SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SAFETY-KLEEN CORP.
................................................................................
(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.
[_] 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] 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: _________________
[SAFETY-KLEEN LOGO]
January 6, 1998
Dear Shareholder:
Our directors and officers join me in extending a cordial invitation to
attend a Special Meeting of Shareholders (the "Special Meeting") of Safety-
Kleen Corp. ("Safety-Kleen") to be held at 3:00 p.m., central time, on
Wednesday, February 11, 1998 in the Auditorium Room at the Harris Trust and
Savings Bank, 111 West Monroe, Chicago, Illinois 60603.
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. Upon consummation of the Merger,
which is a taxable transaction to shareholders, Safety-Kleen shareholders will
no longer have an interest in the surviving corporation. 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 is 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 gold-striped 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 FEBRUARY 11, 1998
A Special Meeting of Shareholders (the "Special Meeting") of Safety-Kleen
Corp., a Wisconsin corporation ("Safety-Kleen"), will be held in the
Auditorium Room at the Harris Trust and Savings Bank, 111 West Monroe,
Chicago, Illinois 60603 at 3:00 p.m., central time, on Wednesday, February 11,
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.
January 5, 1998 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 Gold-Striped 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
January 6, 1998
Elgin, Illinois
YOUR VOTE IS IMPORTANT
PLEASE DATE AND SIGN THE ENCLOSED GOLD-STRIPED 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 FEBRUARY 11, 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 Wednesday, February 11, 1998, at 3:00 p.m.,
central time, in the Auditorium Room at the Harris Trust and Savings Bank, 111
West Monroe, Chicago, Illinois 60603 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 January 7, 1998.
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 "Rights 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. Upon consummation of the Merger, which is a taxable transaction to
shareholders, Safety-Kleen shareholders will no longer have an interest in the
Surviving Corporation. On January 6, 1998, the most recent practicable trading
day prior to the mailing of this Proxy Statement, the closing price of the
Shares on the New York Stock Exchange was $26.94 per Share.
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 Gold-Striped 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 GOLD-STRIPED PROXY CARDS SHOULD BE DIRECTED TO CHASE MELLON
SHAREHOLDER SERVICES, TOLL FREE AT (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 January 6, 1998.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
SUMMARY.................................................................... 2
Parties to the Merger Agreement.......................................... 2
Background of the Merger................................................. 3
Safety-Kleen Shareholders' Meeting....................................... 5
The Merger............................................................... 6
SELECTED FINANCIAL DATA OF SAFETY-KLEEN.................................... 9
THE SPECIAL MEETING........................................................ 10
General.................................................................. 10
Matter to be Considered at the Special Meeting........................... 10
Vote Required............................................................ 10
Record Date; Voting at the Special Meeting............................... 10
Proxies.................................................................. 11
Recess or Adjournment of Meeting and Other Matters....................... 11
Information Concerning the Solicitation.................................. 11
THE MERGER................................................................. 12
Background of the Merger................................................. 12
Reasons for the Merger; Recommendation of Board of Directors............. 19
Opinions of Financial Advisor............................................ 24
Engagement of Financial Advisors......................................... 33
Interests of Certain Persons in the Merger............................... 34
Financing of the Merger.................................................. 36
Accounting Treatment..................................................... 39
Certain Federal Income Tax Consequences.................................. 39
Regulatory Approvals..................................................... 40
Appraisal Rights......................................................... 40
THE MERGER AGREEMENT....................................................... 41
General.................................................................. 41
Conversion of Securities................................................. 41
Stock Options............................................................ 41
Directors and Officers; Articles of Incorporation and Bylaws............. 42
Representations and Warranties........................................... 42
Conduct of Business Pending the Merger................................... 42
No Solicitation of Proposals............................................. 44
Conditions to Consummation of the Merger................................. 45
Termination, Amendment And Waiver........................................ 46
Fees And Expenses........................................................ 47
Effect on Benefit Plans and Related Matters.............................. 48
Notices.................................................................. 48
Exchange of Shares for Cash.............................................. 48
THE COMPANIES.............................................................. 49
Safety-Kleen............................................................. 49
Parent................................................................... 49
Purchaser................................................................ 49
MARKET PRICE OF SHARES AND DIVIDEND POLICY................................. 50
i
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................ 51
INDEPENDENT ACCOUNTANTS.................................................... 53
CERTAIN LEGAL MATTERS...................................................... 53
STATE TAKEOVER STATUTES.................................................... 54
SHAREHOLDER PROPOSALS...................................................... 56
ANNEXES
Annex A--Agreement and Plan of Merger...................................... A-1
Annex B--Opinion of William Blair & Company, L.L.C. dated November 20,
1997...................................................................... B-1
Annex C--Opinion of William Blair & Company, L.L.C. dated December 20,
1997...................................................................... C-1
Annex D--Participant Information........................................... D-1
FORWARD-LOOKING STATEMENTS
Certain information contained in this Proxy Statement regarding matters that
are not historical facts, including any statements, forecasts, projections and
descriptions of anticipated synergies or other effects of the Merger or the
Revised Laidlaw Environmental Exchange Offer (as defined herein), 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; the difficulties of
predicting synergies from the integration of businesses following a change of
control; changes in management; and the occurrence of natural disasters and
other occurrences beyond the control of Safety-Kleen. These and other factors
are discussed in this 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, except as may be required in periodic filings with the
Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
ii
AVAILABLE INFORMATION
Safety-Kleen is subject to the informational requirements of 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, as amended by the Form 10-K/A filed with the Commission on
December 24, 1997; (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.L.C.
("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.
BACKGROUND OF THE MERGER
Background...................... On August 8, 1997, Safety-Kleen issued a
press release stating that it had initiated a
process to explore strategic alternatives for
enhancing shareholder value and had engaged
William Blair & Company, L.L.C. ("William
Blair") to act as its financial advisor in
connection therewith. As part of that
process, 50 potential buyers, including
Philip and affiliates of Apollo and
Blackstone, executed confidentiality and
standstill agreements (which were designed to
encourage participation by creating a level
playing field for all interested parties, and
to protect Safety-Kleen's interests) and
examined a possible transaction with Safety-
Kleen. On November 20, 1997, the Board voted
unanimously to approve the Merger Agreement
on the grounds that it was fair to, and in
the best interests of, Safety-Kleen
shareholders and was the best offer available
at the end of a comprehensive process of
exploring strategic alternatives.
One of the potential buyers which contacted
William Blair shortly after the August 8th
announcement was Laidlaw Environmental
Services, Inc. ("Laidlaw Environmental").
Laidlaw Environmental repeatedly refused to
execute a confidentiality and standstill
agreement and participate in the process like
other potential buyers. Before approving the
Merger Agreement on November 20, 1997, the
Board of Directors of Safety-Kleen carefully
considered the risks and benefits of
strategic alternatives available to Safety-
Kleen, including a November 3, 1997 proposal
by Laidlaw Environmental to acquire all
Shares for a per Share consideration of
$14.00 in cash and 2.4 common shares of
Laidlaw Environmental.
After Safety-Kleen entered into the Merger
Agreement on November 20th, Laidlaw
Environmental advised Safety-Kleen that it
was amending its proposal to acquire Safety-
Kleen to provide for consideration per Share
consisting of (i) $15 in cash, less certain
termination fees or expenses pursuant to the
Merger Agreement and new severance
arrangements (which Laidlaw Environmental had
estimated in soliciting materials filed with
the Commission could be as much as $2.14 per
Share) and certain other expenses of Safety-
Kleen, and (ii) that number of shares of
Laidlaw Environmental common stock equal to
$15 divided by the weighted average trading
price for Laidlaw Environmental shares for 10
days selected by lot from the 20 trading days
ending three business days
3
immediately prior to closing, provided that
such number of shares shall not be less than
2.8 nor greater than 3.5 (the "Revised
Laidlaw Environmental Exchange Offer"). On
December 20, 1997, the Board unanimously
(with one director absent due to illness)
reaffirmed its determination that the Merger
Agreement is in the best interests of Safety-
Kleen and its shareholders.
On January 5, 1998, Laidlaw Environmental
publicly announced that in the interests of
clarity it has adjusted the Revised Laidlaw
Environmental Exchange Offer to limit the
deductions from the cash portion of such
offer to up to $75 million in termination
fees and expenses, which Laidlaw
Environmental estimates to equal
approximately $1.17 per Share on a fully
diluted basis if the entire $75 million were
paid. On January 6, 1998, the Board confirmed
its rejection of the Revised Laidlaw
Environmental Exchange Offer, notwithstanding
Laidlaw Environmental's announced
clarification of such offer.
As of the date of this Proxy Statement,
Laidlaw Environmental has not commenced the
Revised Laidlaw Environmental Exchange Offer.
Recommendation of Board of At a special meeting held on November 20,
Directors...................... 1997, the Board of Directors of Safety-Kleen
unanimously determined that the Merger
Agreement and the Merger are fair to and in
the best interests of Safety-Kleen and its
shareholders and 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--
November 20th Board Meeting."
On December 20, 1997, the Board, after
reviewing the Revised Laidlaw Environmental
Exchange Offer, unanimously (with one
director absent due to illness) reaffirmed
its determination that the Merger Agreement
is in the best interests of Safety-Kleen and
its shareholders. Accordingly, the Board
recommends that all shareholders of Safety-
Kleen reject the Revised Laidlaw
Environmental Exchange Offer and not tender
their Shares pursuant to such offer. The
Board's determination was based on its review
and consideration of a number of factors, as
more fully described under "The Merger--
Reasons for the Merger; Recommendation of the
Board of Directors-- December 20th Board
Meeting."
On January 6, 1998, the Board, after (i)
receiving the confirmation of William Blair
that Laidlaw Environmental's announced
clarification of the Revised Laidlaw
Environmental
4
Exchange Offer does not change its December
20th written opinion and (ii) reviewing its
December 20th deliberations with respect to
the deductions from the cash portion of such
offer, confirmed its rejection of the Revised
Laidlaw Environmental Exchange Offer,
notwithstanding Laidlaw Environmental's
announced clarification of such offer. See
"The Merger--Background of The Merger."
Opinions of Financial Advisor... On November 20, 1997, 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 is 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--Opinions of Financial
Advisor--November 20, 1997 Opinion."
On December 20, 1997, 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, William Blair
does not have a basis for concluding that the
Revised Laidlaw Environmental Exchange Offer
is superior to the Merger from a financial
point of view. 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 C to this Proxy Statement
and should be read in its entirety. See "The
Merger--Opinions of Financial Advisor--
December 20, 1997 Opinion."
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. They may also
have the opportunity to make investments in
the Surviving Corporation. For information
concerning such benefits, see "The Merger--
Interests of Certain Persons in the Merger."
SAFETY-KLEEN SHAREHOLDERS' MEETING
Time, Date, and Place........... The Special Meeting will be held on February
11, 1998, at 3:00 p.m., central time, in the
Auditorium Room at the Harris Trust and
Savings Bank, 111 West Monroe, Chicago,
Illinois 60603.
5
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
Special Meeting................ Only holders of record of Shares at the close
of business on January 5 , 1998 (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 59,208,637 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.
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
6
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."
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."
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 antitrust 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.
7
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 The receipt of cash for Shares pursuant to
Consequences................... 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."
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 January 6, 1998,
the most recent practicable trading day prior
to the mailing of this Proxy Statement, the
high and low sale prices of the Shares on the
NYSE were $27.50 and $26.88 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."
8
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.
THIRTY-SIX WEEKS
FISCAL YEAR 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.
9
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 Wednesday, February
11, 1998, at 3:00 p.m., central time, in the Auditorium Room at the Harris
Trust and Savings Bank, 111 West Monroe, Chicago, Illinois 60603.
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."
Laidlaw Environmental has filed preliminary proxy materials with the
Commission indicating that it intends to solicit proxies in opposition to the
Merger. THE BOARD OF DIRECTORS VIGOROUSLY OPPOSES SUCH SOLICITATION OF PROXIES
BY LAIDLAW ENVIRONMENTAL AND URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU
BY LAIDLAW ENVIRONMENTAL.
WHETHER OR NOT YOU HAVE PREVIOUSLY EXECUTED A PROXY CARD SENT TO YOU BY
LAIDLAW ENVIRONMENTAL, SHAREHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING GOLD-STRIPED PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED GOLD-STRIPED
PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A
VOTE "AGAINST" THE MERGER AGREEMENT.
QUESTIONS OR REQUESTS FOR ASSISTANCE IN COMPLETING AND SUBMITTING GOLD-
STRIPED PROXY CARDS SHOULD BE DIRECTED TO CHASE MELLON SHAREHOLDER SERVICES,
TOLL FREE AT (888) 224-2734.
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 January 5, 1998 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, 59,208,637 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.
10
PROXIES
If the enclosed Gold-Striped 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 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: Scott Krill, 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, Safety-Kleen's by-laws provide that 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
$42,500 plus reasonable out-of-pocket costs and expenses. Chase Mellon
Shareholder Services will employ approximately eight 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.
11
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 D.
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 advisor, Sonnenschein Nath &
Rosenthal, and with Safety-Kleen's financial advisor, William Blair, in
preparation for an Executive Committee meeting on June 24th.
At the Executive Committee meeting on June 24, 1997, after a presentation by
Safety-Kleen's legal advisors with respect to the legal framework for the
Board's deliberations, William Blair orally presented its preliminary view
that the per Share consideration Safety-Kleen could achieve in a sale
transaction was between $23 and $25. William Blair also discussed with the
directors financial and strategic buyers that might be interested in Safety-
Kleen if the Board were to decide to explore a possible sale transaction. The
Executive Committee determined to hold a special Board meeting on July 7th.
At the July 7th Board meeting, management presented to the Board Safety-
Kleen's recent financial results for the second quarter of fiscal 1997 and
Safety-Kleen's forecasted financial performance. The directors discussed with
management Safety-Kleen's past stock price performance and potential
difficulties in achieving Safety-Kleen's forecasted financial performance.
