EXHIBIT 18
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
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:
LARRY HANON, : No.
:
Plaintiff, :
: CLASS ACTION COMPLAINT
: ----------------------
-against- :
:
SAFETY KLEEN CORP., PAUL SCHRAGE,:
DONALD BRINCKMAN, RICHARD T. :
FARMER, MARCIA WILLIAMS, GORDON :
WOOD, RUSSELL GWILLIM, EDGAR :
JANNOTTA and KARL OTZEN, :
:
Defendants. :
:
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Plaintiff, by his attorneys, alleges upon information and belief, except as
to paragraph 1 which plaintiff alleges upon knowledge, as follows:
1. Plaintiff Larry Hanon is a shareholder of defendant Safety Kleen Corp.
("Safety Kleen" or the "Company").
2. Defendant Safety Kleen is a corporation duly organized and existing
under the laws of the state of Wisconsin, with its principal offices located at
1000 North Randall Road, Elgin, Illinois. Safety Kleen cleans and maintains
equipment and parts for auto service stations and other industries, supplies
materials and services to the automotive paint and body repair market, and
reclaims waste solvents for large industrial users and dry cleaners. Safety
Kleen conducts business in this County. As of September 6, 1997, the Company had
more than 58 million shares of common stock outstanding which trade on the New
York Stock Exchange.
3. Defendants Paul Schrage, Donald Brinckman, Richard T. Farmer, Marcia
Williams, Gordon Wood, Russell Gwillim, Edgar Jannotta and Karl Otzen are
directors of the Company and are referred to herein as the "Individual
Defendants."
4. As officers and/or directors of Safety Kleen, the Individual Defendants
have a fiduciary relationship and responsibility to plaintiff and the other
minority shareholders of Safety Kleen and owe to plaintiff and the other class
members the highest obligations of good faith, loyalty, fair dealing, due care
and candor.
CLASS ACTION ALLEGATIONS
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5. Plaintiff brings this action on his own behalf and as a class action
pursuant to Section 2-801 of the Rules governing the Courts of the State of
Illinois, on behalf of all common shareholders of Safety Kleen, or their
successors in interest, who are being and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are the defendants and
their affiliates.
6. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. There are thousands of Safety Kleen shareholders of record who
are located throughout the United States;
b. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual Class members,
including: whether defendants have engaged or are continuing to act in a manner
calculated to harm Safety Kleen's minority shareholder; and whether plaintiff
and the other Class members
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would be irreparably damaged if the defendants are not enjoined in the manner
described below;
c. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Accordingly, plaintiff is
an adequate representative of the Class and will fairly and adequately protects
the interests of the Class; and
d. Plaintiff anticipates that there will be no difficulty in the
management of this litigation.
7. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
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8. In late 1996 and early 1997, Safety Kleen's earnings were stagnant and
repeatedly failed to meet analysts' expectations.
9. On July 10, 1997 Safety Kleen issued a press release announcing its
fiscal second quarter results. In that press release, Safety Kleen reported
that its second quarter net income was $13.3 million, down 2% from $13.6
million, in the year-earlier period. For the first six weeks of fiscal 1997
Safety Kleen said earnings fell approximately 6%, to $25.2 million, or 43 cents
per share, from $26.7 million, or 46 cents per share, in the first half of 1996.
10. In a press release, dated August 8, 1997, Safety Kleen announced that
its President and Chief Executive Officer, John Johnson, resigned effective
immediately.
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Commenting on Johnson's sudden resignation, Safety Kleen spokesman Paul Wyche
said "there were a number of factors involved . . . . The board took a look at
historical performance and looked at performance today and were quite concerned
about shareholder value." In the press release, Safety Kleen also announced
that it was exploring "strategic options" and had retained William Blair & Co.
to explore those options.
11. Maureen Fisk, a Safety Kleen spokesperson, said that Safety Kleen's
board was not satisfied with the speed of recent efforts to boost profits. She
also said that Safety Kleen "had plans for new business and goals we haven't
met" and called Johnson's resignation "a mutual decision."
12. These announcements were a strong indication that Safety Kleen now was
poised for improved financial performance and made it a likely acquisition
candidate. Immediately the market reacted favorably to the improved financial
results and to the possibility that a bidder for Safety Kleen would emerge.
13. The day of the announcement, Safety Kleen's shares increased $1.75, or
9.8%, on approximately five times its average daily volume.
14. On August 11, 1997, an article in The Wall Street Journal quoted a
Safety Kleen spokesman as saying that Mr. Johnson's departure was a "mutual
decision" and "new leadership . . . was necessary to accelerate growth plans."
15. On August 13, 1997, Standard & Poor's Credit Wire announced that it
had revised the outlook on Safety Kleen to "developing" from "positive"
following Safety Kleen's August 8, 1997 press release. The August 13, 1997
announcement stated that the:
ratings on Safety Kleen reflect its leading positions in several niches of
the environmental services industry and prudent financial management . . .
