SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 [Amendment No. ______]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[X] 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):
[X] 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)(4) 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:
[_] 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:___________________________________________________________
LOGO
February 9, 1998
Dear Shareholder:
The Board of Directors of Safety-Kleen continues to believe that the $27.00
all cash Merger Agreement with the Philip Group is in the best interests of
Safety-Kleen and its shareholders, and, therefore, has unanimously recommended
that all shareholders of Safety-Kleen reject the Amended Laidlaw Environmental
Exchange Offer. The Board reached its conclusions at meetings on January 31,
1998, February 3, 1998 and February 7, 1998, in which it thoroughly reviewed
the Amended Laidlaw Environmental Exchange Offer with the assistance of its
advisors. At its February 7 meeting, the Board received the advice of Philip
Services Corp. that, although bank approvals are required, it is "confident
that the commitment for funding [Philip's] portion of the SK Parent entity
will be in place in advance of the shareholder meeting and that [Philip's]
funding will be in place when required." The full text of Philip's letter is
set forth in the accompanying proxy supplement.
Despite Laidlaw Environmental's late January changes to its proposal, the
ultimate value of that proposal is still substantially affected by the value
of its stock and many of the Board's initial concerns remain. As a result of
the transaction, the combined entity would carry more than $2.3 billion of
debt resulting in a debt-to-equity ratio of more than 71% compared to Safety-
Kleen's ratio of approximately 29%. Safety-Kleen shareholders would own a
substantial portion of the stock in the highly-leveraged company.
The Board remains convinced that Laidlaw Environmental cannot achieve its
estimated $100-$130 million of synergies due to our conviction that there is
very little overlap between Safety-Kleen's core service business and Laidlaw's
landfill and incineration business. We do not believe that Laidlaw can
accomplish more than $26.4 million to $28.4 million of synergies without
significant reductions in service quality, revenue and profit. Laidlaw
Environmental's proposed transaction would not prove accretive to shareholders
without Laidlaw Environmental achieving significant synergies. It is important
to emphasize that Laidlaw Environmental has a base of 18,000 mid to large-size
customers compared with Safety-Kleen's nearly 400,000 customers consisting
primarily of smaller-quantity generators. Safety-Kleen has a very transaction-
driven business performing over five million services annually.
Your Directors also considered the value of the $12.00 common stock portion
of Laidlaw Environmental's offer which is dependent upon its stock trading
above $4.29 per share. The Laidlaw Environmental stock, which has frequently
traded below this minimum level, was viewed by the Board as relatively
volatile. On February 6, 1998, Laidlaw Environmental common stock closed at
$4.19 per share. The Board is concerned about the potential impact on the
market price of Laidlaw Environmental stock from the massive issuance of 129
million to 162 million shares that would result from this transaction and
other risks relating to Laidlaw Environmental stock described in the proxy
supplement, as well as general economic and market uncertainties. The Board
believes that given the risks inherent in taking Laidlaw Environmental Stock
at this time, an all cash $27 per share transaction is preferable.
The significant differences between the business operations of Safety-Kleen
and Laidlaw Environmental were also evaluated as well as the expressed desire
of its parent, Laidlaw, Inc., to deconsolidate Laidlaw Environmental from its
balance sheet. Safety-Kleen recycles; Laidlaw Environmental incinerates and
puts wastes in landfills. The Board believes the latter results in much
greater potential environmental liability. If the Laidlaw Environmental
transaction were completed, Safety-Kleen shareholders would become subject to
these environmental risks from hazardous waste landfills and incinerators.
The Board, together with the principals of the Philip Group, remains
committed to seeking approval of the Merger Agreement at a special meeting of
shareholders. That meeting was originally scheduled for February 11.
However, in order to provide shareholders with additional time to consider the
information set forth in the accompanying proxy supplement and Schedule 14D-9
Amendment, the February 11 meeting will be adjourned to Wednesday, February
25, 1998, at 3:00 p.m., central time, at the Elgin Community College Business
Conference Center, 1700 Spartan Drive, Elgin, Illinois 60123. Accordingly, no
action on the Merger Agreement will be taken at the February 11 meeting.
I urge you to read the enclosed material carefully, especially the section
headed "Recent Developments--Reasons for the Recommendation", which addresses
in greater detail the concerns noted in this letter. 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 REGARDLESS
OF WHETHER YOU HAVE PREVIOUSLY SUBMITTED THE GREEN-STRIPED PROXY CARD SENT TO
YOU BY LAIDLAW ENVIRONMENTAL. PLEASE NOTE THAT ALTHOUGH THE ENCLOSED GOLD-
STRIPED PROXY CARD CONTINUES TO REFER TO THE FEBRUARY 11, 1998 SPECIAL
MEETING, AS SET FORTH ABOVE AND IN THE ACCOMPANYING PROXY SUPPLEMENT, THE
SPECIAL MEETING WILL BE ADJOURNED TO FEBRUARY 25. If the Merger Agreement 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.
WE FIRMLY BELIEVE THAT APPROVAL OF THE MERGER AGREEMENT IS THE BEST DECISION
FOR ALL SHAREHOLDERS AND URGE YOU TO VOTE "FOR" THE PROPOSAL.
Your Board of Directors and I greatly appreciate your continued support and
encouragement.
Sincerely,
LOGO
Donald W. Brinckman
Chairman Of The Board and Chief
Executive Officer
LOGO
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SUPPLEMENT TO PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
This Supplement (the "Supplement") to the Proxy Statement dated January 6,
1998 (the "Original Proxy Statement" and, as so supplemented, the "Proxy
Statement") is furnished in connection with the solicitation by the Board of
Directors (the "Board") of Safety-Kleen Corp. ("Safety-Kleen"), of proxies for
use at a Special Meeting (the "Special Meeting") of Safety-Kleen's
shareholders scheduled 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. On February 11, the Special Meeting will be adjourned
to February 25, 1998 to provide shareholders with additional time to consider
the information set forth in this Supplement. The Special Meeting will be
reconvened on Wednesday, February 25, 1998, at 3:00 p.m., central time, at the
Elgin Community College Business Conference Center, 1700 Spartan Drive, Elgin,
Illinois 60123. The Board of Directors has fixed the close of business on
January 5, 1998 as the record date for determining the shareholders entitled
to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. This Supplement and the accompanying Gold-Striped Proxy
Card are first being mailed to Safety-Kleen shareholders on or about February
9, 1998.
This Supplement modifies and supersedes certain information included in the
Original Proxy Statement previously distributed to Safety-Kleen shareholders
and should be read in conjunction with the Original Proxy Statement.
Capitalized terms used but not defined in this Supplement have the meanings
assigned to them in the Original Proxy Statement. To the extent information in
this Supplement conflicts with information contained in the Original Proxy
Statement, the information in this Supplement shall be deemed to supersede and
replace the conflicting information in the Original Proxy Statement.
This Supplement is being furnished in connection with the solicitation of
proxies for the purpose described in the Proxy Statement. 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. Pursuant to
the Merger Agreement (a) Purchaser will be merged (the "Merger") with and into
Safety-Kleen, which will be the surviving corporation in the Merger and will
thereby become a wholly-owned subsidiary of Parent, and (b) each Share 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
February 6, 1998, the most recent practicable trading day prior to the date of
this Supplement, the closing price per Share on the New York Stock Exchange
was $26.25.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Additional copies of this Supplement, the Original 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. IF YOU HAVE ANY
QUESTIONS REGARDING THE SPECIAL MEETING OR THE PROXY STATEMENT (INCLUDING THIS
SUPPLEMENT) OR NEED ASSISTANCE IN COMPLETING AND SUBMITTING GOLD-STRIPED PROXY
CARDS, PLEASE CALL:
CHASE MELLON SHAREHOLDER SERVICES
1-888-224-2734 (TOLL FREE)
All information contained in the 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 the 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 Supplement is February 9, 1998
IMPORTANT NOTICES
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING GOLD-STRIPED PROXY IN THE RETURN ENVELOPE WHICH HAS BEEN
PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. ANY PERSON
GIVING A PROXY AS PROVIDED HEREIN HAS THE POWER TO REVOKE IT PRIOR TO THE
SPECIAL MEETING. VOTING YOUR SHARES BY PROXY DOES NOT PREVENT YOU FROM VOTING
YOUR SHARES IN PERSON SHOULD YOU DECIDE TO ATTEND THE SPECIAL MEETING.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU DO NOT COMPLETE OR SEND IN THE
GREEN-STRIPED PROXY FROM LAIDLAW ENVIRONMENTAL SERVICES, INC. IF YOU HAVE
ALREADY DONE SO, YOU MAY REVOKE THE GREEN-STRIPED PROXY BY COMPLETING AND
RETURNING THE GOLD-STRIPED PROXY IN THE ENCLOSED RETURN ENVELOPE. ONLY YOUR
LATEST DATED PROPERLY EXECUTED PROXY WILL BE COUNTED. THOSE SHAREHOLDERS WHO
HAVE TENDERED THEIR SHARES TO LAIDLAW ENVIRONMENTAL CAN STILL VOTE THOSE
SHARES BY COMPLETING AND RETURNING THE GOLD-STRIPED PROXY.