Safety-Kleen's legal advisors and William Blair then made the presentations
concerning the expressions of interest in Safety-Kleen and orally presented
its view on the valuation of Safety-Kleen. According to William Blair: (i) its
preliminary analysis of selected recent merger or acquisition transactions in
the environmental services industry indicated a valuation of the equity of
Safety-Kleen of between $19.46 and $22.48 per Share; and (ii) its preliminary
discounted cash flow analysis indicated a valuation of the equity of Safety-
Kleen of between $25.71 and $26.80 per Share. Based on the foregoing, William
Blair's preliminary judgment of the per Share consideration that Safety-Kleen
could achieve in a sale transaction was between $23 and $25. After extensive
discussions, the Board asked management, with the assistance of Safety-Kleen's
legal and financial advisors, to prepare and present further information to
the Board relating to various strategies to enhance shareholder value.
At the regularly scheduled August 8th Board meeting, the Board, management
and William Blair reviewed Safety-Kleen's recent operating results and the
pace at which Safety-Kleen's strategic plans were being implemented and
discussed the advisability of exploring strategic alternatives, including a
possible sale of Safety-Kleen. The Board, management and William Blair also
discussed other possible strategic alternatives such as a stock buy-back
program, acquisitions and/or operating the business in accordance with Safety-
Kleen's long range plan. William Blair orally presented its view of the
valuation of Safety-Kleen in a sale transaction and a theoretical stock price
analysis assuming that Safety-Kleen continues to operate as an independent
company. William Blair's view of the valuation of Safety-Kleen was
substantially the same as the view it presented to the Board on July 7th
except that, based on management revisions to its forecast of Safety-Kleen's
performance, William Blair's discounted cash flow analysis indicated a
valuation of the equity of Safety-Kleen of between $27.83 and $29.01 per
Share. Based on the foregoing and taking into account its view of generally
improved market conditions, William Blair's judgment of the per Share
consideration that Safety-Kleen could achieve in a sale transaction was
between $24 and $26. William Blair also discussed possible steps to be taken
by the Board in exploring strategic alternatives.
After extensive discussions of William Blair's valuation analysis, the Board
directed management to explore, with the assistance of Safety-Kleen's
advisors, strategic alternatives for enhancing shareholder value. The Board
also instructed management to retain William Blair to render financial
advisory and investment banking services to Safety-Kleen in connection with
the evaluation of strategic alternatives and, as part of the
12
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 that by mutual agreement, John G. Johnson,
Jr., President, Chief Executive Officer and a director of Safety-Kleen, had
resigned as such, effective immediately. Donald W. Brinckman, Chairman of
Safety-Kleen's Board of Directors, who had previously served as Safety-Kleen's
Chief Executive Officer from 1968 until December 31, 1994, was appointed Chief
Executive Officer. Mr. Joseph Chalhoub, Senior Vice President-Operations of
Safety-Kleen, was appointed President and Chief Operating Officer.
On August 19, 1997, Safety-Kleen retained Credit Suisse First Boston
Corporation ("CSFB") to perform certain financial advisory services in
connection with Safety-Kleen's exploration of strategic alternatives. CSFB
performed a preliminary review of Safety-Kleen's analyses of the strategic
alternative of remaining independent, including the possibility of a
substantial increase in debt to finance a stock buy-back program and the
possible sale or write-off of certain operations. In addition, it assisted
Safety-Kleen by identifying certain potential buyers that were subsequently
contacted by William Blair and by discussing with management some of the
possible strategies which might be used to enhance shareholder value were
Safety-Kleen to remain independent. It was available to the Board for
discussion of these strategies, but did not reach any conclusions or furnish
any reports or opinions to the Board, nor did it make any presentation to the
Board.
William Blair contacted, or as a result of the August 8th press release was
contacted by, 94 parties interested in considering the potential acquisition
of all or part of Safety-Kleen. Confidentiality and standstill agreements were
entered into with 50 potential buyers (including Philip and affiliates of
Apollo and Blackstone) and, beginning on September 5, 1997, copies of a
Confidential Memorandum describing Safety-Kleen and its operations were sent
to such potential buyers. Each potential buyer also received a letter setting
forth the deadline for submissions of preliminary indications of interest in
Safety-Kleen and other bidding requirements. Pursuant to the standstill
provisions of the confidentiality and standstill agreements entered into by
potential buyers, such buyers agreed not to make any unsolicited offer to
acquire Safety-Kleen or to take certain other actions, including purchasing
any Shares, for a period of from 18 to 24 months. Because Safety-Kleen was
considering various strategic alternatives, including the continued operation
of Safety-Kleen as an independent company, the Board felt it was important to
require that any potential buyer not only enter into a confidentiality
agreement, but also agree to the standstill provisions in order to prevent
such person from using Safety-Kleen's confidential non-public information to
make an unsolicited offer at a later date. Further, the Board believed that
the confidentiality and standstill agreements were necessary to create a
stable, orderly and cooperative process in which all potential buyers would be
provided information regarding Safety-Kleen on a level playing field.
One of the potential buyers which contacted William Blair shortly after the
August 8th announcement was 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 participate in the process like
other potential buyers.
By early October 1997, Safety-Kleen had received 10 indications of interest
from potential buyers, nine of which expressed interest in acquiring Safety-
Kleen as a whole. At an Executive Committee meeting held on October 13, 1997,
the Executive Committee, with the assistance of William Blair and Safety-
Kleen's legal advisors, evaluated each indication of interest and selected
four potential buyers to proceed to the second stage of the process. On
October 16, 1997, those four potential buyers received a second letter
requesting that they submit their best and highest written offer, including
the price per share, proposed transaction structure and amounts and sources of
funds, by November 14, 1997. The potential buyers also received a draft merger
13
agreement and were instructed to submit their comments thereon with their
written offer. Safety-Kleen's letter stated that the certainty and timing of
financing would be among the factors considered in selecting a prospective
purchaser.
Shortly after the October 13th Executive Committee meeting, another
potential buyer which had previously executed a confidentiality and standstill
agreement submitted a preliminary indication of interest in Safety-Kleen.
Members of the Executive Committee, with the assistance of Safety-Kleen's
advisors, determined to invite this potential buyer to join the second stage
of the process.
The five potential buyers in the second stage of the process received access
to a special "Data Room" set up by Safety-Kleen, had the opportunity to meet
with management of Safety-Kleen and were able to visit various of Safety-
Kleen's facilities. From October 23rd through November 11, 1997, three of the
five potential buyers conducted meetings with management and visited selected
facilities. The remaining two potential buyers elected not to proceed further.
On November 3, 1997, Mr. James R. Bullock, Chairman of 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 a per Share consideration of $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.
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. In that
meeting, Mr. Bullock communicated Laidlaw Environmental's estimate of expected
annual savings that would arise from such combination. Mr. Brinckman and Mr.
Chalhoub stated that a substantial portion of those proposed synergies could
not be achieved without significant reduction in service quality, revenue and
profit. This statement was based on Mr. Brinckman's and Mr. Chalhoub's belief
that: (i) Laidlaw Environmental's estimate of between $30 to $45 million of
annual savings from the consolidation of sales and service centers was
significantly overstated because, although some Safety-Kleen branches may be
closed and related facility costs and some branch management personnel
expenses saved, service representatives and trucks of those branches would
continue to be needed to service existing customers. Furthermore, because
these service personnel and trucks would be forced to work out of branch
facilities located further from their customers, the savings from such
closures would be partially offset by the additional expense of transporting
materials longer distances to and from customers; (ii) Laidlaw Environmental's
estimate of between $14 to $24 million of annual savings from the
internalization of Safety-Kleen waste into Laidlaw Environmental facilities
was inconsistent with the fact that Safety-Kleen spends only approximately $4
million annually on hazardous waste incineration. Most hazardous waste
materials collected by Safety-Kleen are blended into fuel that is reclaimed in
cement kilms at a significantly lower cost than incineration; and (iii)
Laidlaw Environmental's estimate of approximately $30 million of annual
savings from reduction of corporate and head office functions was aggressive
since many of those functions are essential to support Safety-Kleen's branch
sales and service infrastructure.
At the November 5th meeting, Mr. Bullock stated that 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.
14
On November 7th and 11th, respectively, Philip and one of the two other
remaining potential buyers informed William Blair that instead of submitting
an offer by the November 14th deadline, they desired to negotiate exclusively
with Safety-Kleen. Philip indicated that it was prepared to negotiate on this
basis for the acquisition of all Safety-Kleen's Shares at a price of at least
$26 per share (most of which would be payable in cash, with the remainder in
Philip stock) while the other potential buyer indicated a range of between
$24-$25 in cash in a leveraged recapitalization transaction. William Blair
told these two potential buyers that the Board of Directors would consider
their request at the November 14, 1997 Board meeting and told Philip that
there would be a strong preference for an all cash offer. This preference
reflected a Board view that, although a cash transaction would be taxable to
shareholders, with the Shares trading at their highest price since January
1993, it was desirable to capture the certain value represented by cash for
the shareholders and allow them to redeploy their investment, rather than
assuming the uncertainties of investment in a continuing enterprise. On
November 12, 1997, the other remaining potential buyer elected not to proceed
further.
At an Executive Committee meeting on November 10, 1997, the Executive
Committee received a progress report on the process and discussed the proposed
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" prohibitions of federal
securities law by certain of its public announcements made before the
effectiveness of the registration statement with the Commission relating to
the Laidlaw Environmental shares it proposes to use in its offer for Safety-
Kleen. The suit also challenged Laidlaw Environmental's asserted right under
Wisconsin law to demand such a shareholders' meeting at that 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.
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 (which, based on the closing price of Laidlaw
Environmental stock on November 13, 1997, was approximately $25.71); the
substantial amount of Laidlaw Environmental stock which was part of that offer
and the absence of any downside protection for Safety-Kleen shareholders if
the market value of such stock decreased; questions as to the liquidity of
that stock in the marketplace given that a very small percentage of the
outstanding Laidlaw Environmental shares trade daily; the business and
financial prospects for the ongoing company in which Safety-Kleen shareholders
would have a very large continuing interest, including management's views that
Laidlaw Environmental would not be able to achieve the synergies it had
outlined in the November 5th meeting for the reasons discussed above; the
conditional nature of the financing for the proposed offer, including the
execution of definitive agreements relating to a merger and the satisfactory
completion of due diligence investigations; and Laidlaw Environmental's
intention communicated to Safety-Kleen at the November 5th meeting not to
continue Safety-Kleen as a separate
15
ongoing business, to move Safety-Kleen's Elgin headquarters (which currently
employs approximately 650 persons) to South Carolina and thus reduce the
number of Safety-Kleen employees. Under Wisconsin law, directors, in
discharging their duties to the corporation and in determining what they
believe to be in its best interests, in addition to considering the interests
of shareholders, may consider, among other factors, the effects of proposed
actions on employees (the "Wisconsin Constituency Statute").
The Board, with the assistance of management and Blair, determined that
management should negotiate exclusively with Philip provided that Philip
increased its per share price to $27 in cash. Philip informed William Blair
shortly after the Board meeting that it was prepared to negotiate a
transaction at $27 in cash provided that the definitive agreement provided for
a termination fee under certain circumstances.
Negotiations with Philip began on November 15th and continued until November
20th. Early in the negotiations, Philip told Safety-Kleen that it desired to
have Apollo and Blackstone participate in the proposed acquisition. On
November 17th, Mr. Chalhoub, Roy D. Bullinger, Senior Vice President--Business
Management and Marketing, Andrew A. Campbell, Senior Vice President--Finance,
F. Henry Habicht II, Senior Vice President--Corporate Development and
Environment, John Lucks, Vice President--Industrial Marketing and Business
Management, and representatives of William Blair met with representatives of
Apollo and Blackstone and of financial institutions invited by Philip to
consider providing a portion of the funds necessary to effectuate the proposed
acquisition of Safety-Kleen. Safety-Kleen and its representatives were
informed that Philip, Apollo and Blackstone proposed to form a new entity,
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 is fair to such holders from a financial point of view,
and reviewed with the Board the financial analyses performed by it in
connection with its opinion (see "--Opinions of Financial Advisor--November
20, 1997 Opinion"). The Board also considered the fact that Parent had advised
the Board that it looked forward to beginning discussions regarding the
participation by current management in the equity of the Surviving Corporation
through stock option or similar plans and the potential investment by Safety-
Kleen management in Parent. The Board's consideration of such possible
participation was part of its consideration under the Wisconsin Constituency
Statute of the effects of the Merger Agreement on Safety-Kleen's employees. In
addition, the Board considered the fact that Mr. Jannotta, a director of
Safety-Kleen, is a Senior Director of William Blair.
16
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 of the Revised Laidlaw Environmental
Exchange Offer. The letter disclosed that: (i) the $15 cash portion would be
reduced by any incremental costs, such as termination fees, new severance
arrangements and other expenses Safety-Kleen might have incurred in connection
with its agreement with Philip and others; and (ii) the stock portion would be
equal to $15 divided by the weighted average trading price for Laidlaw
Environmental shares for 10 days selected by lot from the 20 trading days
ending three business days immediately prior to the closing, provided that
such number of shares shall not be less than 2.8 nor greater than 3.5. The
text of the letter was included in a press release that was issued by 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 the Revised Laidlaw
Environmental Exchange 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 review of that revised offer, the Board and its advisors
preliminarily discussed, among other things: (i) anticipated deductions from
the cash portion of that purchase price; (ii) factors reducing the value of
the 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 162 million to 202 million Laidlaw Environmental
shares in connection with its proposed combination with Safety-Kleen; and (c)
Safety-Kleen management's views, based on the explanation to Safety-Kleen's
management by Mr. Bullock at the November 5th meeting between them, that
Laidlaw Environmental would not be able to achieve a significant portion of
the $100 million to $130 million of synergies it outlined in its revised offer
without significant reduction in service quality, revenue and profit; and
(iii) the conditional nature of the financing for the revised offer. As
contemplated by the Wisconsin Constituency Statute, the Board also again noted
the impact that Laidlaw Environmental's stated intention to move Safety-
Kleen's Elgin headquarters (which currently employs approximately 650 persons)
to South Carolina would have on Safety-Kleen's employees and the surrounding
communities.