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Business prospects are enhanced by a growth strategy focused on expanding
existing operations, introducing related services, and entering new markets
through acquisition that would utilize the company's infrastructure.
Indeed, performance has upward potential, benefiting from broadening of the
customer base, leveraging the company's assets, and selective price
increases. In addition, funds flow coverage of debt of about 55% and debt
to capital of low 40% are somewhat strong for the rating, providing an
added measure of flexibility for growth or rewarding shareholders.
16. During August and September, 1997, Safety Kleen's stock price
consistently increased in response to the Company's improving financial
condition and the possibility of an offer being made for Safety Kleen. By
September 25, 1997, Safety Kleen stock closed at $23.8125 per share.
17. On September 29, 1997, in a press release carried by the PR Newswire,
Safety Kleen announced results for its third quarter ended September 6, 1997.
In the press release, Safety Kleen reported that its revenue for the quarter was
$230 million, an increase of 8% compared with the similar period in 1996. It
also reported that Safety Kleen's net earnings rose to $15.1 million, an
increase of 8% over the $14 million reported in the third quarter of 1996. On a
per share basis, earnings were $0.26 compared with $0.24 in the same quarter one
year ago.
18. On October 31, 1997, Safety Kleen announced that it had acquired a
majority stake in 3E Company. Commenting on the acquisition, defendant
Brinckman said, "By combining Safety-Kleen's collection and recycling resources
with 3E's electronic data network and outstanding people, we are providing one-
stop convenience and value-added solutions for the hundreds of thousands of
businesses we serve."
19. On November 1, 1997, the Dow Jones News Service reported that Philip
Services and Laidlaw Environmental Services were among the bidders for Safety
Kleen.
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20. As made clear in a letter, dated November 3, 1997 from Laidlaw
Environmental Services, Inc. ("Laidlaw") to Safety Kleen, since Safety Kleen's
"August 8th announcement that [Safety Kleen] would explore strategic
alternatives to enhance shareholder value, [Laidlaw has] sought unsuccessfully,
directly through phone calls to [Donald Brinckman, Safety Kleen's Chairman and
Chief Executive Officer] and indirectly through [Safety Kleen's] advisors, to
meet with [Safety Kleen] to pursue the combination of [the two] companies." In
that letter, James Bullock, the Chairman of Laidlaw, said:
Six weeks ago, at the request of your financial advisor, we submitted a
preliminary merger proposal to which you have yet to respond. Needless to
say, we are frustrated by your continuing unwillingness to engage in
constructive dialogue.
As you are aware, your advisors have insisted that we sign an agreement
that would permit us to propose strategic alternatives that maximize value
for your shareholders only if you "shall have requested in writing in
advance the submission of such proposal". We have made clear on numerous
occasions our willingness to sign a confidentiality agreement that protects
nonpublic information you choose to share with us. In light of our
experience to date, however, we will not sign any agreement that does not
ensure that your shareholders have the opportunity to consider our offer
and to maximize the value of their stock.
In response to your continuing unwillingness to meet or commence
discussions with us in a meaningful way, our board of Directors today
authorized and directed senior management of Laidlaw Environmental
Services, Inc. to pursue the acquisition of Safety-Kleen Corp. We have
executed commitment letters with the Toronto-Dominion Bank to provide all
the necessary financing for this acquisition. We have engaged Bear Stearns
& Co. Inc. and Raymond James and Associates Inc. to serve as our financial
advisors and Katten Muchin and Zavis to serve as our legal counsel.
Our offer for each share of Safety-Kleen Corp. is a combination of $14.00
in cash and 2.4 common shares of Laidlaw Environmental Services, Inc.
stock. This represents approximately an 18.2% premium to Safety-Kleen's
closing price on Friday and a 46% premium to Safety-Kleen's trading price
prior to your August 8th announcement. Please note that our offer is not
subject to due diligence or a financing contingency. We have fully
committed financing
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sufficient to complete the combination. We believe our offer represents a
full and fair price based on the publicly available information we have
reviewed. However, should you be willing to meet with us, we are prepared
to consider any additional information you may wish to provide that
demonstrates that a higher valuation is warranted. We continue to prefer a
negotiated transaction.
Together our companies can create greater shareholder value than can either
of us alone. We estimate annual cost savings and synergies will exceed
$100 million. We believe the stock market will embrace this transaction
and will reward the combined company with enhanced stock performance. Our
offer ensures your shareholders participate in this exciting future.
We believe it is in the best interests of our companies to proceed
immediately to negotiate a definitive agreement, containing customary
public company terms and conditions, and to consummate a transaction by
year-end. Given the importance we place on this combination, we are
prepared to commit the resources necessary to see its timely completion.
