Exhibit 13
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SAFETY-KLEEN CORPORATION, )
)
Plaintiff, )
)
v. ) No. 97 C 8003
)
LAIDLAW ENVIRONMENTAL SERVICES, INC., ) Judge Joan B. Gottschall
)
Defendant. )
_____________________________________ )
)
LAIDLAW ENVIRONMENTAL SERVICES, INC. )
and LES ACQUISITION, INC., )
)
Counterplaintiffs, )
)
v. )
)
SAFETY-KLEEN CORPORATION, )
)
Counterdefendant, and )
)
RICHARD T. FARMER, PAUL D. SCHRAGE, )
DONALD W. BRINCKMAN, MARCIA E. )
WILLIAMS, W. GORDON WOOD, RUSSELL A. )
GWILLIM, EDGAR D. JANNOTA and )
KARL G. OTZEN, )
)
Counterdefendants. )
VERIFIED ANSWER, AFFIRMATIVE DEFENSES,
AND COUNTERCLAIM OF
LAIDLAW ENVIRONMENTAL SERVICES, INC. AND LES ACQUISITION, INC.
--------------------------------------------------------------
Defendant Laidlaw Environmental Services, Inc. ("Laidlaw Environmental")
answers the Complaint of plaintiff Safety-Kleen Corporation ("Safety-Kleen"), as
follows:
Complaint
---------
On November 13, 1997, Laidlaw demanded the right to inspect and copy
Safety-Kleen's record of shareholders to solicit proxies and communicate
with shareholders regarding Laidlaw's exchange offer for Safety-Kleen
stock, made that same day. The securities that comprise a substantial
portion of the consideration in the exchange offer have not yet been
registered with the Securities and Exchange Commission. Accordingly,
Laidlaw is barred by Section 5(b)(1) of the Securities Act of 1933, 15
U.S.C. (S) 77e(b)(1), from communicating with Safety-Kleen's shareholders
about those securities through written means other than through a
prospectus complying with Sections 5(b)(1) and 10 of the Securities Act of
1933, 15 U.S.C. (S)(S) 77e(b)(1) and 77j. To require Safety-Kleen to
provide its shareholder list under these circumstances would be to require
Safety-Kleen to facilitate a violation of the federal securities laws.
Safety-Kleen therefore seeks a declaration from this Court that it need not
provide Laidlaw with access to its shareholder lists. This is a problem of
Laidlaw with access to its shareholder lists. This is a problem of
Laidlaw's own creation since Laidlaw did not have to initiate the calling
of a special meeting before its securities were subject to an effective
registration statement.
Safety-Kleen further seeks a declaration from this Court that Laidlaw's
request for a shareholder meeting regarding its voting rights under Wis.
Stat. (S) 180.1150 fails to satisfy the notice requirements of Wis. Stat.
(S) 180.1150(4)(e), which requires detailed disclosure of the financing
arrangements for its exchange offer.
Answer
------
The Complaint purports to set forth a "Summary" of its contents. This
"Summary" fails to comply with the requirements of Rule 10(b) of the Federal
Rules of Civil Procedure, and thus no answer is required.
Complaint (P)1
--------------
This action arises under Section 5(b)(1) of the Securities Act of 1933, 15
U.S.C. (S) 77e(b)(1), and Wis. Stat. (S) 180.1150.
Answer (P)1
-----------
Laidlaw Environmental admits that Safety-Kleen purports to allege that this
action arises under Section 5(b)(1) of the Securities Act of 1933, 15 U.S.C. (S)
77e(b)(1), and Wis. Stat.
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(S) 180.1150 but denies that any such action lies in favor of Safety-Kleen.
Laidlaw Environmental denies the remaining allegations contained in paragraph 1
of the Complaint.
Complaint (P)2
--------------
This Court has jurisdiction over this action pursuant to 28 U.S.C. (S)
1331, under the supplemental jurisdiction provisions of 28 U.S.C. (S) 1367,
and under the declaratory judgment provisions of 28 U.S.C. (S)(S) 2201 and
2202.
Answer (P)2
-----------
Laidlaw Environmental admits that Safety-Kleen purports to base
jurisdiction on the statutes identified in paragraph 2 of the Complaint and the
principles of supplemental jurisdiction. Laidlaw Environmental denies the
remaining allegations contained in paragraph 2 of the Complaint.
Complaint (P)3
--------------
Venue lies in the Northern District of Illinois pursuant to 28 U.S.C. (S)
1391(b) and (c), in that the defendant is subject to the personal
jurisdiction of the United States District Court for the Northern District
of Illinois, and initiated its demand for a meeting in this District.
Answer (P)3
-----------
Laidlaw Environmental admits the allegations contained in paragraph 3 of
the Complaint.
Complaint (P)4
--------------
Plaintiff Safety-Kleen is a Wisconsin corporation with its principal place
of business in Elgin, Illinois.
Answer (P)4
-----------
Laidlaw Environmental admits the allegations contained in paragraph 4 of
the Complaint.
Complaint (P)5
--------------
Defendant Laidlaw is a Delaware corporation with its principal place of
business in Columbia, South Carolina.
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Answer (P)5
-----------
Laidlaw Environmental admits the allegations contained in paragraph 5 of
the Complaint.
Complaint (P)6
--------------
On November 13, 1997, Laidlaw filed a Form S-4 with the Securities and
Exchange Commission for the purpose of registering Laidlaw shares. (See
Exhibit A.) By that filing, Laidlaw announced its offer to acquire each
outstanding share of Safety-Kleen in exchange for $14 and 2.4 shares of the
stock subject to the S-4.
Answer (P)6
-----------
Laidlaw Environmental admits the allegations contained in the first
sentence of paragraph 6 of the Complaint. Laidlaw Environmental further admits
that Safety-Kleen purports to attach a copy of the Form S-4 filed by Laidlaw
Environmental on November 13, 1997 as Exhibit A to the Complaint. Laidlaw
Environmental denies the remaining allegations contained in paragraph 6 of the
Complaint.
Complaint (P)7
--------------
Pursuant to Section 8(a) of the Securities Act of 1933, 15 U.S.C. (S)
77h(a), "the effective date of a registration statement shall be the 20th
day after the filing thereof." However, Laidlaw has requested a delay in
the effectiveness of its registration. (See Exhibit A, at 2.)
Accordingly, Laidlaw's registration is not yet effective, and it is not
presently determinable when that registration will become effective.
Answer (P)7
-----------
Laidlaw Environmental admits the allegations contained in paragraph 7 of
the Complaint.
Complaint (P)8
--------------
Section 180.1150(2) of the Wisconsin Statutes provides that "the voting
power of shares of an issuing public corporation held by any person ... in
excess of 20% of the voting power in the election of directors shall be
limited to 10% of the full voting power of those shares." As a Wisconsin
corporation, Safety-Kleen is subject to the provisions of (S) 180.1150(2).