During the Board's review, a letter dated November 24, 1997 was received
from Parent expressing its views on the Revised Laidlaw Environmental Exchange
Offer. That letter stated that Parent does not believe the Revised Laidlaw
Environmental Exchange Offer constitutes a Superior Proposal (as that term is
defined in the Merger Agreement), or provided any indication that Laidlaw
Environmental is reasonably likely to make a Superior Proposal. See "The
Merger Agreement--No Solicitations of Proposals." Parent concluded in such
letter that it would not be appropriate for Safety-Kleen to engage in
discussions or negotiations with Laidlaw Environmental. Parent's interest in
acquiring Safety-Kleen pursuant to the Merger Agreement (and its interest in
avoiding termination of the Merger Agreement in favor of the Revised Laidlaw
Environmental Exchange Offer) is in conflict with the interests of Safety-
Kleen shareholders as sellers of their Shares pursuant to the Merger
Agreement. Accordingly, the Board considered the letter as a source of issues
to be independently considered when it considered the Revised Laidlaw
Environmental Exchange Offer.
The Board determined to meet again to further discuss the Revised Laidlaw
Environmental Exchange Offer and authorized William Blair to continue its
analysis of such revised offer and to report on such analysis at the next
Board meeting.
17
On November 24, 1997, Laidlaw Environmental answered the complaint filed by
Safety-Kleen on November 17th with the United States District Court for the
Northern District of Illinois, denying liability and asserting several
defenses. In addition, 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 assert claims against Safety-Kleen for violation of
certain Wisconsin statutes pertaining to furnishing of shareholder lists and
takeovers, and against the directors for breach of fiduciary duty in failing
to negotiate with Laidlaw Environmental and entering into the Merger
Agreement, including the termination fees and expenses, and for failure to
amend Safety-Kleen's shareholder rights plan to make it inapplicable to the
Revised Laidlaw Environmental Exchange Offer, and a derivative claim for
corporate waste. Safety-Kleen believes that the Laidlaw Environmental
counterclaim is without merit and intends to contest such action vigorously on
behalf of Safety-Kleen and the Board of Directors.
On December 4, 1997, the Federal District Court for the Northern District of
Illinois ruled that Laidlaw Environmental can seek the approval of Safety-
Kleen shareholders at a special meeting to restore voting power to Shares that
Laidlaw Environmental may acquire in excess of 20% of the outstanding Shares.
The Court has also scheduled a preliminary hearing for January 28, 1998 on
Laidlaw Environmental's request that the Rights Agreement be amended to make
it inapplicable to the Revised Laidlaw Environmental Exchange Offer and that
the Court void the termination fee and certain other provisions of the Merger
Agreement.
On December 8, 1997, at a special meeting of the Board of Directors, the
Board set January 9, 1998 as the date for a special meeting of its
shareholders to consider and vote upon a proposal by Laidlaw Environmental to
restore full voting power to any Shares that Laidlaw Environmental may acquire
in excess of 20% of the outstanding Shares. The Board also determined to take
no position concerning the vote on such restoration of voting power and not to
solicit proxies in connection with such vote. The record date for
determination of shareholders entitled to notice of and to vote at the special
meeting was fixed as December 19, 1997.
On December 20, 1997, the Board met to consider the Revised Laidlaw
Environmental Exchange Offer. The Board, with the assistance of its advisors,
discussed in detail the factors listed under "--Reasons for the Merger;
Recommendation of Board of Directors--December 20th Board Meeting" below.
William Blair then rendered to the Board its oral opinion (which was
subsequently confirmed by delivery of a written opinion dated December 20,
1997) to the effect that, as of such date and based upon and subject to
certain matters stated in such opinion, William Blair does not have a basis
for concluding that the Revised Laidlaw Environmental Exchange Offer is
superior to the Merger from a financial point of view, and reviewed with the
Board the financial analyses performed by it in connection with its opinion
(see "--Opinions of Financial Advisor--December 20, 1997 Opinion").
After taking into consideration the factors listed under "--Reasons for The
Merger; Recommendation of the Board of Directors--December 20th Board
Meeting," and on the basis of the advice of William Blair and its legal
counsel, the Board (with one director absent due to illness) unanimously
recommended that all shareholders of Safety-Kleen reject the Revised Laidlaw
Environmental Exchange Offer and not tender their Shares pursuant to such
offer. The Board also unanimously (with one director absent due to illness)
reaffirmed its determination that the terms of the Merger Agreement are in the
best interests of Safety-Kleen and its shareholders.
On January 5, 1998, Laidlaw Environmental publicly announced that in the
interests of clarity it has adjusted the Revised Laidlaw Environmental
Exchange Offer to limit the deductions from the cash portion of such offer to
up to $75 million in termination fees and expenses, which Laidlaw
Environmental estimates to be approximately $1.17 per Share on a fully diluted
basis if the entire $75 million were paid. The Board held a special meeting on
January 6, 1998. At that meeting, William Blair confirmed to the Board that in
connection with its presentation to the Board on December 20th and the
rendering of its December 20th written opinion, it took into account the
possibility that the deductions from the cash portion of the Revised Laidlaw
Environmental Exchange Offer could be no more than $75 million in termination
fees and expenses (see "--Opinions of Financial Advisor--December 20, 1997
Opinion"). Accordingly, William Blair confirmed that the announced
clarification of the Revised Laidlaw Environmental Exchange Offer does not
change its December 20th opinion. The Board also reviewed its December 20th
deliberations with respect to the deductions from the cash portion of
18
the Revised Laidlaw Environmental Exchange Offer, confirmed that among the
factors it had taken into account was the possibility that such deductions
might be no more than $75 million and confirmed its rejection of the Revised
Laidlaw Environmental Exchange Offer, notwithstanding Laidlaw Environmental's
announced clarification of such offer. The Board also reaffirmed its
determination that the terms of the Merger Agreement are in the best interests
of Safety-Kleen and its shareholders.
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
November 20th Board Meeting. 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 UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT ON THE
ENCLOSED GOLD PROXY CARD.
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."
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, applying the Board's familiarity with Safety-Kleen's business,
financial condition, prospects, current business strategy and opportunities
and Safety-Kleen's position in its industries, considered a number of factors,
including, among others, the following:
(i) presentations by Safety-Kleen's management relating to Safety-Kleen's
financial performance and future opportunities and prospects, including a
review of current financial performance, a preliminary report on a possible
acquisition, possible writeoffs, progress in new businesses such as
comprehensive services involving treatment and recycling of aqueous
cleaning solutions and metal working and other fluids, and provision of
services through its Total Environmental Activity Management approach;
(ii) the presentation of William Blair at the November 20, 1997 Board
meeting and the written opinion of William Blair dated November 20, 1997
that, based upon and subject to the matters set forth therein and as of the
date thereof, the cash consideration to be received by Safety-Kleen's
shareholders in the Merger was fair to Safety-Kleen's shareholders from a
financial point of view. See "--Opinions of Financial Advisor";
(iii) the fact that William Blair contacted a substantial number of
potential bidders over an extended period of time in a process designed to
elicit third party proposals to acquire Safety-Kleen and enhance
shareholder value and that participants in such process had been afforded
sufficient time and information to submit such a proposal had they wished
to do so;
(iv) the Board's review, based in part on presentations by Safety-Kleen's
management and financial advisors, of alternatives to the 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;
(v) 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";
(vi) historical market prices and trading information for Safety-Kleen's
Shares, including the fact that the $27.00 cash price represents a premium
of approximately 52% over the closing price of $17.81 per Share on August
7, 1997, the last trading day prior to the public announcement that Safety-
Kleen was considering strategic alternatives and had retained William
Blair;
(vii) the terms and conditions of the 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
19
connection with the Merger up to a maximum of $25.0 million) to Parent
payable upon termination of the Agreement as a result of, among other
things, Safety-Kleen accepting a competing offer that is more favorable to
Safety-Kleen's shareholders; and (ii) those relating to the ability of the
Board to consider unsolicited offers from third parties prior to the
effectiveness of the Merger; and
(viii) 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 (including Parent's advice that it looked forward to discussing
participation by current management in the equity of the Surviving
Corporation through stock option or similar plans and the potential
investment by Safety-Kleen management in Parent) and to maintain Safety-
Kleen's charitable commitments and community investment.
The foregoing describes all material factors considered and given weight by
the Board in connection with its decision to approve the Merger and the Merger
Agreement. 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.
December 20th Board Meeting. At its meeting on December 20, 1997, the Board
(with one director absent due to illness) unanimously (i) recommended that all
shareholders of Safety-Kleen reject the Revised Laidlaw Environmental Exchange
Offer and not tender their Shares pursuant to the Merger and (ii) reaffirmed
its determination that the terms of the Merger Agreement are in the best
interest of Safety-Kleen and its shareholders.
In the course of reaching its determination with respect to the Revised
Laidlaw Environmental Exchange Offer and its decision to reaffirm its November
20th determination that the terms of the Merger Agreement are in the best
interest of Safety-Kleen and its shareholders, 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 review by Safety-Kleen's legal counsel of the provisions of the
Merger Agreement relating to the ability of Safety-Kleen to furnish
information to, and participate in discussions or negotiations with, a
person making an unsolicited offer for Safety-Kleen if (x) the Board shall
conclude in good faith, after consultation with its financial advisor, that
such person has made or is reasonably likely to make a bona fide
acquisition proposal for a transaction more favorable to Safety-Kleen's
shareholders from a financial point of view than the transactions
contemplated by the Merger Agreement, and (y) in the opinion of the Board,
only after receipt of advice from independent legal counsel to Safety-
Kleen, the failure to provide such information or access or to engage in
such discussions or negotiations would cause the Board to violate its
fiduciary duties to Safety-Kleen's shareholders under applicable law, and,
related to that review:
(a) the presentation by William Blair concerning Safety-Kleen,
Laidlaw Environmental and the financial aspects of the Revised Laidlaw
Environmental Exchange Offer and the written opinion of William Blair
to the effect that, as of December 20, 1997, William Blair does not
have a basis for concluding that the Revised Laidlaw Environmental
Exchange Offer is superior to the Merger from a financial point of view
(such opinion having been expressed after review of the other factors
referred to herein and various financial criteria used in assessing the
Revised Laidlaw Environmental Exchange Offer, and having been based on
various assumptions and subject to various limitations reviewed for the
Board as part of William Blair's presentation). While it reached that
conclusion, William Blair did not, and was not engaged to, render an
opinion as to whether the Merger is superior to the Revised Laidlaw
Environmental Exchange Offer from a financial point of view. The
William Blair opinion was received to assist the Board in (i)
determining Safety-Kleen's rights and duties under the Merger Agreement
with respect to the Revised Laidlaw Environmental Exchange Offer and
(ii) exercising its fiduciary duties with respect thereto. See "--
Opinions of Financial Advisor--December 20, 1997 Opinion" below; and
(b) the advice of Safety-Kleen's legal counsel that, in light of the
presentation by William Blair and the other factors considered by the
Board, failure to provide information or access to, or participate
20
in discussions or negotiations with, Laidlaw Environmental would not
cause the Board to violate its fiduciary duties to Safety-Kleen's
shareholders under applicable law;
(ii) the presentation by Safety-Kleen's legal counsel of the Board's
fiduciary duties under applicable law, summarizing previous such
presentations that the Board had received in the course of its process of
considering Safety-Kleen's strategic alternatives, and the written opinion
of Safety-Kleen's special Wisconsin counsel that, subject to the
limitations and qualifications expressed therein, Safety-Kleen's directors
may take into account how a proposed transaction will affect other
constituencies, in addition to the shareholders of Safety-Kleen, in
carrying out their fiduciary duties; and that Wisconsin's business judgment
rule would be applicable to their judgment;
(iii) the fact that the value of the cash portion of the Revised Laidlaw
Environmental Exchange Offer is significantly less than $15 per Share due
to the stated but unfixed deductions for certain termination fees and
expenses, new severance agreements and certain other expenses, and that as
to the portion of such deductions for such termination fees and expenses
and such severance agreements, Laidlaw Environmental had filed soliciting
material with the Commission estimating such deductions at from $1.28 to
$2.14 per Share; and the advice of Safety-Kleen's legal counsel that the
provisions of the Merger Agreement relating to termination fees and
expenses, the new severance agreements and other expenses are valid and
binding on Safety-Kleen;
(iv) the fact that the value of the stock portion of the Revised Laidlaw
Environmental Exchange Offer could be materially and adversely affected by,
among other things: (a) the pricing collar on the exchange ratio under
which shareholders of Safety-Kleen would have no downside protection in the
event that the average price of Laidlaw Environmental's common stock used
in determining the exchange ratio is less than $4.29 per share
(particularly given the fact that Laidlaw Environmental's common stock
closed below $4.29 on December 10th, 11th, 17th and 18th); and (b) the
absence of any assurance that Laidlaw Environmental's common stock, when
ultimately received by holders of Shares, would have a market value of, or
could be sold for the price of, Laidlaw Environmental's common stock used
in determining the Exchange Ratio;
(v) the uncertain value of Laidlaw Environmental's common stock,
including uncertainties resulting from:
(a) the views of Safety-Kleen's management, based on the explanation
given to Safety-Kleen's management by Mr. Bullock at the November 5th
meeting between them, that Laidlaw Environmental would not be able to
achieve more than $26.4 million to $28.4 million of the $100 million to
$130 million of synergies it outlined in the Revised Laidlaw
Environmental Exchange Offer without significant reduction in service
quality, revenue and profit, and the fact that, based on William
Blair's presentation to the Board, the proposed business combination
would have a significant dilutive impact to Laidlaw Environmental's
earnings per share even if synergies of as much as $50 million were
achieved (see "Opinions of Financial Advisor--December 20, 1997
Opinion--1. Possible revision in financial analysts' estimates for
accretion in Laidlaw Environmental's fiscal 1998 EPS resulting from a
combination of Safety-Kleen and Laidlaw Environmental");
(b) the risks related to the ability of Laidlaw Environmental, which
was formed through the purchase by Rollins Environmental Services, Inc.