FORWARD-LOOKING STATEMENTS
Certain information contained in the Proxy Statement (including this
Supplement) 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 Amended Laidlaw Environmental Exchange
Offer (as defined herein), are forward-looking statements. When used in the
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 Supplement, the Original 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").
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THE PROXY STATEMENT
(INCLUDING THIS SUPPLEMENT) OTHER THAN THOSE CONTAINED THEREIN OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE THEREIN. 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 SUPPLEMENT 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 THE ORIGINAL PROXY
STATEMENT, AS SUPPLEMENTED BY THIS SUPPLEMENT, OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF, AS THE CASE MAY BE.
2
INTRODUCTION
This Supplement is being provided in connection with the recent amendment by
Laidlaw Environmental Services, Inc. ("Laidlaw Environmental") to the
unsolicited Revised Laidlaw Environmental Exchange Offer described in the
Original Proxy Statement (as amended, the "Amended Laidlaw Environmental
Exchange Offer").
As set forth more fully below, on January 31, February 3 and February 7,
1998, the Safety-Kleen Board of Directors met to consider the Amended Laidlaw
Environmental Exchange Offer and unanimously (i) rejected the Amended Laidlaw
Environmental Exchange Offer and recommended that shareholders of Safety-Kleen
not tender their Shares pursuant to the Amended Laidlaw Environmental Exchange
Offer and (ii) reaffirmed its determination that the terms of the Merger
Agreement among Parent, Purchaser, and Safety-Kleen are in the best interests
of Safety-Kleen and its shareholders. Parent is a new corporation formed by
Philip Services Corp. ("Philip"), affiliates of Apollo Management, L.P.
("Apollo") and affiliates of Blackstone Management Partners III L.L.C.
("Blackstone").
RECENT DEVELOPMENTS
BACKGROUND
On January 8, 1998, Safety-Kleen mailed copies of its definitive Original
Proxy Statement with respect to its solicitation of proxies to approve the
Merger Agreement at the Special Meeting.
On January 9, 1998, at a special meeting of Safety-Kleen shareholders,
shareholders approved a proposal under a provision of Wisconsin law to permit
Laidlaw Environmental to vote with one vote per share all Shares held or
acquired by Laidlaw Environmental or its subsidiaries.
On January 26, 1998, Laidlaw Environmental issued a press release announcing
the Amended Laidlaw Environmental Exchange Offer.
On January 27, 1998, Safety-Kleen issued a press release advising Safety-
Kleen shareholders to defer taking any action with respect to the Amended
Laidlaw Environmental Exchange Offer until the Board of Directors of Safety-
Kleen has announced its position, which position is reflected in Amendment No.
10 to Safety-Kleen's Schedule 14D-9 filed with the Commission on February 9,
1998. Safety-Kleen also announced that the Antitrust Division of the
Department of Justice has granted early termination of the waiting period
associated with a Hart-Scott-Rodino review concerning the Merger. On January
28, 1998, Laidlaw Environmental announced that such early termination also has
been granted with respect to the Amended Laidlaw Environmental Exchange Offer.
On January 28, 1998, Laidlaw Environmental filed an amended prospectus (the
"Amended Prospectus") with the Commission that amends and restates its
exchange offer to acquire all of the outstanding Shares. Under the terms and
conditions of the Amended Laidlaw Environmental Exchange Offer described in
the Amended Prospectus, Laidlaw Environmental and LES Acquisition, Inc. (the
"Offeror"), a wholly-owned subsidiary of Laidlaw Environmental, offer to
exchange $18.00 net cash and that number of shares of Laidlaw Environmental
common stock ("Laidlaw Environmental Common Stock") equal to the Amended
Exchange Ratio (as defined below) (the cash and stock consideration is
sometimes collectively referred to herein as the "Amended Laidlaw
Environmental Exchange Offer Consideration"), for each outstanding Share.
According to the Amended Prospectus, the "Amended Exchange Ratio" means the
quotient (rounded to the nearest 1/100,000) determined by dividing $12.00 by
the weighted average trading prices for Laidlaw Environmental Common Stock (as
reported on the New York Stock Exchange Inc. (the "NYSE") Composite
Transactions reporting system as published in The Wall Street Journal or, if
not published therein, in another authoritative source) for ten NYSE trading
days (each, a "Trading Day") selected by lot from the twenty Trading Days
ending three business days immediately prior to the expiration date of the
Amended Laidlaw Environmental Exchange Offer, provided, that the Amended
Exchange Ratio shall not be less than 2.24 nor greater than 2.80.
3
According to the Amended Prospectus: (i) the purpose of the Amended Laidlaw
Environmental Exchange Offer is for Laidlaw Environmental to obtain control
of, and ultimately the entire equity interest in, Safety-Kleen; (ii) Laidlaw
Environmental presently intends, as soon as practicable after consummation of
the Amended Laidlaw Environmental Exchange Offer, to propose and seek to have
Safety-Kleen effect a merger of the Offeror with and into Safety-Kleen; and
(iii) the consideration per Share in such merger would be identical to the
Amended Laidlaw Environmental Exchange Offer Consideration.
Shareholders should be aware that 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), then unless
Laidlaw Environmental acquires beneficial ownership of at least 90% of the
outstanding Shares, the subsequent merger of the Offeror into Safety-Kleen
would have to be approved by both (a) the holders of at least 80% of the
outstanding Shares and (b) 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. There can be no assurance that Laidlaw Environmental
would obtain the required shareholder approval or that the Amended Laidlaw
Environmental Exchange Offer Consideration would satisfy those fair price
standards.
On February 4, 1998, the Federal District Court for the Northern District of
Illinois issued a ruling affirming the decision of the Board of Directors of
Safety-Kleen to leave the Rights Agreement in place with respect to the
Revised Laidlaw Environmental Exchange Offer. The Court's decision does not
address Safety-Kleen's ability to leave the Rights Agreement in place with
respect to the Amended Laidlaw Environmental Exchange Offer.
On February 5, 1998, the Court denied Laidlaw Environmental's motion to find
that the Board of Directors of Safety-Kleen had violated the federal
securities laws by not responding to the Amended Laidlaw Environmental
Exchange Offer prior to February 5, 1998.
On January 31, February 3 and February 7, 1998, the Board of Directors of
Safety-Kleen met to consider the Amended Laidlaw Environmental Exchange Offer
and took the actions described below.
RECOMMENDATION OF BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF SAFETY-KLEEN CONTINUES TO BELIEVE THAT THE MERGER
IS IN THE BEST INTERESTS OF SAFETY-KLEEN AND ITS SHAREHOLDERS AND, THEREFORE,
THE BOARD UNANIMOUSLY RECOMMENDS THAT ALL SHAREHOLDERS OF SAFETY-KLEEN REJECT
THE AMENDED LAIDLAW ENVIRONMENTAL EXCHANGE OFFER AND NOT TENDER THEIR SHARES
PURSUANT TO THE AMENDED LAIDLAW ENVIRONMENTAL EXCHANGE OFFER.