We and our advisors would be pleased to meet you and your advisors in
Chicago either later today or tomorrow to complete the necessary papers.
In recognition of the strategic nature and compelling financial benefits o
four proposed combination to your shareholders and our willingness to
consider modifications to our offer as warranted, we expect you not to
enter into any binding merger or similar agreement with any other party
without first exploring with us the full merits of combining our two
companies.
Our Board of Directors unanimously supports this merger. We trust you and
the other members of Safety-Kleen's shareholders and will agree to meet
with us promptly to achieve a mutually beneficial transaction.
We look forward to hearing from you later today.
21. This letter reveals that Safety Kleen's board has refused to negotiate
with Laidlaw, failed to maximize shareholder value, and has attempted to place
unwarranted and improper restrictions on the bidding process for Safety Kleen.
22. On November 3, 1997, Safety Kleen common stock closed at $21.94 per
share.
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23. On November 4, 1997, Safety Kleen issued a press release confirming
that it had received an offer to be acquired by Laidlaw for $14 in cash and 2.4
Laidlaw common shares for each share of Safety Kleen. Laidlaw's common stock
closed at $5 per share on November 4, 1997, making its offer for Safety Kleen
worth approximately $26 per share, representing a significant premium to Safety
Kleen's closing price before the offer was announced and a 46% premium to Safety
Kleen's trading price before the Company's August 8th announcement that it was
exploring strategic alternatives.
24. Safety Kleen's response to the offer represents the continuation of an
improper and unlawful course of conduct commenced by the management of Safety
Kleen to favor their own interests over the interests of the public stockholders
who own the large majority part of the shares of the Company. These acts of
Safety Kleen management compel the conclusion that their primary interest is to
protect their positions and perquisites, and that the Director Defendants have
in the past and will continue to reject and oppose even bona fide and fair
offers and negotiations to acquire Safety Kleen.
25. By failing to discuss acquisition proposals with legitimate potential
acquires, such as Laidlaw, the Defendants Directors have not acted in the best
interests of Safety Kleen stockholders.
26. It is the Defendant Directors' fiduciary obligation to take any steps
necessary to maximize stockholder value, including, but not limited to
cooperating with any person or entity, such as Laidlaw, having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company.
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27. In refusing to give fair consideration to Laidlaw's interest in
acquiring Safety Kleen, defendants have violated their fiduciary duties owed to
the public stockholders of Safety Kleen and instead, have acted to put their own
personal interests ahead of the interests of the rest of Safety Kleen's public
stockholders. They have used and are using their control positions as officers
and directors of Safety Kleen for the purpose of entrenching themselves in their
offices, to the detriment of plaintiff and the other members of the Class.
28. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
a. Undertake an appropriate evaluation of Safety Kleen's worth as an
acquisition candidate;
b. Act independently so that the interests of Safety Kleen's minority
shareholders will be protected;
c. Take all appropriate steps to enhance Safety Kleen's value and
attractiveness as a merger/acquisition candidate;
d. Take all appropriate steps to effectively expose Safety Kleen to
the marketplace in an effort to create an active auction for Safety Kleen,
including but not limited to engaging in serious negotiations with Laidlaw or
its representatives; and
e. Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize shareholder
value or, if such conflicts exist, to ensure that all conflicts be resolved in
the best interests of Safety Kleen's minority shareholders.
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29. As a result of defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their proportionate share of the value
of the Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
30. Unless enjoined by the Court, defendants will continue to breach their
fiduciary duties owed to plaintiff and the members of the Class, all to the
irreparable harm of the members of the Class.
31. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
B. Ordering defendants to carry out their fiduciary and other duties to
plaintiff and the other members of the Class including but not limited to
announcing their intention to:
(1) cooperate fully with any person or entity having a bona fide
interest in proposing any transaction which would maximize stockholder value,
including but not limited to a buyout or takeover of the Company; and
(2) undertake an appropriate evaluation of Safety Kleen's worth as a
merger/acquisition candidate.
C. Entering an order requiring defendants to take the steps set forth
hereinabove;
D. Awarding costs and disbursements, including plaintiff's counsel's fees
and experts' fees; and
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E. Granting such other and further relief as to the Court may seem just
and proper.
Dated: November 5, 1997
SCHIFFRIN & CRAIG, LTD.
By:
-----------------------------
Michael D. Craig
William M. Sweetnam
Khalil Cox
750 West Lake Cook Road
Suite 190
Buffalo Grove, Illinois 60089
(847) 419-7700
Counsel for Plaintiff
OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
Mark C. Gardy
Stephen J. Fearon, Jr.
212 East 39th Street
New York, New York 10016
(212) 889-3700
LAW OFFICES OF CURTIS V. TRINKO
Curtis V. Trinko
310 Madison Avenue, 14th Floor
New York, New York 10017
(212) 490-9550
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