of all of Laidlaw Inc.'s hazardous and industrial waste operations on
May 15, 1997, to assimilate the operations of Safety-Kleen and to
integrate the departments, systems and procedures of Safety-Kleen
(including possible diversion of management's attention from the day-
to-day business of the combined companies and potential unanticipated
costs or other unanticipated adverse effects associated with the
foregoing);
(c) the fact that Laidlaw Environmental's common stock has, in the
past, traded at a premium to relevant multiples of "comparable"
companies, and there is no assurance that this trading range can be
maintained for shares of Laidlaw Environmental's common stock that
would be received by Safety-Kleen's shareholders in the Revised Laidlaw
Environmental Exchange Offer (see "Opinions of Financial Advisor--
December 20, 1997 Opinion--3. Possible price/earnings multiple
contraction in Laidlaw Environmental stock prior to closing");
(d) the fact that the Revised Laidlaw Environmental Exchange Offer
would result in an entity that has debt of approximately $2.1 billion
compared with Laidlaw Environmental's current debt of
21
approximately $890 million, which would make Laidlaw Environmental
particularly susceptible to adverse changes in its industry, the
economy and the financial markets generally; and
(e) the risks of material adverse impact on the value of Laidlaw
Environmental's common stock resulting from the issuance of
approximately 162 million to 202 million shares of Laidlaw
Environmental's common stock in connection with the Revised Laidlaw
Environmental Exchange Offer, as well as the substantial overhang from
the 121 million shares of Laidlaw Environmental's common stock owned by
Laidlaw Inc. and the $350 million 5% convertible debenture due 2009
(the "Laidlaw Convertible Debenture") issued by Laidlaw Environmental
that may be converted at the option of Laidlaw Inc. into Laidlaw
Environmental's common stock at a conversion price of $3.75 per share
beginning in 2002;
(vi) the fact that Laidlaw Environmental's commitment letter with respect
to the financing of the Revised Laidlaw Environmental Exchange Offer is
subject to numerous conditions, including the execution of definitive
agreements relating to a merger and its exchange offer and the satisfactory
completion of due diligence examinations; a comparison of the conditions to
the Revised Laidlaw Environmental Exchange Offer, including the condition
(the "Final Judicial Determination Condition") that Laidlaw Environmental
receive a final judicial determination (1) to the effect that Safety-Kleen
is not obligated to, and may not, pay any termination fees or expenses
pursuant to the Merger Agreement or any incremental costs, including the
cost of new severance arrangements and other expenses Safety-Kleen may
incur, in connection with the Merger or (2) stating the amount of such
fees, expenses and costs that Safety-Kleen is required to pay, to the
conditions to the Merger (see "The Merger Agreement--Conditions to
Consummation of the Merger") indicated that although both the Merger and
the Revised Laidlaw Environmental Exchange Offer are subject to significant
risks of non-consummation, the Final Judicial Determination Condition,
unlike the conditions to the Merger, is unlikely to be satisfied before
mid-1998;
(vii) the Board's disagreement, based upon an oral summary by Safety-
Kleen's legal counsel of information provided to counsel by Arthur Andersen
L.L.P., with Laidlaw Environmental's Pro Forma Financial Information
disclosed in its Registration Statement on Form S-4, as amended, with
respect to whether it fairly allocates the purchase price and/or selects
appropriate useful lives for Safety-Kleen's assets so as to comply with
generally accepted accounting principles. A limited review of Laidlaw
Environmental's allocation discloses that:
(a) Laidlaw Environmental's Pro Forma Financial Information reflects
an adjustment of $1.3 billion, writing up "certain Safety-Kleen
property, plant and equipment to fair value," stated to be allocated
"primarily [to] buildings, land, improvements and processing
equipment". This write-up increases Safety-Kleen's net property, plant
and equipment from $629.6 million to $1.9 billion and records related
depreciation expense of $32.4 million, using a 40 year estimated life
for the entire write-up. It appears to make little, if any, allocation
to machinery and equipment, autos and trucks, and leasehold
improvements; and
(b) Laidlaw Environmental's Pro Forma Combined Balance Sheet reflects
no purchase price allocation to identifiable intangible assets,
notwithstanding the fact that Safety-Kleen has significant identifiable
intangible assets including a publicly disclosed total of 400,000
customers, and software.
The Board was advised that a reasonable allocation could be made using
the changes to LLE's assumptions set forth below. Such changes to LLE's
allocation (which changes were based primarily on publicly available
information and not on appraisals of Safety-Kleen's assets and liabilities)
materially increases the loss from combined continuing operations by an
amount estimated to be approximately $0.12 per share, after tax, and has a
material negative impact on pro forma combined tangible net worth. Such
changed assumptions (which did not include input from Laidlaw Environmental
as to its future intended use of Safety-Kleen's assets or other actions)
were:
(1) the value of Safety-Kleen's property, plant and equipment and
equipment at customers is its original cost as disclosed in Safety-
Kleen's 1996 Annual Financial Statements (on the assumption that
appraisal would restore those depreciated assets to that level);
22
(2) a value of Safety-Kleen's customer list of approximately $300
million (calculated at an approximate per customer purchase price
derived from publicly available information on number of customers and
price paid for customers in recent Safety-Kleen acquisitions); and
(3) the following useful lives (derived as reasonable estimates from
Safety-Kleen's publicly disclosed accounting policies (adjusted to
reflect the fact that property, plant and equipment is used)):
equipment at customers--10 years, buildings and improvements--30 years,
leasehold improvements--10 years, machinery and equipment--10 years,
autos and trucks--4 years, goodwill--40 years, customer lists--6 years,
software--10 years.
(viii) the uncertainty as to the completion and timing of the Revised
Laidlaw Environmental Exchange Offer and any subsequent merger with Safety-
Kleen pursuant to which Laidlaw Environmental would acquire any remaining
Shares that it does not own (such merger is sometimes referred to herein as
the "Back-End Merger"), including the fact that:
(a) the Final Judicial Determination Condition is unlikely to be
satisfied before mid-1998. A preliminary hearing on this matter has
been scheduled by the Federal District Court for the Northern District
of Illinois for January 28, 1998; however, there can be no assurance as
to the timing of any final judicial determination; and
(b) unless Laidlaw Environmental beneficially owns at least 90% of
the outstanding Shares after consummation of the Revised Laidlaw
Environmental Exchange Offer, (1) the Back-End Merger would have to be
approved by Safety-Kleen shareholders at a duly called meeting held
after Safety-Kleen shareholders have received a proxy statement filed
with the Commission relating to the Back-End Merger, and (2) if Safety-
Kleen is a "resident domestic corporation" for purposes of the
Wisconsin Statutes (which Safety-Kleen believes it is, although the
matter is not free from doubt), the Back-End Merger would have to be
approved by both (x) the holders of at least 80% of the outstanding
Shares and (y) the holders of 66 2/3% of the outstanding Shares not
held by Laidlaw Environmental or its affiliates, unless certain fair
price standards are satisfied. Since Laidlaw Environmental has
indicated its intent to offer the same consideration per Share in the
Back-End Merger as is offered in the Revised Laidlaw Environmental
Exchange Offer, these fair price standards would not be satisfied if
the market value (as determined in accordance with the Wisconsin
Statutes) of Laidlaw Environmental's common stock on certain dates
prior to consummation of the Back-End Merger together with the cash
consideration included in the Revised Laidlaw Environmental Exchange
Offer were less than the per Share price paid in the Revised Laidlaw
Environmental Exchange Offer (valued in accordance with the Wisconsin
Statutes). In addition, these fair price standards would not be
satisfied if the market value (as determined in accordance with the
Wisconsin Statutes) per Share on certain dates prior to consummation of
such merger is greater than the aggregate amount of cash and the market
value (as determined in accordance with the Wisconsin Statutes) of
Laidlaw Environmental's common stock on certain dates prior to
consummation of such merger. Accordingly, if Safety-Kleen is a
"resident domestic corporation" (which Safety-Kleen believes it is,
although the matter is not free from doubt), there can be no assurance
that Laidlaw Environmental would obtain the required shareholder
approval if the consideration paid in the Back-End Merger did not
satisfy those fair price standards (see "State Takeover Statutes--Fair
Price Statute");
(ix) the fact that Safety-Kleen's shareholders' exposure to the impact of
environmental liabilities would increase if the Revised Laidlaw
Environmental Exchange Offer were consummated because of differences
between their respective environmental services businesses:
(a) Safety-Kleen is in the reclamation and resource recovery part of
the hazardous waste business--i.e., collection, storage and processing
of hazardous wastes without underground storage;
In contrast, Laidlaw Environmental is in the landfills and
incinerators part of the hazardous waste business--i.e., collection of
hazardous waste for burning or burying in hazardous waste landfills;
this sector presents greater long term liability risk since these
landfills will contain hazardous waste in perpetuity;
23
(b) For 230 facilities, Safety-Kleen provides financial assurance for
closure and post-closure care of $76.1 million, most of which is
covered on the strength of its balance sheet, and current reserves,
based on its actual experience in closing its own sites, of $49.2
million for remedial cleanup work, superfund site liability, and
closure activities;
In contrast, for 85 facilities, Laidlaw Environmental, based on its
1997 Form 10-K, is required to provide financial assurance of more than
$450 million, which it cannot satisfy on the strength of its balance
sheet, and must satisfy based on letters of credit, purchased insurance
or guarantees from its parent, Laidlaw Inc. Notwithstanding its
financial assurance obligation and its financial statement disclosure
that it expects to spend $280 million on environmental liabilities,
Laidlaw Environmental has reserved only $183.1 million for
environmental liabilities; and
(c) the statements in various analysts' reports, reflecting Laidlaw
Inc.'s management's stated goal of deconsolidating with Laidlaw
Environmental;
(x) the fact that if the Revised Laidlaw Environmental Exchange Offer and
the Back-End Merger were consummated, Laidlaw Inc. would own between 32%
and 36% of Laidlaw Environmental (without taking into account the Laidlaw
Convertible Debenture) and, therefore, would be able to exercise
significant influence over all matters requiring shareholder approval,
including the election of directors and approval of significant corporation
transactions; and
(xi) the fact that, at the November 5th meeting between Safety-Kleen and
Laidlaw Environmental, Laidlaw Environmental stated its intention to move
Safety-Kleen's Elgin headquarters to South Carolina and reduce Safety-
Kleen's work force, and the adverse impact that would have on Safety-
Kleen's employees and the surrounding communities.
The foregoing describes all material factors considered and given weight by
the Board in connection with its evaluation of the Revised Laidlaw
Environmental Exchange Offer. In view of the variety of factors considered in
connection with its evaluation of the Revised Laidlaw Environmental Exchange
Offer, the Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determinations and recommendation. In addition, individual members
of the Board may have given different weight to different factors. The Board
viewed its position and recommendation as being based on the totality of the
information presented to and considered by it.
OPINIONS OF FINANCIAL ADVISOR
General. Safety-Kleen retained William Blair to act as its financial advisor
in connection with Safety-Kleen's exploration of strategic alternatives for
enhancing shareholder value. No limitations were imposed by the Safety-Kleen
Board of Directors upon William Blair with respect to the investigations made
or the procedures followed by it in rendering its opinions to the Board.
William Blair is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
strategic combinations and acquisitions. Safety-Kleen retained William Blair as
its financial advisor on the basis of William Blair's experience and expertise
in transactions similar to the Merger, its reputation in the investment banking
community and its existing investment banking relationship with Safety-Kleen.
Edgar D. Jannotta, Sr., a Senior Director of William Blair, serves as a member
of the Board of Directors of Safety-Kleen.
Set forth below is a description, in summary form, of the principal elements
of the analyses made by William Blair in arriving at its opinions. The
preparation of a fairness opinion is a complex process and involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Therefore, such an opinion is not readily susceptible to summary description.
The preparation of a fairness opinion does not involve a mathematical
evaluation or weighing of the results of the individual analyses performed, but
requires William Blair to exercise its professional judgment, based on its
experience and expertise in considering a wide variety of analyses taken as a
whole. Each of the analyses conducted by William Blair was carried out in order
to provide a different
24
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 opinions. In performing its analyses,
William Blair made numerous assumptions with respect to industry performance,
business and economic conditions and other matters. The analyses performed by
William Blair are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
November 20, 1997 Opinion. At the November 20, 1997 meeting of the Safety-
Kleen Board of Directors, William Blair rendered its oral opinion (which
opinion was subsequently confirmed by delivery of a written opinion dated
November 20, 1997) that, as of such date, and based upon and subject to the
factors and assumptions set forth in such opinion, the consideration to be
received by Safety-Kleen's shareholders in the Merger is fair to Safety-Kleen's
shareholders from a financial point of view. The full text of William Blair's
opinion to Safety-Kleen's Board of Directors dated as of November 20, 1997 is
attached hereto as Annex 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.
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
25
described below, and reviewed with the management of Safety-Kleen the
assumptions upon which such analyses were based, and other factors.
Summaries of Valuation Analyses. In connection with its opinion and the
presentation of its opinion to the Board of Directors of Safety-Kleen, William
Blair performed certain valuation analyses, including: (i) a comparison with
comparable publicly traded companies, (ii) a discounted cash flow analysis,
(iii) an analysis of certain comparable acquisitions and (iv) a premium
analysis. Such analyses are summarized below.
Analysis of Certain Publicly Traded Companies. William Blair reviewed and
compared certain financial information relating to Safety-Kleen to
corresponding financial information, ratios and public market multiples for ten
publicly traded companies in the environmental services industry. Six of these
companies are solid waste management companies (the "Solid Waste Comparables")
and four are in the industrial waste management industry (the "Industrial Waste
Comparables"). The Solid Waste Comparables are (i) Allied Waste Industries,
Inc., (ii) Browning-Ferris Industries, Inc., (iii) USA Waste Services, Inc.,
(iv) Waste Management, Inc., (v) Waste Management International plc and (vi)
Wheelabrator Technologies Inc. The Industrial Waste Comparables are (i) Clean
Harbors, Inc., (ii) Envirosource, Inc., (iii) Laidlaw Environmental and (iv)
Philip. William Blair selected these companies because they are publicly traded
companies which William Blair deemed most comparable to Safety-Kleen's
operations and financial condition. Although William Blair compared the trading
multiples of the selected companies at the date of William Blair's opinion to
the implied purchase multiples of Safety-Kleen, none of the selected companies
is identical to Safety-Kleen. The per Share price calculations based on such
multiples ranged from $21.61 to $29.07 per Share.
Among the information considered were revenue, operating income ("EBIT"),
earnings before interest, taxes, depreciation and amortization ("EBITDA"), net
income, earnings per share ("EPS"), gross profit margins, EBIT margins and net
income margins, growth in revenues and net income, return on assets and equity,
and capital structure. The multiples and ratios for Safety-Kleen and the
comparable companies were based on the most recent publicly available financial
information and on EPS estimates for 1997 and 1998 from First Call Corporation,
and the closing share prices as of November 14, 1997.