At a Board meeting held on January 31, 1998, the Board of Directors of
Safety-Kleen determined that given the uncertainties and risks affecting the
value of the Laidlaw Environmental Common Stock and the other factors
discussed under "Reasons for the Recommendation" below relating to the January
31 meeting, it could not conclude the consideration payable in the Amended
Laidlaw Environmental Exchange Offer is financially superior to the
consideration payable in the Merger or that Laidlaw Environmental is
reasonably likely to make an offer that is financially superior to the
consideration payable in the Merger. For this reason, and in light of the
Board's concerns with respect to the adverse effects which the Amended Laidlaw
Environmental Exchange Offer would have on the interests of employees at
Safety-Kleen's Elgin facility and the Elgin community, and on other employees
necessarily involved in any attempts by Laidlaw Environmental to achieve $100-
$130 million in synergies, the Board concluded that the Amended Laidlaw
Environmental Exchange Offer does not constitute a Superior Proposal (as
defined in the Merger Agreement). In light of this decision, and in accordance
with the terms of the Merger Agreement, the Board has determined not to
furnish information to, or participate in discussions or negotiations with,
Laidlaw Environmental. At the same meeting, the Board unanimously reaffirmed
its determination that the terms of the Merger Agreement are in the best
interests of Safety-Kleen and its shareholders.
On February 1, 1998, the Executive Committee of the Board of Directors of
Safety-Kleen met to consider information received from Philip earlier that day
bearing on the Board's belief at its January 31 meeting that SK Parent would
be able to fund the Merger. The information received on February 1 caused the
Executive Committee to have concerns as to whether Philip would be able to
fund its equity commitment to SK Parent.
4
The Executive Committee determined that the actions of the Board at the
January 31, 1998 meeting should not be given effect until the Board could
reconvene to determine the impact, if any, of this information on its actions.
At a meeting of the Board of Directors on February 3, 1998, the Board ratified
the actions of the Executive Committee and determined to defer its
determination of its recommendation with respect to the Amended Laidlaw
Environmental Exchange Offer pending further advice from Philip.
At a meeting on February 7, 1998, the Board reviewed the following letter
(the "Philip Letter") received from Philip:
[Philip Services Corp. letterhead]
February 7, 1998
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123
Gentlemen:
We have been asked to address the issue of our desire to
proceed with the SK Parent/Safety-Kleen merger and the status
of the funding of our portion of the equity for SK Parent.
Philip remains eager to proceed with and to consummate the
merger. The benefits and prospects for the transaction which
we originally outlined to your management have not been
altered. From the time the merger agreement was executed, SK
Parent has satisfied its obligations under the merger
agreement in an effort to further the transaction. Among other
things, we achieved the Hart-Scott-Rodino clearance, we
intervened in the Federal Court litigation, we retained and
have actively utilized a premiere proxy soliciting firm, and
we have been working closely with your attorneys. We are also
in the process of finalizing the documentation with Apollo and
Blackstone and with respect to the SK Parent credit agreement
for the debt financing necessary to consummate the merger.
With respect to the funding of our portion of the SK Parent
equity, as we told your attorneys, we are having discussions
with our banks regarding such funding. We have had extensive
discussions with our lead bankers, as well as discussions with
certain of the other syndicate members during the past two
weeks. These discussions are ongoing and we are making good
progress. We understand that you plan to have the shareholder
meeting to vote on the merger on February 25, 1998. Although
bank approvals must be obtained and formal agreements must be
prepared, on the basis of the discussions we have had, we are
confident that the commitment for funding our portion of the
SK Parent equity will be in place in advance of the
shareholder meeting and that our funding will be in place when
required.
We remain committed to the Safety-Kleen merger and are
acting diligently to consummate the merger and satisfy the
conditions to the merger. We continue to believe that the
merger is in the best interests of your shareholders,
employees and other constituencies. We appreciate your
continued support.
Sincerely,
Philip Services Corp.
/s/ Allen Fracassi
Allen Fracassi
President and Chief Executive Officer
5
The Board also reviewed the factors discussed under "--Reasons for the
Recommendation" below which it had considered at its January 31 meeting in
reaching its conclusions. The Board once more concluded that the Merger is in
the best interests of Safety-Kleen and its shareholders and directed that that
position and the actions taken at the January 31 meeting should now be given
effect. Accordingly, the Board unanimously recommends that all shareholders of
Safety-Kleen reject the Amended Laidlaw Environmental Exchange Offer and not
tender their Shares pursuant to the Amended Laidlaw Environmental Exchange
Offer.
The Amended Laidlaw Environmental Exchange Offer is conditioned upon, among
other things, the Board having redeemed the Rights or amended the Rights
Agreement so that the Rights are inapplicable to the acquisition of Shares
pursuant to the Amended Laidlaw Environmental Exchange Offer, or Laidlaw
Environmental being otherwise satisfied in its sole discretion that the Rights
are invalid or are not applicable to the acquisition of Shares pursuant to the
Amended Laidlaw Environmental Exchange Offer and the proposed subsequent
merger of the Offeror into Safety-Kleen. In light of its decision discussed
above, the Board determined at its January 31 meeting (and confirmed at its
February 7 meeting) not to take any action to redeem the Rights or amend the
Rights Agreement in response to the Amended Laidlaw Environmental Exchange
Offer.
The Amended Laidlaw Environmental Exchange Offer is also conditioned upon
Laidlaw Environmental being satisfied, in its sole discretion, either that the
provisions of Section 180.1141 of the Wisconsin Statutes are inapplicable to
Laidlaw Environmental, the Offeror and the transactions contemplated by the
Amended Prospectus, or that the Wisconsin Statutes will not prohibit for any
period of time the consummation of the proposed merger or any other "Business
Combination" (as defined in such Statutes) involving Safety-Kleen and Laidlaw
Environmental or the Offeror, or any of their respective affiliates. In light
of its decision discussed above, the Board determined at its January 31
meeting (and confirmed at its February 7 meeting) not to take any action that
would render Section 180.1141 of the Wisconsin Statutes so inapplicable.
REASONS FOR THE RECOMMENDATION
In making its determination with respect to the Amended Laidlaw
Environmental Exchange Offer referred to above, the Board, at its meeting on
January 31, 1998, considered numerous factors, including, among others, the
following:
(i) the further review by Safety-Kleen's legal counsel of the provisions
of the Merger Agreement (which had previously been reviewed by the Board)
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 Amended Laidlaw
Environmental Exchange Offer and the written opinion of William Blair
to the effect that, as of January 31, 1998, it is more likely than not
that, as of the time of anticipated closing of the Amended Laidlaw
Environmental Exchange Offer, the value of the consideration which
would be received under the Amended Laidlaw Environmental Exchange
Offer would exceed the value of the consideration which would be
received in the Merger (such opinion having been expressed after review
of other factors referred to herein and various financial criteria used
in assessing the Amended 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). 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 Amended Laidlaw Environmental
Exchange Offer and (ii) exercising its fiduciary duties with respect
thereto. See "Opinion of Financial Advisor--January 31, 1998 Opinion"
below;
6
(b) the advice of Gregg A. Jarrell, Professor of Economics and
Finance at The William E. Simon Graduate School of Business
Administration at the University of Rochester ("Professor Jarrell"),
that, in his opinion, as of the anticipated closing of the Amended
Laidlaw Environmental Exchange Offer, the Amended Laidlaw Environmental
Exchange Offer would not have an economic value superior to the $27
cash payable in the Merger (such advice having been given based on an
analysis of the Amended Laidlaw Environmental Exchange Offer leading to
the conclusion that the economic value of the $12 per Share stated
nominal value of the stock portion of the consideration payable in the
Amended Laidlaw Environmental Exchange Offer should be substantially
discounted for two significant risk factors: the volatility of Laidlaw
Environmental Common Stock and the risk of inadequate synergistic
gains. Both risk factors result in the potential for adverse price
movements in the Laidlaw Environmental Common Stock that would cause
the actual value of the stock portion of the consideration included in
the Amended Laidlaw Environmental Exchange Offer to decline by the time
of consummation of the Amended Laidlaw Environmental Exchange Offer).
The advice of Professor Jarrell was received to assist the Board in (i)
determining Safety-Kleen's rights and duties under the Merger Agreement
with respect to the Amended Laidlaw Environmental Exchange Offer and
(ii) exercising its fiduciary duties with respect thereto. See "--
Advice of Economics Expert" below; and
(c) the advice of Safety-Kleen's legal counsel that, in light of the
Board's determination that it could not conclude that the consideration
payable in the Amended Laidlaw Environmental Exchange Offer is
financially superior to the consideration payable in the Merger and the
Board's concerns with respect to the adverse effects which the Amended
Laidlaw Environmental Exchange Offer would have on the interests of
employees at Safety-Kleen's Elgin facility and the Elgin community, and
on other employees necessarily involved in any attempts by Laidlaw
Environmental to achieve $100-$130 million in synergies, the Board
would be within the business judgment rule and would not breach its
fiduciary duty if it determined that the Amended Laidlaw Environmental
Exchange Offer does not constitute a Superior Proposal (as defined in
the Merger Agreement) and therefore determined not to furnish
information to, or participate in discussions or negotiations with,
Laidlaw Environmental;
(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 stock portion of the Amended Laidlaw
Environmental Exchange Offer could be materially and adversely affected by,
among other things: (a) the pricing collar on the Amended Exchange Ratio
under which shareholders of Safety-Kleen would have no downside protection
in the event that the average price of the Laidlaw Environmental Common
Stock used in determining the Amended Exchange Ratio is less than $4.29 per
share (particularly given the fact that the Laidlaw Environmental Common
Stock has traded below $4.29 on all but one of the trading days from
January 8 to January 30, 1998, traded as low as $3.00 as recently as August
8, 1997 and as low as $3.63 as recently as January 9, 1998, and closed at
$3.94 on January 30, 1998); and (b) the absence of any assurance that the
Laidlaw Environmental Common Stock, when ultimately received by holders of
Shares, would have a market value of, or could be sold for the price of,
the Laidlaw Environmental Common Stock used in determining the Amended
Exchange Ratio;
(iv) the uncertain value of the Laidlaw Environmental Common Stock,
including uncertainties resulting from:
(a) the risks related to present market conditions. In that
connection, the Board noted the greater desirability of an all cash
transaction;
7
(b) the views of Safety-Kleen's management 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
Amended 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 "Opinion of Financial Advisor--
January 31, 1998 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");
(c) 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);
(d) the fact that the Laidlaw Environmental 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 the Laidlaw Environmental Common Stock that
would be received by Safety-Kleen's shareholders in the Amended Laidlaw
Environmental Exchange Offer (see "Opinion of Financial Advisor--
January 31, 1998 Opinion--2. Possible price/earnings multiple
contraction in the Laidlaw Environmental Common Stock prior to
closing");
(e) the fact that the Amended Laidlaw Environmental Exchange Offer
would result in an entity that has debt of approximately $2.3 billion
compared with Laidlaw Environmental's current debt of approximately
$845 million, which would make Laidlaw Environmental particularly
susceptible to adverse changes in its industry, the economy and the
financial markets generally. In that connection, the Board took into
account the fact that the Amended Prospectus acknowledges that,
"[a]fter consummation of its transaction, Laidlaw Environmental will be
highly leveraged with substantial debt service obligations, including
principal and interest obligations with respect to bank debt of as much
as $1.8 billion. Therefore, Laidlaw Environmental will be particularly
susceptible to adverse changes in its industry, the economy and the
financial markets generally. In addition, Laidlaw Environmental's
ability to obtain additional debt financing will be limited by
restrictive covenants under the terms of its credit agreements and any
other debt instruments and those limits on financing may therefore
limit Laidlaw Environmental's ability to service its existing debt
obligations through additional debt financing if cash flow from
operations is insufficient to service such obligations." (emphasis
added); and
(f) the risks of material adverse impact on the value of the Laidlaw
Environmental Common Stock resulting from the issuance of approximately
129 million to 162 million shares of the Laidlaw Environmental Common
Stock in connection with the Amended Laidlaw Environmental Exchange
Offer, as well as the substantial overhang from the 121 million shares
of the Laidlaw Environmental Common Stock owned by Laidlaw, Inc. and
the $350 million 5% convertible debenture due 2009 (the "Laidlaw
Convertible Denture") issued by Laidlaw Environmental that may be
converted at the option of Laidlaw Inc. into Laidlaw Environmental
Common Stock at a conversion price of $3.75 per share in 2002 and the
Board's view that the current market value of the Laidlaw Environmental
Common Stock does not reflect such an adverse impact or the effects of
the various other uncertainties considered by the Board. The likelihood
of such an adverse effect is increased by (1) the substantial holding
of Shares by arbitrageurs, a number of whom have communicated to
William Blair, ChaseMellon Shareholder Services, Safety-Kleen's proxy
solicitation firm, and Safety-Kleen a disinclination to hold the
Laidlaw Environmental Common Stock, and (2) the significant differences
between Safety-Kleen and Laidlaw Environmental in terms of leverage and
nature of businesses, which could cause Safety-Kleen shareholders to be
disinclined to hold the Laidlaw Environmental Common Stock;
8
(v) the fact that Safety-Kleen's shareholders' exposure to the impact of
environmental liabilities would increase if the Amended Laidlaw
Environmental Exchange Offer were consummated, based on factors previously
discussed at length with the Board;
(vi) the fact that if the Amended Laidlaw Environmental Exchange Offer
and the subsequent merger of the Offeror into Safety-Kleen were
consummated, Laidlaw Inc. would own between 33.6% and 37.3% 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 corporate transactions;
(vii) the fact that a comparison of the conditions to the Amended Laidlaw
Environmental Exchange Offer to the conditions to the Merger indicated that
both the Merger and the Amended Laidlaw Environmental Exchange Offer are
subject to risks of non-consummation. In making this comparison, the Board
recognized that the $250 to $275 million pre-tax one time year-end
restructuring charge and physical inventory adjustment announced by Philip
(which prompted an announcement on January 30 by Moody's that it had placed
Philip debt ratings on review for a possible downgrade) could adversely
affect the ability of SK Parent to obtain the equity and debt funding to
consummate the Merger. However, the Board believed that each of Philip,
Apollo and Blackstone, respectively, were committed to the transaction and
able to carry it out;*
(viii) the uncertainty as to the completion and timing of the Amended
Laidlaw Environmental Exchange Offer and any subsequent merger of the
Offeror into Safety-Kleen, including the fact that unless Laidlaw
Environmental beneficially owns at least 90% of the outstanding Shares
after consummation of the Laidlaw Environmental Offer, (a) the subsequent
merger of the Offeror into Safety-Kleen 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 such merger, and (b) 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), such merger
would have to be approved by both (1) the holders of at least 80% of the
outstanding Shares and (2) 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 Amended Laidlaw Environmental Exchange Offer
Consideration for each then outstanding Share in the subsequent merger of
the Offeror into Safety-Kleen, these fair price standards would not be
satisfied if the market value (as determined in accordance with the
Wisconsin Statutes) of the Laidlaw Environmental Common Stock on certain
dates prior to the consummation of such merger together with the cash
consideration included in the Amended Laidlaw Environmental Exchange Offer
Consideration were less than the Amended Laidlaw Environmental Exchange
Offer Consideration (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 the consummation of such merger is greater than
the aggregate amount of cash consideration and the market value (as
determined in accordance with the Wisconsin Statutes) of the Laidlaw
Environmental 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
subsequent merger of the Offeror into Safety-Kleen did not satisfy those
fair price standards; and
(ix) the fact that, at the November 5 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, as well as the adverse
impact on other Safety-Kleen employees necessarily involved in any attempt
by Laidlaw Environmental to realize $100 million-$130 million in synergies.
At the February 7 meeting, the Board once more concluded that the Merger is
in the best interests of Safety-Kleen and its shareholders and directed that
that position and the actions described under
- --------
*See the Philip Letter set forth under "--Recommendation of Board of
Directors" with respect to the current status of Philip's funding.
9
"--Recommendation of Board of Directors" should now be given effect. The Board
concluded that while the consideration payable pursuant to the Merger
Agreement and the Amended Laidlaw Environmental Exchange Offer were close in
value, given the risks and uncertainties inherent in the Amended Laidlaw
Environmental Exchange Offer, the $27 all cash consideration payable in the
Merger is preferable. In reaching that conclusion the Board took into account
the Philip Letter and the factors it considered at the January 31, 1998
meeting, including management's views that Laidlaw Environmental could not
obtain more than $26.4 to $28.4 million of synergies without significant
reduction in service quality, revenues and profit, environmental risks, the
substantial leverage that would result from Laidlaw Environmental's
transaction, and the fact that there are many uncertainties in today's equity
market which is near an all time high. The Board also considered the effect of
the Amended Laidlaw Environmental Exchange Offer on Safety-Kleen employees and
communities, in contrast with the effect thereon of the Merger.
The foregoing describes all material factors considered and given weight by
the Board in connection with its evaluation of the Amended Laidlaw
Environmental Exchange Offer. In view of the variety of factors considered in
connection with its evaluation of the Amended 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.
OPINION OF FINANCIAL ADVISOR
January 31, 1998 Opinion. On January 31, 1998 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 pursuant
to the terms of the Amended Laidlaw Environmental Exchange Offer as compared
with the Merger. Based on the advice of Safety-Kleen's counsel and as in the
case of the December 20, 1997 opinion of William Blair included as Annex C of
the Original Proxy Statement (the "December 20th Opinion"), William Blair made
that comparison based on their respective anticipated values, from a financial
point of view, as of consummation.
At the January 31, 1998 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 January 31, 1998) that,
as of such date, and based upon and subject to the factors and assumptions set
forth in such written opinion, William Blair believes that it is more likely
than not that, as of the time of the anticipated closing of the Amended
Laidlaw Environmental Exchange Offer, the value of the consideration that
would be received under the Amended Laidlaw Environmental Exchange Offer would
exceed the value of the consideration which would be received in the Merger.
The full text of William Blair's opinion to the Safety-Kleen Board of
Directors dated as of January 31, 1998 is attached hereto as Annex A and is
incorporated herein by reference and should be read in its entirety in
connection with the 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 Amended 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 Amended 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
Original Proxy Statement filed by Safety-Kleen with the Commission and sent to
Safety-Kleen shareholders; (b) reviewed the terms and conditions of the
Amended Laidlaw Environmental Exchange Offer and the financial terms as set
forth in the Amended Prospectus; (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 Amended Laidlaw Environmental Exchange Offer and performed a sensitivity
analysis on such pro forma financial information based upon variable synergy
assumptions; (e) reviewed the historical market prices and trading volume of
the Laidlaw Environmental Common Stock as well as its stock ownership and
analyzed factors
10
which could influence the trading price of the Laidlaw Environmental Common
Stock on the anticipated closing date for the Amended Laidlaw Environmental
Exchange Offer; (f) together with Safety-Kleen's management met with Mr.
Bullock, Chairman of Laidlaw Environmental; and (g) performed such other
analyses as William Blair deemed appropriate.
William Blair's opinion with respect to the Amended 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 Amended 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
Amended Laidlaw Environmental Exchange Offer would be consummated on the terms
described in the Merger Agreement or the Amended Prospectus, respectively,
without any waiver of any material terms or conditions by Safety-Kleen and
that obtaining the necessary regulatory approvals, if any are still required,
for the Merger or the Amended 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 January 31, 1998, 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 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 updated the analyses presented to the Board for
the December 20th Opinion and reviewed certain factors and performed certain
analyses, including: (i) a comparison of the current purported nominal value
of the Amended 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
Laidlaw Environmental Common Stock on a pro forma basis following an
acquisition of Safety-Kleen. Such factors and analyses are reviewed below.
Comparison of Current Nominal Value Received in the Amended Laidlaw
Environmental Exchange Offer with the Merger. William Blair reviewed the
Amended 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 $18.00 plus that number of shares of Laidlaw
Environmental Common Stock determined by an exchange ratio subject to a
collar. William Blair noted that Laidlaw Environmental has accepted the
validity of break-up fees and expenses totaling $75 million and would incur
such costs should its offer be consummated. William Blair noted that the
exchange ratio provides Safety-Kleen shareholders with Laidlaw Environmental
Common Stock with a market value of $12.00 per Share, assuming that the
Laidlaw Environmental Common Stock price for ten randomly selected days among
the twenty trading days prior to closing of the Amended Laidlaw Environmental
Exchange Offer averages between $4.28571 and $5.35714 per share. Should the
price of the 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 2.8 shares; should the price be above $5.35714 the exchange ratio would be
2.24 shares. William Blair noted that on January 30, 1998, the Laidlaw
Environmental Common Stock closed below the collar at $3.938 per share. In
addition, William Blair noted that the Laidlaw Environmental Common Stock
closed below the collar on eight of thirteen trading days from January 13,
1998 to January 30, 1998 and that the average closing price during this period
was $4.26. An average stock price selected at the time of closing for the
exchange ratio of below $4.29 would result in the stock portion having a
market value of less than $12.00 per Share at that time. At the market close
on January 30, 1998, the nominal value comparison of the Amended Laidlaw
Environmental Exchange Offer was $29.03 per Share as compared with $27.00 per
Share in the Merger. For the Amended Laidlaw Environmental Exchange Offer to
have a market value equal to the cash consideration
11
of $27.00 per Share in the Merger, the Laidlaw Environmental Common Stock
price would have to decrease to $3.21 per share, or 18.5% below the closing
price on January 30, 1998, or 25.7% below the average of the twenty trading
days ending on January 30, 1998.
Factors which could affect Laidlaw Environmental's share price prior to
closing of the Amended Laidlaw Environmental Exchange Offer. As was the case
with the December 20th Opinion, William Blair identified several factors which
could place downward pressure on the price of the Laidlaw Environmental Common
Stock prior to the closing of the Amended Laidlaw Environmental Exchange
Offer. The analysis utilized the same assumptions as put forth under "The
Merger--Opinions of Financial Advisor--December 20, 1997 Opinion" in the
Original Proxy Statement. The principal factors include:
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 noted in the December 20th Opinion that research analysts as
of December 17, 1997 were of the view that a Laidlaw Environmental acquisition
of Safety-Kleen would result in substantial accretion in its fiscal 1998
earnings per share, but that revised expectations by research analysts
concerning Laidlaw Environmental's synergy assumption would reduce their
estimates for 1998 results. William Blair noted that because of the increase
in the cash portion of the offer and the payment by Laidlaw Environmental of
break-up fees and expenses totaling $75 million in the Amended Laidlaw
Environmental Exchange Offer, Laidlaw Environmental's 1998 EPS would suffer
more dilution than in their prior proposal depending on the annual synergies
achieved. 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.................... (46.4)% (27.7)%
$50 million.................... (24.1) (12.3)
$75 million.................... (1.9) 3.0
$100 million................... 20.3 18.4
2. Possible price/earnings multiple contraction in the Laidlaw Environmental
Common 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 "The Merger--Opinions of
Financial Advisor-November 20, 1997 Opinion" in the Original Proxy Statement.
Although William Blair compared the trading multiples of the selected
companies as of January 28, 1998 to Laidlaw Environmental, none of the
selected companies is identical to Safety-Kleen or Laidlaw Environmental.
William Blair observed that the Laidlaw Environmental Common Stock currently
trades at high EPS and EBITDA multiples relative to its peer group of
comparable companies. At January 28, 1998, the Laidlaw Environmental Common
Stock price was trading at approximately 20.0x calendar 1998 EPS and 15.8x 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 EPS and EBITDA multiples of approximately 36%, and 126%,
respectively, for LTM EBITDA. William Blair pointed out that assuming $50
million of annual synergies and the Laidlaw Environmental Common Stock price
within the collar, the value of the Amended Laidlaw Environmental Exchange
Offer applying the Laidlaw Environmental multiple would be $26.40 per Share.
If the industry median multiple or the S&P 500 multiple were used, the value
to Safety-Kleen shareholders would be $24.17 per Share and $27.03 per Share,
respectively.
12
3. The substantial market overhang resulting from the fact that Safety-Kleen
shareholders would receive up to 162 million shares of the Laidlaw
Environmental Common Stock in the Amended Laidlaw Environmental Exchange
Offer.
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 Amended Laidlaw Environmental Exchange Offer.
William Blair also noted that Safety-Kleen shareholders would be affected by a
substantial overhang from the 121 million shares owned by Laidlaw, Inc., which
constitutes approximately 67.4% of Laidlaw Environmental's currently
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 the 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 the Laidlaw Environmental Common Stock.
4. The potential impact of an overall market correction.
William Blair contrasted the $27.00 per Share all cash offer of the Merger
with the stock component of the Amended Laidlaw Environmental Exchange Offer
and pointed out that the value of the Laidlaw Environmental 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%, the Laidlaw
Environmental Common Stock dropped 13.8%.
Discounted Cash Flow Analysis. As a check, William Blair derived an
intrinsic value for the combined entity as of the anticipated closing date. To
estimate an intrinsic value, William Blair performed a discounted cash flow
("DCF") analysis using the assumptions described in the December 20, 1997
Opinion (see "The Merger--Opinions of Financial Advisors--December 20, 1997
Opinion" in the Original Proxy Statement) and reflecting the changes made by
the Amended Laidlaw Environmental Exchange Offer. Independent of the potential
trading price of the Laidlaw Environmental Common Stock at closing, the
intrinsic value of shares received at closing (based upon the DCF analysis)
would be in a range of $2.45 to $3.66 per share after a control premium
discount of 25%. William Blair pointed out that the DCF analysis supports the
view that there would be downward pressure on the value of the Laidlaw
Environmental Common Stock; however, it is not meant to predict a trading
range. William Blair noted that these factors have already been communicated
to the marketplace and may already be influencing the Laidlaw Environmental
Common Stock price to the extent it is believed that Laidlaw Environmental
will consummate the Amended Laidlaw Environmental Exchange Offer. William
Blair noted further that the fall in the Laidlaw Environmental Common Stock
price required to make the Amended Laidlaw Environmental Exchange Offer and
the Merger of equal value is greater now both as a percentage and in dollars
per share (under the Revised Laidlaw Environmental Exchange Offer, parity
required only a 14.6% drop or $0.65 per share).
Based upon the foregoing, William Blair concluded that it is likely that
there would be some downward movement in the Laidlaw Environmental Common
Stock price following an announcement of negotiations or a definitive
agreement with Laidlaw Environmental. However, William Blair opined that it is
unlikely that such downward movement would be of such magnitude as to cause
the entire current nominal value disparity ($2.03 per Share based upon the
closing price of the Laidlaw Environmental Common Stock on January 30, 1998)
to be eliminated. Accordingly, William Blair issued an opinion (see Annex A)
that the Amended Laidlaw Environmental Exchange Offer is more likely than not
to have a value at closing in excess of the cash consideration of $27.00 per
Share in the Merger.
Safety-Kleen's counsel asked William Blair to provide additional guidance as
to the likely range where the consideration offered by Laidlaw Environmental
might most likely be valued at closing. William Blair pointed out that, while
it is possible that the Amended Laidlaw Environmental Exchange Offer could
result in a value at closing below $27.00 per Share, it is also possible that
it could be valued above $29.03 per Share, the nominal value as of January 30,
1998. William Blair regarded either outcome as fairly unlikely. William Blair
also cautioned that any attempt to predict with any precision a future stock
price, or stock trading range, during a
13
very brief period of time is inherently difficult. Even given the difficulty
of predicting a stock trading range, William Blair pointed out that a 5% to
10% fall from the current price of the Laidlaw Environmental Common Stock
would not be out of the question, particularly if the market questions the
synergies (and therefore accretion) assertions of Laidlaw Environmental and
also if current Laidlaw Environmental or current Safety-Kleen shareholders who
wish to sell the stock were to do so in an undisciplined fashion.
ADVICE OF ECONOMICS EXPERT
General. Safety-Kleen retained Professor Jarrell to assist the Board in
evaluating the Amended Laidlaw Environmental Exchange Offer. No limitations
were imposed by the Safety-Kleen Board of Directors upon Professor Jarrell
with respect to the procedures followed by him in rendering his advice to the
Board. Professor Jarrell is Professor of Economics and Finance at The William
E. Simon Graduate School of Business Administration at the University of
Rochester. Safety-Kleen retained Professor Jarrell on the basis of his
experience and expertise in valuing businesses and securities and his existing
relationship with Safety-Kleen as an economic expert on various matters
relating to the Merger Agreement in the litigation between Safety-Kleen and
Laidlaw Environmental. Safety-Kleen has agreed to pay Professor Jarrell
$250,000 for advising the Board with respect to the Amended Laidlaw
Environmental Exchange Offer. Professor Jarrell is also compensated by Safety-
Kleen based on an hourly rate and reimbursement for out-of-pocket expenses for
his litigation services. Such compensation for his litigation services through
February 1, 1998 is estimated to be approximately $100,000.
Set forth below is a description, in summary form, of the principal elements
of the analyses made by Professor Jarrell in arriving at his advice to the
Board. The analyses performed by Professor Jarrell are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
January 31, 1998 Advice. At the January 31, 1998 meeting of the Safety-Kleen
Board of Directors, Professor Jarrell rendered his oral opinion that, as of
the anticipated closing of the Amended Laidlaw Environmental Exchange Offer,
the Amended Laidlaw Environmental Exchange Offer would not have an economic
value superior to the $27.00 cash payable in the Merger. Professor Jarrell's
advice was addressed to the Safety-Kleen Board of Directors for the purposes
of its evaluation of the Amended 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 his opinion, Professor Jarrell reviewed the Original
Proxy Statement filed by Safety- Kleen with the Commission and sent to Safety-
Kleen shareholders, the Amended Prospectus, publicly available information
relating to Safety-Kleen and Laidlaw Environmental, the historical market
prices and trading volume of the Laidlaw Environmental Common Stock and
certain financial analyses prepared by William Blair and previously presented
to the Board.
Based on Professor Jarrell's review, he estimated that the economic value of
the stock portion of the Amended Laidlaw Environmental Exchange Offer as of
the anticipated closing of the Amended Laidlaw Environmental Exchange Offer
would be at least 25% less than its stated nominal value of $12.00 per Share.
Professor Jarrell attributes this discount to at least two significant risk
factors: the volatility of the Laidlaw Environmental Common Stock and the risk
of inadequate synergistic gains. Both risk factors contribute to the potential
for adverse price movements in the Laidlaw Environmental Common Stock that
would cause the actual value of the stock portion of the Amended Laidlaw
Environmental Exchange Offer to decline by the time the Amended Laidlaw
Environmental Exchange Offer closes. The nominal $12.00 per Share value of
Laidlaw Environmental's stock portion is predicated on Laidlaw Environmental's
(weighted average) stock price being at least $4.29 at the time of such
closing. Thus, if Laidlaw Environmental's (weighted average) stock price is
below $4.29 at closing, then the stock portion of the Amended Laidlaw
Environmental Exchange Offer will be below $12.00 per Share. For example, if
Laidlaw Environmental's (weighted average) price were to decline to $3.00,
then the stock portion would be worth only $8.40 per Share.
14
Professor Jarrell observed that a review of recent actual prices during 1997
for the Laidlaw Environmental Common Stock reveals that it has traded well
below $4.29 for much of the time period from May 16, 1997 (the date the
present Laidlaw Environmental was created) to November 3, 1997 (the day before
Laidlaw Environmental's previous offer was publicly announced). The closing
stock price of the Laidlaw Environmental Common Stock was $2.625 on May 16,
1997, and thereafter it never closed above $4.00 until August 20, 1997.
Statistically speaking, Professor Jarrell viewed the Laidlaw Environmental
Common Stock as a relatively volatile stock during 1997. Based on its daily
closing prices during the period May 16 to November 3, 1997, Professor Jarrell
calculated the Laidlaw Environmental Common Stock's annualized standard
deviation of returns (a standard statistical measure of volatility) at 67.7%.
Following basic statistical probability theory, applying a 67.7% annual
standard deviation to the recent range of the Laidlaw Environmental Common
Stock trading prices, he calculated the probability that its price six months
from now will be less than $3.50 as approximately 40%; the probability is over
30% that the Laidlaw Environmental Common Stock price six months from now will
be less than $3.00. In this event, the stock portion of the Amended Laidlaw
Environmental Exchange Offer would be worth $8.40 per Share, which represents
a 30% discount from its $12.00 per Share nominal value. If a period of less
than six months were used for this analysis, the probabilities set forth above
would be reduced.
Professor Jarrell views the second risk factor as arising because the
economic value of the Amended Laidlaw Environmental Exchange Offer is
predicated on the uncertain prospects for attaining future "synergies."
Synergies refer to cost savings (or other economic benefits) that Laidlaw
Environmental hopes to realize from its proposed combination. Synergy risk
exists for selling Safety-Kleen shareholders only because of the presence of
the stock portion of the Amended Laidlaw Environmental Exchange Offer.
Professor Jarrell noted that corporate finance theory holds that, in
general, if an acquirer cannot achieve future synergistic gains that have a
present economic value equal to the premium paid for the target company, then
the market price of the bidder's stock will decline as a result of the
acquisition (holding all else equal).
Professor Jarrell prepared Annex B attached to this Statement showing, in
part, that if Laidlaw Environmental were to hypothetically acquire Safety-
Kleen under the terms of the Amended Laidlaw Environmental Exchange Offer, the
hypothetical value of the Laidlaw Environmental Common Stock at closing,
before giving effect to any synergies, would be $2.24 per share. In this
event, the value of the Amended Laidlaw Environmental Exchange Offer would be
$24.27 per Share. The stock portion of the Amended Laidlaw Environmental
Exchange Offer would be worth $6.27 per Share, which represents a 48% discount
to its nominal value of $12.00 per Share. (Annex B assumes that the maximum
2.8 shares of Laidlaw Environmental Common Stock would be issued on closing of
the Amended Laidlaw Environmental Exchange Offer.)
The exact magnitude of synergies that can be achieved in a proposed
combination is generally not known until well after the closing date of a
merger. Rather, the expected synergies must be estimated before the merger,
and such estimates are often subject to considerable uncertainty and
speculation. When the acquirer pays cash for a target company, the risk that
synergies will not be achieved falls entirely on the acquirer's stockholders.
But when the acquirer uses its stock as consideration, then a portion of this
"synergy risk" is borne by the target company's stockholders as well.
Professor Jarrell observed that the magnitude of estimated synergies that
could be realized by Laidlaw Environmental is disputed and subject to a wide
range. Laidlaw Environmental claims annual pre-tax synergies of at least $100
million annually from combining Safety-Kleen and Laidlaw Environmental,
William Blair assumed annual before-tax synergies of $50 million, and Safety-
Kleen believes the synergies would be no more than $28.4 million.
Annex B shows Professor Jarrell's calculation of the effect of two
alternative synergy assumptions on the hypothetical Laidlaw Environmental
Common Stock value at closing of the Amended Laidlaw Environmental Exchange
Offer and on the implied value of the Amended Laidlaw Environmental Exchange
Offer. Based on William Blair's annual synergy assumption of $50 million,
Professor Jarrell's analysis concluded that the hypothetical value of the
Laidlaw Environmental Common Stock ranges from $2.68 to $2.95 per share. The
range occurs for a given annual synergy estimate because of alternative
methods of discounting the assumed
15
annual synergies to a present economic value. (See Annex B.) Under these
conditions, the implied value of the Amended Laidlaw Environmental Exchange
Offer ranges from $25.56 to $26.26 per Share, with a mid-point of $25.91 per
Share. By this analysis, the stock portion of the Amended Laidlaw
Environmental Exchange Offer has an implied value of approximately $7.91 per
Share, which represents a 34% discount to its nominal $12.00 per Share value.
Professor Jarrell's analysis concluded that, based on Laidlaw
Environmental's annual synergy figure of $100 million, the hypothetical value
of the Laidlaw Environmental Common Stock ranges from $3.12 to $3.66 per
share. (See Annex B.) Under these conditions, the implied value of the Amended
Laidlaw Environmental Exchange Offer ranges from $26.72 to $28.26 per Share,
with a mid-point of $27.49 per Share. By this analysis, the stock portion of
the Amended Laidlaw Environmental Exchange Offer has an implied value of
approximately $9.49 per Share, which represents a 20.9% discount to its
nominal $12.00 per Share value.
Thus, Professor Jarrell concluded, on the basis of his analysis described
above, that the synergy risk inherent in the Amended Laidlaw Environmental
Exchange Offer creates a significant risk to Safety-Kleen shareholders of
adverse price movement in the Laidlaw Environmental Common Stock before
closing of the Amended Laidlaw Environmental Exchange Offer. He noted that,
assuming hypothetically that there is a 50% probability that Laidlaw
Environmental's estimated synergies are correct, and a 50% probability that
William Blair's synergy figure is correct, then the implied value of the stock
portion of the Amended Laidlaw Environmental Exchange Offer is $8.70 per
Share, which represents a 27.5% discount to its nominal $12.00 per Share
value.
Accordingly, Professor Jarrell concluded that, in his opinion, the two risk
factors discussed above make it reasonable to apply a discount of at least 25%
to the stock portion of the Amended Laidlaw Environmental Exchange Offer.
Based on this analysis and his review of the relevant materials, he advised
the Board that it is his opinion that, as of the anticipated closing of the
Amended Laidlaw Environmental Exchange Offer, the Amended Laidlaw
Environmental Exchange Offer would not have an economic value greater than
$27.00 per Share.
CERTAIN LEGAL MATTERS
SHAREHOLDER LITIGATION
On January 28, 1998, the Federal District Court for the Northern District of
Illinois began a preliminary hearing on Laidlaw Environmental's request that
the Rights Agreement be amended to make it inapplicable to the Amended Laidlaw
Environmental Exchange Offer, that the Court order Safety-Kleen's Board of
Directors to take action to make the Wisconsin Business Combination Statute
inapplicable to the Amended Laidlaw Environmental Exchange Offer and the
merger contemplated thereby, and that the Court void the termination fee and
certain other provisions of the Merger Agreement. The Court granted Laidlaw
Environmental's request to withdraw its challenge to the termination fee.
Laidlaw Environmental also advised the Court that it would not seek to delay
the Safety-Kleen shareholders meeting on February 11, 1998.
On February 4, 1998, the Federal District Court for the Northern District of
Illinois issued a ruling affirming the decision of the Board of Directors of
Safety-Kleen to leave the Rights Agreement in place with respect to the
Revised Laidlaw Environmental Exchange Offer. The Court's decision does not
address Safety-Kleen's ability to leave the Rights Agreement in place with
respect to the Amended Laidlaw Environmental Exchange Offer.
On February 5, 1998, the Court denied Laidlaw Environmental's motion to find
that the Board of Directors of Safety-Kleen had violated the federal
securities laws by not responding to the Amended Laidlaw Environmental
Exchange Offer prior to February 5, 1998.
REGULATORY MATTERS
On January 27, 1998, Safety-Kleen announced that the Antitrust Division of
the Department of Justice has granted early termination of the waiting period
associated with a Hart-Scott-Rodino review concerning the Merger. On January
28, 1998, Laidlaw Environmental announced that such early termination also has
been granted with respect to the Amended Laidlaw Environmental Exchange Offer.
16
VOTING INFORMATION AND SOLICITATION OF PROXIES
Enclosed for your convenience is a duplicate Gold-Striped Proxy Card. If you
have not already voted on the Gold-Striped Proxy Card or would like to change
your vote, please complete, sign, date and promptly return the enclosed Gold-
Striped Proxy Card in the enclosed envelope. Voting your Shares by proxy does
not prevent you from voting your Shares in person should you decide to attend
the Special Meeting. Shareholders who wish to tender Shares pursuant to the
Amended Laidlaw Environmental Exchange Offer may nevertheless vote those
shares at the Special Meeting, in any manner the tendering shareholder desires
to vote, even if the Shares are tendered after the Record Date. See the cover
page of this Supplement and "The Special Meeting" in the Original Proxy
Statement for additional information regarding the Special Meeting and voting
of Shares.
If you have already returned a properly executed Gold-Striped Proxy Card,
have not revoked such proxy and do not wish to change your vote, no further
action is required.
IF YOU WISH TO VOTE FOR THE MERGER, YOU MUST DO SO ON THE GOLD-STRIPED PROXY
CARD (AND NOT ON THE GREEN-STRIPED PROXY CARD YOU RECEIVED FROM LAIDLAW
ENVIRONMENTAL) TO ENSURE THAT YOUR VOTE IN FAVOR OF THE MERGER WILL BE
PROPERLY RECORDED AT THE SPECIAL MEETING. 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.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU DO NOT COMPLETE OR SEND IN THE
GREEN-STRIPED PROXY CARD YOU RECEIVED FROM LAIDLAW ENVIRONMENTAL. IF YOU HAVE
ALREADY DONE SO, YOU MAY REVOKE THE GREEN- STRIPED PROXY CARD BY COMPLETING
AND RETURNING THE GOLD-STRIPED PROXY CARD IN THE ENCLOSED POSTAGE PAID RETURN
ENVELOPE. ONLY YOUR LATEST DATED PROPERLY EXECUTED PROXY WILL BE COUNTED.
THOSE SHAREHOLDERS WHO HAVE TENDERED THEIR SHARES TO LAIDLAW ENVIRONMENTAL CAN
STILL VOTE THOSE SHARES BY COMPLETING AND RETURNING THE GOLD-STRIPED PROXY
CARD.
Additional copies of this Supplement, the Original 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. IF YOU HAVE ANY QUESTIONS
REGARDING THE SPECIAL MEETING OR THE PROXY STATEMENT (INCLUDING THIS
SUPPLEMENT) OR NEED ASSISTANCE IN COMPLETING AND SUBMITTING GOLD-STRIPED PROXY
CARDS, PLEASE CALL:
CHASE MELLON SHAREHOLDER SERVICES
1-888-224-2734 (TOLL FREE)
By Order of the Board of Directors
LOGO
Scott Krill
Secretary
February 9, 1998
Elgin, Illinois
17
ANNEX A
LOGO
January 31, 1998
Board of Directors
Safety-Kleen Corp.
One Brinckman Way
Elgin, Illinois 60123-78567
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 current proposed offer (the "Current 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
relevant time for comparison is at the respective anticipated closing dates
for the Current LLE Offer and the Merger.
Pursuant to the terms of the Current LLE Offer, LLE and a subsidiary propose
to exchange cash in the amount of $18.00 plus that number of shares of LLE
common stock equal to the Exchange Ratio of not less than 2.24 shares and no
greater than 2.8 shares for each outstanding Common Share of the Company.
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 the outstanding Common Shares of the Company will be converted
into a right for the Shareholder to receive $27.00 per share in cash.
On two prior occasions, you requested our opinion with respect to two
previously proposed offers from LLE. On both occasions (December 20, 1997 and
January 6, 1998) we stated that, based upon the analysis indicated, we did not
have a basis for concluding that at the anticipated closing date of the
proposed offers they would be superior from a financial point of view to the
Merger. The indicated analysis included an assessment of factors which could
influence the trading price of the common stock of LLE on the anticipated
closing dates. We have updated the various analyses for purposes of rendering
this opinion. Then, as now, our opinion reflects only limited access to LLE
management and no access to internal LLE projections.
In rendering this opinion, we have assumed that the merger or the Current
LLE Offer would be consummated on the terms described in the Merger Agreement
or the LLE prospectus dated January 28, 1998, respectively, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Merger or the Current LLE Offer would
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. During August of 1997 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 the rendering of our fairness
opinion as it relates to the Merger. Upon the consummation of either the
Merger or the Current 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.
A-1
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 Current LLE Offer, as the case may be.
As of the date hereof, based upon and subject to the foregoing, it is our
opinion as investment bankers that it is more likely than not that, as of the
time of anticipated closing of the Current LLE Offer, the value of the
consideration which would be received under the Current LLE Offer would exceed
the value of the consideration which would be received in the Merger.
Very truly yours,
William Blair & Company, L.L.C.
A-2
ANNEX B
MARKET VALUE OF EQUITY OF COMBINED LAIDLAW ENVIRONMENTAL/SAFETY-KLEEN ENTITY
BASED ON
ASSUMED STAND-ALONE MARKET VALUES
[1] [2] [3] [4] [5] [6]
------------- ------------ ---------- ------------ --------- ------------
NUMBER OF TOTAL ASSUMED TOTAL
COMMON SHARES IN STAND- MARKET
SHARES IN EXCHANGE COMBINED ALONE EQUITY
STAND-ALONE RATIO OF OLD ENTITY MARKET VALUE
COMPANIES SHARES TO (MILLIONS) OWNERSHIP VALUE PER ($ MILLIONS)
(MILLIONS)(1) NEW SHARES [1] X [2] AS A PERCENT SHARE(3) [1] X [5]
------------- ------------ ---------- ------------ --------- ------------
Laidlaw Environmental... 180.5 1.0 180.5 52.5% $ 5.00 $ 902.5
Safety-Kleen............ 58.4 2.8(2) 163.5 47.5% $17.00 992.8
----- ----- --------
Total................. na na 344.0 100.0% na $1,895.3
Deduct: Total Cash Compensation(4) [7]................................... 1,051.2
Termination Fee and Expenses[8].......................................... 75.0
--------
TOTAL COMBINED VALUE BEFORE GIVING EFFECT TO ANY SYNERGIES[9]............ $ 769.1
========
PER-SHARE VALUE BEFORE GIVING EFFECT TO ANY SYNERGIES[9]/344.0........... $ 2.24
- --------
(1) Source: Amended Prospectus.
(2) Assumes that the maximum 2.8 shares of Laidlaw Environmental Common Stock
would be issued on closing of the Amended Laidlaw Environmental Exchange
Offer.
(3) Approximate trading price of Safety-Kleen in late July, 1997 (before
Safety-Kleen announced it was exploring strategic alternatives) and of
Laidlaw Environmental in late October and early November, 1997 (before
Laidlaw Environmental's first publicly announced offer).
(4) Total cash compensation equals $18 per share multiplied by 58.4 million
shares.
B-1
HYPOTHETICAL VALUE OF THE AMENDED LAIDLAW ENVIRONMENTAL EXCHANGE OFFER
BASED ON LAIDLAW
BASED ON BLAIR'S ESTIMATE ENVIROMENTAL'S ESTIMATE
OF $50 MILLION PRE-TAX OF $100 MILLION PRE-TAX
ANNUAL SYNERGIES ANNUAL SYNERGIES
-------------------------- -----------------------
DISCOUNTED AT : 10 YEARS PERPETUITY 10 YEARS PERPETUITY
--------------- ------------ ------------- ----------- ------------
[10]
Present Value of
Synergies 11% $ 159.2 $ 245.7 $ 318.3 $ 491.4
($ millions)(1) 12% $ 151.3 $ 223.2 $ 302.7 $ 446.4
[11]
Total Combined Value
With $ 928.3 $ 1,014.8 $ 1,087.4 $ 1,260.5 [9]+[10]
Synergies ($ millions) $ 920.4 $ 992.3 $ 1,071.8 $ 1,215.5
[12]
Total Combined Value per
Combined $ 2.70 $ 2.95 $ 3.16 $ 3.66 [11]/344.0
Shares (344.0 million
shares) $ 2.68 $ 2.88 $ 3.12 $ 3.53
[13]
Total Value of Safety-
Kleen's Shares in $ 441.23 $ 482.36 $ 516.88 $ 599.14 [12]x163.5
Combined Entity (for
163.5 million shares) $ 437.51 $ 471.67 $ 509.44 $ 577.77
[14]
Total Value of the
Amended Laidlaw
Environmental Exchange
Offer $ 1,492.43 $ 1,533.56 $ 1,568.08 $ 1,650.34 [13]+[7]
($ millions) $ 1,488.71 $ 1,522.87 $ 1,560.64 $ 1,628.97
[15]
Value of the Amended
Laidlaw Environmental
Exchange Offer per
Share of $ 25.56 $ 26.26 $ 26.85 $ 28.26 [14]/58.4
Safety-Kleen (58.4
million shares) $ 25.49 $ 26.08 $ 26.72 $ 27.89
- -------
(1) Assumes that Synergies are not realized until the second year.
10-year Synergies: S * (1-t) * ((1/r)-(1/r)/(1+r)/1//0/) * (1/(1+r))
Perpetuity Synergies; S * (1-t) * (1/r) * (1/(1+r))
where, S = pre-tax annual synergies, t = tax rate of 40%, r = discount rate.
B-2