, Attention: Secretary of the Corporation.
Under the By-laws no business may be transacted at the Special Meeting
other than such business as is designated in the Notice of Special Meeting of
Shareholders.
Recess or Adjournment of Meeting and Other Matters
The persons named in the enclosed form of proxy will not use their
discretionary authority to vote on adjournment of the Special Meeting in order
to solicit further proxies. However, the chairman of the Special Meeting may
adjourn the Special Meeting whether or not a quorum is present, in order to
solicit additional proxies or for any other purpose, without a vote on such
adjournment and without notice other than by announcement at the meeting.
Information Concerning the Solicitation
The accompanying proxy is solicited on behalf of the Board of Directors.
The cost of soliciting proxies will be borne by Safety-Kleen. In addition to
solicitation by mail, directors, officers and employees of Safety-Kleen may
solicit proxies in person, by telephone, by telegram, by personal interview, by
e-mail, or by facsimile, none of whom will receive additional compensation for
such solicitations. Safety-Kleen will request banks, brokerage houses and
other custodians, nominees and fiduciaries to forward its solicitation
materials to the beneficial owners of the Shares they hold of record and obtain
authorization for, and appropriate certification in connection with, the
execution of Proxy Cards. Safety-Kleen will reimburse these record holders for
customary mailing expenses incurred by them in forwarding these materials.
Safety-Kleen has retained Chase Mellon Shareholder Services to provide
certain services in connection with the solicitation of proxies and related
matters. The fee of Chase Mellon Shareholder Services is estimated to be
$__________ plus reasonable out-of-pocket costs and expenses. Chase Mellon
Shareholder Services will employ approximately 8 people in its proxy
solicitation efforts.
Safety-Kleen has also retained Hill & Knowlton to assist Safety-Kleen in
connection with communications with shareholders and as public relations
advisor in connection with the Merger and related matters. The fee of Hill &
Knowlton is estimated to be $75,000 plus reasonable out-of-pocket costs and
expenses. Safety-Kleen has also agreed to indemnify Hill & Knowlton against
certain liabilities.
Except as set forth above, neither Safety-Kleen nor, to the best of
Safety-Kleen's knowledge, any person acting on its behalf has retained any
other person to make solicitations or recommendations to security holders on
its behalf in connection with the solicitation of proxies.
Safety-Kleen anticipates that certain officers, directors, employees or
representatives of Philip, Apollo, Blackstone, and Merrill Lynch & Co.,
financial advisor to Parent, may communicate in person, by telephone or
otherwise with shareholders of Safety-Kleen for the purpose of assisting in the
solicitation of proxies. Additional information concerning such participants in
the solicitation of proxies is listed in Annex C.
-10-
THE MERGER
Background of the Merger
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 and financial advisors 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 presented its preliminary views on the
valuation of Safety-Kleen and 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 which they had
previously made to the Executive Committee on June 24th. After extensive
discussions, the Board asked management, with the assistance of Safety-Kleen's
legal and financial advisors, to prepare and present further information to the
Board relating to various strategies to enhance shareholder value.
At the regularly scheduled August 8th Board meeting, the Board, management
and William Blair discussed the advisability of exploring strategic
alternatives, including a possible sale of Safety-Kleen. The Board, management
and William Blair also discussed other possible strategic alternatives such as
a stock buy-back program, acquisitions and/or operating the business in
accordance with Safety-Kleen's long range plan. William Blair presented its
views of the valuation of Safety-Kleen in a sale transaction and as an
independent company and discussed possible steps to be taken by the Board in
exploring these strategic alternatives.
After extensive discussions, 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
participating in the process by executing confidentiality and standstill
agreements in order to receive confidential information with respect to Safety-
Kleen and its subsidiaries.
On August 8, 1997, Safety-Kleen issued a press release stating that it had
engaged the services of William Blair to act as advisor to Safety-Kleen and
manage the process of exploring strategic options for enhancing shareholder
value. Safety-Kleen also announced the resignation of John G. Johnson, Jr.,
President and Chief Executive Officer of Safety-Kleen. Donald W. Brinckman,
Chairman of Safety-Kleen's Board of Directors, who had previously served as
Safety-Kleen's Chief Executive Officer from 1968 until December 31, 1994, was
appointed Chief Executive Officer. Mr. Joseph Chalhoub, 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
-11-
alternatives. While CSFB assisted Safety-Kleen by identifying certain potential
buyers and had discussions with management concerning strategic alternatives for
enhancing shareholder value, it did not furnish any reports or opinions to
Safety-Kleen or make presentations to the Board of Directors in connection with
Safety-Kleen's negotiations with Philip or otherwise.
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 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.
One of the potential buyers which contacted William Blair shortly after
August 8th was Laidlaw Environmental Services, Inc. ("Laidlaw Environmental").
Laidlaw Environmental 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, Laidlaw Environmental delivered a letter to Safety-Kleen proposing a
reverse merger in which Safety-Kleen would issue one Share for three shares of
Laidlaw Environmental stock. William Blair responded to Laidlaw Environmental
by repeating Safety-Kleen's request that Laidlaw Environmental execute the
confidentiality and standstill agreement and enter the process like other
potential buyers.
By early October 1997, Safety-Kleen had received 10 indications of
interest from potential buyers, nine of which expressed interest in acquiring
Safety-Kleen as a whole. At an Executive Committee meeting held on October 13,
1997, the Executive Committee, with the assistance of William Blair and Safety-
Kleen's legal advisors, evaluated each indication of interest and selected four
potential buyers to proceed to the second stage of the process. On October 16,
1997, those four potential buyers received a second letter requesting that they
submit their best and highest written offer, including the price per share,
proposed transaction structure and amounts and sources of funds, by November
14, 1997. The potential buyers also received a draft merger agreement and were
instructed to submit their comments thereon with their written offer. Safety-
Kleen's letter stated that the certainty and timing of financing would be among
the factors considered in selecting a prospective purchaser.
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 and also the opportunity
to meet with management of Safety-Kleen and its subsidiaries and 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 Laidlaw
Environmental, delivered to Mr. Brinckman a letter which disclosed that Laidlaw
Environmental's Board of Directors had authorized and directed senior
management of Laidlaw Environmental to pursue the acquisition of all the
outstanding shares of Safety-Kleen for $14.00 in cash and 2.4 common shares of
Laidlaw Environmental stock. The letter stated that Laidlaw Environmental 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 Laidlaw Environmental on November 4, 1997.
-12-
On November 3, 1997, after receipt of Mr. Bullock's letter, Mr. Brinckman
delivered a letter to Mr. Bullock requesting that Laidlaw Environmental execute
a confidentiality and standstill agreement and informing Mr. Bullock that
Safety-Kleen's Board of Directors would fully consider Laidlaw Environmental's
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 Laidlaw Environmental,
together with its financial advisors, to discuss information concerning Laidlaw
Environmental and its estimate of cost savings and synergies.
On November 5, 1997, Mr. Bullock and a representative of Laidlaw
Environmental's financial advisor met with Mr. Brinckman, Mr. Chalhoub and
representatives of William Blair to discuss Laidlaw Environmental's plans for
Safety-Kleen, including Laidlaw Environmental's view of potential synergies that
could be achieved through a combination of the two companies. Mr. Brinckman and
Mr. Chalhoub stated that a substantial portion of those proposed synergies could
not be achieved. At the meeting, Mr. Bullock stated that Laidlaw Environmental
was prepared to sign a mutual confidentiality agreement that did not contain a
standstill provision. Safety-Kleen again repeated its request that Laidlaw
Environmental, like every other potential buyer in the process, sign a
confidentiality and standstill agreement.
On November 7th and 11th, respectively, Philip and one of the two other
remaining potential buyers informed William Blair that instead of submitting an
offer by the November 14th deadline, they desired to negotiate exclusively with
Safety-Kleen. Philip indicated that it was prepared to negotiate on this basis
for the acquisition of all Safety-Kleen's Shares at a price of at least $26 per
share (most of which would be payable in cash, with the remainder in Philip
stock) while the other potential buyer indicated a range of between $24-$25 in
cash in a leveraged recapitalization transaction. William Blair told these two
potential buyers that the Board of Directors would consider their request at the
November 14, 1997 Board meeting and told Philip that there would be a strong
preference for an all cash offer. 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
Laidlaw Environmental offer. Management, with the assistance of William Blair,
also discussed strategic alternatives such as a possible stock buy-back program
and pursuing Safety-Kleen's long-term business plan, including new business
developments and certain acquisitions and/or dispositions of assets.
On November 13, 1997, Laidlaw Environmental 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. Laidlaw Environmental 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. On November 17, 1997, Safety-Kleen
filed a lawsuit in Federal District Court for the Northern District of Illinois
against Laidlaw Environmental seeking a declaratory judgment that Laidlaw
Environmental violated the "gun-jumping" prohibition of federal securities law
by certain of its public announcements made before the effectiveness of
registration with the Commission of the Laidlaw Environmental shares it proposes
to use in its offer for Safety-Kleen. The suit also challenges Laidlaw
Environmental's asserted right under Wisconsin law to demand such a
shareholders' meeting at this time.
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 pursuing 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.
-13-
The Board also discussed its concerns with respect to the proposed Laidlaw
Environmental offer. Those concerns included: the lower per share consideration
in such offer; the substantial amount of Laidlaw Environmental stock which was
part of that offer; questions as to the liquidity of that stock in the
marketplace; 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 Laidlaw Environmental would not be able to
achieve the synergies it had outlined in the November 5th meeting; the
conditional nature of the financing for the proposed offer; and Laidlaw
Environmental's intention not to continue Safety-Kleen as a separate ongoing
business, to close the Elgin facility and substantially reduce the number of
Safety-Kleen employees.
The Board, with the assistance of management and Blair, determined that
management should negotiate exclusively with Philip provided that Philip
increased its per share price to $27 in cash. Philip informed William Blair
shortly after the Board meeting that it was prepared to negotiate a transaction
at $27 in cash provided that the definitive agreement provided for a
termination fee under certain circumstances.
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, Safety-Kleen and its representatives 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, 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 Merger and confirmed 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 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
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 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 Merger
was 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
"-- Opinion of Financial Advisor"). The Board also considered the fact that (i)
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
-14-
option or similar plans and the potential investment by Safety-Kleen management
in Parent; and (ii) Mr. Jannotta, a director of Safety-Kleen, is a Senior
Director of William Blair.
For the reasons summarized above and taking into consideration the factors
listed under "-- Reasons for the Merger; Recommendation of Board of Directors"
below, and on the basis of the advice of William Blair and its legal counsel,
the Board voted unanimously to accept the offer from 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.
Immediately following the Board meeting, Safety-Kleen, Parent and
Purchaser entered into the Merger Agreement. Safety-Kleen and Philip also
issued press releases announcing the Merger.
Later that day, Mr. Bullock of Laidlaw Environmental delivered a letter to
Safety-Kleen advising Safety-Kleen that it was increasing its offer to acquire
Safety-Kleen for a per share consideration consisting of $15.00 cash (subject
to reduction as described below) and $15.00 in Laidlaw Environmental common
stock. The letter disclosed that: (i) the cash portion would be reduced by
any incremental costs, such as break-up fees, new severance arrangements and
other expenses Safety-Kleen might have incurred in connection with its
agreement with Philip and others; and (ii) the exchange ratio of the stock
portion would be between 2.8 and 3.5 shares based on the weighted average
trading price for Laidlaw Environmental shares for 10 days selected by lot from
the 20 trading days ending three business days immediately prior to the
closing. The text of the letter was included in a press release that was
issued by Laidlaw Environmental on November 20, 1997. On November 21, 1997,
Safety-Kleen confirmed in a press release that it would respond, in due course,
to Laidlaw Environmental's 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 Laidlaw Environmental's
amended proposed offer. The Board noted that Laidlaw Environmental had improved
its proposal to what it stated to be a $30 per share offer. In its preliminary
evaluation of that proposal, the Board and its advisors discussed, among other
things: (i) anticipated deductions from the cash portion of that purchase price;
(ii) factors reducing the value of the stock of Laidlaw Environmental,
including, among other things: (a) the sustainability of Laidlaw Environmental's
present market multiple and the impact on that multiple of Laidlaw
Environmental's proposed combination with Safety-Kleen; (b) the effects both in
terms of dilution and market impact of the issuance of approximately 169 million
to 211 million Laidlaw Environmental shares in connection with its proposed
combination with Safety-Kleen; and (c) Safety-Kleen management's views, based on
Laidlaw Environmental management's explanation to Safety-Kleen's management at
the November 5th meeting between them, that Laidlaw Environmental would not be
able to achieve a significant portion of the $100 million synergies it outlined
in its amended proposed offer; and (iii) the conditional nature of the financing
for the amended proposed offer. The Board also again noted the impact that
Laidlaw Environmental's stated intention to close down the Elgin headquarters
would have on Safety-Kleen's employees and the surrounding communities.
During the Board's review, a letter was received from Parent expressing its
views on Laidlaw Environmental's amended proposed offer. With Parent's consent,
the text of the letter is set forth below:
* * * * *
November 24, 1997
We are writing to provide you with our views on the recent
announcement by Laidlaw Environmental Services, Inc. that it was increasing
its offer to purchase shares of common stock
-15-
of Safety-Kleen to $15 in cash (less expenses paid under our agreement with
you and certain severance costs) and up to $15 in shares of its common
stock. Under the terms of our Agreement and Plan of Merger dated as of
November 20, 1997, and for the reasons set forth below, we do not believe
the revised Laidlaw proposal constitutes a Superior Proposal, or provides
any indication that Laidlaw is reasonably likely to make a Superior
Proposal.
Therefore we do not believe that it would be appropriate to engage in
discussions or negotiations with Laidlaw. In fact, Laidlaw's offer is not
an offer to purchase Safety-Kleen, rather their current proposal is for
Safety-Kleen to purchase Laidlaw Environmental Services and rely on
Laidlaw's management to provide future value to Safety-Kleen shareholders.
Under their current proposal, SK shareholders would receive between 48.3%
and 53.8% of the outstanding shares of the combined entity. For the reasons
set forth below, we do not believe that such a transaction provides your
shareholders with the value that our transaction does. Moreover, given the
inherent uncertainty in the Laidlaw proposal, we believe that pursuing it
would jeopardize our transaction. We doubt that this has been the intention
of your process and as we stated publicly, we remain committed to
proceeding with our merger.
Throughout our negotiations with Safety-Kleen, you and your advisors
informed us on a number of occasions that certainty of consummation was the
critical factor for the Safety-Kleen board. For that reason, we did not
subject our offer to any due diligence condition and our other conditions
provide the maximum amount of certainty in transactions of this type. On an
expedited basis we obtained equity and debt financing commitments in the
amount of $2.1 billion in order to effect the transaction. It is our
position that we should proceed promptly to a shareholders meeting and vote
of the Safety-Kleen shareholders.
We wanted to set forth for your consideration our views with respect
to the latest Laidlaw proposal, which is highly contingent and of uncertain
value.
A. Effect of Laidlaw's Massive Share Issuance
. The current proposal by Laidlaw contemplates the exchange of
between 2.8 and 3.5 Laidlaw shares for each share of Safety-
Kleen, which would represent the issuance to your shareholders of
an aggregate number of Laidlaw shares ranging from approximately
168 million to 210 million. Based upon the 180.6 million Laidlaw
shares now outstanding and Laidlaw's current stock price, the
Safety-Kleen shareholders would own approximately 51.3% of the
outstanding shares of the combined entity (ownership could range
between 48.3% and 53.8%, depending on the price of Laidlaw's
shares). In effect, SK shareholders would be purchasing Laidlaw-
a company which is a poor strategic fit with Safety-Kleen, and a
company with inferior historical performance, weak management,
and substantial environmental liabilities. In addition, if the
Laidlaw proposed transaction were consummated, the shareholders
would end up owning shares in a company that would be highly
leveraged, with approximately 63% debt to total capitalization,
and have significant negative tangible book value.
. Laidlaw stock is extremely illiquid and has a substantial
overhang from the 121 million shares owned by Laidlaw Inc. The
potential of this massive block entering the market, the massive
issue of shares contemplated by the proposal, combined with the
potential of massive dilution, would in our view lead Laidlaw
shares to trade well below the collar floor. Keep in mind that
only
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0.09% of Laidlaw shares trade daily, and excluding Laidlaw Inc.
shares, under the current Laidlaw proposal Safety-Kleen
shareholders would end-up owning approximately 76% of the float.
In addition, since their proposal would result in a taxable
transaction, there would be even further pressure on the stock
after the proposed transaction closed.
B. Laidlaw's Proposal and its Stock
. The Laidlaw proposal contemplates $15 per share in cash less
expenses paid under our agreement with you and certain severance
costs, and up to $15 per share in Laidlaw stock. The actual cash
portion of the offer after expenses paid under our agreement
would be approximately $13.72 per outstanding share and could be
as low as $13.05 per share after taking into account severance
expenses for the 19 Safety-Kleen executives covered under
contracts. Their current proposal nominally consists of less than
46% in cash, making the value of their proposal highly dependent
upon the value of their stock. In addition, there is a collar in
place which stipulates that Laidlaw will issue from 2.8 to 3.5
shares based on Laidlaw's stock price over a selected period
prior to closing. The collar is inadequate given that Laidlaw
shares have traded significantly below the $4.29 floor that the
collar implies as recently as August 21 and throughout the year
prior to that date (the average closing price over the last 12
months is $3.41 per share). If Laidlaw's stock were to trade
below $4.29, the stock portion of the consideration that SK
shareholders would receive would drop below the nominal value of
$15 per share (if Laidlaw stock traded down to $4.00 per share,
the stock consideration offered to SK shareholders would decrease
by $1.00 per share to a nominal value of $14 per share). In fact,
at the current price of $4.625, Laidlaw is trading near the
bottom of the collar.
. Laidlaw stock is significantly overvalued at the present both in
relation to its peers and its expected earnings growth rate. It
is trading at approximately 27.0x 1998E EPS and 14x LTM EBITDA.
To put this in perspective, the peer group (composed of Philip
Services Corp., Browning-Ferris Industries, OHM Corp.,
Envirosource Inc., Wheelabrator Technologies and Safety-Kleen)
trades at approximately 12.0x to 18.0x 1998E EPS and 5.0x to 8.0X
LTM EBITDA and all have similar or greater expected earnings
growth than Laidlaw. If one applies the mean comparables EBITDA
multiple of 6.5x LTM EBITDA to Laidlaw's LTM EBITDA, one would
arrive at an Laidlaw trading value of $0.00/share. Further,
Laidlaw's recent operating performance has been inferior to that
of Safety-Kleen, exhibiting substantially lower profitability
over the past 3 years and slowing of revenue growth to 3.9% in
1997.
. Laidlaw's proposal would be massively dilutive to its EPS if no
synergies were achieved. Our calculations show that the
combination would reduce Laidlaw's expected $0.16/share for
fiscal 1998 to $0.06/share. In order to break-even on the EPS
level, Laidlaw would need to achieve a substantial portion of the
$100 million synergies that it claims is available, in the first
six to seven months. We do not view that as feasible.
. If the proposed Laidlaw transaction were consummated, SK
shareholders exposure to environmental liability would increase
dramatically. While
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recyclers limit their exposure to CRCLA and Superfund liabilities
by reusing the material and minimizing the amount disposed,
particularly in landfills, Laidlaw landfills significant volumes,
both directly and in the form of ash from incineration, creating
liabilities that remain with the organization forever. As of the
latest publicly filed documents Laidlaw had reserved
approximately $180 million for environmental remediation costs
and for closure and post-closure monitoring costs. We believe
that this reserve is the minimum potential liability that SK
shareholders could be exposed to.
C. Laidlaw Inc. Conflict
. Certain representatives of Laidlaw Inc. appear to have a conflict
in terms of their fiduciary duties. While Laidlaw Inc. currently
owns approximately 67.4% of Laidlaw's outstanding shares, it is
also a substantial debt holder in the same entity with a $350
million note which becomes convertible in 2002. A massive
issuance of shares would accomplish several goals for Laidlaw
Inc.: a) it would lower its ownership to 32.8% of outstanding
shares and thus allow Laidlaw Inc. to deconsolidate Laidlaw, b)
would increase the float so as to make it easier for Laidlaw Inc.
to exit its investment in Laidlaw (what we firmly believe is
Laidlaw Inc.'s ultimate objective), and c) it would increase the
value of its debt by substantially increasing the amount of
equity subordinated to the note described above. At the same
time, however, its shareholders would incur substantial dilution
and most likely experience substantial downward pressure on their
stock after such a massive issuance. If a transaction were
consummated on Laidlaw's terms, SK holders would end up owning
shares in an entity that will be subject to apparent conflict of
Laidlaw Inc.'s representatives in the future. We believe that
such a situation would be detrimental to the SK shareholders.
D. Highly Conditional Proposal
Laidlaw's commitment letter with respect to the financing for its
transaction contains a number of significant conditions from its lending
institutions, including the execution of definitive agreements relating to
a merger and its exchange offer; the satisfactory completion of due
diligence examinations; and that Laidlaw must hold a sufficient number of
shares after the exchange offer to effect the merger. The Laidlaw
conditions are not standard and make its proposal highly conditional
notwithstanding their rhetoric to the contrary. The conditions are
extremely broad and do not represent the certainty which we understand to
be a primary factor in your consideration.
E. Constituencies
We note that in our negotiations and discussions you were concerned
about our commitment to the Safety-Kleen benefit plans, the Elgin
headquarters and the possible equity investment by management. Each of
these concerns was addressed in our negotiations and we continue to remain
fully committed to Safety-Kleen, its management and the community
generally. It would appear that Laidlaw has not addressed any of these
concerns in its proposed offer. In fact, they have explicitly stated their
intention to sell the European operations and the oil re-refining business
as well as close down the Elgin headquarters and rationalize the workforce
substantially. We believe that such drastic steps could lead to irreparable
damage to the assets and human resources of Safety-Kleen.