William Blair observed that the multiples of common stock share price
("Price") to EPS, as well as multiples of market value plus book value of total
debt (including minority interests and preferred stock) less cash and
equivalents ("Enterprise Value") to revenues, EBIT and EBITDA implied by the
terms of the 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. Such assumptions include assumptions
regarding volume growth and pricing in Safety-Kleen's principal businesses.
Over the five year period ending 2002, Safety-Kleen management projected volume
growth for three of Safety-Kleen's principal businesses--North American Parts
Cleaner Services, North American Industrial Waste Services and Automotive Parts
Cleaner Services--to be 3.2%, 5.0% and 0.0% and annual price increases to be
5.6%, 2.7% and 1.0%, respectively. In its Oil Recovery Services business,
Safety-Kleen management projected revenue to increase at a compound annual rate
of 11% over the five year period ending 2002. Approximately 62% of the Oil
Recovery Services growth is expected to result from increased sales of
lubricating oils, primarily blended
26
products. Also, approximately 9% of the total increase in Oil Recovery Services
revenue over the same period reflects increases in base lubricating oil from
$0.91 in 1998 to $1.00 by 2001. The balance of the increase reflects increases
in oil collection volume and price. The estimates for cash flows are based upon
the assumption that markets for the hazardous waste industry and the U.S. and
international economic conditions remain relatively stable. Without limitation,
these cash flow estimates assumed that certain possible changes or developments
in Safety-Kleen's business, which could potentially favorably impact value,
would not affect cash flow during such period. In calculating the "terminal
value", William Blair assumed multiples of Enterprise Value to EBITDA ranging
from 6.0x to 8.0x, which multiples William Blair believed to be appropriate for
such an analysis. The annual and terminal free cash flows were discounted to
determine a net present value of the unleveraged equity value of Safety-Kleen.
Discount rates in a range of 10.0% to 12.0% were chosen based upon an analysis
of the weighted average cost of capital of the publicly traded comparable group
of companies described above. The DCF analysis indicated a valuation of the
equity of Safety-Kleen of between $1.5 billion to $1.8 billion, or $25.58 to
$30.35 per share. As a result, William Blair believes that the price to be paid
on the 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.
December 20, 1997 Opinion. On December 20, 1997 the Safety-Kleen Board of
Directors requested William Blair's opinion as to the superiority, from a
financial point of view, of the consideration which would be received
27
pursuant to the terms of the Revised Laidlaw Environmental Exchange Offer as
compared with the Merger. Based on the advice of Safety-Kleen's counsel,
William Blair made that comparison based on their respective anticipated values
from a financial point of view as of consummation.
At the December 20, 1997 meeting of the Safety-Kleen Board of Directors,
William Blair rendered its oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated as of December 20, 1997) that,
as of such date, and based upon and subject to the factors and assumptions set
forth in such written opinion, William Blair does not have a basis for
concluding that the Revised Laidlaw Environmental Exchange Offer is superior to
the Merger from a financial point of view. See clause(i)(a) of "--Reasons for
the Merger; Recommendation of Board of Directors--December 20th Meeting." The
full text of William Blair's opinion to the Safety-Kleen Board of Directors
dated as of December 20, 1997 is attached hereto as Annex C 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 Revised Laidlaw Environmental
Exchange Offer and does not constitute a recommendation to any Safety-Kleen
shareholder as to how such shareholder should vote at the Special Meeting.
In connection with William Blair's review of the Revised Laidlaw
Environmental Exchange Offer and the Merger and the preparation of its opinion,
William Blair: (a) reviewed the terms and conditions of the Merger Agreement
and the financial terms as set forth in the Merger Agreement and the
Preliminary Proxy Statement dated November 26, 1997 filed by Safety-Kleen with
the Commission; (b) reviewed the terms and conditions of the Revised Laidlaw
Environmental Exchange Offer and the financial terms as set forth in Amendment
No. 2 to the Registration Statement on Form S-4 filed by Laidlaw Environmental
with the Commission on December 16, 1997 with respect to the Revised Laidlaw
Environmental Exchange Offer (the "Registration Statement"); (c) analyzed the
historical revenue, operating earnings, net income, dividend capacity and
capitalization of both Laidlaw Environmental and certain other publicly held
companies that William Blair believes to be comparable to Laidlaw
Environmental; (d) analyzed certain publicly available financial and other
information relating to Laidlaw Environmental and the unaudited pro forma
combined financial information in the Revised Laidlaw Environmental Exchange
Offer and performed a sensitivity analysis on such pro forma financial
information based upon variable synergy assumptions; (f) reviewed the
historical market prices and trading volume of the common stock of Laidlaw
Environmental as well as its stock ownership and analyzed factors which could
influence the trading price of the common stock of Laidlaw Environmental on the
anticipated closing date for the Revised Laidlaw Environmental Exchange Offer;
(g) together with Safety-Kleen's management met with Mr. Bullock, Chairman of
Laidlaw Environmental; and (h) performed such other analyses as William Blair
deemed appropriate.
William Blair's opinion with respect to the Revised Laidlaw Environmental
Exchange Offer reflects only limited access to Laidlaw Environmental management
and no access to internal Laidlaw Environmental projections. Upon consummation
of either the Merger or the Revised Laidlaw Environmental Exchange Offer,
Safety-Kleen will pay William Blair a transaction fee. The amount of such fee
increases as the consideration received by Safety-Kleen's shareholders
increases.
In rendering its opinion, William Blair assumed that the Merger or the
Revised Laidlaw Environmental Exchange Offer would be consummated on the terms
described in the Merger Agreement or the Registration Statement, respectively,
without any waiver of any material terms or conditions by Safety-Kleen and that
obtaining the necessary regulatory approvals for the Merger or the Revised
Laidlaw Environmental Exchange Offer would not have an adverse effect on
Safety-Kleen.
William Blair's opinion was necessarily based on economic, market, financial
and other conditions as they existed on December 20, 1997, the date of its
opinion, and on the information available to William Blair as of such date. It
should be understood that, although subsequent developments may affect its
opinion, William Blair
does not have any obligation to update, revise or reaffirm its opinion. The
following is a summary of the material factors considered and principal
financial analyses performed by William Blair to arrive at its opinion. William
28
Blair performed certain procedures, including each of the financial analyses
described below, and reviewed with the Board of Directors of Safety-Kleen the
assumptions upon which such analyses were based.
Factors Considered and Summary of Analyses Performed. In connection with its
opinion and the presentation of its opinion to the Board of Directors of
Safety-Kleen, William Blair reviewed certain factors and performed certain
analyses, including: (i) a comparison of the current purported nominal value of
the Revised Laidlaw Environmental Exchange Offer with the $27.00 per share cash
consideration in the Merger; (ii) an assessment of the factors which could
influence the trading price of the Laidlaw Environmental common stock between
the time of announcement of a transaction with Laidlaw Environmental and
closing; and (iii) a discounted cash flow analysis of the value of the stock of
Laidlaw Environmental on a pro forma basis following an acquisition of Safety-
Kleen. Such factors and analyses are reviewed below.
Summary of Revised Laidlaw Environmental Exchange Offer. William Blair
reviewed the Revised Laidlaw Environmental Exchange Offer. Pursuant to its
terms, Laidlaw Environmental and a subsidiary propose to exchange, for each
outstanding Share, cash in the amount of $15.00 less termination fees and
expenses, new severance agreements and other deal expenses plus that number of
Laidlaw Environmental shares of common stock determined by an exchange ratio
subject to a collar. In soliciting materials filed with the Commission, Laidlaw
Environmental identified termination fees and expenses of $1.28 per share and
severance costs of $0.86 per share. The termination fees and expenses would
reduce the cash portion of the Laidlaw Environmental proposal by $1.28, from
$15.00 to $13.72 per share. Should the entire severance cost be deducted, the
cash portion would be further reduced by $0.86, from $13.72 to $12.86 per
share. While Laidlaw Environmental has challenged these fees, William Blair
assumed their validity for purposes of rendering its opinion. William Blair
noted that the exchange ratio provides Safety-Kleen shareholders with Laidlaw
Environmental common stock with a market value of $15.00, assuming that the
Laidlaw Environmental stock price for randomly selected days among the twenty
trading days prior to closing of the Revised Laidlaw Environmental Exchange
Offer averages between $4.28571 and $5.35714 per share. Should the price of
Laidlaw Environmental common stock as selected for use in its exchange ratio be
below $4.28571 at closing, the exchange ratio would be fixed at 3.5 shares;
should the price be above $5.35714 the exchange ratio would be 2.8 shares.
William Blair noted that on December 19, 1997, Laidlaw Environmental common
stock opened below the collar at $4.13 and closed within the collar at $4.44
per share. In addition, William Blair noted that Laidlaw Environmental common
stock closed below the collar on December 10, December 11, December 17 and
December 18, 1997. An average stock price selected at the time of closing for
the exchange ratio of below $4.29 would result in the stock portion of the
consideration having a market value of less than $15.00 at that time. Combining
the cash portion of less than $13.72 and the stock portion of $15.00, the
nominal value would at most be $28.72. Assuming the termination fees and
expenses are deducted from the cash portion, Laidlaw Environmental's average
stock price would have to decrease to $3.79 per share, or 14.6% below the
closing price on December 19, 1997 for the Revised Laidlaw Environmental
Exchange Offer to have a market value equal to the cash consideration of $27.00
per share in the Merger; should the entire severance cost be added to the
deductions from the cash portion, Laidlaw Environmental's average share price
would have to fall to $4.04 per share, or 9.0% from the closing price on
December 19, 1997 for the Revised Laidlaw Environmental Exchange Offer to have
a market value equal to the cash consideration of $27.00 per share in the
Merger.
Factors which could affect Laidlaw Environmental's share price prior to
closing of the Revised Laidlaw Environmental Exchange Offer. William Blair
advised the Safety-Kleen Board of Directors that the following factors could
affect the price of Laidlaw Environmental common stock:
1. Possible revision in financial analysts' estimates for accretion in
Laidlaw Environmental's fiscal 1998 EPS resulting from a combination of
Safety-Kleen and Laidlaw Environmental
William Blair pointed out that research analysts as of December 17, 1997 are
of the view that a Laidlaw Environmental acquisition of Safety-Kleen would
result in substantial accretion in its fiscal 1998 earnings per
share ("EPS"). As of December 17, 1997, the mean estimate of nine research
analysts for Laidlaw Environmental's fiscal 1998 EPS is $0.16. During a
telephonic conference with institutional investors on
29
November 4, 1997, following its announcement of a proposal to acquire all of
the outstanding Shares for a consideration per Share equal to $14 in cash and
2.4 shares of Laidlaw Environmental common stock, Mr. Bullock stated that the
acquisition of Safety-Kleen would be accretive and that one analyst's estimate
of a combined pro forma 1998 EPS of $0.28 was "in the ball park." This
estimate indicated accretion of approximately 75% to Laidlaw Environmental
resulting from the acquisition of Safety-Kleen. The accretion was dependent on
achieving annual synergies of approximately $100 million. On November 5, 1997,
a research analyst from Merrill Lynch reported that the acquisition of Safety-
Kleen would double his estimate to $0.30 per share.
William Blair noted that revised expectations by research analysts
concerning Laidlaw Environmental's synergy assumption would reduce their
estimates for 1998 results. William Blair performed a sensitivity analysis to
determine the accretion or (dilution) to EPS which would result from various
assumed levels of synergies. The table below shows the results of such
analysis.
EPS ACCRETION (DILUTION)
CALENDAR YEAR END
-------------------------------------
ANNUAL SYNERGIES ACHIEVED 1998 1999
------------------------- ----- -----
$25 million (34.6)% (23.0)%
$50 million (14.7) (9.3)
$75 million 5.2 4.5
$100 million 25.1 18.3
William Blair described the discussions regarding synergy expectations that
took place on November 5, 1997 between Mr. Bullock, members of management of
Safety-Kleen and their respective representatives. During that meeting, Mr.
Bullock presented the components of Laidlaw Environmental's synergy
expectations as follows:
. Internalization of Safety-Kleen waste into Laidlaw Environmental's
incineration facilities--$14 to $24 million
. Closing of branch facilities--$37 million ($1.5 million annual savings
per branch)
. Closing of recycle centers--$12 to $15 million ($2 to $2.5 million annual
savings per center)
. Selling, general and administrative savings--the balance, which includes
potential closing of Elgin facility (approximately $30 million)
. Total synergies--$93 to $106 million
During that meeting, Safety-Kleen management expressed significant doubt as
to Laidlaw Environmental's ability to achieve these levels of synergies, in
particular the realization of cost savings through the internalization of
waste streams and the closing of branch locations with resulting employee
reductions which would negatively impact service to customers.
Below are estimates prepared by Safety-Kleen management of synergies which
Laidlaw Environmental might achieve, based solely on their knowledge of
Safety-Kleen's business, publicly available information regarding Laidlaw
Environmental and Safety-Kleen's meeting with Mr. Bullock.
. Internalization of Safety-Kleen waste ($4.1 million total cost less
Laidlaw Environmental process and transportation expense of approximately
50%)--approximately $2.0 million
. Savings from consolidation with Safety-Kleen's operating facilities ($0.2
million per branch facilities and recycling centers)--$10 million to $12
million
. Selling, general and administrative expense savings--$14.4 million
. Total synergies--$26.4 to $28.4 million
30
For the purposes of its assessment of factors which could affect Laidlaw
Environmental's stock price, William Blair assumed, with the consent of the
Board of Directors of Safety-Kleen, total synergies of $50 million. In arriving
at this number, in addition to the aforementioned opinions of synergies,
William Blair took into account the November 5, 1997 meeting of Laidlaw
Environmental, its financial advisor, Safety-Kleen management and William
Blair. Because annual synergies of $50 million are substantially below
analysts' expectations and would result in a dilutive transaction to Laidlaw
Environmental, a downward revision of analysts' expectations could have the
impact of reducing Laidlaw Environmental's share price.