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Answer (P)8
-----------
Laidlaw Environmental admits that Safety-Kleen purports to quote from a
statute in paragraph 8 of the Complaint, but denies that Safety-Kleen has
accurately done so. Laidlaw Environmental lacks sufficient information to form
a belief as to whether Safety-Kleen is subject to the provisions of (S)
180.1150(2), but denies that Safety-Kleen is subject to that provision solely on
the basis of Safety-Kleen's status as a Wisconsin corporation. Laidlaw
Environmental denies the remaining allegations contained in paragraph 8 of the
Complaint.
Complaint (P)9
--------------
Pursuant to Wis. Stat. (S) 180.1150(5)(c), regular voting power may be
restored if, at a shareholder meeting at which a quorum is present, "a
majority of the voting power of shares represented at the meeting and
entitled to vote on the subject matter approve[s] [a] resolution" calling
for a restoration of regular voting power. Under Wis. Stat. (S)
180.1150(5)(a), such a shareholder meeting must be scheduled within certain
time limits once proper notice and a proposed resolution are presented to a
corporation. The required notice must comply with certain disclosure
requirements set forth in Wis. Stat. (S) 180.1150(4).
Answer (P)9
-----------
Laidlaw Environmental admits that Safety-Kleen purports to quote from a
statute in paragraph 9 of the Complaint. Laidlaw Environmental states that the
remaining allegations of paragraph 9 of the Complaint constitute the legal
conclusions of the pleader as to which no answer is required. To the extent an
answer is necessary, Laidlaw Environmental admits such allegations.
Complaint (P)10
---------------
On November 13, 1997, Laidlaw delivered to Safety-Kleen a document
captioned "Notice Pursuant to Section 180.1150 of the Wisconsin Statutes."
(See Exhibit B.) Laidlaw attached to this document a proposed shareholder
resolution providing that "regular voting power shall be restored for all
Shares now held or
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hereafter acquired by any of the Laidlaw Parties in accordance with Section
180.1150(5)(c) of the Wisconsin Statutes." (See Exhibit C.)
Answer (P)10
------------
Laidlaw Environmental admits the allegations contained in paragraph 10 of
the Complaint.
Complaint (P)11
---------------
Wis. Stat. (S) 180.1602(2)(c) permits a shareholder who has validly
requested a shareholder meeting pursuant to (S) 180.1150 to obtain the
"record of shareholders" of a corporation.
Answer (P)11
------------
Laidlaw Environmental admits the allegations contained in paragraph 11 of
the Complaint.
Complaint (P)12
---------------
On November 13, 1997, Laidlaw also delivered to Safety-Kleen a letter
demanding the right to inspect and copy Safety-Kleen's records of its
shareholders purportedly pursuant to Wis. Stat. (S) 180.1602(2)(c). (See
Exhibit D.) Accordingly to the letter, "The purposes of this demand are to
enable Laidlaw to communicate with its fellow Company shareholders on
matters relating to their mutual interests as shareholders, including, but
not limited to, (a) communicating with the shareholders of the Company
regarding the Notice dated November 13, 1997, and served on the Company,
pursuant to Section 180.1150(4) of the Wisconsin Statutes and (b)
soliciting proxies in connection with the special shareholders' meeting to
be called as a consequence of the foregoing Notice."
Answer (P)12
------------
Laidlaw Environmental admits the allegations contained in paragraph 12 of
the Complaint.
Complaint (P)13
---------------
Laidlaw publicly announced its request for a shareholder meeting "to
consider permitting [Laidlaw] to vote all shares acquired under its offer."
(See Exhibit E.)
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This public announcement was a continuation of Laidlaw's prior unlawful
efforts to condition the market as to its exchange offer with public
statements and press releases dating to at least November 4, 1997, more
than a week before Laidlaw even filed its registration statement.
Answer (P)13
------------
Laidlaw Environmental admits that it publicly announced the filing of a
Form S-4 on November 13, 1997. Laidlaw Environmental further admits that in
paragraph 13 of the Complaint, Safety-Kleen purports to quote from Laidlaw
Environmental's November 13, 1997, press release and to attach a copy of the
press release as Exhibit E to the Complaint. Laidlaw Environmental denies the
remaining allegations contained in paragraph 13 of the Complaint.
Complaint (P)14
---------------
Laidlaw's exchange offer will be conditioned upon full restoration of
voting rights as to all shares of Safety-Kleen which Laidlaw holds.
Laidlaw seeks to achieve restoration of the voting rights by soliciting
proxies of Safety-Kleen shareholders in connection with the requested
special meeting, and so has demanded Safety-Kleen's shareholder list.
Answer (P)14
------------
Laidlaw Environmental admits the allegations contained in paragraph 14 of
the Complaint.
Count I - Declaratory Relief
----------------------------
Complaint (P)15
---------------
Safety-Kleen restates the allegations set forth in paragraphs 1 through 14,
inclusive, as though fully set forth herein.
Answer (P)15
------------
Laidlaw Environmental restates and realleges its answers set forth in
paragraphs 1 through 14, inclusive, as though fully set forth herein.
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Complaint (P)16
---------------
An actual, immediate, and justiciable controversy exists between Safety-
Kleen and Laidlaw concerning the rights and obligations of the parties as
to Laidlaw's demand for access to Safety-Kleen's shareholder records.
Answer (P)16
------------
Laidlaw Environmental admits the allegations contained in paragraph 16 of
the Complaint.
Complaint (P)17
---------------
Pursuant to (S) 5(b) of the Securities Act of 1933, 15 U.S.C. (S) 77e(b),
"It shall be unlawful for any person, directly or indirectly: (1) To make
use of any means or instruments of transportation or communication in
interstate commerce or of the mails to carry or transmit any prospectus
relating to any security with respect to which a registration statement has
been filed under this title, unless such prospectus meet the requirements
of Section 10" of the Securities Act of 1933.
Answer (P)17
------------
Laidlaw Environmental admits that in paragraph 17 of the Complaint, Safety-
Kleen purports to cite and quote from a statute.
Complaint (P)18
---------------
A "prospectus" is broadly defined under Section 2(10) of the Securities Act
of 1933, 15 U.S.C. (S) 77b(10), for purposes of securities whose
registration is not yet effective, as "any prospectus, notice, circular,
advertisement, letter, or communication, written or by radio or television,
which offers any security for sale or confirms the sale of any
security. . ."
Answer (P)18
------------
Laidlaw Environmental admits that in paragraph 18 of the Complaint, Safety-
Kleen purports to cite and quote from a statute. Laidlaw Environmental states
that the remaining allegations contained in paragraph 18 of the Complaint
constitute the legal conclusions or
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conclusions of the pleader as to which no answer is required. To the extent an
answer is necessary, Laidlaw Environmental denies such allegations.
Complaint (P)19
---------------
An "offer" is broadly defined under Section 2(3) of the Securities Act of
1933, 15 U.S.C. (S) 77b(3), as "every attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest in a security, for
value." This definition is designed to preclude "attractive descriptions"
of new securities and their issuer. See Chris-Craft Industries, Inc. v.
Bangor Punta Corp., 426 F.2d 569, 574 (2d Cir. 1970).
Answer (P)19
------------
Laidlaw Environmental admits that in paragraph 19 of the Complaint, Safety-
Kleen purports to cite and quote from a statute. Laidlaw Environmental states
that the remaining allegations contained in paragraph 19 of the Complaint
constitute the conclusions or opinions of the pleader as to which no answer is
required. To the extent an answer is necessary, Laidlaw Environmental denies
such allegations.
Complaint (P)20
---------------
Laidlaw's proxy solicitation, which has already commenced through Laidlaw's
public pronouncements and press releases, and which is designed to
facilitate and promote Laidlaw's exchange offer, constitutes an "offer to
sell" within the meaning of Section 2(3) of the Securities Act of 1933, 15
U.S.C. (S) 77b(3), and a "prospectus" within the meaning of Section 2(10)
of the Securities Act of 1933, 15 U.S.C. (S) 77b(10).
Answer (P)20
------------
Laidlaw Environmental states that the allegations contained in paragraph 20
of the Complaint constitute the legal conclusions of the pleader as to which no
answer is required. To the extent an answer is necessary, Laidlaw Environmental
denies such allegations.
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Complaint (P)21
---------------
Laidlaw's proxy solicitation and the individual press releases fail to
comply with the requirements of Sections 5(b)(1) and 10 of the Securities
Act of 1933, 15 U.S.C. (S)(S) 77e(b)(1) and 77j, and thus constitute
"premature offer[s]" within the meaning of Chris-Craft Industries, 426 F.2d
at 574. See also Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1131 (7th
Cir. 1993) ("The '33 Act permits issuers . . . to engage in 'free writing',
once the registration statement becomes effective." (emphasis added)).
Answer (P)21
------------
Laidlaw Environmental states that the allegations contained in paragraph 21
of the Complaint constitute the legal conclusions of the pleader as to which no
answer is required. To the extent an answer is necessary, Laidlaw Environmental
denies such allegations.
Complaint (P)22
---------------
Safety-Kleen should not be obligated to turn over to Laidlaw its
shareholder records since Laidlaw desires such access to continue its
premature offers in violation of Section 5(b)(1) of the Securities Act of
1933, 15 U.S.C. (S) 77e(b)(1). Safety-Kleen should not be required to
facilitate acts in violation of federal law.
Answer (P)22
------------
Laidlaw Environmental states that the allegations contained in paragraph 22
of the Complaint constitute the conclusions or opinions of the pleader as to
which no answer is required. To the extent an answer is necessary, Laidlaw
Environmental denies such allegations.
Count II - Declaratory Relief
-----------------------------
Complaint (P)23
---------------
Safety-Kleen restates the allegations set forth in paragraphs 1 through 22,
inclusive, as though fully set forth herein.
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Answer (P)23
------------
Laidlaw Environmental restates and realleges its answers set forth in
paragraphs 1 through 22, inclusive, as though fully set forth herein.
Complaint (P)24
---------------
An actual, immediate, and justiciable controversy exists between Safety-
Kleen and Laidlaw concerning the rights and obligations of the parties as
to Laidlaw's demand for a shareholder meeting to alter Laidlaw's voting
rights under Wis. Stat. (S) 180.1150.
Answer (P)24
------------
Laidlaw Environmental admits the allegations contained in paragraph 24 of
the Complaint.
Complaint (P)25
---------------
Pursuant to Wis. Stat. (S) 180.1150(4), a person desiring a shareholder
meeting for purposes of restoring regular voting power must provide notice
containing, inter alia, "the circumstances, terms and conditions under
which shares representing in excess of 20% of the voting power were
acquired or are proposed to be acquired, set forth in reasonable detail,
including the source of funds or other consideration and other details of
the financial arrangements of the transactions."
Answer (P)25
------------
Laidlaw Environmental admits that Safety-Kleen purports to cite and quote
from a statute in paragraph 25 of the Complaint. Laidlaw Environmental states
that the remaining allegations of paragraph 25 of the Complaint constitute legal
conclusions as to which no answer is required. To the extent an answer is
necessary, Laidlaw Environmental denies such allegations.
Complaint (P)26
---------------
Laidlaw's purported "Notice Pursuant to Section 180.1150" attempts to
provide the required notice of financial arrangements by reference to an
attached prospectus. (See Exhibit B.)
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Answer (P)26
------------
Laidlaw Environmental affirmatively states that the November 13, 1997,
Notice satisfies all requirements set forth in Wis. Stat. (S) 180.1150. Laidlaw
Environmental denies the allegations contained in paragraph 26 of the Complaint
to the extent that they vary from this affirmative statement.
Complaint (P)27
---------------
Laidlaw's prospectus fails to detail the actual financial arrangements
relating to its exchange offer, despite Laidlaw's repeated public
statements that its financing was in place. For instance, on November 3,
1997, Laidlaw wrote to Safety-Kleen and released a letter stating, "We have
fully committed financing to complete the combination." (Exhibit A, at
26.)
Answer (P)27
------------
Laidlaw Environmental admits that it sent a letter to Safety-Kleen dated
November 3, 1997, from which paragraph 27 purports to quote quotes. Laidlaw
Environmental denies the remaining allegations contained in paragraph 27 of the
Complaint.
Complaint (P)28
---------------
According to the prospectus, "the terms of the definitive agreement"
relating to the financing "have not yet been finalized." (See Exhibit A,
at 44.) Without knowledge of these terms, Safety-Kleen's shareholders
cannot fairly evaluate Laidlaw's proxy solicitation and exchange offer.
Answer (P)28
------------
Laidlaw Environmental admits that in paragraph 28 of the Complaint, Safety-
Kleen purports to quote from the prospectus included in the Form S-4 filed by
Laidlaw Environmental on November 13, 1997. Laidlaw Environmental denies the
remaining allegations contained in paragraph 28 of the Complaint.
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Complaint (P)29
---------------
The prospectus further states that the commitment of Laidlaw's lender to
provide the necessary credit for the exchange offer "is conditioned on,
among other things, the negotiation, execution and delivery of the Loan
Agreement; receipt of all necessary or desirable governmental, shareholder,
and third party consents; the absence of a material adverse change in the
business assets, operations, condition (financial or otherwise), or
prospects of LES Acquisition, Safety-Kleen and their respective
subsidiaries on a consolidated basis; the execution of definitive
agreements relating to the Merger and the Offer; satisfactory completion of
due diligence examinations; prior or contemporaneous repayment in full of
all existing indebtedness of each of LES Acquisition and Safety-Kleen; and
the successful syndication of $400 million of the $1.8 billion commitment;
and after consummation of the transaction at closing, either (i) Laidlaw
Environmental shall hold a sufficient number of shares to effect the Merger
or (ii) the Merger shall have been or, concurrently with the closing, shall
be, consummated, and the surviving corporation shall be a wholly-owned
subsidiary of LES Acquisition." (Id. at 44-45 (emphasis added).)
Answer (P)29
------------
Laidlaw Environmental admits that in paragraph 29 of the Complaint, Safety-
Kleen purports to quote from the prospectus included in the Form S-4 filed by
Laidlaw Environmental on November 13, 1997. Laidlaw Environmental denies the
remaining allegations contained in paragraph 29 of the Complaint.
Complaint (P)30
---------------
As of today, there is no financing of the exchange offer, as acknowledged
in the prospectus, and Laidlaw fails to satisfy the requirements of Wis.
Stat. 180.1150(4)(e) [sic]. Laidlaw is premature in its request for a
meeting. As a result of the long, and expressly nonexclusive, list of
conditions necessary to secure the financing Laidlaw requires, Safety-
Kleen's shareholders cannot reasonably anticipate whether the financing
described in the prospectus will be available under the terms set forth
therein. Until they can, there is no right to a special shareholder
meeting.
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Answer (P)30
------------
Laidlaw Environmental denies the allegations contained in the first, second
and third sentences of paragraph 30 of the Complaint. Laidlaw Environmental
states that the remaining allegations contained in paragraph 30 of the Complaint
constitute the conclusions or opinions of the pleader as to which no answer is
required. To the extent that an answer is necessary, Laidlaw Environmental
denies such allegations.
Complaint (P)31
---------------
As a result of the foregoing, Safety-Kleen will not provide a shareholder
list until the Court determines that a valid demand for a meeting has been
served.
Answer (P)31
------------
Laidlaw Environmental states that paragraph 31 of the Complaint contains
the declared intentions of the pleader as to which no answer is required. To
the extent an answer is necessary, Laidlaw Environmental admits that Safety-
Kleen has refused to provide Laidlaw Environmental with its record of
shareholders.
AFFIRMATIVE DEFENSES
--------------------
First Affirmative Defense
-------------------------
The Complaint fails to state a claim against Laidlaw Environmental upon
which relief can be granted.
Second Affirmative Defense
--------------------------
Safety-Kleen lacks standing to assert the claims contained in the
Complaint.
Third Affirmative Defense
-------------------------
The claims asserted against Laidlaw Environmental are barred, in whole or
in part, by the doctrine of unclean hands.
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COUNTERCLAIM
------------
Defendant-counterplaintiff, Laidlaw Environmental Services, Inc.
("Laidlaw Environmental"), and additional counterplaintiff LES Acquisition, Inc.
("LES"), for their counterclaim against the plaintiff-counterdefendant Safety-
Kleen Corp. ("Safety-Kleen") and the additional counterdefendants Richard T.
Farmer, Paul D. Schrage, Donald W. Brinckman, Marcia E. Williams, W. Gordon
Wood, Russell A. Gwillim, Edgar D. Jannota and Karl G. Otzen (the "Director
Defendants"), allege the following:
(Nature of the Action)
1. Counterplaintiffs Laidlaw Environmental and LES bring these claims
directly and derivatively to redress and enjoin the unlawful conduct of the
Director Defendants and Safety-Kleen designed to frustrate any offer by Laidlaw
Environmental to acquire Safety-Kleen. The Director Defendants have persisted
in a course of wrongful conduct by using corporate resources to avoid complying
with their obligations under Wisconsin law and, in the latest of a series of
violations of their fiduciary duties of loyalty and care to the Safety-Kleen
shareholders, have agreed to sell Safety-Kleen for an inadequate price of $27
per share in a leveraged buyout transaction (the "Buyout Transaction") after a
sales "process" that unlawfully excluded Laidlaw Environmental, which had
already offered approximately $26 per share and had informed Safety-Kleen of its
willingness to consider making a higher offer. Laidlaw Environmental has now
offered $30 per share to all Safety-Kleen shareholders. The proposed acquiror
in the Buyout Transaction is a highly leveraged shell corporation (the "Buyout
Vehicle") created by Philip Services Corp. ("Philip"), Blackstone Management
Associates III, L.P. ("Blackstone") and Apollo Advisors L.P. ("Apollo")
(collectively, the "Buyout Group"). The
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principal feature of the Buyout Transaction is that, while Safety-Kleen's public
shareholders would receive an inferior price for their shares, Safety-Kleen's
management would retain their positions and compensation. Indeed, there have
been reports that members of management will become investors in the Buyout
Group.
2. As part of this unlawful and unfair Buyout Transaction, and in
order to make it prohibitively expensive for Laidlaw Environmental or anyone
else to outbid that transaction, Safety-Kleen has agreed to pay the Buyout Group
an unnecessary, excessive and unreasonable "break-up" fee of up to $75 million.
That break-up fee would be payable if, among other circumstances, the Safety-
Kleen shareholders voted to reject the inadequate Buyout Transaction, and
Safety-Kleen subsequently entered into a merger with Laidlaw Environmental. The
unlawful break-up fee constitutes a gross waste of corporate assets of Safety-
Kleen, as well as a "poll tax" upon Safety-Kleen shareholders should they choose
to vote against the pending merger in order to accept Laidlaw Environmental's
higher offer. In addition, because Laidlaw Environmental's $30 per share offer
is subject to reduction for any break-up fee paid to the Buyout Group, this
breakup fee would come out of the pockets of Safety-Kleen's shareholders.
3. Counterplaintiffs seek declaratory and injunctive relief
preventing Safety-Kleen and the Director Defendants from proceeding with the
unfair and unlawful Buyout Transaction and from carrying out the terms of
Safety-Kleen's merger agreement with the Buyout Group, particularly including
the unlawful break-up fee and expense reimbursement provisions contained
therein. Counterplaintiffs also seek an order requiring the Director Defendants
to account to Safety-Kleen for all damages caused by their approval of the
Buyout
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Transaction and an order declaring that the Director Defendants may not be
indemnified by Safety-Kleen for any judgments, settlements or attorneys' fees in
this action.
4. This action also seeks declaratory and injunctive relief requiring
Safety-Kleen to call a special meeting of shareholders, as requested by Laidlaw
Environmental pursuant to Wis. Stat. (S) 180.1150(4), and to provide Laidlaw
Environmental with a copy of Safety-Kleen's shareholder list, as required by
Wis. Stat. (S) 180.101.
(Parties)
5. Counterplaintiff Laidlaw Environmental is a Delaware corporation
with its principal place of business in Columbia, South Carolina. Laidlaw
Environmental provides hazardous and industrial waste management services
throughout North America. It is the beneficial owner of 601,100 shares of
Safety-Kleen common stock. Counterplaintiffs LES is an indirect, wholly-owned
subsidiary of Laidlaw Environmental formed for the purpose of carrying out the
proposed acquisition of Safety-Kleen by Laidlaw Environmental. LES is a
Delaware corporation with its principal place of business in Columbia, South
Carolina.
6. Counterdefendant Safety-Kleen is a Wisconsin corporation with its
principal place of business in Elgin, Illinois. Safety-Kleen provides recycling
and waste services to automotive/retail repair, industrial, imaging and other
business sectors. Safety-Kleen has a class of stock that is registered and
traded on a national securities exchange.
7. The Director Defendants are members of Safety-Kleen's Board of
Directors. Counterplaintiffs are informed and believe that none is a resident
of the state of Delaware or South Carolina.
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(Jurisdiction and Venue)
8. This Court has jurisdiction over this counterclaim pursuant to
the declaratory judgment statute, 28 U.S.C. (S)(S) 2201-02, and 28 U.S.C. (S)
1332(a)(1), as the amount in controversy exceeds the sum of $75,000, exclusive
of interest and costs, and the suit is between citizens of different states. The
claims at issue in this lawsuit arises out of the same transactions and
occurrences that are the subject matter of the lawsuit filed by Safety-Kleen
against Laidlaw Environmental, giving this Court supplemental jurisdiction over
the state law claims alleged herein under Fed. R. Civ. P. 13(a) and 28 U.S.C.
(S) 1367(a).
9. Venue as to Safety-Kleen is proper within this judicial district
under 28 U.S.C. (S) 1391(b) and (c), because Safety-Kleen is a corporation whose
principal place of business is in this district, and it is subject to
jurisdiction here. It is therefore deemed to reside in this district.
10. Venue as to the Director Defendants is proper within this
judicial district under 28 U.S.C. (S) 1391(a) because at least one of the
counterdefendants resides within this judicial district and a substantial part
of the events and omissions giving rise to the claims occurred in this judicial
district.
(Conduct Complained Of)
11. On August 8, 1997, Safety-Kleen announced that its Board of
Directors had engaged the services of William Blair & Company ("William Blair"),
an investment banking firm, to advise Safety-Kleen and to manage the process of
"exploring strategic options for enhancing shareholder value." That phrase is
generally understood by the financial markets to mean that the company will
entertain merger and acquisition offers. That is how the market
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treated Safety-Kleen's announcement, as the price of its stock jumped over seven
percent from the day prior, to the day following the announcement.
12. As part of its efforts to solicit merger and acquisition offers
for Safety-Kleen, William Blair sent a proposed confidentiality and "standstill"
agreement (the "Standstill Agreement") to potential bidders. Because Laidlaw
Environmental was one -- indeed probably the most -- logical candidate to
acquire Safety-Kleen, one of Laidlaw Environmental's investment bankers, Raymond
James & Associates, Inc. ("Raymond James"), obtained the Standstill Agreement
from William Blair. This Standstill Agreement would have prohibited Laidlaw
Environmental from making any offer to acquire Safety-Kleen during the next two
years without the approval of Safety-Kleen's directors. William Blair stated
that a confidential offering circular describing Safety-Kleen and its business
would be distributed only to parties that executed the Standstill Agreement.
Laidlaw Environmental was willing to sign a confidentiality agreement, but would
not agree to give Safety-Kleen's directors the ability to prohibit any offer by
Laidlaw Environmental for two years. Safety-Kleen thereupon refused to provide
Laidlaw Environmental with a copy of the offering circular.
13. During September and October 1997, Laidlaw Environmental
repeatedly requested a meeting of the two companies and their advisors so that
Laidlaw Environmental could fully describe why a business combination was in
both companies' shareholders' best interests. Safety-Kleen continued to refuse
to discuss a possible transaction unless Laidlaw Environmental signed the
Standstill Agreement, which would give Safety-Kleen's directors absolute control
over Laidlaw Environmental's ability to make an offer.
-19-
14. On November 3, 1997, the Board of Directors of Laidlaw
Environmental approved making an offer to exchange each outstanding common share
of Safety-Kleen for $14 net per share in cash and 2.4 shares of common stock of
Laidlaw Environmental (the "Initial Offer"), to be followed by a merger of
Laidlaw Environmental and Safety-Kleen. The Initial Offer had a value of
approximately $26 per share based on the closing price of Laidlaw Environmental
common stock on that day. James R. Bullock, the Chairman of Laidlaw
Environmental, sent a letter to Donald W. Brinckman, the Chairman and Chief
Executive Officer of Safety-Kleen informing Safety-Kleen of Laidlaw
Environmental's proposal and offering to executive a confidentiality agreement,
provided such agreement did not contain a standstill provision. The letter also
informed Mr. Brinckman that Laidlaw Environmental had executed a commitment
letter with Toronto-Dominion Bank to provide all necessary financing for the
Initial Offer and again asked Mr. Brinckman and the Safety-Kleen Board of
Directors to meet with representatives of Laidlaw Environmental to discuss the
possibility of a mutually beneficial negotiated transaction.
15. Later on November 3, 1997, after receipt of Mr. Bullock's letter,
Mr. Brinckman delivered a letter to Mr. Bullock again insisting that if Laidlaw
Environmental executed a Standstill Agreement the Safety-Kleen Board of
Directors would consider Laidlaw Environmental's proposal along with others
received by Safety-Kleen.
16. On November 4, 1997, Laidlaw Environmental publicly announced its
intention to pursue the Initial Offer.
17. On November 5, 1997, following the public announcement of the
Initial Offer, Mr. Brinckman and other representatives of Safety-Kleen finally
met with Mr. Bullock
-20-
and a representative of Bear Stearns, an investment banking firm advising
Laidlaw Environmental. Mr. Bullock proposed that Laidlaw Environmental and
Safety-Kleen sign a mutual confidentiality agreement that did not contain a
standstill provision so that they could share information with each other, but
Safety-Kleen rejected this proposal and no substantive discussions occurred.
(Laidlaw Environmental's Request for
a Shareholders' Meeting and Shareholder List)
18. Wisconsin's control shares voting statute provides that "the
voting power of shares of a resident domestic corporation held by any person
. . . in excess of 20% of the voting power in the election of directors shall
be limited to 10% of the full voting power of those shares." Wis. Stat.
(S) 180.1150(2) (1997). A shareholder which anticipates acquiring in excess of
20% of the voting power may request a vote in advance to restore the voting
power of its shares by delivering a Notice of Meeting and Resolution to the
Company. Wis. Stat. (S) 180.1150(4) (1997).
19. Because Safety-Kleen may be a "resident domestic corporation" as
that term is defined by Wis. Stat. (S) 180.1150(1)(c), the Initial Offer was
conditioned on Safety-Kleen's shareholders voting to restore the voting rights
of shares to be acquired by Laidlaw Environmental. On November 13, 1997,
Laidlaw Environmental sent a proper Notice of Meeting and Resolution to Safety-
Kleen (the "November 13, 1997 Notice") in order to obtain such a vote of Safety-
Kleen's shareholders. A copy of the November 13, 1997 Notice is attached as
Exhibit A. Although the statute does not give a Wisconsin resident domestic
corporation any discretion to refuse such a request, Safety-Kleen has refused to
hold a special shareholders' meeting.
-21-
20. Safety-Kleen also has unlawfully refused to provide Laidlaw
Environmental with Safety-Kleen's record of shareholders in order to frustrate
Laidlaw Environmental's ability to communicate with its fellow shareholders with
respect to its exchange offer. Wisconsin law requires corporations organized
under the laws of the State of Wisconsin to maintain a record of its
shareholders. Each corporation must make this record available to any
shareholder who requests it pursuant to applicable Wisconsin statutes. Wis.
Stat. (S) 180.1601 (1997). Accordingly, on November 13, 1997, Laidlaw
Environmental also wrote to Mr. Brinckman exercising its right, as a shareholder
of Safety-Kleen, to inspect and copy the record of shareholders of Safety-Kleen
and to inspect other documents. Laidlaw Environmental offered to bear the
reasonable costs incurred by Safety-Kleen in connection with the production of
that information. Laidlaw Environmental explained that the purpose of its
demand was to enable Laidlaw Environmental to communicate with its fellow
Safety-Kleen shareholders on matters relating to their mutual interests as
shareholders including, but not limited to: (a) communicat ing with the
shareholders of Safety-Kleen regarding the November 13, 1997 Notice pursuant to
Section 180.1150 of the Wisconsin Business Corporation Law; and (b) soliciting
proxies in connection with the Special Shareholders' Meeting to be called
pursuant to the November 13, 1997 Notice. A copy of Laidlaw Environmental's
demand is attached as Exhibit B. Safety-Kleen has rejected Laidlaw
Environmental's demand for its shareholder list.
21. On November 17, 1997 Safety-Kleen filed this action seeking a
declaration that it was not required to call the special meeting of shareholders
or give the shareholder list to Laidlaw Environmental.
-22-
(The Buyout Transaction)
22. On November 20, 1997, without ever discussing with Laidlaw
Environmental whether it would increase the Initial Offer (which it had
indicated it was willing to consider), Safety-Kleen announced that its Board had
approved a definitive merger agreement (the "Merger Agreement") with the Buyout
Vehicle, pursuant to which Safety-Kleen's shareholders would receive $27 per
share. In so doing, the Director Defendants not only approved the acquisition
of Safety-Kleen at an inadequate price, knowing that Laidlaw Environmental was
willing to consider increasing its bid, but also agreed to numerous one-sided,
onerous conditions that benefit the Buyout Group and impose substantial
obstacles, including prohibitive additional costs, on a competing bidder, in
breach of the Director Defendants' fiduciary duties to the public shareholders
of Safety-Kleen. A copy of the Merger Agreement is attached as Exhibit C.
23. The Merger Agreement includes the following provisions that have
the purpose and effect of improperly benefiting the Buyout Group and/or the
Director Defendants and impeding competing offers, all to the detriment of
Safety-Kleen's shareholders:
(a) If the Merger Agreement is terminated by Safety-Kleen under a
variety of circumstances, including a decision by Safety-Kleen to accept a
better offer, Safety-Kleen must pay the Buyout Group a fee of $50 million
plus up to an additional $25 million to cover the Buyout Group's purported
expenses (the "break-up fee"). This break-up fee totals nearly 5% of the
total value of the transaction, twice the level approved by courts in other
transactions. The break-up fee is to be paid even if the Safety-Kleen
share-
-23-
holders exercise their rights to vote down the Buyout Transaction in order
to accept a better offer from Laidlaw Environmental or someone else.
(b) If Safety-Kleen receives an offer that is superior to the Buyout
Proposal, it may not accept that offer without first giving the Buyout
Group the chance to match it. This imposes a strong disincentive for any
competing bidder, which is required to make a proposal or negotiate with
Safety-Kleen (if Safety-Kleen agrees to negotiate) knowing that the Buyout
Group can win any bidding contest simply by agreeing to match the best
other offer.
(c) The Merger Agreement acknowledges that Safety-Kleen may pay up to
$45.7 million in "severance pay" to Safety-Kleen's officers and employees
even if all of them remain employed at the same salaries and in the same
locations. The Merger Agreement provides no information about the amount
of "severance pay" that Safety-Kleen may pay if officers or employees
actually lose their jobs or are transferred to another location.
24. The Director Defendants did not agree to these provisions in
return for a fully-priced, beneficial transaction for Safety-Kleen's
shareholders. Rather, the Buyout Transaction offers a $27 per share price that
only slightly exceeds Laidlaw Environmental's Initial Offer and is significantly
below the $30 per share that Laidlaw Environmental has since offered (as
described below), and would have offered if Safety-Kleen had entered into
negotiations. Moreover, although the Merger Agreement imposes huge penalties on
Safety-Kleen if its shareholders decide to reject the Buyout Transaction in
favor of a better deal, the Buyout Transaction itself is subject to numerous
contingencies:
-24-
(a) The Buyout Transaction is contingent upon the Buyout Group
obtaining both equity and debt financing for the merger. Philip, Apollo
and Blackstone are under no obligation to ensure that financing is
available. Such a condition is virtually unheard of in a public company
acquisition.
(b) Because the Buyout Vehicle will be so highly leveraged (i.e., will
have an unusually large amount of debt financing), the Buyout Transaction
is contingent upon Safety-Kleen receiving an expert's opinion conforming
that it will remain solvent after the acquisition, so that the Director
Defendants will not be exposed to liability to Safety Kleen's creditors for
participating in a fraudulent conveyance. This condition is also highly
unusual in a public company acquisition.
(c) Unlike most public company merger agreements, which require the
parties to close the transaction unless there is an outstanding court order
prohibiting them from doing so, the Merger Agreement gives the Buyout Group
the right not to close if there is any litigation "instituted or pending"
that challenges the Buyout Transaction and has a "substantial likelihood of
success."
(d) The Merger Agreement was executed on behalf of the Buyout Group
only by the Buyout Vehicle, a shell corporation. Philip, Apollo and
Blackstone are not parties to the Merger Agreement and have no obligation
to proceed with the Buyout Transaction. Thus, even if the Buyout Group
breaches the Merger Agreement, Safety-Kleen's only recourse would be
against an empty shell corporation.
25. Taken together, these provisions demonstrate that the Director
Defendants, while refusing to negotiate or discuss a merger with Laidlaw
Environmental, agrees to a one-
-25-
sided deal at an inadequate price which makes it difficult, if not impossible,
for Safety-Kleen's shareholders to reap the benefits of a better proposal from
Laidlaw Environmental or another bidder. Both the nature of the Buyout
Transaction and the process by which the Director Defendants approved it make
clear that the Director Defendants have acted on an uninformed basis and that
their actions are not the product of a valid business judgment. Their conduct
is subject to enhanced scrutiny as a result.
(Laidlaw Environmental's New Offer)
26. On November 20, 1997, within hours after Safety-Kleen's
announcement of the Buyout Transaction, Laidlaw Environmental's Mr. Bullock
wrote to Safety-Kleen's Mr. Brinckman and increased Laidlaw Environmental's
offer to $30 per share, consisting of $15 in cash and $15 in Laidlaw
Environmental common stock (the "New Offer"). This proposal, which was made
before Safety-Kleen publicly filed the Merger Agreement and thus without
knowledge of its specific terms and conditions, is subject to adjustment for any
"break-up fees, new severance arrangements and other expenses Safety-Kleen may
have incurred in connection with its agreement with Philip Services and others."
27. Despite Laidlaw Environmental's New Offer, which represents a 68%
premium to Safety-Kleen's closing price on the date prior to Safety-Kleen's
August 8th announcement and an 11% premium over the price to be paid in the
Buyout Transaction, and despite a subsequent announcement by the Buyout Group
that it will not increase its price, Safety-Kleen has continued to refuse to
negotiate with Laidlaw Environmental.
-26-
Count I
-------
(Declaratory Relief)
28. Laidlaw Environmental and LES repeat and reallege the allegations
paragraphs 1 through 27, inclusive.
29. Laidlaw Environment's November 13, 1997 Notice fully complies
with Wis. Stat. (S) 180.1150(4).
30. Laidlaw Environmental's November 13, 1997 Notice properly
contained: (a) the identity of the person desiring a shareholder vote; (b) a
statement that the Resolution and Notice were submitted under Wis. Stat. (S)
180.1150(4); (c) the number of shares of Safety-Kleen that are owned by Laidlaw
Environmental; (d) a specification of the voting power Laidlaw Environmental
proposes to acquire and for which shareholder approval is sought; (e) the
circumstances, terms and conditions under which shares representing in excess of
20% of the voting power are proposed to be acquired, including the source of
funds and other details of the financial arrangement of the transaction; and (f)
the terms of the proposed transaction.
31. Pursuant to Wis. Stat. (S) 180.1150(5)(a), the board of directors
has 10 days after receipt of the notice and resolution to fix the date on which
the special shareholders' meeting will be held. Such meeting must be held no
later than 50 days after receipt of the notice and resolution.
32. On November 17, 1997, Safety-Kleen filed a complaint against
Laidlaw Environmental, seeking a declaratory order that Safety-Kleen has no
obligation to call a special shareholders' meeting in response to Laidlaw
Environmental's Notice of Meeting and Resolution.
-27-
33. An actual, immediate and justiciable controversy exists between
Safety-Kleen and Laidlaw Environmental concerning Laidlaw Environmental's right
to demand that Safety-Kleen call a special shareholders' meeting, and an order
should be issued declaring that Safety-Kleen is obliged to hold such a special
shareholders' meeting.
Count II
--------
(Violation of Wis. Stat. (S) 180.1602(2)(c))
34. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 1 through 33, inclusive.
35. Laidlaw Environmental's November 13, 1997, demand to inspect and
copy Safety-Kleen's shareholder list was properly submitted to Safety-Kleen in
accordance with Wis. Stat. (S) 180.0141.
36. Laidlaw Environmental's demand was made in good faith and for a
proper purpose.
37. Laidlaw Environmental cannot effectively communicate with its
fellow Safety-Kleen shareholders and prepare for the special shareholders'
meeting, which Safety-Kleen is obligated to call, without a copy of the
shareholder lists. Safety-Kleen's failure to provide Laidlaw Environmental with
a copy of its shareholder lists puts Laidlaw Environmental at an unlawful
disadvantage in its efforts to effect a merger with Safety-Kleen.
38. Pursuant to Wis. Stat. (S) 180.1604, Laidlaw Environmental is
entitled to a copy of Safety-Kleen's shareholder lists.
-28-
Count III
---------
(Fraudulent and Deceptive Practices;
Violation of Wis. Stat. (S) 552.09)
39. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 1 through 38, inclusive.
40. Safety-Kleen has willfully and unlawfully refused to allow
Laidlaw Environmental to examine its list of stockholders and to extract
information therefrom, pursuant to Wis. Stat. (S) 180.1602(2)(c) for the purpose
of making a takeover offer and to mail solicitation materials published by
Laidlaw Environmental to Safety-Kleen's shareholders.
41. Safety-Kleen's refusal to provide Laidlaw Environmental with the
shareholder list to which it is entitled constitutes a fraudulent, deceptive and
manipulative act in connection with a take-over offer, in violation of Wis.
Stat. (S) 552.09.
Count IV
--------
(Breach of Fiduciary Duty for Failure to Negotiate
and Failure to Maximize Shareholder Value)
42. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 1 through 27, inclusive.
43. The Director Defendants agreed to sell Safety-Kleen after a sales
process that unfairly and without justification excluded Laidlaw Environmental,
the most logical bidder for the Company. They have refused to negotiate with
Laidlaw Environmental concerning its Initial Offer or its New Offer. Instead,
they have caused Safety-Kleen to enter into the inadequate, unfair and highly
contingent Buyout Transaction, which does not maximize the value
-29-
to be received by Safety-Kleen's shareholders but which ensures the continued
employment of Safety-Kleen's current management.
44. The Director Defendants' refusal to negotiate with Laidlaw
Environmental has deprived and will continue to deprive the Company's public
shareholders of the substantial premium which Laidlaw Environmental is prepared
to pay, and has deprived Laidlaw Environmental and Safety-Kleen of the
substantial cost savings and enhanced future profitability that a merger of the
two companies would produce.
45. In addition, by approving the Merger Agreement containing an
exorbitant and unlawful break-up fee, the Director Defendants have substantially
impeded the ability of Safety-Kleen's shareholders to obtain the best value
reasonably available for their shares.
46. Wisconsin law prohibits a "resident domestic corporation" from
engaging in a variety of business combinations, including mergers, with an
"interested shareholder" (which Laidlaw Environmental will be upon completion of
its exchange offer) for a three year period from the date the shareholder became
an "interested shareholder" unless the interested shareholder receives prior
approval of the company's board of directors. Wis. Stat. (S) 180.1141. In
order to create a level playing field and obtain the best value reasonably
available for its shareholders, Safety-Kleen's Board of Directors must grant
such approval to Laidlaw Environmental's New Offer. The Director Defendants'
failure to do so is a violation of their fiduciary duties.
47. By reason of the foregoing, the Director Defendants have violated
their fiduciary duties to obtain the best value reasonably available to Safety-
Kleen's shareholders and
-30-
are not properly exercising their business judgment. Their conduct is subject to
enhanced scrutiny as a result.
Count V
-------
(Derivative Claim for Corporate Waste)
48. Laidlaw Environmental and LES repeat and reallege the allegations
in paragraphs 42 through 47, inclusive.
49. Laidlaw Environmental fairly and adequately represents the
interests of the shareholders of Safety-Kleen in enforcing the rights of the
corporation with respect to this Count.
50. Laidlaw Environmental has not made a demand upon the Safety-Kleen
board to cause Safety-Kleen to bring suit against the Director Defendants for
breach of fiduciary duty and waste of corporate assets because any such demand
would be futile and therefore should be excused in this action because, among
other things:
(a) The Director Defendants' actions complained about herein have been
undertaken for the primary purpose of entrenching themselves in office, and
the Director Defendants therefore are self-interested directors and cannot
exercise the requisite independence to decide to commence an action to
redress the corporate waste and breaches of fiduciary duty alleged herein.
(b) The Director Defendants' decision to exclude Laidlaw Environmental
from the sales process of Safety-Kleen makes clear that the Director
Defendants' actions are not the product of a valid exercise of business
judgment. The Director Defendants refused even to consider Laidlaw
Environmental's proposal unless it would agree to enter
-31-
into the Standstill Agreement that would have provided the Director
Defendants with the power to veto any offer by Laidlaw for two years. The
Director Defendants also participated in and/or approved of Safety-Kleen's
unlawful refusal of Laidlaw Environmental's request for a special meeting
of Safety-Kleen shareholders, its unlawful refusal to provide Laidlaw
Environmental with Safety-Kleen's record of shareholders, and Safety-
Kleen's commencement of a declaratory action against Laidlaw Environmental.
(c) The nature of the Buyout Transaction approved by the Director
Defendants and the process by which they approved it make clear that the
Director Defendants' actions are not the product of a valid exercise of
business judgment. For example, the Director Defendants accepted the
inadequate offer and agreed to the one-sided Merger Agreement, including
the excessive and unreasonable break-up fee, barely two weeks after
refusing even to discuss Laidlaw Environmental's proposal. Moreover, the
Director Defendants agreed to the Buyout Transaction without even
contacting Laidlaw Environmental to inquire whether it would increase or
amend its offer. In these circumstances, any director exercising reasonable
business judgment would not conduct a sales process that excluded Laidlaw
Environmental nor agree to a one-sided Merger Agreement that committed
Safety-Kleen to pay a break-up fee of up to $75 million.
(d) The Director Defendants have knowledge of and participated in
and/or approved the wrongs alleged herein, and did so in violation of their
duties to Safety-Kleen and its shareholders, and failed to take action to
protect Safety-Kleen or to recover amounts due to Safety-Kleen by virtue of
the misconduct alleged herein.
-32-
(e) The Director Defendants have irreconcilable conflicts of interests
regarding the prosecution of this action against themselves and cannot
exercise the requisite independence to make a good faith business judgment
whether to prosecute the claims herein in the name of Safety-Kleen.
51. This action is not a collusive one to confer jurisdiction on a
court of the United States which it would not otherwise have.
52. By agreeing to the excessive and unnecessary "break-up fee" and,
upon information and belief, excessive and unnecessary "severance pay" and other
compensation for Safety-Kleen's management, the Director Defendants have caused
the gross waste of corporate assets of Safety-Kleen.
53. The Director Defendants should be required to account to Safety-
Kleen for this waste of corporate assets and all other damages caused by their
approval of the Buyout Transaction.
Count VI
--------
(Breach of Fiduciary Duty
for Failure to Amend Rights Plan)
54. Laidlaw Environmental repeats and realleges the allegations in
paragraphs 48 through 53, inclusive.
55. On November 9, 1988, the Safety-Kleen Board issued what is
commonly referred to as a "Poison Pill," by adopting a "Rights Plan" and
declaring a dividend of one common share purchase right ("Right") on each
outstanding share, payable to Safety-Kleen shareholders of record on November
21, 1988 (the "Record Date"). Each Right entitles the holder thereof to buy one
share at an exercise price of $73.33, subject to adjustment. Because
-33-
Safety-Kleen's stock never has traded anywhere near the $73.33 per share
exercise price, it is clear that the Rights never were intended to provide the
holders thereof with a meaningful opportunity to purchase the common stock
authorized under the Poison Pill. Instead, Safety Kleen's Board instituted the
Poison Pill solely so that its "flip-in" and "flip-over" provisions (as
described below) could be deployed when necessary to make any offer not approved
by the directors prohibitively expensive by drastically diluting Safety-Kleen's
outstanding shares or ravaging the capital structure of the potential acquirer.
56. The "flip-in" rights are triggered when a person or entity
becomes the beneficial owner of 20% or more of Safety-Kleen's outstanding
shares. Once the Rights flip in, all Rights holders, except the potential
acquirer, may exercise each Right to purchase shares of Safety-Kleen common
stock at an immense discount -- namely for 50% of the then-market price of the
stock. Any rights held by the potential acquirer, however, become void. Thus,
all Rights holders other than the acquirer would be entitled to purchase Safety-
Kleen's common stock for one-half of its then-market price. In this way, the
"flip-in" feature flagrantly discriminates against an acquirer by diluting its
stock holdings and increasing substantially the number of shares the acquirer
would have to purchase in order to consummate a merger.
57. The "flip-over" rights are triggered if:
(i) Safety-Kleen is acquired in a merger or other business
combination; or
(ii) more than 50% of Safety-Kleen's assets or earning power is sold.
Upon the occurrence of any of these "flip-over" events, all Rights holders,
except the acquirer, may exercise each Right to purchase shares of common stock
of the acquiring company at 50% of its market value. In this way, the "flip-
over" feature subjects the acquiring company to a
-34-
massive half-price sale of its own stock, drastically impairing its capital
structure. The obvious purpose of the Poison Pill is to render an attempted
acquisition of Safety-Kleen financially impossible without the blessing of the
directors.
58. The Director Defendants have the power to amend the terms of the
Rights to cause them not to be triggered. In addition, at any time prior to the
acquisition by a person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding shares, the Director
Defendants may redeem the Rights in whole, but not in part, at a price of $.0067
per Right, subject to adjustment (the "Redemption Price"). Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of the Rights will be to receive the Redemption
Price.
59. The Rights will cause substantial dilution to a person or group
of persons that attempts to acquire Safety-Kleen in a manner which causes the
Rights to become exercisable.
60. On November 14, 1997, Safety-Kleen's Board of Directors adopted a
resolution delaying implementation of the Rights Plan with respect to Laidlaw
Environmental's Initial Offer, but did not exempt the Initial Offer from the
Rights Plan or redeem the Rights under the Rights Plan.
61. On November 20, 1997, the Director Defendants amended the Rights
Plan to provide that the flip-in and flip-over provisions of the Rights would
not be triggered by the Buyout Transaction. The Director Defendants have failed
to take similar action with respect to Laidlaw Environmental's New Offer,
notwithstanding that it offers a higher price than the Buyout Transaction.
-35-
WHEREFORE, Laidlaw Environmental and LES demand judgment against
Safety-Kleen:
1. dismissing Safety-Kleen's Complaint in its entirety with
prejudice;
2. entering an order:
(i) compelling Safety-Kleen to hold a special shareholders'
meeting to vote on the Resolution proposed by Laidlaw
Environmental in accordance with Wis. Stat (S)
1150(5)(a);
(ii) compelling Safety-Kleen to produce promptly and at
Safety-Kleen's expense its shareholder lists;
(iii) declaring that the Director Defendants have breached
their fiduciary dudes to Safety-Kleen's shareholders,
including Laidlaw Environmental, by refusing to negotiate
with Laidlaw Environmental, entering into the Buyout
Transaction, and agreeing to the unlawful provisions of
the merger agreement, including the breakup fee;
(iv) compelling the Director Defendants to carry out their
fiduciary duties to Safety-Kleen's shareholders,
including Laidlaw Environmental, by implementing and
adhering to procedures under which the transaction
providing the best value reasonably available can be
obtained for Safety-Kleen's shareholders;
-36-
(v) enjoining Safety-Kleen and the Director Defendants from
proceeding with the Buyout Transaction or paying a
"break-up fee" to the Buyout Group;
(vi) requiring the Director Defendants to account to Safety-
Kleen for the waste of corporate assets and all other
damages caused by their approval of the Buyout
Transaction;
(vii) directing the Director Defendants to amend the Rights
Plan to make it inapplicable to the New Offer or to
redeem the Rights; and
(viii) directing the Director Defendants to negotiate with
Laidlaw Environmental regarding its exchange offer;
3. awarding Laidlaw Environmental its reasonable costs and expenses
of this action, including its attorneys' fees;
-37-
4. granting such other and further relief as this Court deems just
and proper.
Dated: November 24, 1997
LAIDLAW ENVIRONMENTAL SERVICES, INC.
and LES ACQUISITION, INC.
By: ________________________________
One of Their Attorneys
James E. Hanlon, Jr.
William W. Davis
Lisa M. Noller
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
(312) 902-5200
-38-