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F. Inability to Achieve Synergies and Operating Risks
--------------------------------------------------
Laidlaw has made a claim that it can generate approximately $100-$130
million of synergies annually from "elimination of duplicate general and
administrative and other public company costs, from the closure of
overlapping service center facilities, from increased utilization of those
facilities that remain open, and from the internalization of various waste
streams". We are highly skeptical that such savings can be generated and
believe that Laidlaw has an insufficient understanding of Safety-Kleen's
business. Inability to generate such amounts of synergies will put Safety-
Kleen shareholders at substantial risk since the transaction would be
massively dilutive in the absence of substantial synergies. Our assessment
of their claims is as follows:
. Internalization of various waste streams: Safety-Kleen has
limited volumes for hazardous disposal. We estimate approximately
4,000 tons of incineration with negligible landfill.
Incineration, at $600/ton would add $2.4 million in revenue and
assuming 50% margin, $1.2 million to the gross profit.
. Closure of overlapping service center facilities: We fail to see
how substantial savings can be generated in this manner. Laidlaw
currently has nearly no fuel blending capabilities (SK's
principal recycling activity) and no distillation capabilities
for the parts solvent. Therefore, it is unlikely that these
facilities, where most of the capital resides and where most
savings could be achieved, would be rationalized. The only
remaining area where there could be some savings generated is the
closure of accumulation centers, which are not high cost
operations. We believe that savings from the closure of SK's
accumulation centers and perhaps some of Laidlaw's smaller
satellite service centers would not be substantial. We do not see
substantial consolidation in the branch network of Safety-Kleen
since we believe that the network is needed to maintain the
current business and relationships. Any consolidation of the
branch network would lead to irreparable damage.
. Increase in volume for hazardous waste management: Revenue
increases for hazardous waste management would add to the gross
profit at an average of 30% of such incremental revenues. Current
industrial waste revenue at SK is approximately $175 million and
following is the impact of various revenue increases on gross
profit:
20% revenue increase: $35 incremental revenue and $10.5 margin
30% revenue increase: $52.5 incremental revenue and $15.8 margin
40% revenue increase: $70 incremental revenue and $21 margin
We consider all of the above revenue increase as aggressive.
. Elgin building closure: $3 million of annual cost savings.
. Total savings from the above sources would come to:
Incineration: $ 1.2 million
Revenue increase (30%) $15.8 million
Elgin building savings $ 3.0 million
-------------
Total pre-tax savings $20.0 million
-19-
. In order to achieve $100 million of synergies there is a
requirement for a further $80 million in enhancement which would
likely come from reduction in costs. Safety-Kleen's total SG&A
for 1998 is estimated at $145 million. $80 million of additional
savings needed represents 55% of total SG&A. If Europe and oil
re-refining businesses are excluded due to their potential sale,
the SG&A figure would be approximately $115, a required 70%
reduction in SG&A to achieve the $100 million of total synergies.
The magnitude of required cuts would result in the effective
dismantling of Safety-Kleen's business and layoffs on dramatic
scale.
In addition, Laidlaw Environmental was formed through the purchase by
Rollins of all Laidlaw hazardous and industrial waste operations on May 15,
1997 and has gone through a substantial restructuring since then. An
acquisition of Safety-Kleen, which would more than double its size, would
present significant integration challenges and increased risk from the
standpoint of Safety-Kleen's shareholders.
We are firmly committed to this transaction and are available to
discuss with you as a Board, or with any member of the Board, any issue
which is raised by this letter or otherwise. While it is always a concern
to be in a situation with multiple prospective buyers, we do not believe
that anything raised by Laidlaw requires further negotiation or discussion
with Laidlaw as a matter of fiduciary duty.
This letter and the opinions expressed herein are solely intended for
the benefit of Safety-Kleen's Board of Directors. This letter may not be
disclosed or otherwise referred to without our prior consent.
* * * * *
The Board determined to meet again to further discuss Laidlaw
Environmental's amended proposed offer and authorized William Blair to continue
its analysis of such offer and to report on such analysis at the next Board
meeting.
Reasons for the Merger; Recommendation of Board of Directors
At its meeting on November 20, 1997, the Board unanimously determined,
among other things, that the transactions contemplated by the Merger Agreement,
including the Merger and the transactions contemplated thereby, taken together,
are fair to, and in the best interests of, the shareholders of Safety-Kleen. The
Board recommends that holders of Shares vote FOR the Merger.
The Board's decision to enter into the Merger Agreement was based, in large
part, upon balancing the risks and benefits of the Merger against the risks and
benefits of the other strategic alternatives available to Safety-Kleen. Of the
strategic alternatives available to Safety-Kleen, the Merger was deemed by the
Board to be the alternative which would yield the best results to the
shareholders of Safety-Kleen from a financial point of view. See "-- Background
of the Merger."
-20-
In the course of reaching its decision to approve the Merger Agreement and
the Merger, the Board consulted with Safety-Kleen's legal counsel and William
Blair and considered a number of factors, including, among others, the
following:
(i) 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;
(ii) presentations by Safety-Kleen's management relating to Safety-
Kleen's financial performance and future opportunities and
prospects;
(iii) 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 Merger was fair to Safety-
Kleen's shareholders from a financial point of view. "See "--
Opinion of Financial Advisor";
(iv) 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;
(v) the Board's review, based in part on presentations by Safety-
Kleen's management and financial advisors, of alternatives to the
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 Merger;
(vi) the lower proposed cash and stock offer by Laidlaw Environmental in
the stated amount of $26 per Share and the Board's concerns with
respect to that offer discussed under "-- Background of the
Merger";
(vii) 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;
(viii) the terms and conditions of the 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 Merger up to a maximum of $25.0
million) to Parent payable upon termination of the Agreement
-21-
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 Merger; and
(ix) the interest of 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 Parent's intent to preserve Safety-
Kleen's relationship with its employees and to maintain Safety-
Kleen's charitable commitments and community investment.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
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
determination. In addition, individual members of the Board may have given
different weight to different factors.
Opinion of Financial Advisor
Safety-Kleen retained William Blair to act as its financial advisor in
connection with the Merger. 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 fairness opinion. William Blair
is a nationally recognized firm and, as part of its investment banking
activities, is regularly engaged in the valuation of businesses and their
securities in connection with merger transactions and other types of strategic
combinations and acquisitions. Safety-Kleen retained William Blair as its
financial advisor on the basis of William Blair's experience and expertise in
transactions similar to the Merger, its reputation in the investment banking
community and its existing investment banking relationship with Safety-Kleen.
Edgar D. Jannotta, Sr., a Senior Director of William Blair, serves as a member
of the Board of Directors of Safety-Kleen.
At the November 20, 1997 meeting of the Safety-Kleen Board of Directors,
William Blair rendered its oral opinion, that, as of such date, and based upon
and subject to the factors and assumptions set forth in such written opinion,
the consideration to be received by Safety-Kleen's shareholders in the Merger
was fair to Safety-Kleen's shareholders from a financial point of view. The full
text of William Blair's opinion to the Safety-Kleen Board of Directors dated as
of November 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 Proxy
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 Merger and does not constitute a
recommendation to any Safety-Kleen shareholder as to how such shareholder should
vote at the Special Meeting.
-22-
In connection with its opinion, William Blair reviewed a final draft of the
Merger Agreement, as well as certain financial and other information that was
publicly available or furnished to William Blair by Safety-Kleen, Philip, Apollo
and Blackstone, including certain internal financial analyses, financial
forecasts, reports and other information prepared by the management of Safety-
Kleen. William Blair held discussions with members of management of Safety-Kleen
concerning Safety-Kleen's historical and current operations, financial condition
and prospects. In addition, William Blair (i) compared the financial position
and operating results of Safety-Kleen with those of publicly traded companies
William Blair deemed relevant for its opinion; (ii) compared certain financial
terms of the Merger to certain financial terms of other selected business
combinations William Blair deemed relevant for its opinion; and (iii) conducted
such other financial studies, analyses and investigations and reviewed such
other factors as William Blair deemed appropriate for the purposes of rendering
its opinion.
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. 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. The summary set forth below does not
purport to be a complete description of the analyses performed or factors
considered by William Blair in this regard.
Summaries of Valuation Analyses. In connection with its opinion and the
presentation of its opinion to the Board of Directors of Safety-Kleen, William
Blair performed certain valuation analyses, including: (i) a comparison with
comparable publicly traded companies, (ii) a discounted cash flow analysis,
(iii) an analysis of certain comparable acquisitions and (iv) a premium
analysis. Such analyses are summarized below.
Analysis of Certain Publicly Traded Companies. William Blair reviewed and
compared certain financial information relating to Safety-Kleen to corresponding
financial information, ratios and public market multiples for ten publicly
traded companies in the environmental services industry. Six of these companies
are solid waste management companies (the "Solid
-23-
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.
Among the information considered were revenue, operating income ("EBIT"),
earnings before interest, taxes, depreciation and amortization ("EBITDA"), net
income, earnings per share ("EPS"), gross profit margins, EBIT margins and net
income margins, growth in revenues and net income, return on assets and equity,
and capital structure. The multiples and ratios for Safety-Kleen and the
comparable companies were based on the most recent publicly available financial
information and on EPS estimates for 1997 and 1998 from First Call Corporation,
and the closing share prices as of November 14, 1997.
William Blair observed that the multiples of common stock share price
("Price") to EPS, as well as multiples of market value plus book value of total
debt (including minority interests and preferred stock) less cash and
equivalents ("Enterprise Value") to revenues, EBIT and EBITDA implied by the
terms of the Merger compared favorably, from Safety-Kleen's perspective, to the
median of the corresponding multiples of the comparable companies. Specifically,
the terms of the Merger implied 1.9x latest twelve month ("LTM") revenues, 15.8x
LTM EBIT and 9.4x LTM EBITDA. By comparison, the analysis of selected
environmental service companies resulted in a median multiple of 1.9x for
Enterprise Value to LTM revenues, 16.2x for Enterprise Value to LTM EBIT and
7.7x for Enterprise Value to LTM EBITDA. The analysis of selected 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 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. Without limitation, these cash flow estimates
assumed that certain possible changes or developments in Safety-Kleen's
business, which could potentially favorably impact value, would not affect cash
flow during such period. In calculating the "terminal value", William Blair
assumed multiples of Enterprise Value to EBITDA ranging from 6.0x to 8.0x, which
multiples William Blair believed to be appropriate for such an analysis. The
annual and terminal free cash flows were discounted to determine a net present
value of the unleveraged equity value of Safety-Kleen. Discount rates in a range
of 10.0% to 12.0% were chosen based upon an analysis of the weighted average
cost of capital of the publicly traded comparable group of companies described
above. The DCF analysis indicated a valuation of the equity of Safety-Kleen of
between $1.5 billion to $1.8 billion, or
-24-
$25.58 to $30.35 per share. As a result, William Blair believes that the price
to be paid on the 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
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.
The summary set forth above does not purport to be a complete description
of the analyses performed by William Blair. The preparation of a fairness
opinion is a complex
-25-
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
Merger and add to the total mix of information available. William Blair did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness. Rather, in
reaching its conclusion, William Blair considered the results of the analyses in
light of each other and ultimately reached its opinion based on the results of
all analyses taken as a whole. William Blair did not place particular reliance
or weight on any individual analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, William Blair believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying its opinion. 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.
Engagement of Financial Advisors
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 William 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 Equity Purchase Price
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,
1997, whereby Safety-Kleen agreed to indemnify William Blair against certain
liabilities in connection with William Blair's engagement under the William
Blair Engagement Letter.
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William Blair has provided certain investment banking services to Safety-
Kleen from time to time for which William Blair has received customary
compensation. Mr. Jannotta, 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 Philip 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 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 Philip 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.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of Safety-Kleen
with respect to the Merger, shareholders should be aware that certain directors
and executive officers may be deemed to have interests in the Merger, in
addition to their interests as shareholders. The Board of Directors has been and
is aware of the conflicts described below and considered them in addition to the
other matters described under "The Merger -- Recommendation of the Board of
Directors; Reasons for the Merger."
Stock Options. As of November 25, 1997, directors and executive officers
held in the aggregate options to purchase 2,446,265 Shares (including 2,251,265
options related to limited stock appreciation rights), including options that
will vest upon consummation of the Merger. Upon consummation of the 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 Merger, Mr. Brinckman
would be entitled to receive approximately $5,371,445 and all directors and
executive officers who served at any time since the beginning of Safety-Kleen's
last fiscal year as a group would collectively be entitled to receive
approximately $25,690,713. See "The Merger Agreement -- Stock Options."
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Indemnification and Insurance. Pursuant to the Merger Agreement, Parent has
agreed that for a period of six years after the Effective Time, 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 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 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. Parent also
agreed, subject to certain limitations, to cause to be maintained in effect for
not less than six years after the Effective Time 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. In
addition, the 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 arising in whole or
in part out of, any matter, including the transactions contemplated by the
Merger Agreement, existing or occurring at or prior to the Effective Time, then
to the extent permitted by law, Parent will cause Safety-Kleen (or the Surviving
Corporation if after the Effective Time) to, and Safety-Kleen (or the Surviving
Corporation if after the Effective Time) shall, periodically advance to such
Indemnified Party its legal and other expenses (including the cost of any
investigation and preparation incurred in connection therewith), subject to the
provision by such Indemnified Party of an undertaking to reimburse the amounts
so advanced in the event of a final determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto. The Merger
Agreement also provides that Parent must cause Safety-Kleen (or the Surviving
Corporation if after the Effective Time) to, and Safety-Kleen (or the Surviving
Corporation if after the Effective Time) 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 Merger Agreement.
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 will occur upon approval of the Merger by Safety-Kleen
shareholders) at a guaranteed annual base salary equal to at least 12 times the
highest base monthly salary payable during the 12-month period immediately
preceding the Change of Control, with increases consistent with increases in
base salary awarded to other peer executives of Safety-Kleen; (b) a guaranteed
bonus for each bonus plan performance period (under each bonus arrangement)
ending within such three year employment period; (c) continued participation in
the incentive, savings, retirement, welfare and other fringe benefit plans
sponsored by Safety-Kleen; (d) full vesting on the date of the Change of Control
of all stock options (or a lump sum payment of the spread of all non-vested,
forfeited options; and (e) full payment on the date of the Change of Control, of
the value of the executive's accrued benefits under Safety-Kleen's excess
benefit and supplemental retirement plans.
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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".
If, during the three year employment period, the executive's employment is
terminated (i) by the Surviving Corporation 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 the
Surviving Corporation 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 the date of shareholder approval of the Merger; 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 shareholder approval of the Merger.
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 of their termination during the three
year employment period after the Merger (other than for Cause or by reason of
the executive's death or disability) are approximately $3,845,937 for Mr.
Brinckman and approximately $46,036,306 for all officers
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with Change of Control Severance Agreements. However, it is not expected that
all such persons would be so terminated.
Additional information relating to executive compensation and various
benefit arrangements of Safety-Kleen is set forth in and incorporated by
reference to Safety-Kleen's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996.
Parent Letter and Merger Agreement Provisions Relating to Benefit Plans. By
letter dated November 19, 1997, Parent advised the 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 Parent.
The Merger Agreement confirms certain protective provisions relating to
employee benefit plans and Parent's intention with respect to the Surviving
Corporation after the Effective Time. See "The Merger Agreement -- Effect on
Benefit Plans and Related Matters."
Investment Banking Fees. Mr. Jannotta, a director of the Company, is a
Senior Director of William Blair. William Blair will receive a fee from Safety-
Kleen upon consummation of the Merger. See "-- Engagement of Financial
Advisors."
Financing of the Merger
Parent estimates that the total amount of funds required by the Purchaser
to complete the Merger, to refinance Safety-Kleen's indebtedness and to pay
related fees and expenses, will be approximately $1.95 billion. The Purchaser
plans to obtain such funds through capital contributions of $600 million made by
Parent and through approximately $1.35 billion of bank financing. Parent plans
to obtain the funds for such capital contributions or advances from equal
capital contributions to Parent by each of Philip, Apollo and Blackstone
(collectively, the "Investors"), pursuant to an equity contribution commitment
letter between Parent, Philip, Apollo and Blackstone.
Equity Commitment Letter. On November 19, 1997, Apollo, Blackstone and
Philip executed a commitment letter (the "Equity Commitment Letter") pursuant to
which Apollo, Blackstone and Philip agreed to work together to form Parent for
the purpose of acquiring 100% of the capital stock of Safety-Kleen through a
merger of Purchaser with and into Safety-Kleen as provided in the Merger
Agreement. Pursuant to the Equity Commitment Letter, Apollo, Blackstone and
Philip each committed, severally and not jointly, to contribute $200 million of
cash to Parent (collectively the "Equity Commitments"), subject to satisfaction
of the conditions set forth in the Merger Agreement and the Debt Commitment
Letter (as defined below), in each case without giving effect to any
modification or waiver thereof effected without the prior written consent of
each of Apollo, Blackstone and Philip, and to the negotiation, execution and
delivery of definitive documents materially consistent with the terms described
in the Equity Commitment Letter. See "The Merger Agreement --Conditions to
Consummation of the Merger."
Pursuant to the Equity Commitment Letter, subject to the conditions
described above, each of Apollo, Blackstone and Philip will contribute $200
million in cash to Parent, in each case in exchange for Common Stock to be
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issued by Parent ("Parent Common Stock") in equal amounts to Apollo, Blackstone
and Philip. In the event that additional equity is required to cure or prevent
an event of default or a default under any of the financial covenants contained
in any of Safety-Kleen's debt instruments or credit facilities, Apollo and
Blackstone, on the one hand, or Philip, on the other, will have the right to
contribute all of such additional equity by purchasing additional shares of
Parent Common Stock. In the event that Apollo and Blackstone elect to make such
an additional contribution, Philip will have the right to replace a portion of
the additional Apollo/Blackstone contribution with an additional contribution of
its own, and vice versa.
Parent's Board of Directors will initially be comprised of eight directors
and Apollo and Blackstone together, on the one hand, and Philip, on the other,
will each have the right to appoint an equal number of directors to the Board.
In the event of certain events of bankruptcy or insolvency involving Philip and
during the period, if any, in which certain financial performance targets of
Parent are not met, Apollo and Blackstone, collectively, will have the right to
appoint two-thirds of the members of Parent's Board of Directors and Philip will
have the right to appoint the remainder. Philip will have the right, at its sole
discretion, to designate the Chairman of the Board. The Board may terminate its
Chairman in the event of non-performance or may terminate any senior management
member by majority vote at the sole discretion of the Board. So long as,
following consummation of the Merger, Safety-Kleen remains a separate subsidiary
of Parent, the Board of Directors of Safety-Kleen will be composed of directors
determined in an identical manner.
The Equity Commitment Letter provides that Parent and Safety-Kleen will
have a management team (the "Management Team") which will be composed of members
mutually agreed upon by Apollo, Blackstone and Philip and which will be
responsible for decisions related to Parent's and Safety-Kleen's ordinary course
of business, within the scope of the annual budget and business plan. An
operating committee will be formed consisting of a representative from each of
Apollo, Blackstone and Philip. The operating committee will meet regularly to
discuss operations and business performance. Parent or Safety-Kleen will
institute a long-term incentive compensation program for the Management Team
based on parameters approved by a majority vote of the Board of Directors of
Parent, and the Management Team will not receive additional incentive
compensation or stock options from Philip or its other affiliates.
Bank Financing. The Purchaser has entered into a commitment letter (the
"Debt Commitment Letter"), dated November 19, 1997, among the Purchaser, The
Chase Manhattan Bank, as administrative agent and documentation agent ("Chase"),
Chase Securities Inc., as Arranger, Canadian Imperial Bank of Commerce, as
Syndication Agent ("CIBC", and together with Chase, the "Agents"), and CIBC
Oppenheimer Corp., as Co. Arranger, pursuant to which Safety-Kleen, as the
surviving corporation in the Merger will be provided with credit facilities in
the aggregate amount of approximately $1.5 billion (the "Facilities").
The Facilities will consist of $1.2 billion aggregate principal amount of
Senior Secured Credit Facilities (the "Senior Secured Facilities") and a $300
million Second Term Credit Facility (the "Second Term Loan Facility").
The Senior Secured Facilities will consist of (i) a Tranche A Senior
Secured Term Loan Facility (the "Tranche A Facility") providing for term loans
to Safety-Kleen in an aggregate
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principal amount not to exceed $450 million; (ii) a Tranche B Senior Secured
Term Facility (the "Tranche B Facility") and Tranche C Senior Secured Term Loan
Facility (the "Tranche C Facility") providing for term loans to Safety-Kleen in
an aggregate principal amount not to exceed $600 million, allocated between the
Tranche B Facility and the Tranche C facility in amounts to be agreed upon; and
(iii) a Senior Secured Revolving Credit Facility (the "Revolving Facility")
providing for revolving loans to and letters of credit for the account of
Safety-Kleen in an aggregate principal amount at any time not to exceed $150
million. Loans under the Senior Secured Facilities will bear interest during any
particular interest period at Safety-Kleen's option at (i) Adjusted LIBOR or
(ii) the Alternate Base Rate, plus margins which may vary from time to time
based upon the Company's ratio of total debt to consolidated EBITDA. Loans made
under the Tranche A Facility will mature on the seventh anniversary of the
Effective Time with no amortization in the first two years and thereafter
amortizing in quarterly installments under a schedule to be agreed upon; loans
made under the Tranche B Facility will amortize over eight years under a
schedule to be agreed upon providing for nominal quarterly installments during
the initial seven year period and quarterly installments in amounts to be agreed
upon during the remaining term of such facility; loans made under the Tranche C
Facility will amortize over nine years under a schedule to be agreed upon
providing for nominal quarterly installments during the initial eight year
period and quarterly installments in amounts to be agreed upon during the
remaining term of such facility ; and the Revolving Facility will mature on the
seventh anniversary of the Effective Term. The obligations of Safety-Kleen under
the Senior Secured Facilities will be unconditionally and irrevocably guaranteed
(the "Senior Guarantees") by Parent and each domestic subsidiary of Safety-Kleen
(collectively, the "Guarantors"). The obligations under the Senior Secured
Facilities and Senior Guarantees will be secured by security interests in (i)
all of the capital stock and other equity interests of Safety-Kleen and its
domestic subsidiaries, (ii) 65% of the capital stock and other equity interests
of the direct foreign subsidiaries of Safety-Kleen or any domestic subsidiaries
of Safety-Kleen and (iii) all the tangible and intangible assets of Safety-Kleen
and its domestic subsidiaries.
Loans under the Second Term Loan Facility will bear interest during any
particular interest period at the election of Safety-Kleen at (i) Adjusted LIBOR
or (ii) the Alternate Base Rate, plus margins which vary from time to time based
upon debt ratings assigned to the Second Term Loan Facility. Loans made under
the Second Term Loan Facility will mature on the tenth anniversary of the
Effective Time and will not have scheduled amortization. The obligations under
the Second Term Loan Facility will be unconditionally and irrevocably guaranteed
(the "Second Guarantees", and together with the Senior Guarantees the
"Guarantees") by the Guarantors. The obligations of Safety-Kleen and the
Guarantors under the Second Term Loan Facility will be senior obligations of
Safety-Kleen and the Guarantors secured by a second priority lien on the
Collateral. At any time after the later to occur of an initial offering to the
public of debt or equity securities by Safety-Kleen or the first anniversary of
the Effective Time, lenders holding more than 50% of the loans and commitments
under the Second Term Loan Facility will have the right (i) to exchange their
loans for exchange notes ("Exchange Notes") having the same terms and provisions
of such loans and (ii) to demand registration of such Exchange Notes under the
Securities Act of 1933, as amended.
Conditions Precedent. The commitment of the lenders pursuant to the
Commitment Letter is subject to negotiation and execution of a definitive credit
agreement with respect to the Facilities and related documents. The Commitment
Letter provides that the conditions precedent
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to the obligations of the lenders thereunder will be usual for facilities and
transactions of this type, including but not limited to delivery of satisfactory
legal opinions and satisfactory audited financial statements and other financial
information; first-priority security interests in the Collateral; execution of
the Guarantees, which shall be in full force and effect; accuracy of
representations and warranties; absence of defaults, prepayment events or
creation of liens under debt instruments or other agreements as a result of the
Merger and the financing thereof; evidence of authority; material consents of
all persons; compliance with applicable material laws and regulations (including
but not limited to ERISA, margin regulations and environmental laws); absence of
any material adverse change in the business, financial condition or results of
operations of Safety-Kleen and its subsidiaries, taken as a whole, since
December 31, 1996; there not having occurred and being continuing any material
disruption of, or material adverse change in, the financial, banking or capital
markets since the date of the Commitment Letter; all requisite material
governmental authorities shall have approved or consented to the Merger and the
financing thereof and the other transactions contemplated by the Commitment
Letter to the extent required, all applicable appeal periods shall have expired
and there shall be no governmental or judicial action, accrual or threatened,
that has or could have a reasonable likelihood of restraining, preventing or
imposing burdensome conditions on the Merger and the financing thereof or
consummation of the other transactions contemplated by the Commitment Letter;
payment of fees and expenses; and existence of insurance customary for similarly
situated businesses. In addition, after giving effect to the Merger and the
financing thereof, (a) Parent, the Purchaser and their subsidiaries shall have
outstanding no preferred stock and no indebtedness other than (i) the loans
under the Facilities, (ii) the loans under the Second Term Loan Facility and
(iii) other indebtedness satisfactory to the Agents, (b) the Purchaser shall
have outstanding no capital stock (or options or warrants for the purchase
thereof) other than common stock owned indirectly by the Investors through
Parent and (c) Parent shall have outstanding no capital stock other than as
contemplated by the Shareholder Agreement.
Accounting Treatment
The Merger, if consummated in accordance with the terms of the Merger
Agreement, will be treated as a purchase for accounting purposes. Accordingly,
under generally accepted accounting principles, the assets and liabilities of
Safety-Kleen will be recorded on the books of Parent at their respective fair
market values at the time of the consummation of the Merger.
Certain Federal Income Tax Consequences
The following is a general discussion, based on current law, of certain of
the expected federal income tax consequences applicable to shareholders who
receive cash in exchange for their shares pursuant to the Merger. This summary
discusses only certain tax consequences to United States persons (i.e., citizens
or residents of the United States and domestic corporations) who hold shares as
capital assets. It does not discuss the tax consequences to holders of options
issued by Safety-Kleen who receive cash in exchange for their options pursuant
to the Merger, nor does it discuss the tax consequences that might be relevant
to shareholders who acquired their shares through the exercise of options or
otherwise as compensation. In addition, it does not discuss the tax consequences
that might be relevant to shareholders entitled to special treatment under the
federal income tax law (such as Individual Retirement Accounts and other
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deferred accounts, life insurance companies and tax exempt organizations) or to
shareholders who hold their shares in special circumstances (such as
shareholders who hold shares as part of a straddle or conversion transaction).
For federal income tax purposes, the Merger will be treated as a taxable
purchase of Shares by Parent from the shareholders. A shareholder will recognize
taxable gain or loss for federal income tax purposes equal to the difference, if
any, between the amount of cash received pursuant to the Merger and such
shareholder's tax basis in the Shares surrendered in exchange therefor. In
general, such gain or loss will be capital gain or loss if such Shares are
capital assets in the hands of such shareholder at the time of the exchange and
will be long-term capital gain or loss if, at the time of the exchange, such
shareholder's holding period for the Shares is more than one year.
Under The Taxpayer Relief Act of 1997, net capital gains (excess of long-
term capital gains over short-term capital losses) of individuals are taxed at a
maximum federal income tax rate of 20%, provided that the Shares have been held
for more than 18 months at the effective time of the Merger. Capital gains of
corporations are taxed at the same federal income tax rates as ordinary income.
In general capital losses are deductible only against capital gains and are not
available to offset ordinary income. However, individual taxpayers are allowed
to deduct a limited amount of capital losses against ordinary income.
Under federal income tax backup withholding rules, the payment agent is
required to withhold and remit to the United States Treasury 31% of the gross
cash proceeds paid to a shareholder or other payee pursuant to the Merger,
unless an exception applies under the applicable law or regulations (such as a
Certificate of Foreign Status on Form W-8), or unless the shareholder or other
payee signs a Substitute Form W-9 that provides his or her taxpayer
identification number (employer identification number or social security number)
and certifies that such number is correct. Therefore, unless such an exception
exists and can be proven in a manner satisfactory to Parent and the payment
agent, each shareholder should complete and sign the Substitute Form W-9 which
will be included as part of the letter of transmittal from the payment agent to
be used to surrender shares for cash. The exceptions provide that certain
shareholders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, however, he or she must submit a statement, signed under penalties of
perjury, attesting to his or her exempt status. Any amounts withheld will be
allowed as a credit against the shareholder's federal income tax liability, or
in general, refunded by the Internal Revenue Service ("IRS") assuming that the
appropriate procedures are followed.
No ruling has been requested from the IRS as to any of the tax effects to
shareholders of the transactions discussed in this Proxy Statement, and no
opinion of counsel has or will be rendered to shareholders with respect to any
of the tax effects of the Merger or the other related transactions.
Shareholders are urged to consult their own tax and financial advisors as
to federal income tax consequences of the Merger to them, and also as to any
state, local, foreign or other tax consequences.
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Regulatory Approvals
The formation of Parent and the consummation of the Merger are subject to
the requirements of the HSR Act, and the rules and regulations thereunder, which
provide that certain transactions may not be consummated until required
information and materials are furnished to the Antitrust Division and the FTC
and the requisite waiting period expires or terminates. In addition, certain
aspects of the Merger may require notification to, and filings with, certain
federal, state and foreign governmental authorities.
Appraisal Rights
Safety-Kleen shareholders are not entitled to any appraisal rights under
the WBCL in connection with the Merger.
THE MERGER AGREEMENT
Set forth below is a brief description of certain terms of the Merger
Agreement and related matters. This description does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement, which is
attached hereto as Annex A and is incorporated herein by reference.
General
Parent, the Purchaser, and Safety-Kleen have entered into the Merger
Agreement, which provides that the Purchaser will be merged with and into
Safety-Kleen, with Safety-Kleen becoming a wholly-owned subsidiary of Parent. In
the Merger, each outstanding Share (other than Shares held by Parent and its
affiliates and treasury Shares) will be converted at the Effective Time (as
defined below) into the right to receive $27.00 in cash, without interest.
Parent will also make certain payments necessary to satisfy Safety-Kleen's
outstanding debt obligations. Immediately prior to the Effective Time (as
defined below) Safety-Kleen will make certain payments with respect to
outstanding options under Safety-Kleen's stock option plans.
As soon as practicable after the conditions to consummation of the Merger
described below have been satisfied or waived, and unless the Merger Agreement
has been terminated as provided below, articles of merger (the "Articles of
Merger") will be filed with the Secretary of State of the State of Wisconsin in
accordance with the relevant provisions of the Wisconsin Business Corporation
Law ("WBCL") and the parties will make such other filings, recordings or
publications required under the WBCL in connection with the Merger. The Merger
will become effective upon the date on which the Articles of Merger have been
received for filing by the Secretary of the State of Wisconsin, or such later
date as is agreed upon by the parties and specified in the Articles of Merger,
and the time of such effectiveness is hereinafter referred to as the "Effective
Time." As a result of the Merger, the separate corporate existence of the
Purchaser will cease and Safety-Kleen will continue as the Surviving Corporation
under the name "Safety-Kleen Corp.," and will become a wholly-owned subsidiary
of Parent.
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Conversion of Securities
At the Effective Time, each Share issued and outstanding immediately prior
to the Effective Time (other than Shares owned by Parent, the Purchaser or any
subsidiary thereof or held in the treasury of Safety-Kleen or any subsidiary of
Safety-Kleen, which will be canceled without payment) will be canceled and
converted at the Effective Time into the right to receive an amount in cash,
without interest, equal to $27.00 (the "Merger Consideration").
Pursuant to the Merger Agreement, all shares of common stock, par value
$.01 per share, of the Purchaser issued and outstanding immediately prior to the
Effective Time shall be automatically converted into and become at the Effective
Time that number of shares of common stock, par value $.01 per share, of the
Surviving Corporation that is equal to the aggregate number of shares of Safety-
Kleen issued and outstanding immediately prior to the Effective Time.
Stock Options
The Merger Agreement provides that Safety-Kleen will (a) terminate its 1985
Stock Option Plan, 1993 Stock Option Plan and 1988 Non-Qualified Stock Option
Plan for Outside Directors (collectively the "Option Plans"), immediately prior
to the Effective Time without prejudice to the rights of the holders of options
awarded pursuant thereto and (b) grant no additional options or similar rights
under the Option Plans or otherwise on or after the date of the Merger
Agreement. "Options" is defined under the Merger Agreement to include each stock
option granted by Safety-Kleen, whether pursuant to the Option Plans or
otherwise.
Safety-Kleen agrees pursuant to the Merger Agreement to cancel all Options
(whether or not then exercisable) that Safety-Kleen has the right to cancel and
to use its best efforts to obtain the consent of each holder of any Options
(whether or not then exercisable) that it does not have the right to cancel to
the cancellation of his Options, with all such cancellations to take effect
immediately prior to the Effective Time. In consideration of each cancellation
of Options, Safety-Kleen agrees to pay to the holders of such Options,
immediately prior to the Effective Time, for each Share subject to such Option,
an amount in cash equal to the excess, if any, of the Merger Consideration over
the per Share exercise price of such Option, reduced by the amount of
withholding or other taxes required by law to be withheld. However, in the case
of Options related to limited stock appreciation rights ("LSARs"), for each
Share subject to such Option, Safety-Kleen agrees to pay (consistent with the
rights under the Option Plans) upon cancellation of such Options, 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 Merger, during the period beginning on the 180th day before the
change of control and ending on the day preceding the exercise of the LSAR or,
if greater, the highest price per Share paid in the 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 November 25, 1997, directors,
executive officers and other employees held in the aggregate Options to purchase
2,446,265 Shares, 2,251,265 of which were Options related to LSARs.
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Directors and Officers; Articles of Incorporation and Bylaws
The Merger Agreement provides that the directors of the Purchaser
immediately prior to the Effective Time will be the initial directors of the
Surviving Corporation and that the officers of Safety-Kleen immediately prior to
the Effective Time will be the initial officers of the Surviving Corporation,
until the earlier of their resignation or removal of their respective successors
are duly elected and qualified. The Merger Agreement provides that, at the
Effective Time, the Articles of Incorporation and Bylaws of the Purchaser will
become the Articles of Incorporation and Bylaws of the Surviving Corporation
subject to certain requirements with respect to indemnification. See "The
Merger -- Interests of Certain Persons in the Merger -- Indemnification and
Insurance."
Representations and Warranties
Safety-Kleen, Parent and Purchaser have made certain representations and
warranties to each other in the Merger Agreement. Safety-Kleen represents and
warrants, among other things, as to the organization and qualifications to do
business of Safety-Kleen and its significant subsidiaries, its capitalization,
its corporate authority to enter into and perform the Merger Agreement and the
absence of conflict of such actions with its other obligations, and its
ownership of its subsidiaries. Safety-Kleen also makes certain representations
and warranties concerning its financial reports, the absence of certain changes
and liabilities, employee benefit plans, litigation and legal matters, labor
matters, tax matters, environmental matters and title to its properties. Parent
and Purchaser represent and warrant, among other things, as to their respective
organization and qualification, capital stock, corporate authority to enter into
and perform the Merger Agreement and the absence of conflict of such actions
with its other obligations, interim operations of Parent and Purchaser,
litigation matters, and receipt of the Equity Commitment Letter and the Debt
Commitment Letter (the "Commitment Letters") in an aggregate amount sufficient
to consummate the transactions contemplated by the Merger Agreement. The
representations and warranties of Parent, Purchaser and Safety-Kleen will
terminate upon consummation of the Merger.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Safety-Kleen has agreed that (except as
otherwise contemplated therein or as set forth in the Disclosure Schedule
attached to the Merger Agreement (the "Disclosure Schedule")), unless Parent
shall otherwise agree in writing (which agreement shall not be unreasonably
withheld), prior to the Effective Time:
(a) the business of Safety-Kleen and its subsidiaries will be
conducted in the ordinary and usual course of business, and Safety-Kleen
will use its reasonable best efforts to maintain and preserve intact its
and its subsidiaries' business organization, assets, employees, officers
and consultants and advantageous business relationships;
(b) neither Safety-Kleen nor any of its subsidiaries will directly or
indirectly do any of the following: (i) except in the ordinary course of
business, sell, pledge, dispose of or encumber any assets of Safety-Kleen
or of any of its subsidiaries; (ii) amend its charter or by-laws or similar
organizational documents; (iii) split, combine or reclassify
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any shares of its capital stock or declare, set aside, make or pay any
dividend or distribution payable in cash, stock, property or otherwise with
respect to any of its capital stock (except as contemplated by the Rights
Agreement and except for (x) cash dividends to shareholders of Safety-Kleen
declared in the ordinary course of business and consistent with past
practice and (y) dividends by wholly-owned subsidiaries of Safety-Kleen);
(iv) redeem, purchase or otherwise acquire or offer to redeem, purchase or
otherwise acquire any capital stock of Safety-Kleen; (v) adopt a plan of
liquidation or resolutions providing for the liquidation, dissolution,
merger, consolidation or other reorganization of Safety-Kleen; or (vi)
authorize or propose any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing;
(c) neither Safety-Kleen nor any of its subsidiaries will, directly
or indirectly, (i) except for Shares (and the associated Rights) issuable
upon exercise of options outstanding under the Option Plans on the date of
the Merger Agreement, issue, sell, pledge, dispose of or encumber, or
authorize, propose or agree to the issuance, sale, pledge, disposition or
encumbrance of, any shares of, or any options, warrants or rights of any
kind to acquire any shares of or any securities convertible into or
exchangeable or exercisable for any shares of, its capital stock of any
class or any other securities in respect of, in lieu of, or in substitution
for Shares outstanding on the date hereof; (ii) make any material
acquisition, by means of merger, consolidation or otherwise, or material
disposition (other than disposition of assets in the ordinary course of
business), of assets or securities, or make any loans, advances or capital
contributions to, or investment in, any individual or entity (other than to
Safety-Kleen or a wholly-owned subsidiary of Safety-Kleen); (iii) except in
the ordinary course of business, and other than indebtedness to or
guarantees for the benefit of Safety-Kleen or any affiliate of Safety-Kleen
and (B) borrowings to fund payments to holders of Options as contemplated
by the Merger Agreement, incur any indebtedness or issue any debt
securities or assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for, the
obligations of any other individual or entity; (iv) change the
capitalization of Safety-Kleen (other than the incurrence of indebtedness
otherwise permitted in the Merger Agreement); (v) except in the ordinary
course, change any assumption underlying, or method of calculating, any bad
debt, contingency or other reserve; (vi) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, contingency or
otherwise), other than the payment, discharge or satisfaction of
liabilities in the ordinary course of business or as required by applicable
law; (vii) waive, release, grant or transfer any rights of value or modify
or change in any material respect any existing license, lease, contract or
other document, other than in the ordinary course of business; or (viii)
authorize any of the foregoing, or enter into or modify any contract,
agreement, commitment or arrangement to do any of the foregoing;
(d) except for the payment to holders of Options as contemplated by
the Merger Agreement, neither Safety-Kleen nor any of its subsidiaries will
(except for salary increases or other employee benefit arrangements in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to Safety-Kleen and its subsidiaries, taken as a whole, or as may
be required pursuant to any agreements in effect at the date of the
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Merger Agreement) adopt or amend or take any actions to accelerate any
rights or benefits under (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment, severance, termination or other employee benefit
plan, agreement, trust, fund or other arrangement for the benefit or
welfare of any employee or any officer or director or former employee or,
except in the ordinary course of business, consistent with past practice,
increase the compensation or fringe benefits of any employee or former
employee or pay any benefit not permitted by any existing plan, arrangement
or agreement;
(e) except in the ordinary course of business, neither Safety-Kleen
nor any of its subsidiaries will make any tax election or settle or
compromise any federal, state, local or foreign income tax liability;
(f) except in the ordinary course of business, neither Safety-Kleen
nor any of its subsidiaries will permit any insurance policy naming it as
beneficiary or a loss payee to be cancelled or terminated without notice to
Parent; and
(g) neither Safety-Kleen nor any of its subsidiaries will agree, in
writing or otherwise, to take any of the foregoing actions or any action
which would make any representation or warranty of Safety-Kleen in the
Merger Agreement untrue or incorrect so as to result in any change(s) or
effect(s) that, individually, or in the aggregate, are materially adverse
to the financial condition, properties, business of Safety-Kleen and its
subsidiaries taken as a whole, or that would prevent or materially delay
Safety-Kleen from performing its obligations under the Merger Agreement (a
"Material Adverse Effect").
No Solicitation of Proposals
The Merger Agreement provides that Safety-Kleen (and its subsidiaries and
affiliates) will not, and will use their best efforts to ensure that their
respective directors, officers, employees, representatives and agents do not,
directly or indirectly, solicit or initiate inquiries or proposals from, or
provide any confidential information to, or participate in any discussions or
negotiations with, any person or entity (other than Parent and its subsidiaries
and their respective directors, officers, employees, representatives and agents)
concerning (a) any merger, sale of assets not in the ordinary course (except for
any sale of assets otherwise permitted under the terms of the Merger Agreement),
or other similar transaction involving Safety-Kleen or any subsidiary or
division of Safety-Kleen, or the sale of any equity interest in Safety-Kleen or
any subsidiary, or (b) any sale by Safety-Kleen or its subsidiaries of
authorized but unissued Shares or of any shares (whether or not outstanding) of
any of Safety-Kleen's subsidiaries (all such inquiries and proposals being
referred to herein as "Acquisition Proposals"), provided, however, that nothing
contained in such provisions of the Merger Agreement prohibits Safety-Kleen or
its Board of Directors from (i) subject to certain duties to consult with Parent
and Purchaser, issuing a press release or otherwise publicly disclosing the
terms of the Merger Agreement; (ii) proceeding with the transactions
contemplated by the Merger Agreement; (iii) communicating to Safety-Kleen's
shareholders a position as contemplated by Rule 14e-2 promulgated under the
Securities Exchange Act of 1934, as
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amended (the "Exchange Act"); (iv) making any disclosure to Safety-Kleen's
shareholders which, in the judgment of the Board of Directors of Safety-Kleen,
with the advice of outside counsel, should reasonably be made under applicable
law (including, without limitation, laws relating to the fiduciary duties of
directors) or (v) taking any non-appealable, final action ordered to be taken by
Safety-Kleen by any court of competent jurisdiction; and, provided, further,
that the Board of Directors of Safety-Kleen may, on behalf of Safety-Kleen,
furnish or cause to be furnished information and may direct Safety-Kleen, its
directors, officers, employees, representatives or agents to furnish
information, in each case pursuant to appropriate confidentiality agreements,
and to participate in discussions or negotiations with any person or entity
concerning any Acquisition Proposal which was not solicited by Safety-Kleen or
any of its subsidiaries or affiliates or any of their respective directors,
officers, employees, representatives or agents, or which did not otherwise
result from a breach of such non-solicitation provisions of the Merger
Agreement, if (x) the Board of Directors of Safety-Kleen concludes in good
faith, after consultation with its financial advisor, that such person or entity
has made or is reasonably likely to make a bona fide Acquisition Proposal for a
transaction more favorable to Safety-Kleen's shareholders from a financial point
of view than the transactions contemplated hereby, and (y), in the opinion of
the Board of Directors of Safety-Kleen, only after receipt of advice from its
independent legal counsel, the failure to provide such information or access or
to engage in such discussions or negotiations would cause the Board of Directors
of Safety-Kleen to violate its fiduciary duties to Safety-Kleen's shareholders
under applicable law (an Acquisition Proposal which satisfies clauses (x) and
(y) being hereinafter referred to as a "Superior Proposal").
Safety-Kleen has agreed pursuant to the Merger Agreement to immediately
notify Parent of the terms of any proposal, discussion, negotiation or inquiry
(and to disclose any written materials received by Safety-Kleen in connection
with such proposal, discussion negotiation, or inquiry) and the identity of the
party making such proposal or inquiry which it may receive in respect of any
such transaction unless the Board of Directors of Safety-Kleen determines, based
on the advice of outside legal counsel to Safety-Kleen, that giving such notice
would cause the Board of Directors of Safety-Kleen to violate its fiduciary
duties to Safety-Kleen's shareholders under applicable law. Safety-Kleen has
also agreed not to release any person or entity from, or waive any provision of,
any standstill agreement to which it is a party or any confidentiality agreement
between it and another person or entity, unless Safety-Kleen's Board of
Directors concludes in good faith, after consultation with its financial
advisor, that such person or entity has made or is reasonably likely to make a
bona fide Acquisition Proposal for a transaction more favorable to Safety-
Kleen's shareholders from a financial point of view than the transactions
contemplated by the Merger Agreement. Safety-Kleen agrees pursuant to the Merger
Agreement to, and to cause each subsidiary to, immediately cease and cause to be
terminated any existing activities, discussions or negotiations by Safety-Kleen,
its subsidiaries or any officer, director or employee of, or investment banker,
attorney, accountant or other advisor or representative of, Safety-Kleen or any
subsidiary with parties conducted prior to the date of the Merger Agreement with
respect to any of the foregoing.
The Merger Agreement also provides that, except as set forth therein,
neither the Board of Directors of Safety-Kleen nor any committee thereof shall
(a) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Parent or the Purchaser, the approval or recommendation by the Board of
Directors of Safety-Kleen or any such committee of the Merger
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Agreement or the Merger, (b) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal, or (c) enter into any agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, the Board of
Directors of Safety-Kleen may (subject to the terms of this and the following
sentence) withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend a Superior Proposal or enter into
an agreement with respect to a Superior Proposal at any time after the second
business day following Parent's receipt of written notice advising Parent that
the Board of Directors of Safety-Kleen has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal; provided that Safety-Kleen
shall not enter into an agreement with respect to a Superior Proposal unless
Safety-Kleen has furnished Parent with written notice not later than noon (New
York time) two business days in advance of any date that it intends to enter
into such agreement and caused its financial and legal advisors to negotiate
with Parent to make such amendments to the terms and conditions of the Merger
Agreement as would make the Merger Agreement as so amended at least as favorable
to Safety-Kleen's shareholders from a financial point of view as the Superior
Proposal. In addition, the Merger Agreement provides that if Safety-Kleen
proposes to enter into an agreement with respect to any Acquisition Proposal, it
shall concurrently with entering into such agreement pay, or cause to be paid,
to Parent the Termination Amount (as defined and described in "-- Fees and
Expenses" below).
Conditions to Consummation of the Merger
The respective obligations of the parties to cause the Merger to be
consummated are subject to the satisfaction or waiver of certain conditions,
including, among other things: (a) the approval of the Merger Agreement by the
vote of the holders of two-thirds of Safety-Kleen's outstanding Shares; (b) the
waiting periods (and any extensions thereof) applicable to the formation of
Parent under the HSR Act shall have been terminated or shall have expired and,
if applicable, the waiting periods (and any extensions thereof) applicable to
the transactions contemplated by the Merger Agreement under the HSR Act shall
have been terminated or shall have expired, and any consents, approvals and
filings required under the Competition Act (Canada) and any other applicable
foreign law shall have been obtained or made, as applicable; (c) no statute,
rule, order, decree or regulation shall have been enacted or promulgated by any
domestic government or any governmental agency or authority of competent
jurisdiction which prohibits the consummation of the Merger; (d) consummation of
the Merger shall not result in violation of any applicable United States federal
or state law providing for criminal penalties; and (e) no preliminary or
permanent injunction or other order issued by any federal or state court of
competent jurisdiction in the United States preventing the consummation of the
Merger shall be in effect; provided, however, that the parties to the Merger
Agreement shall have used their best efforts to have any such injunction or
order vacated.
The obligations of Parent to effect the Merger are further subject to the
following conditions: (a) the representations and warranties of Safety-Kleen set
forth in the Merger Agreement must be true and correct in each case as of the
date of the Merger Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the closing of the Merger as
though made on and as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) would not have a
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Material Adverse Effect; (b) Safety-Kleen must have performed the obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date (except for such failures to perform as have not had a Material
Adverse Effect), and Parent shall have received a certificate signed on behalf
of Safety-Kleen by the Chief Executive Officer and the Chief Financial Officer
of Safety-Kleen to such effect, to their best knowledge; (c) there shall not be
instituted or pending any suit, action or proceeding (having a substantial
likelihood of success) against Parent, Purchaser, Safety-Kleen or any subsidiary
of Safety-Kleen (i) challenging the acquisition by Parent or Purchaser of any
Shares, seeking to restrain or prohibit the consummation of the Merger or any of
the other transactions contemplated by the Merger Agreement or seeking to obtain
from Safety-Kleen, Parent or Purchaser any damages that are material in relation
to Safety-Kleen and its subsidiaries taken as a whole, (ii) seeking to prohibit
or limit the ownership or operation by Safety-Kleen, Parent or any of their
respective subsidiaries of any material portion of the business or assets of
Safety-Kleen, Parent or any of the respective subsidiaries or to compel Safety-
Kleen, Parent or any of their respective subsidiaries to dispose of or hold
separate any material portion of the business or assets of Safety-Kleen or
Parent and their respective subsidiaries, in each case taken as a whole, (iii)
seeking to impose material limitations on the ability of Parent or Purchaser to
acquire or hold, or exercise full rights of ownership of, the shares of capital
stock of the Surviving Corporation, including the right to vote such capital
stock on all matters properly presented to the shareholders of the Surviving
Corporation, (iv) seeking to prohibit or impose material limitations on the
ability of Parent to effectively control in any material respect the business or
operations of Safety-Kleen or its subsidiaries or (v) which otherwise is
reasonably likely to have a Material Adverse Effect; (d) there shall not be any
statute, rule, regulation, judgment, order or injunction enacted, entered,
enforced, promulgated, or deemed applicable, pursuant to an authoritative
interpretation by or on behalf of a governmental entity, to the Merger, or any
other action shall be taken by any governmental entity, other than the
application to the Merger of applicable waiting periods under HSR Act and the
Canadian Competition Act or any other applicable foreign law, that is
substantially likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of (c) above; and (e) Parent
shall have received sufficient funds pursuant to the Commitment Letters to
consummate the Merger and the transactions contemplated thereby, provided that
such failure to receive funds shall not have resulted from the failure of Parent
to use its reasonable commercial efforts to consummate the transactions
contemplated by the Equity Commitment Letter and Debt Commitment Letter.
The obligation of Safety-Kleen to effect the Merger is further subject to
the following conditions: (a) the representations and warranties of Parent and
Purchaser set forth in the Merger Agreement must be true and correct, in each
case as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "material adverse effect" set
forth therein) would not reasonably be expected to individually or in the
aggregate have a material adverse effect on the financial condition or business
of Parent or adversely affect the ability of Parent to consummate the Merger;
(b) Parent shall have performed the obligations required to be performed by it
under the Merger Agreement at or prior to the Closing Date (except for such
failures to perform as have not had, either individually or in the aggregate, a
material adverse effect on the financial condition or business of Parent or
adversely affect the ability of Parent to consummate the
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Merger); and (c) Safety-Kleen shall have received an opinion or certificate of a
reputable expert firm confirming the solvency of Safety-Kleen after the Merger
and related financings addressed to or for the benefit of the Board of Directors
of Safety-Kleen so that the Board of Directors of Safety-Kleen is entitled to
rely thereon.
Termination, Amendment And Waiver
Termination. The Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time, either before or after its approval by
Safety-Kleen's shareholders, as follows: (a) by the mutual written consent of
Safety-Kleen and Parent; (b) by either Parent or Safety-Kleen if any
governmental body or regulatory authority of the United States of America shall
have issued an order, decree or ruling or taken any other action, in each case
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and non-
appealable; provided that such right to terminate the Merger Agreement shall not
be available to any party that has breached its obligations under the Merger
Agreement to use its commercially reasonable best efforts to take such actions
as are necessary to consummate the transactions contemplated by the Merger
Agreement; (c) by either Parent or Safety-Kleen if the Merger shall not have
been consummated on or before June 30, 1998 (other than due to the failure of
the party seeking to terminate the Merger Agreement to perform its obligations
under the Merger Agreement required to be performed at or prior to the Effective
Time); (d) by either Parent or Safety-Kleen if at the duly held meeting of the
shareholders of Safety-Kleen (including any adjournment thereof) held for the
purpose of voting on the Merger, the Merger Agreement and the consummation of
the transactions contemplated hereby, the holders at least of 66-2/3% of the
outstanding Shares shall not have approved the Merger, the Merger Agreement and
the consummation of the transactions contemplated hereby; (e) by the Board of
Directors of Parent, (i) if Safety-Kleen shall have breached any of its
representations and warranties or failed to comply with any of the covenants or
agreements (without, in each instance, giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) contained in the
Merger Agreement to be complied with or performed by Safety-Kleen at or prior to
consummation of the Merger and such breach or failure shall have resulted in a
Material Adverse Effect, or (ii) Safety-Kleen shall have received from a third
party a bona fide Acquisition Proposal, and the Board of Directors of Safety-
Kleen, shall have accepted such a proposal or (iii) the Board of Directors of
Safety-Kleen shall have withdrawn or modified in a manner adverse to Parent or
Purchaser its approval or recommendation with respect to the Merger; or (f) by
the Board of Directors of Safety-Kleen, if (i) Parent or Purchaser shall have
breached in any material respect any of its representations and warranties or
failed to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement to be complied with or performed by Parent or
Purchaser, or (ii) if Safety-Kleen enters into a written agreement concerning a
transaction that constitutes a Superior Proposal, provided that Safety-Kleen
shall have complied with the provisions described under "-- No Solicitation of
Proposals" above (including the payment of the Termination Amount) or (iii) the
condition that Parent shall have received sufficient funds pursuant to the
Commitment Letters to consummate the Merger and the transactions contemplated
thereby cannot be satisfied.
In the event of termination of the Merger Agreement by either Safety-Kleen
or Parent, no party to the Merger Agreement (or any of its directors, officers,
employees, agents, legal and
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financial advisors or other representatives) shall have any liability or further
obligation to any other party to the Merger Agreement, except with respect to
the covenants in the Merger Agreement relating to confidential information and
payment of fees and expenses. In addition, Parent, Purchaser and Safety-Kleen
will each remain liable for any wilful breach by it of the Merger Agreement.
Amendment. Subject to the applicable provisions of the WBCL, the Merger
Agreement may be amended by the parties thereto, at any time before or after any
required approval of matters presented in connection with the Merger by the
shareholders of Safety-Kleen; provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval by such
shareholders without the further approval of such shareholders. The Merger
Agreement may not be amended except by an instrument in writing signed by the
parties thereto.
Waiver. Subject to the applicable provisions of the WBCL, at any time prior
to the Effective Time, any party to the Merger Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other parties
thereto, or (b) subject to certain limitations after shareholder approval has
been obtained, waive compliance with any of the agreements or conditions
contained herein. In addition to the provisions contained in the Merger
Agreement regarding the failure to object to notice of certain defaults, at any
time prior to consummation of the Merger any party thereto may waive any
inaccuracies in the representations and warranties contained herein or in any
documents delivered pursuant thereto. Any agreement on the part of a party to
the Merger Agreement to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by such party.
Fees And Expenses
The Merger Agreement provides that Safety-Kleen and Parent will each pay
its own expenses in connection with the Merger Agreement and the transactions
contemplated thereby. Notwithstanding the foregoing, if the Merger Agreement is
terminated pursuant to the provisions described in clauses (e)(ii) or (iii) or
(f)(ii) under "-- Termination, Amendment and Waiver -Termination" above, or
prior to the termination of the Merger Agreement, any person other than Parent,
Purchaser or an affiliate thereof acquires in excess of 20% of the issued and
outstanding Shares, then Safety-Kleen will pay to Parent (i) concurrently with
such termination, an amount equal to $50 million (the "Termination Fee"), plus
(ii) promptly, but in no event later than two days after being furnished
documentation in respect thereto by Parent ("Documentation"), Parent's or its
affiliates' out-of-pocket fees and expenses (including legal, investment
banking, financing commitment fees, and commercial banking fees and expenses)
actually incurred in connection with the Merger, due diligence investigation,
the negotiation and execution of the Merger Agreement and the transactions
contemplated hereby up to a maximum amount of $25 million (the "Termination
Expenses", and together with the Termination Fee, the "Termination Amount"). In
addition, if the Merger Agreement is terminated pursuant to the provisions
described in clause (d) under "-- Termination, Amendment and Waiver -
Termination" above, and at the time of such termination, Parent is not in
material breach of the Merger Agreement, then Safety-Kleen shall pay to Parent,
promptly but in no event later than two days after being furnished Documentation
by Parent, the Termination Expenses, and, if Safety-Kleen shall thereafter,
within nine months after such termination, enter into an agreement with respect
to
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an Acquisition Proposal or a third party acquires more than 50% of Safety-
Kleen's outstanding shares or more than 50% of Safety-Kleen's assets, then
Safety-Kleen shall pay the Termination Fee to Parent concurrently with entering
into such agreement. Any payment of the Termination Fee and/or Termination
Expenses shall be made by wire transfer of same day funds to an account
designated by Parent.
Effect on Benefit Plans and Related Matters
The Merger Agreement provides that for a period of two years following the
Effective Time, 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 the Company and
its affiliates existing on the date of the Merger Agreement. All service
credited to each employee by Safety-Kleen through the Effective Time shall be
recognized by Parent or the Surviving Corporation for purposes of eligibility
and vesting under any employee benefit plan provided directly or indirectly by
Parent or the Surviving Corporation for the benefit of the employees and in
which the respective employees participate.
The Merger Agreement also provides that 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, all as in effect on the date of the 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. The Merger Agreement also
states that 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.
Notices
Safety-Kleen, Parent and Purchaser agree pursuant to the Merger Agreement
to give prompt notice to each other at any time from the date of the Merger
Agreement to the Effective Time of the obtaining by it of actual knowledge as to
the occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause a breach of any covenant, representation or warranty
contained in the Merger Agreement so as to result in a Material Adverse Effect
or in a material adverse effect upon Parent or any of its affiliates. If any
party receiving a notice shall not object thereto within five business days
after receiving such Default Notice, then such party shall be deemed to have
waived all rights accruing to it as a result of such breach. A party shall
object to such a default notice by giving timely notice of such party's
objection thereto as provided herein to the party giving such notice. For
purposes of this provision, the "actual knowledge" of a party to the Merger
Agreement means the best actual knowledge of its chairman of the board,
president and chief financial officer.
Exchange of Shares for Cash
Promptly after the Effective Time, each shareholder of record of Safety-
Kleen will be provided with written instruction from a payment agent designated
by Parent, with the prior
-45-
approval of Safety-Kleen (the "Payment Agent") as to how Shares may be
surrendered and exchanged for payment of the Merger Consideration. Certificates
evidencing Shares should not be surrendered for payment prior to receipt of
written instructions from the Payment Agent. As of the Effective Time, Parent
will deposit with the Payment Agent an amount in cash equal to the product of
the Merger Consideration and the number of Shares outstanding immediately prior
to the Effective Time.
THE COMPANIES
Safety-Kleen
Safety-Kleen is a leader in servicing the recycling and waste needs of
companies in the automotive/retail repair, industrial, imaging and other
business sectors. Over 2,800 Safety-Kleen specialists service customers from a
branch network that extends across North America and Western Europe.
Focusing primarily on the needs of smaller businesses, Safety-Kleen
performed nearly five million individual services and reclaimed more than 300
million gallons of contaminated fluid through a network of 230 branches
worldwide in 1996. The Company collects and recycles used products at thirteen
recycle centers, two lube oil re-refineries, and three fuel-blending facilities.
Safety-Kleen operates in the continental United States, Canada, the United
Kingdom, the Republic of Ireland, Puerto Rico, Belgium, France, Italy, Spain and
Germany. The Company has licensee operations in Japan and Korea. Safety-Kleen
Corp. was incorporated in July, 1963 under the laws of the State of Wisconsin.
Safety-Kleen's principal executive offices are located at One Brinckman Way,
Elgin, Illinois 60123 and its telephone number is (847) 697-8460.
For a more detailed description of the business and properties of Safety-
Kleen, see the descriptions thereof set forth in Safety-Kleen's Annual Report on
Form 10-K for the year ended December 28, 1996, which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
Parent
Parent is a newly formed Delaware corporation created for the sole purpose
of holding all of the capital stock of the Purchaser and, after consummation of
the Merger, all of the capital stock of Safety-Kleen as the surviving
corporation in the Merger. Parent has not conducted any activities other than
those incident to its formation and its execution of the Shareholder Agreement
and Equity Commitment Letter with Philip, Apollo and Blackstone. Philip, Apollo
and Blackstone will each own one-third of the outstanding common stock of
Parent.
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Philip. Philip is one of North America's leading suppliers of resource
recovery and industrial services. Philip has the largest integrated network of
metals recovery and industrial services operations in North America, servicing
over 50,000 industrial and commercial customers and from 300 locations.
Apollo. Apollo comprises a number of private securities investment funds
managed by Apollo Management L.P. which, together with its affiliates, manages a
portfolio of in excess of $5 billion of investments.
Blackstone. Blackstone is a private investment bank, affiliates of which
sponsor corporate private equity and real estate funds with aggregate
commitments in excess of $5 billion.
Purchaser
The Purchaser, a wholly owned subsidiary of Parent, is a newly formed
Wisconsin corporation created for the sole purpose of consummating the
transactions contemplated by the Merger Agreement. The Purchaser has not
conducted any activities other than those incident to its formation, its
execution of the Merger Agreement and its participation in the preparation of
this Proxy Statement. As a result of the Merger, the Purchaser will be merged
with and into Safety-Kleen, with Safety-Kleen being the surviving corporation
after the Merger.
MARKET PRICE OF SHARES AND DIVIDEND POLICY
The Shares are listed and traded principally on the New York Stock Exchange
under the symbol "SK." The following table sets forth, for the quarters
indicated, the high and low sales prices per Share on the NYSE as reported by
the Wall Street Journal.
1995: High Low
- ----- ------ ------
First Quarter........................................... $17.88 $14.50
Second Quarter.......................................... 18.00 15.13
Third Quarter........................................... 17.13 13.50
Fourth Quarter.......................................... 15.63 14.00
1996:
- -----
First Quarter........................................... $15.75 $13.50
Second Quarter.......................................... 17.00 14.25
Third Quarter........................................... 18.13 15.63
Fourth Quarter.......................................... 17.25 14.75
1997:
- -----
First Quarter........................................... $18.75 $14.88
Second Quarter.......................................... 16.00 14.13
Third Quarter........................................... 21.88 15.63
Fourth Quarter (Through November 24, 1997).............. 29.00 18.13
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1995: High Low
- ----- ------ ------
First Quarter........................................... $17.88 $14.50
Second Quarter.......................................... 18.00 15.13
Third Quarter........................................... 17.13 13.50
Fourth Quarter.......................................... 15.63 14.00
1996:
- -----
First Quarter........................................... $15.75 $13.50
Second Quarter.......................................... 17.00 14.25
Third Quarter........................................... 18.13 15.63
Fourth Quarter.......................................... 17.25 14.75
1997:
- -----
Fourth Quarter (through November 24, 1997).............. 29.00 18.13
On August 7, 1997, the last trading day before the public announcement that
Safety-Kleen was exploring strategic alternatives, the reported high and low
sale prices of the Shares on the NYSE were $18.18 and $17.69 per Share,
respectively. On November 19, 1997, the last trading day prior to public
announcement of the Merger Agreement, the reported high and low sale prices of
the Shares on the NYSE were $26.06 and $25.94 per Share, respectively. On
December __, 1997, the most recent practicable trading day prior to the mailing
of this Proxy Statement, the reported high and low sale prices of the Shares on
the NYSE were $________ and $_________ per Share, respectively. Shareholders are
urged to obtain current market quotations for the Shares prior to making any
decision with respect to the Merger.
Safety-Kleen paid a quarterly cash dividend of $.09 per Share in 1995, 1996
and the first three quarters of 1997, and has paid a cash dividend for 74
consecutive quarters since March 1979. On November 21, 1997, Safety-Kleen
declared a quarterly cash dividend of $.09 per Share, payable on December 24,
1997 to all shareholders of record on December 11, 1997. Safety-Kleen expects to
continue this policy prior to consummation of the Merger, although there is no
assurance as to future dividends, as they are dependent upon future earnings,
capital requirements, the financial condition of Safety-Kleen, contractual
restrictions and such other factors as the Board of Directors may deem relevant.
The Merger Agreement generally prohibits the payment of cash dividends by
Safety-Kleen except those declared in the ordinary course of business and
consistent with Safety-Kleen's past practice. See "The Merger Agreement --
Conduct of Business Pending the Merger."
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SHARES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Share ownership as of November 18, 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.
Number of
Shares Percentage of
Beneficially Outstanding
Name Owned/(1)1 Shares/(2)/
---- ----------------- --------------
Five Percent Shareholders:
FMR Corp.
82 Devenonshire St., Boston, MA 02109.......... 7,464,709 12.76%
Arial Capital Management
307 N. Michigan, Chicago, IL 60601.............. 3,569,830 6.10%
Emery Family Group:
Joan Emery Lammers
1801 Seminary St., Alton, IL 62002............ 1,948,673/(3)/ 3.32%
William H. Emery II
11388 SW Riverwoods Rd., Portland, OR 97219... 1,645,510 2.81%
Lucy T. Otzen
100 Anchor Drive, #472,
N. Key Largo, FL 33037....................... 1,480,581/(4)/ 2.53%
Edward W. Emery, Jr.
Route 18, Box 13, Bedford, IN 47421........... 60,521/(5)/ .11%
Circle L. Enterprises L.P.
Landmark Center, P.O. Box 1056
Lake Geneva, WI 53147........................ 1,367,520/(4)/ 2.34%
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Directors and Executive Officers:
Donald W. Brinckman............................. 1,073,101/(6)/ 1.81%
Hyman K. Bielsky................................ 58,233/(7)/ *
Roy D. Bullinger................................ 94,481/(8)/ *
Robert J. Burian................................ 139,697/(9)/ *
Andrew A. Campbell.............................. - *
Michael H. Carney............................... 178,418/(10)/ *
Joseph Chalhoub................................. 352,146/(11)/ *
David A. Dattilo................................ 232,932/(12)/ *
Lawrence Davenport.............................. 8,158/(13)/ *
Richard T. Farmer............................... 43,390/(14)/ *
Scott E. Fore................................... 100,618/(15)/ *
Russell A. Gwillim.............................. 198,493/(16)/ *
F. Henry Habicht II............................. 47,118/(17)/ *
Edgar D. Jannotta............................... 67,500/(14)/ *
John G. Johnson, Jr............................. 99,179/(18)/ *
Scott D. Krill.................................. 4,362/(19)/ *
Karl G. Otzen................................... 1,481,093/(4)/ 2.53%
Clark J. Rose................................... 79,914/(20)/ *
Laurence M. Rudnick............................. 45,590/(21)/ *
Paul D. Schrage................................. 31,180/(14)/ *
C. James Schulz................................. 17,300/(22)/ *
Marcia E. Williams.............................. 12,250/(23)/ *
Robert W. Willmschen............................ 148,755/(24)/ *
W. Gordon Wood.................................. 71,317/(14)/ *
All Directors and Officers as a Group (24 persons).. 4,585,305/(25)/ 7.51%
____________
* 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) Shares subject to options exercisable within 60 days of November 18, 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
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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 November 18, 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, 703,493 shares subject to options
exercisable within 60 days of November 18, 1997 and 1,260 shares held in
Safety-Kleen's 401(k) plan as to which he does not have voting control.
(7) Includes 53,862 shares subject to options exercisable within 60 days of
November 18, 1997.
(8) Includes 83,743 shares subject to options exercisable within 60 days of
November 18, 1997.
(9) Includes 135,836 shares subject to options exercisable within 60 days of
November 18, 1997.
(10) Includes 131,949 shares subject to options exercisable within 60 days of
November 18, 1997.
(11) Includes 275,000 shares owned by Breslube Industries, Ltd. of which 100%
is owned by Mr. Chalhoub. Also included are 59 shares owned by his wife,
75 shares owned by his son and 77,012 shares subject to options
exercisable within 60 days of November 18, 1997.
(12) Includes 201,587 shares subject to options exercisable within 60 days of
November 18, 1997.
(13) Includes 8,137 shares subject to options exercisable within 60 days of
November 18, 1997.
(14) Includes 30,000 shares subject to options exercisable within 60 days of
November 18, 1997.
(15) Includes 98,437 shares subject to options exercisable within 60 days of
November 18, 1997.
(16) Includes 30,223 shares owned by his wife and 30,000 shares subject to
options exercisable within 60 days of November 18, 1997. Mr. Gwillim is
also a co-trustee for 45,827 shares held in an irrevocable trust for
which he has no beneficial ownership; such shares are not included in the
table.
(17) Includes 44,500 shares subject to options exercisable within 60 days of
November 18, 1997 and 218 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(18) Includes 700 shares owned by his wife, 85,375 shares subject to options
exercisable within 60 days of November 18, 1997 and 532 shares held in
the Company's 401(k) plan as to which he does not have voting control.
Mr. Johnson resigned from the Company on August 8, 1997.
(19) Includes 3,974 shares subject to options exercisable within 60 days of
November 18, 1997.
(20) Includes 68,157 shares subject to options exercisable within 60 days of
November 18, 1997.
(21) Includes 43,849 shares subject to options exercisable within 60 days of
November 18, 1997.
(22) Includes 15,375 shares subject to options exercisable within 60 days of
November 18, 1997.
(23) Includes 11,250 shares subject to options exercisable within 60 days of
November 18, 1997.
(24) Includes 99,826 shares subject to options exercisable within 60 days of
November 18, 1997.
(25) Includes 2,046,362 shares subject to options exercisable within 60 days
of November 18, 1997 and 4,337 shares held in Safety-Kleen's 401(k) plan
as to which they do not have voting control.
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INDEPENDENT ACCOUNTANTS
The consolidated financial statements incorporated in this Proxy Statement
by reference to Safety-Kleen's Annual Report on Form 10-K for the year ended
December 28, 1996 have been audited by Arthur Andersen LLP, independent
accountants, as stated in their report, which also is incorporated herein by
reference.
Representatives of Arthur Andersen LLP will attend the Special Meeting and
will have an opportunity to make a statement and to respond to appropriate
questions from shareholders.
CERTAIN LEGAL MATTERS
Between November 4 and 12, 1997, a total of six putative class actions were
filed against Safety-Kleen and its directors in the Circuit Court of Cook
County, Illinois. In general, the complaints allege, among other things, that
the director defendants (i) have refused to seriously consider the Laidlaw
Environmental offer, and have failed to maximize shareholder value by
entertaining offers to purchase Safety-Kleen, (ii) have breached their
fiduciary and other common law duties due to plaintiffs 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 Laidlaw
Environmental, having a bona fide interest in proposing any transaction that
would maximize shareholder 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 November 17, 1997, Safety-Kleen filed a lawsuit in Federal District
Court for the Northern District of Illinois against Laidlaw Environmental
seeking a declaratory judgment that Laidlaw Environmental violated the "gun-
jumping" prohibition of federal securities laws by certain of its public
announcements made before the effectiveness of registration with the
Commission of the Laidlaw Environmental shares it proposes to use in its offer
for Safety-Kleen. The suit also challenges Laidlaw Environmental's asserted
right under Wisconsin law to demand such a shareholders' meeting at this time.
On November 24, 1997, Laidlaw Environmental answered the complaint denying
liability and asserting several defenses. In addition, Laidlaw Environmental
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 asserts 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 Laidlaw Environmental, and for
failure to amend the shareholder rights plan, and a derivative claim for
corporate waste. Safety-Kleen believes that Laidlaw Environmental's counterclaim
is without merit and intends to contest such action vigorously on behalf of
Safety-Kleen and the Board of Directors.
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SHAREHOLDER PROPOSALS
In the event the Merger is consummated, it is not anticipated that Safety-
Kleen will conduct the 1998 annual shareholder meeting. In order to be
considered for inclusion in the Proxy Statement relating to the 1998 annual
shareholders' meeting, any proposal by a shareholder was required to have been
received by Safety-Kleen at its principal executive office in Elgin, Illinois,
by November 21, 1997.
Pursuant to Safety-Kleen's bylaws, shareholder nominations and proposals
for business to be brought before a meeting of shareholders of Safety-Kleen
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 Safety-Kleen, generally not less than 60 days nor more
than 90 days prior to the date of the meeting to which such notice relates.
By Order of the Board of Directors
Scott Krill
Secretary
December ___, 1997
Elgin, Illinois
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 20, 1997,
BY AND AMONG
SK PARENT CORP.
SK ACQUISITION CORP.
AND
SAFETY-KLEEN CORP.
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I. THE MERGER................................................... 1
1.1. The Merger................................................... 1
1.2. Closing...................................................... 1
1.3. Effective Time............................................... 2
1.4. Effects Of The Merger........................................ 2
1.5. Articles Of Incorporation; By-laws; Purposes................. 2
1.6. Directors.................................................... 2
1.7. Officers..................................................... 2
ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS..................................... 3
2.1. Conversion of Shares......................................... 3
2.2. Employee Stock Options....................................... 3
2.3. Surrender of Certificates.................................... 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 6
3.1. Organization and Qualifications.............................. 7
3.2. Capitalization............................................... 7
3.3. Authority and Absence of Conflict............................ 8
3.4. Reports...................................................... 9
3.5. Absence of Certain Changes; Liabilities...................... 9
3.6. Employee Benefit Plans....................................... 10
3.7. Litigation; Violation of Law................................. 12
3.8. Labor........................................................ 13
3.9. Taxes........................................................ 13
3.10. Environmental Matters........................................ 14
3.11. Brokers...................................................... 16
3.12. Title to Properties.......................................... 16
3.13. Information Supplied......................................... 16
3.14. Opinion Of Financial Advisor................................. 16
3.15. Board Recommendation......................................... 16
3.16. Required Company Vote........................................ 17
3.17. Rights Agreement............................................. 17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND
PURCHASER.................................................... 17
4.1. Organization and Qualification............................... 17
4.2. Capital Stock of Purchaser................................... 17
4.3. Authority and Absence of Conflict............................ 18
4.4. Brokers...................................................... 19
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4.5. Interim Operations Of Parent and Purchaser................... 19
4.6. Proxy Statement.............................................. 19
4.7. Funds Available.............................................. 19
4.8. Ownership of Shares.......................................... 19
4.9. No Litigation................................................ 19
4.10. Ownership of Parent.......................................... 20
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR
TO MERGER.................................................... 20
5.1. Conduct Of Business Of The Company........................... 20
ARTICLE VI. ADDITIONAL AGREEMENTS........................................ 22
6.1. Preparation Of Proxy Statement; Shareholders Meeting......... 22
6.2. Access To Information; Confidentiality....................... 23
6.3. Filings; Commercially Reasonable Best Efforts................ 23
6.4. Public Announcements......................................... 24
6.5. Notification of Certain Matters.............................. 24
6.6. Employee Benefits............................................ 24
6.7. Indemnification And Insurance................................ 24
6.8. Solicitation................................................. 26
6.9. Capital Adequacy of Parent................................... 28
ARTICLE VII. CONDITIONS PRECEDENT......................................... 28
7.1. Conditions To Each Party's Obligation To Effect The Merger... 28
7.2. Conditions To Obligations Of Parent.......................... 28
7.3. Conditions To Obligation Of The Company...................... 29
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER............................ 30
8.1. Termination.................................................. 30
8.2. Effect Of Termination........................................ 31
ARTICLE IX. GENERAL PROVISIONS........................................... 31
9.1. Nonsurvival Of Representations And Warranties................ 31
9.2. Payment Of Expenses.......................................... 32
9.3. Notices...................................................... 32
9.4. Certain Definitions; Interpretation.......................... 33
9.5. Entire Agreement............................................. 33
9.6. Counterparts................................................. 34
9.7. Severability................................................. 34
9.8. Captions..................................................... 34
9.9. Amendment.................................................... 34
9.10. Waiver....................................................... 34
9.11. No Third-Party Beneficiaries; Assignability.................. 34
9.12. Best Knowledge............................................... 35
-ii-
9.13. Governing Law.................................................. 35
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
-iii-
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of November
20, 1997, is by and among SK Parent Corp., a Delaware corporation ("Parent"), SK
Acquisition Corp., a Wisconsin corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and Safety-Kleen Corp., a Wisconsin corporation (the
"Company").
WHEREAS, the respective Boards of Directors of the Company, Parent and
Purchaser have determined that the merger of Purchaser with and into the Company
(the "Merger"), upon the terms and subject to the conditions set forth in this
Agreement, would be fair and in the best interests of their respective
stockholders, and such Boards of Directors have approved such Merger, pursuant
to which each issued and outstanding share of common stock, par value $.10 per
share, of the Company and the Rights (as defined in Section 3.2) (the "Shares")
associated therewith (other than Shares owned, directly or indirectly, by the
Company or any subsidiary (as defined in Section 9.4) of the Company or by
Parent) will be converted into the right to receive $27 per share in cash;
WHEREAS, the Merger and this Agreement require the vote of at least 66-2/3%
of the outstanding Shares for the approval thereof (the "Company Shareholder
Approval");
WHEREAS, Parent, as the sole stockholder of Purchaser, has voted all of its
Shares by a consent of sole stockholder, dated November 19, 1997, in favor of
the Merger;
WHEREAS, Parent, Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I.
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth
----------
in this Agreement, and in accordance with the provisions of the Wisconsin
Business Corporation Law (the "WBCL"), Purchaser shall be merged with and into
the Company at the Effective Time (as defined in Section 1.3). Upon the
Effective Time, the separate existence of Purchaser shall cease, and the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall continue, under the name "Safety-Kleen Corp.," to be governed by the laws
of the State of Wisconsin.
1.2. Closing. Unless this Agreement shall have been terminated and the
-------
transactions herein contemplated shall have been abandoned pursuant to Section
8.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at 10:00
a.m. on the second business day after satisfaction of the conditions set forth
in Section 7.1 (or as soon as practicable thereafter following satisfaction or
waiver of the conditions set forth in Sections 7.2 and 7.3) (the
"Closing Date"), at the offices of Sonnenschein Nath & Rosenthal, 8000 Sears
Tower, Chicago, Illinois 60606, unless another date, time or place is agreed to
in writing by the parties hereto.
1.3. Effective Time. As soon as practicable following the satisfaction or
--------------
waiver of the conditions set forth in Article VII, the parties shall file
appropriate Articles of Merger (the "Articles of Merger") as provided in the
WBCL and shall make such other filings, recordings or publications required
under the WBCL in connection with the Merger. The Merger shall become effective
upon the date on which the Articles of Merger have been received for filing by
the Secretary of the State of Wisconsin, or such later date as is agreed upon by
the parties and specified in the Articles of Merger, and the time of such
effectiveness is hereinafter referred to as the "Effective Time."
1.4. Effects Of The Merger. The Merger shall have the effects set forth
---------------------
in Section 180.1106 of the WBCL.
1.5. Articles Of Incorporation; By-laws; Purposes. (a) Subject to Section
--------------------------------------------
6.7, at the Effective Time of the Merger, and without any further action on the
part of the Company, Parent or Purchaser, the Restated Articles of Incorporation
of Purchaser, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation, until thereafter
amended, subject to Section 6.7 of this Agreement, as provided therein and under
the WBCL.
(b) At the Effective Time of the Merger, and without any further
action on the part of the Company or Parent or Purchaser, the By-laws of
Purchaser as in effect at the Effective Time shall be the By-laws of the
Surviving Corporation until thereafter amended, subject to Section 6.7 of this
Agreement, as provided therein or by applicable law.
1.6. Directors. The directors of Purchaser at the Effective Time shall be
---------
the initial directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
1.7. Officers. The officers of the Company at the Effective Time shall be
--------
the initial officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed and qualified, as the case may be.
-2-
ARTICLE II.
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1. Conversion of Shares. At the Effective Time and by virtue of the
--------------------
Merger, and without any action on the part of the holders thereof:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than Shares to be cancelled pursuant to Subsection 2.1(b)
below) shall be converted into the right to receive $27 in cash (the "Merger
Consideration"). All such Shares, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor, without interest, upon the surrender of such certificate
in accordance with Section 2.3.
(b) Each Share held in the treasury of the Company, if any, and each
Share owned by Parent, Purchaser or the Company, or by any direct or indirect
subsidiary of any of them, shall be cancelled and retired without payment of any
consideration therefor.
(c) All shares of common stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time shall
be converted into that number of validly issued, fully paid and non-assessable
(except for certain statutory personal liability which may be imposed on
shareholders under Section 180.0622(2)(b) of the WBCL) shares of common stock,
par value $.01 per share, of the Surviving Corporation equal to the aggregate
number of shares of the Company issued and outstanding immediately prior to the
Effective Time.
2.2. Employee Stock Options. The Company shall (i) terminate its 1985
----------------------
Stock Option Plan, 1993 Stock Option Plan and 1988 Non-Qualified Stock Option
Plan for Outside Directors (collectively the "Option Plans"), immediately prior
to the Effective Time without prejudice to the rights of the holders of options
awarded pursuant thereto and (ii) grant no additional options or similar rights
under the Option Plans or otherwise on or after the date hereof. As used
hereafter in this Section 2.3, "Options" shall include each stock option granted
by the Company, whether pursuant to the Option Plans or otherwise.
The Company shall use its best efforts to obtain the consent of each holder
of any Options (whether or not then exercisable) that it does not have the right
to cancel to the cancellation of his Options (irrespective of their exercise
price), and upon obtaining such consent, shall cancel the options covered by
such consent or, in the case of Options that the Company has the right to
cancel, shall cancel such Options, such cancellation (whether or not consent is
required therefor) to take effect immediately prior to the Effective Time. In
consideration of each cancellation of Options, the Company shall agree to and
shall pay to
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such holders, immediately prior to the Effective Time, in respect of each Option
(whether or not then exercisable) so cancelled, an amount equal to the excess,
if any, of the Merger Consideration over the exercise price thereof, multiplied
by the number of Shares subject thereto, reduced by the amount of withholding or
other taxes required by law to be withheld (or, in the case of options related
to limited stock appreciation rights, the Change of Control Value as defined in
the Option Plan under which such options were issued).
2.3. Surrender of Certificates.
-------------------------
(a) From and after the Effective Time, a bank or trust company
to be designated by Parent, with the prior approval of the Company (the
"Exchange Agent"), shall act as exchange agent in effecting the exchange, for
the Merger Consideration multiplied by the number of Shares formerly represented
thereby, of certificates (the "Certificates") that, prior to the Effective Time,
represented Shares entitled to payment pursuant to Section 2.1. As of the
Effective Time, Parent shall, on behalf of Purchaser, deposit with the Exchange
Agent, for the benefit of the holders of Shares (excluding any Shares described
in Section 2.1(b)), for the payment in accordance with this Article II, through
the Exchange Agent, cash in an amount equal to the Merger Consideration
multiplied by the number of outstanding Shares immediately prior to the
Effective Time (excluding any Shares described in Section 2.1(b)) (such cash
being hereinafter referred to as the "Payment Fund"). Parent shall cause the
Paying Agent, pursuant to irrevocable instructions, to deliver the cash
contemplated to be paid pursuant to Section 2.1(a) out of the Payment Fund. The
Payment Fund shall not be used for any other purpose. Upon the surrender of each
Certificate and the delivery by the Exchange Agent of the Merger Consideration
in exchange therefor, such Certificate shall forthwith be cancelled. Until so
surrendered and exchanged, each such Certificate (other than Certificates
representing Shares held by Parent, Purchaser or the Company or any direct or
indirect subsidiary of Parent, Purchaser or the Company) shall represent solely
the right to receive the Merger Consideration applicable to the Shares
represented by such Certificate multiplied by the number of Shares represented
by such Certificate. No interest shall be paid or shall accrue on any amount
payable on and after the Effective Time by reason of the Merger upon the
surrender of any such Certificate. Upon the surrender and exchange of such an
outstanding Certificate, the holder shall receive the Merger Consideration
applicable to the Shares represented thereby, without any interest thereon. If
the Merger Consideration is to be paid to a person other than the person in
whose name the Certificate representing Shares surrendered in exchange therefor
is registered, it shall be a condition to such payment or exchange that such
Certificate so surrendered be properly endorsed or otherwise be in proper form
for transfer, and that the person requesting such payment or exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
payment of such Merger Consideration to a person other than the registered
holder of the Certificate surrendered, or such person shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of Shares for any Merger Consideration
or interest delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
-4-
(b) Promptly following the date of the first anniversary of the
Effective Time, the Exchange Agent shall return to the Surviving Corporation all
cash in its possession relating to the transactions described in this Agreement,
and the Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing Shares may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat or
similar laws) receive in exchange therefor the Merger Consideration applicable
to the Shares represented thereby, without any interest thereon, but shall have
no greater rights against the Surviving Corporation than may be accorded to
general creditors of the Surviving Corporation under applicable law.
(c) Promptly after the Effective Time, the Exchange Agent shall
mail, to each record holder of Certificates that immediately prior to the
Effective Time represented Shares, a form of letter of transmittal and
instructions, approved by Parent, for use in surrendering such Certificates and
receiving the Merger Consideration therefor.
(d) At and after the Effective Time, holders of Certificates shall
cease to have any rights as shareholders of the Company except for the right to
surrender such Certificates in exchange for the Merger Consideration, and there
shall be no transfers on the stock transfer books of the Company or the
Surviving Corporation of any Shares that were outstanding immediately prior to
the Merger. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent, they shall be cancelled and
exchanged for the Merger Consideration, as provided in Section 2.1 hereof.
(e) The Exchange Agent shall invest any cash included in the Payment
Fund, as directed by the Surviving Corporation, provided that such investment
shall be (i) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than six months from the Effective Time, (ii)
certificates of deposit, eurodollar time deposits and bankers' acceptances with
maturities not exceeding six months and overnight bank deposits with any
commercial bank, depository institution or trust company incorporated or doing
business under the laws of the United States of America, any state thereof or
the District of Columbia, provided that such commercial bank, depository
institution or trust company has, at the time of investment, (A) capital and
surplus exceeding $250 million and (B) outstanding short-term debt securities
which are rated at least A-1 by Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Services, Inc.
or carry an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease to publish ratings of investment, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clauses (i) and (ii) above entered into
with any financial institution meeting the qualifications specified in clause
(ii) above, (iv) commercial paper having a rating in the highest rating
categories from Standard & Poor's Rating Group Division of The McGraw-Hills
Companies, Inc. or Moody's Investors Services, Inc. or carrying an equivalent
rating by a nationally recognized rating agency if both of the two named rating
agencies cease to publish ratings of investments and in each case maturing
within six months of the Effective
-5-
Time and (v) money market mutual or similar funds having assets in excess of $1
billion. Any interest and other income resulting from such investments shall be
paid to the Surviving Corporation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser that, except as
specifically disclosed or reflected (including, in the case of financial
statements, provided for) in the Company Disclosure Schedule delivered herewith
to Parent and Purchaser, or in the Company's Form 10-K for the fiscal year ended
December 28, 1996 ("Form 10-K") as filed with the Securities and Exchange
Commission (the "Commission"), any subsequently filed Forms 10-Q and Forms 8-K,
the annual report to shareholders for the fiscal year ended December 28, 1996
delivered to Parent (the "Annual Report"), and the proxy statement for the 1997
Annual Meeting (such Forms, the Annual Report and such proxy statement,
including without limitation any financial statements and related notes or
schedules included in such documents and all exhibits and schedules included or
incorporated by reference therein, are herein collectively referred to as the
"SEC Reports"):
3.1. Organization and Qualifications. Each of the Company and its
-------------------------------
Significant Subsidiaries (as defined in Section 9.4) is a corporation duly
incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated
by it, or the business conducted by it, requires such qualification and where
failure to so qualify or be in good standing would have a Material Adverse
Effect (as defined in Section 9.4). Each of the Company and its Significant
Subsidiaries has the corporate power to carry on its respective businesses as
they are now being conducted. Copies of the charter and by-laws of each of the
Company and its Significant Subsidiaries, and all amendments thereto as
presently in effect, have been delivered to Parent, and such copies are complete
and correct as of the date hereof.
3.2. Capitalization. (a) The authorized capital stock of the Company
--------------
consists of (i) 300,000,000 Shares of which, as of November 18, 1997, 58,520,180
Shares were issued and outstanding and (ii) 1,000,000 Shares of preferred stock,
par value $.10 per share, of the Company (the "Preferred Stock"), none of which
is issued and outstanding. As of November 18, 1997, (i) 5,271,343 Shares were
reserved for issuance upon the exercise of outstanding options granted pursuant
to the Option Plans, 119,269 Shares are reserved for issuance under the Employee
Stock Purchase Plan and 220,000 Shares are reserved for issuance under the
Company's 1988 Non-Qualified Stock Option Plan for outside directors and (ii)
64,330,792 Shares were reserved for issuance in connection with the Common Stock
Purchase Rights (the "Rights") issued pursuant to the Rights Agreement dated as
of November 9, 1988, as amended by a First Amendment to Rights Agreement dated
as of
-6-
August 10, 1990 and Second Amendment to Rights Agreement dated as of November
20, 1997 (as so amended, the "Rights Agreement"), between the Company and The
First National Bank of Chicago, as Rights Agent. Except as set forth above, and
except for warrants dated January 27, 1995 issued to H. Wayne Huizenga to
purchase up to 200,000 Shares, there are no outstanding options, warrants,
agreements, contracts, calls, commitments or demands of any character,
preemptive or otherwise, other than this Agreement, relating to any of the
capital stock of the Company. All of the outstanding Shares are duly authorized,
validly issued, fully paid and non-assessable (except as provided in Section
180.0622(2)(b) of the WBCL and judicial interpretations thereof). The Company
Disclosure Schedule lists each subsidiary of the Company and the ownership
interest therein of the Company. All outstanding shares of capital stock of the
Company's subsidiaries are owned by the Company or a direct or indirect wholly
owned subsidiary of the Company, free and clear of all liens, charges,
encumbrances, claims and options of any nature.
(b) There are no voting trusts or other agreements or understandings
to which the Company or any of its subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the subsidiaries. None of
the Company or its subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its subsidiaries.
3.3. Authority and Absence of Conflict.
---------------------------------
(a) The Company has the requisite corporate power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly and unanimously authorized by the Board of
Directors of the Company, and, except for the Company Shareholder Approval, no
other corporate proceedings on the part of the Company are necessary to
authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and (assuming due authorization, execution and delivery
by Parent and Purchaser) constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
(b) Neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby, nor compliance by the Company with any of the provisions hereof, will
(i) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance or payment required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company or any of its
-7-
subsidiaries under, any of the terms, conditions or provisions of (x) the
charter or by-laws of the Company or any of its Significant Subsidiaries, (y)
the charter or by-laws of any of its Subsidiaries that are not Significant
Subsidiaries, or (z) any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
or any of its subsidiaries is a party or to which any of them or any of their
respective properties or assets may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next subsection, violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to the Company and its subsidiaries or any of their
respective properties or assets; except, in the case of each of clauses (i)(y),
(i)(z), and (ii) above, for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests, charges
or encumbrances which would not have a Material Adverse Effect or prevent or
delay in any material respect the consummation of the Merger.
(c) Other than in connection with or in compliance with the
provisions of the WBCL, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the laws of any foreign country in which the
Company or any of its subsidiaries conducts any business or owns any property or
assets, the federal, state and local environmental, health or safety laws or
regulations, and to the best knowledge of the Company, certain state securities
or "takeover" statutes, no notice to, filing with, or authorization, consent or
approval of, any domestic or foreign public body or authority is necessary for
the consummation by the Company of the transactions contemplated by this
Agreement, except where the failure to give such notices, make such filings or
obtain such authorizations, consents or approvals would not have a Material
Adverse Effect or prevent or delay in any material respect the consummation of
the Merger.
3.4. Reports. The Company has filed all forms, reports and documents
-------
required under Section 13(a) under the Exchange Act with the Commission since
December 31, 1995, and none of such forms, reports or documents, including
without limitation any financial statements or schedules included therein, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The consolidated balance sheet (including
the related notes) included in the Form 10-K and in the Form 10-Q for the
thirty-six weeks ended September 6, 1997 (the "Form 10-Q") fairly presented the
consolidated financial position of the Company and its consolidated subsidiaries
as of the date thereof, and the other related statements (including the related
notes) included therein fairly presented the consolidated results of operations
and the changes in consolidated financial position of the Company and its
consolidated subsidiaries for the fiscal period set forth therein. Each of the
financial statements (including the related notes) included in the Form 10-K and
in the Form 10-Q has been prepared in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as otherwise noted therein and except that the quarterly financial statements do
not contain all footnotes required by generally accepted accounting principles.
The representations and warranties set forth in this Section
-8-
3.4 shall not apply to any noncompliance, non-filings, misstatements, omissions
or failures to present fairly or conform to generally accepted accounting
principles which either (i) were corrected in a subsequent form, report or
document filed with the Commission prior to the date of this Agreement, or (ii)
would not have a Material Adverse Effect or prevent or delay in any material
respect the consummation of the Merger. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the Commission.
3.5. Absence of Certain Changes; Liabilities. Since December 28, 1996,
---------------------------------------
(i) the Company and its Subsidiaries have conducted their respective businesses
and operations only in the ordinary and usual course, (ii) there has not been
any change in the financial condition, properties, business or results of
operations of the Company and its subsidiaries that has had a Material Adverse
Effect, (iii) neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations (secured or unsecured and whether accrued, absolute,
contingent, direct, indirect or otherwise) (the "Liabilities") except
Liabilities that do not have a Material Adverse Effect, and (iv) neither the
Company nor any of its subsidiaries has taken any of the actions contemplated by
Section 5 hereof.
3.6. Employee Benefit Plans.
----------------------
(a) With respect to all employees and former employees of the
Company, neither the Company nor any of its affiliates presently maintains,
sponsors, contributes to, is required to contribute to or has any liability
under: (i) any bonus, incentive compensation, profit sharing, retirement,
pension, group insurance, death benefit, cafeteria, flexible spending account,
medical, dependent care, stock option, stock purchase, stock appreciation
rights, savings, deferred compensation, employment, consulting, severance or
termination pay, funded vacation pay, welfare or other employee compensation,
benefit or fringe benefit plan, program, agreement, or arrangement, the
existence of which or the failure of the Company or any of its affiliates to
comply with which or to satisfy such liability would have, either individually
or in the aggregate, a Material Adverse Effect; or (ii) any plan, program,
agreement, or arrangement which is an "employee pension benefit plan" as such
term is defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or an "employee welfare benefit plan" as defined
in Section 3(1) of ERISA, the existence of which or the failure of the Company
or any of its affiliates to comply with which or to satisfy such liability would
have, either individually or in the aggregate, a Material Adverse Effect. The
Company Disclosure Schedule includes a list of all plans, programs, agreements,
and arrangements set forth in clauses (i) and (ii) of the preceding sentence
which are maintained, sponsored, contributed to or required to be contributed to
by the Company or any of its affiliates (the "Employee Benefit Plans"). The term
"affiliate" for purposes of this Section 3.6 means any organization that would
be aggregated with the Company under Section 414(b), (c) or (m) of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code").
(b) Each Employee Benefit Plan which is intended to comply with the
provisions of Section 401(a) of the Internal Revenue Code has been submitted to
the Internal
-9-
Revenue Service (the "IRS") and received a determination letter which states
that such Employee Benefit Plan is so qualified, and to the best of the
Company's knowledge no event has occurred since the date of such letter which
would (i) cause such Employee Benefit Plan not to be so qualified or (ii) cause
any trust maintained under such Employee Benefit Plan not to be exempt from
taxation under Section 501(a) of the Internal Revenue Code.
(c) To the best knowledge of the Company, with respect to each
Employee Benefit Plan which is subject to Title I of ERISA, neither the Company
nor any of its affiliates has failed to comply with any applicable reporting,
disclosure or other requirements of ERISA and the Internal Revenue Code, except
for such failures to comply which would not have, either individually or in the
aggregate, a Material Adverse Effect, and there has been no "prohibited
transaction" as described in Section 4975 of the Internal Revenue Code or
Section 406 of ERISA the failure to correct which would have, either
individually or in the aggregate, a Material Adverse Effect.
(d) Neither the Company nor any affiliate maintains any Employee
Benefit Plans subject to the minimum funding standards of ERISA and the Internal
Revenue Code.
(e) Neither the Company nor any of its affiliates presently
maintains, contributes to or has any liability (including current or potential
withdrawal liability) with respect to any "multiemployer plan" as such term is
defined in Section 3(37) of ERISA.
(f) Neither the Company nor any of its affiliates has maintained an
employee pension benefit plan subject to Title IV of ERISA.
(g) There is no pending or, to the best knowledge of the Company,
threatened legal action, proceeding or investigation against or involving any
Employee Benefit Plan (other than routine claims for benefits), the adverse
resolution of which would have, either individually or in the aggregate, a
Material Adverse Effect.
(h) With respect to any employee or former employee of the Company,
except as required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA"), neither the Company nor any of its affiliates
presently sponsors, maintains, contributes to, is required to contribute to or
has any liability under any funded or unfunded medical, health or life insurance
plan or similar arrangement for present or future retirees or present or future
terminated employees the existence of which or the failure to satisfy which
would have, either individually or in the aggregate, a Material Adverse Effect.
Neither the Company nor any subsidiary or affiliate of the Company maintains or
contributes to a trust, organization or association described in any of Sections
501(c)(9), 501(c)(17) or 501(c)(20) of the Internal Revenue Code.
(i) With respect to each of the Employee Benefit Plans, the Company
has delivered or made reasonably available to Parent true and complete copies
of: (i) the
-10-
plan documents, including any related trust agreements, insurance contracts or
other funding arrangements, or a written summary of the terms and conditions of
the plan if there is no written plan document; (ii) the most recent IRS Form
5500; (iii) the most recent financial statement; (iv) the most recent Summary
Plan Description required under ERISA; (v) the most recent actuarial report, if
required under ERISA and (vi) the most recent determination letter received from
the IRS with respect to each Employee Benefit Plan intended to qualify under
Section 401 of the Internal Revenue Code.
(j) To the best of the Company's knowledge, each Employee Benefit
Plan has been operated and administered in all material respects in accordance
with its terms and applicable law, including but not limited to ERISA and the
Internal Revenue Code.
(k) No liability under Title IV or Section 302 of ERISA has been
incurred by the Company or any affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to the Company or any
affiliate of incurring any such liability (other than for premiums due the
Pension Benefit Guaranty Corporation ("PBGC") (which premiums have been paid
when due)). Insofar as the representation made in this section 3.6(k) applies
to Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made with respect to
any employee benefit plan, program, agreement or arrangement subject to Title IV
of ERISA to which the Company or any affiliate made, or was required to make,
contributions during the five (5)-year period ending on the last day of the most
recent plan year ended prior to the Effective Time.
(l) The PBGC has not instituted proceedings to terminate any
Employee Benefit Plan subject to Title IV of ERISA ("Title IV Plan") and to the
best of the Company's knowledge no condition exists that presents a risk that
such proceedings will be instituted.
(m) With respect to the Title IV Plans, the present value of the
accumulated benefit obligation under such plan, calculated based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such plan's actuary with respect to such plan did not exceed,
as of its latest valuation date, the then fair value of the assets of such plans
in the aggregate as calculated pursuant to FAS 87.
(n) No Title IV Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Internal Revenue Code), whether or not waived, as
of the last day of the most recent fiscal year of each Title IV Plan ended prior
to the Effective Time. All contributions required to be made with respect to any
Employee Benefit Plan on or prior to the Effective Time have been (or will have
been) timely made.
(o) The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event, entitle
the current and former employees and current and former officers of the Company
and any affiliates to severance pay, which, in the aggregate, will exceed
$45,744,000 unless the Surviving
-11-
Corporation does not offer employment to an employee who is an eligible employee
who is eligible for severance pay under the Safety-Kleen Corp. Severance Pay
Plan in a position with total compensation that is within 15 percent of the
employee's current total compensation and at a location that is within a 30 mile
radius of the employee's current work location.
(p) All actions will have been taken, or which have failed to be
taken, with respect to the Employee Benefit Plans, would not, in the aggregate,
have a Material Adverse Effect.
3.7. Litigation; Violation of Law.
----------------------------
(a) There are no claims, actions, suits or proceedings or
investigations pending or, to the best knowledge of the Company, threatened
against the Company or any of its subsidiaries, nor is the Company or any of its
subsidiaries subject to any order, judgment, writ, injunction or decree, except
in either case for matters which would not have a Material Adverse Effect or
materially impair the ability of the Company to consummate the Merger, and as of
the date of this Agreement there are no such matters involving a contingent
liability, within the meaning of that term in Financial Accounting Standards
Bulletin No. 5, of more than $20,000,000.
(b) To the best knowledge of the Company, the businesses of the
Company and its subsidiaries are not being conducted in violation of any
applicable law, ordinance, rule, regulation, decree or order of any court or
governmental entity, except for violations which do not have a Material Adverse
Effect.
3.8. Labor. There is no material dispute, grievance, controversy, strike
-----
or request for union representation pending, or, to the best knowledge of the
Company, threatened, against either the Company or any of its Significant
Subsidiaries.
3.9. Taxes. (a) The Company and each subsidiary of the Company have
-----
timely filed (or have had timely filed on their behalf) or will file or cause to
be timely filed, all Tax Returns required by applicable law to be filed by any
of them prior to or as of the Effective Time, except where the failure to do so
would not have a Material Adverse Effect. All material Tax Returns are, or will
be at the time of filing, true, complete and correct in all material respects.
(b) The Company and each subsidiary of the Company have paid (or
have had paid on their behalf) or, where payment is not yet due, have
established (or have had established on their behalf and for their sole benefit
and recourse) or will establish or cause to be established on or before the
Effective Time an adequate accrual for the payment of all Taxes due with respect
to any period ending prior to or as of the Effective Time, except where the
failure to pay or establish adequate reserves would not have a Material Adverse
Effect.
-12-
(c) No deficiencies for any material Taxes have been proposed,
asserted or assessed against the Company or any subsidiary of the Company, and
no requests for waivers of the time to assess any such material Taxes are
pending. The Federal Income Tax Returns of the Company and each subsidiary of
the Company consolidated in such Tax Returns are not currently being examined
for years prior to the year ended December 31, 1992 and the statute of
limitations has run for years prior to December 31, 1992.
(d) There are no material Liens for Taxes upon the assets of the
Company except (i) with respect to matters beings contested in good faith and
(ii) Liens for Taxes not yet due.
(e) There are no material United States federal, state, local or
foreign audits or other administrative proceedings or court proceedings
presently pending with regard to any Taxes or Tax Returns of the Company.
(f) The Company is not a party to any agreement or arrangement
(written or oral) providing for the allocation or sharing of Taxes.
(g) The Company has not filed a consent pursuant to Section 341(f)(2)
of the Internal Revenue Code or agreed to have Section 341(f)(2) of the Internal
Revenue Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Internal Revenue Code) owned by the Company.
(h) The Company is a corporation within the meaning of (S)7701(a)(3)
of the Internal Revenue Code.
(i) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Taxes" shall mean all United States Federal, state,
-----
territorial, local and foreign taxes, and other assessments of a
similar nature (whether imposed directly or through withholding),
including any interest, additions to tax, or penalties applicable
thereto.
(i) "Tax Returns" shall mean all United States Federal, state,
-----------
territorial, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns and any amended tax
return relating to Taxes.
3.10. Environmental Matters. (a) Except for violations of the following
---------------------
clauses (i) through (vii) that would not have a Material Adverse Effect on the
Company, to the best knowledge of the Company, (i) the Company and its
subsidiaries have conducted their respective businesses in compliance with all
applicable Environmental Laws and are currently in compliance with all such
laws, including, without limitation, having all permits, licenses
-13-
and other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties
currently or formerly owned or operated by the Company or any of its
subsidiaries contains any Hazardous Substance in amounts exceeding the levels
permitted by applicable Environmental Laws, (iii) neither the Company nor any of
its subsidiaries has received any notices, demand letters or requests for
information from any court or governmental entity or third party indicating that
the Company or any of its subsidiaries may be in violation of, or liable under,
any Environmental Law in connection with the ownership or operation of their
businesses, including, without limitation, liability relating to sites not owned
or operated by the Company or any of its subsidiaries, (iv) there are no civil,
criminal or administrative actions, suits, demands, claims, hearings,
investigations or proceedings, pending or threatened, against the Company or any
subsidiaries relating to any violation of or liability under, or alleged
violation of or liability under, any Environmental Law, (v) all reports that are
required to be filed by the Company or any of its subsidiaries concerning the
release of any Hazardous Substance or the threatened or actual violation of any
Environmental Law have been so filed, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of or under circumstances that
could create liability under any applicable Environmental Law from any
properties owned by the Company or any of its subsidiaries as a result of any
activity of the Company or any of its subsidiaries during the time such
properties were owned, leased or operated by the Company or any subsidiaries,
(vii) neither the Company, any of its subsidiaries nor any of their respective
properties are subject to any material liabilities or expenditures (fixed or
contingent) relating to any suit, settlement, court order, administrative order,
regulatory requirement, judgment or claim asserted or arising under any
Environmental Law, and (viii) the Company has provided Parent with each
environmental audit, test or analysis performed within the last three years of
any property currently or formerly owned or operated by the Company or any of
its subsidiaries (x) sufficient to put the Parent on notice of any condition of
environmental impairment which would give rise to a Material Adverse Effect and
(y) of which the Company has knowledge.
(b) As used herein, "Environmental Law" means any United States
-----------------
Federal, territorial, state, local or foreign law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent, legal
doctrine, order, judgment, decree, injunction, requirement or agreement with any
governmental entity relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface land, subsurface land, plant
and animal life or any other natural resource) or to human health or safety or
(ii) the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of Hazardous Substances, in each case as amended and as in effect on the date
hereof. The term "Environmental Law" includes, without limitation, (i) the
Federal Comprehensive Environmental Response Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
-14-
Disposal Act and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Occupational Safety
and Health Act of 1970, each as amended and as in effect on the date hereof, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass and
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
-------------------
presently listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos, or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated byphenyls.
3.11. Brokers. No agent, broker, investment banker, financial advisor or
-------
other person or entity is or will be entitled to any brokerage commission,
finder's fee or like payment in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
3.12. Title to Properties. The Company and its subsidiaries have good,
-------------------
valid and marketable title to the properties and assets listed on the most
recent consolidated balance sheet included in the SEC Reports (the "Balance
Sheet") as owned by it (other than properties and assets disposed of in the
ordinary course of business since the date of the Balance Sheet), and all such
properties and assets are free and clear of any liens, except as described in
the SEC Reports and the financial statements included therein or in the Company
Disclosure Schedule and other than liens for current taxes not yet due and other
liens, security interests, charges, encumbrances, easements, covenants,
restrictions or title imperfections that do not have a Material Adverse Effect.
3.13. Information Supplied. None of the information supplied or to be
--------------------
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement (as defined in Section 6.1(a)) will, at the date it is first mailed to
the Company's shareholders or at the time of the Shareholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied in writing by or on behalf of Parent or Purchaser
specifically for inclusion therein.
-15-
3.14. Opinion Of Financial Advisor. The Company has received the opinion
----------------------------
of William Blair & Company L.L.C., dated the date of this Agreement, to the
effect that, as of such date, the consideration to be received in the Merger by
the Company's shareholders (other than Parent or any affiliate thereof) is fair
to such holders of Shares from a financial point of view.
3.15. Board Recommendation. The Board of Directors of the Company, at a
--------------------
meeting duly called and held, has duly and unanimously, subject to the terms and
conditions set forth herein, (i) determined that this Agreement and the
transactions contemplated hereby, including the Merger, are fair to and in the
best interests of the shareholders of the Company and (ii) subject to the other
provisions hereof, resolved to recommend that the holders of Shares approve this
Agreement and the transactions contemplated herein, including the Merger.
3.16. Required Company Vote. The Company Shareholder Approval, being the
---------------------
affirmative vote of at least 66-2/3% of the outstanding Shares, is the only vote
of the holders of any class or series of the Company's securities necessary to
approve this Agreement, the Merger and the other transactions contemplated
hereby (assuming for purposes of this representation the accuracy of
representations contained in Section 4.8).
3.17. Rights Agreement. The Board of Directors of the Company has amended
----------------
the Rights Agreement prior to the execution of this Agreement so that neither
the execution nor the delivery of this Agreement nor the consummation of the
Merger will (i) cause any Rights issued pursuant to the Rights Agreement to
become exercisable or to separate from the stock certificates to which they are
attached, (ii) cause Parent or any of its affiliates to be an Acquiring Person
(as such term is defined in the Rights Agreement) or (iii) trigger other
provisions of the Rights Agreement, including giving rise to a Distribution Date
(as such term is defined in the Rights Agreement).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser each represent and warrant, jointly and severally, to
the Company that, except as disclosed or reflected in the Parent Disclosure
Schedule delivered herein to the Company:
4.1. Organization and Qualification. Each of Parent and Purchaser is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated
by it, or the business conducted by it, requires such qualification and where
failure to so qualify or be in good standing would have a material adverse
effect on the financial condition or business of Parent and its
-16-
subsidiaries, taken as a whole. Each of Parent and Purchaser has the corporate
power to carry on its respective businesses as they are now being conducted.
Copies of the respective charter documents and by-laws of Parent and Purchaser
have heretofore been delivered to the Company, and such copies are complete and
correct as of the date hereof.
4.2. Capital Stock of Parent and Purchaser. As of the date hereof, and at
-------------------------------------
all times thereafter up to and including the Effective Time, all of the
outstanding shares of common stock, par value $.01 per share, of Purchaser shall
be duly authorized, validly issued, fully paid, non-assessable and owned
directly by Parent, free and clear of all liens, claims and encumbrances and
subject to compliance with the HSR Act, all of the outstanding shares of common
stock of Parent shall be duly authorized, validly issued, fully paid and non-
assessable and owned equally by Philip Services Corp.; Blackstone Capital
Partners III Merchant Banking Fund L.P. and Blackstone Offshore Capital Partners
III L.C. (collectively, "Blackstone"); and Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P. and Apollo (U.K.) Partners, L.P. and one or
more other investment funds under common management (collectively, "Apollo")
4.3. Authority and Absence of Conflict.
---------------------------------
(a) Each of Parent and Purchaser has the requisite corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Parent and Purchaser and the consummation by
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by the respective Boards of Directors of Parent and Purchaser, and by
Parent as sole shareholder of Purchaser, and no other corporate proceedings on
the part of Parent or Purchaser are necessary to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and
Purchaser and (assuming due authorization, execution and delivery by the
Company) constitutes a valid and binding obligation of each of them, enforceable
against each of them in accordance with its terms except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
(b) Neither the execution and delivery of this Agreement by Parent or
Purchaser, or Philip Services Corp. nor the consummation by them of the
transactions contemplated hereby, nor compliance by Parent or Purchaser with any
of the provisions hereof, will (i) violate, conflict with, or result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or Purchaser or any other direct or indirect subsidiary or affiliate of
Parent under any of the terms, conditions or provisions of (x) the charter
documents or by-laws of Parent or Purchaser or
-17-
any other direct or indirect subsidiary or affiliate of Parent or (y) any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Parent or Purchaser or any other direct or
indirect subsidiary of Parent is a party, or to which any of them, or any of
their respective properties or assets, may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the next subsection,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or Purchaser or any other direct or indirect
subsidiary or affiliate of Parent or any of their respective properties or
assets; except, in the case of each of clauses (i)(y) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances which, in the
aggregate, would not have a material adverse effect upon the business or
financial condition of Parent and Purchaser taken as a whole or of any affiliate
of Parent or Purchaser or prevent or delay in any material respect the
consummation of the Merger.
(c) Other than in connection with or in compliance with the
provisions of the WBCL the HSR Act (with respect to the formation of Parent),
the HSR Act (with respect to the transactions contemplated hereby, if
applicable), the Exchange Act, certain state securities or "takeover" statutes
and the environmental, health or safety laws or regulations of various states,
no notice to, filing with, or authorization, consent or approval of, any
domestic or foreign public body or authority is necessary for the consummation
by Parent and Purchaser of the transactions contemplated by this Agreement,
except where the failure to give such notices, make such filings, or obtain
authorizations, consents or approvals would, in the aggregate, have a material
adverse effect upon the business or financial condition of Parent and Purchaser
taken as a whole or prevent or delay in any material respect the consummation of
the Merger.
4.4. Brokers. No agent, broker, investment banker, financial advisor or
-------
other person or entity is or will be entitled to any brokerage commission,
finder's fee or like payment in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Purchaser.
4.5. Interim Operations Of Parent and Purchaser. Each of Parent and
------------------------------------------
Purchaser was formed on November 18, 1997 solely for the purpose of engaging in
the transactions contemplated hereby, has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
4.6. Proxy Statement. None of the information supplied in writing by
---------------
Parent or Purchaser specifically for inclusion in the Proxy Statement will, at
the date it is first mailed to the shareholders of the Company or at the time of
the Shareholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
-18-
4.7. Funds Available. Parent has received equity and debt commitment
---------------
letters ("Commitment Letters") in an aggregate amount sufficient to fund the
Merger and the transactions contemplated thereby and has delivered copies of
such letters to the Company.
4.8. Ownership of Shares. Neither Parent nor Purchaser is a "significant
-------------------
shareholder," as defined in Section 180.1130 of the WBCL, of the Company and
neither Parent nor Purchaser is an affiliate, as defined in Section 180.0103 of
the WBCL, of a significant shareholder of the Company.
4.9. No Litigation. There are no claims, actions, suits or proceedings or
-------------
investigations pending or, to the best knowledge of Parent, threatened against
Parent, Purchaser or any of their respective affiliates, nor is Parent,
Purchaser or any of their respective affiliates subject to any order, judgment,
writ, injunction or decree, in either case which would materially impair the
ability of Parent or Purchaser to consummate the Merger.
ARTICLE V.
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1. Conduct Of Business Of The Company. Except as otherwise contemplated
----------------------------------
hereby or as set forth in the Disclosure Schedule, the Company covenants and
agrees that, unless Parent shall otherwise agree in writing (which agreement
shall not be unreasonably withheld), prior to the Effective Time:
(a) The business of the Company and its subsidiaries shall be conducted
only in, and the Company and its subsidiaries shall not take any action except
in, the ordinary and usual course of business, and the Company shall use its
reasonable best efforts to maintain and preserve intact its and its
subsidiaries' business organization, assets, employees, officers and consultants
and advantageous business relationships.
(b) Neither the Company nor any of its subsidiaries shall directly or
indirectly do any of the following: (i) except in the ordinary course of
business, sell, pledge, dispose of or encumber any assets of the Company or of
any of its subsidiaries; (ii) amend its charter or by-laws or similar
organizational documents; (iii) split, combine or reclassify any shares of its
capital stock or declare, set aside, make or pay any dividend or distribution
payable in cash, stock, property or otherwise with respect to any of its capital
stock (except as contemplated by the Rights Agreement and except for (x) cash
dividends to shareholders of the Company declared in the ordinary course of
business and consistent with past practice and (y) dividends by wholly-owned
subsidiaries of the Company); (iv) redeem, purchase or otherwise acquire or
offer to redeem, purchase or otherwise acquire any capital stock of the Company;
(v) adopt a plan of liquidation or resolutions providing for the liquidation,
dissolution, merger, consolidation or other reorganization of the Company; or
(vi) authorize
-19-
or propose any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
(c) Neither the Company nor any of its subsidiaries shall, directly or
indirectly, (i) except for Shares (and the associated Rights) issuable upon
exercise of options outstanding under the Option Plans on the date hereof,
issue, sell, pledge, dispose of or encumber, or authorize, propose or agree to
the issuance, sale, pledge, disposition or encumbrance of, any shares of, or any
options, warrants or rights of any kind to acquire any shares of or any
securities convertible into or exchangeable or exercisable for any shares of,
its capital stock of any class or any other securities in respect of, in lieu
of, or in substitution for Shares outstanding on the date hereof; (ii) make any
material acquisition, by means of merger, consolidation or otherwise, or
material disposition (other than disposition of assets in the ordinary course of
business), of assets or securities, or make any loans, advances or capital
contributions to, or investment in, any individual or entity (other than to the
Company or a wholly-owned subsidiary of the Company); (iii) except in the
ordinary course of business, and other than indebtedness to or guarantees for
the benefit of the Company or any affiliate of the Company and (B) borrowings to
fund payments contemplated in Section 2.2 hereof, incur any indebtedness or
issue any debt securities or assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for, the
obligations of any other individual or entity; (iv) change the capitalization of
the Company (other than the incurrence of indebtedness otherwise permitted in
this Agreement); (v) except in the ordinary course, change any assumption
underlying, or method of calculating, any bad debt, contingency or other
reserve; (vi) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingency or otherwise), other than the payment, discharge
or satisfaction of liabilities in the ordinary course of business or as required
by applicable law; (vii) waive, release, grant or transfer any rights of value
or modify or change in any material respect any existing license, lease,
contract or other document, other than in the ordinary course of business; or
(viii) authorize any of the foregoing, or enter into or modify any contract,
agreement, commitment or arrangement to do any of the foregoing.
(d) Subject to Section 2.2, neither the Company nor any of its
subsidiaries shall (except for salary increases or other employee benefit
arrangements in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company and its subsidiaries, taken as a whole, or
as may be required pursuant to any agreements in effect at the date hereof)
adopt or amend or take any actions to accelerate any rights or benefits under
(except as may be required by law) any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment, severance,
termination or other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any employee or any officer or
director or former employee or, except in the ordinary course of business,
consistent with past practice, increase the compensation or fringe benefits of
any employee or former employee or pay any benefit not permitted by any existing
plan, arrangement or agreement.
-20-
(e) Except in the ordinary course of business, neither the Company nor any
of its subsidiaries shall make any tax election or, except in the ordinary
course of business, settle or compromise any federal, state, local or foreign
income tax liability.
(f) Except in the ordinary course of business, neither the Company nor any
of its subsidiaries shall permit any insurance policy naming it as beneficiary
or a loss payee to be cancelled or terminated without notice to Parent.
(g) Neither the Company nor any of its subsidiaries shall agree, in
writing or otherwise, to take any of the foregoing actions or any action which
would make any representation or warranty in Article III hereof untrue or
incorrect so as to result in a Material Adverse Effect.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1. Preparation Of Proxy Statement; Shareholders Meeting. (a) Promptly
----------------------------------------------------
following the date of this Agreement, the Company shall prepare a proxy
statement relating to the Shareholders Meeting (the "Proxy Statement"), and the
Company shall prepare and file with the Commission the Proxy Statement. Parent
will cooperate with the Company in connection with the preparation of the Proxy
Statement including, but not limited to, furnishing to the Company any and all
information regarding Parent or Purchaser and their affiliates as may be
required to be disclosed therein. The information provided and to be provided
by Parent and the Company, respectively, for use in the Proxy Statement shall,
at the date it is first mailed to the Company's shareholders and on the date of
the Shareholders Meeting referred to below, be true and correct in all material
respects and shall not omit to state any material fact required to be stated
therein or necessary in order to make such information not misleading, and the
Company and Parent each agree to correct any information provided by it for use
in the Proxy Statement which shall have become false or misleading.
(b) The Company will as promptly as practicable notify Parent of (i) the
receipt of any comments from the Commission and (ii) any request by the
Commission for any amendment to the Proxy Statement or for additional
information. All filings by the Company with the Commission, including the
Proxy Statement and any amendment thereto, and all mailings to the Company's
shareholders in connection with the Merger, including the Proxy Statement, shall
be subject to the prior review, comment and approval of Parent (such approval
not to be unreasonably withheld or delayed). Parent will furnish to the Company
the information relating to it and its affiliates, including Purchaser, required
by the Exchange Act and the rules and regulations promulgated thereunder to be
set forth in the Proxy Statement.
-21-
(c) The Company will: (i) as promptly as practicable following the date
of this Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Shareholders Meeting") for the purpose of approving this
Agreement and the transactions contemplated hereby to the extent required by the
WBCL and the Company's Restated Articles of Incorporation; (ii) through its
Board of Directors, and subject to the other provisions hereof, recommend to its
shareholders approval of the foregoing matters; and (iii) use its reasonable
best efforts to obtain the necessary approval of this Agreement and the
transactions contemplated hereby by its shareholders; provided, however, that,
subject to Section 6.8(b), the Company may fail to make or withdraw or modify
such recommendation and shall not be obligated to use its reasonable best
efforts or take any action pursuant to this Section 6.1 if the Company shall
have concluded in good faith, based on advice from outside legal counsel to the
Company, that such actions would be in breach of the Company's Board and
Directors' fiduciary duties under applicable law. Any such recommendation,
together with a copy of the opinion referred to in Section 3.14, shall be
included in the Proxy Statement.
6.2. Access To Information; Confidentiality. (a) From and after the date
--------------------------------------
of this Agreement and until the earlier of the Effective Time or termination of
this Agreement, the Company shall, and shall cause its subsidiaries, officers,
directors, employees and agents to, afford to Parent, and to the officers,
employees and agents of Parent, complete access at all reasonable times to the
officers, employees, agents, properties, books, records and contracts of the
Company and its subsidiaries, and shall furnish Parent and its respective
officers, employees and agents, all financial, operating and other data and
information as Parent may reasonably request.
(b) Parent hereby confirms to the Company that the confidentiality
agreement dated as of August 28, 1997 by and between Philip Services Corp.
---------
("Philip") and the Company ("the Confidentiality Agreement") is in full force
and effect. Parent hereby agrees to be bound by and to comply with the
Confidentiality Agreement to the same extent as Philip is bound thereby, and
agrees that it will cause Purchaser and the affiliates of Parent and Purchaser
to be bound by and to comply with that Agreement to the same extent that Philip
is bound thereby, and Parent shall cause Parent's, Purchaser's and such
affiliates' officers, employees, agents and representatives, including, without
limitation, attorneys, accountants, consultants, financial advisers and lenders
and their respective counsel to comply therewith as though they were parties
thereto.
6.3. Filings; Commercially Reasonable Best Efforts. (a) Subject to the
---------------------------------------------
terms and conditions herein provided, each of the parties hereto agrees to use
its commercially reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations or otherwise to consummate and
effect the transactions contemplated by this Agreement, including but not
limited to (i) determining whether any filings are required to be made or
consents, approvals, waivers, licenses, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of
-22-
any agreement) under any applicable law or regulation or from any governmental
entities or third parties, including parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Merger and the transactions contemplated thereby, (ii) promptly
making any such filings, furnishing information required in connection therewith
and timely seeking to obtain any such consents, approvals, permits or
authorizations and (iii) doing all things necessary, proper or advisable to
remove any injunctions or other impediments or delays, legal or otherwise, to
the consummation of the Merger and the other transactions contemplated by this
Agreement. Notwithstanding the foregoing, the Company will not be required to
commit to a divestiture transaction that is to be consummated prior to the
Effective Time.
(b) Notwithstanding the foregoing, none of Parent, Purchaser or the
Company shall be obligated to use its commercially reasonable best efforts or
take any action pursuant to this Section 6.3 if it determines in good faith,
based on the advice of outside legal counsel, that such actions would be in
breach of its Board of Directors' fiduciary duties under applicable law.
6.4. Public Announcements. Parent, Purchaser and the Company shall
--------------------
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange.
6.5. Notification of Certain Matters. The Company, Parent and Purchaser
-------------------------------
each agree to give prompt notice (a "Default Notice") to each other at any time
from the date hereof to the Effective Time of the obtaining by it of actual
knowledge as to the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause a breach of any covenant,
representation or warranty contained in this Agreement so as to result in a
Material Adverse Effect or in a material adverse effect upon Parent or any of
its affiliates. If any party receiving a Default Notice shall not object
thereto within 5 business days after receiving such Default Notice, then such
party shall be deemed to have waived all rights accruing to it as a result of
such breach. A party shall object to a Default Notice by giving timely notice
of such party's objection thereto as provided herein to the party giving such
Default Notice. For purposes of this Section 6.5, an "actual knowledge" of a
party to this Agreement shall mean the best actual knowledge of its chairman of
the board, president and chief financial officer.
6.6. Employee Benefits, etc. (a) For a period of two years following the
----------------------
Effective Time, Parent intends to cause the Surviving Corporation to, and upon
being so caused, the Surviving Corporation shall, provide employee benefit plans
and programs for the benefit of employees of the Surviving Corporation and its
subsidiaries that are in the aggregate no less favorable to such employees than
the Employee Benefit Plans. All service credited to each employee by the
Company through the Effective Time shall be recognized by Parent or the
Surviving Corporation for purposes of eligibility and vesting under any
-23-
employee benefit plan provided directly or indirectly by Parent or the Surviving
Corporation for the benefit of the employees and in which the respective
employees participate.
(b) Notwithstanding anything in this Agreement to the contrary, Parent
shall cause the Surviving Corporation to honor (without modification) and assume
the written employment agreements, severance agreements and other agreements
listed on the Disclosure Schedule, all as in effect on the date of this
Agreement.
(c) Parent shall cause the Surviving Corporation not to, and the Surviving
Corporation shall not, terminate or adversely amend in any manner which
adversely affects the benefits that participants in such Plans are entitled to
thereunder with respect to any periods prior to and including the Effective
Time.
(d) Parent intends to cause the Surviving Corporation to continue to
maintain its principal offices in Elgin, Illinois and to maintain its charitable
commitments and community involvement.
6.7. Indemnification And Insurance. (a) The Articles of Incorporation and
-----------------------------
by-laws of the Company (and the Surviving Corporation after the Effective Time)
shall contain the provisions with respect to indemnification set forth in the
Restated Articles of Incorporation and By-Laws of the Company on the date of
this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of any individual who at any time
prior to the Effective Time was an employee, agent, director or officer of the
Company or any of the Company's subsidiaries, together with each such person's
heirs, representatives, successors and assigns (individually, an "Indemnified
Party" and collectively the "Indemnified Parties") in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by the Agreement). Parent shall cause
the Company (or the Surviving Corporation if after the Effective Time) to, and
the Company (or the Surviving Corporation if after the Effective Time) shall,
maintain in effect for not less than 6 years after the Effective Time the
current policies of directors' and officers' liability insurance maintained by
the Company and the Company's subsidiaries on the date hereof (provided that the
Company may substitute therefor policies having at least substantially the same
coverage and containing terms and conditions which are no less advantageous in
any material respect to the persons currently covered by such policies as
insureds) with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums for
-------- -------
such insurance at any time during such period shall exceed 300% of the per annum
rate of premium currently paid by the Company and its subsidiaries for such
insurance on the date of this Agreement, then Parent shall cause the Company (or
the Surviving Corporation if after the Effective Time) to, and the Company (or
the Surviving Corporation if after the Effective Time) shall, provide the
maximum coverage that shall then be available at an annual premium equal to 300%
of such rate. The Company represents to Parent that such per annum rate of
premium currently paid by the Company and its subsidiaries is
-24-
approximately $400,000. Without limiting the foregoing, in the event any
Indemnified Party becomes involved in any capacity in any action, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, any matter, including the transactions contemplated hereby, existing or
occurring at or prior to the Effective Time , then to the extent permitted by
law, Parent shall cause the Company (or the Surviving Corporation if after the
Effective Time) to, and the Company (or the Surviving Corporation if after the
Effective Time) shall, periodically advance to such Indemnified Party its legal
and other expenses (including the cost of any investigation and preparation
incurred in connection therewith), subject to the provision by such Indemnified
Party of an undertaking to reimburse the amounts so advanced in the event of a
final determination by a court of competent jurisdiction that such Indemnified
Party is not entitled thereto. Parent shall cause the Company (or the Surviving
Corporation if after the Effective Time) to, and the Company (or the Surviving
Corporation if after the Effective Time) shall, pay all expenses, including
attorneys' fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided for in this Section 6.7
(b) The provisions of this Section 6.7 are intended for the benefit of,
and shall be enforceable by, the respective Indemnified Parties and shall be
binding on all successors and assigns of Parent, Purchaser, the Company and the
Surviving Corporation.
(c) Notwithstanding anything herein to the contrary, if any claim, action,
suit, proceeding or investigation (whether arising before, at or after the
Effective Time) is made or threatened against any Indemnified Party on or prior
to the sixth anniversary of the Effective Time, the provisions of this Section
6.7 shall continue in effect until the final disposition of such claim, action,
suit, proceeding or investigation.
6.8. Solicitation. (a) The Company (and its subsidiaries and
------------
affiliates) will not, and the Company (and its subsidiaries and affiliates) will
use their best efforts to ensure that their respective directors, officers,
employees, representatives and agents do not, directly or indirectly, solicit or
initiate inquiries or proposals from, or provide any confidential information
to, or participate in any discussions or negotiations with, any person or entity
(other than Parent and its subsidiaries and their respective directors,
officers, employees, representatives and agents) concerning (i) any merger, sale
of assets not in the ordinary course (except for any sale of assets otherwise
permitted under the terms of this Agreement), or other similar transaction
involving the Company or any subsidiary or division of the Company, or the sale
of any equity interest in the Company or any subsidiary, or (ii) any sale by the
Company or its subsidiaries of authorized but unissued Shares or of any shares
(whether or not outstanding) of any of the Company's subsidiaries (all such
inquiries and proposals being referred to herein as "Acquisition Proposals"),
provided, however, that nothing contained in this Section 6.8 shall prohibit the
- -------- -------
Company or its Board of Directors from (i) subject to the provisions of Section
6.4, issuing a press release or otherwise publicly disclosing the terms of this
Agreement, including, without limitation, this Section 6.8; (ii) proceeding with
the transactions contemplated by this Agreement; (iii) communicating to the
Company's shareholders a position as contemplated by Rule 14e-2 promulgated
under the
-25-
Exchange Act; (iv) making any disclosure to the Company's shareholders which, in
the judgment of the Board of Directors of the Company, with the advice of
outside counsel, should reasonably be made under applicable law (including,
without limitation, laws relating to the fiduciary duties of directors) or (v)
taking any non-appealable, final action ordered to be taken by the Company by
any court of competent jurisdiction; and, provided, further, that the Board of
-------- -------
Directors of the Company may, on behalf of the Company, furnish or cause to be
furnished information and may direct the Company, its directors, officers,
employees, representatives or agents to furnish information, in each case
pursuant to appropriate confidentiality agreements, and to participate in
discussions or negotiations with any person or entity concerning any Acquisition
Proposal which was not solicited by the Company or any of its subsidiaries or
affiliates or any of their respective directors, officers, employees,
representatives or agents, or which did not otherwise result from a breach of
this Section 6.8, if (x) the Board of Directors of the Company shall conclude in
good faith, after consultation with its financial advisor, that such person or
entity has made or is reasonably likely to make a bona fide Acquisition Proposal
for a transaction more favorable to the Company's shareholders from a financial
point of view than the transactions contemplated hereby, and (y), in the opinion
of the Board of Directors of the Company, only after receipt of advice from
independent legal counsel to the Company, the failure to provide such
information or access or to engage in such discussions or negotiations would
cause the Board of Directors of the Company to violate its fiduciary duties to
the Company's stockholders under applicable law (an Acquisition Proposal which
satisfies clauses (x) and (y) being referred to herein as a "Superior
Proposal"). The Company will immediately notify Parent of the terms of any
proposal, discussion, negotiation or inquiry (and will disclose any written
materials received by the Company in connection with such proposal, discussion
negotiation, or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction unless the Board
of Directors of the Company determines, based on the advice of outside legal
counsel to the Company, that giving such notice would cause the Board of
Directors of the Company to violate its fiduciary duties to the Company's
shareholders under applicable law. The Company agrees not to release any person
or entity from, or waive any provision of, any standstill agreement to which it
is a party or any confidentiality agreement between it and another person or
entity, unless the Company's Board of Directors shall conclude in good faith,
after consultation with its financial advisor, that such person or entity has
made or is reasonably likely to make a bona fide Acquisition Proposal for a
transaction more favorable to the Company's shareholders from a financial point
of view than the transactions contemplated hereby. The Company shall, and shall
cause each subsidiary to, immediately cease and cause to be terminated any
existing activities, discussions or negotiations by the Company, any subsidiary
of the Company or any officer, director or employee of, or investment banker,
attorney, accountant or other advisor or representative of, the Company or any
subsidiary with parties conducted heretofore with respect to any of the
foregoing.
(b) Except as set forth herein, neither the Board of Directors of the
Company nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or the Purchaser, the approval
or recommendation by the
-26-
Board of Directors of the Company or any such committee of this Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal, or (iii) enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, the Board of Directors of
the Company may (subject to the terms of this and the following sentence)
withdraw or modify its approval or recommendation of this Agreement or the
Merger, approve or recommend a Superior Proposal or enter into an agreement with
respect to a Superior Proposal at any time after the second business day
following Parent's receipt of written notice advising Parent that the Board of
Directors of the Company has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal; provided that the Company shall not enter
--------
into an agreement with respect to a Superior Proposal unless the Company shall
have furnished Parent with written notice not later than noon (New York time)
two business days in advance of any date that it intends to enter into such
agreement and shall have caused its financial and legal advisors to negotiate
with Parent to make such amendments to the terms and conditions of this
Agreement as would make this Agreement as so amended at least as favorable to
the Company's shareholders from a financial point of view as the Superior
Proposal. In addition, if the Company proposes to enter into an agreement with
respect to any Acquisition Proposal, it shall concurrently with entering into
such agreement pay, or cause to be paid, to Parent the Termination Amount (as
defined in Section 9.2) subject to the provisions of Section 9.2.
ARTICLE VII.
CONDITIONS PRECEDENT
7.1. Conditions To Each Party's Obligation To Effect The Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Shareholder Approval. The Company Shareholder Approval shall
----------------------------
have been obtained.
(b) Antitrust. The waiting periods (and any extensions thereof)
----------
applicable to the formation of Parent under the HSR Act shall have been
terminated or shall have expired and, if applicable, the waiting periods (and
any extensions thereof) applicable to the transactions contemplated by this
Agreement under the HSR Act shall have been terminated or shall have expired.
Any consents, approvals and filings required under the Competition Act (Canada)
and any other applicable foreign law shall have been obtained or made, as
applicable.
(c) Statutes. No statute, rule, order, decree or regulation shall have
--------
been enacted or promulgated by any domestic government or any governmental
agency or authority of competent jurisdiction which prohibits the consummation
of the Merger.
-27-
(d) Violation of Law. Consummation of the Merger shall not result in
----------------
violation of any applicable United States federal or state law providing for
criminal penalties.
(e) Litigation. No preliminary or permanent injunction or other order
----------
issued by any federal or state court of competent jurisdiction in the United
States preventing the consummation of the Merger shall be in effect; provided,
however, that the parties hereto shall use their best efforts to have any such
injunction or order vacated.
7.2. Conditions To Obligations Of Parent. The obligations of Parent
-----------------------------------
to effect the Merger are further subject to the following conditions:
(a) Representations And Warranties. The representations and warranties of
------------------------------
the Company set forth in this Agreement shall be true and correct in each case
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Material Adverse Effect" set forth
therein) would not have a Material Adverse Effect; provided that,
notwithstanding any other term or provision hereof, the entering into or
modification or amendment of any contract or agreement, in form and substance
mutually agreeable to the parties hereto, in contemplation of the completion of
the Merger (including, without limitation, employment agreements (and the
options granted pursuant thereto), any option plan, any corporation services
agreement and any indemnity agreements) shall not be deemed to cause any breach
of, or inaccuracy in, any of the representations and warranties or covenants of
the Company contained in this Agreement.
(b) Performance Of Obligations Of The Company. The Company shall have
-----------------------------------------
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date (except for such failures to perform as have not
had a Material Adverse Effect), and Parent shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect, to their best knowledge.
(c) No Litigation. There shall not be instituted or pending any
-------------
suit, action or proceeding (having a substantial likelihood of success) against
Parent, Purchaser, the Company or any subsidiary of the Company (i) challenging
the acquisition by Parent or Purchaser of any Shares, seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from the Company, Parent or
Purchaser any damages that are material in relation to the Company and its
subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership
or operation by the Company, Parent or any of their respective subsidiaries of
any material portion of the business or assets of the Company, Parent or any of
the respective subsidiaries or to compel the Company, Parent or any of their
respective subsidiaries to dispose of or hold separate any material portion of
the business or assets of the Company or Parent and their respective
-28-
subsidiaries, in each case taken as a whole, (iii) seeking to impose material
limitations on the ability of Parent or Purchaser to acquire or hold, or
exercise full rights of ownership of, the shares of capital stock of the
Surviving Corporation, including the right to vote such capital stock on all
matters properly presented to the stockholders of the Surviving Corporation,
(iv) seeking to prohibit or impose material limitations on the ability of Parent
to effectively control in any material respect the business or operations of the
Company or its subsidiaries or (v) which otherwise is reasonably likely to have
a Material Adverse Effect.
(d) Statutes. There shall not be any statute, rule, regulation,
--------
judgment, order or injunction enacted, entered, enforced, promulgated, or deemed
applicable, pursuant to an authoritative interpretation by or on behalf of a
governmental entity, to the Merger, or any other action shall be taken by any
governmental entity, other than the application or the Merger of applicable
waiting periods under HSR Act and the Canadian Competition Act or any other
applicable foreign law, that is substantially likely to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through (v) of
Section 7.2(c) above.
(e) Funding. Parent shall have received sufficient funds pursuant to
-------
the Commitment Letters to consummate the Merger and the transactions
contemplated thereby, provided that such failure to receive funds shall not have
resulted from the failure of Parent to use its reasonable commercial efforts to
consummate the transactions contemplated by the Commitment Letters.
7.3. Conditions To Obligation Of The Company. The obligation of the
---------------------------------------
Company to effect the Merger is further subject to the following conditions:
(a) Representations And Warranties. The representations and
------------------------------
warranties of Parent and Purchaser set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth therein) would not reasonably be expected to
individually or in the aggregate have a material adverse effect on the financial
condition or business of Parent or adversely affect the ability of Parent to
consummate the Merger.
(b) Performance Of Obligations Of Parent. Parent shall have
------------------------------------
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date (except for such failures to perform as have not
had, either individually or in the aggregate, a material adverse effect on the
financial condition or business of Parent or adversely affect the ability of
Parent to consummate the Merger).
(c) Solvency Opinion. The Company shall have received an
----------------
opinion or certificate of a reputable expert firm confirming the solvency of the
Company after the
-29-
Merger and related financings addressed to or for the benefit of the Board of
Directors of the Company so that the Board of Directors of the Company is
entitled to rely thereon.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1. Termination. This Agreement may be terminated and abandoned at
-----------
any time prior to the Effective Time, whether before or after approval of
matters presented in connection with the Merger by the shareholders of the
Company:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any governmental body or
regulatory authority of the United States of America shall have issued an order,
decree or ruling or taken any other action, in each case permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and non-appealable; provided that the
right to terminate this Agreement pursuant to this Section 8.1(b) shall not be
available to any party that has breached its obligations under Section 6.3; or
(c) by either Parent or the Company if the Merger shall not have
been consummated on or before June 30, 1998 (other than due to the failure of
the party seeking to terminate this Agreement) to perform its obligations under
this Agreement required to be performed at or prior to the Effective Time); or
(d) by either Parent or the Company if at the duly held meeting
of the shareholders of the Company (including any adjournment thereof) held for
the purpose of voting on the Merger, this Agreement and the consummation of the
transactions contemplated hereby, the holders at least of 66-2/3% of the
outstanding Shares shall not have approved the Merger, this Agreement and the
consummation of the transactions contemplated hereby; or
(e) by the Board of Directors of Parent, (i) if the Company
shall have breached any of its representations and warranties or failed to
comply with any of the covenants or agreements (without, in each instance,
giving effect to any limitation as to "materiality" or "material adverse effect"
set forth therein) contained in this Agreement to be complied with or performed
by the Company at or prior to consummation of the Merger and such breach or
failure shall have resulted in a Material Adverse Effect, or (ii) the Company
shall have received from a third party a bona fide Acquisition Proposal, and the
Board of Directors of the Company, shall have accepted such a proposal or (iii)
the Board of Directors of the Company shall have failed to recommend to the
Company Shareholders that they give the Company Shareholder Approval or shall
have withdrawn or modified in a manner
-30-
adverse to Parent or Purchaser its approval or recommendation with respect to
the Merger, or
(f) by the Board of Directors of the Company, if (i) Parent or
Purchaser shall have breached in any material respect any of its representations
and warranties or failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be complied with or
performed by Parent or Purchaser, or (ii) if the Company enters into a written
agreement concerning a transaction that constitutes a Superior Proposal,
provided that the Company shall have complied with the provisions of Section
6.8(a) and (b) hereof (including the payment of the Termination Amount) or (iii)
the condition set forth in Section 7.2(e) cannot be satisfied.
8.2. Effect Of Termination. In the event of termination of this
---------------------
Agreement by either the Company or Parent as provided in Section 8.1, no party
hereto (or any of its directors, officers, employees, agents, legal and
financial advisors or other representatives) shall have any liability or further
obligation to any other party to this Agreement, except as provided in this
Section 8.1 and Sections 6.2(b), 9.1 and 9.2 of this Agreement, and except that
nothing herein will relieve any party from liability for its wilful breach of
this Agreement.
ARTICLE IX.
GENERAL PROVISIONS
9.1. Nonsurvival Of Representations And Warranties. The
---------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall expire with, and be terminated and extinguished
upon, consummation of the Merger. This Section 9.1 have no effect upon any other
obligation of the parties hereto, whether to be performed before or after the
Effective Time. The Confidentiality Agreement shall survive the termination of
this Agreement and the provisions of such Confidentiality Agreement shall apply
to all information and material delivered by any party hereunder.
9.2. Payment Of Certain Fees and Expenses. (a) All costs and expenses
------------------------------------
incurred in connection with this Agreement and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses.
(b) Notwithstanding the foregoing, if this Agreement is
terminated pursuant to Section 8.1(e)(ii) or (iii) or 8.1(f)(ii) hereof, or
prior to the termination of the Agreement, any person other than Parent,
Purchaser or an affiliate thereof acquires in excess of 20% of the issued and
outstanding Shares, then the Company shall pay to Parent (i) concurrently with
such termination, an amount equal to U.S. $50 million (the "Termination Fee"),
plus (ii) promptly, but in no event later than two days after being furnished
documentation in respect thereto by Parent ("Documentation"), Parent's or its
-31-
affiliates' out-of-pocket fees and expenses (including legal, investment
banking, financing commitment fees, and commercial banking fees and expenses)
actually incurred in connection with the Merger, due diligence investigation,
the negotiation and execution of this Agreement and the transactions
contemplated hereby up to a maximum amount of $25 million (the "Termination
Expenses", and together with the Termination Fee, the "Termination Amount"). In
addition, if this Agreement is terminated pursuant to Section 8.1(d) and at the
time of such termination, Parent is not in material breach of this Agreement,
then the Company shall pay to Parent, promptly but in no event later than two
days after being furnished Documentation by Parent, the Termination Expenses,
and, if the Company shall thereafter, within nine months after such termination,
enters into an agreement with respect to an Acquisition Proposal or a third
party acquires more than 50% of the Company's outstanding shares or more than
50% of the Company's assets, then the Company shall pay the Termination Fee to
Parent concurrently with entering into such agreement. Any payments required to
be made pursuant to this Section shall be made by wire transfer of same day
funds to an account designated by Parent. Notwithstanding anything to the
contrary herein, in no event shall there be more than one payment each of the
Termination Fee and Termination Expenses, provided that Termination Expenses may
be paid from time to time upon submission of Documentation.
9.3. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(a) If to Parent or Purchaser:
Philip Services Corp.
100 King Street West
P.O. Box 2440, LCD #1
Hamilton, Ontario
L8N 4J6
Attention: Allen Fracassi
Telecopy No. (905) 521-9160
Apollo Management, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, California 90067
Attention: David B. Kaplan
Telecopy No. (310) 201-4198
-32-
The Blackstone Group
345 Park Avenue
New York, New York 10154
Attention: Howard A. Lipson
Telecopy No. (212) 754-8703
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Jeffrey Tindel
Telecopy: (212) 735-2000
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Attention: Alison Ressler
Telecopy No.: (213) 683-0457
If to the Company:
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123
Attention: Chairman
Telecopy No.: (847) 468-8561
with a copy to:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention: Donald G. Lubin
Telecopy No.: (312) 876-7934
9.4. Certain Definitions; Interpretation. When a reference is made in
-----------------------------------
this Agreement to subsidiaries of Parent, Purchaser or the Company, the word
"subsidiaries" means any corporation 50 percent or more of whose outstanding
voting securities, or any partnership, joint venture or other entity 50 percent
or more of whose total equity interest, is
-33-
directly or indirectly owned by Parent, Purchaser or the Company, as the case
may be. The words "Significant Subsidiaries" shall have the meaning ascribed to
it under Rule 1-02 of Regulation S-X of the Commission. As used in this
Agreement, the term "affiliate(s)" shall have the meaning set forth in Rule 12b-
2 under the Exchange Act. (Without limiting the generality of the foregoing,
Philip, Blackstone, Apollo shall be deemed to be affiliates of Parent and
Purchaser.) As used in this Agreement, "Material Adverse Effect" means any
change(s) or effect(s) that, individually, or in the aggregate, are materially
adverse to the financial condition, properties, business of the Company and its
subsidiaries, taken as a whole, or that would prevent or materially delay the
Company from performing its obligations under this Agreement. Whenever this
Agreement requires Purchaser to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause Purchaser to
take such performance and a guarantee of the performance thereof.
9.5. Entire Agreement. This Agreement (including the Disclosure
----------------
Schedule and the exhibits hereto) and the Confidentiality Agreement contain the
entire agreement between the parties with respect to the transactions
contemplated hereby, and supersedes all written or oral negotiations,
representations, warranties, commitments, offers, bids, bid solicitations, and
other understandings prior to the date hereof, except to the extent expressly
confirmed or provided herein.
9.6. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.7. Severability. If any provision hereof shall be held invalid or
------------
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect of any other provision hereof.
9.8. Captions. The captions of the various Articles and Sections of
--------
this Agreement have been inserted only for convenience of reference and shall
not be deemed to modify, explain, enlarge or restrict any provision of this
Agreement or affect the construction hereof.
9.9. Amendment. Subject to the applicable provisions of the WBCL,
---------
this Agreement may be amended by the parties hereto, at any time before or after
any required approval of matters presented in connection with the Merger by the
shareholders of the Company; provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval by such
shareholders without the further approval of such shareholders. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
9.10. Waiver. Subject to the applicable provisions of the WBCL, at any
------
time prior to the Effective Time, any party hereto may (a) extend the time for
the performance of
-34-
any of the obligations or other acts of the other parties hereto, or (b) subject
to the proviso of Section 9.9, waive compliance with any of the agreements or
conditions contained herein. In addition to the provisions contained in Section
6.5 hereof, at any time prior to consummation of the Merger any party hereto may
waive any inaccuracies in the representations and warranties contained herein or
in any documents delivered pursuant hereto. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed by such party.
9.11. No Third-Party Beneficiaries; Assignability. Except for Sections
-------------------------------------------
2.2, 2.3, 6.6 and 6.7 (which are intended for the benefit of, and may be
enforced by, the persons or entities specified therein), this Agreement is not
intended to confer or impose upon any person not a party hereto any rights,
remedies, obligations or liabilities hereunder. This Agreement shall not be
assigned by any party hereto, by operation of law or otherwise. Subject to the
preceding two sentences, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
9.12. Best Knowledge. When used with respect to the Company in this
--------------
Agreement, the term "best knowledge" shall mean to the best actual knowledge of
any of the Company's Chairman of the Board, President and chief financial
officer.
9.13. Governing Law. (a) The validity, interpretation and effect of
-------------
this Agreement shall be governed exclusively by the laws of the State of
Wisconsin, without giving effect to the principles of conflict of laws thereof.
(b) Each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Illinois or
any Illinois state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (iii) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated hereby in any
court other than a federal or state court sitting in the State of Illinois.
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunder duly authorized.
SAFETY-KLEEN CORP.
By: /s/ Donald W. Brinckman
---------------------------
Title: Chairman and Chief
Executive Officer
-35-
SK PARENT CORP.
By: /s/ Colin Soule
---------------------------
Title: President
SK ACQUISITION CORP.
By: /s/ Colin Soule
---------------------------
Title: President
-36-
ANNEX B
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
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 solely for the benefit of
the Company's Board of Directors and are not on behalf of, and are not intended
to confer rights or remedies upon the Company, Shareholders of the Company or
any other person. 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.
ANNEX C
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Safety-Kleen anticipates that certain officers, directors, employees
or affiliates of Philip, Apollo, Blackstone, Parent and Merrill Lynch & Co.,
Parent's financial advisor ("Merrill Lynch"), may communicate in person, by
telephone or otherwise with shareholders of Safety-Kleen for the purpose of
assisting in the solicitation of proxies. These efforts would be in furtherance
of Parent's efforts to consummate the Merger. None of such persons will be
compensated by Safety-Kleen in connection with such solicitation activities.
Except as noted below with respect to Merrill Lynch, none of such persons
beneficially owns, individually or in the aggregate, in excess of 1% of Safety-
Kleen's Shares. Additional information concerning such participants is set forth
below.
I. PHILIP SERVICES CORP.
Unless otherwise indicated, the information below refers to such
person's position with Philip Services Corp. The business address of each
executive officer is Philip Services Corp., 100 King Street West, P.O. Box 2440,
LCD #1, Hamilton, Ontario, L8N 4J6.
Name Principal Position with Philip
- ---- ------------------------------
Allen Fracassi President, Chief Executive Officer
and Director
Philip Fracassi Executive Vice-President, Chief Op-
erating Officer and Director
Howard Beck Chairman and Director
Roy Cairns Director
Derrick Rolfe Director
Norman Foster Director
Felix Pardo Director
Herman Turkstra Director
William E. Haynes Director
Robert Waxman President, Metals Recovery Group
and Director
Robert L. Knauss Director
Name Principal Position with Philip
- ---- ------------------------------
Allen Fracassi President, Chief Executive Officer
and Director
Philip Fracassi Executive Vice-President, Chief Op-
erating Officer and Director
Robert Waxman President, Metals Recovery Group
and Director
Marvin Boughton Executive Vice-President and Chief
Financial Officer
Robert M. Chiste President, Industrial Services
Group
Peter Chodos Executive Vice-President, Corporate
Development
Colin Soule Executive Vice-President, General
Counsel & Corporate Secretary (also
a director of Parent)
Antonio Pingue Executive Vice President, Corporate
and Regulatory Affairs
John Woodcroft Executive Vice-President, Operations
II. APOLLO
Apollo Management, L.P.
Apollo Investment Fund III, L.P.
Apollo Overseas Partners III, L.P.
Apollo (U.K.) Partners III, L.P.
Antony P. Ressler, Investment Manager; Director of Parent
David B. Kaplan, Investment Manager
III. BLACKSTONE
Blackstone Capital Partners III Merchant Banking Fund L.P.
Blackstone Offshore Capital Partners III L.P.
Blackstone Management Associates III L.P.
Blackstone Management Partners III L.L.C.
Howard A. Lipson, Investment Manager; Director of Parent
Lawrence H. Guffey, Investment Manager
2
IV. SK PARENT CORP.
Colin Soule (see I. above)
Antony P. Ressler (see II. above)
Howard A. Lipson (see III. above)
V. MERRILL LYNCH
Certain employees of Merrill Lynch & Co. may also assist in the
solicitation of proxies, including by communicating in person, by telephone, or
otherwise with a limited number of institutions, brokers, or other persons who
are stockholders of Safety-Kleen. Merrill Lynch will not receive any separate
fee for its solicitation activities. Merrill Lynch is an investment banking
firm that provides a full range of financial services for institutional and
individual clients. Merrill Lynch does not admit that it or any of its
directors, officers or employees is a "participant" as defined in Schedule 14A
promulgated under the Exchange Act, in the solicitation, or that Schedule 14A
requires the disclosure of certain information concerning Merrill Lynch. In the
normal course of its business, Merrill Lynch regularly buys and sells Safety-
Kleen securities for its own account and for the accounts of its customers which
may result from time to time in Merrill Lynch and its associates having a net
"long" or net "short" position in Safety-Kleen securities. Additionally, in the
normal course of its business, Merrill Lynch may finance its securities
positions by bank and other borrowings and repurchase and securities borrowing
transactions. Information with respect to the employees of Merrill Lynch who
may be deemed "participants" is set forth below.
Merrill Lynch & Co.
101 California Street, Suite 1200
San Francisco, California 94111
Mark Shafir
Drago Rajkovic
3
PRELIMINARY COPY DATED NOVEMBER 26, 1997
[LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P [_____________ and ____________], and either of them are appointed Proxies,
with power of substitution, to vote all stock of the undersigned at the
R Special Meeting of shareholders to be held _________________, 1998 at 10:00
a.m. at the First Chicago Center, The First National Bank of Chicago
O Building, 38 South Dearborn Street, Chicago, Illinois 60670 and at any
adjournment or postponement thereof, upon the matters mentioned hereafter,
X and in their discretion upon such matters as may properly come before said
meeting. Receipt of Notice, dated _____________________, 1997 of Special
Y Meeting and accompanying Proxy Statement is acknowledged, and any Proxy
previously given is revoked.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
FOR AGAINST ABSTAIN
1. Approve the Agreement and Plan of
Merger dated as of November 20, [_] [_] [_]
1997, which provides for the merger
of SK Acquisition Corp., a wholly-owned
subsidiary of SK Parent Corp., with
and into Safety-Kleen.
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 CHOICE BY MARKING THE APPROPRIATE BOX (SEE
REVERSE SIDE). YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATION. THE PROXY COMMITTEE CANNOT VOTE YOUR
SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
[SEE REVERSE SIDE]
- --------------------------------------------------------------------------------
The above-named proxies of the undersigned are authorized to initiate and
vote for proposals to recess or adjourn the Special Meeting for any reason,
including to allow inspectors to certify the outcome of the Proposal described
above or to allow the solicitation of additional votes, if necessary, for such
Proposal, to vote against proposals to recess or adjourn the Special Meeting,
and to vote, in their discretion, upon such other matters as may properly come
before the Special Meeting and any adjournment or postponement thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER MARKED
HEREIN BY THE UNDERSIGNED. IF NO MARKING IS MADE AS TO ANY PROPOSAL, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
Date
Signature
Title
Signature; if Held Jointly
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as an attorney,
executor, administrator, trustee or guardian, give full title as such.
If a corporation, sign in full corporate name by President or other
authorized officer. If a partnership, sign in partnership name by
authorized person.
PLEASE SIGN, DATE AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.