2. Pro forma financial statements
The Registration Statement contains unaudited pro forma combined financial
information. William Blair reviewed the basis of presentation of these
financial statements. Among other things, William Blair noted that Laidlaw
Environmental (based on its estimate of fair value) has allocated $1.9 billion
of the proposed purchase price to property, plant and equipment carried on
Safety-Kleen's books, net of depreciation, at $629 million. For accounting
presentation purposes, Laidlaw Environmental depreciates such assets over a 40
year period, resulting in an annual depreciation charge of $32.3 million.
William Blair noted that Laidlaw Environmental depreciates buildings over
periods of between 20 and 40 years and machinery over periods of between 5 and
30 years. If Laidlaw Environmental had prepared its pro forma financial
statements on a basis consistent with its historical reporting methodologies,
and were to change the depreciation period from 40 to 20 years, pretax income
would decrease by $32.3 million. While William Blair noted this in its
presentation to the Board, it did not reflect this change in any of its
analyses.
3. Possible price/earnings multiple contraction in Laidlaw Environmental stock
prior to closing
William Blair reviewed and compared certain financial information relating to
Laidlaw Environmental and Safety-Kleen to corresponding financial information,
ratios and public market multiples for nine publicly traded companies in the
environmental services industry. Taken as a whole, this is the same group of
comparable companies listed under "--November 20, 1997 Opinion" above. Although
William Blair compared the trading multiples of the selected companies as of
December 17, 1997 to Laidlaw Environmental, none of the selected companies is
identical to Safety-Kleen or Laidlaw Environmental. William Blair observed that
Laidlaw Environmental's common stock currently trades at very high EPS and
EBITDA multiples relative to its peer group of comparable companies as well as
its expected earnings growth rate. At December 17, 1997, Laidlaw
Environmental's stock price is trading at approximately 23.3x calendar 1998 EPS
and 16.5x LTM EBITDA (the EBITDA figures used for this calculation include the
pro forma results of Rollins Environmental Services) which represents a premium
to the industry median of approximately 38% for EPS, and 87% for LTM EBITDA.
William Blair pointed out that assuming $50 million of annual synergies, $1.28
of deductions from the cash portion of the Revised Laidlaw Environmental
Exchange Offer and a Laidlaw Environmental share price within the collar, the
value of the Revised Laidlaw Environmental Exchange Offer applying the Laidlaw
Environmental multiple would be $28.72. But if Safety-Kleen's multiple, the
industry median multiple or the S&P 500 multiple were used, the value to
Safety-Kleen shareholders would be $22.41, $23.78 and $26.39, respectively.
Additionally, Laidlaw Environmental's calendar 1998 P/E ratio is at 1.6x its
expected EPS long-term growth rate of 15%, compared to the industry's 1998 P/E
ratio to growth rate of 1.2x. William Blair noted that Safety-Kleen's operating
characteristics and growth prospects would be a major component of a pro forma
combined entity. As indicated in the unaudited pro forma combination analysis
for the year ended August 31, 1997 provided by Laidlaw Environmental in its
Registration Statement, Safety-Kleen's operations provided 51.9% of the
combined revenue and 102.7% of the combined operating income (before the
restructuring charge taken by Laidlaw Environmental related to the acquisition
of Rollins in the amount of $331.7 million). William Blair also noted that
estimated growth in earnings per share reported by First Call for the 1999
calendar year for Laidlaw Environmental and Safety-Kleen were 22.2% and 12.4%,
respectively. William Blair pointed out that after a
potential combination with Safety-Kleen, it was unlikely that Laidlaw
Environmental would be able to retain its multiples given the contribution of
the growth characteristics of Safety-Kleen's business to the combined entity.
31
4. Trading Characteristics of Laidlaw Environmental Common Stock
William Blair noted that for any exchange ratio for average Laidlaw
Environmental stock prices within the collar, Safety-Kleen shareholders would
receive Laidlaw Environmental stock with a value at closing of approximately
$870 million. William Blair compared this with the common stock's historical
trading characteristics of Laidlaw Environmental's common stock. Between
February 7, 1997, and December 17, 1997, approximately 29.2 million shares
traded representing approximately $117 million in total dollar volume as
compared with the $870 million proposed to be issued to Safety-Kleen
shareholders. The weighted average trading price for Laidlaw Environmental
during this period is $4.01 per share. During this same period, Laidlaw
Environmental's daily stock trading volume was less than 135,000 shares, or
$0.5 million in dollar volume. William Blair expressed concern as to the
ability of the market for the pro forma combined entity to absorb the shares
that would be issued to Safety-Kleen shareholders in the Revised Laidlaw
Environmental Exchange Offer.
William Blair contrasted the $27.00 all cash offer of the Merger with the
stock component of the Revised Laidlaw Environmental Exchange Offer and pointed
out that the value of Laidlaw Environmental's common stock would be affected,
up or down, by market conditions. On October 27, 1997, when the Dow Jones
Industrial Average fell 554 points, or 7.2%, Laidlaw Environmental's stock
dropped 13.8%.
Safety-Kleen shareholders are affected by a substantial overhang from the 121
million shares owned by Laidlaw Inc., constituting approximately 67.4% of
Laidlaw Environmental's outstanding shares. In addition, Laidlaw Inc. holds a
$350 million 5% subordinated convertible pay-in-kind debenture which becomes
convertible into 93 million shares of Laidlaw Environmental common stock in
2002. Laidlaw Inc. has been divesting itself of environmental assets since Mr.
Bullock became its Chief Executive Officer in 1993. Laidlaw Inc. management has
a stated goal of wanting to deconsolidate Laidlaw Environmental and make it
easier to potentially exit its Laidlaw Environmental investment by increasing
the float. The sale by Laidlaw Inc. of a sizable block of its stock could be
detrimental to the trading value of Laidlaw Environmental common stock.
William Blair compared the institutional holdings of Laidlaw Environmental
and Safety-Kleen, respectively. Based on Schedule 13-F filings, as of September
30, 1997, Laidlaw Environmental's 25 largest institutional holders represented
approximately 14% of its total market capitalization (based on December 16,
1997 share prices), and approximately 40% of Laidlaw Environmental's total
public float. This compares to 53% of Safety-Kleen's total market
capitalization which is held by its 25 largest institutional holders as of
September 30, 1997. William Blair also pointed out during the December 20, 1997
Board meeting that there is little overlap in institutional ownership for
Laidlaw Environmental's common stock in Safety-Kleen's common stock. Safety-
Kleen's institutional holders may assess ownership of the common stock of the
pro forma combined entity differently from ownership of Safety-Kleen common
stock, given their different investment characteristics, including leverage,
environmental risk, management, valuation and operations.
William Blair compared certain differences in operating, financial and other
characteristics between the ownership in Safety-Kleen common stock and common
stock of the pro forma combined entity. William Blair pointed out that Laidlaw
Environmental has substantial assets in hazardous waste and incineration
operations and that different environmental risk could be attached to such
operations as contrasted to Safety-Kleen's operations. William Blair noted that
in contrast to Safety-Kleen, Laidlaw Environmental does not pay a dividend.
Furthermore, upon closing, the pro forma combined entity, would have debt of
approximately $2.1 billion as opposed to Safety-Kleen's $246.1 million. Total
debt to total capitalization would increase from 33.2% for Safety-Kleen to
64.0% for the pro forma combined entity. The ratio of calendar 1998 EBITDA to
interest expense for Safety-Kleen is 12.2x compared to 2.9x for the pro forma
combined entity assuming $50 million of synergies. These factors could lead
current Safety-Kleen shareholders to either (i) sell Laidlaw Environmental
stock received in a transaction, potentially affecting the price of that stock
around the time of closing, (ii) short the Laidlaw Environmental common stock
in advance of closing in order to hedge their prospective position in
Laidlaw Environmental common stock; and/or (iii) convey a desire to sell
Laidlaw Environmental common stock after closing, and thereby create a
potential market overhang.
32
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 Laidlaw Environmental and Safety-Kleen could produce on a combined
basis over a five year period from 1998 to 2002. From this analysis William
Blair derived an intrinsic value for the combined entity as of the anticipated
closing date. The cash flows were based on the aforementioned projections
prepared by Safety-Kleen's management for Safety-Kleen on a stand-alone basis
combined with (i) estimates for Laidlaw Environmental's cash flow for fiscal
1998 and 1999 as contained in a research report dated September 25, 1997
prepared by Raymond James & Associates ("Raymond James"), arithmetically
adjusted by William Blair to approximate a calendar year and (ii) estimates for
Laidlaw Environmental's cash flow for the calendar years 2000, 2001 and 2002
prepared by William Blair by applying growth, margin and capital requirement
assumptions contained in the Raymond James report for the fiscal 1999 year. For
the reasons previously described, William Blair assumed annual synergies
achieved of $50 million. In calculating the terminal value, William Blair
assumed multiples of enterprise value to EBITDA ranging from 6.0x to 8.0x which
multiples William Blair believed to be appropriate for such an analysis. The
annual free cash flows and terminal values were discounted to determine a net
present value of the unleveraged equity value of the pro forma combined entity.
Discount rates in a range of 10.0% to 12.0% were chosen based upon an analysis
of the weighted average cost of capital of the publicly traded comparable group
of companies described above. The DCF analysis indicated an intrinsic value of
the pro forma combined entity of between $1.3 billion and $1.8 billion, or
$3.29 to $4.65 per share.
However, William Blair pointed out that the intrinsic value as derived in a
DCF analysis represents a value which assumes 100% control of the cash flows.
An owner of a single share, or a minority position, of a publicly traded stock
does not control the cash flow of that entity. Given that public shareholder
ownership is a non-control position, the intrinsic value normally exceeds
public prices by an amount described by William Blair as a "control premium."
William Blair referred to its premium analysis as described above in "--
November 20, 1997 Opinion", in which William Blair considered, for 22
industrial transactions which were announced from March 29, 1996 to September
29, 1997 and whose enterprise value ranged from $790.7 million to $2.8 billion,
the premiums paid in such transactions over each company's stock price prior to
the announcement of a transaction. The median premium paid in those
transactions was 45.7%, 42.8% and 28.7%, respectively, over each company's
stock price one month, one week and one day before each respective
announcement. In order to compare the intrinsic value per share with the market
price of Laidlaw Environmental common stock, William Blair selected a control
premium of 25%. William Blair believes that 25% is an appropriate control
premium because it is less than the median premiums in the 22 industrial
transactions, and therefore a conservative discount from the low and high
intrinsic value per share of the pro forma combined entity. William Blair
compared the aforementioned intrinsic values of $3.29 to $4.65 per share (as
discounted for such control premium to $2.63 to $3.72 per share) with the
collar contained in the Revised Laidlaw Environmental Exchange Offer and with
the $3.79 to $4.04 range of values per share for Laidlaw Environmental common
stock required to cause the Laidlaw Environmental transaction to be equivalent
to the Merger, from a financial point of view. William Blair noted that the
range of discounted intrinsic value of shares of the pro forma combined entity
is below the values necessary to result in the consideration in the Laidlaw
Environmental transaction equalling the consideration in the Merger.
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
33
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.
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 December 30, 1997, directors and executive officers held
in the aggregate options to purchase 2,375,614 Shares (including 2,180,614
options related to limited stock appreciation rights), including options that
will vest upon consummation of the 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, all
directors and executive officers who served at any time since the beginning of
Safety-Kleen's last fiscal year as a group would collectively be entitled to
receive approximately $24,452,904, including approximately $5,371,445 for Mr.
Brinckman. See "The Merger Agreement--Stock Options."
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
34
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, supplemental retirement and any other nonqualified retirement
plans.
If, during the three year employment period, the executive's employment is
terminated by Safety-Kleen (other than for Cause (as defined in such
agreements) or by reason of the executive's death or disability), or if the
executive terminates employment for Good Reason (as defined in such
agreements), the executive will receive: (i) guaranteed annual base salary,
guaranteed bonus and accrued vacation pay through the date of termination; (ii)
previously deferred and unpaid compensation; (iii) an amount equal to three
times the sum of the executive's guaranteed base salary and guaranteed bonus in
the year in which the termination occurs; (iv) the value of the unvested
portion of the executive's accounts under qualified Safety-Kleen plans, (v)
reimbursement for unpaid benefits which would have accrued if the executive had
remained employed by Safety-Kleen until three years after the Change of Control
under Safety-Kleen's excess benefit and supplemental plans; and (vi)
continuation of all medical, life insurance and other welfare benefits for a
period of three years from termination. The sum of the amounts referred to in
clauses (i) and (ii) is referred to as the "Accrued Obligations".
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
35
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 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 $46,036,306 for all
officers with Change of Control Severance Agreements, including approximately
$3,845,937 for Mr. Brinckman. 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. However, there have been no such discussions of these topics and it is
not expected that there will be any such discussion until after the Effective
Time.
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. Parent has expressed its present
intention to continue management of Safety-Kleen in the same positions as
management of the Surviving Corporation, subject to joint review by management
of Parent and Safety-Kleen after the Effective Time, but intends not to
continue Mr. Brinckman as an officer or employee of the Surviving Corporation.
Safety-Kleen currently expects that there will be no significant change in the
level of management benefit plans after the Effective Time. 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.
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Of such amount, it is estimated that approximately $1.64 billion will be used
to purchase the outstanding Shares and make payments with respect to
outstanding stock options, approximately $240 million will be used to repay
Safety-Kleen indebtedness and the remainder will be used to pay such related
fees and expenses. 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 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.
Safety-Kleen is not a party to the Equity Commitment Letter and, accordingly,
in the event of its breach, may not have a cause of action against the
breaching party. Accordingly, in such event, Parent might not have sufficient
funds to consummate the Merger.
Parent's Board of Directors will initially be comprised of eight directors
(whose directors are not yet known by Safety-Kleen) 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
37
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 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.
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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 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 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
39
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.
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.
Safety-Kleen has received from the Antitrust Division a request for
additional information with respect to the Merger. The result of this second
request is that the Merger may not be consummated until 20 calendar days after
the requested information has been provided by Safety-Kleen, Philip, Apollo and
Blackstone, unless the Antitrust Division terminates the waiting period prior
thereto. A similar request for additional information has been received by
Safety-Kleen with respect to the Revised Laidlaw Environmental Exchange Offer,
and Safety-Kleen understands that a request for additional information also has
been issued to Laidlaw Inc., the parent of Laidlaw Environmental. As a result,
the Revised Laidlaw Environmental Exchange Offer could not be consummated until
20 calendar days after the requested information has been provided to the
Antitrust Division by Laidlaw Inc., unless the Antitrust Division terminates
the waiting period prior thereto. Safety-Kleen cannot predict the expiration
date of such waiting periods.
