UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 2001
Commission File Number 1-8368
SAFETY-KLEEN CORP.
(Exact name of registrant as specified in its charter)
Delaware 51-0228924
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Gervais Street, Columbia, South Carolina 29201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 933-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of each class
Common Stock Par Value $1.00
Rights to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant was $17,133,211 as of November 6, 2001.
The number of shares of the issuer's Common Stock outstanding was 100,783,596 as
of November 6, 2001.
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business................................................................................. 3
2. Properties............................................................................... 17
3. Legal Proceedings........................................................................ 19
4. Submission of Matters to a Vote of Security Holders...................................... 31
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 32
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..... 32
PART III
10. Directors and Executive Officers of the Registrant....................................... 33
11. Executive Compensation................................................................... 37
12. Security Ownership of Certain Beneficial Owners and Management........................... 42
13. Certain Relationships and Related Transactions........................................... 43
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 45
2
Safety-Kleen Corp. (the "Registrant" or "Safety-Kleen") and its subsidiaries
(collectively referred to as the "Company") have omitted certain information
responsive to Items 6, 7, 7A, 8 and 14 and portions of other Items which elicit
financial information. As described in greater detail in Part I, Item 1
"Business - Factors Affecting Future Results - Uncertainties Relating to the
Company's Internal Controls," the Company, with the assistance of Jefferson
Wells International and Arthur Andersen LLP, is working to correct material
deficiencies in the Company's internal controls. Despite the progress made by
the Company in correcting the deficiencies, the Company was not able to prepare
and obtain an audit of its financial statements for the fiscal year ended August
31, 2001 within the time limitations imposed by federal securities laws and
regulations. At such time as the financial statements for the fiscal year ended
August 31, 2001 have been prepared and audited, the Company will amend this Form
10-K, file the audited financial statements required by Form 10-K and provide
the information which has been omitted in this filing. The Company anticipates
making that filing as soon as practicable.
PART I
ITEM 1. BUSINESS
GENERAL
The Company provides a range of services designed to collect, transport,
process, recycle or dispose of hazardous and non-hazardous industrial and
commercial waste streams. The Company provides these services in 50 states,
seven Canadian provinces, Puerto Rico, Mexico and Saudi Arabia from
approximately 370 collection, processing and other locations.
Safety-Kleen was incorporated in Delaware in 1978. Its principal executive
office is located at 1301 Gervais Street, Suite 300, Columbia, South Carolina
29201 and its telephone number is (803) 933-4200.
RECENT DEVELOPMENTS
INVESTIGATION OF FINANCIAL RESULTS
On March 6, 2000, the Company announced that it had initiated an internal
investigation of its previously reported financial results and certain of its
accounting policies and practices. The investigation followed receipt by the
Company's Board of Directors of information alleging possible accounting
irregularities that may have affected the previously reported financial results
of the Company after fiscal year 1998. The internal investigation was
subsequently expanded to include fiscal years 1998 and 1997. The Board of
Directors appointed a special committee, consisting of four directors who were
then independent outside directors of the Company, to conduct the internal
investigation (the "Special Committee (Investigation)"). The Special Committee
(Investigation) was later expanded to five directors, with the addition of one
additional independent outside director. The Special Committee (Investigation)
engaged the law firm of Shaw Pittman, and Shaw Pittman engaged the accounting
firm of Arthur Andersen LLP, to assist with the comprehensive investigation of
these matters. As a result of the preliminary findings of the investigation and
the results of the audit conducted by Arthur Andersen LLP, the Company restated
its previously reported financial results for 1999, 1998 and 1997 in Form 10-K/A
filed on July 9, 2001.
On March 5, 2000, the Board placed the following three officers, one of whom was
a director, on administrative leave: Kenneth W. Winger, the Company's President,
Chief Executive Officer, and a Director; Michael J. Bragagnolo, Executive Vice
President and Chief Operating Officer; and Paul R. Humphreys, Senior Vice
President of Finance and Chief Financial Officer. The Company accepted the
resignations of Messrs. Winger, Bragagnolo, and Humphreys, as officers, in
mid-May 2000 and of Mr. Winger, as a director, on June 9, 2000, and subsequently
terminated the employment of these individuals in July 2000. From March 6, 2000
through May 22, 2000, David E. Thomas, Jr. and Grover C. Wrenn, both members of
the Board of Directors, were appointed by the Board of Directors to co-manage
the Company on an interim basis. Thereafter the Board formally elected Mr.
Thomas as Chairman of the Board on May 4, 2000 and Chief Executive Officer on
May 22, 2000. Mr. Wrenn was also elected as President and Chief Operating
Officer on May 22, 2000.
On September 13, 2001, the Board of Directors dissolved the Special Committee
(Investigation) and established the Special Committee (Conflicts of Interest in
Litigation). The Special Committee (Conflicts of Interest in Litigation) is
authorized to, among other things, manage all litigation by or against the
Company in connection with which there may be conflicts of interest between the
Company and any Board Members. The Special Committee (Conflicts of Interest in
Litigation) is comprised of Ronald A. Rittenmeyer, Kenneth K. Chalmers, Peter E.
Lengyel and David W. Wallace, each of whom was appointed to the Board subsequent
to March 6, 2000.
On March 8, 2000, PricewaterhouseCoopers LLP, the Company's then independent
accountants, withdrew its audit reports covering the Company's financial
statements for fiscal years 1999, 1998 and 1997. On August 1, 2000, the Company
dismissed PricewaterhouseCoopers LLP as its independent accountants and engaged
Arthur Andersen LLP as successor independent accountants.
As discussed in greater detail in Part I, Item 3 (Legal Proceedings), in
connection with the events giving rise to the investigation of the Company's
financial results, various class actions were filed by and on behalf of
shareholders and bondholders of the Company naming as defendants, among others,
the Company, Laidlaw Inc. ("Laidlaw"), and PricewaterhouseCoopers LLP, as well
as current and former officers and directors of the Company and Laidlaw. As
discussed below, due to the Company's Chapter 11 Bankruptcy filing on June 9,
2000, most
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litigation against the Company is subject to an automatic stay. As further
discussed below, after the Company filed its Chapter 11 bankruptcy petition,
amended consolidated class action complaints were filed in which the Company was
not named as a defendant. In addition, Safety-Kleen has received subpoenas
relating to investigations by the Securities and Exchange Commission and the
United States Attorney for the Southern District of New York.
BANKRUPTCY PROCEEDINGS
As discussed more fully in Part I, Item 3 (Legal Proceedings), on June 9, 2000,
Safety-Kleen Corp. and 73 of its wholly owned domestic subsidiaries
(collectively, the "Debtors") filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Debtors remain in possession of their properties and assets and
management of the Company continues to operate the business of the Debtors as a
debtor-in-possession. As a debtor-in-possession, the Company is authorized to
continue to operate its businesses, but may not engage in transactions outside
the ordinary course of business without the approval, after notice and an
opportunity for a hearing, of the Bankruptcy Court. Pursuant to the automatic
stay provisions of the Bankruptcy Code, all actions to collect pre-petition
indebtedness of the Debtors, as well as most other pending litigation against
the Debtors are currently stayed. In addition, as debtor-in-possession, the
Debtors have the right, subject to the approval of the Bankruptcy Court and
certain other conditions, to assume or reject any pre-petition executory
contracts or unexpired leases.
The Bankruptcy Court has approved payment of certain pre-petition liabilities,
such as employee wages and benefits, and settlement of certain trade payable
claims. In addition, the Bankruptcy Court has allowed for the retention of legal
and financial professionals to advise in the bankruptcy proceedings. In June
2000, the Bankruptcy Court approved the Company's request for an initial $40
million in debtor-in-possession financing. In July 2000, the Bankruptcy Court
approved the Company's request for a total of $100 million in
debtor-in-possession financing. As of October 28, 2001, the Company had issued
three letters of credit aggregating approximately $65 million and had no cash
borrowings pursuant to this financing.
The Company presently intends to reorganize the Company's business and
restructure the Company's liabilities through a plan or plans of reorganization
to be filed with the Bankruptcy Court. The Company has retained Lazard Freres &
Co. LLC, an investment bank, as corporate restructuring advisor to assist it in
planning and implementing a reorganization. In connection with the development
of a plan or plans of reorganization alternatives, the Company will evaluate any
and all proposals to maximize the value of the Debtors. As part of this
reorganization effort, the Company has prepared a marketing book for the sale of
the Chemical Services Division which has been distributed to interested parties.
Currently, it is not possible to predict with certainty the length of time the
Company will operate under the protection of Chapter 11, the outcome of the
Chapter 11 proceedings in general, or the effect of the proceedings on the
business of the Company or on the interests of the various creditors and
security holders. Under the priority scheme established by the Bankruptcy Code,
certain post-petition liabilities and pre-petition liabilities need to be
satisfied before shareholders can receive any distribution. The ultimate
recovery to shareholders, if any, will not be determined until confirmation of a
plan or plans of reorganization. There can be no assurance as to what value, if
any, will be ascribed to Safety-Kleen's common stock ("Common Stock") in the
bankruptcy proceedings.
At the time the Debtors' filed the Chapter 11 cases, the Company was in default
on certain of its senior debt. The Company (i) had not made interest payments on
the $60 million Promissory Note dated May 15, 1997, from the Company to
Westinghouse Electric Corporation and thereafter assigned by Westinghouse
Electric Corporation to Toronto Dominion (Texas) Inc. (the "$60 million
Promissory Note"); (ii) had not made interest payments on its $325 million 9 1/4
percent Senior Subordinated Notes due 2008; (iii) had not made interest payments
on its $225 million 9 1/4 percent Senior Notes due 2009; and (iv) had not made
principal and interest payments under its Amended and Restated Credit Agreement
dated as of April 3, 1998, among Safety-Kleen Services, Inc. (formerly known as
LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A. (the "Credit Facility"). In addition to the aforementioned defaults, filing
of the petition for reorganization resulted in a default of certain covenants
under the above described Credit Facility and the $60 million Promissory Note
and the Indenture of Trust dated as of July 1, 1997, between Tooele County, Utah
and U.S. Bank; the Indenture of Trust dated as of July 1, 1997, between
California Pollution Control Financing Authority and U.S. Bank; the Indenture of
Trust dated as of August 1, 1995, between Tooele County, Utah and West One Bank;
the Indenture dated as of May 1, 1993, between Industrial Development Board of
the Metropolitan Government of Nashville and Davidson County (Tennessee) and
NationsBank of Tennessee, N.A.; the Indenture dated as of May 17, 1999 between
the Company and Cole Taylor Bank as successor trustee to the Bank of Nova Scotia
Trust Company; and the Indenture dated May 29, 1998 between LES, Inc., the
Company, sub-guarantors and Norwest Bank Minnesota, N.A. as successor to the
Bank of Nova Scotia Trust Company of New York, as Trustee.
CHANGES IN MANAGEMENT TEAM
On September 5, 2001, the Bankruptcy Court entered an order approving employment
and indemnification agreements with Ronald A. Rittenmeyer, in accordance with
which he became Chairman of the Board, Chief Executive Officer and President of
Safety-Kleen. Mr. Rittenmeyer had been appointed to the Board of Directors of
Safety-Kleen in April 2001. Also on September 5, 2001, the Bankruptcy Court
4
approved termination and consulting agreements with David E. Thomas, Jr. and
Grover C. Wrenn; the Company terminated their executive positions; and they were
appointed non-executive Vice Chairmen of the Board of Directors.
On October 17, 2001, Roy D. Bullinger who had served as the President of the
Branch Sales and Service Division since May 2000, ceased to be employed by the
Company. David M. Sprinkle, who had served as the President of the Chemical
Services Division of the Company since May 2000, was elected Chief Operating
Officer of Safety-Kleen on November 27, 2001.
On August 17, 2000, Larry W. Singleton, previously unaffiliated with the
Company, was elected Senior Vice President and Chief Financial Officer, and on
November 27, 2001, was elected Executive Vice President and Chief Financial
Officer. On October 18, 2001, the Bankruptcy Court entered an order approving
employment and indemnification agreements with Thomas W. Arnst. Mr. Arnst was
thereafter elected Executive Vice President and Chief Administrative Officer by
the Board of Directors on November 27, 2001.
On November 16, 2001, Henry Taylor, Senior Vice President, General Counsel and
Secretary of the Board of Directors, ceased to be employed by the Company. On
November 27, 2001, James K. Lehman was elected to the position of Senior Vice
President, General Counsel and Secretary of Safety-Kleen.
FINANCIAL ASSURANCE MATTERS
Under the Resource Conservation and Recovery Act ("RCRA"), the Toxic Substances
Control Act ("TSCA"), and analogous state statutes, owners and operators of
certain waste management facilities are subject to financial assurance
requirements to ensure performance of their closure, post-closure and corrective
action obligations. The Company is subject to these financial assurance
requirements. Applicable regulations allow owners and operators to provide
financial assurance through a surety bond from an approved surety. Under federal
regulations and in virtually all states, to qualify as an approved surety for
the purposes of providing this type of financial assurance, a surety company
must be listed on Circular 570, which is maintained and distributed publicly by
the United States Department of the Treasury. In compliance with the law, the
Company procured surety bonds issued by Frontier Insurance Company ("Frontier")
as financial assurance at numerous locations. Of the total amount of financial
assurance required of the Company under the environmental statutes, which
approximated $500 million as of May 31, 2000, slightly more than 50 percent of
such requirements were satisfied through assurances provided by Frontier in the
form of surety bonds.
On June 6, 2000, the U.S. Treasury issued notification that Frontier no longer
qualified as an acceptable surety on Federal bonds and had been removed from
Circular 570 on May 31, 2000. Accordingly, as of May 31, 2000, the Company no
longer had compliant financial assurance for many of its facilities. Under
applicable regulations, the Company was required to obtain compliant financial
assurance within sixty days, and in some states, more quickly. The Frontier
surety bonds at the Company's facilities, remain in place (except where replaced
with compliant coverage) and effective and the Company continues to pay the
premiums on the bonds.
Immediately following the June 6, 2000 announcement that Frontier no longer
qualified as an approved surety, the Company notified the Environmental
Protection Agency (the "EPA") that its lack of certified financial statements
for fiscal years 1999, 1998 and 1997 and certain alleged accounting
irregularities would cause the Company difficulty in attempting to obtain
compliant financial assurance for its facilities previously covered by the
Frontier bonds. The Company and the EPA also contacted states in which the
non-compliant facilities were located and apprised such states of these facts.
The Company and the EPA, acting on behalf of many, but not all affected states,
then engaged in negotiations resulting in the entry of a Consent Agreement and
Final Order ("CAFO"), which the Bankruptcy Court approved on October 17, 2000.
The main component of the CAFO is a compliance schedule (since modified) for the
Company to obtain compliant financial assurance for the facilities covered by
the Frontier bonds. The CAFO also imposed a penalty on Safety-Kleen Services,
Inc. The penalty has grown to approximately $1.6 million as delays have ensued
in the replacement of Frontier, and additional states have joined the CAFO (see
discussion below). Some states have imposed financial assurance penalties in
addition to this amount. The Company believes such asserted penalties will total
approximately $600,000 through November 30, 2001. Under the CAFO, the Company
was required to obtain compliant financial assurance as expeditiously as
possible, with the original deadline set at December 15, 2000. The EPA reserved
discretion to extend the deadline and did so on several occasions. The current
deadlines are January 31, 2002 for active facilities and March 31, 2002 for the
remaining facilities.
The Company and the EPA contacted states in which affected facilities were
located and apprised these states of the terms of the CAFO. Several of these
states referred the affected facilities' non-compliance to the EPA for
enforcement and joined in the CAFO. Certain other states (referred to in the
CAFO as the "Parallel Action States") have entered parallel agreements with the
Company. Other states have entered or have indicated an interest to enter
agreements with affected facilities with terms similar to the CAFO.
On August 7, 2001, the Company obtained the collateral necessary to enable it to
replace Frontier surety bonds at approximately 114 facilities. The replacement
at these facilities will occur upon state acceptance of the replacement
coverage. Several states have approved the replacement insurance policies, which
Indian Harbor Insurance Company has issued, and in those states the Company now
has financial assurance coverage that complies with applicable law. The Company
expects the remaining affected states and the EPA to approve the Indian Harbor
policies in the near future. On or about November 5, 2001, the Company provided
the collateral necessary to enable it to replace Frontier surety bonds at
additional facilities, pursuant to Bankruptcy Court approval obtained on
November 5, 2001.
5
As of November 20, 2001, the Company was in a position to provide replacement
financial assurance coverage at all but two active facilities and approximately
18 inactive facilities.
Most, but not all, states that have retained primary jurisdiction on this issue
and which have facilities where Frontier has not yet been replaced have
indicated that they will accept the January 31 and March 31, 2002 deadlines
described above. However, the Company has not concluded agreements with all such
states. The Company may seek further extensions of time from the EPA and the
states, but the CAFO does not obligate the EPA and the states to grant such
further extensions. Under the CAFO, the EPA reserves the right, in consultation
with an affected state, to determine in its discretion and in accordance with
applicable law, to modify these requirements. There can be no assurance that the
Company will be able to complete its replacement of Frontier on a schedule
acceptable to the EPA and the states. If it does not, the two remaining active
facilities for which the Company has not yet arranged Frontier's replacement
will have to close and the Company may be subject to additional penalties. In
addition, the Company could be assessed additional penalties in certain states
for the delays in replacing Frontier. Moreover, the EPA has barred the two
active facilities just described from receiving certain wastes.
The Company understands that, on August 27, 2001, Frontier entered a
rehabilitation proceeding that the New York Superintendent of Insurance will
administer pursuant to New York law. The Company further understands that in
such a proceeding, the Superintendent takes possession of the property of
Frontier and conducts its business. The Company has been informed that these
rehabilitation proceedings are unlikely to affect the validity of the remaining
Frontier bonds at its facilities.
Pursuant to the terms of the CAFO, the Company has agreed to a schedule by which
the EPA and Participating States (as defined below) may monitor the Company's
efforts to obtain compliant financial assurance. (A "Participating State" is a
state with authority to enforce financial assurance requirements, but which
referred that authority to the EPA for purposes of the CAFO.) This schedule
includes required periodic reports to the EPA and Participating States. The
schedule also required the Company to provide audited restated financial
statements for fiscal years 1997-1999 and the audited statements for fiscal year
2000 by certain deadlines. The Company did not meet the deadlines by the
original due dates but subsequently provided the required information to the EPA
and Participating States. Accordingly, the EPA and certain states may impose
additional penalties on the Company.
Under the CAFO, until such time as the affected facilities have obtained
compliant financial assurance, the Company and its affected facilities must not
seek to withdraw an existing irrevocable letter of credit from Toronto Dominion
Bank, which is subject to compromise, in the amount of $28.5 million for the
benefit of Frontier and shall take all steps necessary to keep current the
existing Frontier surety bonds.
In the CAFO, the Company waived certain arguments they otherwise could have
asserted under the Bankruptcy Code with respect to their financial assurance and
certain other obligations under environmental laws. The Company's lenders and
the unsecured creditors committee have reserved their right to assert certain of
such arguments.
The State of South Carolina has indicated that it will not be a Participating
State or a Parallel Action State for facilities owned or operated by
Safety-Kleen (Pinewood), Inc.
MAJOR SHAREHOLDER
As of August 31, 2001, Laidlaw beneficially owned 43.5% of the Company's
outstanding Common Stock. See also "Effect of Laidlaw's Financial Situation on
the Company" below and the "Laidlaw Inc. Relationships" discussion in Item 13 of
Part III.
BUSINESS OPERATIONS
In providing industrial waste services, the Company has two divisions which
operate primarily in the United States and Canada: (a) Chemical Services and (b)
Branch Sales and Service. Chemical Services provides various services to
industrial and commercial customers and governmental entities. These services
include hazardous and non-hazardous waste collection, treatment, recycling,
disposal and destruction of hazardous and non-hazardous waste at Company owned
and operated facilities. Branch Sales and Service includes parts cleaner
services and other specialized services to automotive repair, commercial and
manufacturing customers.
CHEMICAL SERVICES DIVISION
The Chemical Services Division operates approximately 100 primary and satellite
locations from which it provides waste management services in North America.
Operationally the Division is divided into three geographic regions (Eastern
United States, Western Region and Eastern Canada), government services, sales
and operations administration, and closed facilities.
The services offered consist primarily of the collection, treatment and disposal
of a wide variety of hazardous or non-hazardous liquid and solid wastes, in
drum, tanker or roll-off containers from customer locations. Depending upon the
type of customer, the Company may make frequent pickups of large quantities or
may pick up only one or a few 55-gallon drums on a periodic basis. The
Division's network of 20 service centers primarily focus on the collection of
waste streams from smaller generators. Larger customers typically ship directly
to the end disposal sites with full truckloads of material. Depending upon the
content, the material collected at the service centers may be recycled into
6
usable solvent, processed into a waste-derived fuel for use in the cement
manufacturing industry, or disposed of through processes such as incineration,
landfill or wastewater treatment.
The Company provides final treatment and disposal services designed to manage
hazardous and non-hazardous wastes, which cannot be otherwise economically
recycled or reused. Incineration, landfill and wastewater treatment facilities
provide such solutions for the majority of these industrial waste streams.
Additionally, the Division provides a complement of other services and
technologies for more specialized or economical handling of certain waste
streams. These services include consulting and industrial services,
polychlorinated bi-phenyls ("PCBs") management, and transportation services.
COLLECTION, TREATMENT AND DISPOSAL SERVICES
INCINERATION
The Company offers a wide range of technological capabilities and locations to
customers through its network of six operational incineration facilities.
Incineration is the preferred method for the treatment of organic hazardous
waste, because it effectively destroys the contaminants at temperatures in
excess of 2,000 degrees Fahrenheit. High temperature incineration effectively
eliminates organic wastes such as herbicides, halogenated solvents, pesticides,
and pharmaceutical and refinery wastes, regardless of whether they are gases,
liquids, sludges or solids. Federal and state incineration regulations require a
destruction and removal efficiency of 99.99% for most organic wastes and
99.9999% for PCBs and dioxin.
In the United States, the Company operates two solids and liquids-capable
incineration facilities with a combined estimated annual capacity of 185,000
tons; one lower volume specialty incineration facility; and one RCRA subpart X
facility permitted to burn explosives. The Company also operates two hazardous
waste liquid injection incinerators in Canada.
The Company's incineration facilities in Deer Park, Texas and Aragonite, Utah
are designed to process liquid organic wastes, sludges, solids, soil and debris.
The Deer Park facility has two kilns and a rotary reactor. Additionally, the
Deer Park facility has an on-site landfill for the disposal of ash and other
waste material produced as a result of the incineration process. The Deer Park
landfill is built and permitted to RCRA hazardous waste standards.
The Company has initiated closure activities at its Coffeyville, Kansas and the
Bridgeport, New Jersey facilities due to under-utilization. Regulatory agencies
were given notification of the Company's intent to close the facilities. The
Company stopped incineration activities at Coffeyville on October 28, 2000, at
Bridgeport on April 30, 2001 and is proceeding with the closure process. These
closures removed approximately 83,000 tons of annual capacity from the market.
Incineration facilities in Mercier, Quebec and Sarnia, Ontario are liquid
injection incinerators, designed primarily for the destruction of liquid organic
waste. The Mercier facility also has a system to blend and destroy pumpable
sludges. Typical waste streams include wastewater with low levels of organics
and other higher concentration organic liquid wastes not amenable to
conventional physical or chemical waste treatment.
All the Company's United States incineration facilities have received Part B
permits under RCRA. Part B permits are generally issued for periods of five or
ten years, after which the permit must be reviewed by state or federal
regulators or both before the permit can be renewed for additional terms.
Management is not aware of any issues at any of the Company's operating
incineration facilities that would preclude the renewal of any of its Part B
permits.
LANDFILLS
The Company operates nine (excluding its landfill in Pinewood, South Carolina)
commercial landfills located throughout the United States and Canada, of which
seven are designed and permitted for the disposal of hazardous wastes. Two
landfills are operated for non-hazardous industrial waste disposal and, to a
lesser extent, municipal solid waste. The Company also owns and operates a
non-commercial landfill, which only accepts waste from an on-site incinerator.
As discussed in greater detail in Part I, Item 3 (Legal Proceedings) an
additional Company landfill located in Pinewood, South Carolina suspended waste
disposal on September 25, 2000, pending action by the South Carolina Department
of Health and Environmental Control and/or court decision allowing continued
waste disposal.
Five of the Company's commercial landfills are located in the United States, and
two are located in Canada. As of August 31, 2001, the useful economic lives (for
accounting purposes) of these landfills include approximately 19.0 million cubic
yards of remaining capacity. This estimate of the useful economic lives of these
landfills includes permitted airspace and unpermitted airspace that management
believes to be probable of being permitted based on its analysis of various
factors. In addition to the capacity included in the useful economic lives of
these landfills, there are approximately 32.8 million cubic yards of additional
unpermitted airspace capacity included in the footprints of these landfills that
may ultimately be permitted. There can be no assurance that this unpermitted
additional capacity will be permitted.
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In the United States, the Company's hazardous waste landfills have been issued
a hazardous waste operating permit under the authority of Subtitle C of RCRA (a
"Part B Permit"). The EPA's permitting process for RCRA Subtitle C landfills is
very rigorous. Before a permit can be issued, the applicant must provide
detailed waste analysis, spill prevention and control counter-measure plans,
detailed design specifications (which include liner design, leak detection
systems and rainwater removal systems), groundwater monitoring, employee
training and geologic and hydro geologic investigations. Furthermore, the
applicant must post financial assurance instruments for landfill cell and site
closure and post-closure care. All six of the Company's hazardous waste
landfills operating in the United States have received Part B Permits and,
except for two operating landfills, as described above under "Recent
Developments - Financial Assurance", all meet or exceed Subtitle C
requirements. These permits are generally issued for periods of five or ten
years, after which state or federal regulators or both must review the permit
before the permit can be renewed for additional terms. Except as discussed in,
Part I, Item 3 (Legal Proceedings) with respect to the Company's landfill
located in Pinewood, South Carolina, and with respect to financial assurance
matters discussed above under "Recent Developments - Financial Assurance
Matters" and Part I, Item 3 (Legal Proceedings), management is not aware of any
issues at any of the Company's United States sites that would preclude the
renewal of its Part B landfill permits. During fiscal year 2001, approximately
658,000 cubic yards of hazardous wastes were disposed of in all the Company's
landfills combined.
In Canada, the Company's hazardous waste landfills have been issued a hazardous
waste operating permit under the authority of applicable provincial and federal
authorities. The Company is in the preliminary stages of the renewal process for
its operating permit at the Lambton, Ontario landfill, which will include a
request for additional disposal capacity. Management is not aware of any issues
at any of the Company's Canadian landfill sites that would preclude the renewal
of their landfill operating permits. For a discussion of legal proceedings
involving the Company's Lambton landfill see Part I, Item 3 (Legal Proceedings).
In addition to its hazardous waste landfill sites, the Company operates two
non-hazardous industrial landfills with 633,000 cubic yards of remaining
permitted capacity. These two facilities are located in the United States and
have been issued operating permits under the authority of Subtitle D of RCRA.
Prior to issuance of a permit, the Company's non-hazardous industrial landfills
must demonstrate to the permitting agency, and subsequently employ, operational
programs protective of the integrity of the landfill, human health and the
surrounding environment. The Company's non-hazardous landfill facilities are
permitted to accept commercial industrial waste, including wastes from
foundries, demolition and construction, machine shops, automobile manufacturing,
printing, metal fabrications and recycling. During fiscal year 2001,
approximately 116,000 cubic yards of non-hazardous wastes were disposed of in
these landfills.
WASTEWATER TREATMENT
The Company offers a range of wastewater treatment technologies and customer
services. Wastewater treatment is provided by five facilities and consists
primarily of three types of services: hazardous wastewater treatment, sludge
de-watering or drying and non-hazardous wastewater treatment. These services
include the reduction, treatment and disposal of both hazardous and
non-hazardous wastewater, sludges and solids for both bulk and drummed waste.
The Company removes hazardous components from hazardous industrial liquids
through various chemical and physical treatment technologies, rendering them
non-hazardous. Specialized techniques reduce residues by recycling or reusing
spent products. Batch treatment technologies also enable the Company to handle
hard-to-treat wastewater streams. Non-hazardous waste streams are biologically
treated via land application. Solids and liquids are combined to allow naturally
occurring bacteria in soil to biodegrade non-hazardous waste streams. Aqueous
hazardous waste streams are treated and disposed at a deep injection well
located in Plaquemine, Louisiana.
The Company has initiated closure of a sixth wastewater treatment facility in
Hilliard, Ohio and stopped accepting waste from customers on or about February
16, 2001. Waste inventories were processed and the facility decommissioning plan
was completed in August 2001.
SERVICE CENTERS
Service centers collect, temporarily store and/or consolidate compatible waste
streams for more efficient transportation to final recycling, treatment or
disposal destinations. A majority of the Company's service centers in the United
States have Part B permits under RCRA that, among other things, allow the
Company to store waste for up to one year for bulking or transfer purposes. The
service centers send more waste materials to the Company's treatment and
disposal facilities than any other single customer.
All of the Division's service centers provide Lab Pack Services. The primary
focus of Lab Pack Services is the collection and proper management of
miscellaneous, and often unidentified, chemicals stored in small containers.
Because the list of Lab Pack chemicals removed from a particular site can be
extensive and vary widely in characteristics and quantities, the knowledge and
abilities of Company field chemists are often required.
Most of the Division's service centers provide In-Plant Services. In-Plant
Services encompass a variety of services provided by Company personnel at the
customer's location. In-Plant Services are customized to the specific needs of
the customer. With In-Plant Services, the Company most often prepares paperwork,
packages waste for shipment and manages transportation and disposal of the waste
material.
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ADDITIONAL SERVICES OFFERED
The Division provides a variety of Consulting and Industrial Services, which
utilize specialized equipment and personnel. These services are typically
customized for the customer's specific project or requirements, such as
excavation, tank cleaning and demolition.
The Division provides PCB Management Services. PCB-contaminated oils are
decontaminated and metals from PCB-contaminated electrical equipment are
reclaimed. The Company accomplishes this recycling and reclamation through a
dechlorination process operated from six facilities in Kansas, Pennsylvania,
Ohio, Georgia, and Missouri.
The Company's Transportation Services facilitate the movement of materials among
its network of service centers and its treatment and disposal facilities.
Transportation may be accomplished by truck, rail, barge or a combination of
modes, with Company-owned assets or in conjunction with third-party
transporters. Specially designed containment systems, vehicles and other
equipment permitted for hazardous and industrial waste transport, together with
drivers trained in transportation skills and waste handling procedures, provide
for the movement of customer waste streams.
BRANCH SALES AND SERVICE DIVISION
The Branch Sales and Service Division provides services in the United States,
Canada and Puerto Rico primarily through a network of approximately 173 branches
supported by 12 accumulation centers, eight solvent recycling plants, seven
distribution facilities, three fuel blending facilities, 23 oil terminals, two
oil re-refining plants and 44 other miscellaneous and satellite locations. The
Division's primary processing options are various recycling processes; oil
re-refining; and waste-derived fuels blending for reuse as fuel in cement kilns.
Operationally, the Division is divided into Branch Operations, Oil Operations,
Recycle/Reclaim, Logistics/Supply Chain, and Administration/Other. The Division
provides services to customers in the vehicle repair, manufacturing,
photo-processing, medical and dry cleaning markets.
The largest service component of the Division is its Parts Cleaner Service.
Other service offerings are: Paint Refinishing, Imaging, Dry Cleaner, Vacuum
Truck, Integrated Customer Compliance, Industrial Waste Collection, Used Oil
Collection, Oil Re-Refining, Automotive Recovery and various additional
services. These additional offerings utilize the same facility network and many
of the same customer relationships as have been developed for the traditional
Parts Cleaner Service.
PARTS CLEANER SERVICES
Parts Cleaner Services are provided to automobile repair stations, car and truck
dealers, small engine repair shops, fleet maintenance shops and other
automotive, retail repair and industrial customers. Parts Cleaner Services'
representatives install parts cleaner equipment and solvent at customer
locations. Service representatives then make service calls at regular intervals
to clean and maintain equipment and remove and replace the dirty solvent with
clean solvent. The majority of dirty solvent is recycled for reuse. The Company
offers several models of parts cleaners to customers as part of the Parts
Cleaner Service. The Company also provides service to customers who own their
own parts cleaner equipment. As an alternative to solvent-based systems, the
Company also offers a line of water-based cleaning systems.
PAINT REFINISHING SERVICES
Paint Refinishing Services are supplied to new and used car dealers, auto body
repair and paint shops and fiberglass product manufacturers. Similar to the
Parts Cleaner business, Company representatives place a machine and solvent with
each customer, maintain the machine and regularly remove the contaminated
solvent and replace it with clean solvent. The Company either recycles the
contaminated solvent into clean solvent for reuse or blends it into
waste-derived fuel used by cement kilns or incinerators. Waste paint and paint
booth filters are also collected from these customers and blended for use as
fuel at cement kilns or incinerators. Company representatives also provide clean
buffing pads and remove used pads during regularly scheduled service calls. The
used pads are washed, dried, inspected and returned to the Company's
distribution system.
IMAGING SERVICES
Imaging Services provide processing and silver recovery services to health care,
printing, photo processing and other businesses and industries. This would
include all businesses that utilize image capture, processing, storage, output,
or delivery of images. Imaging Services recover the silver contained in the
spent photochemical solutions it collects from customers. These solutions are
then further treated and processed until they can be discharged as wastewater
into publicly owned treatment works in compliance with applicable laws and
regulations. Silver is also recovered from photographic film by outside
processors.
INDUSTRIAL WASTE COLLECTION SERVICES
Industrial Waste Collection Services consist primarily of the collection of a
wide variety of hazardous or non- hazardous, liquid and solid wastes, from
industrial customers' locations. Depending upon the content, the material
collected by the Company may be recycled into
9
usable solvent, processed into a waste-derived fuel for use in the cement
manufacturing industry, or disposed of through incineration, landfill or
wastewater treatment methods.
USED OIL COLLECTION AND RE-REFINING SERVICES
The Division also provides Used Oil Collection and Re-Refining Services. The
Company collects used lubricating oils from automobile and truck dealers,
automotive garages, oil change outlets, service stations, industrial plants and
other businesses. The used oil is then transferred to a re-refining plant where
most of the product is re-refined into high-quality base oil, which is
manufactured into a variety of finished high quality lubrication products. The
Company derives revenue both from fees it charges customers to haul away used
oil, oily water, and glycol, and from the sale of products it produces by
processing the used oil. The Company may also pay for higher quality used oil
where competitive or market conditions warrant or occasionally, when necessary
to efficiently utilize its oil re-refinery facilities. The Company's extensive
branch network enables it to collect waste oil in sufficient volume to support
oil re-refining operations, which produce lubricating oil that can be sold at
significantly higher prices than industrial fuels. The Company operates oil
re-refining plants in Breslau, Ontario and East Chicago, Indiana. The plants in
Breslau and East Chicago have combined annual re-refining capacities of
approximately 135 million gallons of used oil per year. Used oil collected in
excess of the capacity of the Company's re-refining facilities is either
processed into industrial waste-derived fuels or sold unprocessed for direct use
as a waste-derived fuel in certain industrial applications.
DRY CLEANER SERVICES
Dry Cleaner Services collect and recycle contaminated dry cleaning wastes
consisting of used filter cartridges and sludge containing perchloroethylene or
mineral spirits. Whenever possible, chemicals are recycled and recovered for
reuse.
VACUUM TRUCK SERVICES
Vacuum Truck Services use specialized vacuum trucks to remove residual oily
water and sludge from underground oil/water separators found at many automotive
repair shops as well as other residual fluids found at small industrial
locations. Collected oil is re-refined or reused as a waste-derived fuel source.
AUTOMOTIVE RECOVERY SERVICES
Automotive Recovery Services include the collection of used oil filters,
gasoline filters, gasoline, brake fluid, fluorescent bulbs, and other waste
materials generated in the automotive market. In addition, Automotive Recovery
Services include the sale and disposal of absorbent products in the automotive
market. The majority of these products are fully recycled through internal or
external processing facilities.
ADDITIONAL SERVICES OFFERED
The Division, through its approximately 76% owned subsidiary, 3E Company
Environmental, Ecological and Engineering ("3E"), provides Integrated Customer
Compliance Services to its customers. Service offerings in this area include
Material Safety Data Sheets ("MSDS") Fax on Demand, an electronic MSDS
management program; Department of Transportation Shipping Paper Services, which
provides appropriate shipping papers for hazardous waste shipments; regulatory
training; spill and poison control hotlines and on-site facility assessments.
Integrated Customer Compliance offers single services and bundled full service
programs in accordance with customer requests. The Company has entered into
negotiations to sell its interest in 3E to a third-party buyer.
The Division also provides solvent and other chemical tolling services (where a
customer's material is recycled and then returned to the customer) from three of
its recycling plant locations. The pharmaceutical industry is a primary customer
for these services.
EXCLUSIVE DISTRIBUTION AGREEMENT WITH SYSTEMONE(R) TECHNOLOGIES, INC.
A subsidiary of Safety-Kleen has signed an agreement to serve as the exclusive
distributor of the innovative line of parts cleaning equipment manufactured by
SystemOne(R) Technologies, Inc. ("SystemOne(R)"). The Branch Sales and Service
locations across North America began marketing SystemOne(R)'s products in early
2001. The Bankruptcy Court approved the multi-year agreement on December 15,
2000.
SystemOne(R) designs and manufactures a full range of parts cleaning equipment
for use in automotive and industrial markets. These products feature
self-contained solvent recycling technologies that provide customers with a
fresh supply of clean solvent on demand. The SystemOne(R) product line includes
various-sized models, manual and automated, with applications within both
automotive and industrial markets.
COMPETITIVE CONDITIONS
The hazardous and industrial waste management industry, in which the Company
competes, is highly competitive. The sources of competition vary by locality and
by type of service rendered, with competition coming from the other major waste
services companies and hundreds of privately owned firms which offer waste
services. The Company also competes with municipalities and larger plants, which
10
provide "on site" waste services for their own waste materials. In addition, the
Company competes with many firms engaged in the transportation, brokerage and
disposal of hazardous wastes through recycling, waste-derived fuels programs,
thermal treatment or landfilling. The principal methods of competition for all
the Company's services are price, quality, reliability of service rendered and
technical proficiency in handling industrial and hazardous wastes properly.
In the United States, the original generators of hazardous waste remain liable
under federal and state environmental laws for improper disposal of such wastes.
Even if waste generators employ companies that have proper permits and licenses,
knowledgeable customers are interested in the reputation and financial strength
of the companies they use for management of their hazardous wastes. The Company
believes that its technical proficiency and reputation are important
considerations to its customers in selecting and continuing to utilize the
Company's services, but that its current bankruptcy proceedings may adversely
affect some of its customers' perceptions of its financial strength.
CHEMICAL SERVICES
Competitors operate large-scale commercial hazardous waste incinerators at eight
locations throughout North America. Other companies have applied for or received
permits to construct and operate hazardous waste incinerators. Competition is
also encountered from certain cement kilns, which use hazardous waste-derived
fuel as a supplemental fuel source. Generator-owned thermal treatment operations
and mobile thermal treatment units also compete with the Company's
fixed-location facilities.
There are 14 commercial hazardous waste landfills in the United States that are
not operated by the Company. Of those 14, ten are operated by Waste Management
Inc., Envirosource, Inc. and American Ecology Corp. and are spread throughout
the United States. Significant competition exists for waste volumes generated by
remedial cleanups and other project-based events.
BRANCH SALES AND SERVICE
The Branch Sales and Service Division of the Company is the market leader in the
United States in its Parts Cleaner, Paint Refinishing and Dry Cleaner Services.
In these services, the Company competes with local or smaller regional
companies.
The Company is the market leader in North America in its Used Oil Collection and
Oil Re-Refining Services. The price at which the Company sells its re-refined
lube oil is primarily dictated by a market dominated by large multinational oil
companies and has been positively correlated to crude oil prices over the
long-term. However, the selling price of re-refined lube oil is also affected by
lube oil refinery capacity changes in North America, which do not necessarily
bear a relationship to the movement of crude oil price changes.
CUSTOMERS
The Company conducts business with approximately 400,000 customer business
locations. These customers represent diverse industries, including automotive
repair, dry cleaning, photo imaging, automobile manufacturing and distribution,
chemical and petrochemical manufacturing, computer and micro-processor
manufacturing and primary metals, paper, furniture, aerospace and pharmaceutical
manufacturing. No one customer currently accounts for more than 5% of the
Company's consolidated revenues. The Company's customers are located throughout
the United States, Canada, Puerto Rico, Mexico and Saudi Arabia.
The hazardous and industrial waste management business is cyclical to the extent
that it is dependent upon a stream of waste from cyclical industries. If those
cyclical industries slow significantly, the business that the Company receives
from those industries is likely to slow.
SEASONALITY
Adverse winter weather moderately affects some of the Company's operations,
primarily in the Chemical Services Division, particularly during the second
fiscal quarter. The main reason for this effect is reduced volumes of waste
being received at the Company's facilities and higher operating costs associated
with operating in sub-freezing weather and high levels of snowfall. The Branch
Sales and Service Division is affected by fewer business days in the Company's
second fiscal quarter due to holidays.
REGULATION
HAZARDOUS AND SOLID WASTE REQUIREMENTS
The Company's services include the collection, transportation, storage,
processing, recycling and disposal of commercial, institutional and industrial
hazardous and non-hazardous materials. Substantially all these materials are
regulated in the United States as "solid wastes" under RCRA. In addition to
being regulated as solid wastes, many of these materials are further regulated
as "hazardous wastes." Accordingly, the Company is subject to federal, state and
local regulations governing hazardous and solid wastes. RCRA established a
national program for the management of solid and hazardous waste; and criteria
for determining which substances were classified as "hazardous wastes",
operating
11
requirements for storage, treatment and disposal of hazardous wastes, and
imposed technical standards for facilities used to store, treat or dispose of
such wastes. The Hazardous and Solid Waste Amendments ("HSWA") of 1984 amended
RCRA by adding a number of provisions not included in the original rule and
sought to correct certain perceived loopholes and omissions. HSWA expanded the
scope of RCRA by including businesses which generate smaller quantities of waste
materials (so-called "small quantity generators"), expanded the substances
classified as hazardous wastes by RCRA and prohibited direct disposal of those
wastes in landfills (thereby, in effect, requiring that the wastes be recycled,
treated or destroyed prior to land disposal).
The Company also operates a network of collection, treatment and field services
(remediation) activities throughout North America that are regulated under
provisions of the TSCA. TSCA established a national program for the management
of substances classified as PCB which include waste PCB's as well as RCRA wastes
contaminated with PCB's. The rules set minimum design and operating requirements
for storage, treatment and disposal of PCB wastes. Since their initial
publication, the rules have been modified to enhance the management standards
for TSCA-regulated operations including the decommissioning of PCB transformers
and articles; detoxification of transformer oils; incineration of PCB liquids
and solids; landfill disposal of PCB solids; and remediation of PCB
contamination at customer sites.
Hazardous and solid waste regulations impose technical and operating
requirements which must be met by facilities used to store, treat and dispose of
these wastes. Operators of hazardous waste storage, disposal and treatment
facilities, such as Safety-Kleen, must obtain a RCRA permit from federal or
authorized state governmental authorities to operate those facilities. States
may also require a solid waste permit. The Company has approximately 159
RCRA-permitted facilities.
Except as described above under "Chemical Services Division," and "Recent
Developments - Financial Assurance Matters," the Company believes that each
permit will be renewed at the end of its existing term. At the present time, the
Company does not intend to pursue RCRA permits for facilities which do not
currently have a RCRA permit and the Company will limit the activities of those
facilities to activities that are not regulated by RCRA.
The EPA has promulgated regulations that govern the management of used oils.
Although used oil is not classified as a hazardous waste under federal law,
certain states do regulate used oil as hazardous. The Company built and operates
its used oil facilities to standards similar to those required for hazardous
waste facilities.
Materials collected by the Company may be recycled for reuse, processed into
waste-derived fuel to be burned in kilns, used in the production of cement, or
incinerated in the Company's incinerators. Much of the waste-derived fuel is
supplied to cement kilns with which the Company has exclusive supply contracts
with respect to such fuel. Cement kilns are subject to regulations that govern
the burning of hazardous wastes in boilers and industrial furnaces ("Boiler and
Industrial Furnace Regulations" or "BIF regulations"). Since 1980, under the
authority of RCRA, the EPA has required incinerators to comply with provisions
that are similar to those in the BIF regulations. The Company believes that all
the kilns with which the Company has exclusive supply contracts and all the
Company's incinerators comply, in all material respects, with the applicable
regulation requirements. Hazardous waste combustion regulations enacted in
September 1999 will replace existing boiler and industrial furnace regulations
and commercial incinerator regulations (see discussion under "Clean Air Act and
Other State Laws Regarding Air Emissions").
CLEAN AIR ACT AND OTHER STATE LAWS REGARDING AIR EMISSIONS
The Clean Air Act was passed by Congress to control the emissions of pollutants
into the air and requires permits to be obtained for certain sources of air
toxic emissions or criteria pollutants, such as carbon monoxide. In 1990,
Congress amended the Clean Air Act to require further reductions of air
pollutants with specific targets for non-attainment areas in order to meet
certain ambient air quality standards. These amendments also require the EPA to
promulgate regulations which (i) control emissions of 189 hazardous air
pollutants; (ii) create uniform operating permits for major industrial
facilities similar to RCRA operating permits; (iii) mandate the phase-out of
ozone depleting chemicals; and (iv) provide for enhanced enforcement. The
Company believes each of its operating facilities in the United States complies
in all material respects with the applicable requirements.
The Clean Air Act required regulations, which resulted in the reduction of
volatile organic compound ("VOC") emissions and emissions of nitrogen oxides
("NOx") in order to meet certain ozone attainment standards under the Clean Air
Act. Additional emission reductions at the Company's incineration facilities,
solvent recycling centers and branches could be required as the Company
completes its air permitting program under the Clean Air Act.
On September 30, 1999, the EPA issued the final rules under the Clean Air Act
for hazardous waste combustion facilities. These rules established new
technology-based (Maximum Achievable Control Technology or "MACT") emission
limits and operational controls on all new and existing incinerators, cement
kilns and light-weight aggregate kilns that burn hazardous waste-derived fuel.
These rules supersede the existing RCRA Subpart "O" and BIF regulations that
have been in place since the late 1980's and early 1990's respectively. The
deadline for existing facilities to achieve compliance with the emission limits
was established as September 30, 2002, unless a one-year extension is obtained
from the EPA.
Since promulgation of the rule, a number of parties, representing different
interests of both industrial sources and of the environmental community, sought
judicial review of the rule. On July 24, 2001, the U.S. Court of Appeals (D.C.
Circuit) granted the Sierra Club's petition
12
for review and vacated the challenged portions of the rule. On October 19, 2001,
the EPA, together with all other petitioners that challenged the rule, filed a
joint motion asking the Court to allow the EPA time to develop interim
standards. These interim standards would be effective until the EPA writes final
requirements. Under the motion, the EPA would also be required to publish the
interim emission standards by February 14, 2002; extend the compliance date with
the interim standards to September 30, 2003; and finalize several compliance and
implementation amendments to the rule that were proposed on July 3, 2001. The
EPA would also be required to finalize standards by June 14, 2005.
The Company continues to review emission control alternatives at the Company's
incinerators in the United States as well as to evaluate control systems and
other aspects of facility operations that are impacted by the MACT rules. The
majority of the implementation review is being conducted at the operating
facilities with the help of the Company's engineering group. While each
incinerator currently meets one or more of the emission standards, additional
emission abatement devices will likely be required at all the Company's
incinerators to ensure compliance with the anticipated standards.
The Company conducted equipment evaluation tests at the Bridgeport, New Jersey;
Aragonite, Utah; and Deer Park, Texas incinerators during the second quarter of
fiscal year 2001 in order to gather information needed to make final system
decisions and enable equipment to be properly sized. The tests at the Aragonite
facility were designed to determine whether the incinerator could meet the
dioxin and mercury emission standards using powdered activated carbon. The
facility is awaiting the results of the tests. Tests were curtailed at the
Bridgeport facility upon a decision to cease operations at this site. The Deer
Park Facility has requested bids on new emission control equipment. Since the
Deer Park, Texas Incineration Facility is operating in a Severe Ozone
Non-Attainment Area, additional air pollution control equipment will have to be
installed to control emissions of NOx, an ozone pre-cursor.
In late 2000, Texas Natural Resource Conservation Commission ("TNRCC") enacted
new Clean Air Act Regulations dealing with the monitoring and control of
emissions of NOx and VOCs. These new regulations are required because of a
recent revision in the designation of the Houston Metropolitan Area from a
serious ozone non-attainment area to a severe ozone non-attainment area. This
new designation will require the Company's Deer Park, Texas incineration
facility to further reduce emissions of NOx. NOx emissions contribute to the
formation of ground-level ozone, which can be harmful to human health and the
environment. The Company intends to implement necessary modifications to the
Deer Park facility's air pollution control system to accommodate the
incineration MACT standards and new NOx emission reduction requirements. The
Company intends to request a one-year extension to the MACT compliance deadlines
(projected to be September 30, 2003) to effect facility modifications to achieve
compliance with the MACT and NOx emissions control regulations by May/June 2004.
On April 19, 2001, the San Joaquin Valley Unified Air Pollution Control District
("SJVUAPCD") amended rule 4662, which will effectively ban the use of solvents
with VOC contents higher than 50 mg/l by October 19, 2002. This rule affects the
territories covered by the Safety-Kleen Fresno and Salida Branches which have
been actively promoting and selling aqueous products in order to retain market
share. The exemptions allowing the use of VOC-based solvents are limited to
units with less than a 2-gallon capacity or exemptions for specific
applications. The specific applications that qualify for the exemption are very
limited and include electrical components; high precision optics; electronic
applications; aerospace and military applications for the cleaning of solar
cells, and space vehicle components.
In recent revisions to the ozone attainment plan for the Bay Area, the Bay Area
Air Quality Management District ("BAAQMD") has committed to adopting a rule
similar to that adopted by the SJVUAPCD. The BAAQMD covers a five-county area
surrounding the San Francisco Bay. The rulemaking process is scheduled for the
year 2002, and the anticipated effective date of the rule is sometime in 2003.
It is expected that other air districts, such as Sacramento Metro, will adopt
similar rules.
CLEAN WATER ACT
The Clean Water Act regulates the discharge of pollutants into surface waters
and sewers from a variety of sources, including disposal sites and treatment
facilities. The Company is required to obtain discharge permits and conduct
sampling and monitoring programs. The Company believes each of its operating
facilities complies in all material respects with the applicable requirements.
In December 2000, the EPA issued new wastewater discharge standards for
Centralized Wastewater Treatment ("CWT") facilities. CWT facilities receive and
treat a wide variety of hazardous and non-hazardous wastewaters from off-site
companies and discharge the treated water directly to waterways or to municipal
sewer systems. The new rule sets stringent limits for the discharge of metals,
organic compounds and oil. A number of the Company facilities are affected by
the new rule and must be in compliance with the discharge standards by December
2003. Several of the affected facilities already are in compliance with the CWT
discharge standards.
CERCLA AND RELATED REQUIREMENTS
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act ("CERCLA"),
creates a fund of monies ("Superfund") which can be used by the EPA and state
governments to clean up hazardous waste sites pending recovery of those costs
from defined categories of "potentially responsible parties" ("PRPs"). Most EPA
cleanup efforts are at sites listed or proposed for listing on the National
Priorities List ("NPL"). Various states have also enacted statutes that contain
provisions substantially similar to CERCLA.
13
Generators and transporters of hazardous substances, as well as past and present
owners and operators of sites where there has been a release of hazardous
substances, may be strictly, jointly and severally liable for the clean-up costs
resulting from releases and threatened releases of CERCLA-regulated "hazardous
substances." Under CERCLA, these responsible parties can be ordered to perform a
clean-up, can be sued for costs associated with private party or public agency
clean-up, or can voluntarily settle with the government concerning their
liability for clean-up costs.
The Company audits facilities to which it ships materials in an attempt to
minimize its potential Superfund liability at these sites. For a discussion
regarding the Company's current involvement as a PRP at CERCLA sites, see Part
I, Item 3 ("Legal Proceedings").
ENVIRONMENTAL LIABILITIES AND CAPITAL EXPENDITURES
A portion of the Company's capital expenditures are related to compliance with
environmental laws and regulations. The Company employs a strategic capital cost
planning and expenditure modeling process to determine short and long-term
capital spending needs for compliance with local, state, federal and provincial
rules and regulations. Each year the model is revised to reflect new
developments in the environmental regulatory arena (e.g. new Clean Air Act
regulations affecting hazardous waste incineration facilities, or facility
specific compliance assurance spending needs).
In addition to these capital expenditures, the Company may incur costs in
connection with closure activities at certain of its sites. When the Company
discontinues using or changes the use of a hazardous waste management unit,
formal closure procedures must be followed and such procedures must be approved
by federal or state environmental authorities. In some cases, costs are incurred
to complete remedial clean-up work at the site. In addition, at certain of the
Company's other operating sites, remedial clean-up work is required as part of
the RCRA Corrective Action Program or other state and federal programs.
With respect to various operating facilities, the Company is required to provide
financial assurance with respect to certain statutorily required closure and
post-closure obligations. The Company provides most of the required financial
assurance through a combination of performance bonds and insurance policies as
allowed by the applicable regulatory authorities. As discussed above under
"Recent Developments - Financial Assurance Matters," as of August 31, 2001, and
continuing through the date hereof, the Company no longer has compliant
financial assurance for two of its active and approximately 18 of its inactive
facilities and is using its best efforts to obtain compliant financial assurance
as expeditiously as possible.
EMPLOYEES
As of November 16, 2001, the Company had 9,216 employees. Approximately 4.9% of
the Company's employees are represented by various collective bargaining groups.
Management believes that its relations with its employees are good.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") provide companies with a "safe harbor" when making forward-looking
statements. This "safe harbor" encourages companies to provide prospective
information about their companies without fear of litigation. The Company wishes
to take advantage of the "safe harbor" provisions of the Act and is including
this section in its Annual Report on Form 10-K in order to do so. Statements
that are not historical facts, including statements about management's
expectations for fiscal year 2002 and beyond, are forward-looking statements and
involve various risks and uncertainties. Factors that could cause the Company's
actual results to differ materially from management's projections, forecasts,
estimates and expectations include, but are not limited to, the following:
UNCERTAINTIES RELATING TO THE COMPANY'S INTERNAL CONTROLS
Management has identified numerous critical issues which may require resolution
prior to the Company's emergence from its reorganization proceedings. In
addition to these efforts, the Company has identified material deficiencies in
many of its financial systems, processes and related internal controls and
commenced efforts to correct these conditions. During October 2000, Arthur
Andersen LLP reported to the Audit Committee of the Board of Directors that the
Company had material weaknesses in its internal controls and that these
conditions would be considered in determining the nature, timing and extent of
their audit tests for fiscal years 1997 through 2000. During September 2001,
Arthur Andersen LLP reported to the Audit Committee that the identified material
weaknesses continued to exist and would again be considered in determining the
nature, timing and extent of their audit tests for fiscal year 2001.
The Company continues the process of correcting these conditions by filling key
financial accounting and reporting positions in the organization, adding
information technology controls and improving its financial systems and
processes. The Company intends to continue to utilize substantial internal and
external resources to supplement these initiatives until it is satisfied that
its internal controls no longer contain material weaknesses. The Company cannot
estimate, at this time, how long it will take to completely develop and
establish an adequate internal control environment.
14
The Company contracted with outside accountants, including accountants from
Arthur Andersen LLP, who provided significant hours of work to assist the
Company's corporate and field accounting personnel with the analysis and
financial reporting support necessary to prepare the Company's consolidated
financial statements for fiscal year 2000 and the first three quarters of fiscal
2001. The Company has been taking steps to develop a comprehensive program that,
over time, will establish a satisfactory system of internal controls and a
timely and reliable financial reporting process. As part of this program, a
comprehensive review has begun of the process-flow and related controls
surrounding all major transaction cycles starting with the transaction's
origination at both field and corporate locations. The Company identified and
implemented accounting policies that conform to generally accepted accounting
principles for use in its financial reporting. In addition, the program
contemplates the development and implementation of the required internal
policies and processes regarding all major general ledger accounts and related
internal controls. The Company has engaged Jefferson Wells International to
assist the Company's internal auditors and to provide assistance in developing
and implementing process improvement recommendations. Arthur Andersen LLP also
continues to assist the Company in its efforts to correct the identified
internal control deficiencies. An evaluation of the Company's system needs,
including among other things those related to its general ledger and financial
reporting, is in progress. Despite the progress made by the Company in
correcting the deficiencies, the Company was not able to prepare and obtain an
audit of its financial statements for the fiscal year ended August 31, 2001
within the time limitations imposed by federal securities laws and regulations.
At such time as the financial statements for the fiscal year ended August 31,
2001 have been prepared and audited, the Company will amend this Form 10-K, file
the audited financial statements required by Form 10-K and provide the
information which has been omitted in this filing. The Company anticipates
making that filing as soon as practicable.
As previously reported, the Company will continue to utilize substantial
internal and supplemental external resources until it is satisfied that its
internal controls no longer contain material weaknesses and it is capable of
preparing timely and reliable financial reporting. Accordingly, the Company will
continue to incur significant costs and effort to close its books at each
interim and annual period.
UNCERTAINTIES RELATING TO BANKRUPTCY PROCEEDINGS
The Company's future results are dependent upon successfully confirming and
implementing a plan or plans of reorganization. The Company has not yet
submitted such a plan or plans to the Bankruptcy Court for approval and cannot
make any assurance that it will be able to submit and obtain confirmation of any
such plan or plans in a timely manner. Failure to confirm a plan or plans in a
timely manner could adversely affect the Company's operating results, as the
Company's ability to obtain financing to fund its operations and its relations
with its customers may be harmed by protracted bankruptcy proceedings. Moreover,
even following confirmation, consummation and implementation of a plan or plans
of reorganization, the Company's operating results may be harmed by the possible
reluctance of prospective lenders and customers to do business with a company
that recently emerged from bankruptcy proceedings.
Currently, it is not possible to predict with certainty the length of time the
Company will operate under the protection of Chapter 11, the outcome of the
Chapter 11 proceedings in general, or the effect of the proceedings on the
business of the Company or on the interests of the various creditors and
security holders. Under the priority scheme established by the Bankruptcy Code,
certain post-petition liabilities and pre-petition liabilities need to be
satisfied before shareholders can receive any distribution. The ultimate
recovery to shareholders, if any, will not be determined until confirmation of a
plan or plans of reorganization. There can be no assurance as to what value, if
any, will be ascribed to the Common Stock of Safety-Kleen in the bankruptcy
proceedings.
In connection with the development of alternative plans of reorganization, the
Company will evaluate any and all proposals to maximize the value of the
Debtors. In connection with a recent amendment to the DIP (as defined below),
the Company has prepared a Chemical Services Division marketing book. This book
has been distributed to interested parties. No assurance can be given as to the
outcome of such marketing effort nor any proceeds which could be realized from
the sale of the Chemical Services Division or its assets or the timing of any
such sale.
EFFECT OF LAIDLAW'S CHAPTER 11 FILINGS ON THE COMPANY
On June 28, 2001, Laidlaw and five of its subsidiary holding companies - Laidlaw
Investments Ltd., Laidlaw International Finance Corporation, Laidlaw One, Inc.,
Laidlaw Transportation, Inc. and Laidlaw USA, Inc. (collectively, the "Laidlaw
Group") filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Western District
of New York. On the same day, Laidlaw and Laidlaw Investments Ltd. filed cases
under the Canada Companies' Creditors Arrangement Act ("CCAA") in the Ontario
Superior Court of Justice in Toronto, Ontario. As a result of the Laidlaw
Group's filings, claims and causes of action the Company may have against the
Laidlaw Group may be subject to compromise in the Laidlaw Group's Chapter 11
proceedings or CCAA proceedings.
LEVERAGE
The Company is currently in default under its senior debt obligations, which are
substantial. During the pendency of its bankruptcy proceedings, the Company may
only obtain additional debt financing with the approval of the Bankruptcy Court,
and has already obtained authorization for $100 million of such debt financing.
To date there have been no cash borrowings against this Amended and Restated
$100
15
million Debtor-In-Possession Credit Agreement among Safety-Kleen Services,
Inc., the several lenders from time to time parties thereto, Toronto Dominion
(Texas), Inc., as General Administrative Agent and Underwriter, and The CIT
Group/Business Credit, Inc., as Collateral Agent and Underwriter, initially
dated as of June 11, 2000 and amended and restated as of July 19, 2000, as
amended (the "DIP"). The DIP provides for a $95 million sublimit on letters of
credit which is stratified into $35 million available for auto liability,
general liability and worker's compensation insurance for fiscal year 2002; $15
million for performance bonding; $30 million for financial assurance; and $15
million for additional financial assurance with respect to certain facilities.
As of October 28, 2001, three letters of credit aggregating approximately $65
million have been issued under the DIP. In accordance with the borrowing base
computation, as described in the DIP, the total remaining availability under the
DIP as of October 28, 2001 is approximately $24 million and is available for
either letters of credit or cash borrowings. Unless extended, the DIP will
mature on the earlier of January 31, 2002, or the effective date of a plan or
plans of reorganization. The Company is currently negotiating an extension of
the DIP maturity date and an increase in the borrowing capacity under the DIP.
There can be no assurance that the Company will be successful in extending and
increasing the DIP, or otherwise securing financing sufficient to meet its
requirements. Without such an extension and increase, the Company may not have
sufficient financing to meet its needs.
Depending on the resolution of its bankruptcy proceedings and the plan or plans
of reorganization that eventually may be confirmed, the Company could emerge
from bankruptcy highly leveraged with substantial debt service obligations.
Thus, the Company is particularly susceptible to adverse changes in its
industry, the economy and the financial markets. In addition, the Company's
ability to obtain additional debt financing may be limited by restrictive
covenants under the terms of credit agreements and any other debt instruments.
Those limits on financing may limit the Company's ability to service its debt
obligations through additional debt financing if cash flow from operations is
insufficient to service such obligations.
ENVIRONMENTAL REGULATION AND LEGAL PROCEEDINGS
The Company's operations are subject to certain federal, state, territorial,
provincial and local requirements which regulate health, safety, environment,
zoning and land-use. Operating and other permits are generally required for
incinerators, landfills, transfer and storage facilities, certain collection
vehicles, storage tanks and other facilities owned or operated by the Company,
and these permits are subject to revocation, modification and renewal. The
Company believes that its facilities meet federal, state and local requirements
in all material respects, subject to the impact of the events discussed above
under "Financial Assurance Matters", and that the facilities have all the
required operating and other permits. It may be necessary, however, to expend
considerable time, effort and money to keep existing or acquired facilities in
compliance with applicable requirements, including new regulations; to maintain
existing permits and approvals; and to obtain the permits and approvals
necessary to increase their capacity. Applicable requirements are enforceable by
injunctions and fines or penalties, including criminal penalties. These
regulations are administered by the EPA and various other federal, state and
local environmental and health and safety agencies and authorities, including
the Occupational Safety and Health Administration of the United States
Department of Labor and by similar agencies in Canada and Mexico.
As discussed in "Regulation - Clean Air Act," the Company's United States-based
hazardous waste incinerators must be in compliance with the EPA's MACT interim
standards by September 30, 2003. In addition, that portion of the Branch Sales
and Service Division's Parts Cleaner Service, which utilizes mineral spirits
solvent, could be adversely affected by volatile organic hydrocarbon emission
restrictions by local and/or state air pollution control agencies, including
restrictions already imposed by agencies in certain ozone non-attainment areas
in Houston, Texas and certain portions of California.
CERCLA imposes liability for the cost of cleanup of sites from which there is a
release or threatened release of a hazardous substance into the environment on
generators and transporters as well as current and former owners and operators
of such sites. Given the substantial costs involved in a CERCLA cleanup and the
difficulty of obtaining insurance for environmental impairment liability, such
liability could have a material impact on the Company's business, financial
condition and future prospects.
As discussed more fully in Part I, Item 1 ("Financial Assurance Matters"), the
Company is required to provide financial assurance with respect to certain
statutorily required closure, post-closure and corrective action obligations at
its facilities. Financial assurance may take the form of insurance policies and
surety bonds, among other things. Most Company facilities have financial
assurance that complies with law; some facilities do not. The Company has
entered a consent agreement and final order with EPA (on behalf of some, but not
all, affected states) and separate agreements with certain states respecting a
schedule for obtaining compliant financial assurance at its facilities with
noncompliant financial assurance. Most regulators have agreed to deadlines of
January 31, 2002 for active facilities and March 31, 2002 for the remaining
facilities. The Company may not be able to meet these deadlines. If it does not,
active facilities without compliant financial assurance (there are two such
facilities) will have to close and may be subject to further penalties. Inactive
facilities that do not meet these deadlines may be subject to further penalties.
Closure and penalties could adversely affect the Company's business.
In addition to the costs of complying with environmental regulations, hazardous
waste treatment companies generally are involved in legal proceedings as well as
environmental proceedings in the ordinary course of business, as discussed more
fully in Part I, Item 3 ("Legal Proceedings"). Alleged failure by the Company to
comply with laws and regulations may lead to the imposition of fines or the
denial, revocation or delay of the renewal of permits and licenses by
governmental entities. In addition, such governmental entities, as well as
surrounding landowners, may claim that the Company is liable for environmental
damages. Citizens groups have become increasingly active in challenging the
grant or renewal of permits and licenses for hazardous waste facilities and
responding to such challenges has further
16
increased the costs associated with establishing new facilities or expanding
current facilities. A significant judgment against the Company, the loss of a
significant permit or license or the imposition of a significant fine could have
a material adverse effect on the Company's business and future prospects.
COMPETITIVE ENVIRONMENT
The Company operates in highly competitive environments with substantial
capacity in some of the markets it serves. In addition, the hazardous waste
industry is changing as a result of consolidation. The future success of the
Company will be affected by such changes, the nature of which cannot be forecast
with certainty. There can be no assurance that such developments will not create
additional competitive pressures on the Company's business.
INTERNATIONAL OPERATIONS
The Company has business operations in the United States, Canada, Puerto Rico,
Mexico and Saudi Arabia. Certain risks are inherent in international operations,
including the risks of differing regulation, currency fluctuations and differing
tax treatment. The Company is subject to United States, Canadian, Puerto Rican
and Mexican based environmental and other regulations. Also, the relative value
of the United States Dollar, the Canadian Dollar and the Mexican Peso could
change. The impact of future exchange rate fluctuations on the results of
operations cannot be accurately predicted. The Company is subject to United
States, Canadian, Mexican and Puerto Rican tax laws and regulations. The
application of United States, Canadian, Puerto Rican and Mexican tax laws and
regulations to Company and to intercompany relationships is subject to audit and
review by independent national tax authorities. In addition, business practices
or laws in Canada, Puerto Rico, Mexico and/or Saudi Arabia may impose costs,
restrictions or requirements on such activities that differ in significant
respects from the United States business environment.
CYCLICAL AND SEASONAL NATURE OF BUSINESS
The hazardous waste business is cyclical to the extent that it is dependent upon
a stream of waste from cyclical industries. If those cyclical industries slow
significantly, the business that the Company receives from those industries is
likely to slow. Adverse winter weather moderately affects some of the Company's
operations, primarily in the Chemical Services Division, particularly during the
second fiscal quarter. The main reason for this effect is reduced volumes of
waste being received at the Company's facilities and higher operating costs
associated with operating in sub-freezing weather and high levels of snowfall.
The Branch Sales and Service Division is affected by fewer business days in the
Company's second fiscal quarter due to holidays.
DISPOSAL AND OTHER SUPPLY ARRANGEMENTS
The Company has a contract, which expires in 2005, with three cement kiln
facilities. The contract provides the Company with an outlet for a significant
portion of its hazardous waste-derived fuel and provides the other party with a
fuel source to operate its cement kiln facilities.
The Company owns an interest in The ArmaKleen Company, a joint venture with
Church and Dwight. ArmaKleen is the sole source for certain cleaning chemicals
and related chemistry used primarily in the Company's Parts Cleaner Service
business and also sold directly to customers as an industrial cleaner.
The Company purchases certain of its oil additive supplies from a relatively few
providers. The supplies are used in the Company's re-refining operations in the
formulation of its various lubrication products.
While the Company believes it has satisfactory relationships with each of these
vendors, a loss of any of these relationships could have a material adverse
effect on the future results of operations.
ITEM 2. PROPERTIES
The following descriptions are as of August 31, 2001, except as noted. The
Company owns or leases property in 45 states, seven Canadian provinces, Puerto
Rico, Mexico and Saudi Arabia. The Company's properties which are utilized are
sufficient and suitable to the Company's needs.
CHEMICAL SERVICES
The Company owns ten hazardous and non-hazardous waste commercial landfills in
the United States and Canada. Nine of these facilities are currently accepting
waste. The Company also owns and operates a non-commercial landfill, which only
accepts waste from an on-site incinerator.
The Company owns and operates in the United States, two solid and liquid-capable
incineration facilities with a combined estimated annual capacity of 185,000
tons, one lower volume specialty incineration facility and one RCRA subpart X
facility permitted to burn explosives. The Company also operates two hazardous
waste liquid injection incinerators in Canada. The Company has initiated closure
activities at its
17
Coffeyville, Kansas and Bridgeport, New Jersey facilities due to
under-utilization. Regulatory agencies were given notification of the Company's
intent to close the facilities. The Company stopped incineration activities at
Coffeyville on October 28, 2001, at Bridgeport on April 30, 2001 and is
proceeding with the closure process. These closures removed approximately 83,000
tons of annual capacity from the market.
The Company owns four (including Hilliard, Ohio) and leases one wastewater
treatment facilities in the United States and Canada with a combined annual
treatment capacity of more than 334 million gallons. The Company completed
closure of its Hilliard, Ohio wastewater treatment facility in accordance with
its closure plan in August 2001. Certification of closure has been provided to
the Ohio Environmental Protection Agency.
The Company owns 14 and leases six service centers across the United States and
Canada. These locations accumulate shipments of waste. As truckload quantities
are collected, they are transported from these locations to the treatment,
disposal or recycling plants. These service centers also include drum processing
and stabilization service centers.
The Company owns three and leases (including Burton, Michigan) two locations
that operate waste transfer stations and transportation centers in the United
States and Canada. In fiscal year 2001, the Company sold its Martinez,
California center and closed its Burton, Michigan center.
The Company provides waste management consulting services for governmental
entities from approximately 17 office locations in the United States, Canada,
Puerto Rico, and Saudi Arabia, of which 16 are leased.
The Company has 10 additional locations for treatment and disposal services in
the United States and Canada, of which approximately half are leased. These
operations include battery disposal, PCB disposal and deep well injection.
The Company operates approximately 30 satellite locations across the United
States and Canada, of which approximately half are owned. These satellite
locations support one or more of its landfills, incinerators, wastewater
treatment, service centers, consulting, administrative, or other treatment and
disposal facilities.
The Company owns or leases approximately 10 properties, which are closed or
vacant. Most of these properties were previously used by the Company and require
environmental remediation. Some of these properties may either be sold or used
in future operations.
BRANCH SALES AND SERVICE
The Company operates 12 accumulation centers in the United States and Canada. Of
these, three are leased.
The Company owns three and leases four distribution centers in the United States
and Canada, averaging approximately 45,000 square feet each.
The Company owns two waste-derived fuel-blending facilities, both located on
leased land, and has an exclusive supply arrangement for its waste-derived fuel
with a third facility. These three facilities have combined storage capacity of
approximately 2.2 million gallons.
The Company owns two oil re-refining plants with a combined annual re-refining
capacity of approximately 135 million gallons. These plants are located in
Breslau, Ontario and East Chicago, Indiana.
The Company owns 13 and leases ten properties, which provide oil recovery and
collection services in the United States and Canada.
The Company owns eight solvent recycling plants in the United States, and Puerto
Rico. The Company also owns a fuels blending recycle center in Kentucky and
leases one in Quebec, Canada. In total, these ten plants have an annual
recycling capacity of 60 million gallons of parts cleaner solvents and 32
million gallons of halogenated, fluorinated and flammable solvents. The total
storage capacity of these plants is approximately 9.2 million gallons of bulk
storage and 2.2 million gallons in drums.
The Company owns a 29,500 square foot warehouse in Elgin, Illinois.
The Company owns a 72,500 square foot technical center located in Elk Grove
Village, Illinois.
The Company owns a 106,000 square foot plant in New Berlin, Wisconsin where
parts cleaner machines are assembled and buffing pads are manufactured.
The Company owns or leases approximately 34 additional locations, which provide
specialty services, such as silver recovery, imaging, tank farm, and
maintenance, administrative offices, satellite locations, and other
miscellaneous functions.
18
The sales and service representatives for the Branch Sales and Service Division
operate out of approximately 173 branch locations. Of these, approximately half
are leased. Twelve of the Company's branches share locations with accumulation
centers, while the vast majority of the remaining branches each have separate
locations. A typical branch is approximately 8,000 square feet.
The Company owns a 269,000 square foot administrative office building located in
Elgin, Illinois. The building was the former corporate headquarters of
Safety-Kleen Systems, Inc., a subsidiary of Safety-Kleen. The Company intends to
sell this property.
The Company owns approximately 20 and leases 28 additional facilities, which are
closed or vacant. Most of these locations were branch facilities, and the
Company is conducting environmental remediation activities. Some of these
properties may either be sold or used in future operations.
OTHER
The Company leases a combined 126,000 square feet of office space in three
locations in Columbia, South Carolina for its corporate and division
headquarters.
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 FILING
The Debtors each filed a voluntary petition for reorganization under the
Bankruptcy Code on June 9, 2000. The petitions were filed in the United States
Bankruptcy Court for the District of Delaware Case No. 00-2303 (PJW). Management
of the Company continues to operate the business of the Debtors as a
debtor-in-possession under Sections 1107 and 1108 of the Bankruptcy Code as
described in Item 1 of Part I. In this proceeding, the Debtors intend to propose
and seek confirmation of a plan or plans of reorganization. Unless modified by
the order of the Bankruptcy Court, pursuant to the automatic stay provision of
Section 362 of the Bankruptcy Code, most pending pre-petition litigation against
the Debtors is currently stayed.
On November 7, 2000, Laidlaw, on behalf of itself and its direct and indirect
subsidiaries, filed a proof of claim in the unliquidated amount of not less than
$6.5 billion against the Debtors in the Chapter 11 cases. The claims Laidlaw
asserted against the Debtors fall into the following general categories: 1)
claims for indemnification; 2) contribution and reimbursement in connection with
certain litigation matters; 3) claims against the Debtors for fraudulent
misrepresentation, fraud, securities law violations, and related causes of
action; 4) insurance claims; 5) guaranty claims; 6) environmental contribution
claims; 7) tax reimbursement claims; and 8) additional miscellaneous claims. On
April 19, 2001, the Debtors, on behalf of itself and its direct and indirect
subsidiaries, filed with the Bankruptcy Court an objection to Laidlaw's proof of
claim.
As of August 31, 2001, proofs of claim in the approximate amount of $174 billion
have been filed against the Debtors by among others, secured creditors,
unsecured creditors and equity security holders. The Debtors believe that the
face amount of these claims which are in excess of approximately $2.5 billion in
accrued liabilities recorded in the Consolidated Financial Statements as of May
31, 2001 as "Liabilities subject to compromise" are duplicative or without merit
and will not have a material effect on the Consolidated Financial Statements.
The Debtors have filed several omnibus objections in the Bankruptcy Court to
seek disallowance or recharacterization of these claims. As of August 31, 2001,
the Debtors had identified approximately $170.8 billion of claims that the
Debtors believed were duplicative or without merit. The Company continues to
review the proofs of claim filed and to identify those claims to which an
appropriate objection should be filed.
ACTIONS AGAINST LAIDLAW INC.
Each member of the Laidlaw Group filed a voluntary petition for reorganization
under the Bankruptcy Code on June 28, 2001. The petitions were filed in the
United States Bankruptcy Court for the Western District of New York, Case Nos.
01-14099 K through 01-14104 K. On October 16, 2001, the Company and the Official
Committee of Unsecured Creditors filed a proof of claim in the unliquidated
amount of not less than $4.6 billion, subject to statutory trebling, plus
punitive damages, interest, and costs, against the Laidlaw Group in the
above-referenced Chapter 11 cases. The claims against the Laidlaw Group fall
into the following general categories: 1) claims for fraud, racketeering, breach
of fiduciary duty, and other related misconduct; 2) preference and fraudulent
transfer claims; 3) breach of contract, misrepresentation, and other related
misconduct; 4) guaranty claims; and 5) indemnification, contribution, and
reimbursement claims. The Laidlaw Group has not yet filed an objection to the
proof of claim filed by the Company. The Company intends to vigorously pursue
this claim. Similarly, certain directors of Safety-Kleen filed a proof of claim
against Laidlaw. To the extent these directors are successful in obtaining
payments that otherwise would have gone to the Company, their interests could be
deemed materially adverse to the interests of the Company.
On April 19, 2001, the Company filed an action against Laidlaw and its
affiliates, Laidlaw Transportation, Inc. and Laidlaw International Finance
Corporation (collectively the "Laidlaw Defendants"), in the United States
Bankruptcy Court for the District of Delaware, Adv. Pro. No. 01-01086 (PJW).
This action seeks to recover a transfer of over $200 million made in August 1999
(the "Transfer") to or for the benefit of the Laidlaw Defendants, holders of
43.5% of the Company's common stock. The Company asserts that the Transfer is
recoverable either
19
as a preference payment to the extent the Transfer retired pre-existing debt, or
as a fraudulent transfer to the extent the Transfer redeemed equity or was made
with intent to hinder, delay or defraud creditors. In the action, the Company
seeks to recover the Transfer, plus interest and costs occurring from the first
date of demand, from the Laidlaw Defendants. As a result of the Laidlaw Group's
Chapter 11 filing in the Western District of New York, all actions in the
adversary proceeding are currently stayed.
See also the "Laidlaw Inc. Relationships" discussion in Item 13 of Part III.
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
On March 6, 2000, the Company announced that it had initiated an internal
investigation of its previously reported financial results and certain of its
accounting policies and practices. The investigation followed receipt by the
Company's Board of Directors of information alleging possible accounting
irregularities that may have affected the previously reported financial results
of the Company after fiscal year 1998. The internal investigation was
subsequently expanded to include fiscal years 1998 and 1997. The Board of
Directors appointed the Special Committee (Investigation), consisting of four
directors who were then independent outside directors of the Company, to conduct
the internal investigation. The Special Committee (Investigation) was later
expanded to five directors, with the addition of one additional independent
outside director. The Special Committee (Investigation) engaged the law firm of
Shaw Pittman, and Shaw Pittman engaged the accounting firm of Arthur Andersen
LLP, to assist with the comprehensive investigation of these matters. As a
result of the preliminary findings of the investigation and the results of the
audit conducted by Arthur Andersen, LLP, the Company restated its previously
reported financial results for 1999, 1998 and 1997 in Form 10-K/A filed on July
9, 2001.
On March 5, 2000, the Board placed the following three officers, one of whom was
a director, on administrative leave: Kenneth W. Winger, the Company's President,
Chief Executive Officer, and a Director; Michael J. Bragagnolo, Executive Vice
President and Chief Operating Officer; and Paul R. Humphreys, Senior Vice
President of Finance and Chief Financial Officer. The Company accepted the
resignations of Messrs. Winger, Bragagnolo, and Humphreys, as officers, in
mid-May 2000 and of Mr. Winger, as a director, on June 9, 2000, and subsequently
terminated the employment of these individuals in July 2000. From March 6, 2000
through May 22, 2000, David E. Thomas, Jr. and Grover C. Wrenn, both members of
the Board of Directors, were appointed by the Board of Directors to co-manage
the Company on an interim basis. Thereafter the Board formally elected Mr.
Thomas as Chairman of the Board on May 4, 2000 and Chief Executive Officer on
May 22, 2000. Mr. Wrenn was also elected as President and Chief Operating
Officer on May 22, 2000.
On September 13, 2001, the Board of Directors dissolved the Special Committee
(Investigation) and established the Special Committee (Conflicts of Interest in
Litigation). The Special Committee (Conflicts of Interest in Litigation) is
authorized to, among other things, manage all litigation by or against the
Company in connection with which there may be conflicts of interest between the
Company and any Board Members. The Special Committee (Conflicts of Interest in
Litigation) is comprised of Ronald A. Rittenmeyer, Kenneth K. Chalmers, Peter E.
Lengyel and David W. Wallace, each of whom was appointed to the Board subsequent
to March 6, 2000.
Beginning March 7, 2000, various Company shareholders filed actions in the
United States District Court for the District of South Carolina, Columbia
Division (the "South Carolina District Court"), on behalf of various alleged
classes of Company shareholders (the "Shareholder Class Actions"), asserting
federal securities fraud claims against the Company, Messrs. Winger, Humphreys
and Bragagnolo (who are referred to herein collectively as the "Individual
Defendants") and in two cases James R. Bullock, former Chairman of the Board of
the Company. In August 2000, all of the Shareholder Class Actions were
consolidated into two actions that are discussed in detail below. Due to the
fact that the Company filed a Chapter 11 bankruptcy petition under the
Bankruptcy Code on June 9, 2000, all litigation against the Company is subject
to an automatic stay.
On August 3, 2000, the South Carolina District Court approved an Order
consolidating 19 of the Shareholder Class Actions and any other actions alleging
claims on behalf of investors who acquired shares of the Company's common stock
in the time period November 13, 1997, through March 6, 2000, into one action, In
Re Safety-Kleen Corp. Securities Litigation, Civil Action No. 3:00-CV-736-17
(the "Securities Consolidated Action"). Each of the Shareholder Class Actions
consolidated into the Securities Consolidated Action was dismissed without
prejudice. A Consolidated Amended Complaint was filed in the South Carolina
District Court on September 18, 2000. The Securities Consolidated Action was
brought on behalf of all persons, except defendants, who (i) purchased the
common stock of Laidlaw Environmental Services, Inc. ("LESI") between July 9,
1997, and July 1, 1998, (ii) purchased the common stock of Safety-Kleen between
July 1, 1998, and March 6, 2000, or (iii) exchanged shares of Safety-Kleen
common stock for shares of the common stock of LESI in the merger of LESI and
Safety-Kleen. In addition to naming the Individual Defendants and Mr. Bullock,
the Amended Complaint also named John R. Grainger, Leslie W. Haworth, John W.
Rollins, Jr., David E. Thomas, Jr., Henry B. Tippie, James L. Wareham, Grover C.
Wrenn and Henry H. Taylor, (all of whom are present or former officers or
members of the Board of Directors of the Company and/or Laidlaw ),
PricewaterhouseCoopers LLP and Laidlaw as defendants to the Securities
Consolidated Action. By Order dated May 10, 2001, Henry H. Taylor was dismissed
without prejudice as a defendant. The Consolidated Amended Complaint alleges
that the defendants disseminated materially false and misleading information and
failed to disclose material facts with respect to the Company's financial
condition and business prospects, thereby causing the market price of Company
securities to be artificially inflated during the relevant class periods and
that the class members acquired Company securities during the class periods at
artificially inflated prices and were damaged thereby. The Consolidated Amended
Complaint asserts various violations of federal securities laws including
violations of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder and Sections 11, 12(a)(2) and 15 of
the Securities Act of 1933. The Securities Consolidated Action seeks to recover
damages in an unspecified amount that the class members allegedly sustained by
purchasing shares of
20
the Company's common stock at artificially inflated prices, as well as related
relief. On January 8, 2001, the South Carolina District Court issued an Order
amending the caption of the Securities Consolidated Action to In Re Safety-Kleen
Corporation Stockholders Litigation. Defendants filed motions to dismiss, which
were denied by the South Carolina District Court by order dated May 15, 2001.
Discovery in this case is now underway.
On August 11, 2000, the South Carolina District Court approved an Order
consolidating the remaining two Shareholder Class Actions involving shareholders
who were former shareholders of Rollins Environmental Services, Inc. ("Rollins")
into one action, In Re Safety-Kleen Corp. Security Litigation, Civil Action No.
3:00 1343-17 (the "Rollins Consolidated Action"). The two Shareholder Class
Actions consolidated into the Rollins Consolidated Action were dismissed without
prejudice. On October 2, 2000, a Consolidated Amended Class Action Complaint for
Violations of Federal Securities Laws in the Security Consolidated Action was
filed in South Carolina District Court. The Rollins Consolidated Action is
brought on behalf of all persons, except defendants, their affiliates and
certain related parties, who were former shareholders of Rollins and who
received or should have received the Proxy Statement (the "Proxy Statement")
issued to shareholders of Rollins to notify them of the special meeting that had
been convened to vote on the reverse acquisition of Laidlaw Chem-Waste, Inc. by
Rollins to form LESI. The Consolidated Amended Complaint named the Individual
Defendants, Mr. Bullock, the Estate of John W. Rollins, Sr., John W. Rollins,
Jr. and Laidlaw as defendants in the Rollins Consolidated Action. The
Consolidated Amended Complaint principally alleges that the defendants
disseminated materially false and misleading information and failed to disclose
material facts with respect to the Company's financial condition and business
prospects in connection with the Proxy Statement and, as a result, the class
members were denied an opportunity to make an informed voting decision at the
special meeting for approval of the reverse acquisition. The Rollins
Consolidated Action asserts various violations of federal securities laws
including violations of Sections 14(a) and 20 of the Securities Exchange Act of
1934 and Rule 14a-9 promulgated thereunder. The Rollins Consolidated Action
seeks to recover damages in an unspecified amount that the class members
allegedly sustained as a result of the reverse acquisition and the voting in
connection therewith, as well as related relief. On January 8, 2001, the South
Carolina District Court issued an Order amending the caption of the Rollins
Consolidated Action to In Re Safety-Kleen Rollins Shareholders Litigation. On
June 8, 2001, the Court granted the Motion to Dismiss filed by defendants John
W. Rollins, Jr. and the Estate of John W. Rollins, Sr. On June 12, 2001,
plaintiffs filed a Motion for Leave to File a Second Consolidated Amended
Complaint. The Second Consolidated Amended Complaint named the Individual
Defendants, Laidlaw, Inc., John W. Rollins, Jr. and the Estate of John W.
Rollins Sr. The only claim asserted against John W. Rollins, Jr. and the Estate
of John W. Rollins, Sr. was one for common law negligent misrepresentation.
Subsequently, and with the permission of the Court, plaintiffs filed a Third
Consolidated Amended Complaint asserting the same claims against John W.
Rollins, Jr. and the Estate of John W. Rollins, Sr. as were asserted in the
Second Consolidated Amended Complaint, but adding certain allegations regarding
the July 2001 restatement by the Company and dropping Laidlaw as a
party-defendant due to Laidlaw's filing of a Chapter 11 bankruptcy petition. An
Answer to the Third Amended Consolidated Complaint was filed on September 21,
2001 on behalf of John W. Rollins, Jr. and the Estate of John W. Rollins, Sr.
Discovery is now underway in this action.
In addition to the above, two shareholder derivative lawsuits were filed in the
Delaware Court of Chancery for New Castle County on behalf of the Company,
against certain of its directors and former directors (the "Delaware Derivative
Actions"): (1) Civil Action No. 17923-NC on March 24, 2000, pending under the
caption Peter Frank vs. Kenneth W. Winger, John W. Rollins, James R. Bullock,
David E. Thomas, Jr., Leslie W. Haworth, Henry B. Tippie, James L. Wareham, John
W. Rollins, Jr., Robert W. Luba and Grover C. Wren (sic), and Safety-Kleen Corp.
(Nominal Defendant) and (2) Civil Action No. 1974-NC on March 30, 2000, pending
under the caption Harbor Finance Partners, derivatively on behalf of
Safety-Kleen Corp., against James R. Bullock, John W. Rollins, Sr., David E.
Thomas, Jr., Kenneth W. Winger, Leslie W. Haworth, Henry B. Tippie, James L.
Wareham, John W. Rollins, Jr., Robert W. Luba, Peter N.T. Widdrington and Grover
C. Wrenn, Defendants and Safety-Kleen Corp. (Nominal Defendant). The Delaware
Derivative Actions assert, among other things, that the defendants breached
their fiduciary obligations to the Company and its shareholders by failing to
adequately supervise the Company and to monitor its internal financial
administrative policies, procedures and controls over an extended period of
time, thereby exposing the Company to class action lawsuits and the loss of
goodwill in the investment community, resulting in damages to the Company and
its shareholders. These claims seek to recover damages on behalf of the Company
against the director defendants in an unspecified amount as well as related
relief. A Notice of Automatic Stay was filed in the Frank case by attorneys for
the Company on or about June 28, 2000. There has been no further action in the
Delaware Derivative Actions cases.
On April 13, 2000, a class action captioned Muzinich & Co., Inc., individually
and on behalf of all others similarly situated, v. Safety-Kleen Corp., Kenneth
W. Winger, Michael J. Bragagnolo, Paul R. Humphreys, and Laidlaw Inc., Civil
Action No. 3:00-1145-17 (the "Muzinich Class Action"), was filed in the South
Carolina District Court. An Amended Class Action Complaint for violations of the
federal securities laws was filed on August 25, 2000 pursuant to an August 3,
2000 Order of the South Carolina District Court Judge. The Company was not named
as a defendant in the Amended Class Action Complaint. The Muzinich Class Action
was filed on behalf of a class comprising all persons who purchased 9.25% Senior
Subordinated Notes due 2008 of the Company during the period from October 23,
1998, through June 9, 2000.
On July 18, 2000, a class action captioned American High-Income Trust and State
Street Research Income Trust suing on behalf of themselves and all others
similarly situated v. Kenneth W. Winger, Laidlaw Inc., PricewaterhouseCoopers,
LLP, TD Securities (USA) Inc., NationsBanc Montgomery Securities, Raymond James
& Associates, Inc., Arthur Andersen LLP, James R. Bullock, Paul R. Humphreys,
John W. Rollins, Sr., John W. Rollins, Jr., Leslie W. Haworth, Robert W. Luba,
David E. Thomas, Jr., Henry B. Tippie, James L. Wareham, Grover C. Wrenn,
Michael J. Bragagnolo and Henry H. Taylor, Civil Action No. 00-661 (the
"American High-Income Trust Class Action"), was filed in the United States
District Court for the District of Delaware. The American High-Income Trust
Class Action was filed on behalf of
21
all investors who purchased or acquired certain bonds issued by the Company in
initial offerings or on the secondary market from April 17, 1998, through March
6, 2000. On December 1, 2000, the Judicial Panel on Multidistrict Litigation
transferred the American High-Income Trust Class Action to the South Carolina
District Court for coordinated or consolidated pretrial proceedings with the
actions already pending in the South Carolina District Court. On January 8,
2001, the South Carolina District Court approved an Order consolidating the
American High-Income Trust Class Action and the Muzinich Class Action into one
action, In Re Safety-Kleen Corp. Bondholders Litigation, Consolidated Case No.
3-00-1145 17 (the "Bondholders Consolidated Action"). A Consolidated Class
Action Complaint was filed in the South Carolina District Court on January 23,
2001. Arthur Andersen LLP and Henry H. Taylor were not named as defendants in
the Consolidated Class Action Complaint. The Bondholders Consolidated Action was
brought on behalf of all persons who purchased or acquired certain bonds issued
by the Company, or its predecessor LESI, in initial offerings or on the
secondary market from April 17, 1998, through March 9, 2000. The Bondholders
Consolidated Action alleges that the Company disseminated materially false and
misleading financial statements and that the class members purchased the bonds
in reliance upon such financial statements. The Bondholders Consolidated Action
asserts, among other things, various violations of federal securities laws
including violations of Sections 11(a), 12(a)(2) and 15 of the Securities Act of
1933, Sections 10(b), 18 and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated under the Securities Exchange Act of 1934. The
Bondholders Consolidated Action seeks to recover damages in an unspecified
amount that the class members allegedly sustained, as well as related relief.
Motions to Dismiss the claims were filed on or about March 9, 2001. By Order
dated September 12, 2001, the Court dismissed with prejudice as to all the
defendants the claims under Sections 11(a), 12(a)(2), 15 of the Securities Act
of 1933 and the Section 18 claim under the Securities Exchange Act of 1934. The
Court has not yet ruled as to the Section 10(b) and 20(a) claims.
In addition, two class actions have been filed against Laidlaw and certain of
its directors on behalf of purchasers of shares of the common stock of Laidlaw
and purchasers of bonds of Laidlaw during the period October 15, 1997, through
and including March 13, 2000. A shareholder class action captioned Meltzer v.
John R. Grainger, James R. Bullock, Leslie W. Haworth and Laidlaw Inc., Civil
Action No. 3:00-CV-2518-17, was filed with the South Carolina District Court on
August14, 2000. A bondholder class action captioned David I. L. Sunstein v. John
R. Grainger, James R. Bullock, Leslie W. Haworth and Laidlaw Inc., Civil Action
No. 3:00-CV-855, was filed with the South Carolina District Court on March 17,
2000. The plaintiffs in both actions allege, among other things, that the
defendants made false and misleading statements and violated certain federal
securities laws. The plaintiffs in both actions seek to recover damages in an
unspecified amount that the applicable class members allegedly sustained, as
well as related relief. Messrs. Grainger, Bullock and Haworth have demanded to
be indemnified by the Company in these actions.
On September 23, 2000, a class action captioned John Hancock Life Insurance
Company, New York Life Insurance Company, Aid Association For Lutherans,
American General Annuity Insurance Company and The Variable Annuity Life
Insurance Company, On Behalf of Themselves and All Others Similarly Situated, v.
John R. Grainger, James R. Bullock, Ivan R. Cairns, Leslie W. Haworth, Peter
N.T. Widdrington, Wayne R. Bishop, William P. Cooper, Jack P. Edwards, William
A. Farlinger, Donald M. Green, Martha O. Hesse, Gordon R. Ritchie, Stella M.
Thompson, Laidlaw Inc., PricewaterhouseCoopers, LLP, Goldman, Sachs & Co., Bear,
Stearns & Co., Inc., Salomon Smith Barney, Merrill Lynch & Co., Robertson
Stephens & Co., Banc One Corp., CIBC Oppenheimer, Banc of America Securities,
LLC and TD Securities (USA), Inc., Civil Action No. 7233, was filed in the
United States District Court for the Southern District of New York on behalf of
all persons, except the defendants and certain related parties, who purchased
the bonds of Laidlaw during the period September 24, 1997 through and including
May 12, 2000. The plaintiffs allege, among other things, that the defendants
made false and misleading statements and violated certain federal securities
laws. The plaintiffs seek to recover damages in an unspecified amount that the
applicable class members allegedly sustained, as well as related relief. Mr.
Grainger and Mr. Haworth have demanded to be indemnified by the Company in this
action.
On December 12, 2000, a class action captioned Westdeutsche Landesbank
Girozentrale, New York Branch, On Behalf Of Itself And All Others Similarly
Situated, v. John R. Grainger, James R. Bullock, Ivan R. Cairns, Leslie W.
Haworth, Peter N.T. Widdrington, Wayne R. Bishop, William P. Cooper, Jack P.
Edwards, William A. Farlinger, Donald M. Green, Martha O. Hesse, Gordon R.
Ritchie, Stella M. Thompson, Laidlaw Inc., PricewaterhouseCoopers LLP, Goldman,
Sachs & Co., Merrill Lynch & Co., Banc One Corp., CIBC Oppenheimer, Banc Of
America Securities, LLC and TD Securities (USA), Inc., Civil Action No. 9486,
was filed in the United States District Court for the Southern District of New
York on behalf of all persons, except the defendants and certain related
parties, who purchased call options or sold put options or other similar
securities exercisable for the bonds of Laidlaw during the period September 24,
1997, through and including May 12, 2000. The plaintiffs allege, among other
things, that the defendants made false and misleading statements and violated
certain federal securities laws. The plaintiffs seek to recover damages in an
unspecified amount that the applicable class members allegedly sustained as well
as related relief. Mr. Grainger has demanded to be indemnified by the Company in
this action.
On March 5, 2001, a case captioned Eaton Vance Distributors, Inc., T. Rowe Price
Associates, Inc., Delaware Investment Advisors, John Hancock Funds, Inc., and
Putnam Investments, Inc., v. Kenneth W. Winger, Laidlaw Inc. John R. Grainger,
James R. Bullock, Paul R. Humphreys, John Rollins, Sr., John W. Rollins, Jr.,
Leslie W. Haworth, David E. Thomas, Jr., Henry B. Tippie, James L. Wareham,
Grover C. Wrenn, Michael J. Bragagnolo and Henry H. Taylor, Case No. 01AS01376,
was filed in the Superior Court of the State of California, County of
Sacramento. The plaintiffs purchased or acquired certain bonds issued by the
California Pollution Control Financing Authority on July 1, 1997, secured by an
indenture agreement with LESI. and its successor Safety-Kleen, in their initial
offering on July 1, 1997, and retained through March 6, 2000. The bonds were
entitled Pollution Control Refunding Revenue Bonds due July 1, 2007. The
plaintiffs allege, among other things, that the defendants made written or oral
communications containing material false statements or omissions and violated
certain state securities laws and common law. The plaintiffs seek to recover
compensatory damages in the amount of approximately $21.7 million and punitive
damages in the amount of approximately $65.2 million, as well as related relief.
Although the Company is not a
22
party to this action, certain of the individual defendants, who are present or
former officers or directors of the Company, may make demands to be indemnified
by the Company in connection with the action. A Motion to Quash service of the
summons for lack of personal jurisdiction, on behalf of David E. Thomas, John W.
Rollins, Jr., the Estate of John W. Rollins, Sr., James L. Wareham, Grover C.
Wrenn, and Henry B. Tippie was filed on August 27, 2001. On behalf of Mr.
Taylor, a Motion to Quash service of the summons was filed on September 4, 2001.
At a hearing held on October 26, 2001, the Court granted the Motions to Quash
the summons for lack of personal jurisdiction as to all the defendants. It is as
yet unknown whether plaintiffs will seek to re-file this action in a different
jurisdiction.
On or about July 1, 2001, a case captioned MFS Series Trust III, Merrill Lynch
High Yield Municipal Bond Fund, Inc., Merrill Lynch Municipal Bond Fund, The
National Portfolio, Merrill Lynch Municipal Strategy Fund, Eaton Vance
Distributors, Inc., T. Rowe Price Associates, Inc., John Hanckock Funds, Inc.,
and Putnam Investments, Inc. v. Kenneth W. Winger, John R. Grainger, James R.
Bullock, Paul R. Humphreys, John W. Rollins, Sr., John W. Rollins, Jr., Leslie
W. Haworth, David B. Thomas, Jr., Henry B. Tippie, James L. Wareham, Grover C.
Wrenn, Michael J. Bragagnolo, and Henry H. Taylor, CV 01-300722MI, was filed in
the Third District Court, County of Tooele, State of Utah. The plaintiffs
purchased or acquired certain bonds issued by Tooele County on July 1, 1997,
secured by an indenture agreement with LESI, and its successor Safety-Kleen, in
the initial offering on July 1, 1997, and retained through March 6, 2000. The
bonds were entitled Pollution Control Refunding Revenue Bonds due July 1, 2007.
The plaintiffs allege, among other things, that the defendants made written or
oral communications containing material false statements or omissions and
violated certain state securities laws and common law. Although the Company is
not a party to this action, certain of the individual defendants, who are
present or former officers or directors of the Company, may make demands to be
indemnified by the Company in connection with the action. The defendants have
not yet responded to the Complaint.
On October 4, 2001, the Company, along with Robert Luba, the Estate of John
Rollins, Sr., John Rollins, Jr., David E. Thomas, Jr., Henry B. Tippie, James L.
Wareham, and Grover C. Wrenn filed an action in the Circuit Court of South
Carolina, Richland County, against PricewaterhouseCoopers LLP and
PricewaterhouseCoopers LLP (Canada), Civil No. 3:01-4247-17 (the "PWC Action").
The PWC Action alleges, among other things, that the defendants were negligent
and reckless in failing to comply with applicable industry and professional
standards in their review and audit of the Company's financial statements and in
the negligent and reckless failure to detect and/or report material
misstatements in those financial statements. The Complaint alleges causes of
action for breach of contract, breach of contract accompanied by a fraudulent
act, professional negligence, negligent misrepresentation, violations of the
South Carolina Unfair Trade Practices Act and a declaratory judgment for
indemnification on behalf of the plaintiff directors. The Complaint seeks in
excess of $1.0 billion from the defendants. The defendants have removed this
case to federal court and moved to dismiss. The Company intends to pursue this
claim vigorously.
On November 13, 2001, the Company, along with Robert Luba, the Estate of John
Rollins, Sr., John Rollins, Jr., David E. Thomas, Jr., Henry B. Tippie, James L.
Wareham, and Grover C. Wrenn filed an action in the Circuit Court of South
Carolina, Richland County, against National Union Fire Insurance Company of
Pittsburgh, PA and American Home Assurance Company, Civil No. 01CP404813 (the
"Insurance Action"). The Insurance Action alleges that the defendants wrongfully
denied insurance coverage under certain directors and officers insurance
policies for the various securities actions detailed above. The Complaint
alleges causes of action for declaratory judgment and breach of contract. The
Complaint seeks insurance coverage for plaintiffs' for costs associated with
defending the securities actions and for any liability plaintiffs may ultimately
incur. The Company intends to pursue this claim vigorously.
Shortly after the Company's March 6, 2000, announcement, Company representatives
met with officials of the Securities and Exchange Commission (the "Commission")
and advised the Commission of the alleged accounting irregularities and the
Company's internal investigation with respect to the allegations. On March 10,
2000, the Company was advised that the Commission had initiated a formal
investigation of the Company. Also on March 10, 2000, the Commission issued a
subpoena to the Company requiring the production of certain financial and
corporate documents relating to the preparation of Company financial statements,
reports and audits for fiscal years 1998, 1999 and portions of fiscal years 1997
and 2000 and for various other documents pertaining to and ancillary to the
alleged accounting irregularities. On May 24, 2000, the Commission issued a
second subpoena to the Company requiring additional documents relating to the
preparation of Company financial statements, reports and audits for fiscal years
1998, 1999 and portions of fiscal years 1997 and 2000. The Company has responded
to the subpoenas.
On or about March 22, 2000, Safety-Kleen was served with a subpoena issued by a
Grand Jury sitting in the United States District Court for the Southern District
of New York seeking production of the same documents described in the
Commission's original subpoena. The Company has responded to the subpoena.
The Company is cooperating with each of the investigations.
FINANCIAL ASSURANCE ISSUES
Under RCRA, TSCA and analogous state statutes, owners and operators of certain
waste management facilities are subject to financial assurance requirements to
ensure performance of their closure, post-closure and corrective action
obligations. The Company is subject to these financial assurance requirements.
Applicable regulations allow owners and operators to provide financial assurance
through a surety bond from an approved surety. Under federal regulations and in
virtually all states, to qualify as an approved surety for the purposes of
providing this type of financial assurance, a surety company must be listed on
Circular 570, which is maintained and distributed publicly by
23
the United States Department of the Treasury. In compliance with the law, the
Company procured surety bonds issued by Frontier as financial assurance at
numerous locations. Of the total amount of financial assurance required of the
Company under the environmental statutes, which approximated $500 million as of
May 31, 2000, slightly more than 50 percent of such requirements were satisfied
through assurances provided by Frontier in the form of surety bonds.
On June 6, 2000, the U.S. Treasury issued notification that Frontier no longer
qualified as an acceptable surety on Federal bonds and had been removed from
Circular 570 on May 31, 2000. Accordingly, as of May 31, 2000, the Company no
longer had compliant financial assurance for many of its facilities. Under
applicable regulations, the Company was required to obtain compliant financial
assurance within sixty days, and in some states, more quickly. The Frontier
surety bonds at the Company's facilities, remain in place (except where replaced
with compliant coverage) and effective and the Company continues to pay the
premiums on the bonds.
Immediately following the June 6, 2000 announcement that Frontier no longer
qualified as an approved surety, the Company notified the EPA that its lack of
certified financial statements for fiscal years 1999, 1998 and 1997 and certain
alleged accounting irregularities would cause the Company difficulty in
attempting to obtain compliant financial assurance for its facilities previously
covered by the Frontier bonds. The Company and the EPA also contacted states in
which the non-compliant facilities were located and apprised such states of
these facts.
The Company and the EPA, acting on behalf of many, but not all affected states,
then engaged in negotiations resulting in the entry of a CAFO, which the
Bankruptcy Court approved on October 17, 2000. The main component of the CAFO is
a compliance schedule (since modified) for the Company to obtain compliant
financial assurance for the facilities covered by the Frontier bonds. The CAFO
also imposed a penalty on Safety-Kleen Services, Inc. The penalty has grown to
approximately $1.6 million as delays have ensued in the replacement of Frontier,
and additional states have joined the CAFO (see discussion below). Some states
have imposed financial assurance penalties in addition to this amount. The
Company believes such asserted penalties will total approximately $600,000
through November 30, 2001. Under the CAFO, the Company was required to obtain
compliant financial assurance as expeditiously as possible, with the original
deadline set at December 15, 2000. The EPA reserved discretion to extend the
deadline and did so on several occasions. The current deadlines are January 31,
2002 for active facilities and March 31, 2002 for the remaining facilities.
The Company and the EPA contacted states in which affected facilities were
located and apprised these states of the terms of the CAFO. Several of these
states referred the affected facilities' non-compliance to the EPA for
enforcement and joined in the CAFO. Certain other states (referred to in the
CAFO as the "Parallel Action States") have entered parallel agreements with the
Company. Other states have entered or have indicated an interest to enter
agreements with affected facilities with terms similar to the CAFO.
On August 7, 2001, the Company obtained the collateral necessary to enable it to
replace Frontier surety bonds at approximately 114 facilities. The replacement
at these facilities will occur upon state acceptance of the replacement
coverage. Several states have approved the replacement insurance policies, which
Indian Harbor Insurance Company has issued, and in those states the Company now
has financial assurance coverage that complies with applicable law. The Company
expects the remaining affected states and the EPA to approve the Indian Harbor
policies in the near future. On or about November 5, 2001, the Company provided
the collateral necessary to enable it to replace Frontier surety bonds at
additional facilities, pursuant to Bankruptcy Court approval obtained on
November 5, 2001.
As of November 20, 2001, the Company was in a position to provide replacement
financial assurance coverage at all but two active facilities and approximately
18 inactive facilities.
Most, but not all, states that have retained primary jurisdiction on this issue
and which have facilities where Frontier has not yet been replaced have
indicated that they will accept the January 31 and March 31, 2002 deadlines
described above. However, the Company has not concluded agreements with all such
states. The Company may seek further extensions of time from the EPA and the
states, but the CAFO does not obligate the EPA and the states to grant such
further extensions. Under the CAFO, the EPA reserves the right, in consultation
with an affected state, to determine in its discretion and in accordance with
applicable law, to modify these requirements. There can be no assurance that the
Company will be able to complete its replacement of Frontier on a schedule
acceptable to the EPA and the states. If it does not, the two remaining active
facilities for which the Company has not yet arranged Frontier's replacement
will have to close and the Company may be subject to additional penalties. In
addition, the Company could be assessed additional penalties in certain states
for the delays in replacing Frontier. Moreover, the EPA has barred the two
active facilities just described from receiving certain wastes.
The Company understands that, on August 27, 2001, Frontier entered a
rehabilitation proceeding that the New York Superintendent of Insurance will
administer pursuant to New York law. The Company further understands that in
such a proceeding, the Superintendent takes possession of the property of
Frontier and conducts its business. The Company has been informed that these
rehabilitation proceedings are unlikely to affect the validity of the remaining
Frontier bonds at its facilities.
Pursuant to the terms of the CAFO, the Company has agreed to a schedule by which
the EPA and Participating States may monitor the Company's efforts to obtain
compliant financial assurance. This schedule includes required periodic reports
to the EPA and Participating States. The schedule also required the Company to
provide audited restated financial statements for fiscal years 1997-1999 and the
audited statements for fiscal year 2000 by certain deadlines. The Company did
not meet the deadlines by the original due dates but subsequently provided the
required information to the EPA and Participating States. Accordingly, the EPA
and certain states may impose additional penalties on the Company.
24
Under the CAFO, until such time as the affected facilities have obtained
compliant financial assurance, the Company and its affected facilities must not
seek to withdraw an existing irrevocable letter of credit, which is subject to
compromise, in the amount of $28.5 million from Toronto Dominion Bank for the
benefit of Frontier and shall take all steps necessary to keep current the
existing Frontier surety bonds.
In the CAFO, the Company waived certain arguments they otherwise could have
asserted under the Bankruptcy Code with respect to their financial assurance and
certain other obligations under environmental laws. The Company's lenders and
the unsecured creditors committee have reserved their right to assert certain of
such arguments.
The State of South Carolina has indicated that it will not be a Participating
State or a Parallel Action State for facilities owned or operated by
Safety-Kleen (Pinewood), Inc. (See discussion below)
SAFETY-KLEEN (PINEWOOD), INC.
A subsidiary of Safety-Kleen, Safety-Kleen (Pinewood), Inc. ("Pinewood"), owns
and operates a hazardous waste landfill near the Town of Pinewood in Sumter
County, South Carolina. By an order dated May 19, 1994 ("the Pinewood Order"),
the South Carolina Board of Health and Environmental Control approved the
issuance by the Department of Health and Environmental Control ("DHEC") of a
RCRA Part B permit (the "Pinewood Permit") for operation of the Pinewood
facility. The Pinewood Permit included provisions governing financial assurance
and capacity for the facility.
The Pinewood Order established Pinewood's total permitted capacity of hazardous
and non-hazardous waste to be 2,250 acre feet, including the amount of hazardous
waste disposed prior to the date of the Order.
South Carolina law requires that hazardous waste facilities provide evidence of
financial assurance for potential environmental cleanup and restoration in form
and amount to be determined by DHEC. The Pinewood Order required Pinewood to
establish and maintain an Environmental Impairment Fund ("EIF") in the amount of
$133 million in 1994 dollars by July 1, 2004 as financial assurance for
potential environmental cleanup and restoration of environmental impairment at
the Pinewood facility. The total fund requirement amount is to be adjusted
annually by the Implicit Price Deflator for the Gross National Product as
published by the U.S. Department of Commerce. The EIF has two components: (1)
the GSX Contribution Fund, which was to be funded by Pinewood in annual cash
payments over a ten year period; and (2) the State Permitted Sites Fund, a
legislatively created fund derived from fees on waste disposal at the Pinewood
facility. Under the Pinewood Order, at the end of the 100-year post-closure care
period, funding of the GSX Contribution Fund will be subject to evaluation by an
independent arbitrator, who will determine what level of funding, if any, is
still required. The Company is entitled to seek recovery of any excess amount so
determined. Upon termination of the GSX Contribution Fund, any remaining trust
assets would revert to Pinewood. In 1993 and 1994, Pinewood paid approximately
$15.5 million cash into the GSX Contribution Fund, which has grown to
approximately $20.6 million as of October 31, 2001.
In June 1995, the South Carolina legislature approved regulations (the "S.C.
Regulations") governing financial assurance for environmental cleanup and
restoration. The S.C. Regulations gave owner/operators of hazardous waste
facilities the right to choose from among five options for providing financial
assurance. The options included insurance, a payment bond, a letter of credit, a
cash trust fund and a corporate guaranty, subject to a financial soundness test.
From June 1995, under authority of the S.C. Regulations, Pinewood submitted
financial assurance for potential environmental cleanup and restoration by way
of a corporate guaranty by Laidlaw or insurance. Pinewood also left in place the
GSX Contribution Fund. On September 15, 1995, DHEC issued a declaratory ruling
finding that the S.C. Regulations were applicable to the financial assurance
requirements for Pinewood.
Pinewood appealed the Pinewood Order and the opposing parties appealed the
Pinewood Order and the September 15, 1995, DHEC declaratory ruling and the
appeals were consolidated in the South Carolina Circuit Court in the case
captioned Laidlaw Environmental Services of South Carolina, Inc. et al.,
Petitioners vs. South Carolina Department of Health and Environmental Control
and South Carolina Board of Health and Environmental Control, Respondents -
Energy Research Foundation, et al., Intervenors, Docket Numbers C/A
94-CP-43-175, 94-CP-43-178, 94-CP-40-1412 and 94-CP-40-1859. The opposing
parties included Citizens Asking for a Safe Environment, Energy Research
Foundation, County of Sumter, Sierra Club, County of Clarendon, Senator Phil
Leventis, the South Carolina Department of Natural Resources and the South
Carolina Public Service Authority.
The South Carolina Court of Appeals issued a decision on April 4, 2000
(substituting for a January 17, 2000 ruling) ruling that (1) the S.C.
Regulations were invalid due to insufficient public notice during the
promulgation procedure and ordering Pinewood to immediately comply with the cash
financial assurance requirements of the May 19, 1994 Order; and (2) both
non-hazardous and hazardous waste count against Pinewood's capacity from the
beginning of waste disposal, thereby reducing the remaining permitted capacity.
On June 13, 2000, the South Carolina Supreme Court denied Pinewood's petition
for a writ of certiorari. On June 14, 2000, DHEC sent notice by letter to the
Pinewood facility directing that Pinewood cease accepting waste for disposal in
30 days and submit a closure plan. DHEC based this directive on the decision of
the Court of Appeals that all non-hazardous waste disposed at Pinewood should be
counted
25
against Pinewood's hazardous waste capacity limit and DHEC's resulting
conclusion that there is no remaining permitted capacity at Pinewood.
On June 22, 2000, DHEC notified Pinewood that the Court of Appeals' decision
vacated the S.C. Regulations and, therefore, Pinewood has the sole
responsibility to provide cash funding into the EIF in accordance with the
Pinewood Order. The DHEC notice also directed Pinewood to provide information to
DHEC within 15 days on how Pinewood would comply with the Order including
payment into the GSX Contribution Fund. As of October 31, 2001, there was
approximately $20.6 million in the GSX Contribution Fund and approximately $14.8
million in the State Permitted Sites Fund. In 2001 dollars, the total EIF
funding requirement is approximately $150.1 million. To comply with the
financial assurance provisions of the Pinewood Order, Pinewood would have to
contribute the following payments (in 2001 dollars) as follows ($ in thousands),
subject to the automatic stay provisions discussed below:
Amount due during fiscal year:
2001 $ 95,515
2002 14,450
2003 5,652
Total --------
$115,617
========
Additionally, on June 9, 2000 (on the same day, but after, Pinewood filed its
petition for bankruptcy protection in the Bankruptcy Court), DHEC issued an
Emergency Order finding that Frontier (the issuer of the bonds used by Pinewood
to provide for financial assurance for the costs of closure and post-closure,
and third party liability) no longer met regulatory standards for bond issuers.
Based on this finding, DHEC ordered Pinewood to cease accepting waste for
disposal by August 28, 2000, unless it could provide acceptable alternative
financial assurance by June 27, 2000.
On July 7, 2000, in the legal action captioned In re: Safety-Kleen Corp., et al.
Debtor, Chapter 11 Cases, Delaware Bankruptcy Court, Case Nos. 00-203 (PJW),
Adversary Proceeding No. 00-698-Safety-Kleen (Pinewood), Inc. v. State of South
Carolina, et al., District of South Carolina (MJP) Case No. 3:00-2243-10,
Pinewood commenced legal proceedings in the United States District Court for the
District of Delaware challenging DHEC's June 9, 2000, Emergency Order and DHEC's
June 14 and June 22, 2000 notice letters. Pinewood sought to stay and/or enjoin
DHEC and the State of South Carolina from enforcement of these directives on the
grounds that the actions of DHEC were invalid under various provisions of the
United States Constitution, violated the automatic stay provision of the
Bankruptcy Code and/or should be enjoined under the equitable powers of the
Bankruptcy Court. As an alternative cause of action, Pinewood demanded that it
be compensated for the taking of its property without just compensation under
provisions of the Constitutions of the United States and the State of South
Carolina.
On July 12, 2000, the Delaware U.S. District Court issued an Order transferring
the case to the United States District Court for the District of South Carolina.
On August 25, 2000, the U.S. District Court for the District of South Carolina
issued rulings that (1) denied South Carolina's motion to dismiss Pinewood's
claims upon jurisdictional grounds and certified the issue for an immediate
appeal to the United States Court of Appeals for the Fourth Circuit; (2) the
June 9, 2000 Emergency Order was subject to the automatic stay provisions of
Section 362 of the Bankruptcy Code; and (3) denied Pinewood's motion for a
preliminary injunction with respect to the June 14, 2000 DHEC letter.
The State of South Carolina and Pinewood appealed the District Court's ruling to
the United States Court of Appeals for the Fourth Circuit. No decision has been
issued by the Court of Appeals.
On September 25, 2000, Pinewood filed a request with DHEC for a permit
modification increasing landfill capacity. Pinewood also filed a request for
temporary authorization from DHEC to continue waste disposal at the facility
pending a DHEC decision on the requested permit modification.
At midnight on September 25, 2000, Pinewood suspended waste disposal in the
landfill pending action by DHEC and/or court decision allowing continued waste
disposal. On September 26, 2000, DHEC denied Pinewood's request for temporary
authorization for continued waste disposal at its Pinewood landfill.
The Stock Purchase Agreement ("Stock Purchase Agreement") among Rollins
Environmental Services, Inc. (now Safety-Kleen), Laidlaw, and Laidlaw
Transportation, Inc. ("LTI") dated February 6, 1997, provides that Laidlaw shall
maintain, solely at its expense, until the tenth anniversary of the closing date
(May 15, 2007), such financial mechanism as may be permitted by the relevant
environmental laws to provide the required financial assurance for potential
environmental cleanup and restoration at the Pinewood facility. See also the
"Laidlaw Inc. Relationships" discussion in Item 13 of Part III.
On September 14, 2001, Pinewood was served with a Notice of Violation and
Enforcement Conference issued by DHEC, alleging four separate violations of the
South Carolina Hazardous Waste Management Act at Pinewood's landfill. The
violations allege that Pinewood, or its predecessors: (1) failed to submit
certain leachate and liner compatibility information when Pinewood filed a
permit application in January 1986; (2) failed to have an independent registered
professional engineer sign closure certifications that were submitted to DHEC
between
26
February 1996 and October 1998; (3) failed to furnish DHEC with complete and
accurate information in an April 5, 2001 response to a DHEC request for
information; and, (4) failed to prevent the seeping of leachate from above the
primary clay liner of landfill Cell III B Extension into an adjacent, partially
excavated, unlined future waste disposal cell. An enforcement conference was
held November 14, 2001. At the conference, the Company provided information to
DHEC for its consideration in deciding if DHEC will take any further action
concerning these alleged violations. The Company believes the alleged violations
are without substantial merit and intends to vigorously defend against the
alleged violations.
On December 4, 2000, DHEC filed a proof of claim with respect to the EIF in the
Debtors' Chapter 11 cases in the amount of approximately $118.5 million (in 1994
dollars). The Company believes DHEC's claim to be a general unsecured claim
subject to compromise in the bankruptcy case. DHEC asserts that its claim is
entitled to administrative expense priority.
On November 1, 2001, DHEC filed a motion in the Bankruptcy Court for an
allowance of an administrative expense claim in the amount of approximately
$111.5 million (in 1994 dollars). On November 8, 2001, the Debtors filed an
objection to that motion asserting that no part of the claim is entitled to
administrative status. On November 13, 2001, DHEC filed a reply to the Debtors'
objection and a hearing is scheduled before the Bankruptcy Court.
VILLE MERCIER FACILITY
On January 12, 1993, Safety-Kleen Services (Mercier) Ltd. (the "Mercier
Subsidiary") filed a declaratory judgement action (Safety-Kleen Services
(Mercier) Ltd. v. Attorney General of Quebec; Pierre Paradis, in his capacity as
Minister of the Environment of Quebec; Ville Mercier; and LaSalle Oil Carriers,
Inc.) in the Superior Court for the Province of Quebec, District of Montreal.
The legal proceeding seeks a court determination of the liability associated
with the contamination of former lagoons that were located on the Mercier
Subsidiary's property. The Mercier Subsidiary asserts that it has no
responsibility for the contamination on the site. The Minister of the
Environment filed a Defense and Counterclaim in which it asserts that the
Mercier Subsidiary is responsible for the contamination, should reimburse the
Province of Quebec for past costs incurred in the amount of 17.4 million
Canadian Dollars, and should be responsible for future remediation costs. The
legal proceedings are in the discovery stage.
The contamination at the Mercier Subsidiary facility dates back to 1968, when an
unrelated company owned the property. In 1968, the Quebec government issued two
permits to the unrelated company to dump organic liquids into lagoons on the
Mercier Subsidiary property. By 1972, groundwater contamination had been
identified and the Quebec government provided an alternate water supply to the
municipality of Ville Mercier. Also in 1972, the permit authorizing the dumping
of liquids was terminated and a permit to operate an organic liquids incinerator
on the property was issued. (The entity to which this permit was issued was
indirectly acquired by the Company in 1989.) In 1973, the Quebec government
contracted with the incinerator operator to incinerate the pumpable liquids in
the lagoons. In 1980, the incinerator operator removed, solidified and disposed
of the non-pumpable material from the lagoons in a secure cell and completed the
closure of the lagoons at its own expense. In 1983, the Quebec government
constructed and continues to operate a groundwater pumping and treatment
facility near the lagoons.
The Company believes that the Mercier Subsidiary is not the party responsible
for the lagoon and groundwater contamination and the Mercier Subsidiary has
denied any responsibility for the decontamination and restoration of the site.
In November 1992, the Minister of the Environment ordered the Mercier Subsidiary
to take all necessary measures to excavate, eliminate or treat all of the
contaminated soils and residues and to recover and treat all of the contaminated
waters resulting from the aforementioned measures. The Mercier Subsidiary
responded by letter, reiterating its position that it had no responsibility for
the contamination associated with the discharges of wastes into the former
Mercier lagoons between 1968 and 1972 and proposing to submit the question of
responsibility to the Courts for determination as expeditiously as possible
through the cooperation of the parties' respective attorneys, resulting in the
filing of the pending action.
On or about February 9 and March 12, 1999, Ville Mercier and three neighboring
municipalities filed separate legal proceedings against the Mercier Subsidiary
and certain related companies together with certain former officers and
directors, as well as against the Government of Quebec. (Ville Mercier v.
Safety-Kleen Services (Mercier) Ltd., et. al.; Ville de Chateauguay v.
Safety-Kleen Services (Mercier) Ltd., et. al.; Municipality of Ste-Martine v.
Safety-Kleen Services (Mercier) Ltd., et. al.; and St. Paul de Chateauguay v.
Safety-Kleen Services (Mercier) Ltd., et. al.) The lawsuits assert that the
defendants are jointly and severally responsible for the contamination of
groundwater in the region, which plaintiffs claim was caused by contamination
from the former Ville Mercier lagoons, and which they claim caused each
municipality to incur additional costs to supply drinking water for their
citizens since the 1970's and early 1980's. The four municipalities claim a
total of approximately 1.6 million Canadian Dollars as damages for additional
costs to obtain drinking water supplies and seek an injunctive order to obligate
the defendants to remediate the groundwater in the region. The Mercier
Subsidiary will continue to assert that it has no responsibility for the ground
water contamination in the region. The legal proceedings are in the discovery
stage.
Pursuant to the Stock Purchase Agreement, Laidlaw and LTI agreed to indemnify
and hold harmless the Company for any damages resulting from the remediation of
contaminated soils and water arising from the former lagoon sites and the
operation of the incinerator at Mercier, Quebec. The indemnification is only to
the extent that the aggregate cash expenditure with respect to such damages
exceeds in the aggregate (i) $1.0 million during any year and (ii) since May 15,
1997 (May 15, 2003), an amount equal to the product of approximately $1.0
million times the number of years that have elapsed since May 15, 1997; however,
there shall be no indemnification for any cash expenditures
27
incurred more than six years after May 15, 1997. As of September 14, 2001, the
Company has not incurred expenses for which it would be entitled to
indemnification under the Stock Purchase Agreement. See also the "Laidlaw Inc.
Relationships" discussion in Item 13 of Part III.
MARINE SHALE PROCESSORS
Beginning in the mid-1980's and continuing until July 1996, one of the Company's
former vendors, Marine Shale Processors, Inc., located in Amelia, Louisiana
("Marine Shale"), operated a kiln which incinerated waste producing a vitrified
aggregate as a by-product. Marine Shale contended that its operation recycled
waste into a useful product, i.e. vitrified aggregate, and therefore, was exempt
from RCRA regulation and permitting requirements as a Hazardous Waste
Incinerator. The EPA contended that Marine Shale was a "sham-recycler" subject
to the regulation and permitting requirements as a Hazardous Waste Incinerator
under RCRA, that its vitrified aggregate by-product is a hazardous waste, and
that Marine Shale's continued operation without required permits was illegal.
Litigation between the EPA and Marine Shale with respect to this issue began in
1990 and continued until July 1996 when Marine Shale was ordered to shut down
its operations by United States Fifth Circuit Court of Appeals.
During the course of its operation, Marine Shale produced thousands of tons of
aggregate, some of which was sold as fill material at various locations in the
vicinity of Amelia, Louisiana, but most of which is stockpiled on the premises
of the Marine Shale site. Moreover, as a result of past operations, soil and
groundwater contamination may exist on the Marine Shale site.
In November 1996, an option to buy Marine Shale was obtained by GTX, Inc.
("GTX"), with the intent to operate the facility as a permitted Hazardous Waste
Incinerator. Subsequently, Marine Shale, GTX and the EPA reached a settlement,
including a required cleanup of the aggregate and the facility, and the
Louisiana Department of Environmental Quality issued a draft permit to GTX for
operation of the Marine Shale facility as a RCRA-permitted hazardous waste
incinerator. Appeals were taken by opposition parties and in October 1999, a
Louisiana State Court Judge ruled that the draft permit was improperly issued.
GTX appealed this decision and in October 2000, the Appeals Court reversed the
lower court and affirmed the permit issuance. The opposition parties filed
applications for Supervisory Writs with the Louisiana Supreme Court, and these
applications were denied in April 2001. There may be further legal challenges to
the permit and GTX expects to spend more than $60 million updating the facility
in a year long project prior to commercial operation of the facility. Therefore,
it is uncertain whether or when GTX will begin operation of the Marine Shale
site.
The Company was one of the largest customers of Marine Shale. In the event
Marine Shale does not operate, the potential exists for an action by the EPA
requiring cleanup of the Marine Shale site and the stockpiled aggregate under
CERCLA. In this event, the Company would be exposed to potential financial
liability for remediation costs as a PRP.
The Stock Purchase Agreement provides that Laidlaw and LTI shall indemnify the
Company for environmental liability arising with respect to the treatment of
waste at the Marine Shale site. The indemnification is only to the extent that
the aggregate cash expenditure with respect to such damages exceeds in the
aggregate (i) $1 million during any year; and (ii) since May 15, 1997, an amount
equal to the product of $1 million times the number of years that have elapsed
since May 15, 1997; however, there shall be no indemnification for any cash
expenditures by the Company incurred more than six years after May15, 1997(May
15, 2003). As of September 14, 2001, the Company has not incurred expenses for
which it would be entitled to indemnification under the Stock Purchase
Agreement. See also the "Laidlaw Inc. Relationships" discussion in Item 13 of
Part III.
LAMBTON HAZARDOUS WASTE LANDFILL
On September 3, 1999, the Company's Lambton hazardous waste landfill facility in
Ontario, Canada, discovered an upwelling of water and natural gas in a disposal
cell designated as Sub-cell 3. While in the course of trying to determine the
source and cause of the upwelling, the Company informed the Ontario Ministry of
Environment and Energy ("MOE") of the situation. On November 2, 1999, MOE issued
a Field Order finding that the upward migration of water and methane gas onto
the landfill cell floor necessitated that the Company not utilize the newly
constructed Sub-cell 3 for waste disposal. On December 14, 1999, the MOE issued
a second Field Order requiring that Sub-cell 4, another newly constructed cell,
not be utilized for waste disposal after MOE officials observed what they
believed to be significant gas evolution from the bottom of the cell. On
December 21, 1999, independent technical experts and Company professionals
presented to the MOE testimony and a report addressing MOE concerns. Following
the hearing and testimony, the MOE issued a third Field Order on December 24,
1999, revoking the two previous orders and allowing the utilization of Sub-cell
4 for waste disposal under new conditions which included that (1) no waste in
Sub-cell 4 was to be placed below an elevation of 182 meters above mean sea
level and (2) with respect to Sub-cell 3 the Company, was to provide a report
for the approval of the Director of the MOE which would provide the plan for
identifying potential areas of gas and water venting, the proposed measures to
remediate all areas identified and further steps to protect the integrity of the
sub-cell. In accordance with the third Field Order, the Company submitted a
report to the MOE in February 2000 outlining its plan for present and future
site activities. The MOE issued an Order approving the remediation plan. In
accordance with the approved plan, physical remediation began in spring 2001.
The Order requires that the plan be fully implemented by the end of December
2001. As of November 26, 2001, the remediation plan is approximately 75%
complete. The MOE has approved necessary changes to the plan and has extended
the implementation deadline accordingly.
28
RAYGAR ENVIRONMENTAL SYSTEMS INTERNATIONAL LITIGATION
On August 7, 2000, RayGar Environmental Systems International, Inc. ("RayGar")
filed its First Amended Complaint in the United States District for the Southern
District of Mississippi, Hattiesburg Division, Civil Action No. 2:9CV376PG,
against Laidlaw, Laidlaw Investments, Ltd., LTI, LESI (now Safety-Kleen), LES,
Inc. (now known as Safety-Kleen Services, Inc.), Laidlaw Environmental Services
(U.S.), Inc. (subsequently merged into Safety-Kleen Services, Inc.), Laidlaw
OSCO Holdings, Inc. (now known as Safety-Kleen OSCO Holdings, Inc.), and Laidlaw
International alleging a variety of federal antitrust violations and state law
business torts. RayGar seeks damages it has allegedly sustained as a result of
the defendants' actions in an amount of not less than $450 million in actual
compensatory damages and not less than $950 million for punitive damages.
The dispute arises from an unsuccessful effort pursuant to an agreement between
RayGar and a Safety-Kleen subsidiary, to obtain RCRA and related permits for the
operation of a wastewater treatment facility in Pascagoula, Mississippi. This
lawsuit is in the very early stages of discovery. Laidlaw, Laidlaw Investments,
Ltd., LTI and Laidlaw International have filed a motion to dismiss the Complaint
for lack of personal jurisdiction and for failure to state a claim upon which
relief can be granted. The action has not proceeded against the Company due to
the filing of the Chapter 11 bankruptcy petitions on June 9, 2000.
FEDERATED HOLDINGS, INC. LITIGATION
On November 6, 2000, Federated Holdings, Inc. ("FHI") filed a lawsuit against
Laidlaw, Laidlaw Investments, Ltd., LTI, LESI (now Safety-Kleen), LES, Inc. (now
known as Safety-Kleen Services, Inc). Laidlaw OSCO Holdings, Inc. (now known as
Safety-Kleen OSCO Holdings, Inc.), and Laidlaw International in the United
States District Court for the Southern District of Mississippi, Hattiesburg
Division, Civil Action No. 2:00CV286 alleging a variety of federal antitrust
violations and state law business torts. FHI seeks damages it has allegedly
sustained as a result of the defendants' actions in an amount of not less than
$200 million in actual compensatory damages and not less than $250 million for
punitive damages.
The dispute arises from an unsuccessful effort pursuant to an agreement between
FHI and a Safety-Kleen subsidiary to obtain RCRA and related permits for the
operation of a hazardous waste landfill in Noxubee County, Mississippi. This
lawsuit is in the very early stages of discovery. Laidlaw, Laidlaw Investments,
Ltd., LTI and Laidlaw International have filed a motion to dismiss the Complaint
for lack of personal jurisdiction and for failure to state a claim upon which
relief can be granted. The action has not proceeded against the Company due to
the filing of the Chapter 11 bankruptcy petitions on June 9, 2000.
HUDSON COUNTY IMPROVEMENT AUTHORITY LITIGATION
In July 1999, Hudson County Improvement Authority ("HCIA") filed suit in the
Superior Court, Hudson County, New Jersey against SK Services (East), L.C. ("SK
Services East") (an indirect wholly owned Safety-Kleen subsidiary),
Safety-Kleen, American Home Assurance Company, and Hackensack Meadowlands
Development Commission. An Amended Complaint was filed on August 18, 1999, in
which HCIA sought damages and injunctive relief evicting SK Services East from a
175 acre site in Kearny, New Jersey owned by HCIA. SK Services East had been
using the site pursuant to an Agreement and Lease dated as of February 2, 1997
for the processing and disposal of processed dredge material. HCIA alleged that
certain conditions precedent to SK Services East's right to continue operations
at the site had not occurred, that as a result the Agreement and Lease had
automatically terminated, that SK Services East owed HCIA some $11 million in
back rent, and that SK Services East was obligated to finish the remediation of
the site and its preparation for development as a commercial property. In
January 2000, the Court granted HCIA summary judgment on its motion to declare
the Agreement and Lease null and void as a result of the failure of certain
conditions precedent. This ruling effectively terminated the relationship
between SK Services East and HCIA leaving only the issue of the determination of
the rights and responsibilities of the parties in the unwinding of the
relationship. In May 2000, HCIA filed for summary judgment seeking an order
declaring that SK Services East is obligated to complete all measures required
under the remedial action work plan for the site. SK Services East filed a brief
opposing the motion. In June 2000, HCIA withdrew its pending motion, with the
Court's understanding that the motion could be re-filed if the automatic stay in
connection with the Company's Chapter 11 bankruptcy proceeding is lifted. On
July 11, 2001, the Bankruptcy Court entered an Order authorizing the Company's
rejection of the executory contracts and the unexpired lease to which SK
Services East and HCIA were parties. The Order does not limit, abridge, or
otherwise effect HCIA's right to assert and seek remedies regarding its pre-
and/or postpetition claims against the Company for damages and other relief.
Also on July 11, 2001, the Bankruptcy Court granted HCIA's motion to modify the
Bankruptcy Code's automatic stay, and entered an Order permitting the Superior
Court of New Jersey, Hudson County, to make its final determination regarding SK
Services East's contractual obligations under the Agreement and Lease. On
October 3, 2001, the Superior Court ruled that SK Services East was not required
to complete all measures under the remedial action work plan. The Superior Court
ordered that SK Services East and HCIA meet with the New Jersey Department of
Environmental Protection and reach an agreement on reasonable measures that SK
Services East should take under the circumstances. If no agreement is reached
the parties will submit the matter to the Court for decision.
ECDC ENVIRONMENTAL, L.C. CLAIM
Certain subsidiaries of Safety-Kleen entered into a long-term contract (the
"4070 Contract") with General Motors Corporation ("GM") to manage certain GM
waste products. One requirement of the 4070 Contract was to provide a dedicated
cell for GM waste products at a landfill facility owned by ECDC Environmental,
L.C. ("ECDC"), which was then a Safety-Kleen subsidiary. In November 1997, the
29
Company sold its interest in ECDC to an affiliate of Allied Waste Industries,
Inc. Pursuant to the sale, ECDC, the Company, and certain Safety-Kleen
subsidiaries entered the GM Waste Disposal Agreement (the "WDA") governing the
obligations of the parties with respect to the continued management of GM waste
in the dedicated cell at the ECDC landfill.
By letter dated May 15, 2000, the Company was notified of GM's intent to
terminate the 4070 Contract for default, effective December 31, 2000. Under the
WDA, default by the Company under the 4070 Contract would have obligated the
Company to pay certain costs, rebates and damages to ECDC in accordance with the
terms of the WDA.
As more thoroughly discussed in Part I, Item 3 (Legal Proceedings), "Chapter 11
Filing," the Company filed for protection under Chapter 11 of the Bankruptcy
Code. In anticipation of the Company's rejection of the 4070 Contract pursuant
to 11 U.S.C. ss.365, on October 30, 2000, ECDC filed a claim for not less than
approximately $11.0 million plus other and unspecified additional damages for
Company's breach of the 4070 and WDA contracts. Subsequently, the Bankruptcy
Court granted the motion by the Company, to reject both the 4070 Contract and
the WDA, effective December 1, 2000.
BRYSON ADAMS LITIGATION
In 1996, a lawsuit was filed in the federal court in Baton Rouge, Louisiana,
under the caption Carleton Gene Rineheart et al. v. CIBA-GEIGY Corporation, et
al., U.S. District Court for the Middle District of Louisiana, CA #96-517,
Section B(2). In October 1999, a substantially similar lawsuit was filed in
state court in Lafayette Parish, Louisiana, under the caption of Bryson Adams,
et al. v. Environmental Purification Advancement Corporation, et al., Civil
Action No. 994879, Fifteenth Judicial District Court, Parish of Lafayette, State
of Louisiana. In December 2000, these two cases were consolidated with Adams
designated as the lead case. In this consolidated litigation, plaintiffs are
suing for alleged personal injury and/or property damage arising out of the
operation of certain waste disposal facilities near Bayou Sorrel, Louisiana. The
initial Bryson Adams lawsuit was filed on behalf of 320 plaintiffs against 191
defendants. Plaintiffs' counsel have advised the court that they represent 1,100
plaintiffs. The Company has recently been informed that the total number of
plaintiffs now exceeds 2,500.
A Safety-Kleen subsidiary which owns and operates a hazardous waste deep
injection well in Bayou Sorrel, Louisiana is named as a defendant. A different
Safety-Kleen subsidiary is also named as a defendant for its alleged role as a
generator and arranger for disposal or treatment of hazardous waste at certain
of the disposal facilities which are named in the litigation. It is alleged that
the Safety-Kleen subsidiary was the operator of the injection well in question
from 1974 through the present. In addition to the claims asserted by the
plaintiffs, there is the potential that the customers of the injection well, who
are also defendants, may assert claims for indemnification against the Company.
The action has not proceeded against the Company, other than paper discovery and
a site inspection, due to the filing of the Chapter 11 Bankruptcy petition on
June 9, 2000. The case is presently set for trial in November of 2003.
FUSRAP WASTE DISPOSAL AT SAFETY-KLEEN (BUTTONWILLOW), INC.
Safety-Kleen (Buttonwillow), Inc., a subsidiary of Safety-Kleen, owns and
operates a hazardous waste landfill in Kern County California (the "Buttonwillow
Landfill"). The Buttonwillow Landfill accepted and disposed of construction
debris that originated at a site in New York which was part of the federal
Formerly Utilized Sites Remediation Program ("FUSRAP"). The construction debris
was low-activity radioactive waste and was shipped to the Buttonwillow Landfill
by the U.S. Army Corps of Engineers ("USACE"). FUSRAP was created in the
mid-1970s in an attempt to manage various sites around the country contaminated
with residual radioactivity from activities conducted by the Atomic Energy
Commission and United States military during World War II. The California
Department of Health Services ("DHS") has claimed that the Buttonwillow Landfill
did not lawfully accept the waste. Both DHS and the Department of Toxic
Substances Control ("DTSC") have filed claims in the Company's bankruptcy
proceedings preserving the right of the agencies to seek penalties and possibly
compel removal of the material should an ongoing investigation reveal the
subsidiary acted improperly. DHS claimed penalties in the amount of $0.6 million
and potential removal costs of $15.5 million should DHS have to oversee and/or
conduct the removal. The proof of claim filed by the DTSC was in the amount of
$15.0 million for potential penalties plus an unspecified amount for any costs
the DTSC may incur should the subsidiary be forced to remove the waste. The
subsidiary and the USACE contend the material was properly disposed of and will
vigorously resist the imposition of any penalties or any efforts to require that
waste be removed.
GENERAL
The Company's hazardous and industrial waste services are continuously regulated
by federal, state, provincial and local laws enacted to regulate the discharge
of materials into the environment or primarily for the purpose of protecting the
environment. This inherent regulation of the Company necessarily results in its
frequently becoming a party to judicial or administrative proceedings involving
all levels of governmental authorities and other interested parties. The issues
that are involved generally relate to applications for permits and licenses by
the Company and their conformity with legal requirements and alleged violations
of existing permits and licenses. At November 9, 2001, subsidiaries of
Safety-Kleen were involved in ten proceedings in which a governmental authority
is a party relating primarily to activities at waste treatment, storage and
disposal facilities where the Company believes sanctions involved in each
instance may exceed $100,000.
In the United States, CERCLA imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites which release hazardous
substances, as well as generators, disposal arrangers and transporters of the
waste material, may be strictly, jointly and severally liable for remediation
costs and natural resources damage. At
30
November 9, 2001, the Company had identified 60 active federal or state-run
CERCLA sites where the Company is PRP. The Company periodically reviews its
status with respect to each location and the extent of its alleged contribution
to the volume of waste at the location, the available evidence connecting the
Company to that location, and the financial soundness of other PRP's at the
location.
PRODUCTS LIABILITY CASES
From time to time, the Company is named as a defendant in various lawsuits
arising in the ordinary course of business, including proceedings wherein
persons claim personal injury resulting from the use of the Company's parts
cleaner equipment and/or cleaning products. A number of such legal proceedings
are currently pending in various courts and jurisdictions throughout the United
States. These proceedings typically involve allegations that the solvent used in
the Company's parts cleaner equipment contains contaminants and/or that the
Company's recycling process does not effectively remove the contaminants that
become entrained in the solvent during its use. In addition, certain claimants
assert that the Company failed to adequately warn the product user of potential
risks. In the aggregate, the plaintiffs' claims are in excess of $150 million.
The Company maintains insurance which it believes will provide coverage for
these claims over self-insured retentions and deductibles which, in the
aggregate, the Company believes are less than $10 million. The Company believes
that these claims are not meritorious and intends to vigorously defend itself
against any and all such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded on the New York Stock Exchange ("NYSE")
under the ticker symbol SK until it was suspended from trading in June 2000. The
Common Stock was thereafter delisted from the NYSE on July 28, 2000. As of June
15, 2000, the Common Stock began trading on the OTC Bulletin Board under the
ticker symbol SKLNQ. The approximate number of record holders of Common Stock as
of August 31, 2001 was 4,789. The following table shows the high and low bid
prices for the Common Stock for each quarterly period within the two most recent
fiscal years that the shares were traded on the OTC Bulletin Board and NYSE.
FISCAL YEAR ENDED AUGUST 31, 2001 HIGH LOW
----------- ----------
Fourth Quarter $ 0.38 $ 0.17
Third Quarter 0.60 0.35
Second Quarter 0.99 0.07
First Quarter 0.19 0.10
FISCAL YEAR ENDED AUGUST 31, 2000
Fourth Quarter $ 0.75 $ 0.06
Third Quarter 5.06 0.56
Second Quarter 12.50 4.87
First Quarter 14.12 10.62
The Company has not paid dividends during the reported periods and does not
intend to pay dividends in the foreseeable future.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
See the Current Report on Form 8-K filed by the Company on August 8, 2000.
32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the
executive officers of the Company:
Name Age Position Held
- --------------------- --- ------------------------------------------------------------
Ronald A. Rittenmeyer 54 Chairman of the Board, Chief Executive Officer and President
Larry W. Singleton 51 Executive Vice President and Chief Financial Officer
Thomas W. Arnst 39 Executive Vice President and Chief Administrative Officer
James K. Lehman 35 Senior Vice President, General Counsel and Secretary
David M. Sprinkle 48 Chief Operating Officer
Ronald A. Rittenmeyer became Chairman of the Board, Chief Executive Officer and
President of the Company effective September 5, 2001. From February 14, 2000,
through December 1, 2000, he was President and Chief Executive Officer and a
member of the Board of AmeriServe Food Distribution, Inc. ("AmeriServe"), and
subsequently he served as Plan Administrator of AFD Fund (the post-confirmation
estate of AmeriServe). From September 1998 through February 2000, he was
Chairman, President and Chief Executive Officer of RailTex, Inc. From March 1997
through August 1998, he was President and Chief Operating Officer of Ryder TRS,
Inc. From January 1997 through March 1997, he was a Principal of Jay Alix and
Associates, and from November 1995 through November 1996, he was President and
Chief Operating Officer of Merisel. Mr. Rittenmeyer continues to serve as the
Plan Administrator for AFD Fund. Mr. Rittenmeyer also serves as a trustee of
Greenhill School in Dallas, Texas. Mr. Rittenmeyer became a member of the Human
Resources and Compensation Committee on May 30, 2001. Mr. Rittenmeyer is
Chairman of the Special Committee (Conflicts of Interest in Litigation) of the
Board.
Larry W. Singleton, a CPA, was elected Executive Vice President and Chief
Financial Officer of the Company on November 27, 2001. From August 17, 2000 to
November 27, 2001 Mr. Singleton was Senior Vice President and Chief Financial
Officer of the Company. Mr. Singleton is a restructuring advisor who has served
in various management and consulting roles to numerous companies during the last
17 years. From February 2000 through January 2001, Mr. Singleton served as an
investment committee member to Revitalizacni Agentura, a.s., a subsidiary of the
Czech Republic's national bank, formed to assist the Czech government in
restructuring numerous industrial companies. From May 1998 through October 2001,
Mr. Singleton served as a consultant to minority shareholders of A. Duda & Sons,
Inc., a privately owned diversified agribusiness and real estate company. In
1998 and 2000, Mr. Singleton served as an arbitrator in litigation involving
contract disputes. From February 1999 to July 2000, Mr. Singleton served as the
Executive Vice President of Gulf States Steel, Inc. of Alabama, a fully
integrated steel mill where he assisted with Chapter 11 reorganization efforts,
including arranging pre-filing debtor-in-possession financing and developing
various business plans. During 1998, Mr. Singleton served as a member of the
Board of Directors of Alliance Entertainment Corp., a wholesale distributor of
pre-recorded music, where he joined the Board after Chapter 11 filing and
assisted with reorganization efforts. From 1996 through 1998, Mr. Singleton
served as Chief Executive Officer, President and Treasurer of New Energy
Corporation of Indiana, an ethanol production facility where he assisted with
the restructuring of the company without a bankruptcy filing. From 1995 through
1996, Mr. Singleton served as a consultant to Apollo Management, L.P., where he
assisted in the financial evaluation and due diligence efforts in connection
with the proposed acquisition of a European-based multinational security
services company. During 1995, Mr. Singleton served as a consultant and acting
Chief Financial Officer of Wellstream Company, L.P., a manufacturer of flexible
pipe for the oil and gas industry where he assisted with the evaluation and
ultimate sale of the company. From 1992 through 1995, Mr. Singleton served as a
member of the Board of Directors, and previously, as Chief Financial Officer, of
Alert Centre, Inc., a security services company where he assisted with Chapter
11 reorganization efforts.
Thomas W. Arnst was elected Executive Vice President and Chief Administrative
Officer of the Company on November 27, 2001. From April 2000 to December 2000,
Mr. Arnst served as Executive Vice President and Chief Administrative Officer of
AmeriServe and subsequently with AFD Fund. From December 1998 to February 2000,
Mr. Arnst was Senior Vice President, General Counsel and Secretary of RailTex,
Inc. From October 1996 to December 1998, Mr. Arnst was Vice President, General
Counsel and Secretary of Ryder TRS, Inc.
James K. Lehman was elected Senior Vice President, General Counsel and Secretary
of the Company on November 27, 2001. For more than five years prior to this he
practiced law with the law firm of Nelson Mullins Riley & Scarborough, L.L.P. in
Columbia, South Carolina in the areas of business and commercial litigation,
securities litigation, technology litigation, and professional liability. Prior
to joining Nelson Mullins, Mr. Lehman was with the law firm of Davis, Polk &
Wardwell.
David M. Sprinkle was elected Chief Operating Officer of the Company on November
27, 2001. He had served as President Chemical
33
Services Division of the Company since May 2000. Mr. Sprinkle has been employed
by the Company or one of its subsidiaries for more than five years. Since August
1, 1995, prior to his promotion to President Chemical Services Division, he
served in various capacities including, as Senior Vice President of Operations,
Senior Vice President of the Eastern Division, Senior Vice President of the
Southern Division and Senior Vice President of Sales and Services.
DIRECTORS OF THE REGISTRANT
CLASS I DIRECTORS - TERMS THAT WERE TO EXPIRE AT THE 2000 ANNUAL MEETING.
Principal Occupation or Employment
Name, Present Position(s) and Term During the Last Five Years,
With the Company Age Directorships of Public Companies
- ----------------------------------- ------ -----------------------------------
Henry B. Tippie 74 For more than five years, Mr.
Director of the Company since 1982 Tippie has been Chairman of the
Board and President of Tippie
Services, Inc. a management
services company. From April
2000 until February 26, 2001, he
was Chairman of the Board of
Rollins Truck Leasing Corp. For
more than five years prior, he
was Chairman of the Executive
Committee and Vice Chairman of
the Board of Rollins Truck
Leasing Corp. Mr. Tippie also is
a director of Matlack Systems,
Inc., RPC, Inc., Marine Products
Corporation and Rollins Inc. and
he is the Chairman of the Board
of Dover Downs Entertainment,
Inc. Mr. Tippie is the Chairman
of the Audit Committee. Mr.
Tippie was a member of Special
Committee (Investigation) of the
Board from March 2000 until it
was dissolved on September 13,
2001.
James L. Wareham 63 Mr. Wareham has been President
Director of the Company since June 1997 of AK Steel Corporation, a steel
manufacturing company, since
March 1997. From 1993 until
1996, he was President of
Wheeling-Pittsburgh Steel
Corporation. Mr. Wareham is a
member of the Audit Committee
and the Human Resources and
Compensation Committee.
David W. Wallace 77 Mr. Wallace served as the
Director of the Company since March 2001 Chairman of the Board and CEO of
Lone Star Industries from
January 1990 until November
1999. Currently, he is President
and a Trustee of the Robert R.
Young Foundation and a member of
the Board of Governors of The
New York Hospital. He is also a
member of the Board of Greenwich
Hospital. Mr. Wallace is a
member of the Audit Committee,
the Human Resources and
Compensation Committee and the
Special Committee (Conflicts of
Interest in Litigation) of the
Board.
Peter E. Lengyel 61 Since 1998, Mr. Lengyel has been
Director of the Company since March 2001 a private investor. For more
than three years prior to that,
he held Senior Executive
positions at Bankers Trust
Company, and Chase Manhattan
Bank. Mr. Lengyel is a member of
the Audit Committee and the
Special Committee (Conflicts of
Interest in Litigation) of the
Board.
CLASS II DIRECTORS - TERMS TO EXPIRE AT THE 2001 ANNUAL MEETING.
Principal Occupation or Employment
Name, Present Position(s) and Term During the Last Five Years,
With the Company Age Directorships of Public Companies
- ----------------------------------- ------ -----------------------------------
John W. Rollins, Jr. 59 From January 2000 through
Director of the Company since 1982 February 26, 2001, Mr. Rollins
served as President and
Chief Executive Officer
and a director of
Rollins Truck Leasing
Corp. Prior to January
2000, Mr. Rollins was
President and Chief
Operating Officer and a
director of Rollins
Truck Leasing Corp. for
more than five years.
From July 1999 to
January 2000, Mr.
Rollins served as CEO
of Matlack Systems,
Inc. Mr. Rollins has
also served as Chairman
of the Board of Matlack
Systems, Inc. for more
than five years. Mr.
Rollins was Senior Vice
Chairman of the Board
of the Company from
1988 until May 15,
1997. Mr. Rollins also
is a director of Dover
Downs Entertainment,
Inc. Mr. Rollins is a
member of the Human
Resources and
Compensation Committee
and served as its
Chairman from October
5, 1999 until May 30,
2001.
34
Robert W. Luba 59 Mr. Luba has been President of
Director of the Company since March 1999 Luba Financial Inc. for more
than five years. Mr. Luba is
also a director of Luba
Financial Inc., ATS Automation
Tooling Systems, Inc.,
Franco-Nevada Mining
Corporation, AIM Canada Group of
Mutual Funds, Greenfield B.V.,
MDS Inc., Diabetogen Biosciences
Inc., and Vincor International
Inc. Until December 2000, Mr.
Luba was a director of Working
Ventures Canadian Fund Inc. Mr.
Luba is a member of the Audit
Committee and the Human
Resources and Compensation
Committee. Since May 30, 2001,
Mr. Luba has been the Chairman
of the Human Resources and
Compensation Committee. Mr. Luba
was a member of Special
Committee (Investigation) of the
Board until September 13, 2001
when the Committee was
dissolved.
Grover C. Wrenn 59 Mr. Wrenn has served as a
Director of the Company since July 1997 non-executive Vice Chairman of
the Board since September 5,
2001. From May 22, 2000 until
September 5, 2001, he served as
President and Chief Operating
Officer of Safety-Kleen. He had
been acting as President and
Chief Operating Officer since
March 6, 2000. From March 4,
2000 to January 9, 2001, he
served as Vice Chairman of the
Board. Prior to that time, Mr.
Wrenn was President and Chief
Executive Officer of Accent
Health, Inc., a health care
information and media company,
since June 1996; from April 1995
through December 1996, Mr. Wrenn
was Chief Executive Officer of
Strategic Diagnostics Inc.
(listed on NASDAQ: SDIX)
formerly EnSys Environmental
Products, Inc.; and from 1991
through March 1995 he was
President and Chief Executive
Officer of Applied Bioscience
International. Mr. Wrenn is a
director of Strategic
Diagnostics, Inc. and a Trustee
of Eckerd College. Mr. Wrenn was
the Vice Chairman of the Special
Committee (Investigation) until
September 13, 2001 when the
Committee was dissolved.
CLASS III DIRECTORS - TERMS TO EXPIRE AT THE 2002 ANNUAL MEETING.
Principal Occupation or Employment
Name, Present Position(s) and Term During the Last Five Years,
With the Company Age Directorships of Public Companies
- ----------------------------------- ------ -----------------------------------
David E. Thomas 44 Mr. Thomas has served as a
Director of the Company since June 1997 non-executive Vice Chairman of
the Board since September 5,
2001. From May 4, 2000 through
September 5, 2001, he served as
Chairman of the Board, and from
May 22, 2000 through September
5, 2001 he served as Chief
Executive Officer of
Safety-Kleen. Mr. Thomas had
been acting as Chief Executive
Officer since March 6, 2000.
Prior to that time, Mr. Thomas
was the Senior Managing Director
and the Head of the Investment
Banking Group of Raymond James &
Associates, Inc., an investment
banking firm, since July 1996;
from 1991 until July 1996, he
was a Managing Director of
Raymond James. Mr. Thomas also
is a director of Reynolds, Smith
and Hills, Inc., an engineering
company. Mr. Thomas was the
Chairman of the Special
Committee (Investigation) since
its formation in March 2000
until September 13, 2001 when
the Committee was dissolved.
Kenneth K. Chalmers 72 Since 1994, Mr. Chalmers has
Director of the Company since May 4, 2000 been a business consultant and
director of various
organizations. He is a member of
the Board of Directors of
Learning Insights, Inc., a
publisher of interactive
multimedia training and
reference products. Since March
2000, Mr. Chalmers has held the
office of Director, Vice
President, Treasurer and
Secretary of Feelsure
Healthcare, Inc. He is also an
Advisor to Paradigm Capital
Ltd., serves as a director of
Catholic Health Partners and
chairman of its Finance/Audit
Committee, and is a Member of
the Alumni Advisory Board of the
Kellogg School of Management,
Northwestern University. Mr.
Chalmers served as a member of
the Special Committee
(Investigation) of the Board
until September 13, 2001 when
the Committee was dissolved. Mr.
Chalmers is a member of the
Special Committee (Conflicts of
Interest in Litigation) of the
Board.
Ronald A. Rittenmeyer 54 See "Executive Officers of the
Director of the Company since April 17, Registrant" above.
2001
35
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
The executive officers of Safety-Kleen are also generally officers of one or
more of the subsidiaries of Safety-Kleen. Safety-Kleen and 73 of its
subsidiaries simultaneously filed for protection under Chapter 11 of the
Bankruptcy Code as more specifically described in Part I, Item 3 ("Legal
Proceedings"). Messrs. Sprinkle, Thomas and Wrenn are or were, at the time of
the bankruptcy filings, officers of at least one of these subsidiaries.
From February 1999 until July 2000, Mr. Singleton was employed as Executive Vice
President of Gulf States Steel, Inc. of Alabama to assist in the restructuring
of Gulf States, which filed for protection under Chapter 11 of the Bankruptcy
Code after arranging for debtor-in-possession financing.
Matlack Systems, Inc. filed for protection under Chapter 11 of the Bankruptcy
Code in March 2001. Mr. Rollins is now and was at the time of the filing,
Chairman of the Board of Matlack Systems, Inc. Mr. Rollins served as Chief
Executive Officer of Matlack Systems, Inc. from July 1999 to January 2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, directors and
executive officers of Safety-Kleen and beneficial owners of 10% or more of the
Common Stock are required to file reports with the Securities and Exchange
Commission indicating their holdings of and transactions in the Common Stock. To
the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, all such persons have complied with all such filing requirements with
respect to fiscal year ended August 31, 2001.
36
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid to the Company's current
and former Chief Executive Officer, each of its four other most highly
compensated executive officers who were serving as executive officers on August
31, 2001 (the "Named Executive Officers"), for services rendered to the Company
during fiscal years ended August 31, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
Long-term Compensation
Annual Compensation Awards
------------------------------ ----------------------
(a) (b) (c) (d) (g) (j)
Securities Underlying All Other
Name and Principal Position FY Salary($) Bonus($) Options (#) Compensation($)(3)
- --------------------------- ---- --------- -------- ---------------------- ------------------
Ronald A. Rittenmeyer 2001 $103,846 0 0 $18,695
Chairman of the Board,
Chief Executive Officer and 2000 -- -- -- --
President (1)
1999 -- -- -- --
David E. Thomas, Jr. 2001 $800,000 0 0 $125,872
Former Chairman of the Board,
Former Chief Executive Officer 2000 $400,286 0 0 $171,250
and Director (2)
1999 -- -- -- --
Grover C. Wrenn 2001 $650,000 0 0 $118,979
Former President and
Chief Operating Officer 2000 $365,671 $50,000 0 $197,735
and Director (2)
1999 -- -- -- --
Larry W. Singleton 2001 $600,000 (5) 0 $59,767
Executive Vice President and
Chief Financial Officer (4) 2000 $115,384 $20,000 0 $7,913
1999 -- -- -- --
David M. Sprinkle 2001 $270,000 (7) 0 $19,183
Chief Operating Officer (6)
2000 $248,115 $100,000 0 $19,455
1999 -- -- -- --
Roy D. Bullinger 2001 $230,000 $90,728 0 $19,068
Former President Branch Sales and
Service Division (8) 2000 $205,769 $110,000 0 $35,089
1999 -- -- -- --
(1) Mr. Rittenmeyer became an employee of the Company effective August 8,
2001. Prior to becoming an employee, Mr. Rittenmeyer was a non-employee
director of the Company and as such, qualified for non-employee
director compensation. During fiscal year 2001, Mr. Rittenmeyer earned
$18,695 total cash compensation for service as a non-employee director.
This amount is included in his All Other Compensation.
37
(2) Prior to becoming employees, Messrs. Thomas and Wrenn were non-employee
directors of the Company and as such qualified for non-employee
director compensation. During fiscal year 2000, Mr. Thomas earned
$63,370 total cash compensation for service as a non-employee director.
This amount is included in his total other compensation. During fiscal
year 2000, Mr. Wrenn earned $87,000 total cash compensation for service
as a non-employee director. This amount is included in his All Other
Compensation. Messrs. Thomas' and Wrenn's employment agreements provide
that the effective date of their employment with the Company was March
6, 2000. Messrs. Thomas and Wrenn ceased to be executive officers of
the Company on September 5, 2001.
(3) Amounts shown for 2001 consist of (i) Mr. Thomas: premiums on life and
accidental death insurance policies of $1,548, premiums on long term
disability policies of $540, living expenses of $20,596, professional
fees in the amount of $8,867 which were incurred in fiscal year 2001
but will be paid in fiscal year 2002, transportation expenses in the
amount of $72,600, tax gross up in the amount of $17,899, Company
contributions to and other allocations under the Safety-Kleen Corp.
401(k) Savings Plan (the "401(k) Plan") of $2,423 and club dues in the
amount of $1,400; (ii) Mr. Wrenn: premiums on life and accidental death
insurance policies of $1,548, premiums on long term disability policies
of $540, living expenses of $20,845, transportation expenses in the
amount of $71,319, tax gross up in the amount of $21,464, Company
contributions to and other allocations under the 401(k) Plan of $2,423,
and club dues of $840; (iii) Mr. Singleton: premiums on life and
accidental death insurance policies of $1,548, premiums on long term
disability policies of $540, living expenses of $19,719, transportation
expenses in the amount of $27,628, and tax gross up in the amount of
$10,332; (iv) Mr. Sprinkle: premiums on life and accidental death
insurance policies of $1,466, premiums on long term disability policies
of $540, a $9,000 automobile allowance, Company contributions to and
other allocations under the 401(k) Plan of $8,177; and (v) Mr.
Bullinger: premiums on life and accidental death insurance policies of
$1,351, premiums on long term disability policies of $540, a $9,000
automobile allowance, and Company contributions to and other
allocations under the 401(k) Plan of $8,177.
Amounts shown for 2000 consist of (i) Mr. Thomas: premiums on life and
accidental death insurance policies of $775, living expenses of $8,845,
professional fees in the amount of $2,760, transportation expenses in
the amount of $95,225 and club dues in the amount of $275; (ii) Mr.
Wrenn: premiums on life and accidental death insurance policies of
$759, living expenses of $9,056, transportation expenses in the amount
of $100,100 and club dues in the amount of $820; (iii) Mr. Singleton:
premiums on life and accidental death insurance policies of $195,
premiums on long term disability policies of $68, living expenses of
$3,456, and transportation expenses in the amount of $4,194; (iv) Mr.
Sprinkle: premiums on life and accidental death insurance policies of
$964, Company contributions to and other allocations under the 401(k)
Plan of $7,649, a $9,000 automobile allowance, and club dues in the
amount of $1,842; and (v) Mr. Bullinger: premiums on life and
accidental death insurance policies of $793, Company contributions to
and other allocations under the 401(k) Plan of $7,745, a $2,077
automobile allowance, relocation expenses of $23,674 and club dues in
the amount of $800.
(4) Mr. Singleton did not become an employee of the Company until July 17,
2000.
(5) Pursuant to the Singleton Agreement, as hereafter defined, Mr.
Singleton is eligible to receive a discretionary bonus as may be
determined by the Board of Directors.
(6) Mr. Sprinkle held the position of President Chemical Sales and Service
Division during fiscal years 2000 and 2001. He was elected to the
position of Chief Operating Officer on November 27, 2001.
(7) Mr. Sprinkle is a participant in the 2001 Management Incentive Plan,
and bonus earned in fiscal year 2001 pursuant to the Management
Incentive Plan is not calculable as of November 21, 2001.
(8) Mr. Bullinger's employment with the Company ceased October 17, 2001.
Pursuant to the Senior Executive Retention Plan, as hereafter
discussed, Mr. Bullinger earned $90,728 in the fiscal year 2001. This
amount is included in his Annual Bonus Compensation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES(1)
(A) (D) (E)
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------------------- --------------------------------- ---------------------------------
Ronald A. Rittenmeyer 0/0 0/0
David E. Thomas 8,000/7,000 0/0
Grover C. Wrenn 8,000/7,000 0/0
Larry W. Singleton 0/0 0/0
David M. Sprinkle 27,000/18,000 0/0
Roy D. Bullinger 15,000/15,000 0/0
(1) There were no option grants in fiscal year 2001.
(2) The options listed in column (d) above represent options issued to
Messrs. Thomas and Wrenn under the Director Stock Option Plan when they
were non-employee directors of the Company.
38
DEFINED BENEFIT PLANS
Effective as of October 14, 1997, the Company adopted a Supplemental Executive
Retirement Plan (the "SERP") for certain eligible employees. A SERP is an
unfunded plan which provides for benefit payments in addition to those payable
under a qualified retirement plan.
The following table shows the estimated annual benefits payable upon retirement
at normal retirement date under the SERP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
FINAL AVERAGE PAY SERVICE YEARS
- ------------------- -----------------------------------------------------------------------------------
15 20 25 30 35
-------- --------- -------- --------- ---------
$ 250,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 105,000
300,000 56,250 75,000 93,750 112,500 131,250
350,000 66,750 89,000 111,250 133,500 155,750
400,000 78,000 104,000 130,000 156,000 182,000
450,000 89,250 119,000 148,750 178,500 208,250
500,000 100,500 134,000 167,500 201,000 235,500
550,000 111,750 149,000 186,250 223,500 260,750
600,000 123,000 164,000 205,000 246,000 287,000
650,000 134,250 179,000 223,750 268,500 313,250
700,000 145,500 194,000 242,500 291,000 339,500
750,000 156,750 209,000 261,250 313,500 365,750
800,000 168,000 224,000 280,000 336,000 392,000
850,000 179,250 239,000 298,750 358,500 418,250
900,000 190,500 254,000 317,500 381,000 445,500
950,000 201,750 269,000 336,250 403,500 470,750
1,000,000 213,000 284,000 355,000 426,000 497,000
For certain Company executive officers, the compensation shown in the columns
labeled "Salary" and "Bonus" of the Summary Compensation Table is covered by the
SERP. As of August 31, 2001, Mr. Sprinkle had six years of credited service
under the SERP and Mr. Bullinger had three years of credited service under the
SERP. Benefits under the SERP are computed based on a straight-life annuity. The
amounts in this table are subject to deduction for a portion of Social Security
benefits.
EMPLOYMENT CONTRACTS, EMPLOYMENT TERMINATION AND CONSULTING AGREEMENTS AND
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an Employment Agreement and Indemnification
Agreement with Mr. Rittenmeyer. The Company has entered into an Employment
Agreement with Mr. Singleton. The Company has entered into Employment
Termination And Consulting Agreements with each of Messrs. Thomas and Wrenn
which terminate employment agreements they had previously entered into with the
Company.
The Employment Agreement with Mr. Rittenmeyer (the "Rittenmeyer Agreement")
provides that for the term of the Rittenmeyer Agreement he shall serve as
Chairman, Chief Executive Officer and President of the Company and, as Mr.
Rittenmeyer may agree to from time to time, in appropriate positions in each
subsidiary of Safety-Kleen, with the duties, functions, responsibilities and
authority customarily associated with such positions, and shall report to the
Board of Directors of the Company. During the term of the Rittenmeyer Agreement,
Mr. Rittenmeyer shall receive a monthly salary of $125,000. The Rittenmeyer
Agreement also provides that Mr. Rittenmeyer shall be entitled to participate in
all applicable fringe benefit and perquisite programs and savings and retirement
plans, practices, policies and programs of the Company to the same extent such
benefits were provided to the former Chairman and Chief Executive Officer of the
Company, provided, however, Mr. Rittenmeyer shall not be entitled to participate
in any general bonus or severance plans, practices, policies or programs of the
Company. Additionally, the Rittenmeyer Agreement provides that the Company will
reimburse Mr. Rittenmeyer for commuting expenses to/from and living expenses in
Columbia, South Carolina plus tax "gross up" thereon if any taxes based on
income are applicable. Mr. Rittenmeyer is also eligible to receive discretionary
bonuses as may be determined by the Board of Directors.
Mr. Rittenmeyer will also be entitled to a Completion Fee of $1,750,000 payable
on the first to occur of: (i) the effective date of the confirmation of the
Company's plan of reorganization, (ii) the Company's liquidation, (iii)
conversion of the Company's proceeding to Chapter 7, (iv) Involuntary
Termination (as defined in the Rittenmeyer Agreement) of Mr. Rittenmeyer's
employment, or (v) all or substantially all of the Company's, including any
debtor affiliate's, assets are sold or disposed of in one or more transactions.
In addition, if these events listed do not occur prior to the completion of the
Employment Period (as defined in the Rittenmeyer Agreement) and Mr.
Rittenmeyer's employment was not terminated for Cause (as defined in the
Rittenmeyer Agreement), Death or Disability (as defined in the Rittenmeyer
Agreement), upon the first to occur of these events after the completion of the
Employment Period, the Company shall pay Mr. Rittenmeyer a cash amount equal to
the Completion Fee. If Mr. Rittenmeyer's employment is terminated for Cause or
if he terminates his employment during the Employment Period other than in an
Involuntary Termination, the Company shall pay Mr. Rittenmeyer earned but unpaid
39
compensation. If Mr. Rittenmeyer's employment is terminated by an Involuntary
Termination, the Company shall pay him earned but unpaid compensation, including
the Salary (as defined in the Rittenmeyer Agreement) that he would have earned
for the remaining months of the Employment Period and the Completion Fee, and
shall also provide Mr. Rittenmeyer welfare benefits during the same period. In
accordance with the terms of the Rittenmeyer Agreement, the Company must
maintain two clean, irrevocable standby letters of credit in the amount of
$1,750,000 and $750,000, which Mr. Rittenmeyer may draw upon to satisfy, among
other things, the Company's Completion Fee obligations and the Company's
indemnification obligations respectively.
In addition to the Rittenmeyer Agreement, the Company has entered into an
Indemnification Agreement (the "Rittenmeyer Indemnification Agreement"). The
Company's obligations to Mr. Rittenmeyer, including the obligations of the
Company under the Rittenmeyer Indemnification Agreement, shall be granted pari
passu and pro rata treatment with the current DIP financing, and will be secured
and perfected (without any further action) and will be granted superpriority
claim status to the same extent and superpriority as the DIP lenders. If the DIP
financing is increased above $150 million, Mr. Rittenmeyer's pari passu and pro
rata treatment shall remain at the same level as if no increase in the DIP
financing above $150 million had occurred.
The Employment Agreement with Mr. Singleton (the "Singleton Agreement") provides
that for the term of the Singleton Agreement (July 17, 2000, through July 17,
2002) he shall serve as the Senior Vice President and Chief Financial Officer of
the Company. During the term of the Singleton Agreement, Mr. Singleton shall
receive an annual base salary of $600,000. If Mr. Singleton is employed by the
Company on the date a plan of reorganization for the Company is consummated in
connection with any Chapter 11 bankruptcy or similar proceeding or on the date
of the consummation of the sale of substantially all of the assets of the
Company, then within fifteen days of such consummation or sale, the Company
shall pay to Mr. Singleton a bonus of $500,000. Mr. Singleton is also eligible
to receive discretionary bonuses as may be determined by the Board of Directors.
The Singleton Agreement also provides that Mr. Singleton shall be entitled to
participate in all applicable fringe benefit and perquisite programs and savings
and retirement plans (other than the SERP), practices, policies and programs of
the Company to the same extent such benefits were provided to the Chief
Financial Officer of the Company immediately prior to March 6, 2000. The
Singleton Agreement also provides for indemnification, up to $3,500 per month
for living expenses, $25,000 per year for taxation on transportation, and
$100,000 for relocation expenses. If the employment of Mr. Singleton is
terminated by the Company other than for "Cause" (as defined in the Singleton
Agreement), death or disability, or if Mr. Singleton terminates his employment
for "Good Reason," (as defined in the Singleton Agreement), or if the Singleton
Agreement is not renewed upon expiration of the term, the Company shall pay Mr.
Singleton $500,000 not later than thirty days following the date of termination.
The Company entered into an Employment Termination and Consulting Agreement with
Mr. Thomas (the "Thomas Agreement") which terminated a previous employment
agreement between Mr. Thomas and the Company (the "Original Thomas Agreement").
Pursuant to the Thomas Agreement, Mr. Thomas resigned from his positions as
Chairman and CEO and left the Company's payroll. In accordance with the Thomas
Agreement, Mr. Thomas will retain his position as a member of the Board and
shall be named a non-executive Vice Chairman of the Board in order to assist the
Company in connection with, among other things, (a) continued efforts to analyze
and pursue any and all strategic monetization alternatives and (b) the ongoing
government investigations. Additionally, Mr. Thomas will provide ongoing
assistance as requested by the new Chief Executive Officer.
Pursuant to the Thomas Agreement, in consideration of a waiver of his rights to
any severance benefits to which he might be entitled under the Original Thomas
Agreement, Mr. Thomas received a lump-sum cash payment of $750,000 in September
2001 and the Thomas Agreement further contemplates an additional lump-sum cash
payment of $750,000 within fifteen (15) days of the earlier to occur of: (a) the
effective date of the Debtors' plan of reorganization or (b) the date of the
consummation of the sale of all or substantially all of the Operating Assets (as
defined in the Thomas Agreement) of the Company's Chemical Services Division.
Mr. Thomas shall also be entitled to a per diem payment plus reasonable business
expenses for consulting services as requested by the Chief Executive Officer.
The Company entered into an Employment Termination And Consulting Agreement with
Mr. Wrenn (the "Wrenn Agreement") which terminated a previous employment
agreement between Mr. Wrenn and the Company (the "Original Wrenn Agreement").
Pursuant to the Wrenn Agreement, Mr. Wrenn resigned his positions as President
and Chief Operating Officer and left the Company's payroll. In accordance with
the Wrenn Agreement, Mr. Wrenn will retain his position as a member of the Board
and shall be named a non-executive Vice Chairman of the Board in order to
continue to serve as a liaison with environmental regulators and to assist the
Company and its efforts to resolve various environmental issues. Additionally,
Mr. Wrenn will provide ongoing assistance as requested by the new Chief
Executive Officer.
Pursuant to the Wrenn Agreement, in consideration of a waiver of his rights to
any severance benefits to which he might be entitled under the Original Wrenn
Agreement, Mr. Wrenn received a lump-sum cash payment of $625,000 in September
2001 and the Wrenn Agreement further contemplates an additional lump-sum cash
payment of $625,000 within fifteen (15) days of the earlier to occur of: (a) the
effective date of the Debtors' plan of reorganization or (b) the date of the
consummation of the sale of all or substantially all of the Operating Assets (as
defined in the Wrenn Agreement) of the Company's Chemical Services Division. Mr.
Wrenn shall also be entitled to a per diem payment plus reasonable business
expenses for consulting services as requested by the Chief Executive Officer.
Mr. Sprinkle has entered into a Senior Executive Change of Control Agreement
with the Company. The Senior Executive Change of Control Agreement supersedes
any prior agreement between the executive officer and the Company which provides
benefits upon a change in control of the Company and further provides that if
the officer's employment is terminated as a result of a "Change in Control" (as
defined in the
40
Agreements), he will receive his then current annual base salary for three years
plus a guaranteed bonus of 50% of salary. In addition, Mr. Sprinkle would
receive three years continuation of disability, life and health insurance and
other fringe benefits and perquisites in accordance with the most favorable
plans applicable to peer executives of the Company. The agreement provides that
Mr. Sprinkle shall be entitled to accrued benefits under the SERP or any such
successor plan, irrespective of whether vested and without any reduction for
early retirement, early payout and social security benefits and taking into
account for benefit accrual purposes, Mr. Sprinkle's entire period of service
with the Company and its affiliates. The agreement provides that for purposes of
determining the pension entitlement under the SERP, Mr. Sprinkle would fully
vest with three additional years. The agreement further provides that the
Company will pay a lump-sum cash payment equal to the spread (fair market value
over exercise price) of all outstanding options granted whether vested or not
vested on the date of termination following a Change in Control.
SEVERANCE PLAN AND RETENTION PLAN
The Senior Executive Severance Plan provides that if the applicable officer's
employment with the Company is terminated by the Company without "Cause" or by
the Senior Executive for "Good Reason" (as such terms are defined in the Plan)
the officer shall be entitled to up to two years base salary, 30% of which will
be paid to the officer upon termination, plus certain benefits in continuation
during the severance period. If the officer remains unemployed after 7.2 months,
the officer will return to normal payroll until such time as the officer is
employed, subject to a maximum severance and benefit payment of the remaining
16.8 months. The officer will be entitled to outplacement benefits with a cap of
$25,000. Both Mr. Sprinkle and Mr. Bullinger had been eligible to participate in
the Senior Executive Severance Plan. Mr. Bullinger ceased to be employed by the
Company effective October 17, 2001. No other Named Executive Officers are
eligible to participate in the Senior Executive Severance Plan
The Senior Executive Retention Plan provides that if the applicable officer is
actively employed by the Company from the date of September 8, 2000, through
December 31, 2001 (the "Retention Period"), (except in the event of death,
permanent disability, or a termination without "Cause" or by the officer for
"Good Reason" [as such terms are defined in the Plan] where the officer or the
officer's estate will receive a prorated portion of the full award based upon
the number of days during the Retention Period that the officer was actively
employed) then the officer will receive a retention award equal to 52.89% of the
officer's annual base salary amount as of September 8, 2000. Messrs. Sprinkle
and Bullinger (on a pro rated basis) are currently eligible to participate in
the Senior Executive Retention Plan. No other Named Executive Officers are
eligible to participate in the Senior Executive Retention Plan.
COMPENSATION OF DIRECTORS
During fiscal year 2001, each director who was not an employee of the Company
was paid an annual retainer of $20,000 (the "Annual Retainer"). Currently each
director that is not an employee of the Company is to be paid an Annual Retainer
of $20,000 plus $750 for each Board of Directors meeting attended plus expense
reimbursement. A non-employee Chairman of the Board is paid an additional
$12,000 annually and non-employee Committee Chairmen, unless otherwise
specified, are paid an additional $4,000 annually. Non-employee directors were
paid $750 for each meeting that they attended of the Human Resources and
Compensation Committee and the Audit Committee. Non-employee directors who were
members of the Special Committee (Investigation) received $1,000 for each
Special Committee (Investigation) meeting that they attended. Non-employee
directors who were not members of the Special Committee (Investigation) but who
were invited to attend meetings of the Special Committee (Investigation)
received $750 for each meeting that they attended.
The Company also maintains a Directors Stock Option Plan. Under such Plan,
options become exercisable at the rate of 20% per year, on or about one year
after the date of grant, with all options becoming fully vested on or about five
years after the date of grant. There were no grants of options under this Plan
in fiscal year 2001.
As described under "Employment Contracts, Termination of Employment and Change
of Control Arrangements," Messrs. Thomas and Wrenn will receive compensation for
consulting services under Employment Termination and Consulting Agreements.
Directors who are also employees of the Company receive no separate compensation
for serving as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
COMMITTEE MEMBERS
During fiscal year ended August 31, 2001, the Human Resources and Compensation
Committee held primary responsibility for determining executive compensation
levels. Robert W. Luba, Chairman of the Committee; James L. Wareham; David W.
Wallace; Ronald A. Rittenmeyer; and John W. Rollins, Jr. (Messrs. Wallace and
Rittenmeyer began serving on this committee on May 30, 2001) are the members of
the Human Resources and Compensation Committee. John W. Rollins, Jr. served as
Chairman of this Committee until May 30, 2001. Certain matters relating to
executive compensation are determined by the Board of Directors as a whole.
ROLLINS TRUCK LEASING CORP.
41
Until February 26, 2001, Mr. Tippie was Chairman of the Board and Chairman of
the Executive Committee of Rollins Truck Leasing Corp. and until February 26,
2001, Mr. Rollins was President and Chief Executive Officer of Rollins Truck
Leasing Corp. During fiscal year 2001, the Company paid Rollins Truck Leasing
Corp. approximately $422,000 for truck rentals. Rollins Truck Leasing Corp. also
purchases certain supplies from the Company. During fiscal year 2001 Rollins
Truck Leasing Corp. paid approximately $106,000 to the Company for these
supplies. In addition, in September 1998, the Company guaranteed certain lease
payments for vehicles leased by a subcontractor of the Company from Rollins
Truck Leasing Corp. Pursuant to the provisions of the Bankruptcy Code, the
Bankruptcy Court authorized the Company to reject its contract with the
subcontractor in November 2001. Rollins Truck Leasing Corp. may possess a claim
against the Company in its Chapter 11 proceedings based upon the Company's
guarantee.
AK STEEL CORPORATION
Mr. Wareham is the President of AK Steel Corporation. During fiscal year 2001,
the Company provided Parts Washer and other services to AK Steel Corporation,
and received approximately $198,000 in payments for such services.
MATLACK SYSTEMS, INC.
Mr. Tippie is a director and shareholder of Matlack Systems, Inc. and Mr.
Rollins, Jr. is Chairman of the Board and a shareholder of Matlack Systems, Inc.
During fiscal year 2001, the Company paid Matlack Systems, Inc. approximately
$262,000 on account of transportation services. Matlack Systems, Inc. also
purchased supplies and/or services from the Company. During fiscal year 2001,
Matlack Systems, Inc. paid the Company approximately $46,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERS OF FIVE PERCENT OR MORE OF THE COMMON STOCK
The following table sets forth the only stockholder which, to the knowledge of
management of the Company, was a beneficial owner of five percent or more of the
outstanding shares of Common Stock as of November 6, 2001. The shareholdings of
Laidlaw reported are based on information provided by the Company's transfer
agent.
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------ -------------------- ----------------
Laidlaw Inc. (1) 43,846,287 43.5%
3221 North Service Road
Burlington, Ontario
CANADA L7R3Y8
(1) All the shares of Common Stock shown as owned by Laidlaw are held of
record by Laidlaw Finance (Barbados) Ltd. except for 31 shares which
are held by Laidlaw Transportation, Ltd. and 2,000,000 shares held by
American National Insurance.
STOCK OWNERSHIP OF THE COMPANY'S DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Except as otherwise noted, the following table sets forth, as of October 31,
2001, the number of shares of Common Stock beneficially owned by (i) each of the
Company's directors, (ii) the Named Executive Officers and (iii) all directors
and executive officers of the Company as a group. Except as indicated below,
each person identified in the following table has sole voting and investment
power with respect to the shares shown. Shares shown may include options
exercisable as of October 31, 2001 or within 60 days of such date.
AMOUNT AND NATURE OF PERCENT OF CLASS
NAME OWNERSHIP BENEFICIALLY OWNED
- ------------------------------ -------------------- ------------------
Kenneth K. Chalmers -- *
Peter E. Lengyel -- *
Robert W. Luba (1) 8,430 *
Ronald A. Rittenmeyer -- *
John W. Rollins, Jr. (2), (3) 50,918 *
David E. Thomas, Jr. (2) 9,363 *
Henry B. Tippie (2), (4) 334,458 *
David W. Wallace -- *
James L. Wareham (2) 9,613 *
Grover C. Wrenn (2) 13,113 *
Roy D. Bullinger (5) 17,500 *
Larry W. Singleton -- *
David M. Sprinkle (6) 27,000 *
All directors and
executive officers as a group
(14 persons)(7) 482,527 *
42
* Signifies less than 1%
(1) Includes 3,000 shares issuable upon exercise of options pursuant to the
Directors Stock Option Plan.
(2) Includes 8,000 shares issuable upon exercise of options pursuant to the
Directors Stock Option Plan.
(3) Does not include 1,547 shares owned by Mr. Rollins' wife, as to which
shares Mr. Rollins disclaims any beneficial ownership.
(4) Does not include 195,644 shares held by Mr. Tippie as Co-Trustee, as to
all of which he disclaims any beneficial ownership; includes 7,500
shares in which a wholly owned corporation over which he has sole
voting power has a beneficial partnership interest of 75 shares and
voting rights on 7,500 shares. Does not include 5,750 shares owned by
Mr. Tippie's wife, as to which shares Mr. Tippie disclaims any
beneficial ownership. Does not include 757,000 shares owned by the
Estate of John W. Rollins, Sr. for which Mr. Tippie is the Executor, as
to which shares Mr. Tippie disclaims any beneficial ownership.
(5) Includes 15,000 shares issuable upon exercise of options pursuant to
the 1997 Stock Option Plan.
(6) Represents shares issuable upon exercise of options pursuant to the
1997 Stock Option Plan.
(7) Includes 96,000 shares issuable upon exercise of options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the transactions described below see also the transactions
described in "Compensation Committee Interlocks and Insider Participation" in
Item 11 of Part III.
LAIDLAW INC. RELATIONSHIPS
General. Laidlaw now beneficially owns 43.5% of the Common Stock. In the
ordinary course of business, the Company and Laidlaw or its affiliates has
entered, from time to time, into various business transactions and agreements.
The following is a summary of the material agreements, arrangements and
transactions between the Company and Laidlaw or its affiliates, which relate to
fiscal year 2001.
Laidlaw Inc. Indemnities. Pursuant to the terms of the Stock Purchase Agreement,
Laidlaw and LTI agreed to jointly and severally indemnify and hold harmless,
subject to certain limitations, the Company and its affiliates from and against
any and all Damages (as defined in the Stock Purchase Agreement) suffered by the
Company resulting from or in respect of (i) various tax obligations and
liabilities, (ii) pre-closing insurance claims, (iii) any breach or default in
the performance by Laidlaw or LTI of (a) their covenants and agreements in the
Stock Purchase Agreement to be performed on or after May 15, 1997 (the "Closing
Date") or (b) any representation or warranty which survives the Closing Date (to
the extent that damages therefrom exceed $2 million) and (iv) any environmental
liability or environmental claim arising as a result of any act or omission by
Laidlaw or LTI, including any release, occurring prior to the Closing Date, but
only to the extent such liability or claim (a) was known to Laidlaw or certain
of its affiliates and not disclosed in writing to the Company or (b) relates to
the Marine Shale or Mercier, Quebec facilities and exceeds (x) an aggregate of
$1 million in a particular year and (y) an aggregate since the Closing Date of
$1 million times the number of years elapsed since the Closing Date, but only to
the extent of cash expenditures incurred within six years after the Closing
Date.
On May 18, 2000, Laidlaw announced that its Board of Directors had declared an
interest payment moratorium on all advances under the Laidlaw syndicated bank
facility and on all outstanding public debt of Laidlaw and Laidlaw One, Inc.
Certain debt holders included in the moratorium have commenced actions to
attempt to recover amounts alleged to be owing to them and other debt holders
subject to the moratorium may also commence similar actions. The Company cannot
predict the impact, if any, this moratorium and any related circumstances will
have on the Company's ability to collect upon Laidlaw's indemnification,
guaranty and other contractual obligations to the Company.
On June 28, 2001, the Laidlaw Group filed voluntary petitions for reorganization
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Western District of New York. On the same day, Laidlaw and Laidlaw
Investments Ltd. filed cases under the Canada Companies' Creditors Arrangement
Act ("CCAA") in the Ontario Superior Court of Justice in Toronto, Ontario. As a
result of
43
the Laidlaw Group's filings, claims and causes of action the Company may have
against the Laidlaw Group may be subject to compromise in Laidlaw's Chapter 11
proceedings or CCAA proceedings.
Laidlaw Inc. Guaranties. Prior to the Closing Date, Laidlaw entered into on
behalf of the Company certain guaranties, performance guaranties, bonds,
performance bonds, suretyship arrangements, surety bonds, credits, letters of
credit, reimbursement agreements and other undertakings, deposit commitments or
arrangements by which Laidlaw may be primarily, secondarily, contingently or
conditionally liable for or in respect of (or which create, constitute or
evidence a lien or encumbrance on any of the assets or properties of Laidlaw
which secure the payment or performance of) a present or future liability or
obligation of the Company (each a "Laidlaw Guaranty" and collectively the
"Laidlaw Guaranties"). Pursuant to the terms of the Stock Purchase Agreement,
the Company agreed to use its best efforts to cause Laidlaw to be fully and
finally released and discharged from all further liability or obligation in
respect of all Laidlaw Guaranties within six months following the Closing Date.
Financial assurance is required for the cost of clean-up or environmental
impairment restoration, if any should be incurred, following closure of the
hazardous waste management facility operated by the Company in Pinewood, South
Carolina. Prior to the Closing Date, Laidlaw provided its corporate guaranty to
satisfy, in part, this financial assurance. Insurance coverage has been
substituted for the Laidlaw corporate guaranty under the present financial
assurance submittal.
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(3) Exhibits:
(3)(a) Restated Certificate of Incorporation of the Company dated May 13, 1997
and Amendment to Certificate of Incorporation dated May 15, 1997, Certificate of
Correction Filed to Correct a Certain Error in the Restated and Amended
Certificate of Incorporation of the Company dated October 15, 1997, Certificate
of Amendment to the Restated Certificate of Incorporation of the Company dated
November 25, 1998, and Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated November 30, 1998, all filed as Exhibit
(3)(a) to the Registrant's Form 10-Q for the three months ended February 28,
2001, and incorporated herein by reference.
(3)(b) Amended and Restated Bylaws of the Company, filed as Exhibit (3)(b) to
the Registrant's Form 10-K for the year ended August 31, 2000, and incorporated
herein by reference.
(4)(a) Indenture dated as of May 29, 1998 between LES, Inc. (a subsidiary of the
Registrant), Registrant, subsidiary guarantors of the Registrant and The Bank of
Nova Scotia Trust Company of New York, as trustee filed as Exhibit 4(b) to the
Registrant's Form S-4 Registration Statement No. 333-57587 filed June 24, 1998
and incorporated herein by reference.
(4)(b) First Supplemental Indenture effective as of November 15, 1998 among
Safety-Kleen Services, Inc. the Registrant, SK Europe, Inc. and The Bank of Nova
Scotia Trust Company of New York, as trustee filed as Exhibit (4)(f) to the
Registrant's Form S-4 Registration Statement No. 333-82689 filed July 12, 1999
and incorporated herein by reference.
(4)(c) Second Supplemental Indenture effective as of May 7, 1999 among
Safety-Kleen Services, Inc. the Company, SK Services, L.C., SK Services (East),
L.C. and The Bank of Nova Scotia Trust Company of New York, as trustee filed as
Exhibit (4)(d) to the Company's Form 10-K filed October 29, 1999 and
incorporated herein by reference.
(4)(d) Indenture dated as of May 17, 1999 between the Company and the Bank of
Nova Scotia Trust Company of New York, as trustee filed as Exhibit (4)(b) to the
Registrant's Form S-4 Registration Statement No. 333-82689 filed July 12, 1999
and incorporated herein by reference.
(4)(e) Amended and Restated Credit Agreement among Laidlaw Chem-Waste, Inc.,
Laidlaw Environmental Services (Canada) Ltd., Toronto Dominion (Texas) Inc., The
Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of Nova Scotia,
NationsBank, N.A. and The First National Bank of Chicago and NationsBank, N.A.
as Syndication Agent dated as of April 3, 1998, filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the three months ended February 28, 1999 and
incorporated herein by reference.
(4)(f) Supplement to the Amended and Restated Credit Agreement among Laidlaw
Chem-Waste, Inc., Laidlaw Environmental Services (Canada) Ltd., Toronto Dominion
(Texas) Inc., The Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of
Nova Scotia, NationsBank, N.A. and The First National Bank of Chicago and
NationsBank, N.A. as Syndication Agent dated as of April 3, 1998, filed as
Exhibit 4(e) to a subsidiary of the Registrant's Form S-4 Registration Statement
No. 333-57587 filed June 24, 1998 and incorporated herein by reference.
(4)(g) Waiver and First Amendment to the Amended and Restated Credit Agreement
dated as of May 15, 1998 among LES, Inc., Laidlaw Environmental Services
(Canada) Ltd., the Lenders, Toronto Dominion (Texas), Inc., The Toronto Dominion
Bank, TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank, N.A., The
First National Bank of Chicago and Wachovia Bank filed as Exhibit 4(f) to a
subsidiary of the Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(h) Commitment to Increase Supplement to the Amended and Restated Credit
Agreement dated as of June 3, 1998 among LES, Inc., Laidlaw Environmental
Services (Canada) Ltd., the Lenders, Toronto Dominion (Texas), Inc., The Toronto
Dominion Bank, TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank,
N.A., The First National Bank of Chicago and Wachovia Bank filed as Exhibit 4(g)
to a subsidiary of the Registrant's Form S-4 Registration Statement No.
333-57587 filed June 24, 1998 and incorporated herein by reference.
(4)(i) Second Amendment to the Amended and Restated Credit Agreement dated as of
November 20, 1998 among Safety-Kleen Services, Inc. (formerly known as LES,
Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A., filed as Exhibit (4)(j) to the Registrant's Form 10-Q for the three months
ended February 28, 1999 and incorporated herein by reference.
45
(4)(j) Waiver and Third Amendment to the Amended and Restated Credit Agreement
dated as of May 6, 1999 among Safety-Kleen Services, Inc. (formerly known as
LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A. filed as Exhibit (4)(l) to the Registrant's Form S-4 Registration Statement
No. 333-82689 filed July 12, 1999 and incorporated herein by reference.
(4)(k) Fourth Amendment dated as of March 13, 2000 to the Amended and Restated
Credit Agreement dated as of May 6, 1999 among Safety-Kleen Services, Inc.
(formerly known as LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly
known as Laidlaw Environmental Services (Canada) Ltd.), the Lenders, Toronto
Dominion (Texas), Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The
Bank of Nova Scotia, NationsBank, N.A., The First National Bank of Chicago and
Wachovia Bank N.A. filed as Exhibit (4)(l) to the Registrant's Form 10-Q for the
three months ended May 31, 2000 and incorporated herein by reference.
(4)(l) Consent dated as of March 16, 2000 to the Amended and Restated Credit
Agreement dated as of May 6, 1999 among Safety-Kleen Services, Inc. (formerly
known as LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as
Laidlaw Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion
(Texas), Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of
Nova Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia
Bank N.A. filed as Exhibit (4)(m) to the Registrant's Form 10-Q for the three
months ended May 31, 2000 and incorporated herein by reference.
(4)(m) Amended and Restated $100,000,000 Debtor In Possession Credit Agreement
among Safety-Kleen Services, Inc., The Several Lenders from Time to Time Parties
thereto, Toronto Dominion (Texas), Inc., as General Administrative Agent and
Underwriter and The CIT Group/Business Credit, Inc. as Collateral Agent and
Underwriter Initially dated as of June 11, 2000 Amended and Restated as of July
19, 2000 Company filed as Exhibit (4)(m) to the Registrant's Form 10-K for the
year ended August 31, 2000 and incorporated herein by reference.
(4)(n) First Amendment, dated as of October 31, 2000, to the Amended and
Restated $100,000,000 Debtor In Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties thereto, Toronto
Dominion (Texas), Inc., as General Administrative Agent and Underwriter and The
CIT Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially
dated as of June 11, 2000 Amended and Restated as of July 19, 2000, filed as
Exhibit (4)(n) to the Registrant's Form 10-Q for the three months ended November
30, 2000 and incorporated herein by reference.
(4)(o) Second Amendment and Waiver, dated as of February 28, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties thereto,
Toronto-Dominion (Texas), Inc. as General Administrative Agent and Underwriter
and The CIT Group/Business Credit, Inc. as Collateral Agent and Underwriter
Initially dated as of June 11, 2000, Amended and Restated as of July 19, 2000,
filed as Exhibit (4)(o) to the Registrant's Form 10-K/A for the year ended
August 31, 2000, filed on July 9, 2001 and incorporated herein by reference.
(4)(p) Third Amendment and Waiver, dated as of March 28, 2001, to the Amended
and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen Services,
Inc., The Several Lenders from Time to Time Parties thereto, Toronto-Dominion
(Texas), Inc. as General Administrative Agent and Underwriter and The CIT
Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially dated
as of June 11, 2000, Amended and Restated as of July 19, 2000, filed as Exhibit
(4)(p) to the Registrant's Form 10-K/A for the year ended August 31, 2000, filed
on July 9, 2001 and incorporated herein by reference.
(4)(q) Fourth Amendment and Waiver, dated as of April 30, 2001, to the Amended
and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen Services,
Inc., The Several Lenders from Time to Time Parties thereto, Toronto-Dominion
(Texas), Inc. as General Administrative Agent and Underwriter and The CIT
Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially dated
as of June 11, 2000, Amended and Restated as of July 19, 2000, filed as Exhibit
(4)(q) to the Registrant's Form 10-K/A for the year ended August 31, 2000, filed
on July 9, 2001 and incorporated herein by reference.
(4)(r) Fifth Amendment and Agreement, dated as of August 6, 2001, to the Amended
and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen Services,
Inc., The Several Lenders from Time to Time Parties thereto, Toronto-Dominion
(Texas), Inc. as General Administrative Agent and Underwriter and The CIT
Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially dated
as of June 11, 2000, Amended and Restated as of July 19, 2000, filed as exhibit
(4)(r) to the Registrant's Form 10-Q/A for the quarter ended May 31, 2001, filed
on September 26, 2001 and incorporated herein by reference.
(4)(s) Sixth Waiver dated as of September 4, 2001, to the Amended and Restated
Debtor-in-Possession Credit Agreement among Safety-Kleen Services, Inc., The
Several Lenders from Time to Time Parties thereto, Toronto-Dominion (Texas),
Inc. as General Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as of June 11,
2000, Amended and Restated as of July 19, 2000 filed as Exhibit (4)(s) to the
Registrant's Form 10-Q/A for the quarter ended May 31, 2001, filed on September
26, 2001 and incorporated herein by reference.
(4)(t) Seventh Waiver dated as of October 16, 2001, to the Amended and Restated
Debtor-in-Possession Credit Agreement among Safety-Kleen Services, Inc., The
Several Lenders from Time to Time Parties thereto, Toronto-Dominion (Texas),
Inc. as General Administrative
46
Agent and Underwriter and The CIT Group/Business Credit, Inc. as Collateral
Agent and Underwriter Initially dated as of June 11, 2000, Amended and Restated
as of July 19, 2000.
(4)(u) Letter Agreement among Toronto Dominion (Texas), Inc., as administrative
agent, the Company and Safety-Kleen Systems, Inc. dated December 12, 2000
relating to the Amended and Restated Marketing and Distribution Agreement by
Safety-Kleen Systems, Inc. and System One Technologies Inc., filed as Exhibit
(4)(o) to the Registrant's Form 10-Q for the three months ended February 28,
2001, and incorporated herein by reference.
(4)(v) Registration Rights Agreement dated May 15, 1997 between the Company,
Laidlaw Transportation, Inc. and Laidlaw Inc. the form of which was filed as
Exhibit B to Annex A to the Registrant's Definitive Proxy Statement on Form DEF
14A, filed on May 1, 1997 and incorporated herein by reference.
(4)(w) Indenture dated as of May 1, 1993 between the Industrial Development
Board of the Metropolitan Government of Nashville and Davidson County
(Tennessee) and NationsBank of Tennessee, N.A., filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the three months ended May 31, 1997 and incorporated
herein by reference.
(4)(x) Indenture of Trust dated as of August 1, 1995 between Tooele County, Utah
and West One Bank, Utah, now known as U.S. Bank, as Trustee, filed as Exhibit
4(h) to the Registrant's form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(4)(y) Indenture of Trust dated as of July 1, 1997 between Tooele County, Utah
and U.S. Bank, a national banking association, as Trustee, filed as Exhibit 4(j)
to the Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(4)(z) Indenture of Trust dated as of July 1, 1997 between California Pollution
Control Financing Authority and U.S. Bank, a national banking association, as
Trustee, filed as Exhibit 4(k) to the Registrant's Form 10-Q for the three
months ended May 31, 1997 and incorporated herein by reference.
(4)(aa) Promissory Note dated May 15, 1997 for $60,000,000 from the Company to
Westinghouse Electric Corporation, filed as Exhibit 4(n) to the Registrant's
Form 10-Q for the three months ended May 31, 1997 and incorporated herein by
reference.
(4)(bb) Letter dated May 7, 1999 from Toronto-Dominion (Texas) Inc. (as assignee
of Westinghouse Electric Corporation) and agreed to by the Company and Laidlaw
Inc. amending the terms of the Promissory Note dated May 15, 1997 (as referenced
in Exhibit (4)(z)) filed as Exhibit (4)(u) to the Registrant's Form S-4
Registration Statement No. 333-82689 filed July 12, 1999 and incorporated herein
by reference.
(4)(cc) Guaranty Agreement dated May 15, 1997 by Laidlaw Inc. to Westinghouse
Electric Corporation guaranteeing Promissory Note dated May 15, 1997 (as
referenced in Exhibit (4)(z)) from Company to Westinghouse Electric
Corporation), filed as Exhibit 4(o) to the Registrant's Form 10-Q for the three
months ended May 31, 1997 and incorporated herein by reference.
(4)(dd) Rights Agreement dated as of October 15, 1999 between the Company and
EquiServe Trust Company, N.A., as Rights Agent, filed as Exhibit (c)1 to the
Company's Current Report on Form 8-K filed on October 15, 1999 and incorporated
herein by reference.
(4)(ee) First Amendment to Rights Agreement, dated as of March 17, 2000, between
the Company and EquiServe Trust Company, N.A. filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on March 17, 2000 and incorporated
herein by reference.
(4)(ff) Letter Agreement, dated October 12, 1999, between the Company and
Laidlaw Inc. filed as Exhibit 99.2 to the Company's Current Report on Form 8-K
filed on March 17, 2000 and incorporated herein by reference.
(4)(gg) Other instruments defining the rights of holders of nonregistered debt
of the Company have been omitted from this exhibit list because the amount of
debt authorized under any such instrument does not exceed 10% of the total
assets of the Company and its subsidiaries. The Company agrees to furnish a copy
of any such instrument to the Commission upon request.
(10)(a) Agreement and Plan of Merger dated as of March 16, 1998 by and among
Registrant, LES Acquisition, Inc., and Safety-Kleen Corp. included as Annex A of
Safety-Kleen's Revised Amended Prospectus on Form 14D-9 filed as Exhibit 62 to
Safety-Kleen's Amendment No. 28 to Schedule 14-9A on March 17, 1998 and
incorporated herein by reference.
(10)(b) Stock Purchase Agreement between Westinghouse Electric Corporation
(Seller) and Rollins Environmental Services, Inc. (Buyer) for National Electric,
Inc. dated March 7, 1995 filed as Exhibit 2 to the Registrant's Current Report
on Form 8-K filed on June 13, 1995 and incorporated herein by reference.
(10)(c) Second Amendment to Stock Purchase Agreement (as referenced in Exhibit
(10)(b) above), dated May 15, 1997 among Westinghouse Electric Corporation,
Rollins Environmental Services, Inc. and Laidlaw Inc., filed as Exhibit 4(m) to
the Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
47
(10)(d) Agreement for the sale and purchase of shares and loan stock held by SK
Europe, Inc. in Safety-Kleen Europe Limited between Safety-Kleen Europe Limited
and SK Europe, Inc. and the Company and The Electra Subscribers and Electra
European Fund LP dated as of July 6, 2000 Company filed as Exhibit (10)(d) to
the Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(e) Rollins Environmental Services, Inc. 1982 Incentive Stock Option Plan
filed with Amendment No. 1 to the Company's Registration Statement No. 2-84139
on Form S-1 dated June 24, 1983 and incorporated herein by reference.
(10)(f) Rollins Environmental Services, Inc. 1993 Stock Option Plan filed as
Exhibit (10)(e) to the Registrant's Current Form 10-Q for the three months ended
May 31, 2000 and incorporated herein by reference.
(10)(g) The Company's 1997 Stock Option Plan, filed as Exhibit 4.4 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated December 10,
1997 and incorporated herein by reference.
(10)(h) First Amendment to Company's 1997 Stock Option Plan, filed as Exhibit
(10)(g) to the Company's Form 10-Q for the three months ended November 30, 1999
and incorporated herein by reference.
(10)(i) The Company's Director's Stock Option Plan, filed as Exhibit 4.5 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated December 10,
1997 and incorporated herein by reference.
(10)(j) First Amendment to Company's Director's Stock Option Plan filed as
Exhibit (10)(i) to the Company's Form 10-Q for the three months ended November
30, 1999 and incorporated herein by reference.
(10)(k) Stock Purchase Agreement dated February 6, 1997 among the Company,
Laidlaw Inc., and Laidlaw Transportation, Inc. filed as Exhibit A to Annex A to
the Definitive Proxy Statement on Form DEF 14A filed on May 1, 1997 and
incorporated herein by reference.
(10)(l) Executive Bonus Plan for fiscal year 2000 filed as Appendix C to the
Definitive Proxy Statement on Form DEF 14A filed on October 29, 1999 and
incorporated herein by reference.
(10)(m) The Company's U.S. Supplemental Executive Retirement Plan filed as
Exhibit 10(g) to the Company's Form 10-Q for the three months ended November 30,
1997 and incorporated herein by reference.
(10)(n) Employment Agreement by and between Company and Grover C. Wrenn, dated
as of August 23, 2000 filed as Exhibit (10)(n) to the Registrant's Form 10-K for
the year ended August 31, 2000 and incorporated herein by reference.
(10)(o) Employment Termination And Consulting Agreement dated as of August 15,
2001 between Safety-Kleen Corp. and Grover C. Wrenn filed as Exhibit (10)(o) to
the Registrant's Form 10-Q/A for the quarter ended May 31, 2001, filed on
September 26, 2001 and incorporated herein by reference.
(10)(p) Employment Agreement by and between Company and David E. Thomas, Jr.,
dated as of August 23, 2000 filed as Exhibit (10)(o) to the Registrant's Form
10-K for the year ended August 31, 2000 and incorporated herein by reference.
(10)(q) Employment Termination And Consulting Agreement, dated as of August 15,
2001 between Safety-Kleen Corp. and David E. Thomas, Jr. filed as Exhibit
(10)(q) to the Registrant's Form 10-Q/A for the quarter ended May 31, 2001,
filed on September 26, 2001 and incorporated herein by reference.
(10)(r) Employment Agreement by and between Company and Larry W. Singleton,
dated as of July 17, 2000 filed as Exhibit (10)(p) to the Registrant's Form 10-K
for the year ended August 31, 2000 and incorporated herein by reference.
(10)(s) Employment Agreement by and between Safety-Kleen Corp. and Ronald A.
Rittenmeyer, dated as of August 8, 2001 filed as Exhibit (10)(s) to the
Registrant's Form 10-Q/A for the quarter ended May 31, 2001, filed on September
26, 2001 and incorporated herein by reference.
(10)(t) Company Indemnification Agreement delivered to Ronald A. Rittenmeyer by
Safety-Kleen Corp., effective as of August 8, 2001 filed as Exhibit (10)(t) to
the Registrant's Form 10-Q/A for the quarter ended May 31, 2001, filed on
September 26, 2001 and incorporated herein by reference.
(10)(u) Employment Agreement by and between Safety-Kleen Corp. and Thomas W.
Arnst, dated as of October 4, 2001.
(10)(v) Agreement among Safety-Kleen Corp., Safety-Kleen Services, Inc. and
David M. Sprinkle dated October 17, 2001.
48
(10)(w) Form of Senior Executive Change of Control Agreement filed as Exhibit
(10)(q) to the Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(x) Senior Executive Retention Plan filed as Exhibit (10)(r) to the
Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(y) Senior Executive Severance Plan filed as Exhibit (10)(s) to the
Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(z) Executive Retention Plan filed as Exhibit (10)(t) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(aa) Executive Severance Plan filed as Exhibit (10)(u) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(bb) Key Manager Retention Plan filed as Exhibit (10)(v) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(cc) Key Manager Severance Plan filed as Exhibit (10)(w) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(dd) Letter Agreement dated March 16, 2000 between Jay Alix & Associates and
the Company filed as Exhibit (10)(x) to the Company's Form 10-Q for the three
months ended May 31, 2000 and incorporated herein by reference.
(10)(ee) Second Amended and Restated Marketing and Distribution Agreement, dated
as of March 8, 2001 by and between SystemOne Technologies Inc. and Safety-Kleen
Systems, Inc., a subsidiary of the Registrant, filed as Exhibit 10.16 to
SystemOne Technologies Inc. Form 10-KSB for the year ended December 31, 2000 and
incorporated herein by reference.
(21) Subsidiaries of Registrant.
(24) Power of Attorney (on the signature pages hereof)
(99.1) Consent Agreement and Final Order by and between the United States
Environmental Protection Agency and Safety-Kleen Corp. and certain of its United
States subsidiaries and affiliates filed as Exhibit (99.1) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(99.2) Amended Consent Agreement and Final Order by and between the United
States Environmental Protection Agency and Safety-Kleen Corp. and certain of its
United States subsidiaries and affiliates as approved by the United States
Bankruptcy Court on May 16, 2001, filed as Exhibit (99.2) to the Registrant's
Form 10-K/A for the year ended August 31, 2000, filed on July 9, 2001 and
incorporated herein by reference.
(b) Reports on Form 8-K.
i. The Company filed a Current Report on Form 8-K on July 10, 2001, which
contained Item 5 and Item 7 related to the Company announcing the
issuance of fiscal year 2000 financial statements and restatement of
fiscal years 1997 - 1999 financial results.
ii. The Company filed a Current Report on Form 8-K on August 13, 2001,
which contained Item 5 related to the status of the insurance required
to cover closure, post-closure and correction action insurance for the
Company's facilities.
iii. The Company filed a Current Report on Form 8-K on August 15, 2001,
which contained Item 5 related to the Company announcing the
appointment of Ronald A. Rittenmeyer to the positions of Chairman,
Chief Executive Officer and President of the Company.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATE: November 27, 2001 SAFETY-KLEEN CORP.
--------------------------------------------
(Registrant)
/s/ Ronald A. Rittenmeyer
------------------------------------
Ronald A. Rittenmeyer
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints Ronald A. Rittenmeyer and/or Larry
W. Singleton and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, each acting alone, with full power and substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities to (i) act on, sign and file with the Securities and Exchange
Commission any and all amendments to this Form 10-K together with all schedules
and exhibits thereto, (ii) act on, sign and file such certificates, instruments,
agreements and other documents as may be necessary or appropriate in connection
therewith, (iii) take any and all actions which may be necessary or appropriate
in connection therewith, granting unto such agents, proxies and
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or appropriate to be done, as fully and
for all intents and purposes as he or she might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his or her or their substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Ronald A. Rittenmeyer
- -----------------------------
Ronald A. Rittenmeyer Chairman of the Board, November 27, 2001
Chief Executive Officer,
President and Director
/s/ Larry W. Singleton
- -----------------------------
Larry W. Singleton Executive Vice President and November 27, 2001
Chief Financial Officer
(principal financial and
accounting officer)
/s/ Kenneth K. Chalmers
- -----------------------------
Kenneth K. Chalmers Director November 27, 2001
50
/s/ Peter E. Lengyel
- -----------------------------
Peter E. Lengyel Director November 27, 2001
/s/ Robert W. Luba
- -----------------------------
Robert W. Luba Director November 27, 2001
/s/ John W. Rollins, Jr.
- -----------------------------
John W. Rollins, Jr. Director November 27, 2001
/s/ David E. Thomas, Jr.
- -----------------------------
David E. Thomas, Jr. Director November 27, 2001
/s/ Henry B. Tippie
- -----------------------------
Henry B. Tippie Director November 27, 2001
/s/ David W. Wallace
- -----------------------------
David W. Wallace Director November 27, 2001
/s/ James L. Wareham
- -----------------------------
James L. Wareham Director November 27, 2001
/s/ Grover C. Wrenn
- -----------------------------
Grover C. Wrenn Director November 27, 2001
51
EXHIBIT INDEX
(3)(a) Restated Certificate of Incorporation of the Company dated May 13,
1997 and Amendment to Certificate of Incorporation dated May 15,
1997, Certificate of Correction Filed to Correct a Certain Error in
the Restated and Amended Certificate of Incorporation of the
Company dated October 15, 1997, Certificate of Amendment to the
Restated Certificate of Incorporation of the Company dated November
25, 1998, and Certificate of Amendment to the Restated Certificate
of Incorporation of the Company dated November 30, 1998, all filed
as Exhibit (3)(a) to the Registrant's Form 10-Q for the three
months ended February 28, 2001, and incorporated herein by
reference.
(3)(b) Amended and Restated Bylaws of the Company, filed as Exhibit (3)(b)
to the Registrant's Form 10-K for the year ended August 31, 2000,
and incorporated herein by reference.
(4)(a) Indenture dated as of May 29, 1998 between LES, Inc. (a subsidiary
of the Registrant), Registrant, subsidiary guarantors of the
Registrant and The Bank of Nova Scotia Trust Company of New York,
as trustee filed as Exhibit 4(b) to the Registrant's Form S-4
Registration Statement No. 333-57587 filed June 24, 1998 and
incorporated herein by reference.
(4)(b) First Supplemental Indenture effective as of November 15, 1998
among Safety-Kleen Services, Inc. the Registrant, SK Europe, Inc.
and The Bank of Nova Scotia Trust Company of New York, as trustee
filed as Exhibit (4)(f) to the Registrant's Form S-4 Registration
Statement No. 333-82689 filed July 12, 1999 and incorporated herein
by reference.
(4)(c) Second Supplemental Indenture effective as of May 7, 1999 among
Safety-Kleen Services, Inc. the Company, SK Services, L.C., SK
Services (East), L.C. and The Bank of Nova Scotia Trust Company of
New York, as trustee filed as Exhibit (4)(d) to the Company's Form
10-K filed October 29, 1999 and incorporated herein by reference.
(4)(d) Indenture dated as of May 17, 1999 between the Company and the Bank
of Nova Scotia Trust Company of New York, as trustee filed as
Exhibit (4)(b) to the Registrant's Form S-4 Registration Statement
No. 333-82689 filed July 12, 1999 and incorporated herein by
reference.
(4)(e) Amended and Restated Credit Agreement among Laidlaw Chem-Waste,
Inc., Laidlaw Environmental Services (Canada) Ltd., Toronto
Dominion (Texas) Inc., The Toronto-Dominion Bank, TD Securities
(USA) Inc., The Bank of Nova Scotia, NationsBank, N.A. and The
First National Bank of Chicago and NationsBank, N.A. as Syndication
Agent dated as of April 3, 1998, filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the three months ended February 28, 1999
and incorporated herein by reference.
(4)(f) Supplement to the Amended and Restated Credit Agreement among
Laidlaw Chem-Waste, Inc., Laidlaw Environmental Services (Canada)
Ltd., Toronto Dominion (Texas) Inc., The Toronto-Dominion Bank, TD
Securities (USA) Inc., The Bank of Nova Scotia, NationsBank, N.A.
and The First National Bank of Chicago and NationsBank, N.A. as
Syndication Agent dated as of April 3, 1998, filed as Exhibit 4(e)
to a subsidiary of the Registrant's Form S-4 Registration Statement
No. 333-57587 filed June 24, 1998 and incorporated herein by
reference.
(4)(g) Waiver and First Amendment to the Amended and Restated Credit
Agreement dated as of May 15, 1998 among LES, Inc., Laidlaw
Environmental Services (Canada) Ltd., the Lenders, Toronto Dominion
(Texas), Inc., The Toronto Dominion Bank, TD Securities (USA) Inc.,
The Bank of Nova Scotia, NationsBank, N.A., The First National Bank
of Chicago and Wachovia Bank filed as Exhibit 4(f) to a subsidiary
of the Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(h) Commitment to Increase Supplement to the Amended and Restated
Credit Agreement dated as of June 3, 1998 among LES, Inc., Laidlaw
Environmental Services (Canada) Ltd., the Lenders, Toronto Dominion
(Texas), Inc., The Toronto Dominion Bank, TD Securities (USA) Inc.,
The Bank of Nova Scotia, NationsBank, N.A., The First National Bank
of Chicago and Wachovia Bank filed as Exhibit 4(g) to a subsidiary
of the Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(i) Second Amendment to the Amended and Restated Credit Agreement dated
as of November 20, 1998 among Safety-Kleen Services, Inc. (formerly
known as LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly
known as Laidlaw Environmental Services (Canada) Ltd.), the
Lenders, Toronto Dominion (Texas), Inc., The Toronto Dominion Bank,
TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank,
N.A., The First National Bank of Chicago and Wachovia Bank N.A.,
filed as Exhibit (4)(j) to the Registrant's Form 10-Q for the three
months ended February 28, 1999 and incorporated herein by
reference.
(4)(j) Waiver and Third Amendment to the Amended and Restated Credit
Agreement dated as of May 6, 1999 among Safety-Kleen Services, Inc.
(formerly known as LES, Inc.), Safety-Kleen Services (Canada) Ltd.
(formerly known as Laidlaw Environmental Services (Canada) Ltd.),
the Lenders, Toronto Dominion (Texas), Inc., The Toronto Dominion
Bank, TD Securities (USA) Inc., The Bank of Nova Scotia,
NationsBank, N.A., The First National Bank of Chicago and Wachovia
Bank N.A. filed as Exhibit
52
(4)(l) to the Registrant's Form S-4 Registration Statement No.
333-82689 filed July 12, 1999 and incorporated herein by reference.
(4)(k) Fourth Amendment dated as of March 13, 2000 to the Amended and
Restated Credit Agreement dated as of May 6, 1999 among
Safety-Kleen Services, Inc. (formerly known as LES, Inc.),
Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto
Dominion (Texas), Inc., The Toronto Dominion Bank, TD Securities
(USA) Inc., The Bank of Nova Scotia, NationsBank, N.A., The First
National Bank of Chicago and Wachovia Bank N.A. filed as Exhibit
(4)(l) to the Registrant's Form 10-Q for the three months ended May
31, 2000 and incorporated herein by reference.
(4)(l) Consent dated as of March 16, 2000 to the Amended and Restated
Credit Agreement dated as of May 6, 1999 among Safety-Kleen
Services, Inc. (formerly known as LES, Inc.), Safety-Kleen Services
(Canada) Ltd. (formerly known as Laidlaw Environmental Services
(Canada) Ltd.), the Lenders, Toronto Dominion (Texas), Inc., The
Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and
Wachovia Bank N.A. filed as Exhibit (4)(m) to the Registrant's Form
10-Q for the three months ended May 31, 2000 and incorporated
herein by reference.
(4)(m) Amended and Restated $100,000,000 Debtor In Possession Credit
Agreement among Safety-Kleen Services, Inc., The Several Lenders
from Time to Time Parties thereto, Toronto Dominion (Texas), Inc.,
as General Administrative Agent and Underwriter and The CIT
Group/Business Credit, Inc. as Collateral Agent and Underwriter
Initially dated as of June 11, 2000 Amended and Restated as of July
19, 2000 Company filed as Exhibit (4)(m) to the Registrant's Form
10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(4)(n) First Amendment, dated as of October 31, 2000, to the Amended and
Restated $100,000,000 Debtor In Possession Credit Agreement among
Safety-Kleen Services, Inc., The Several Lenders from Time to Time
Parties thereto, Toronto Dominion (Texas), Inc., as General
Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as
of June 11, 2000 Amended and Restated as of July 19, 2000, filed as
Exhibit (4)(n) to the Registrant's Form 10-Q for the three months
ended November 30, 2000 and incorporated herein by reference.
(4)(o) Second Amendment and Waiver, dated as of February 28, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among
Safety-Kleen Services, Inc., The Several Lenders from Time to Time
Parties thereto, Toronto-Dominion (Texas), Inc. as General
Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as
of June 11, 2000, Amended and Restated as of July 19, 2000, filed
as Exhibit (4)(o) to the Registrant's Form 10-K/A for the year
ended August 31, 2000, filed on July 9, 2001 and incorporated
herein by reference.
(4)(p) Third Amendment and Waiver, dated as of March 28, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among
Safety-Kleen Services, Inc., The Several Lenders from Time to Time
Parties thereto, Toronto-Dominion (Texas), Inc. as General
Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as
of June 11, 2000, Amended and Restated as of July 19, 2000, filed
as Exhibit (4)(p) to the Registrant's Form 10-K/A for the year
ended August 31, 2000, filed on July 9, 2001 and incorporated
herein by reference.
(4)(q) Fourth Amendment and Waiver, dated as of April 30, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among
Safety-Kleen Services, Inc., The Several Lenders from Time to Time
Parties thereto, Toronto-Dominion (Texas), Inc. as General
Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as
of June 11, 2000, Amended and Restated as of July 19, 2000, filed
as Exhibit (4)(q) to the Registrant's Form 10-K/A for the year
ended August 31, 2000, filed on July 9, 2001 and incorporated
herein by reference.
(4)(r) Fifth Amendment and Agreement, dated as of August 6, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among
Safety-Kleen Services, Inc., The Several Lenders from Time to Time
Parties thereto, Toronto-Dominion (Texas), Inc. as General
Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as
of June 11, 2000, Amended and Restated as of July 19, 2000, filed
as exhibit (4)(r) to the Registrant's Form 10-Q/A for the quarter
ended May 31, 2001, filed on September 26, 2001 and incorporated
herein by reference.
(4)(s) Sixth Waiver dated as of September 4, 2001, to the Amended and
Restated Debtor-in-Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties
thereto, Toronto-Dominion (Texas), Inc. as General Administrative
Agent and Underwriter and The CIT Group/Business Credit, Inc. as
Collateral Agent and Underwriter Initially dated as of June 11,
2000, Amended and Restated as of July 19, 2000 filed as Exhibit
(4)(s) to the Registrant's Form 10-Q/A for the quarter ended May
31, 2001, filed on September 26, 2001 and incorporated herein by
reference.
(4)(t) Seventh Waiver dated as of October 16, 2001, to the Amended and
Restated Debtor-in-Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties
thereto, Toronto-Dominion (Texas), Inc. as General Administrative
Agent and Underwriter and The CIT Group/Business Credit, Inc. as
Collateral Agent and Underwriter Initially dated as of June 11,
2000, Amended and Restated as of July 19, 2000.
53
(4)(u) Letter Agreement among Toronto Dominion (Texas), Inc., as
administrative agent, the Company and Safety-Kleen Systems, Inc.
dated December 12, 2000 relating to the Amended and Restated
Marketing and Distribution Agreement by Safety-Kleen Systems, Inc.
and System One Technologies Inc., filed as Exhibit (4)(o) to the
Registrant's Form 10-Q for the three months ended February 28,
2001, and incorporated herein by reference.
(4)(v) Registration Rights Agreement dated May 15, 1997 between the
Company, Laidlaw Transportation, Inc. and Laidlaw Inc. the form of
which was filed as Exhibit B to Annex A to the Registrant's
Definitive Proxy Statement on Form DEF 14A, filed on May 1, 1997
and incorporated herein by reference.
(4)(w) Indenture dated as of May 1, 1993 between the Industrial
Development Board of the Metropolitan Government of Nashville and
Davidson County (Tennessee) and NationsBank of Tennessee, N.A.,
filed as Exhibit 4(f) to the Registrant's Form 10-Q for the three
months ended May 31, 1997 and incorporated herein by reference.
(4)(x) Indenture of Trust dated as of August 1, 1995 between Tooele
County, Utah and West One Bank, Utah, now known as U.S. Bank, as
Trustee, filed as Exhibit 4(h) to the Registrant's form 10-Q for
the three months ended May 31, 1997 and incorporated herein by
reference.
(4)(y) Indenture of Trust dated as of July 1, 1997 between Tooele County,
Utah and U.S. Bank, a national banking association, as Trustee,
filed as Exhibit 4(j) to the Registrant's Form 10-Q for the three
months ended May 31, 1997 and incorporated herein by reference.
(4)(z) Indenture of Trust dated as of July 1, 1997 between California
Pollution Control Financing Authority and U.S. Bank, a national
banking association, as Trustee, filed as Exhibit 4(k) to the
Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(4)(aa) Promissory Note dated May 15, 1997 for $60,000,000 from the Company
to Westinghouse Electric Corporation, filed as Exhibit 4(n) to the
Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(4)(bb) Letter dated May 7, 1999 from Toronto-Dominion (Texas) Inc. (as
assignee of Westinghouse Electric Corporation) and agreed to by the
Company and Laidlaw Inc. amending the terms of the Promissory Note
dated May 15, 1997 (as referenced in Exhibit (4)(z)) filed as
Exhibit (4)(u) to the Registrant's Form S-4 Registration Statement
No. 333-82689 filed July 12, 1999 and incorporated herein by
reference.
(4)(cc) Guaranty Agreement dated May 15, 1997 by Laidlaw Inc. to
Westinghouse Electric Corporation guaranteeing Promissory Note
dated May 15, 1997 (as referenced in Exhibit (4)(z)) from Company
to Westinghouse Electric Corporation), filed as Exhibit 4(o) to the
Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(4)(dd) Rights Agreement dated as of October 15, 1999 between the Company
and EquiServe Trust Company, N.A., as Rights Agent, filed as
Exhibit (c)1 to the Company's Current Report on Form 8-K filed on
October 15, 1999 and incorporated herein by reference.
(4)(ee) First Amendment to Rights Agreement, dated as of March 17, 2000,
between the Company and EquiServe Trust Company, N.A. filed as
Exhibit 99.1 to the Company's Current Report on Form 8-K filed on
March 17, 2000 and incorporated herein by reference.
(4)(ff) Letter Agreement, dated October 12, 1999, between the Company and
Laidlaw Inc. filed as Exhibit 99.2 to the Company's Current Report
on Form 8-K filed on March 17, 2000 and incorporated herein by
reference.
(4)(gg) Other instruments defining the rights of holders of nonregistered
debt of the Company have been omitted from this exhibit list
because the amount of debt authorized under any such instrument
does not exceed 10% of the total assets of the Company and its
subsidiaries. The Company agrees to furnish a copy of any such
instrument to the Commission upon request.
(10)(a) Agreement and Plan of Merger dated as of March 16, 1998 by and
among Registrant, LES Acquisition, Inc., and Safety-Kleen Corp.
included as Annex A of Safety-Kleen's Revised Amended Prospectus on
Form 14D-9 filed as Exhibit 62 to Safety-Kleen's Amendment No. 28
to Schedule 14-9A on March 17, 1998 and incorporated herein by
reference.
(10)(b) Stock Purchase Agreement between Westinghouse Electric Corporation
(Seller) and Rollins Environmental Services, Inc. (Buyer) for
National Electric, Inc. dated March 7, 1995 filed as Exhibit 2 to
the Registrant's Current Report on Form 8-K filed on June 13, 1995
and incorporated herein by reference.
54
(10)(c) Second Amendment to Stock Purchase Agreement (as referenced in
Exhibit (10)(b) above), dated May 15, 1997 among Westinghouse
Electric Corporation, Rollins Environmental Services, Inc. and
Laidlaw Inc., filed as Exhibit 4(m) to the Registrant's Form 10-Q
for the three months ended May 31, 1997 and incorporated herein by
reference.
(10)(d) Agreement for the sale and purchase of shares and loan stock held
by SK Europe, Inc. in Safety-Kleen Europe Limited between
Safety-Kleen Europe Limited and SK Europe, Inc. and the Company and
The Electra Subscribers and Electra European Fund LP dated as of
July 6, 2000 Company filed as Exhibit (10)(d) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(e) Rollins Environmental Services, Inc. 1982 Incentive Stock Option
Plan filed with Amendment No. 1 to the Company's Registration
Statement No. 2-84139 on Form S-1 dated June 24, 1983 and
incorporated herein by reference.
(10)(f) Rollins Environmental Services, Inc. 1993 Stock Option Plan filed
as Exhibit (10)(e) to the Registrant's Current Form 10-Q for the
three months ended May 31, 2000 and incorporated herein by
reference.
(10)(g) The Company's 1997 Stock Option Plan, filed as Exhibit 4.4 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated
December 10, 1997 and incorporated herein by reference.
(10)(h) First Amendment to Company's 1997 Stock Option Plan, filed as
Exhibit (10)(g) to the Company's Form 10-Q for the three months
ended November 30, 1999 and incorporated herein by reference.
(10)(I) The Company's Director's Stock Option Plan, filed as Exhibit 4.5 to
the Company's Registration Statement No. 333-41859 on Form S-8
dated December 10, 1997 and incorporated herein by reference.
(10)(j) First Amendment to Company's Director's Stock Option Plan filed as
Exhibit (10)(i) to the Company's Form 10-Q for the three months
ended November 30, 1999 and incorporated herein by reference.
(10)(k) Stock Purchase Agreement dated February 6, 1997 among the Company,
Laidlaw Inc., and Laidlaw Transportation, Inc. filed as Exhibit A
to Annex A to the Definitive Proxy Statement on Form DEF 14A filed
on May 1, 1997 and incorporated herein by reference.
(10)(l) Executive Bonus Plan for fiscal year 2000 filed as Appendix C to
the Definitive Proxy Statement on Form DEF 14A filed on October 29,
1999 and incorporated herein by reference.
(10)(m) The Company's U.S. Supplemental Executive Retirement Plan filed as
Exhibit 10(g) to the Company's Form 10-Q for the three months ended
November 30, 1997 and incorporated herein by reference.
(10)(n) Employment Agreement by and between Company and Grover C. Wrenn,
dated as of August 23, 2000 filed as Exhibit (10)(n) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(o) Employment Termination And Consulting Agreement dated as of August
15, 2001 between Safety-Kleen Corp. and Grover C. Wrenn filed as
Exhibit (10)(o) to the Registrant's Form 10-Q/A for the quarter
ended May 31, 2001, filed on September 26, 2001 and incorporated
herein by reference.
(10)(p) Employment Agreement by and between Company and David E. Thomas,
Jr., dated as of August 23, 2000 filed as Exhibit (10)(o) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(q) Employment Termination And Consulting Agreement, dated as of August
15, 2001 between Safety-Kleen Corp. and David E. Thomas, Jr. filed
as Exhibit (10)(q) to the Registrant's Form 10-Q/A for the quarter
ended May 31, 2001, filed on September 26, 2001 and incorporated
herein by reference.
(10)(r) Employment Agreement by and between Company and Larry W. Singleton,
dated as of July 17, 2000 filed as Exhibit (10)(p) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(s) Employment Agreement by and between Safety-Kleen Corp. and Ronald
A. Rittenmeyer, dated as of August 8, 2001 filed as Exhibit (10)(s)
to the Registrant's Form 10-Q/A for the quarter ended May 31, 2001,
filed on September 26, 2001 and incorporated herein by reference.
(10)(t) Company Indemnification Agreement delivered to Ronald A.
Rittenmeyer by Safety-Kleen Corp., effective as of August 8, 2001
filed as Exhibit (10)(t) to the Registrant's Form 10-Q/A for the
quarter ended May 31, 2001, filed on September 26, 2001 and
incorporated herein by reference.
55
(10)(u) Employment Agreement by and between Safety-Kleen Corp. and Thomas
W. Arnst, dated as of October 4, 2001.
(10)(v) Agreement among Safety-Kleen Corp., Safety-Kleen Services, Inc. and
David M. Sprinkle dated October 17, 2001.
(10)(w) Form of Senior Executive Change of Control Agreement filed as
Exhibit (10)(q) to the Registrant's Form 10-K for the year ended
August 31, 2000 and incorporated herein by reference.
(10)(x) Senior Executive Retention Plan filed as Exhibit (10)(r) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(y) Senior Executive Severance Plan filed as Exhibit (10)(s) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(z) Executive Retention Plan filed as Exhibit (10)(t) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(aa) Executive Severance Plan filed as Exhibit (10)(u) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(bb) Key Manager Retention Plan filed as Exhibit (10)(v) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(cc) Key Manager Severance Plan filed as Exhibit (10)(w) to the
Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(dd) Letter Agreement dated March 16, 2000 between Jay Alix & Associates
and the Company filed as Exhibit (10)(x) to the Company's Form 10-Q
for the three months ended May 31, 2000 and incorporated herein by
reference.
(10)(ee) Second Amended and Restated Marketing and Distribution Agreement,
dated as of March 8, 2001 by and between SystemOne Technologies
Inc. and Safety-Kleen Systems, Inc., a subsidiary of the
Registrant, filed as Exhibit 10.16 to SystemOne Technologies Inc.
Form 10-KSB for the year ended December 31, 2000 and incorporated
herein by reference.
(21) Subsidiaries of Registrant.
(24) Power of Attorney (on the signature pages hereof)
(99.1) Consent Agreement and Final Order by and between the United States
Environmental Protection Agency and Safety-Kleen Corp. and certain
of its United States subsidiaries and affiliates filed as Exhibit
(99.1) to the Registrant's Form 10-K for the year ended August 31,
2000 and incorporated herein by reference.
(99.2) Amended Consent Agreement and Final Order by and between the United
States Environmental Protection Agency and Safety-Kleen Corp. and
certain of its United States subsidiaries and affiliates as
approved by the United States Bankruptcy Court on May 16, 2001,
filed as Exhibit (99.2) to the Registrant's Form 10-K/A for the
year ended August 31, 2000, filed on July 9, 2001 and incorporated
herein by reference.
56