APPRAISAL RIGHTS
Safety-Kleen shareholders are not entitled to any appraisal rights under
Wisconsin law in connection with the Merger.
40
THE MERGER AGREEMENT
Set forth below is a brief description of the material 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.
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
41
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 December 30, 1997, directors, executive officers and other employees held in
the aggregate Options to purchase 2,375,614 Shares, 2,180,614 of which were
Options related to LSARs.
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 or until 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 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 any shares of
its capital stock or declare, set aside, make or pay any dividend or
42
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 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
43
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 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
44
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 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 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,
45
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 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
46
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 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
47
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 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 Safety-Kleen's
written employment agreements, severance agreements and consulting agreements,
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 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.
48
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.
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.
49
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.
HIGH LOW
------ ------
1995:
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................... 29.00 18.13
1998:
First Quarter (through January
6, 1998)....................... $27.56 $26.88
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
January 6, 1998, 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 $27.50 and $26.88 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 1997, and has paid a cash dividend for 75 consecutive quarters since March
1979. 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."
50
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Share ownership as of December 30, 1997
of (i) shareholders who, to the knowledge of Safety-Kleen, owned beneficially
more than 5% of the outstanding shares of Common Stock; (ii) each of Safety-
Kleen's directors; (iii) each executive officer and (iv) Safety-Kleen's
directors and executive officers as a group.
NUMBER OF
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OWNED(1) SHARES(2)
---- ------------ -------------
FIVE PERCENT SHAREHOLDERS:
FMR Corp.
82 Devenonshire St., Boston, MA 02109....... 4,230,519 7.15%
Emery Family Group:
Joan Emery Lammers
1801 Seminary St., Alton, IL 62002........ 1,942,673(3) 3.28%
William H. Emery II
11388 SW Riverwoods Rd., Portland, OR
97219..................................... 1,645,510 2.78%
Lucy T. Otzen
100 Anchor Drive, #472, N. Key Largo, FL
33037..................................... 1,481,093(4) 2.50%
Edward W. Emery, Jr.
Route 18, Box 13, Bedford, IN 47421....... 69,621(5) .12%
Circle L. Enterprises L.P.
Landmark Center, P.O. Box 1056,
Lake Geneva, WI 53147.................... 1,367,520(4) 2.31%
DIRECTORS AND EXECUTIVE OFFICERS:
Donald W. Brinckman.......................... 907,105(6) 1.52%
Hyman K. Bielsky............................. 75,914(7) *
Roy D. Bullinger............................. 80,325(8) *
Robert J. Burian............................. 145,348(9) *
Andrew A. Campbell........................... -- *
Michael H. Carney............................ 155,918(10) *
Joseph Chalhoub.............................. 375,071(11) *
David A. Dattilo............................. 143,522(12) *
Lawrence Davenport........................... 15,047(13) *
Richard T. Farmer............................ 43,390(14) *
Scott E. Fore................................ 110,452(15) *
Russell A. Gwillim........................... 198,493(16) *
F. Henry Habicht II.......................... 67,435(17) *
Edgar D. Jannotta............................ 67,500(14) *
John G. Johnson, Jr.......................... 135,338(18) *
Scott D. Krill............................... 8,641(19) *
Karl G. Otzen................................ 1,481,093(4) 2.50%
Clark J. Rose................................ 95,763(20) *
Laurence M. Rudnick.......................... 53,816(21) *
Paul D. Schrage.............................. 31,180(14) *
C. James Schulz.............................. 23,050(22) *
Marcia E. Williams........................... 12,250(23) *
Robert W. Willmschen......................... 50,537(24) *
W. Gordon Wood............................... 71,317(14) *
All Directors and Officers as a Group (24
persons).................................... 4,348,415(25) 7.13%
- --------
*Denotes less than one percent of shares outstanding.
51
(1) Under regulations of the Securities and Exchange Commission, persons who
own or have the power to vote or dispose of shares, either alone or
jointly with others, are deemed to be the beneficial owners of such
shares. Such persons are also deemed to be the beneficial owners of
shares beneficially owned by certain close family members.
(2) Shares subject to options exercisable within 60 days of December 30, 1997
are considered outstanding for the purpose of determining the percent of
the class held by the holder of such option, but not for the purpose of
computing the percentage held by others.
(3) The shares shown for Joan Emery Lammers include 683,760 shares
contributed by or on behalf of Mrs. Lammers in December 1992 to Circle L
Enterprises L.P. (the "Circle L Limited Partnership"). See Note (4).
(4) Karl G. Otzen and Lucy T. Otzen (the "Otzens") are husband and wife. For
purposes of this table, each is deemed to own shares owned by the other,
and accordingly the same shares are shown opposite each of their names.
In December 1992, the Otzens caused 683,760 of the shares shown opposite
each of their names to be contributed to Circle L Limited Partnership.
The general partner which controls the Partnership is a corporation in
which Karl G. Otzen, Lucy T. Otzen, Joan Emery Lammers and her husband
(the "Lammers") each own 25% of the voting stock and each occupies one of
the four positions on the Board of Directors. Because the Otzens and
Lammers share voting power over all of the shares held by the
Partnership, each of them may be deemed to "own" all shares in the
Partnership under the criteria governing this table. To enhance clarity
of presentation, however, the shares contributed to the Partnership by
Joan Emery Lammers are shown only opposite her name in the table and the
shares contributed by the Otzens are shown only opposite their respective
names. The shares shown opposite the Otzens' names also include: 757,721
shares owned by trusts of which the Otzens are co-trustees, 9,100 shares
owned by a trust of which The Northern Trust Company is trustee and
30,000 shares subject to options exercisable by Karl G. Otzen within 60
days of December 30, 1997.
(5) All shares are owned by a trust of which The Northern Trust Company is
trustee.
(6) Includes 73 shares owned by his wife, 537,492 shares subject to options
exercisable within 60 days of December 30, 1997 and 1,265 shares held in
Safety-Kleen's 401(k) plan as to which he does not have voting control.
(7) Includes 71,537 shares subject to options exercisable within 60 days of
December 30, 1997 and 1,692 shares held in Safety-Kleen's 401(k) plan as
to which he does not have voting control.
(8) Includes 69,587 shares subject to options exercisable within 60 days of
December 30, 1997.
(9) Includes 141,487 shares subject to options exercisable within 60 days of
December 30, 1997.
(10) Includes 22,000 shares owned by his wife and 109,449 shares subject to
options exercisable within 60 days of December 30, 1997.
(11) Includes 275,000 shares owned by Breslube Industries, Ltd. of which 100%
is owned by Mr. Chalhoub. Also included are 59 shares owned by his wife,
75 shares owned by his son and 99,937 shares subject to options
exercisable within 60 days of December 30, 1997.
(12) Includes 112,177 shares subject to options exercisable within 60 days of
December 30, 1997.
(13) Includes 15,025 shares subject to options exercisable within 60 days of
December 30, 1997 and 22 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(14) Includes 30,000 shares subject to options exercisable within 60 days of
December 30, 1997.
(15) Includes 21 shares owned by his wife and 108,187 shares subject to
options exercisable within 60 days of December 30, 1997 and 336 shares
held in Safety-Kleen's 401(k) plan as to which he does not have voting
control.
(16) Includes 30,223 shares owned by his wife and 30,000 shares subject to
options exercisable within 60 days of December 30, 1997. Mr. Gwillim is
also a co-trustee for 45,827 shares held in an irrevocable trust for
which he has no beneficial ownership; such shares are not included in the
table.
(17) Includes 64,724 shares subject to options exercisable within 60 days of
December 30, 1997 and 221 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
52
(18) Includes 130,912 shares subject to options exercisable within 60 days of
December 30, 1997 and 539 shares held in the Company's 401(k) plan as to
which he does not have voting control. Mr. Johnson resigned from the
Company on August 8, 1997.
(19) Includes 8,249 shares subject to options exercisable within 60 days of
December 30, 1997 and 292 shares held in Safety-Kleen's 401(k) plan as to
which he does not have voting control.
(20) Includes 84,006 shares subject to options exercisable within 60 days of
December 30, 1997.
(21) Includes 52,075 shares subject to options exercisable within 60 days of
December 30, 1997.
(22) Includes 21,125 shares subject to options exercisable within 60 days of
December 30, 1997.
(23) Includes 11,250 shares subject to options exercisable within 60 days of
December 30, 1997.
(24) Includes 50,537 shares subject to options exercisable within 60 days of
December 30, 1997.
(25) Includes 1,867,756 shares subject to options exercisable within 60 days of
December 30, 1997 and 4,367 shares held in Safety-Kleen's 401(k) plan as
to which they do not have voting control.
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, and on December 5, 1997, a total of seven
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 December 5, 1997, six of the seven actions were consolidated into
a single action.
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"
prohibitions of federal securities laws by certain of its public announcements
made before the effectiveness of the registration statement with the Commission
relating to the Laidlaw Environmental shares it proposes to use in its offer
for Safety-Kleen. The suit also challenged Laidlaw Environmental's asserted
right under Wisconsin law to demand such a shareholders' meeting at that time.
53
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 assert claims against Safety-
Kleen for violation of certain Wisconsin statutes pertaining to furnishing of
shareholder lists and takeovers, and against the directors for breach of
fiduciary duty in failing to negotiate with Laidlaw Environmental and entering
into the Merger Agreement, including the termination fees and expenses, and
for failure to amend the shareholder rights plan to make it inapplicable to
the Revised Laidlaw Environmental Exchange Offer, 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.
On December 4, 1997, the Federal District Court of the Northern District
Court of Illinois ruled that Laidlaw Environmental can seek the approval of
Safety-Kleen shareholders at a special meeting to restore voting power to
Shares that Laidlaw Environmental may acquire in excess of 20% of the
outstanding Shares. Accordingly, Safety-Kleen has scheduled a special meeting
of shareholders on January 9, 1998 to vote on such restoration of voting
power. The Court has also scheduled a preliminary hearing for January 28, 1998
on Laidlaw Environmental's request that the Rights Agreement be amended to
make it inapplicable to the Revised Laidlaw Environmental Exchange Offer and
that the Court void the termination fee and certain other provisions of the
Merger Agreement.
STATE TAKEOVER STATUTES
As a Wisconsin corporation, Safety-Kleen is subject to the provisions of the
Wisconsin Statutes affecting "business combinations" (as defined in the
Wisconsin Statutes) and other transactions between corporations and their
shareholders. In addition, Chapter 552 of the Wisconsin Statutes provides
further anti-takeover protection for certain Wisconsin-based corporations.
Business Combination Statute. Sections 180.1140 to 180.1144 of the Wisconsin
Statutes (the "Wisconsin Business Combination Statute") regulate a broad range
of "business combinations" between a Wisconsin resident domestic corporation
(which Safety-Kleen believes it is, although the matter is not free from
doubt) and an "interested stockholder" (which Laidlaw Environmental would be
if it consummated the Revised Laidlaw Environmental Exchange Offer). The
Wisconsin Business Combination Statute defines a "business combination" to
include a merger or share exchange, sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets equal to at least 5%, 10% of its
earning power, or issuance of stock or rights to purchase stock with a market
value equal to at least 5% of the outstanding stock, adoption of a plan of
liquidation and certain other transactions involving an "interested
stockholder." An "interested stockholder" is defined as a person who
beneficially owns, directly or indirectly, 10% of the voting power of the
outstanding voting stock of a corporation or who is an affiliate or associate
of the corporation and beneficially owned 10% of the voting power of the then
outstanding voting stock within the last three years. A "resident domestic
corporation" is generally defined as a domestic corporation that satisfies any
of the following: (i) its principal offices are located in Wisconsin; (ii) it
has significant business operations located in Wisconsin; (iii) more than 10%
of the holders of record of its shares are residents of Wisconsin; or (iv)
more than 10% of its shares are held of record by residents of Wisconsin. The
Wisconsin Business Combination Statute prohibits a corporation from engaging
in a business combination (other than a business combination of a type
specifically excluded from the coverage of the statute) with an interested
stockholder for a period of three years following the date such person becomes
an interested stockholder, unless the board of directors approved the business
combination or the acquisition of the stock that resulted in a person becoming
an interested stockholder before such acquisition. Business combinations after
the three-year period following the stock acquisition date are permitted only
if (i) the board of directors approved the acquisition of the stock prior to
the acquisition date; (ii) the business combination is approved by a majority
of the outstanding voting stock not beneficially owned by the interested
stockholder; or (iii) the consideration to be received by shareholders meets
certain requirements of the statute with respect to form and amount. In light
of the determination of the Board of Directors of Safety-Kleen set forth under
"The Merger--
54
Reasons for The Merger; Recommendation of Board of Directors" above, the Board
has determined not to take any action that would render the Wisconsin Business
Combination Statute inapplicable to the Back-End Merger.
Fair Price Statute. Sections 180.1130 to 180.1132 of the Wisconsin Statutes
provide that certain mergers, share exchanges or sales, leases, exchanges or
other dispositions of assets in a transaction involving a "significant
shareholder" (which Laidlaw Environmental would be if it consummated the
Revised Laidlaw Environmental Exchange Offer) and a resident domestic
corporation (which Safety-Kleen believes it is, although the matter is not
free from doubt) are subject to a supermajority vote of shareholders (the
"Wisconsin Fair Price Statute"), in addition to any approval otherwise
required. A "significant shareholder" is defined as a person who beneficially
owns, directly or indirectly, 10% or more of the voting stock of a corporation
or an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting stock of the corporation within the last
two years. Such business combination must be approved by 80% of the voting
power of the corporation's stock and at least two-thirds of the voting power
of the corporation's stock not beneficially held by the significant
shareholder that is party to the relevant transaction or any of its affiliates
or associates, in each case voting together as a single group, unless the
following fair price standards have been met: (i) the aggregate value of the
per share consideration is equal to the higher of (a) the highest price paid
for any common shares of the corporation by the significant shareholder in the
transaction in which it became a significant shareholder or within two years
before the date of the business combination; (b) the market value of the
corporation's shares on the date of commencement of any tender offer by the
significant shareholder, the date on which the person became a significant
shareholder or the date of the first public announcement of the proposed
business combination, whichever is higher; or (c) the highest liquidation or
dissolution distribution to which holders of the shares would be entitled; and
(ii) either cash, or the form of consideration used by the significant
shareholder to acquire the largest number of shares, is offered.
Control Share Statute. Under Section 180.1150 (the "Wisconsin Control Share
Statute") of the Wisconsin Statutes, the voting power of shares, including
shares issuable upon conversion of convertible securities or exercise of
options or warrants, of a resident domestic corporation (which Safety-Kleen
believes it is, although the matter is not free from doubt) held by any person
or persons acting as a group in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of those
shares, unless the articles of incorporation otherwise provide. This
restriction does not apply to shares acquired directly from the resident
domestic corporation, in certain specified transactions, or in a transaction
in which the corporation's shareholders have approved restoration of the full
voting power of the otherwise restricted shares.
Defensive Action Statute. Section 180.1134 (the "Wisconsin Defensive Action
Restrictions") of the Wisconsin Statutes provides that in addition to the vote
otherwise required by law or the articles of incorporation of a resident
domestic corporation the approval of the holders of a majority of the shares
entitled to vote is required before such a corporation can take certain action
while a takeover offer is being made or after the takeover offer has been
publicly announced and before it is concluded. Under the Wisconsin Defensive
Action Restrictions, shareholder approval is required for the corporation to
(i) acquire more than 5% of the outstanding voting shares at a price above the
market price from any individual or organization that owns more than 3% of the
outstanding voting shares and has held such shares for less than two years,
unless an equal offer is made to acquire all voting shares; or (ii) sell or
option assets of the corporation which amount to at least 10% of the market
value of the corporation, unless in the case of this clause (ii) the
corporation has at least three independent directors and a majority of the
independent directors vote to opt out of this provision.
Corporate Takeover Statute. In addition to the Wisconsin Corporation, Law,
Chapter 552 of the Wisconsin Statutes (the "Wisconsin Corporate Takeover Law")
regulates a broad range of "takeover offers" (as defined in the Wisconsin
Corporate Takeover Law). The Wisconsin Corporate Takeover Law makes it
unlawful for any person to make a takeover offer involving a target company in
Wisconsin, or to acquire any equity securities of a target company pursuant to
the offer, unless a registration statement has been filed with the Wisconsin
commissioner of securities 10 days prior to the commencement of the takeover
offer or such takeover offer is exempted by rule or order of the commissioner.
However, the foregoing registration requirement applies only to a target
company that: (i) does not have any of its securities registered under Section
12 of the Exchange Act;
55
(ii) has at least 51% of its registered securities held of record by residents
of Wisconsin; or (iii) has at least 33% of its registered securities held of
record by residents of Wisconsin, has its principal office in Wisconsin and its
business or operations have a substantial economic effect in Wisconsin.
Although Safety-Kleen is a "target company" for purposes of the Wisconsin
Corporate Takeover Law, Safety-Kleen does not satisfy the foregoing conditions.
The Wisconsin Corporate Takeover Law also imposes certain reporting and filing
requirements on persons making a takeover offer, imposes certain substantive
requirements on the terms of any takeover offer and makes unlawful certain
fraudulent and deceptive practices, all of which provisions may be applicable
to the Revised Laidlaw Environmental Exchange Offer.
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
LOGO
Scott Krill
Secretary
January 6, 1998
Elgin, Illinois
56
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............................................ 1
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................................. 2
2.1. Conversion of Shares...................................... 2
2.2. Employee Stock Options.................................... 2
2.3. Surrender of Certificates................................. 3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............ 4
3.1. Organization and Qualifications........................... 4
3.2. Capitalization............................................ 4
3.3. Authority and Absence of Conflict......................... 5
3.4. Reports................................................... 6
3.5. Absence of Certain Changes; Liabilities................... 6
3.6. Employee Benefit Plans.................................... 6
3.7. Litigation; Violation of Law.............................. 8
3.8. Labor..................................................... 8
3.9. Taxes..................................................... 8
3.10. Environmental Matters..................................... 9
3.11. Brokers................................................... 10
3.12. Title to Properties....................................... 10
3.13. Information Supplied...................................... 10
3.14. Opinion Of Financial Advisor.............................. 11
3.15. Board Recommendation...................................... 11
3.16. Required Company Vote..................................... 11
3.17. Rights Agreement.......................................... 11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER... 11
4.1. Organization and Qualification............................ 11
4.2. Capital Stock of Parent and Purchaser..................... 11
4.3. Authority and Absence of Conflict......................... 12
4.4. Brokers................................................... 12
4.5. Interim Operations Of Parent and Purchaser................ 12
4.6. Proxy Statement........................................... 12
4.7. Funds Available........................................... 13
4.8. Ownership of Shares....................................... 13
4.9. No Litigation............................................. 13
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO
ARTICLE V. MERGER................................................... 13
5.1. Conduct Of Business Of The Company........................ 13
ARTICLE VI. ADDITIONAL AGREEMENTS.................................... 14
6.1. Preparation Of Proxy Statement; Shareholders Meeting...... 14
6.2. Access To Information; Confidentiality.................... 15
A-i
PAGE
----
6.3. Filings; Commercially Reasonable Best Efforts............ 15
6.4. Public Announcements..................................... 16
6.5. Notification of Certain Matters.......................... 16
6.6. Employee Benefits, etc................................... 16
6.7. Indemnification And Insurance............................ 16
6.8. Solicitation............................................. 17
ARTICLE VII. CONDITIONS PRECEDENT.................................... 18
Conditions To Each Party's Obligation To Effect The
7.1. Merger................................................... 18
7.2. Conditions To Obligations Of Parent...................... 19
7.3. Conditions To Obligation Of The Company.................. 20
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER....................... 20
8.1. Termination.............................................. 20
8.2. Effect Of Termination.................................... 21
ARTICLE IX. GENERAL PROVISIONS...................................... 21
9.1. Nonsurvival Of Representations And Warranties............ 21
9.2. Payment Of Certain Fees And Expenses..................... 21
9.3. Notices.................................................. 22
9.4. Certain Definitions; Interpretation...................... 23
9.5. Entire Agreement......................................... 23
9.6. Counterparts............................................. 23
9.7. Severability............................................. 23
9.8. Captions................................................. 23
9.9. Amendment................................................ 23
9.10. Waiver................................................... 24
9.11. No Third-Party Beneficiaries; Assignability.............. 24
9.12. Best Knowledge........................................... 24
9.13. Governing Law............................................ 24
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
A-ii
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."
A-1
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.
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.
A-2
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 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.
(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.
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(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 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
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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 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 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.
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(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 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
A-6
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 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 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
A-7
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 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.
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(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.
(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.
(ii) "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 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
A-9
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 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
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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.
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
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").
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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 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
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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.
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 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
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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.
(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
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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.
(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 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,
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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 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
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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
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
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
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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 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.
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(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.
(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 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.
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(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 Competitition 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 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
A-20
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
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
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
A-21
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
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
A-22
(b) 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 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.
A-23
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 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.
/s/ Donald W. Brinckman
By: _________________________________
Donald W. Brinckman
Chairman and Chief
Executive Officer
SK Parent Corp.
/s/ Colin Soule
By: _________________________________
Colin Soule
President
SK Acquisition Corp.
/s/ Colin Soule
By: _________________________________
Colin Soule
President
A-24
ANNEX B
LOGO
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
B-1
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 for the benefit of the
Company's Board of Directors. It is understood that this letter may not be
disclosed or otherwise referred to without our prior written consent, except
that this opinion may be included in a proxy statement mailed to shareholders
by the Company with respect to the Transaction.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of November 20, 1997, the consideration to be paid to the
Shareholders of the Company in the Transaction pursuant to the Merger
Agreement is fair, from a financial point of view, to such Shareholders.
Very truly yours,
William Blair & Company, L.L.C.
B-2
ANNEX C
LOGO
December 20, 1997
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, IL 60123-7857
Dear Directors:
You have requested our opinion as to the superiority, from a financial point
of view, of the consideration which would be received pursuant to the terms of
the amended proposed offer ("Proposed LLE Offer") made by Laidlaw
Environmental Services, Inc. ("LLE") as compared with the consideration which
would be received pursuant to the terms of the Agreement and Plan of Merger
dated as of November 20, 1997 (the "Merger Agreement") by and among the
Safety-Kleen Corp. (the "Company"), SK Parent Corp. ("Parent") and SK
Acquisition Corp., a wholly-owned subsidiary of Parent ("Purchaser") (the
"Merger"). Based on the advice of your counsel, we understand that the
Proposed LLE Offer and the Merger should be compared based on their respective
values upon consummation.
Pursuant to the terms of the Proposed LLE Offer, LLE and a subsidiary
propose to exchange, for each outstanding Common Share of the Company, cash in
the amount of $15.00 less certain expenses (no less than $1.28 per share and
estimated by LLE to be up to $2.14 per share) plus that number of LLE common
stock equal to the Exchange Ratio of not less than 2.8 shares and no greater
than 3.5 shares. Pursuant to the terms of, and subject to the conditions of,
the Merger Agreement, in the Merger, Purchaser will be merged into the Company
in a merger in which each of the outstanding shares of common stock of the
Company will be converted into a right of the Shareholder to receive $27.00
per share of common stock in cash.
We have acted as financial advisor to the Company in connection with the
Merger and the Proposed LLE Offer. In connection with our review of the Merger
and the Proposed LLE Offer and the preparation of our opinion herein, we have:
(a) reviewed the terms and conditions of the Merger Agreement and the
financial terms as set forth in the Merger Agreement and the Preliminary Copy
of the Proxy Statement dated November 26, 1997 as filed by the Company with
the Securities Exchange Commission ("SEC"); (b) reviewed the terms and
conditions of the Proposed LLE Offer and the financial terms as set forth in
the Amendment No. 2 to the Exchange Offer as filed by LLE with the SEC
("Amended Exchange Offer"); (c) analyzed the historical revenue, operating
earning, net income, dividend capacity and capitalization of both LLE and
certain other publicly held companies we believe to be comparable to LLE; (d)
analyzed certain publicly available financial and other information relating
to LLE and the pro forma combination analysis in the Amended Exchange Offer
and performed a sensitivity analysis on such pro formas based upon variable
synergy assumptions; (f) reviewed the historical market prices and trading
volume of the common stock of LLE as well as its stock ownership and analyzed
factors which could influence the trading price of the common stock of LLE on
the anticipated closing date for the proposed LLE Offer; (g) together with the
Company's management met with Jim Bullock, Chairman of LLE; and (h) performed
such other analyses as we have deemed appropriate.
Our opinion with respect to the Proposed LLE Offer reflects only limited
access to LLE management and no access to internal LLE projections.
In rendering our opinion, we have assumed that the Merger or the Proposed
LLE Offer would be consummated on the terms described in the Merger Agreement
or the Amended Exchange Offer, respectively, without any waiver of any
material terms or conditions by the Company and that obtaining the necessary
regulatory approvals for the Merger or Proposed LLE Offer would not have an
adverse effect on the Company.
C-1
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. During August of this year we
were retained by the Company to render financial advisory and investment
banking services in connection with the evaluation of its strategic
alternatives. The Company has paid us a fee in connection with rendering our
fairness opinion as it relates to the Merger. Upon the consummation of either
the Merger or the Proposed LLE Offer, the Company will pay us a transaction
fee. The amount of such fee increases as the consideration received by the
Company's stockholders increases.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors. It is understood that this letter may not be
disclosed or otherwise referred to without our prior written consent, except
that this opinion may be included in a proxy statement or other disclosure
document mailed to shareholders by the Company with respect to the Merger or
the Proposed LLE Transaction, as the case may be.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of December 20, 1997, we do not have a basis for concluding
that the Proposed LLE Offer is superior to the Merger from a financial point
of view.
Very truly yours,
William Blair & Company, L.L.C.
ANNEX D
Safety-Kleen anticipates that certain officers, directors, employees or
affiliates of Philip, Apollo, Blackstone, Parent and Merrill Lynch Pierce
Fenner & Smith, 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 Operating 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 L. Knauss.. Director
Allen Fracassi.... President, Chief Executive Officer and Director
Philip Fracassi... Executive Vice-President, Chief Operating 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
David B. Kaplan, Investment Manager; Director of Parent
D-1
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
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
VI. INNISFREE M&A
Parent has retained Innisfree M&A Incorporated ("Innisfree") to assist
Parent in connection with the solicitation of proxies from shareholders of
Safety-Kleen. Innisfree will receive customary compensation for its services
and will be indemnified by Parent. Innisfree is expected to employ
approximately 20 people in its proxy solicitation efforts.
D-2
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P R O X Y
[SAFETY KLEEN CORP. LOGO]
ONE BRINCKMAN WAY, ELGIN, ILLINOIS 60123-1499
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Donald W. Brinckman, Karl G. Otzen and Scott Krill, and any of them are ap-
pointed Proxies, with power of substitution, to vote all stock of the under-
signed at the Special Meeting of shareholders to be held February 11, 1998 at
3:00 p.m. in the Auditorium Room at the Harris Trust and Savings Bank, 111 West
Monroe, Chicago, Illinois 60603 and at any adjournment or postponement thereof,
upon the matter mentioned hereafter, and in their discretion upon such other
matters as may properly come
before said meeting. Receipt of Notice,
dated January 6, 1998 of Special Meet-
ing and accompanying Proxy Statement is
acknowledged, and any Proxy previously
given is revoked.
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
* FOLD AND DETACH HERE *
- --------------------------------------------------------------------------------
[X] Please mark your votes as in this example. 2897
----
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER MARKED HEREIN BY
THE UNDERSIGNED. IF NO MARKING IS MADE AS TO PROPOSAL 1, THIS PROXY WILL BE
VOTED "FOR" PROPOSAL 1.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
- --------------------------------------------------------------------------------
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.
[_] FOR [_] AGAINST [_]ABSTAIN
- --------------------------------------------------------------------------------
[_] Change of Address/Comments on Reverse Side
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.
SIGNATURE(S) ___________________ DATE __________________________________
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .