IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
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:
: CHAPTER 11
IN RE: :
: CASE NO. 00-2303 (PJW)
SAFETY-KLEEN CORP., ET AL., :
-- -- : JOINTLY ADMINISTERED
DEBTORS. :
:
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JOINT PLAN OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Four Times Square
New York, New York 10036-6522
Attn: D. J. Baker
J. Gregory St. Clair
Steven B. Eichel
- and -
One Rodney Square
Wilmington, Delaware 19899
Attn: Gregg M. Galardi
ATTORNEYS FOR SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES,
DEBTORS AND DEBTORS-IN-POSSESSION
Dated: November 27, 2002
THE DISCLOSURE STATEMENT WITH RESPECT TO THIS JOINT PLAN OF REORGANIZATION HAS
NOT BEEN APPROVED BY THE BANKRUPTCY COURT. THE DEBTORS WILL SEPARATELY NOTICE A
HEARING TO CONSIDER THE ADEQUACY OF THE DISCLOSURE STATEMENT UNDER SECTION 1125
OF THE BANKRUPTCY CODE. THE DEBTORS RESERVE THE RIGHT TO MODIFY OR SUPPLEMENT
THIS JOINT PLAN OF REORGANIZATION AND THE ACCOMPANYING DISCLOSURE STATEMENT
PRIOR TO AND UP TO THE DATE OF SUCH HEARING.
TABLE OF CONTENTS
INTRODUCTION.......................................................................................Plan - 1
ARTICLE I DEFINITIONS..........................................................................Plan - 1
1.1 "Administrative Claim"...............................................................Plan - 2
1.2 "Affiliates".........................................................................Plan - 2
1.3 "Allowed Claim"......................................................................Plan - 2
1.4 "Allowed . . . Claim"................................................................Plan - 2
1.5 "Aragonite Indenture"................................................................Plan - 2
1.6 "Aragonite Indenture Trustee"........................................................Plan - 2
1.7 "Aragonite Industrial Revenue Bonds".................................................Plan - 2
1.8 "Avoidance Claims"...................................................................Plan - 2
1.9 "Bankruptcy Code"....................................................................Plan - 2
1.10 "Bankruptcy Court"...................................................................Plan - 2
1.11 "Bankruptcy Rules"...................................................................Plan - 2
1.12 "BSSD"...............................................................................Plan - 2
1.13 "Business Day".......................................................................Plan - 3
1.14 "California Coverage Action".........................................................Plan - 3
1.15 "California Pollution Control Financing Authority Indenture".........................Plan - 3
1.16 "California Pollution Control Financing Authority Indenture Trustee".................Plan - 3
1.17 "California Pollution Control Financing Authority Industrial Revenue Bonds"..........Plan - 3
1.18 "Canadian Lender Administrative Claim"...............................................Plan - 3
1.19 "Canadian Lenders"...................................................................Plan - 3
1.20 "Cash"...............................................................................Plan - 3
1.21 "Causes of Action"...................................................................Plan - 3
1.22 "Certificate"........................................................................Plan - 3
1.23 "Chapter 11 Cases"...................................................................Plan - 3
1.24 "Claim"..............................................................................Plan - 3
1.25 "Claimholder"........................................................................Plan - 3
1.26 "Claims Objection Deadline"..........................................................Plan - 4
1.27 "Class"..............................................................................Plan - 4
1.28 "Clive Indenture"....................................................................Plan - 4
1.29 "Clive Indenture Trustee"............................................................Plan - 4
1.30 "Clive Industrial Revenue Bonds".....................................................Plan - 4
1.31 "Common Defendant"...................................................................Plan - 4
1.32 "Confirmation Date"..................................................................Plan - 4
1.33 "Confirmation Hearing"...............................................................Plan - 4
1.34 "Confirmation Order".................................................................Plan - 4
1.35 "Creditors' Committee"...............................................................Plan - 4
1.36 "CSD Subsidiaries"...................................................................Plan - 4
1.37 "Cure"...............................................................................Plan - 4
1.38 "Current Directors and Officers".....................................................Plan - 4
1.39 "Debt"...............................................................................Plan - 4
1.40 "Debtors"............................................................................Plan - 4
1.41 "DHEC"...............................................................................Plan - 4
1.42 "DHEC Administrative Claim"..........................................................Plan - 4
1.43 "DIP Agent"..........................................................................Plan - 5
1.44 "DIP Credit Agreement"...............................................................Plan - 5
1.45 "DIP Facility".......................................................................Plan - 5
1.46 "DIP Facility Claim".................................................................Plan - 5
Plan - i
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1.47 "DIP Facility Order".................................................................Plan - 5
1.48 "DIP Lenders"........................................................................Plan - 5
1.49 "Disallowed Claim"...................................................................Plan - 5
1.50 "Disbursing Agent"...................................................................Plan - 5
1.51 "Disclosure Statement"...............................................................Plan - 5
1.52 "Disputed Claim".....................................................................Plan - 5
1.53 "Dissolving Debtor"..................................................................Plan - 6
1.54 "Distribution Dates".................................................................Plan - 6
1.55 "Distribution Notification Date".....................................................Plan - 6
1.56 "Effective Date".....................................................................Plan - 6
1.57 "Estates"............................................................................Plan - 6
1.58 "Exhibit"............................................................................Plan - 6
1.59 "Exhibit Filing Date"................................................................Plan - 6
1.60 "Existing Securities"................................................................Plan - 6
1.61 "Exit Facility"......................................................................Plan - 6
1.62 "Face Amount"........................................................................Plan - 6
1.63 "Final Order"........................................................................Plan - 6
1.64 "Fiscal Year"........................................................................Plan - 6
1.65 "Frontier Bonds".....................................................................Plan - 6
1.66 "General Unsecured Claim"............................................................Plan - 6
1.67 "GSX Contribution Trust Fund"........................................................Plan - 7
1.68 "Holdback Amount"....................................................................Plan - 7
1.69 "Impaired"...........................................................................Plan - 7
1.70 "Indemnification Obligations"........................................................Plan - 7
1.71 "Indenture Trustees".................................................................Plan - 7
1.72 "Indenture Trustees' Fees"...........................................................Plan - 7
1.73 "Industrial Revenue Bonds"...........................................................Plan - 7
1.74 "Initial Deposit"....................................................................Plan - 7
1.75 "Initial Distribution Date"..........................................................Plan - 7
1.76 "Insurance Coverage Actions".........................................................Plan - 7
1.77 "Insurance Settlement"...............................................................Plan - 7
1.78 "Intercompany Claim".................................................................Plan - 7
1.79 "Interest"...........................................................................Plan - 7
1.80 "Interestholder".....................................................................Plan - 7
1.81 "Internal Revenue Code"..............................................................Plan - 8
1.82 "Laidlaw Claim"......................................................................Plan - 8
1.83 "Laidlaw Debtors"....................................................................Plan - 8
1.84 "Lender Claims"......................................................................Plan - 8
1.85 "Lender Claims Reserve"..............................................................Plan - 8
1.86 "Lenders"............................................................................Plan - 8
1.87 "Management Incentive Compensation Plan".............................................Plan - 8
1.88 "Merger Agreement"...................................................................Plan - 8
1.89 "Merger Sub".........................................................................Plan - 8
1.90 "Miscellaneous Secured Claim"........................................................Plan - 8
1.91 "New Common Stock"...................................................................Plan - 8
1.92 "New Environmental Impairment Trust Fund"............................................Plan - 8
1.93 "New Holdco".........................................................................Plan - 8
1.94 "New Jersey Coverage Action".........................................................Plan - 8
1.95 "New Parent".........................................................................Plan - 9
1.96 "New Subordinated Cash Pay Notes"....................................................Plan - 9
Plan - ii
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1.97 "New Subordinated Cash Pay Notes Indenture"..........................................Plan - 9
1.98 "New Subordinated Notes".............................................................Plan - 9
1.99 "New Subordinated PIK Notes".........................................................Plan - 9
1.100 "New Subordinated PIK Notes Indenture"...............................................Plan - 9
1.101 "New Subsidiary".....................................................................Plan - 9
1.102 "9 1/4% Senior Notes"................................................................Plan - 9
1.103 "9 1/4% Senior Notes Indenture"......................................................Plan - 9
1.104 "9 1/4% Senior Notes Indenture Trustee"..............................................Plan - 9
1.105 "9 1/4% Senior Subordinated Notes"...................................................Plan - 9
1.106 "9 1/4% Senior Subordinated Notes Indenture".........................................Plan - 9
1.107 "9 1/4% Senior Subordinated Notes Indenture Trustee".................................Plan - 9
1.108 "Old Common Stock"...................................................................Plan - 9
1.109 "Osco Treatment Systems Indenture"...................................................Plan - 10
1.110 "Osco Treatment Systems Indenture Trustee"...........................................Plan - 10
1.111 "Osco Treatment Systems Industrial Revenue Bonds"....................................Plan - 10
1.112 "Other Priority Claim"...............................................................Plan - 10
1.113 "Person".............................................................................Plan - 10
1.114 "Petition Date"......................................................................Plan - 10
1.115 "Pinewood"...........................................................................Plan - 10
1.116 "Pinewood Facility"..................................................................Plan - 10
1.117 "Pinewood Settlement"................................................................Plan - 10
1.118 "Pinewood Site Settlement Agreement".................................................Plan - 10
1.119 "Plan"...............................................................................Plan - 10
1.120 "Plan Supplement"....................................................................Plan - 10
1.121 "Prepetition Agent"..................................................................Plan - 10
1.122 "Prepetition Credit Agreement".......................................................Plan - 10
1.123 "Prepetition Credit Facility"........................................................Plan - 10
1.124 "Prepetition Guarantee and Collateral Agreement".....................................Plan - 11
1.125 "Prepetition Notes"..................................................................Plan - 11
1.126 "Priority Tax Claim".................................................................Plan - 11
1.127 "Pro Rata"...........................................................................Plan - 11
1.128 "Professional".......................................................................Plan - 11
1.129 "Professional Claim".................................................................Plan - 11
1.130 "Professional Fee Orders"............................................................Plan - 11
1.131 "Projections"........................................................................Plan - 11
1.132 "PwC Litigation Claim"...............................................................Plan - 11
1.133 "Qualified Settlement Trust".........................................................Plan - 11
1.134 "Reinstated" or "Reinstatement"......................................................Plan - 11
1.135 "Release Obligor"................................................................... Plan - 12
1.136 "Released Person"....................................................................Plan - 12
1.137 "Reorganized . . ."..................................................................Plan - 12
1.138 "Reorganized Debtors"................................................................Plan - 12
1.139 "Reorganized Systems"................................................................Plan - 12
1.140 "Resolved Insurance Policies"........................................................Plan - 12
1.141 "Restructuring Transactions".........................................................Plan - 12
1.142 "Retained Actions"...................................................................Plan - 12
1.143 "Safety-Kleen Creditor Trust"........................................................Plan - 12
1.144 "Scheduled"..........................................................................Plan - 12
1.145 "Schedules"..........................................................................Plan - 12
1.146 "Secured Claim"......................................................................Plan - 12
Plan - iii
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1.147 "Secured U.S. Lender Claim"..........................................................Plan - 13
1.148 "Securities Act of 1933".............................................................Plan - 13
1.149 "SERP"...............................................................................Plan - 13
1.150 "Settling Insurers"..................................................................Plan - 13
1.151 "Site Trust".........................................................................Plan - 13
1.152 "Site Trust Agreement"...............................................................Plan - 13
1.153 "Site Trustee".......................................................................Plan - 13
1.154 "SK Services"........................................................................Plan - 13
1.155 "SK Systems".........................................................................Plan - 13
1.156 "SKC"................................................................................Plan - 13
1.157 "Subordinated Claim".................................................................Plan - 13
1.158 "Swap Agreements"....................................................................Plan - 13
1.159 "Swap Parties".......................................................................Plan - 13
1.160 "Systems Assets".....................................................................Plan - 13
1.161 "Trust Advisory Board"...............................................................Plan - 13
1.162 "Trust Agreement"....................................................................Plan - 14
1.163 "Trust Assets".......................................................................Plan - 14
1.164 "Trust Claims".......................................................................Plan - 14
1.165 "Trust Distribution Reserve".........................................................Plan - 14
1.166 "Trust Expenses".....................................................................Plan - 14
1.167 "Trust Recoveries"...................................................................Plan - 14
1.168 "Trustee"............................................................................Plan - 14
1.169 "Unclassified Claims"................................................................Plan - 14
1.170 "Unimpaired".........................................................................Plan - 14
1.171 "U.S. Lender Claim"..................................................................Plan - 14
1.172 "U.S. Lenders".......................................................................Plan - 14
1.173 "Voting Deadline"....................................................................Plan - 14
1.174 "Washington Coverage Action".........................................................Plan - 14
ARTICLE II COMPROMISE AND SETTLEMENT OF DISPUTES................................................Plan - 15
ARTICLE III CLASSIFICATION OF CLAIMS AND INTERESTS...............................................Plan - 15
3.1 Introduction.........................................................................Plan - 15
3.2 Unimpaired Claims....................................................................Plan - 15
3.3 Impaired Claims......................................................................Plan - 16
3.4 Impaired Interests...................................................................Plan - 16
ARTICLE IV TREATMENT OF CLAIMS AND INTERESTS....................................................Plan - 17
4.1 Unclassified Claims..................................................................Plan - 17
4.2 Unimpaired Classes of Claims.........................................................Plan - 18
4.3 Impaired Classes of Claims...........................................................Plan - 19
4.4 Impaired Classes of Interests........................................................Plan - 20
4.5 Reservation of Rights Regarding Unimpaired Claims....................................Plan - 20
ARTICLE V ACCEPTANCE OR REJECTION OF THE PLAN..................................................Plan - 21
5.1 Impaired Classes of Claims Entitled to Vote..........................................Plan - 21
5.2 Acceptance by the Impaired Class.....................................................Plan - 21
5.3 Presumed Acceptance by the Unimpaired Classes........................................Plan - 21
5.4 Classes Deemed to Reject Plan........................................................Plan - 21
5.5 Cramdown.............................................................................Plan - 21
Plan - iv
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5.6 Confirmability and Severability of a Plan............................................Plan - 21
ARTICLE VI MEANS FOR IMPLEMENTATION OF THE PLAN.................................................Plan - 22
6.1 Continued Corporate Existence for Branch Sales and Service Division..................Plan - 22
6.2 Corporate Action.....................................................................Plan - 22
6.3 Directors and Officers...............................................................Plan - 24
6.4 Management Incentive Compensation Plan...............................................Plan - 24
6.5 Exit Facility........................................................................Plan - 24
6.6 New Common Stock.....................................................................Plan - 25
6.7 New Subordinated Notes...............................................................Plan - 25
6.8 Preservation of Causes of Action.....................................................Plan - 25
6.9 Exclusivity Period...................................................................Plan - 26
6.10 Intercompany Claims..................................................................Plan - 26
6.11 Effectuating Documents; Further Transactions.........................................Plan - 26
6.12 Exemption from Certain Transfer Taxes................................................Plan - 26
ARTICLE VII EXECUTORY CONTRACTS AND UNEXPIRED LEASES.............................................Plan - 26
7.1 Rejected Contracts and Leases........................................................Plan - 26
7.2 Rejection Damages Bar Date...........................................................Plan - 27
7.3 Assumed Contracts and Leases.........................................................Plan - 27
7.4 Payments Related to Assumption of Executory Contracts and Unexpired Leases...........Plan - 27
7.5 Employment, Retirement, Indemnification and Other Employee Related Agreements........Plan - 27
ARTICLE VIII SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN..................................Plan - 28
ARTICLE IX PROVISIONS GOVERNING DISTRIBUTIONS...................................................Plan - 28
9.1 Time of Distributions................................................................Plan - 28
9.2 Interest on Claims.................................................................. Plan - 28
9.3 Disbursing Agent.................................................................... Plan - 28
9.4 Trustee............................................................................. Plan - 28
9.5 Surrender of Securities or Instruments.............................................. Plan - 28
9.6 Instructions to Indenture Trustees.................................................. Plan - 29
9.7 Notification Date for Distributions to Holders of Prepetition Notes and Industrial
Revenue Bonds.......................................................................Plan - 29
9.8 Claims Administration Responsibility.................................................Plan - 29
9.9 Objection Deadline...................................................................Plan - 29
9.10 Calculation of Distribution Amounts..................................................Plan - 30
9.11 Delivery of Distributions............................................................Plan - 30
9.12 Procedures for Treating and Resolving Disputed and Contingent Claims.................Plan - 31
ARTICLE X ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS...............................Plan - 32
10.1 DIP Facility Claim...................................................................Plan - 32
10.2 Professional Claims..................................................................Plan - 32
10.3 Substantial Contribution Compensation and Expenses Bar Date..........................Plan - 33
10.4 Other Administrative Claims..........................................................Plan - 33
10.5 Administrative Claims Allowable Against Multiple Debtors.............................Plan - 33
ARTICLE XI SAFETY-KLEEN CREDITOR TRUST..........................................................Plan - 34
11.1 Appointment of Trustee...............................................................Plan - 34
11.2 Assignment of Trust Assets to the Safety-Kleen Creditor Trust........................Plan - 34
Plan - v
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11.3 The Safety-Kleen Creditor Trust......................................................Plan - 34
11.4 The Trust Advisory Board.............................................................Plan - 35
11.5 Funding of the Initial Deposit.......................................................Plan - 36
11.6 Distributions of Trust Assets........................................................Plan - 36
ARTICLE XII EFFECT OF THE PLAN...................................................................Plan - 37
12.1 Revesting of Assets..................................................................Plan - 37
12.2 Discharge of the Debtors.............................................................Plan - 37
12.3 Compromises and Settlements..........................................................Plan - 37
12.4 Setoffs..............................................................................Plan - 37
12.5 Satisfaction of Subordination Rights.................................................Plan - 38
12.6 Exculpation and Limitation of Liability..............................................Plan - 38
12.7 Indemnification Obligations..........................................................Plan - 38
12.8 Release by Debtors and Debtors-in-Possession.........................................Plan - 39
12.9 Release by Holders of Claims and Interests...........................................Plan - 39
12.10 Release by Insured Persons...........................................................Plan - 40
12.11 Injunction...........................................................................Plan - 40
ARTICLE XIII CONDITIONS PRECEDENT.................................................................Plan - 40
13.1 Conditions to Confirmation...........................................................Plan - 40
13.2 Conditions to Consummation...........................................................Plan - 40
13.3 Waiver of Conditions to Confirmation or Consummation.................................Plan - 42
ARTICLE XIV RETENTION OF JURISDICTION............................................................Plan - 42
ARTICLE XV MISCELLANEOUS PROVISIONS.............................................................Plan - 43
15.1 Binding Effect.......................................................................Plan - 43
15.2 Modification and Amendments..........................................................Plan - 44
15.3 Withholding and Reporting Requirements...............................................Plan - 44
15.4 Committees...........................................................................Plan - 44
15.5 Revocation, Withdrawal or Non-Consummation...........................................Plan - 44
15.6 Payment of Statutory Fees............................................................Plan - 45
15.7 Prepayment...........................................................................Plan - 45
15.8 Notices..............................................................................Plan - 45
15.9 Term of Injunctions or Stays.........................................................Plan - 46
15.10 Governing Law........................................................................Plan - 47
15.11 No Waiver or Estoppel................................................................Plan - 47
15.12 No Substantive Consolidation.........................................................Plan - 47
15.13 Allocation of Plan Distributions Between Principal and Interest......................Plan - 47
15.14 Computation of Time..................................................................Plan - 47
15.15 Exhibits.............................................................................Plan - 47
Plan - vi
EXHIBITS
Exhibit A -- Schedule of Proponents of the Plan and Corresponding Bankruptcy Case Numbers
Exhibit B -- Safety-Kleen Creditor Trust Agreement
Exhibit C -- Restated Articles of Incorporation
Exhibit D -- Restated Bylaws
Exhibit E -- Schedule of Assumed Executory Contracts and Unexpired Leases
Exhibit F -- Schedule of Class 7 General Unsecured Claims Sub-Classes
Exhibit G -- Schedule of Resolved Insurance Policies
Exhibit H -- Schedule of Settling Insurers
Exhibit I -- Schedule of Retained Actions
Exhibit J -- Schedule of Revesting of Assets for Dissolving Debtors
Exhibit K -- Schedule of Non-Released Persons
Plan - vii
INTRODUCTION
Safety-Kleen Corp. ("SKC") and certain of its direct and indirect
subsidiaries, debtors and debtors-in-possession in the above-captioned jointly
administered chapter 11 reorganization cases (together with SKC, the "Debtors")
hereby propose the following joint reorganization plans (as such term is more
fully defined below, the "Plan") for the resolution of all outstanding claims
against, and equity interests in, the Debtors. Reference is made to the
Disclosure Statement (as defined herein) for results of operations, projections
for future operations, risk factors, a summary and analysis of the Plan and
certain related matters. The Debtors are the proponents of the Plan within the
meaning of section 1129 of the Bankruptcy Code (as defined herein).
These reorganization cases have been consolidated for procedural purposes
only and are being jointly administered pursuant to an order of the United
States Bankruptcy Court for the District of Delaware. The Plan does not
contemplate the substantive consolidation of any of the Debtors. Certain of the
Debtors may be dissolved or merged (or combined in another form of transaction)
with another Debtor as a means of implementing the Plan. For voting and
distribution purposes, the Plan contemplates (a) separate classes for each
Debtor and (b) separate plans of reorganization for each Debtor. A list of each
Debtor that is a proponent of the Plan contained herein with its corresponding
bankruptcy case number is attached as Exhibit A to the Plan.
Under section 1125(b) of the Bankruptcy Code, a vote to accept or reject
the Plan cannot be solicited from a Claimholder until such time as the
Disclosure Statement has been approved by the Bankruptcy Court (as defined
herein) and distributed to Claimholders and Interestholders. ALL CLAIMHOLDERS
ARE ENCOURAGED TO READ THE PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY
BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
Subject to certain restrictions and requirements set forth in section 1127
of the Bankruptcy Code, Rule 3019 of the Bankruptcy Rules (as defined herein)
and the Plan, the Debtors expressly reserve their right to alter, amend or
modify the Plan, one or more times, before its substantial consummation.
ARTICLE I
DEFINITIONS
For purposes of the Plan, except as expressly provided or unless the
context otherwise requires, all capitalized terms not otherwise defined shall
have the meanings ascribed to them in Article I of the Plan. Any term used in
the Plan that is not defined herein, but is defined in the Bankruptcy Code or
the Bankruptcy Rules, shall have the meaning ascribed to that term in the
Bankruptcy Code or the Bankruptcy Rules. Whenever it appears appropriate from
the context, each term stated in the singular or the plural includes the
singular and the plural, and each pronoun stated in the masculine, feminine or
neuter includes the masculine, feminine and neuter.
For purposes of the Plan: (a) any reference in the Plan to a contract,
instrument, release, indenture or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions, (b) any reference in the Plan to an existing document or Exhibit
filed or to be filed means such document or Exhibit as it may have been or may
be amended, modified or supplemented, (c) unless otherwise specified, all
references in the Plan to Sections, Articles and Exhibits are references to
Sections, Articles and Exhibits of or to the Plan, (d) the words "herein",
"hereof", "hereunder" and "hereto" and other words of similar import refer to
the Plan in its entirety rather than to a particular portion of the Plan unless
the context requires otherwise, (e) captions and headings to Articles and
Sections are inserted for convenience of reference only and are not intended to
be a part of or to affect the interpretation of the Plan and (f) the rules of
construction set forth in section 102 of the Bankruptcy Code and in the
Bankruptcy Rules shall apply.
Plan - 1
1.1 "ADMINISTRATIVE CLAIM" means a Claim for payment of an administrative
expense of a kind specified in section 503(b) of the Bankruptcy Code
and entitled to priority pursuant to section 507(a)(1) of the
Bankruptcy Code, including, but not limited to, the actual, necessary
costs and expenses, incurred after the Petition Date, of preserving
the Estates and operating the businesses of the Debtors, including
wages, salaries or commissions for services rendered after the
commencement of the Chapter 11 Cases, Professional Claims and all fees
and charges assessed against the Estates under chapter 123 of title
28, United States Code and all Allowed Claims that are entitled to be
treated as Administrative Claims pursuant to a Final Order under
section 546(c) of the Bankruptcy Code.
1.2 "AFFILIATES" means the meaning given to such term by section 101(2) of
the Bankruptcy Code.
1.3 "ALLOWED CLAIM" means a Claim or any portion thereof (a) that has been
allowed by a Final Order, (b) as to which, on or by the Effective Date
(i) no proof of claim has been filed with the Bankruptcy Court and
(ii) the liquidated and noncontingent amount of which is Scheduled,
other than a Claim that is Scheduled at zero, in an unknown amount, or
as disputed, (c) for which a proof of claim in a liquidated amount has
been timely filed pursuant to the Bankruptcy Code, any Final Order of
the Bankruptcy Court or other applicable bankruptcy law, and as to
which either (i) no objection to its allowance has been filed within
the periods of limitation fixed by the Plan, the Bankruptcy Code or by
any order of the Bankruptcy Court or (ii) any objection to its
allowance has been settled, waived through payment or withdrawn, or
has been denied by a Final Order or (d) that is expressly allowed in a
liquidated amount in the Plan.
1.4 "ALLOWED . . . CLAIM" means an Allowed Claim of the type described.
1.5 "ARAGONITE INDENTURE" means the indenture of trust, dated as of July
1, 1997, between Tooele County, Utah, as issuer, and U.S. Bank, a
national banking association, as trustee.
1.6 "ARAGONITE INDENTURE TRUSTEE" means Wilmington Trust, successor to
U.S. Bank, a national banking association, as trustee under the
Aragonite Indenture.
1.7 "ARAGONITE INDUSTRIAL REVENUE BONDS" means, collectively, the
industrial revenue bonds issued by Tooele County, Utah in the
principal amount of $45,700,000.
1.8 "AVOIDANCE CLAIMS" means Causes of Action against Persons arising
under sections 502, 510, 541, 542, 544, 545, 547 through 551 and/or
553 of the Bankruptcy Code, or under related state or federal statutes
and common law, including fraudulent transfer and fraudulent
conveyance laws, that have not otherwise been released or dismissed
pursuant to the Plan, whether or not litigation has commenced to
prosecute such Claims.
1.9 "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as amended
and codified in title 11 of the United States Code, 11 U.S.C. Sections
101-1330.
1.10 "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Delaware, or such other court as may have jurisdiction
over the Chapter 11 Cases.
1.11 "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure and
the Official Bankruptcy Forms, as amended, the Federal Rules of Civil
Procedure, as amended, as applicable to the Chapter 11 Cases or
proceedings therein and the Local Rules of the Bankruptcy Court, as
applicable to the Chapter 11 Cases or proceedings therein, as the case
may be.
1.12 "BSSD" means SKC's Branch Sales and Service Division, which consists
of Safety-Kleen Systems, Inc. and each of its direct and indirect
subsidiaries.
Plan - 2
1.13 "BUSINESS DAY" means any day, excluding Saturdays, Sundays and legal
holidays, on which commercial banks are open for business in New York
City.
1.14 "CALIFORNIA COVERAGE ACTION" means that certain civil action styled as
Safety-Kleen Corp. v. Continental Insurance Company et al., pending in
the Superior Court of California, County of Los Angeles, Case No. BC
216723, in which the Debtors seek coverage under certain comprehensive
general liability insurance policies for the costs and expenses of
defense and settlement of lawsuits in which plaintiffs allege injury
as a result of alleged exposure to solvent products manufactured,
sold, distributed or used by the Debtors.
1.15 "CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY INDENTURE" means the
indenture of trust, dated as of July 1, 1997, between California
Pollution Control Financing Authority, as issuer, and U.S. Bank, a
national banking association, as trustee.
1.16 "CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY INDENTURE TRUSTEE"
means Wilmington Trust, successor to U.S. Bank, a national banking
association, as trustee under the California Pollution Control
Financing Authority Indenture.
1.17 "CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY INDUSTRIAL REVENUE
BONDS" means, collectively, the industrial revenue bonds issued by the
California Pollution Control Financing Authority in the principal
amount of $19,500,000.
1.18 "CANADIAN LENDER ADMINISTRATIVE CLAIM" means the obligations owed to
the Canadian Lenders arising under or relating to the Prepetition
Credit Agreement and that certain bilateral agreement between
Toronto-Dominion Bank and Safety-Kleen Ltd., which have been assumed
by SK Services, pursuant to the Order Under 11 U.S.C. Sections 105 and
363(b) In Aid of Consummation of the Sale of Substantially All of the
Assets and Certain Equity Interest of the Debtors' Chemical Services
Division to Clean Harbors, Inc., dated September 6, 2002.
1.19 "CANADIAN LENDERS" means the Canadian banks and financial institutions
or entities from time to time that are parties to the Prepetition
Credit Agreement and that certain bilateral agreement between
Toronto-Dominion Bank and Safety-Kleen Ltd.
1.20 "CASH" means legal tender of the United States.
1.21 "CAUSES OF ACTION" means any and all actions, causes of action, suits,
accounts, controversies, agreements, promises, rights to legal
remedies, rights to equitable remedies, rights to payment and claims,
whether known, unknown, reduced to judgment, not reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, secured or unsecured and whether asserted or
assertable directly or derivatively, in law, equity or otherwise.
1.22 "CERTIFICATE" means an instrument evidencing a Claim on account of the
Prepetition Notes or any of the Industrial Revenue Bonds.
1.23 "CHAPTER 11 CASES" means the chapter 11 cases of the Debtors pending
in the Bankruptcy Court and being jointly administered with one
another, and "Chapter 11 Case" means any one of the Chapter 11 Cases.
1.24 "CLAIM" means a claim against any of the Debtors, whether or not
asserted, as defined in section 101(5) of the Bankruptcy Code.
1.25 "CLAIMHOLDER" means a holder of a Claim.
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1.26 "CLAIMS OBJECTION DEADLINE" means that day which is 180 days after the
Effective Date, unless extended by the Bankruptcy Court in accordance
with Section 9.9(b) of the Plan.
1.27 "CLASS" means a category of Claimholders or Interestholders described
in Article III of the Plan.
1.28 "CLIVE INDENTURE" means the indenture of trust, dated as of August 1,
1995, between Tooele County, Utah, as issuer, and West One Bank, Utah,
as trustee.
1.29 "CLIVE INDENTURE TRUSTEE" means U.S. Bank, a national banking
association, successor to West One Bank, Utah, as trustee under the
Clive Indenture.
1.30 "CLIVE INDUSTRIAL REVENUE BONDS" means, collectively, the industrial
revenue bonds issued by Tooele County, Utah in the principal amount of
$10,000,000.
1.31 "COMMON DEFENDANT" means a Person allegedly liable both to the
Reorganized Debtors in respect of a Retained Action and to the
Safety-Kleen Creditor Trust in respect of a Trust Claim.
1.32 "CONFIRMATION DATE" means the date of entry of the Confirmation Order.
1.33 "CONFIRMATION HEARING" means the hearing before the Bankruptcy Court
on confirmation of the Plan and related matters under section 1128 of
the Bankruptcy Code.
1.34 "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
1.35 "CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors appointed pursuant to section 1102(a) of the Bankruptcy Code
in the Chapter 11 Cases.
1.36 "CSD SUBSIDIARIES" means, collectively, all of the direct and indirect
debtor subsidiaries of Safety-Kleen Services, Inc., except for
Safety-Kleen Systems, Inc. and its direct and indirect subsidiaries.
1.37 "CURE" means the distribution within a reasonable period of time
following the Effective Date of Cash or such other property as may be
agreed upon by the parties, ordered by the Bankruptcy Court or
determined in such other manner as the Bankruptcy Court may specify
with respect to the assumption of an executory contract or unexpired
lease, pursuant to section 365(b) of the Bankruptcy Code and Article
VII of the Plan.
1.38 "CURRENT DIRECTORS AND OFFICERS" means each director or officer of
each of the Debtors that served in such capacity as of the
Confirmation Date.
1.39 "DEBT" means the liability of any Debtor on a Claim.
1.40 "DEBTORS" means Safety-Kleen Corp. and each of its direct and indirect
subsidiaries listed on Exhibit A to the Plan in their capacity as
debtors-in-possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code.
1.41 "DHEC" means South Carolina Department of Health and Environmental
Control.
1.42 "DHEC ADMINISTRATIVE CLAIM" means all Claims or requests for payment
filed by DHEC relating to the Pinewood Facility and asserted to be
entitled to treatment as Administrative Claims.
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1.43 "DIP AGENT" means Toronto Dominion (Texas), Inc. in its capacity as
administrative agent for the DIP Lenders under the DIP Credit
Agreement.
1.44 "DIP CREDIT AGREEMENT" means the Second Amended and Restated Debtor in
Possession Credit Agreement, dated as of March 22, 2002, among
Safety-Kleen Services, Inc., the lenders from time to time party
thereto, Toronto Dominion (Texas), Inc., as General Administrative
Agent and Underwriter, Goldman Sachs Credit Partners, L.P., as
Underwriter, and The CIT Group/Business Credit Inc., as Collateral
Agent and Underwriter, as such agreement has been amended,
supplemented or otherwise modified from time to time.
1.45 "DIP FACILITY" means the $200 million debtor-in-possession secured
financing facility provided to the Debtors by the DIP Lenders pursuant
to the DIP Credit Agreement, as amended and restated, authorized by
the Bankruptcy Court pursuant to the DIP Facility Order.
1.46 "DIP FACILITY CLAIM" means all Claims of the DIP Agent and the DIP
Lenders arising under or pursuant to the DIP Facility.
1.47 "DIP FACILITY ORDER" means, collectively, the interim order that was
entered by the Bankruptcy Court on June 13, 2000, the final order that
was entered by the Bankruptcy Court on July 19, 2000, authorizing and
approving the DIP Facility and the agreements related thereto and the
Bankruptcy Court Order, dated March 20, 2002, authorizing additional
and extended postpetition financing on a superpriority basis pursuant
to section 364 of the Bankruptcy Code.
1.48 "DIP LENDERS" means the lenders from time to time that are parties to
the DIP Credit Agreement.
1.49 "DISALLOWED CLAIM" means a Claim, or any portion thereof, that (a) has
been disallowed by a Final Order or (b) is Scheduled at zero or as
contingent, disputed or unliquidated and as to which no proof of claim
has been timely filed pursuant to either the Bankruptcy Code or any
Final Order of the Bankruptcy Court or otherwise deemed timely filed
under applicable law.
1.50 "DISBURSING AGENT" means the Debtors or the party designated by the
Debtors, in their sole discretion, to serve as a disbursing agent
under Section 9.3 of the Plan with respect to (a) the Unclassified
Claims, (b) Classes 1 through 3 and (c) Classes 4 through 6 with
respect to any proceeds from the PwC Litigation Claim.
1.51 "DISCLOSURE STATEMENT" means the written disclosure statement that
relates to the Plan, as approved by the Bankruptcy Court pursuant to
section 1125 of the Bankruptcy Code and Bankruptcy Rule 3017, as such
disclosure statement may be amended, modified or supplemented from
time to time.
1.52 "DISPUTED CLAIM" means, as applicable, any Claim not otherwise
Allowed, disallowed or paid pursuant to the Plan or an order of the
Bankruptcy Court (a) proof of which was required to be filed by order
of the Bankruptcy Court but as to which a proof of Claim was not
timely or properly filed, (b) proof of which was timely and properly
filed and which has been is listed on the Schedules as unliquidated,
disputed or contingent, (c) that is disputed in accordance with the
provisions of the Plan or (d) as to which any Debtor has interposed a
timely objection or request for estimation in accordance with the
Plan, the Bankruptcy Code, the Bankruptcy Rules and any orders of the
Bankruptcy Court, or is otherwise disputed by the Debtors in
accordance with applicable law, which objection, request for
estimation or dispute has not been withdrawn, waived through payment
or determined by a Final Order; provided, however, that for purposes
of determining whether a particular Claim is a Disputed Claim prior to
the expiration of any period of limitation fixed for the interposition
by the Debtors of objections to the allowance of Claims, any Claim
that is not identified by the Debtors as an Allowed Claim shall be
deemed a Disputed Claim.
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1.53 "DISSOLVING DEBTOR" means a Debtor that is dissolving or deemed to
have been dissolved upon the Effective Date as a result of the
Restructuring Transactions.
1.54 "DISTRIBUTION DATES" means the Initial Distribution Date and each six
month anniversary thereafter.
1.55 "DISTRIBUTION NOTIFICATION DATE" means the notification date for
purposes of making distributions under the Plan on account of Allowed
Claims, which date shall be the Confirmation Date or such other date
designated in the Confirmation Order.
1.56 "EFFECTIVE DATE" means, in the sole discretion of the Reorganized
Debtors, either the last calendar day of the month or the first
calender day of the following month after all conditions to the
consummation of the Plan set forth in Section 13.2 hereof have been
satisfied or waived as provided in Section 13.3 hereof.
1.57 "ESTATES" means the estates created pursuant to section 541 of the
Bankruptcy Code upon the commencement of the Chapter 11 Cases.
1.58 "EXHIBIT" means an exhibit annexed to the Plan.
1.59 "EXHIBIT FILING DATE" means the date on which certain Exhibits to the
Plan shall be filed with the Bankruptcy Court, which date shall be at
least five calendar days prior to the Voting Deadline.
1.60 "EXISTING SECURITIES" means, collectively, the 9 1/4% Senior Notes,
the 9 1/4% Senior Subordinated Notes, the Aragonite Industrial Revenue
Bonds, the California Pollution Control Financing Authority Industrial
Revenue Bonds, the Clive Industrial Revenue Bonds, the Osco Treatment
Systems Industrial Revenue Bonds and the Old Common Stock.
1.61 "EXIT FACILITY" means the $250 million revolving credit facility, with
a letter of credit sub-limit of $125 million, to be extended as a
means of implementing the Plan and described in Section 6.5 hereof.
1.62 "FACE AMOUNT" means (a) when used in reference to a Disputed Claim or
a Disallowed Claim, the full stated amount claimed by the Claimholder
in any proof of claim timely filed or otherwise deemed timely filed by
any Final Order of the Bankruptcy Court or other applicable bankruptcy
law and (b) when used in reference to an Allowed Claim, the allowed
amount of such Claim.
1.63 "FINAL ORDER" means an order or judgment, the operation or effect of
which has not been stayed, reversed or amended and as to which order
or judgment (or any revision, modification or amendment thereof) the
time to appeal or seek review or rehearing has expired and as to which
no appeal or petition for review or rehearing was filed or, if filed,
remains pending.
1.64 "FISCAL YEAR" means, with respect to the Debtors, the fiscal year
ending on August 31 of each year or such other fiscal year as the
Debtors may designate.
1.65 "FRONTIER BONDS" means surety bonds issued pursuant to 40 C.F.R. Part
264 and 265, Subpart H, 40 C.F.R. Section 761.65(g) or analogous state
provisions of law, by Frontier Insurance Company on behalf of certain
subsidiaries of SKC and provided to relevant federal and state
regulators as financial assurance for certain closure, post-closure
and corrective action activities at facilities owned and/or operated
by such subsidiaries.
1.66 "GENERAL UNSECURED CLAIM" means a Claim against any Debtor (including
any unsecured portion of a Secured Claim) that is not an
Administrative Claim, DIP Facility Claim, Priority Tax Claim, the DHEC
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Administrative Claim, Other Priority Claim, Intercompany Claim,
Miscellaneous Secured Claim, Canadian Lender Administrative Claim or
that is otherwise classified in Classes 3, 5, 6, 8 or 9.
1.67 "GSX CONTRIBUTION TRUST FUND" means the environmental impairment trust
fund established pursuant to a trust agreement, dated October 5, 1992,
between Nationsbank of South Carolina, N.A., as trustee, and GSX
Services of South Carolina, Inc. (n/k/a Pinewood), as grantor.
1.68 "HOLDBACK AMOUNT" means the amount of fees billed to the Debtors in a
given month that was retained by the Debtors as a holdback on payment
of Professional Claims pursuant to the Professional Fee Orders.
1.69 "IMPAIRED" refers to any Claim or Interest that is impaired within the
meaning of section 1124 of the Bankruptcy Code.
1.70 "INDEMNIFICATION OBLIGATIONS" means any obligation of any of the
Debtors to indemnify, reimburse or provide contribution to any
Professional, advisor, director, officer, employee, agent or
representative of the Debtors, pursuant to bylaws, articles of
incorporation, contract or otherwise.
1.71 "INDENTURE TRUSTEES" means, collectively, (a) the 9 1/4% Senior Notes
Indenture Trustee, (b) the 9 1/4% Senior Subordinated Notes Indenture
Trustee, (c) the Aragonite Indenture Trustee, (d) the California
Pollution Control Financing Authority Indenture Trustee, (e) the Clive
Indenture Trustee and (f) the Osco Treatment Systems Indenture
Trustee.
1.72 "INDENTURE TRUSTEES' FEES" means the fees and expenses incurred by the
Indenture Trustees from and after the Petition Date through the
Effective Date in accordance with the terms of the related indenture.
1.73 "INDUSTRIAL REVENUE BONDS" means, collectively, (a) the Aragonite
Industrial Revenue Bonds, (b) the Clive Industrial Revenue Bonds, (c)
the Osco Treatment Systems Industrial Revenue Bonds and (d) the
California Pollution Control Financing Authority Industrial Revenue
Bonds.
1.74 "INITIAL DEPOSIT" means the amount of $1 million to be funded on the
Effective Date to the Safety-Kleen Creditor Trust.
1.75 "INITIAL DISTRIBUTION DATE" means the date, occurring as soon as
reasonably practicable after the Effective Date, upon which the first
distributions are made on account of Allowed Claims in a particular
Class.
1.76 "INSURANCE COVERAGE ACTIONS" means any claim, Cause of Action or right
of the Debtors, including without limitation the New Jersey Coverage
Action, the Washington Coverage Action and the California Coverage
Action, arising from or related to the Debtors' efforts to seek
coverage under any of their historical comprehensive general liability
insurance policies or other insurance policies.
1.77 "INSURANCE SETTLEMENT" means any settlement agreement entered into by
the Debtors with any of the insurers in the Insurance Coverage
Actions.
1.78 "INTERCOMPANY CLAIM" means a Claim of a Debtor against another Debtor.
1.79 "INTEREST" means the rights of any current or former holder or owner
of any shares of Old Common Stock or any other equity securities of
the Debtors authorized and issued prior to the Confirmation Date.
1.80 "INTERESTHOLDER" means a holder of an Interest.
</Table>
Plan - 7
1.81 "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended.
1.82 "LAIDLAW CLAIM" means the proceeds from the litigation between the
Debtors and the Laidlaw Debtors, which resulted in a mediation
settlement in which SKC was granted a $225 million allowed general
unsecured claim against the Laidlaw Debtors in their bankruptcy cases
pending in the United States Bankruptcy Court for the Western District
of New York.
1.83 "LAIDLAW DEBTORS" means, collectively, Laidlaw USA, Inc., Laidlaw
Inc., Laidlaw Investments Ltd., Laidlaw International Finance
Corporation, Laidlaw Transportation, Inc. and Laidlaw One, Inc.
1.84 "LENDER CLAIMS" means all Claims of the Prepetition Agent and the
Lenders arising under or pursuant to the Prepetition Credit Facility.
1.85 "LENDER CLAIMS RESERVE" means the reserve for the secured portion of
any Claim for letters of credit posted under the Prepetition Credit
Agreement that remain outstanding as of the Effective Date and are not
otherwise replaced or backstopped by new letters of credit issued
under the Exit Facility.
1.86 "LENDERS" means, collectively, the U.S. Lenders and the Canadian
Lenders.
1.87 "MANAGEMENT INCENTIVE COMPENSATION PLAN" means a management incentive
compensation plan expected to be negotiated and executed by and among
certain members of management and the Reorganized Debtors.
1.88 "MERGER AGREEMENT" means the agreement of merger by and among New
Subsidiary, Merger Sub and Safety-Kleen Systems, Inc. as described in
Section 6.2(d) of the Plan.
1.89 "MERGER SUB" means a newly-incorporated wholly-owned subsidiary of New
Subsidiary as described in Section 6.2(d) of the Plan.
1.90 "MISCELLANEOUS SECURED CLAIM" means any Secured Claim other than a
Secured Claim arising under the Prepetition Credit Facility.
Miscellaneous Secured Claims shall include Claims secured by liens
junior in priority to existing liens, whether by operation of law,
contract or otherwise, but solely to the extent of the value of the
lien after giving effect to all security interests or liens senior in
priority.
1.91 "NEW COMMON STOCK" means the shares of common stock of New Holdco
authorized and issued under the articles of incorporation of New
Holdco and Section 6.6 of the Plan.
1.92 "NEW ENVIRONMENTAL IMPAIRMENT TRUST FUND" means the trust fund
established in accordance with the Pinewood Site Settlement Agreement.
1.93 "NEW HOLDCO" means a newly-incorporated company that will be the
ultimate parent corporation of the Reorganized Debtors as described in
Section 6.2(d) of the Plan.
1.94 "NEW JERSEY COVERAGE ACTION" means that certain civil action styled as
The Solvents Recovery Service of New Jersey, Inc., et al. v. American
Reinsurance Company, et al., pending in the Superior Court of New
Jersey, Hudson County, Law Division, Docket No. L-3095-00, in which
the Debtors seek coverage under certain historical comprehensive
general liability insurance policies for the costs, expenses and
liabilities arising out of claims, demands and suits brought against
the Debtors for property damage, bodily injury and personal injury
arising out of environmental and other damage allegedly caused by the
Debtors and/or arising out of the Debtors' ownership or business
operations.
Plan - 8
1.95 "NEW PARENT" means a newly-incorporated, wholly-owned subsidiary of
New Holdco as described in Section 6.2(d) of the Plan.
1.96 "NEW SUBORDINATED CASH PAY NOTES" means the 7% subordinated secured
notes due 2010 that are to be governed by the terms of the New
Subordinated Cash Pay Notes Indenture, in an aggregate principal
amount not to exceed $50 million.
1.97 "NEW SUBORDINATED CASH PAY NOTES INDENTURE" means the indenture under
which the New Subordinated Cash Pay Notes shall be issued, which
indenture shall be substantially in the form included in the Plan
Supplement.
1.98 "NEW SUBORDINATED NOTES" means, collectively, the New Subordinated PIK
Notes and the New Subordinated Cash Pay Notes.
1.99 "NEW SUBORDINATED PIK NOTES" means the 8 3/4% subordinated secured PIK
Notes due 2013 that are to be governed by the terms of the New
Subordinated PIK Notes Indenture, in an aggregate principal amount not
to exceed $100 million.
1.100 "NEW SUBORDINATED PIK NOTES INDENTURE" means the indenture under which
the New Subordinated PIK Notes shall be issued, which indenture shall
be substantially in the form included in the Plan Supplement.
1.101 "NEW SUBSIDIARY" means a newly-incorporated, wholly-owned subsidiary
of New Parent as described in Section 6.2(d) of the Plan.
1.102 "9 1/4% SENIOR NOTES" means, collectively, the 9 1/4% Senior Notes due
2009 in the principal amount of approximately $225 million issued
pursuant to the 9 1/4% Senior Notes Indenture.
1.103 "9 1/4% SENIOR NOTES INDENTURE" means the indenture dated as of May
17, 1999, as amended, supplemented or otherwise modified prior to the
Petition Date, by and between SKC and Cole Taylor Bank, successor to
The Bank of Nova Scotia Trust Company of New York, as trustee.
1.104 "9 1/4% SENIOR NOTES INDENTURE TRUSTEE" means Cole Taylor Bank,
successor to The Bank of Nova Scotia Trust Company of New York, as
trustee under the 9 1/4% Senior Notes Indenture.
1.105 "9 1/4% SENIOR SUBORDINATED NOTES" means, collectively, the 9 1/4%
Senior Subordinated Notes due 2008 in the principal amount of
approximately $325 million issued pursuant to the 9 1/4% Senior
Subordinated Notes Indenture.
1.106 "9 1/4% SENIOR SUBORDINATED NOTES INDENTURE" means the indenture dated
as of May 28, 1998, as amended, supplemented or otherwise modified
prior to the Petition Date, by and between SK Services and Wells Fargo
Bank Minnesota, National Association (f/k/a Norwest Bank Minnesota),
successor to The Bank of Nova Scotia Trust Company of New York, as
trustee.
1.107 "9 1/4% SENIOR SUBORDINATED NOTES INDENTURE TRUSTEE" means Wells Fargo
Bank Minnesota, National Association f/k/a Norwest Bank Minnesota,
National Association, successor to The Bank of Nova Scotia Trust
Company of New York, as trustee under the 9 1/4% Senior Subordinated
Notes Indenture.
1.108 "OLD COMMON STOCK" means shares of SKC's common stock and all options,
warrants or rights, contractual or otherwise, if any, to acquire any
such common stock outstanding as of the Petition Date.
Plan - 9
1.109 "OSCO TREATMENT SYSTEMS INDENTURE" means the indenture, dated as of
May 1, 1993, by and between the Industrial Development Board of the
Metropolitan Government of Nashville and Davidson County, as issuer,
and The Bank of New York, successor to Nationsbank of Tennessee, N.A.,
as trustee.
1.110 "OSCO TREATMENT SYSTEMS INDENTURE TRUSTEE" means The Bank of New York,
successor to Nationsbank of Tennessee, N.A., as trustee under the Osco
Treatment Systems Indenture.
1.111 "OSCO TREATMENT SYSTEMS INDUSTRIAL REVENUE BONDS" means, collectively,
the industrial revenue bonds issued by the Industrial Development
Board of the Metropolitan Government of Nashville and Davidson County
in the principal amount of $15,200,000.
1.112 "OTHER PRIORITY CLAIM" means a Claim entitled to priority pursuant to
section 507(a) of the Bankruptcy Code other than a Priority Tax Claim,
DIP Facility Claim, the DHEC Administrative Claim, Canadian Lender
Administrative Claim or Administrative Claim.
1.113 "PERSON" means an individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, limited
liability partnership, trust, estate, unincorporated organization or
other entity.
1.114 "PETITION DATE" means June 9, 2000.
1.115 "PINEWOOD" means Safety-Kleen (Pinewood), Inc.
1.116 "PINEWOOD FACILITY" means the hazardous waste treatment, storage and
disposal facility in Sumter County, South Carolina, previously
operated by Pinewood.
1.117 "PINEWOOD SETTLEMENT" means the settlement by and between the Debtors
and DHEC with respect to, among other things, closure and post-closure
care at the Pinewood Facility.
1.118 "PINEWOOD SITE SETTLEMENT AGREEMENT" means the agreement, dated as of
October 15, 2002, setting forth the terms of the Pinewood Settlement.
1.119 "PLAN" means those plans of reorganization which are herein jointly
proposed by the Debtors for the resolution of outstanding Claims and
Interests in the Chapter 11 Cases, as such plans may be amended,
modified or supplemented from time to time in accordance with the
Bankruptcy Code.
1.120 "PLAN SUPPLEMENT" means the compilation of documents and forms of
documents specified in the Plan that will be filed with the Bankruptcy
Court on or before the Exhibit Filing Date.
1.121 "PREPETITION AGENT" means Toronto Dominion (Texas), Inc. in its
capacity as general administrative agent under the Prepetition Credit
Agreement.
1.122 "PREPETITION CREDIT AGREEMENT" means that certain Amended and Restated
Credit Agreement, dated as of April 3, 1998, as amended, supplemented
or otherwise modified prior to the Petition Date, by and among LES,
Inc. and Laidlaw Environmental Services (Canada) Ltd., as borrowers,
Toronto Dominion (Texas), Inc., as General Administrative Agent, the
Toronto Dominion Bank, as Canadian Administrative Agent, TD Securities
(USA) Inc., as arranger, and the Lenders.
1.123 "PREPETITION CREDIT FACILITY" means the financing accommodations
evidenced by the Prepetition Credit Agreement, Prepetition Guarantee
and Collateral Agreement and related documents.
Plan - 10
1.124 "PREPETITION GUARANTEE AND COLLATERAL AGREEMENT" means the Amended and
Restated Guarantee and Collateral Agreement, dated as of April 3,
1998, as amended, supplemented or otherwise modified prior to the
Petition Date, among the Prepetition Agent and the Debtors.
1.125 "PREPETITION NOTES" means, collectively, the 9 1/4% Senior Notes and
the 9 1/4% Senior Subordinated Notes.
1.126 "PRIORITY TAX CLAIM" means a Claim entitled to priority pursuant to
section 507(a)(8) of the Bankruptcy Code.
1.127 "PRO RATA" means, at any time, the proportion that the Face Amount of
a Claim in a particular Class or Classes bears to the aggregate Face
Amount of all Claims (including Disputed Claims, but excluding
Disallowed Claims) in such Class or Classes, as appropriate, unless
the Plan provides otherwise.
1.128 "PROFESSIONAL" means any professional employed in the Chapter 11 Cases
pursuant to sections 327, 363 or 1103 of the Bankruptcy Code or
otherwise and any professional seeking compensation or reimbursement
of expenses in connection with the Chapter 11 Cases pursuant to
section 503(b)(4) of the Bankruptcy Code.
1.129 "PROFESSIONAL CLAIM" means a Claim of a Professional pursuant to
sections 327, 330, 331, 363, 503(b) or 1103 of the Bankruptcy Code or
otherwise, for compensation or reimbursement of costs and expenses
relating to services performed after the Petition Date and prior to
and including the Effective Date.
1.130 "PROFESSIONAL FEE ORDERS" means the Administrative Order Under 11
U.S.C. Sections 105(a) and 331 Establishing Procedures for Interim
Compensation and Reimbursement of Expenses of Professionals entered by
the Bankruptcy Court on July 11, 2000 and the Stipulation and Order,
Pursuant to Sections 105(a) and 331 of the Bankruptcy Code, Amending
Administrative Procedures for Interim Compensation and Reimbursement
of Expenses of Professionals, entered on December 22, 2000,
authorizing the interim payment of Professional Claims subject to the
Holdback Amount.
1.131 "PROJECTIONS" means those financial projections concerning the
Reorganized Debtors' operations through December 31, 2007.
1.132 "PWC LITIGATION CLAIM" means that certain civil action styled as
Safety-Kleen Corp., et al. v. PricewaterhouseCoopers LLP and
PricewaterhouseCoopers LLP (Canada), pending in the Circuit Court of
South Carolina, Richland County, Civil No. 3:01-4247-17.
1.133 "QUALIFIED SETTLEMENT TRUST" means that certain Qualified Settlement
Fund known as the "Safety-Kleen Settlement Trust," which has been
approved by and is subject to the continuing jurisdiction of the court
in the New Jersey Coverage Action in accordance with section 468B of
the Internal Revenue Code and related Treasury regulations promulgated
thereunder, the establishment of which was authorized and approved by
Bankruptcy Court order dated October 16, 2002.
1.134 "REINSTATED" or "REINSTATEMENT" means (a) leaving unaltered the legal,
equitable and contractual rights to which a Claim entitles the
Claimholder so as to leave such Claim Unimpaired in accordance with
section 1124 of the Bankruptcy Code or (b) notwithstanding any
contractual provision or applicable law that entitles the Claimholder
to demand or receive accelerated payment of such Claim after the
occurrence of a default (i) curing any such default that occurred
before or after the Petition Date, other than a default of a kind
specified in section 365(b)(2) of the Bankruptcy Code, (ii)
reinstating the maturity of such Claim as such maturity existed before
such default, (iii) compensating the Claimholder for any damages
incurred as a result of any reasonable reliance by such Claimholder on
such contractual provision or such applicable law and (iv) not
otherwise altering the legal, equitable or contractual rights
Plan - 11
to which such Claim entitles the Claimholder; provided, however, that
any contractual right that does not pertain to the payment when due of
principal and interest on the obligation on which such Claim is based,
including, but not limited to, financial covenant ratios, negative
pledge covenants, covenants or restrictions on merger or consolidation
and affirmative covenants regarding corporate existence prohibiting
certain transactions or actions contemplated by the Plan or
conditioning such transactions or actions on certain factors, shall
not be required to be reinstated in order to accomplish Reinstatement.
1.135 "RELEASE OBLIGOR" means a Person who votes to accept the Plan.
1.136 "RELEASED PERSON" has the meaning ascribed to it in Section 12.8(a) of
the Plan.
1.137 "REORGANIZED . . ." means, when used in reference to a particular
Debtor, such Debtor on and after the Effective Date.
1.138 "REORGANIZED DEBTORS" means those Debtors that are reorganized
pursuant to the Plan and that continue in existence after the
Effective Date without having been dissolved or merged into another
Reorganized Debtor.
1.139 "REORGANIZED SYSTEMS" means Safety-Kleen Systems, Inc. from and after
the Effective Date.
1.140 "RESOLVED INSURANCE POLICIES" means the policies resolved in the
Insurance Settlements, including but not limited to those policies set
forth on Exhibit G to the Plan.
1.141 "RESTRUCTURING TRANSACTIONS" means those transactions described in
Section 6.2 (d) of the Plan.
1.142 "RETAINED ACTIONS" means (a) all Causes of Action, including, but not
limited to, those Causes of Action identified on Exhibit I to the Plan
and all Causes of Action, whether or not listed on Exhibit I to the
Plan including all claims, rights of action, suits and proceedings,
whether in law or in equity, whether known or unknown, which the
Debtors may hold against any entity, including, without limitation,
any Causes of Action brought prior to or after the Petition Date and
actions against any Persons for failure to pay for products or
services rendered by the Debtors, (b) all claims, Causes of Action,
suits and proceedings relating to enforcement of the Debtors'
intellectual property rights, including patents, copyrights and
trademarks and (c) all claims or Causes of Action seeking the recovery
of the Debtors' or the Reorganized Debtors' accounts receivable or
other receivables or rights to payment created or arising in the
ordinary course of the Debtors' or the Reorganized Debtors'
businesses; provided, however, that each of the foregoing shall not
include Trust Claims.
1.143 "SAFETY-KLEEN CREDITOR TRUST" means the trust which is created
pursuant to the Plan to be administered by the Trustee with the advice
and direction of the Trust Advisory Board, all as more specifically
set forth in the Plan.
1.144 "SCHEDULED" means, with respect to any Claim or Interest, the status
and amount, if any, of such Claim or Interest as set forth in the
Schedules.
1.145 "SCHEDULES" means the schedules of assets and liabilities and the
statements of financial affairs filed in the Bankruptcy Court by the
Debtors, as such schedules or statements have been or may be amended,
modified or supplemented from time to time in accordance with
Bankruptcy Rule 1009 or orders of the Bankruptcy Court.
1.146 "SECURED CLAIM" means a Claim secured by a lien on property in which
an Estate has an interest or that is subject to setoff under section
553 of the Bankruptcy Code, to the extent of the value of the
Claim-
Plan - 12
holder's interest in the Estate's interest in such property or to the
extent of the amount subject to setoff, as applicable, as determined
pursuant to section 506(a) of the Bankruptcy Code.
1.147 "SECURED U.S. LENDER CLAIM" means a Secured Claim of (a) a U.S. Lender
arising under or as a result of the Prepetition Credit Agreement,
including the secured portion of any Claim for reimbursement
obligations related to letters of credit posted under the Prepetition
Credit Agreement that are outstanding as of the Effective Date or (b)
the Swap Parties arising under or as a result of the Swap Agreements.
1.148 "SECURITIES ACT OF 1933" means the Securities Act of 1933, 15 U.S.C.
Sections 77a-77aa, as now in effect or hereafter amended.
1.149 "SERP" means the Debtors' Supplemental Executive Retirement Plan.
1.150 "SETTLING INSURERS" means the insurers set forth on Exhibit H to the
Plan, and their parents, holding companies, subsidiaries, past and
present affiliates, predecessors in interest, successors in interest,
respective directors, officers, employees, agents, assigns and related
companies, or any other insurer that hereafter enters into an
Insurance Settlement with the Debtors in connection with the Insurance
Coverage Actions prior to the Confirmation Date.
1.151 "SITE TRUST" means the trust established by the Site Trust Agreement.
1.152 "SITE TRUST AGREEMENT" means the Pinewood Site Custodial Trust
Agreement between the Debtors and the Site Trustee.
1.153 "SITE TRUSTEE" means the trustee of the Site Trust.
1.154 "SK SERVICES" means Safety-Kleen Services, Inc., debtor-in-possession
in the above-captioned case.
1.155 "SK SYSTEMS" means Safety-Kleen Systems, Inc., debtor-in-possession in
the above-captioned case.
1.156 "SKC" means Safety-Kleen Corp., debtor-in-possession in the
above-captioned case.
1.157 "SUBORDINATED CLAIM" means a Claim subject to subordination under
section 510(b) of the Bankruptcy Code that arises from rescission of,
or for damages, indemnification, reimbursement or contribution with
respect to, a purchase or sale of Old Common Stock or other debt or
equity securities of SKC or its Affiliates prior to the Petition Date.
1.158 "SWAP AGREEMENTS" means, collectively, (a) the ISDA Master Agreement
dated as of August 20, 1999, as amended, modified or supplemented, by
and between SK Services and Citibank, N.A. and (b) the ISDA Master
Agreement dated as of March 31, 1997, as amended, modified or
supplemented, by and between SK Services and Toronto Dominion (Texas),
Inc.
1.159 "SWAP PARTIES" means, collectively, (a) Citibank, N.A. and (b) Toronto
Dominion (Texas), Inc., in their capacities as parties to the Swap
Agreements.
1.160 "SYSTEMS ASSETS" means all of the assets of SK Systems, including the
equity interests of its direct and indirect subsidiaries.
1.161 "TRUST ADVISORY BOARD" means the board that is to be created pursuant
to Section 11.4 of the Plan for the purpose of advising and directing
the Trustee with respect to decisions affecting the Safety-Kleen
Creditor Trust.
Plan - 13
1.162 "TRUST AGREEMENT" means that certain Trust Agreement substantially in
the form set forth on Exhibit B to the Plan which is to govern the
Safety-Kleen Creditor Trust, pursuant to which, among other things,
the Trust Assets shall be liquidated and distributed to the
Claimholders in a manner consistent with the terms of the Plan.
1.163 "TRUST ASSETS" means those assets owned by the Safety-Kleen Creditor
Trust including, without limitation (a) the Initial Deposit, (b) the
Trust Claims and Trust Recoveries and (c) any and all proceeds of the
foregoing and interest accruing with respect thereto, less Trust
Expenses.
1.164 "TRUST CLAIMS" means those Avoidance Claims that have been previously
commenced by the Debtors or that are the subject of a tolling
agreement between the Debtors and certain third parties and are not
otherwise released in the Plan.
1.165 "TRUST DISTRIBUTION RESERVE" means the Cash for distribution to
Claimholders in Classes 4 through 7 (including all the sub-Classes
therein) to be reserved pending allowance of Disputed Claims in
accordance with Section 9.12 of the Plan.
1.166 "TRUST EXPENSES" means all reasonable costs, expenses and fees
incurred by the Trustee and the Trust Advisory Board in the
administration of their duties or as contemplated pursuant to the
Trust Agreement.
1.167 "TRUST RECOVERIES" means any and all proceeds received by the
Safety-Kleen Creditor Trust from (a) the prosecution to, and
collection of, a final judgment of a Trust Claim against a Person or
(b) the settlement or other compromise of a Trust Claim against a
Person, not including the Initial Deposit.
1.168 "TRUSTEE" means the trustee of the Safety-Kleen Creditor Trust as
contemplated by the Trust Agreement.
1.169 "UNCLASSIFIED CLAIMS" means, collectively, the Administrative Claims,
Canadian Lender Claims, DIP Facility Claims, Priority Tax Claims and
the DHEC Administrative Claim.
1.170 "UNIMPAIRED" refers to any Claim or Interest which is not Impaired
within the meaning of section 1124 of the Bankruptcy Code.
1.171 "U.S. LENDER CLAIM" means any Claim of a U.S. Lender arising under or
relating to the Prepetition Credit Agreement.
1.172 "U.S. LENDERS" means the United States banks and financial
institutions or entities from time to time that are parties to the
Prepetition Credit Agreement.
1.173 "VOTING DEADLINE" means January [___], 2003 at 4:00 p.m. (Eastern
time).
1.174 "WASHINGTON COVERAGE ACTION" means that certain civil action styled as
Safety-Kleen Corp. v. Unigard Security Ins. Co., et al., pending in
the Superior Court of Washington, King County, Docket No. 01-2-10468-3
SEA, in which the Debtors seek coverage under certain historical
comprehensive general liability insurance policies for the costs,
expenses and liabilities arising out of claims, demands and suits
brought against the Debtors for property damage, bodily injury and
personal injury arising out of environmental and other damage
allegedly caused by the Debtors and/or arising out of the Debtors'
ownership or business operations.
Plan - 14
ARTICLE II
COMPROMISE AND SETTLEMENT OF DISPUTES
The Plan incorporates the compromise and settlement of certain disputes
among the Debtors and certain of their creditors, all as more fully discussed in
the Disclosure Statement. These compromises and settlements include among other
things (a) the terms of the Pinewood Settlement Agreement, which agreement is a
material and integral part of the Plan, and which provides for the settlement of
significantly all of the claims filed by DHEC, South Carolina Public Service
Authority and the South Carolina Department of National Resources against
Pinewood and certain other Debtors as well as their assertions that in excess of
$100 million of such claims were entitled to treatment as Administrative Claims,
(b) the settlement and compromise reached between the Debtors and the Laidlaw
Debtors and (c) the compromise and settlement reached with certain insurance
companies in connection with the certain coverage actions that the Debtors
commenced prepetition.
To the extent necessary, the Plan constitutes a motion for approval of the
compromises and settlements. The Confirmation Order, subject to the occurrence
of the Effective Date, shall constitute an order of the Bankruptcy Court
approving the compromises and settlements.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 INTRODUCTION
The Plan does not contemplate the substantive consolidation of the Debtors.
Pursuant to section 1122 of the Bankruptcy Code, set forth below is a
designation of classes of Claims against and Interests in the Debtors. In
accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims, Canadian Lender Administrative Claims, DIP Facility Claims, Priority Tax
Claims and the DHEC Administrative Claim have not been classified, and the
respective treatment of such unclassified Claims is set forth in Section 4.1 of
the Plan.
A Claim or Interest is placed in a particular Class only to the extent that
the Claim or Interest falls within the description of that Class and is
classified in other Classes to the extent that any portion of the Claim or
Interest falls within the description of such other Classes. A Claim is also
placed in a particular Class for the purpose of receiving distributions pursuant
to the Plan only to the extent that such Claim is an Allowed Claim in that Class
and such Claim has not been paid, released or otherwise settled prior to the
Effective Date.
3.2 UNIMPAIRED CLAIMS
Class 1: Other Priority Claims
Class 1 consists of all Other Priority Claims against the
Debtors.
Class 2: Miscellaneous Secured Claims
Class 2 consists of separate sub-Classes for each
Miscellaneous Secured Claim against any of the Debtors. Each sub-Class is deemed
to be a separate Class for all purposes under the Bankruptcy Code, including for
voting purposes.
Plan - 15
3.3 IMPAIRED CLAIMS
Class 3: Secured U.S. Lender Claims
Class 3 consists of (a) the portion of U.S. Lender Claims
that are Secured Claims arising under or as a result of the Prepetition Credit
Agreement, including the secured portion of any Claim for reimbursement
obligations related to letters of credit posted under the Prepetition Credit
Agreement that are outstanding as of the Effective Date and (b) the Secured
Claims of the Swap Parties arising under or as a result of the Swap Agreements.
Class 3 consists of separate sub-Classes of Secured U.S. Lender Claims against
each Debtor. Each such sub-Class is deemed to be a separate Class for voting
purposes.
Class 4: SKC General Unsecured Claims
Class 4 consists of all General Unsecured Claims against
SKC, including (a) the Aragonite Industrial Revenue Bond Claims, (b) the
California Pollution Control Financing Authority Industrial Revenue Bond Claims
and (c) the deficiency claims of the U.S. Lenders against SKC; excluding,
however, (x) the Class 5 9 1/4% Senior Notes Claims asserted against SKC and (y)
the guaranty claims of the holders of the Class 6 9 1/4% Senior Subordinated
Notes Claims against SKC.
Class 5: 9 1/4% Senior Notes Claims
Class 5 consists of all 9 1/4% Senior Notes Claims against
SKC.
Class 6: 9 1/4% Senior Subordinated Notes Claims
Class 6 consists of all 9 1/4% Senior Subordinated Notes
Claims against each of the Debtors.
Class 7: General Unsecured Claims
Class 7 consists of separate sub-Classes for all General
Unsecured Claims against each Debtor other than SKC. A list of all separate
Class 7 sub-Classes is set forth on Exhibit F to the Plan.
Class 8: Subordinated Claims
Class 8 consists of all Subordinated Claims against the
Debtors.
3.4 IMPAIRED INTERESTS
Class 9: Interests
Class 9 consists of all Interests.
Plan - 16
ARTICLE IV
TREATMENT OF CLAIMS AND INTERESTS
4.1 UNCLASSIFIED CLAIMS
(a) ADMINISTRATIVE CLAIMS
Except as otherwise provided for herein, and subject to the provisions
of Article X of the Plan, on, or as soon as reasonably practicable after, the
latest of (i) the Initial Distribution Date, (ii) the date such Administrative
Claim becomes an Allowed Administrative Claim or (iii) the date such
Administrative Claim becomes payable pursuant to any agreement between a Debtor
and the holder of such Administrative Claim, a holder of an Allowed
Administrative Claim shall receive, in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed Administrative Claim (x) Cash
equal to the unpaid portion of such Allowed Administrative Claim or (y) such
other less favorable treatment as to which the Debtors and such holder of an
Allowed Administrative Claim shall have agreed upon in writing; provided,
however, that Allowed Administrative Claims with respect to liabilities incurred
by the BSSD Debtors in the ordinary course of business during the Chapter 11
Cases shall be paid in the ordinary course of business in accordance with the
terms and conditions of any agreements relating thereto.
(b) CANADIAN LENDER ADMINISTRATIVE CLAIMS
The Canadian Lender Administrative Claims are, pursuant to the Order
Under 11 U.S.C. Sections 105 and 363(b) in Aid of Consummation of the Sale of
Substantially All of the Assets and Certain Equity Interests of the Debtors'
Chemical Services Division to Clean Harbors, Inc., dated September 6, 2002,
Allowed Administrative Claims against SK Services in the approximate aggregate
amount of U.S. $79.4 million (as of November 25, 2002) plus accrued interest at
the contractual non-default rate through the Effective Date, less any amounts
with respect to the letters of credit outstanding as of the Effective Date that
are replaced or backstopped under the Exit Facility. On the Initial Distribution
Date, or as soon as reasonably practicable thereafter, each holder of an Allowed
Canadian Lender Administrative Claim shall receive, in full satisfaction,
settlement, release and discharge of and in exchange for such Canadian Lender
Administrative Claim, such holder's Pro Rata share of (i) the New Common Stock
having a value equal to 72% of the full face amount of such holder's Allowed
Canadian Lender Administrative Claim and (ii) the New Subordinated Notes in an
amount equal to 28% of the full face amount of such holder's Allowed Canadian
Lender Administrative Claim.
(c) DIP FACILITY CLAIMS
Each holder of an Allowed DIP Facility Claim shall receive on the
later of the Effective Date or the date on which such DIP Facility Claim becomes
payable pursuant to any agreement between the Debtors and the holder of such DIP
Facility Claim, in full satisfaction, settlement, release and discharge of and
in exchange for such Allowed DIP Facility Claim (i) Cash equal to the full
amount of such Allowed DIP Facility Claim or (ii) such other treatment as to
which the Debtors and such holder shall have agreed upon in writing.
(d) PRIORITY TAX CLAIMS
With respect to each Allowed Priority Tax Claim, at the sole option of
the applicable Reorganized Debtor, the holder of an Allowed Priority Tax Claim
shall be entitled to receive on account of such Allowed Priority Tax Claim, in
full satisfaction, settlement, release and discharge of and in exchange for such
Allowed Priority Tax Claim: (i) equal Cash payments made on the last Business
Day of every three-month period following the Initial Distribution Date, over a
period not exceeding six years after the assessment of the tax on which such
Allowed Priority Tax Claim is based, totaling the principal amount of such
Allowed Priority Tax
Plan - 17
Claim plus simple interest on any outstanding balance from the Initial
Distribution Date calculated at the interest rate available on ninety (90) day
United States Treasuries on the Initial Distribution Date, (ii) payment in full
in Cash or (iii) such other treatment agreed to by the holder of the Allowed
Priority Tax Claim and the Debtors or the applicable Reorganized Debtor;
provided, such treatment is on more favorable terms to the Debtors or the
applicable Reorganized Debtor, as the case may be, than the treatment set forth
in clauses (i) or (ii) hereof; provided, that the Debtors reserve the right to
pay any Allowed Priority Tax Claim, or any remaining balance of any Allowed
Priority Tax Claim, in full at any time on or after the Initial Distribution
Date without premium or penalty, and; provided further, that no holder of an
Allowed Priority Tax Claim shall be entitled to any payments on account of any
pre-Effective Date interest accrued on or penalty arising after the Petition
Date with respect to or in connection with such Allowed Priority Tax Claim.
(e) DHEC ADMINISTRATIVE CLAIM
Pursuant to the terms of the Pinewood Settlement Agreement, on the
Effective Date, in full satisfaction, settlement, release and discharge of and
in exchange for the Allowed DHEC Administrative Claim, the following shall
occur: (i) Pinewood shall transfer the Pinewood Facility and related personal
property including vehicles, machines, equipment and supplies located at the
Pinewood Facility to the Site Trust; (ii) the Debtors shall (A) pay $13,162,768
(subject to adjustment for work performed prior to the Effective Date and for
certain administrative costs of the Site Trust) to the Site Trust and (B)
transfer to the Site Trust ownership of a single-payment, fully guaranteed
annuity, which will pay out $133 million (subject to adjustment for certain
administrative costs of the Site Trust) over the next 100 years; (iii) the
Debtors shall create the New Environmental Impairment Trust Fund into which the
funds presently in the GSX Contribution Trust Fund shall be transferred and (iv)
the Debtors shall pay $14.5 million into the New Environmental Impairment Trust
Fund. The Debtors intend to make all such payments out of the proceeds received
from the Laidlaw Claim.
4.2 UNIMPAIRED CLASSES OF CLAIMS
(a) CLASS 1: OTHER PRIORITY CLAIMS
On, or as soon as reasonably practicable after, the latest of (i) the
Initial Distribution Date, (ii) the date such Class 1 Other Priority Claim
becomes an Allowed Class 1 Other Priority Claim or (iii) the date such Class 1
Other Priority Claim becomes payable pursuant to any agreement between a Debtor
and the holder of such Class 1 Other Priority Claim, a holder of an Allowed
Class 1 Other Priority Claim shall receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Class 1 Other
Priority Claim, (x) Cash equal to the unpaid portion of such Allowed Class 1
Other Priority Claim or (y) such other treatment as to which the Debtors and
such Claimholder shall have agreed upon in writing. Class 1 is Unimpaired and
the holders of Class 1 Other Priority Claims are not entitled to vote on the
Plan.
(b) CLASS 2: MISCELLANEOUS SECURED CLAIMS
Each holder of a Class 2 Miscellaneous Secured Claim shall be treated
as a separate class for all purposes under the Plan. Each holder of an Allowed
Class 2 Miscellaneous Secured Claim shall, at the option of the Debtors or the
applicable Reorganized Debtor, be entitled to the treatment set forth below in
option A, B, C or D:
Option A: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option A will, on, or
as soon as reasonably practicable after, the later of (i) the Initial
Distribution Date, or (ii) the date such Class 2 Miscellaneous Secured Claim
becomes an Allowed Class 2 Miscellaneous Secured Claim, be paid in Cash, in
full, by the Reorganized Debtors.
Option B: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option B will be
Reinstated. The Debtors' failure to object to any Class 2
Plan - 18
Miscellaneous Secured Claim that is Reinstated in the Chapter 11 Case shall be
without prejudice to the Debtors' or the Reorganized Debtors' right to contest
or otherwise defend against such Claim in the appropriate forum when and if such
Claim is sought to be enforced.
Option C: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option C will be
satisfied by the surrender to Claimholder of the collateral securing the
applicable Class 2 Miscellaneous Secured Claim.
Option D: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option D will be
satisfied in accordance with such other terms and conditions as may be agreed
upon by the applicable Debtor or Reorganized Debtor and the holder of such
Allowed Class 2 Miscellaneous Secured Claim.
The applicable Debtor or Reorganized Debtor will be deemed to have
elected Option B with respect to all Allowed Class 2 Miscellaneous Secured
Claims except those with respect to which the applicable Debtor elects another
option in writing prior to the Confirmation Hearing. Class 2 is Unimpaired and
the holders of Class 2 Miscellaneous Secured Claims are not entitled to vote on
the Plan.
4.3 IMPAIRED CLASSES OF CLAIMS
(a) CLASS 3: SECURED U.S. LENDER CLAIMS
On the Effective Date, each holder of an Allowed Class 3 Secured U.S.
Lender Claim shall be entitled to receive, on or as soon as reasonably
practicable after, the Initial Distribution Date, in full satisfaction,
settlement, release and discharge of and in exchange for such Allowed Class 3
Secured U.S. Lender Claim against each Debtor, such holder's Pro Rata share of
(i) the New Common Stock after deducting therefrom the New Common Stock
distributed to the holders of the Canadian Lender Administrative Claims and (ii)
the New Subordinated Notes after deducting therefrom the New Subordinated Notes
distributed to the holders of the Canadian Lender Administrative Claims. Class 3
is Impaired and the holders of Class 3 Secured U.S. Lender Claims that are
neither Disputed Claims nor Disallowed Claims are entitled to vote on the Plan.
(b) CLASS 4: SKC GENERAL UNSECURED CLAIMS
On, or as soon as reasonably practicable after, the later of (i) the
Initial Distribution Date or (ii) subject to Article IX of the Plan, the date on
which a Class 4 SKC General Unsecured Claim becomes an Allowed Class 4 SKC
General Unsecured Claim, each holder of an Allowed Class 4 SKC General Unsecured
Claim shall receive in full satisfaction, settlement, release and discharge of
and in exchange for such Allowed Class 4 SKC General Unsecured Claim, such
holder's Pro Rata share of (x) the beneficial interests in the Safety-Kleen
Creditor Trust (together with all holders of Allowed Claims in Classes 5 through
7) and (y) the net proceeds of any recoveries on the PwC Litigation Claim
(together with all holders of Allowed Claims in Classes 5 and 6). Class 4 is
Impaired and holders of Class 4 SKC General Unsecured Claims that are neither
Disputed Claims nor Disallowed Claims are entitled to vote on the Plan.
(c) CLASS 5: 9 1/4% SENIOR NOTES CLAIMS
On, or as soon as reasonably practicable after, the later of (i) the
Initial Distribution Date or (ii) subject to Article IX of the Plan, the date on
which a Class 5 9 1/4% Senior Notes Claim becomes an Allowed Class 5 9 1/4%
Senior Notes Claim, a holder of an Allowed Class 5 9 1/4% Senior Notes Claim
shall receive, in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class 5 9 1/4% Senior Notes Claim and for SKC's
obligations under the 9 1/4% Senior Notes Indenture, such holder's Pro Rata
share of (x) the beneficial interests in the Safety-Kleen Creditor Trust
(together with all holders of Allowed Claims in Classes 4, 6 and 7) and (y) the
proceeds of any recoveries on the PwC Litigation Claim (together with all
holders of
Plan - 19
Allowed Claims in Classes 4 and 6). Class 5 is Impaired and holders of Class 5 9
1/4% Senior Notes Claims that are neither Disputed Claims nor Disallowed Claims
are entitled to vote on the Plan.
(d) CLASS 6: 9 1/4% SENIOR SUBORDINATED NOTES CLAIMS
On, or as soon as reasonably practicable after, the later of (i) the
Initial Distribution Date or (ii) subject to Article IX of the Plan, the date on
which a Class 6 9 1/4% Senior Subordinated Notes Claim becomes an Allowed Class
6 9 1/4% Senior Subordinated Notes Claim, a holder of an Allowed Class 6 9 1/4%
Senior Subordinated Notes Claim shall receive in full satisfaction, settlement,
release and discharge of and in exchange for such Allowed Class 6 9 1/4% Senior
Subordinated Notes Claim and for the Debtors' obligations under the 9 1/4%
Senior Subordinated Notes Indenture, such holder's Pro Rata share of (x) the
beneficial interests in the Safety-Kleen Creditor Trust (together with all
holders of Allowed Claims in Classes 4, 5 and 7) and (y) the proceeds of any
recoveries on the PwC Litigation Claim (together with all holders of Allowed
Claims in Classes 4 and 5). Class 6 is Impaired and holders of Class 6 9 1/4%
Senior Subordinated Notes Claims that are neither Disputed Claims nor Disallowed
Claims are entitled to vote on the Plan.
(e) CLASS 7: GENERAL UNSECURED CLAIMS
On, or as soon as reasonably practicable after, the later of (i) the
Initial Distribution Date or (ii) subject to Article IX of the Plan, the date on
which a Class 7 General Unsecured Claim becomes an Allowed Class 7 General
Unsecured Claim, a holder of an Allowed Class 7 General Unsecured Claim shall
receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class 7 General Unsecured Claim, such holder's Pro
Rata share (together with all holders of Allowed Claims in Classes 4 through 6)
of the beneficial interests in the Safety-Kleen Creditor Trust. Class 7 is
Impaired and holders of Class 7 General Unsecured Claims that are neither
Disputed Claims nor Disallowed Claims are entitled to vote on the Plan.
(f) CLASS 8: SUBORDINATED CLAIMS
The holders of Subordinated Claims shall not receive or retain any
property under the Plan on account of such Subordinated Claims and all Class 8
Subordinated Claims shall be discharged as of the Effective Date. Class 8 is
Impaired and shall be deemed to have rejected the Plan and therefore is not
entitled to vote on the Plan.
4.4 IMPAIRED CLASSES OF INTERESTS
CLASS 9: INTERESTS
On the Effective Date, all Class 9 Interests shall be deemed cancelled
and extinguished. The holders of Class 9 Interests shall not receive or retain
any property under the Plan on account of their Class 9 Interests. Class 9 is
Impaired and shall be deemed to have rejected the Plan and therefore is not
entitled to vote on the Plan.
4.5 RESERVATION OF RIGHTS REGARDING UNIMPAIRED CLAIMS
Except as otherwise explicitly provided in the Plan, nothing shall affect
the Debtors' or the Reorganized Debtors' rights and defenses, both legal and
equitable, with respect to any Unimpaired Claims, including, but not limited to,
all rights with respect to legal and equitable defenses to alleged rights of
setoff or recoupment of Unimpaired Claims. Except to the extent a Reorganized
Debtor expressly assumes an obligation or liability of a Debtor or another
Reorganized Debtor, the Plan shall not operate to impose liability on any
Reorganized Debtor for the Claims against any other Debtor or the debts and
obligations of any other Debtor or Reorganized Debtor, and from and after the
Effective Date, each Reorganized Debtor, subject to the Restructuring
Transactions, shall be separately liable only for its own debts and obligations.
Plan - 20
ARTICLE V
ACCEPTANCE OR REJECTION OF THE PLAN
5.1 IMPAIRED CLASSES OF CLAIMS ENTITLED TO VOTE
Claimholders in each Impaired Class of Claims other than Class 8 are
entitled to vote as a Class to accept or reject the Plan. Accordingly, the votes
of holders of Claims that are neither Disputed Claims nor Disallowed Claims in
Classes 3 through 7 (including sub-classes) shall be solicited with respect to
the Plan. Votes will be separately tabulated by each of the Debtors with respect
to each Debtor's Plan contained in this joint Plan.
5.2 ACCEPTANCE BY THE IMPAIRED CLASS
In accordance with section 1126(c) of the Bankruptcy Code and except as
provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of Claims
shall have accepted the Plan if the Plan is accepted by the holders of at least
two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the
Claims of such Class that have timely and properly voted to accept or reject the
Plan.
5.3 PRESUMED ACCEPTANCE BY THE UNIMPAIRED CLASSES
Classes 1 and 2 are Unimpaired under the Plan. Under section 1126(f) of the
Bankruptcy Code, such Unimpaired Classes are conclusively presumed to have
accepted the Plan, and the votes of the holders of Claims in such Classes shall
not be solicited.
5.4 CLASSES DEEMED TO REJECT PLAN
Holders of Claims and Interests in Classes 8 and 9 are not entitled to
receive or retain any property under the Plan. Under section 1126(g) of the
Bankruptcy Code, Classes 8 and 9 are deemed to have rejected the Plan, and the
votes of such Claim or Interest holders shall not be solicited.
5.5 CRAMDOWN
The Debtors shall seek confirmation of the Plan under section 1129(b) of
the Bankruptcy Code in view of the deemed rejection by Classes 8 and 9. To the
extent that any other Impaired Class rejects the Plan or is deemed to have
rejected the Plan, the Debtors shall request confirmation of the Plan, as it may
be modified from time to time, under section 1129(b) of the Bankruptcy Code with
respect to such other Impaired Class. The Debtors reserve the right to alter,
amend, modify, revoke, or withdraw the Plan, as to all Debtors, or with respect
to one or more Debtors but not all Debtors, the Plan Supplement, any Exhibit or
appendix attached to the Disclosure Statement, including to amend or modify it
to satisfy the requirements of section 1129(b) of the Bankruptcy Code, if
necessary.
5.6 CONFIRMABILITY AND SEVERABILITY OF A PLAN
The confirmation requirements of section 1129 of the Bankruptcy Code must
be satisfied separately with respect to each Debtor. Except as limited in the
Plan, if the Bankruptcy Court holds that any provision of the Plan is invalid,
void or unenforceable, the Debtors, at their option, may alter, amend, modify,
revoke or withdraw the Plan as it applies to any particular Debtor. A
determination by the Bankruptcy Court that the Plan, as it applies to one or
more Debtors, is not confirmable pursuant to section 1129 of the Bankruptcy Code
shall not limit or affect: (a) the confirmability of the Plan as it applies to
any other Debtor or (b) the Debtors' ability to modify the Plan, as it applies
to any other Debtor, to satisfy the confirmation requirements of section 1129 of
the
Plan - 21
Bankruptcy Code. The Debtors may seek to confirm the Plan, as amended or
modified, without the necessity to resolicit the Plan for voting, provided,
however, that the Plan, as amended, does not materially adversely affect the
treatment of Classes entitled to receive a distribution under the Plan, as
determined by the Bankruptcy Court at the Confirmation Hearing, or otherwise, or
such modification is consented to by any such Class.
ARTICLE VI
MEANS FOR IMPLEMENTATION OF THE PLAN
6.1 CONTINUED CORPORATE EXISTENCE FOR BRANCH SALES AND SERVICE DIVISION
Subject to the Restructuring Transactions, certain of the BSSD Reorganized
Debtors shall continue to exist after the Effective Date as separate corporate
entities, with all the powers of a corporation under applicable law in the
jurisdiction in which each is incorporated and pursuant to the certificate of
incorporation and bylaws in effect prior to the Effective Date, except to the
extent such certificate of incorporation and bylaws are amended by the Plan,
without prejudice to any right to terminate such existence (whether by merger or
otherwise) under applicable law after the Effective Date.
6.2 CORPORATE ACTION
Each of the matters provided for under the Plan involving the corporate
structure of any Debtor or Reorganized Debtor or corporate action to be taken by
or required of any Debtor or Reorganized Debtor shall, as of the Effective Date,
be deemed to have occurred and be effective as provided herein, and shall be
authorized and approved in all respects without any requirement of further
action by stockholders or directors of any of the Debtors or the Reorganized
Debtors.
(a) DISSOLUTION OF CORPORATE EXISTENCE OF CERTAIN DEBTORS
On the Effective Date, each of SKC, SK Services and each CSD
Subsidiary shall be deemed dissolved and have no continuing corporate existence,
subject only to each such Debtor's individual Plan imposed obligation to satisfy
Allowed Administrative Claims, Allowed DIP Facility Claims, Allowed Priority Tax
Claims, Allowed Other Priority Claims and Allowed DHEC Administrative Claim
against such Debtor's estate, if any. With respect to each such Debtor, upon
either (i) the final payment and satisfaction of the last of such Plan imposed
obligations or (ii) the assumption of the last of such Plan imposed obligations
by another Debtor or a Reorganized Debtor, the Debtor: (x) shall be deemed to
have been discharged as of the Effective Date and immediately thereafter deemed
to have dissolved for all purposes and withdrawn its business operations from
any state or country in which it was previously conducting, or is registered or
licensed to conduct, its business operations, and will not be required to file
any document, pay any sum or take any other action in order to effectuate such
dissolution and withdrawal; (y) shall be deemed to have had all of its Interests
cancelled pursuant to the Plan and (z) will not be liable in any manner to any
taxing authority for franchise, business, capital, license or similar taxes that
otherwise would have accrued on or after the Effective Date, all without the
necessity for any other or further actions to be taken on behalf of such Debtor;
provided, however, that the Reorganized Debtors may, if they so elect, and any
officer of a Reorganized Debtor shall be an authorized signatory for such
purpose, prepare and file all corporate resolutions, statements, notices, tax
returns or certificates of dissolution in such Debtors' jurisdiction of
incorporation or organization or other jurisdiction. The Reorganized Debtors
shall not have or incur any liability for any actions taken or not taken under
this Section 6.2(a) with respect to SKC, SK Services or any CSD Subsidiary.
Plan - 22
(b) ARTICLES OF INCORPORATION AND BYLAWS
The articles of incorporation and bylaws of each of the BSSD
Reorganized Debtors shall be amended as necessary to satisfy the provisions of
the Plan and the Bankruptcy Code. The articles of incorporation of New Holdco
shall among other things: (i) authorize the issuance of the shares of New Common
Stock and (ii) provide, pursuant to section 1123(a)(6) of the Bankruptcy Code,
for (A) a provision prohibiting the issuance of non-voting equity securities,
and, if applicable, (B) a provision as to the classes of securities issued
pursuant to the Plan or thereafter possessing voting power, for an appropriate
distribution of such power among such classes, including, in the case of any
class of equity securities having a preference over another class of equity
securities with respect to dividends, adequate provisions for the election of
directors representing such preferred class in the event of default in the
payment of such dividends.
(c) CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS
On the Effective Date, except as otherwise provided for herein (i) the
Existing Securities and any other note, bond, indenture, or other instrument or
document evidencing or creating any indebtedness or obligation of the Debtors,
except such notes or other instruments evidencing indebtedness or obligations of
the Debtors that are Reinstated under the Plan, shall be cancelled and (ii) the
obligations of, and/or Claims against, the Debtors under, relating or pertaining
to any agreements, indentures or certificates of designations governing the
Existing Securities and any other note, bond, indenture or other instrument or
document evidencing or creating any indebtedness or obligation of the Debtors,
except such notes or other instruments evidencing indebtedness or obligations of
the Debtors that are Reinstated under the Plan, as the case may be, shall be
released and discharged; provided, however, that each indenture or other
agreement that governs the rights of the Claimholder and that is administered by
an Indenture Trustee, an agent or a servicer shall continue in effect solely for
the purposes of allowing such Indenture Trustee, agent or servicer to make the
distributions to be made on account of such Claims under the Plan as provided in
Article IX of the Plan; provided, further, that the provisions of this proviso
shall not affect the discharge of the Debtors' liabilities under the Bankruptcy
Code and the Confirmation Order or result in any expense or liability to the
Reorganized Debtors.
(d) RESTRUCTURING TRANSACTIONS
On the Effective Date, the following transactions will occur in the
following order:
(i) New Holdco will be incorporated.
(ii) New Holdco will cause New Parent to be incorporated as a
new wholly-owned subsidiary and New Holdco will contribute the New Common
Stock to New Parent.
(iii) New Parent will cause New Subsidiary to be incorporated as
a new wholly-owned subsidiary and New Parent will contribute the New Common
Stock to New Subsidiary.
(iv) New Subsidiary will cause Merger Sub to be incorporated as
a new wholly-owned subsidiary.
(v) Merger Sub will merge with and into SK Systems pursuant to
the Merger Agreement, with SK Systems surviving as Reorganized Systems.
(vi) Pursuant to the Merger Agreement, Reorganized Systems will
cause the New Common Stock to be distributed to the holders of the Canadian
Lender Administrative Claims and the holders of the U.S. Lender Claims in
exchange for all or part of their respective Claims. All distributions
shall be in accordance with the Plan.
Plan - 23
(vii) New Subsidiary will elect pursuant to section 338(h)(10) of
the Internal Revenue Code to treat the merger as if Reorganized Systems
acquired the Systems Assets at fair market value.
(e) POST-EFFECTIVE DATE RESTRUCTURING TRANSACTIONS
On or after the Effective Date, the applicable Reorganized Debtors may
enter into such transactions and may take such actions as may be necessary or
appropriate to effect a corporate restructuring of their respective businesses,
to simplify otherwise the overall corporate structure of the Reorganized
Debtors, or to reincorporate certain of the Debtors under the laws of
jurisdictions other than the laws of which the applicable Debtors are presently
incorporated. Such restructuring is contemplated to include one or more mergers,
consolidations, restructures, dispositions, liquidations, or dissolutions, as
may be determined by the Debtors or Reorganized Debtors to be necessary or
appropriate (collectively, the "Restructuring Transactions"). The actions to
effectuate the Restructuring Transactions may include: (i) the execution and
delivery of appropriate agreements or other documents of merger, consolidation,
restructuring, disposition, liquidation or dissolution containing terms that are
consistent with the terms of the Plan and that satisfy the applicable
requirements of applicable state law and such other terms to which the
applicable entities may agree; (ii) the execution and delivery of appropriate
instruments of transfer, assignment, assumption or delegation of any asset,
property, right, liability, duty or obligation on terms consistent with the
terms of the Plan and having such other terms to which the applicable entities
may agree; (iii) the filing of appropriate certificates or articles of merger,
consolidation or dissolution pursuant to applicable state law and (iv) all other
actions that the applicable entities determine to be necessary or appropriate,
including making filings or recordings that may be required by applicable state
law in connection with such transactions. The Restructuring Transactions may
include one or more mergers, consolidations, restructurings, dispositions,
liquidations or dissolutions, as may be determined by the Reorganized Debtors to
be necessary or appropriate to result in substantially all of the respective
assets, properties, rights, liabilities, duties and obligations of certain of
the Reorganized Debtors vesting in one or more surviving, resulting or acquiring
corporations.
6.3 DIRECTORS AND OFFICERS
(a) The existing officers of SKC shall serve as officers of New Holdco in
their current capacities after the Effective Date pending the appointment of new
officers by the board of directors of New Holdco.
(b) The initial board of directors of New Holdco shall consist of nine (9)
directors to be selected by the Lenders. Directors will be classified into three
classes. One class consisting of three (3) directors shall hold office initially
for a term expiring at the 2004 annual meeting of shareholders. The second class
consisting of three (3) directors shall hold office initially for a term
expiring at the 2005 annual meeting of shareholders. Finally, the third class
consisting of three (3) directors shall hold office for a term expiring at the
2006 annual meeting of shareholders.
6.4 MANAGEMENT INCENTIVE COMPENSATION PLAN
On or before the Exhibit Filing Date, the Debtors intend to file with the
Bankruptcy Court a copy of any Management Incentive Compensation Plan proposed
to be adopted by the Reorganized Debtors on the Effective Date.
6.5 EXIT FACILITY
(a) The Reorganized Debtors expect to enter into a $250 million Exit
Facility, with a letter of credit sub-limit of $125 million, in order to obtain
the funds necessary to repay the DIP Facility Claims, make other required
payments and conduct their post-reorganization operations. The Exit Facility is
expected to be secured by a first lien on substantially all of the assets of the
Reorganized Debtors.
Plan - 24
(b) The Debtors shall file documents evidencing the Exit Facility by the
Exhibit Filing Date. The Bankruptcy Court shall (i) approve the Exit Facility in
substantially the form filed with the Bankruptcy Court and (ii) authorize the
Debtors to execute the same together with such other documents as the Exit
Facility lenders or participants may reasonably require.
6.6 NEW COMMON STOCK
The issuance of the New Common Stock is hereby authorized without further
act or action under applicable law. The New Common Stock shall be issued and
distributed in accordance with the terms of the Plan without further act or
action under applicable law, regulation, order or rule and shall be exempt from
registration under applicable securities laws pursuant to section 1145(a) of the
Bankruptcy Code.
6.7 NEW SUBORDINATED NOTES
The issuance of $100 million in principal amount of New Subordinated PIK
Notes and $50 million in principal amount of New Subordinated Cash Pay Notes is
hereby authorized without further act or action under applicable law. The New
Subordinated PIK Notes and the New Subordinated Cash Pay Notes shall be secured
with liens on substantially all of the Reorganized Debtors' assets, subject only
to the liens of the Exit Facility. The New Subordinated Notes shall be issued
and distributed in accordance with the terms of the Plan without further act or
action under applicable law, regulation, order or rule and shall be exempt from
registration under applicable securities laws pursuant to section 1145(a) of the
Bankruptcy Code.
6.8 PRESERVATION OF CAUSES OF ACTION
(a) In accordance with section 1123(b)(3) of the Bankruptcy Code, and
except as otherwise provided in the Plan, the Confirmation Order or in any
contract, instrument, release or other agreement entered into in connection with
the Plan, the Reorganized Debtors shall retain and may enforce the Retained
Actions.
(b) The Reorganized Debtors, in their sole discretion, shall determine
whether to enforce, prosecute, settle or compromise (or decline to do any of the
foregoing) any of the Retained Actions, and the Safety-Kleen Creditor Trust, in
the exercise of its business judgment, shall determine whether to enforce,
prosecute, settle or compromise (or decline to do any of the foregoing) any of
the Trust Claims.
(c) The Reorganized Debtors and the Safety-Kleen Creditor Trust shall be
entitled to pursue their respective claims against persons allegedly liable both
to the Reorganized Debtors in respect of a Retained Action and to the
Safety-Kleen Creditor Trust in respect of a Trust Claim (any such person, a
"Common Defendant"). The Reorganized Debtors and the Safety-Kleen Creditor Trust
may, but shall be under no obligation to, enter into arrangements for the joint
prosecution of their respective claims, the sharing of litigation costs and/or
recoveries and any other arrangements that are mutually acceptable to each such
party. Neither the Reorganized Debtors nor the Safety-Kleen Creditor Trust shall
have the right to release a Common Defendant (or any other entity) from the
claims of the other.
(d) The failure of the Debtors to specifically list any claim, right of
action, suit or proceeding in the Debtors' Schedules or in Exhibit I to the Plan
does not, and will not be deemed to, constitute a waiver or release by the
Debtors of such claim, right of action, suit or proceeding, and the Reorganized
Debtors will retain the right to pursue such claims, rights of action, suits or
proceedings in their sole discretion and, therefore, no preclusion doctrine,
collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial,
equitable or otherwise) or laches shall apply to such claim, right of action,
suit or proceeding upon or after the confirmation or consummation of the Plan.
Plan - 25
6.9 EXCLUSIVITY PERIOD
The Debtors shall retain the exclusive right to amend or modify the Plan
and to solicit acceptances of any amendments to or modifications of the Plan,
through and until the Effective Date.
6.10 INTERCOMPANY CLAIMS
All Claims between and among the Debtors shall, in the sole discretion of
the applicable Debtor or Reorganized Debtor, (a) be preserved and Reinstated,
(b) be released, waived and discharged as of the Effective Date or (c) be
contributed to the capital of the obligor corporation.
6.11 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS
The Chairman of the Board of Directors, the Chief Executive Officer or any
other officer of the Reorganized Debtors, shall be authorized to execute,
deliver, file or record such contracts, instruments, releases, indentures and
other agreements or documents, and take such actions as may be necessary or
desirable to effectuate and further evidence the terms and conditions of the
Plan, including any actions necessary or desirable to formally dissolve SKC, SK
Services and the CSD Subsidiaries. The Secretary or Assistant Secretary of the
Reorganized Debtors shall be authorized to certify or attest to any of the
foregoing actions.
6.12 EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers from a
Debtor to a Reorganized Debtor or any other Person or among Reorganized Debtors
pursuant to the Restructuring Transactions or the Plan in the United States
shall not be subject to any document recording tax, stamp tax, conveyance fee,
or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage
recording tax, or other similar tax or governmental assessment, and the
Confirmation Order shall direct the appropriate state or local governmental
officials or agents to forego the collection of any such tax or governmental
assessment and to accept for filing and recordation any of the foregoing
instruments or other documents without the payment of any such tax or
governmental assessment.
ARTICLE VII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.1 REJECTED CONTRACTS AND LEASES
Each executory contract and unexpired lease to which any of the Debtors is
a party shall be deemed automatically rejected as of the Effective Date, unless
such executory contract or unexpired lease (a) shall have been previously
assumed by the Debtors, (b) is the subject of a motion to assume filed on or
before the Confirmation Date or (c) is listed on the schedule of assumed
contracts and leases annexed hereto as Exhibit E to the Plan. The Debtors may
supplement or otherwise modify Exhibit E to the Plan through the Exhibit Filing
Date and may remove any contract or lease from Exhibit E to the Plan through the
later of the Effective Date or the date an order is entered determining the Cure
for any contract or lease in which Cure was disputed. The Confirmation Order
shall constitute an order of the Bankruptcy Court approving such rejections,
pursuant to section 365 of the Bankruptcy Code, as of the Effective Date. The
Debtors reserve the right to file a motion on or before the Confirmation Date to
assume and assign or reject any executory contract or unexpired lease whether or
not initially identified on Exhibit E to the Plan.
Plan - 26
7.2 REJECTION DAMAGES BAR DATE
If the rejection, pursuant to the Plan or otherwise, of an executory
contract or unexpired lease results in a Claim, then such Claim shall be forever
barred and shall not be enforceable against the Debtors or the Reorganized
Debtors or the properties of either of them unless, within thirty (30) calendar
days after service of the notice of Effective Date, a proof of claim is filed
with Trumbull Services LLC, c/o Safety-Kleen Corp., P.O. Box 267, Windsor,
Connecticut 06095-0267 (for U.S. mail) or Griffin Center, 4 Griffin Road North,
Windsor, Connecticut 06095 (for overnight delivery) and served upon (a) counsel
to the Debtors and (b) either (i) counsel to the Creditors' Committee, if prior
to the Effective Date or (ii) counsel to the Trustee to the Safety-Kleen
Creditor Trust if after the Effective Date.
7.3 ASSUMED CONTRACTS AND LEASES
Except as otherwise provided in the Plan or the Confirmation Order, all
executory contracts and unexpired leases identified in Exhibit E to the Plan
shall be deemed automatically assumed as of the Effective Date.
Each executory contract and unexpired lease that is assumed and relates to
the use, ability to acquire or occupancy of real property shall include (a) all
modifications, amendments, renewals, supplements, restatements or other
agreements made directly or indirectly by any agreement, instrument or other
document that in any manner affect such executory contract or unexpired lease
and (b) all executory contracts or unexpired leases appurtenant to the premises,
including all easements, licenses, permits, rights, privileges, immunities,
options, rights of first refusal, powers, uses, reciprocal easement agreements
and any other interests in real estate or rights in rem related to such
premises, unless any of the foregoing agreements has been rejected pursuant to a
Final Order of the Bankruptcy Court or is otherwise rejected as a part of the
Plan. To the extent the Debtor who is party to the unexpired lease or executory
contract is to be merged or liquidated as a part of a Restructuring Transaction,
the non-debtor parties to such unexpired lease or executory contract shall, upon
assumption as contemplated herein, be deemed to have consented to the assignment
of such unexpired lease or executory contract to the Reorganized Debtor set
forth on Exhibit E to the Plan.
The Confirmation Order shall constitute an order of the Bankruptcy Court
approving the assumption of such executory contracts and unexpired leases,
pursuant to section 365 of the Bankruptcy Code, as of the Effective Date.
7.4 PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Any monetary amounts by which each executory contract and unexpired lease
to be assumed under the Plan may be in default shall be satisfied, under section
365(b)(1) of the Bankruptcy Code by Cure. In the event of a dispute regarding
(a) the nature or the amount of any Cure, (b) the ability of the Reorganized
Debtors or any assignee to provide "adequate assurance of future performance"
(within the meaning of section 365 of the Bankruptcy Code) under the contract or
lease to be assumed or (c) any other matter pertaining to assumption, Cure shall
occur following the entry of a Final Order resolving the dispute and approving
the assumption and, as the case may be, assignment.
7.5 EMPLOYMENT, RETIREMENT, INDEMNIFICATION AND OTHER EMPLOYEE RELATED
AGREEMENTS
On the Effective Date, the Debtors shall be deemed to have rejected all
existing prepetition employment, retirement, indemnification and other employee
related plans, agreements and programs, including the SERP, except as set forth
in Section 12.7(c) of the Plan and those agreements, plans and programs
specifically set forth on Exhibit E to the Plan.
Plan - 27
ARTICLE VIII
SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
On the Effective Date, the New Common Stock, New Subordinated PIK Notes
and New Subordinated Cash Pay Notes shall be issued for distribution in
accordance with the provisions of the Plan. All securities to be issued will be
deemed issued as of the Effective Date regardless of the date on which they are
actually distributed. The form of the New Subordinated PIK Notes Indenture shall
be in substantially the form attached in the Plan Supplement. The form of the
New Subordinated Cash Pay Notes Indenture shall be substantially in the form the
attached in the Plan Supplement.
ARTICLE IX
PROVISIONS GOVERNING DISTRIBUTIONS
9.1 TIME OF DISTRIBUTIONS
Except as otherwise provided for herein or ordered by the Bankruptcy Court,
distributions under the Plan shall be made on the later to occur of (a) the
Effective Date (or as soon thereafter as is practicable), (b) when such Claim
becomes an Allowed Claim or (c) the Initial Distribution Date.
9.2 INTEREST ON CLAIMS
Unless otherwise specifically provided for in the Plan, the Confirmation
Order, the DIP Credit Agreement, any other Order of the Bankruptcy Court or
required by applicable bankruptcy law, postpetition interest shall not accrue or
be paid on Claims, and no Claimholder shall be entitled to interest accruing on
or after the Petition Date on any Claim. Interest shall not accrue or be paid
upon any Disputed Claim in respect of the period from the Petition Date to the
date a final distribution is made thereon if and after such Disputed Claim
becomes an Allowed Claim.
9.3 DISBURSING AGENT
The Disbursing Agent shall make all distributions required under the Plan
with respect to (a) the Unclassified Claims, (b) Classes 1 through 3 and (c)
Classes 4 through 6 with respect to any proceeds from the PwC Litigation Claim.
The Disbursing Agent shall reasonably cooperate with the Trustee and any
Indenture Trustee that will be making distributions in accordance with the Plan.
9.4 TRUSTEE
The Trustee shall make all distributions to the holders of Claims in
Classes 4 through 7 from the Safety-Kleen Creditor Trust. The Trustee shall
reasonably cooperate with the Disbursing Agent and any Indenture Trustee that
will be making distributions in accordance with the Plan.
9.5 SURRENDER OF SECURITIES OR INSTRUMENTS
On or before the date that distributions are first made by the Safety-Kleen
Creditor Trust, each holder of a Certificate shall surrender such Certificate to
the Trustee, or, with respect to indebtedness that is governed by an indenture
or other agreement, the respective Indenture Trustee, agent or servicer, as the
case may be, and such Certificate shall be cancelled. No distribution of
property hereunder shall be made to or on behalf of any such Claimholder unless
and until such Certificate is received by the Trustee or the respective
Indenture Trustee, agent or servicer, as the case may be, or the unavailability
of such Certificate is reasonably established to the
Plan - 28
satisfaction of the Trustee or the respective Indenture Trustee, agent or
servicer, as the case may be. Any such Claimholder who fails to surrender or
cause to be surrendered such Certificate or fails to execute and deliver an
affidavit of loss and indemnity reasonably satisfactory to the Trustee or the
respective Indenture Trustee, agent or servicer, as the case may be, prior to
the second (2nd) anniversary of the Effective Date, shall be deemed to have
forfeited all rights and Claims in respect of such Certificate and shall not
participate in any distribution hereunder, and all property in respect of such
forfeited distribution, including interest accrued thereon, shall revert to the
Safety-Kleen Creditor Trust notwithstanding any federal or state escheat laws to
the contrary.
9.6 INSTRUCTIONS TO INDENTURE TRUSTEES
Prior to any distribution on account of any Prepetition Notes or Industrial
Revenue Bonds, the Indenture Trustees, agents or servicers of the Prepetition
Notes or Industrial Revenue Bonds shall (a) inform the Trustee as to the amount
of properly surrendered Prepetition Notes or Industrial Revenue Bonds and (b)
inform the Trustee, in a form and manner that the Trustee reasonably determines
to be acceptable, of the names of such Allowed Claimholders that have properly
surrendered their respective Prepetition Notes or Industrial Revenue Bonds and
the denominations of such surrendered Prepetition Notes or Industrial Revenue
Bonds.
9.7 NOTIFICATION DATE FOR DISTRIBUTIONS TO HOLDERS OF PREPETITION NOTES AND
INDUSTRIAL REVENUE BONDS
At the close of business on the Distribution Notification Date, the
transfer ledgers of the Indenture Trustees, agents and servicers of the
Prepetition Notes and Industrial Revenue Bonds shall be closed, and there shall
be no further changes in the record holders of the Prepetition Notes and
Industrial Revenue Bonds. The Reorganized Debtors and the Indenture Trustees,
agents and servicers of the Prepetition Notes and Industrial Revenue Bonds and
the Trustee shall have no obligation to recognize any transfer of any of the
Prepetition Notes or Industrial Revenue Bonds occurring after the Distribution
Notification Date. The Reorganized Debtors and the Indenture Trustees, agents
and servicers for the Prepetition Notes and Industrial Revenue Bonds and the
Trustee shall be entitled instead to recognize and deal for all purposes
hereunder with only those record holders stated on the transfer ledgers as of
the close of business on the Distribution Notification Date.
9.8 CLAIMS ADMINISTRATION RESPONSIBILITY
The Disbursing Agent shall be responsible for administering, disputing,
objecting to, compromising or otherwise resolving and making distributions on
account of (a) Administrative Claims, (b) Priority Tax Claims, (c) Other
Priority Claims, (d) Secured U.S. Lender Claims, (e) Canadian Lender
Administrative Claims, (f) the DHEC Administrative Claim and (g) Miscellaneous
Secured Claims. The Trustee on behalf of the Safety-Kleen Creditor Trust shall
have responsibility for performing such functions with respect to the holders of
the Claims that are the beneficiaries of the Safety-Kleen Creditor Trust. The
Trustee shall be deemed substituted as party to any claims objections filed by
the Debtors concerning any claims in Classes 4 through 7 that are pending as of
the Effective Date and shall be authorized and empowered thereafter to prosecute
such objections and file new objections in the name of and in substitution for
the Debtors with respect to Classes 4 through 7.
9.9 OBJECTION DEADLINE
(a) As soon as practicable, but no later than the Claims Objection
Deadline, the Disbursing Agent and/or the Trustee shall file objections with the
Bankruptcy Court and serve such objections on the creditors holding the Claims
to which objections are made. Nothing contained herein, however, shall limit the
Disbursing Agent's or the Trustee's right to object to Claims, if any, filed or
amended after the Claims Objection Deadline.
(b) The Claims Objection Deadline may be extended by the Bankruptcy Court
upon motion by either the Disbursing Agent or the Trustee without notice or
hearing.
Plan - 29
9.10 CALCULATION OF DISTRIBUTION AMOUNTS
(a) NEW COMMON STOCK
No fractional shares of New Common Stock shall be issued or
distributed under the Plan. Each Person entitled to receive New Common Stock
will receive the total number of whole shares of New Common Stock to which such
Person is entitled. Whenever any distributions to a Person would otherwise call
for distribution of a fraction of a share of New Common Stock, the actual
distribution of shares of such New Common Stock shall be rounded to the next
higher or lower whole number as follows: fractions 1/2 or greater shall be
rounded to the next higher whole number, and fractions of less than 1/2 shall be
rounded to the next lower whole number. No consideration shall be provided in
lieu of fractional shares that are rounded down. The total number of shares of
New Common Stock to be distributed to each Class of Claims shall be adjusted as
necessary to account for the rounding provided for in this Section 9.10.
(b) NEW SUBORDINATED NOTES
New Subordinated Notes will be issued in denominations of $1,000 and
such fractions thereof as is necessary.
(c) CONVERSION RATE
Canadian dollar Claims will be converted to United States dollars for
purposes of distributions by applying the September 6, 2002 exchange rate of
..63610.
9.11 DELIVERY OF DISTRIBUTIONS
Distributions to Allowed Claimholders shall be made by the Trustee, the
Disbursing Agent or the appropriate Indenture Trustee, agent or servicer, as the
case may be (a) at the addresses set forth on the proofs of claim filed by such
Claimholders (or at the last known addresses of such Claimholders if no proof of
claim is filed or if the Debtors have been notified of a change of address), (b)
at the addresses set forth in any written notices of address changes delivered
to the Trustee, the Disbursing Agent or the appropriate Indenture Trustee after
the date of any related proof of claim, (c) at the addresses reflected in the
Schedules if no proof of claim has been filed and the Trustee or the Disbursing
Agent, as the case may be, has not received a written notice of a change of
address or (d) in the case of a Claimholder whose Claim is governed by an
indenture or other agreement and is administered by an Indenture Trustee, agent
or servicer, at the addresses contained in the official records of such
Indenture Trustee, agent or servicer. If any Claimholder's distribution is
returned as undeliverable, no further distributions to such Claimholder shall be
made unless and until the Trustee, the Disbursing Agent or the appropriate
Indenture Trustee, agent or servicer is notified of such Claimholder's then
current address, at which time all missed distributions shall be made to such
Claimholder without interest. Amounts in respect of undeliverable distributions
shall be returned to (x) the Safety-Kleen Creditor Trust with respect to
distributions made by the Trustee or any Indenture Trustee, agent or servicer
and (y) the Reorganized Debtors with respect to distributions made by the
Disbursing Agent, until such distributions are claimed. All claims for
undeliverable distributions shall be made on or before the second (2nd)
anniversary of the Effective Date. After such date, all unclaimed property
relating to distributions to be made from the Safety-Kleen Creditor Trust shall
revert to the Safety-Kleen Creditor Trust and all the other unclaimed property
shall revert to the Reorganized Debtors. Upon such reversion, the claim of any
Claimholder or successor to such Claimholder with respect to such property shall
be discharged and forever barred notwithstanding any federal or state escheat
laws to the contrary.
Plan - 30
9.12 PROCEDURES FOR TREATING AND RESOLVING DISPUTED AND CONTINGENT CLAIMS
(a) NO DISTRIBUTIONS PENDING ALLOWANCE
Except as set forth in Section 9.12(e) of the Plan, no payments or
distributions shall be made with respect to all or any portion of a Disputed
Claim unless and until all objections to such Disputed Claim have been settled
or withdrawn or have been determined by a Final Order and the Disputed Claim has
become an Allowed Claim. All objections to Claims must be filed on or before the
Claims Objection Deadline.
(b) TRUST DISTRIBUTION RESERVE
The Trustee shall establish the Trust Distribution Reserve by
withholding the Trust Distribution Reserve from the Trust Assets to be
distributed to Claimholders in Classes 4 through 7 under the Plan. The Trustee
may request estimation for any Class 4 through 7 Disputed Claim that is
contingent or unliquidated and the Trustee will withhold the Trust Distribution
Reserve based upon the estimated amount of each such Claim as estimated by the
Bankruptcy Court. If the Trustee elects not to request such an estimation from
the Bankruptcy Court with respect to a Disputed Claim that is contingent, the
Trustee will withhold the Trust Distribution Reserve based upon the Face Amount
of such Claim. In addition, the Trustee will place in the Trust Distribution
Reserve any dividends, payments or other distributions made on account of, as
well as any obligations arising from, the property withheld as the Trust
Distribution Reserve, to the extent that such property continues to be withheld
as the Trust Distribution Reserve at the time such distributions are made or
such obligations arise. If practicable, the Trustee will invest any Cash that is
withheld as the Trust Distribution Reserve in a manner that will yield a
reasonable net return, taking into account the safety of the investment. Nothing
in the Plan or Disclosure Statement will be deemed to entitle the Claimholder of
a Disputed Claim to postpetition interest on such Claim.
(c) LENDER CLAIMS RESERVE
The Disbursing Agent shall establish a Lender Claims Reserve by
withholding the New Subordinated Notes and the New Common Stock to be
distributed to the holders of the secured portion of any Claim for reimbursement
obligations related to letters of credit posted under the Prepetition Credit
Agreement and outstanding as of the Effective Date not otherwise replaced or
backstopped through letters of credit issued under the Exit Facility. To the
extent such Claim becomes noncontingent and liquidated, the holder of such Claim
shall receive its Pro Rata share of the Lender Claims Reserve. If such Claim is
withdrawn or disallowed, then the New Subordinated Notes and the New Common
Stock in the Lender Claims Reserve shall be distributed Pro Rata to the Allowed
Class 3 Claimholders and holders of Allowed Canadian Lender Administrative
Claims.
All distributions made under this Section 9.12(c) on account of an
Allowed Claim will be made together with any dividends, payments or other
distributions made on account of, as well as any obligations arising from, the
distributed property as if such Allowed Claim had been an Allowed Claim on the
dates distributions were previously made to holders of Secured U.S. Lender
Claims and Canadian Lender Administrative Claims, as appropriate.
(d) DISTRIBUTIONS AFTER ALLOWANCE
Payments and distributions from the Trust Distribution Reserve to each
Claimholder of a Disputed Claim, to the extent that such Disputed Claim
ultimately becomes an Allowed Claim, will be made in accordance with the
provisions of the Plan that govern distributions of Allowed Claims in that
Class.
Upon entry of an order or judgment of the Bankruptcy Court allowing
all or part of such Claim, and such order or judgment becomes a Final Order, the
Trustee shall distribute to the holders of Claims in Classes 4 through 7 any
Cash in the Trust Distribution Reserve that would have been distributed on any
previous
Plan - 31
Distribution Dates to that Allowed Class had such Allowed Claim been an Allowed
Claim on such previous Distribution Dates. After a Final Order has been entered,
or other final resolution has been reached with respect to all Disputed Claims
in Classes 4 through 7, any remaining Cash held in the Trust Distribution
Reserve shall be distributed Pro Rata to holders of Allowed Claims in Classes 4
through 7 on the next Distribution Date. All distributions made under this
Article IX on account of an Allowed Claim will be made together with any
dividends, payments or other distributions made on account of, as well as any
obligations arising from, the distributed property as if such Allowed Claim had
been an Allowed Claim on the previous Distribution Dates on which distributions
were made to holders of Claims in Allowed Classes 4 through 7.
(e) PARTIAL DISTRIBUTIONS
Notwithstanding any other provision of the Plan or the documents
referred to by the Plan, the Trust Advisory Board may direct the Trustee to make
one or more distributions to the holders of Disputed Claims, based on the
distributions which such holders would otherwise be entitled to receive based on
the undisputed portions of such Claims if their Claims had not been objected to,
if any. This power of direction may not be used to select individual Disputed
Claims for payment. The Trust Advisory Board may only direct the Trustee to make
distributions on the undisputed portions of all Disputed Claims, or none at all.
Notwithstanding the foregoing, the Trust Advisory Board may not authorize or
direct the Trustee to pay any distribution to entities that may be liable to the
Safety-Kleen Creditor Trust with respect to a Trust Claim unless the holder of
such Claim has discharged its liability to the Safety-Kleen Creditor Trust on
account of the Trust Claim by settlement or otherwise.
(f) CLAIMS ALLOWABLE AGAINST MULTIPLE DEBTORS
Notwithstanding anything herein or in the Schedules to the contrary,
to the extent a Claimholder in Classes 4 through 7 has an Allowed Claim against
more than one of the Debtors based upon the same ground or theory of liability,
such Claim shall only be counted once for determination of distributions of
Trust Assets to be paid to such Claimholder from the Safety-Kleen Creditor
Trust.
ARTICLE X
ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS
10.1 DIP FACILITY CLAIM
On the Effective Date, all obligations of the Debtors under the DIP
Facility shall be paid in full in Cash or otherwise satisfied in a manner
acceptable to such Claimholders in accordance with the terms of the DIP
Facility, and all liens and security interests granted to secure such
obligations shall be deemed cancelled and shall be of no further force and
effect.
10.2 PROFESSIONAL CLAIMS
(a) FINAL FEE APPLICATIONS
All final requests for payment of Professional Claims must be filed no
later than sixty (60) calendar days after the Confirmation Date. The deadline to
file final requests for payment of Professional Claims may be extended by the
Bankruptcy Court upon motion by a Professional. After notice and a hearing in
accordance with the procedures established by the Bankruptcy Code and prior
orders of the Bankruptcy Court, the allowed amounts of such Professional Claims
shall be determined by the Bankruptcy Court.
Plan - 32
(b) PAYMENT OF INTERIM AMOUNTS
Subject to the Holdback Amount, on the Effective Date, the Debtors
shall pay all undisputed amounts owing to Professionals for all outstanding
amounts relating to prior periods through the Confirmation Date.
In order to receive payment on the Effective Date for unbilled fees
and expenses incurred through the Confirmation Date, the Professionals shall
estimate fees and expenses due for periods that have not been billed as of the
Confirmation Date and shall deliver such estimate to counsel for the Debtors,
the Creditors' Committee, the Prepetition Agent and the DIP Agent. Within thirty
(30) calendar days after the Effective Date, a Professional receiving payment
for estimated fees shall submit a detailed invoice covering such estimated
amounts in the manner and providing the detail as set forth in the Professional
Fee Orders.
(c) TERMINATING FEE APPLICATION REQUIREMENTS
Upon the Confirmation Date, any requirement that Professionals comply
with sections 327 through 331 and 363 of the Bankruptcy Code in seeking
retention or compensation for services rendered after such date will terminate
and shall not apply to any services rendered after the Confirmation Date.
10.3 SUBSTANTIAL CONTRIBUTION COMPENSATION AND EXPENSES BAR DATE
Any Person that requests compensation or expense reimbursement for making a
substantial contribution in the Chapter 11 Cases pursuant to section 503(b)(3),
(4) or (5) of the Bankruptcy Code must file an application with the Clerk of the
Bankruptcy Court, on or before the date that is fifteen (15) calendar days after
the Confirmation Date, and serve such application on counsel for the Debtors,
the Trustee, the DIP Agent and the Prepetition Agent and as otherwise required
by the Bankruptcy Court and the Bankruptcy Code or be forever barred from
seeking such compensation or expense reimbursement.
10.4 OTHER ADMINISTRATIVE CLAIMS
All other requests for payment of an Administrative Claim (other than as
set forth in Sections 10.2 and 10.3 of the Plan) must be filed with the
Bankruptcy Court and served on counsel for the Debtors no later than thirty (30)
calendar days after the Confirmation Date. Unless the Debtors or the Disbursing
Agent object to an Administrative Claim within ninety (90) calendar days after
such bar date, such Administrative Claim shall be deemed allowed in the amount
requested against the appropriate Debtor's Estate. In the event that the Debtors
object to an Administrative Claim, the Bankruptcy Court shall determine the
Allowed amount of such Administrative Claim. Notwithstanding the foregoing, no
request for payment of an Administrative Claim need be filed with respect to an
Administrative Claim which is paid or payable by the BSSD Debtors in the
ordinary course of business. The deadline to file an objection to an
Administrative Claim may be extended by the Bankruptcy Court upon motion by the
Debtors or the Disbursing Agent.
10.5 ADMINISTRATIVE CLAIMS ALLOWABLE AGAINST MULTIPLE DEBTORS
Notwithstanding anything herein to the contrary, if a holder of an
Administrative Claim, Canadian Lender Administrative Claim, DIP Facility Claim,
Priority Tax Claim, or DHEC Administrative Claim has an Allowed Claim against
more then one of the Debtors based upon the same ground or theory of liability,
then such Claim shall only be paid once under the Plan.
Plan - 33
ARTICLE XI
SAFETY-KLEEN CREDITOR TRUST
11.1 APPOINTMENT OF TRUSTEE
(a) The Trustee for the Safety-Kleen Creditor Trust shall be designated by
the Trust Advisory Board. The Person designated as Trustee shall file an
affidavit demonstrating that such Person is disinterested. The Person so
designated by the Trust Advisory Board shall become the Trustee upon the
Bankruptcy Court entering an order approving the designation after consideration
of the same and any objections thereto at the Confirmation Hearing.
(b) The Trustee shall have and perform all of the duties, responsibilities,
rights and obligations set forth in the Trust Agreement.
11.2 ASSIGNMENT OF TRUST ASSETS TO THE SAFETY-KLEEN CREDITOR TRUST
On the Effective Date, the Debtors shall transfer and shall be deemed to
have transferred to the Safety-Kleen Creditor Trust, for and on behalf of the
beneficiaries of the Safety-Kleen Creditor Trust (a) the Initial Deposit to be
paid to Safety-Kleen Creditor Trust pursuant to Section 11.5 of the Plan and (b)
the Trust Claims.
11.3 THE SAFETY-KLEEN CREDITOR TRUST
(a) Without any further action of the directors or shareholders of the
Debtors, on the Effective Date, the Trust Agreement, substantially in the form
of Exhibit B to the Plan, shall become effective. The Trustee shall accept the
Safety-Kleen Creditor Trust and sign the Trust Agreement on that date and the
Safety-Kleen Creditor Trust then will be deemed created and effective.
(b) The Trustee shall have full authority to take any steps necessary to
administer the Trust Agreement, including, without limitation, the duty and
obligation to liquidate Trust Assets, to make distributions to the holders of
Allowed Claims in Classes 4 through 7, to review and, if appropriate and
authorized by a majority of the members of the Trust Advisory Board authorized
to vote, to pursue and compromise objections to General Unsecured Claims and, if
authorized by majority vote of those members of the Trust Advisory Board
authorized to vote, to pursue and settle any other Trust Claims. Upon the
assignment of the Trust Claims (which, as stated above, shall be transferred on
the Effective Date), the Trustee, on behalf of the Safety-Kleen Creditor Trust,
shall assume and be responsible for all of the Debtors' responsibilities, duties
and obligations with respect to the subject matter of the Trust Claims, and the
Debtors, the Disbursing Agent and the Reorganized Debtors shall have no other
further rights or obligations with respect thereto.
(c) The Trustee shall take such steps as it deems necessary (having first
obtained such approvals from the Trust Advisory Board as may be necessary, if
any) to reduce the Trust Assets to Cash to make distributions required
hereunder, provided that the Trustee's actions with respect to disposition of
the Trust Assets should be taken in such a manner so as reasonably to maximize
the value of the Trust Assets.
(d) All costs and expenses associated with the administration of the
Safety-Kleen Creditor Trust, including those rights, obligations and duties
described in Section 11.3(b) of the Plan, shall be the responsibility of and
paid by the Safety-Kleen Creditor Trust. Notwithstanding the foregoing, the
Reorganized Debtors shall cooperate with the Trustee in pursuing the Trust
Recoveries and shall afford reasonable access during normal business hours, upon
reasonable notice, to personnel and books and records of the Reorganized Debtors
to representatives of the Safety-Kleen Creditor Trust to enable the Trustee to
perform the Trustee's tasks under the Trust Agreement and the Plan; provided,
however, that the Reorganized Debtors will not be required to make expenditures
in response to such requests determined by them to be unreasonable. The
Bankruptcy Court retains
Plan - 34
jurisdiction to determine the reasonableness of any request for assistance or
related expenditure. Any requests for assistance shall not interfere with the
Reorganized Debtors' business operations.
(e) The Trustee may retain professionals, including, but not limited to,
attorneys, accountants, experts, advisors, consultants, investigators,
appraisers or auctioneers as it may deem necessary, in its sole discretion, to
aid in the performance of its responsibilities pursuant to the terms of the
Trust Agreement and the Plan including, without limitation, the liquidation and
distribution of Trust Assets. Such retained professionals shall continue to
prepare monthly statements in the same manner and in the same detail as required
pursuant to the Professional Fee Order and shall serve such statements on each
member of the Trust Advisory Board. In the event two or more members of the
Trust Advisory Board object to the reasonableness of such fees and expenses, the
matter shall be submitted to the Bankruptcy Court for approval of the
reasonableness of such fees and expenses.
(f) For federal income tax purposes, it is intended that the Safety-Kleen
Creditor Trust be classified as a liquidating trust under section 301.7701-4 of
the Treasury regulations and that such trust is owned by its beneficiaries.
Accordingly, for United States federal income tax purposes, it is intended that
the beneficiaries be treated as if they had received a distribution of an
undivided interest in the Trust Assets and then contributed such interests to
the Safety-Kleen Creditor Trust.
(g) The Trustee shall be responsible for filing all federal, state and
local tax returns for the Safety-Kleen Creditor Trust.
11.4 THE TRUST ADVISORY BOARD
(a) The Trust Advisory Board shall be comprised of five (5) members. The
Creditors' Committee and the Lenders shall each designate two (2) members and
those four members shall designate the remaining member. Such parties shall give
written notice of the identities of such members, file it of record and serve
such notice on each other and on the Debtors on a date that is not less than
five (5) Business Days prior to the Confirmation Hearing. The Trustee shall
consult regularly with the Trust Advisory Board when carrying out the purpose
and intent of the Safety-Kleen Creditor Trust. Members of the Trust Advisory
Board shall be entitled to compensation in accordance with the Trust Agreement
and to reimbursement of the reasonable and necessary expenses incurred by them
in carrying out the purpose of the Trust Advisory Board. Reimbursement of the
reasonable and necessary expenses of the members of the Trust Advisory Board and
their compensation to the extent provided for in the Trust Agreement shall be
payable by the Safety-Kleen Creditor Trust.
(b) In the case of an inability or unwillingness of any member of the Trust
Advisory Board to serve, such member shall be replaced by designation of the
remaining members of the Trust Advisory Board. If any position on the Trust
Advisory Board remains vacant for more than thirty (30) calendar days, such
vacancy shall be filled within fifteen (15) calendar days thereafter by the
designation of the Trustee without the requirement of a vote by the other
members of the Trust Advisory Board.
(c) Upon the certification by the Trustee that all Trust Assets have been
distributed, abandoned or otherwise disposed of, the members of the Trust
Advisory Board shall resign their positions, whereupon they shall be discharged
from further duties and responsibilities.
(d) The Trust Advisory Board may, by majority vote, approve all settlements
of Trust Claims which the Trustee may propose, subject to Bankruptcy Court
approval of such settlements after notice and a hearing; provided, however, that
(i) no member of the Trust Advisory Board may cast a vote with respect to any
Trust Claim to which it is a party and (ii) the Trustee may seek Bankruptcy
Court approval of a settlement of a Trust Claim if the Trust Advisory Board
fails to act on a proposed settlement of such Trust Claim within thirty (30)
calendar days of receiving notice of such proposed settlement by the Trustee.
Plan - 35
(e) The Trust Advisory Board may, by majority vote, authorize the Trustee
to invest the corpus of the Trust in prudent investments in addition to those
described in section 345 of the Bankruptcy Code.
(f) The Trust Advisory Board may remove the Trustee in the event of gross
negligence or willful misconduct; provided, however, that such removal must be
approved by four (4) members of the Trust Advisory Board. In the event the
requisite approval is not obtained, the Trustee may be removed by the Bankruptcy
Court for cause shown. In the event of the resignation or removal of the
Trustee, the Trust Advisory Board shall, by majority vote, designate a person to
serve as successor Trustee.
(g) The Trust Advisory Board shall require a fidelity bond from the Trustee
in such reasonable amount as may be agreed to by majority vote of the Trust
Advisory Board.
(h) The Trust Advisory Board shall govern its proceedings through the
adoption of bylaws, which the Trust Advisory Board may adopt by majority vote.
No provision of such bylaws shall supersede any express provision of the Plan.
11.5 FUNDING OF THE INITIAL DEPOSIT
On the Effective Date or as soon thereafter as practicable, SKC shall fund
the Safety-Kleen Creditor Trust with the Initial Deposit to be used by the
Trustee consistent with the purpose of the Safety-Kleen Creditor Trust and
subject to the terms and conditions of the Trust Agreement and the Plan.
11.6 DISTRIBUTIONS OF TRUST ASSETS
(a) The Trust shall reimburse the Reorganized Debtors for the full amount
of the Initial Deposit from the Trust Recoveries. The Trustee shall pay the
Reorganized Debtors from the Safety-Kleen Creditor Trust one-half (1/2) of all
Trust Recoveries until the Reorganized Debtors are reimbursed for the full
amount of the Initial Deposit.
(b) Subject to Section 11.6(a) hereof and except as otherwise provided
herein, the Trustee shall distribute the remaining Trust Assets as follows:
first, to pay Trust Expenses; second, to repay amounts, if any, borrowed by the
Trustee in accordance with the Trust Agreement and, third, to pay the Pro Rata
distributions to Classes 4 through 7 as required by the Plan. Distributions to
holders of Allowed Claims in Classes 4 through 7 shall be made on a Distribution
Date; provided, however, that the Trustee shall not be required to make any such
distribution on a Distribution Date in the event that, in the Trustee's
discretion (after consultation with the Trust Advisory Board), the aggregate
proceeds and income available for distribution to such Claimholders is not
sufficient to make such a distribution. From time to time, but no less
frequently than quarterly, the Trustee, in consultation with the Trust Advisory
Board, shall estimate the amount of Trust Assets required to pay then
outstanding and reasonably anticipated Trust Expenses. The Cash portion of Trust
Assets in excess of such actual and estimated Trust Expenses shall be made
available for distribution to Classes 4 through 7 Claimholders in the amounts,
on the dates and subject to the other terms and conditions provided in the Plan.
The Trustee will make continuing efforts to dispose of the Trust Assets, make
timely distributions and not unduly prolong the duration of the Safety-Kleen
Creditor Trust.
Plan - 36
ARTICLE XII
EFFECT OF THE PLAN
12.1 REVESTING OF ASSETS
Except as otherwise provided in the Plan, on the Effective Date all
property comprising the Estates of each Debtor (other than a Dissolving Debtor)
shall revest in the respective Reorganized Debtor or its successor as a result
of a Restructuring Transaction, free and clear of all Claims, liens, charges,
encumbrances and Interests of creditors and equity security holders (other than
as expressly provided in the Plan or the Confirmation Order). On the Effective
Date, any property of Dissolving Debtors not previously distributed under the
Plan shall, at the option of the Reorganized Debtors, vest in one or more
Reorganized Debtor as set forth on Exhibit J to the Plan, free and clear of all
Claims, liens, charges, encumbrances and Interests of creditors and equity
security holders of such Dissolving Debtor (other than as expressly provided in
the Plan or the Confirmation Order). As of the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests without supervision of the Bankruptcy
Court free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other
than those restrictions expressly imposed by the Plan and Confirmation Order.
12.2 DISCHARGE OF THE DEBTORS
Pursuant to section 1141(d) of the Bankruptcy Code, except as otherwise
specifically provided in the Plan or in the Confirmation Order, the
distributions and rights that are provided for in the Plan shall be in exchange
for and in complete satisfaction, discharge and release, effective as of the
Effective Date, of Claims and Causes of Action (whether known or unknown)
against, liabilities of, liens on, obligations of and Interests in the Debtors
or the Reorganized Debtors or any of their assets or properties, regardless of
whether any property shall have been distributed or retained pursuant to the
Plan on account of such Claims, including, but not limited to, demands and
liabilities that arose on or before the Effective Date, any liability (including
withdrawal liability) to the extent such Claims relate to services performed by
employees of the Debtors prior to the Petition Date and that arise from a
termination of employment or a termination of any employee or retiree benefit
program regardless of whether such termination occurred prior to or after the
Petition Date and all debts of the kind specified in sections 502(g), 502(h) or
502(i) of the Bankruptcy Code, whether or not (a) a proof of claim based upon
such debt is filed or deemed filed under section 501 of the Bankruptcy Code, (b)
a Claim based upon such debt is Allowed under section 502 of the Bankruptcy Code
or (c) the Claimholder of such a Claim accepted the Plan. The Confirmation Order
shall be a judicial determination of the discharge of all liabilities of the
Debtors, subject to the Effective Date occurring.
12.3 COMPROMISES AND SETTLEMENTS
From and after the Confirmation Date, the Reorganized Debtors may
compromise and settle various Claims against them and claims and Causes of
Action that they have against other Persons without further Bankruptcy Court
approval. After the Effective Date, the Safety-Kleen Creditor Trust may settle
all claims and Causes of Action for which it has authority to liquidate or
affirmatively pursue without further Bankruptcy Court approval for Claims
Allowed in amounts that do not exceed $1,000,000 or for affirmative recoveries
that do not exceed $100,000.
12.4 SETOFFS
The Debtors or the Reorganized Debtors may, but shall not be required to,
set off against any Claim, and the payments or other distributions to be made
pursuant to the Plan in respect of such Claim, claims of any nature whatsoever
that the Debtors or the Reorganized Debtors may have against such Claimholder;
but neither the
Plan - 37
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release of any such claim that the Debtors or the Reorganized Debtors
may have against such Claimholder.
12.5 SATISFACTION OF SUBORDINATION RIGHTS
All Claims against the Debtors and all rights and claims between or among
Claimholders relating in any manner whatsoever to Claims against the Debtors,
based upon any claimed subordination rights (if any), shall be deemed satisfied
by the distributions under the Plan to Claimholders having such subordination
rights, and such subordination rights shall be deemed waived, released,
discharged and terminated as of the Effective Date. Distributions to the various
Classes of Claims hereunder shall not be subject to levy, garnishment,
attachment or similar legal process by any Claimholder by reason of any claimed
subordination rights or otherwise, so that each Claimholder shall have and
receive the benefit of the distributions in the manner set forth in the Plan.
Notwithstanding anything in this Section, the subordination rights between the
Lenders and the holders of the 9 1/4% Senior Subordinated Notes shall remain in
effect and be preserved.
12.6 EXCULPATION AND LIMITATION OF LIABILITY
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THE PLAN (INCLUDING SECTION
12.7(d) HEREOF), THE DEBTORS, THE REORGANIZED DEBTORS, THE CREDITORS' COMMITTEE,
THE MEMBERS OF THE CREDITORS' COMMITTEE IN THEIR REPRESENTATIVE CAPACITY, THE
LENDERS, THE PREPETITION AGENT, THE DIP LENDERS, THE DIP AGENT, ANY OF SUCH
PARTIES' RESPECTIVE PRESENT OR FORMER MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES,
ADVISORS, ATTORNEYS, REPRESENTATIVES, FINANCIAL ADVISORS, INVESTMENT BANKERS OR
AGENTS AND ANY OF SUCH PARTIES' SUCCESSORS AND ASSIGNS, SHALL NOT HAVE OR INCUR,
AND ARE HEREBY RELEASED FROM, ANY CLAIM, OBLIGATION, CAUSES OF ACTION OR
LIABILITY TO ONE ANOTHER OR TO ANY CLAIMHOLDER OR INTERESTHOLDER, OR ANY OTHER
PARTY IN INTEREST, OR ANY OF THEIR RESPECTIVE AGENTS, EMPLOYEES,
REPRESENTATIVES, FINANCIAL ADVISORS, ATTORNEYS OR AFFILIATES, OR ANY OF THEIR
SUCCESSORS OR ASSIGNS, FOR ANY POSTPETITION ACT OR OMISSION IN CONNECTION WITH,
RELATING TO OR ARISING OUT OF THE DEBTORS' CHAPTER 11 CASES, THE PURSUIT OF
CONFIRMATION OF THE PLAN, THE CONSUMMATION OF THE PLAN, THE ADMINISTRATION OF
THE PLAN OR THE PROPERTY TO BE DISTRIBUTED UNDER THE PLAN, EXCEPT FOR ANY ACT OR
OMISSION TO THE EXTENT THAT SUCH ACT OR OMISSION IS DETERMINED IN A FINAL ORDER
TO HAVE CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AND IN ALL RESPECTS
SHALL BE ENTITLED TO REASONABLY RELY UPON THE ADVICE OF COUNSEL WITH RESPECT TO
THEIR DUTIES AND RESPONSIBILITIES UNDER THE PLAN.
NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN, NO CLAIMHOLDER OR
INTERESTHOLDER, OR OTHER PARTY IN INTEREST, NONE OF THEIR RESPECTIVE AGENTS,
EMPLOYEES, REPRESENTATIVES, FINANCIAL ADVISORS, ATTORNEYS OR AFFILIATES, AND NO
SUCCESSORS OR ASSIGNS OF ANY OF THE FOREGOING, SHALL HAVE ANY RIGHT OF ACTION
AGAINST THE DEBTORS, THE REORGANIZED DEBTORS, THE CREDITORS' COMMITTEE, THE
MEMBERS OF THE CREDITORS' COMMITTEE IN THEIR REPRESENTATIVE CAPACITY, THE
LENDERS, THE PREPETITION AGENT, THE DIP LENDERS, THE DIP AGENT OR ANY OF SUCH
PARTIES' RESPECTIVE PRESENT OR FORMER MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES,
ADVISORS, ATTORNEYS, REPRESENTATIVES, FINANCIAL ADVISORS, INVESTMENT BANKERS OR
AGENTS OR SUCH PARTIES' SUCCESSORS AND ASSIGNS, FOR ANY POSTPETITION ACT OR
OMISSION IN CONNECTION WITH, RELATING TO OR ARISING OUT OF THE DEBTORS' CHAPTER
11 CASES, THE PURSUIT OF CONFIRMATION OF THE PLAN, THE CONSUMMATION OF THE PLAN,
THE ADMINISTRATION OF THE PLAN OR THE PROPERTY TO BE DISTRIBUTED UNDER THE PLAN,
EXCEPT FOR ANY ACT OR OMISSION TO THE EXTENT THAT SUCH ACT OR OMISSION IS
DETERMINED IN A FINAL ORDER TO HAVE CONSTITUTED GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
12.7 INDEMNIFICATION OBLIGATIONS
(a) Indemnification Obligations owed to any Professional or advisor of the
Debtors who actively served in such capacity as of the Confirmation Date,
including, without limitation, accountants, auditors, financial consultants,
underwriters or outside attorneys, arising under contracts that applied, in
whole or in part, to any period occurring on or after the Petition Date shall be
deemed to be, and shall be treated as though they are, executory contracts that
are assumed pursuant to section 365 of the Bankruptcy Code under the Plan.
Plan - 38
(b) Indemnification Obligations owed to any other Professional or advisor
of the Debtors, including, without limitation, accountants, auditors, financial
advisors and investment bankers and outside attorneys, including without
limitation any party set forth on Exhibit K to the Plan, shall be deemed to be,
and shall be treated as though they are, executory contracts that are rejected
pursuant to section 365 of the Bankruptcy Code under the Plan.
(c) Indemnification Obligations owed to Current Directors and Officers as
of the Confirmation Date, whether pursuant to charter, bylaws, contract or
applicable state law, shall be deemed to be, and shall be treated as though they
are, executory contracts that are assumed pursuant to section 365 of the
Bankruptcy Code under the Plan, and such obligations (subject to any defense
thereto) shall survive confirmation of the Plan and remain unaffected thereby,
irrespective of whether indemnification is owed in connection with a
pre-Petition Date or post-Petition Date occurrence; provided, however, that the
foregoing assumption shall not affect any release of such obligations given to
the Debtors before the Effective Date or the Reorganized Debtors on or after the
Effective Date.
(d) Indemnification Obligations owed to any other Person not specified
above in Section 12.7(c) shall be deemed to be, and shall be treated as though
they are, executory contracts that are rejected pursuant to section 365 of the
Bankruptcy Code under the Plan.
12.8 RELEASE BY DEBTORS AND DEBTORS-IN-POSSESSION
(a) Pursuant to section 1123(b)(3) of the Bankruptcy Code, and unless
otherwise provided herein or in the Confirmation Order effective as of the
Effective Date, the Debtors, in their individual capacities and as
debtors-in-possession, for and on behalf of the Estates, release and discharge:
(i) the Lenders, the Prepetition Agent, the DIP Lenders and the DIP Agent in
their respective capacities as such; (ii) all directors of the Debtors serving
in such capacity postpetition; (iii) all officers of the Debtors serving in such
capacity as of the Confirmation Date; (iv) attorneys, accountants, auditors,
financial advisors and investment bankers of the Debtors actively serving in
such capacities as of the Confirmation Date and (v) all members of the
Creditors' Committee in their capacity as Creditors' Committee members, agents
of or acting for the Creditors' Committee, including all professionals retained
by the Creditors' Committee (each of the Persons described in clauses (i), (ii),
(iii), (iv) and (v), a "Released Person") for and from any and all claims or
Causes of Action existing as of the Effective Date in any manner arising from,
based on or relating to, in whole or in part, the subject matter of, or the
transactions or events giving rise to, any Claim or Interest that is treated in
the Plan, the business or contractual arrangements between any Debtor or any
Released Person, the restructuring of Claims and Interests prior to or in the
Chapter 11 Cases or any act, omission, occurrence or event in any manner related
to any such Claims, Interest, restructuring or the Chapter 11 Cases.
(b) The Safety-Kleen Creditor Trust, the Reorganized Debtors and any
newly-formed entities that will be continuing the Debtors' businesses after the
Effective Date shall be bound, to the same extent the Debtors are bound, by the
releases set forth above in Section 12.8(a).
(c) Notwithstanding anything else contained in this Section 12.8, a
Released Person shall not include (i) a Person (other than a Debtor) that is a
party to a Retained Action with respect to that Retained Action; (ii) any
director, officer or employee who has filed and not released, settled or
withdrawn with prejudice, any Priority Claim, Administrative Claim or request
for payment of Administrative Claim and (iii) the parties set forth on Exhibit K
to the Plan.
12.9 RELEASE BY HOLDERS OF CLAIMS AND INTERESTS
A RELEASE OBLIGOR SHALL BE PRESUMED CONCLUSIVELY TO HAVE ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND FOREVER, RELEASED AND DISCHARGED EACH RELEASED
PERSON, AND ANY PERSON THAT MAY BE LIABLE DERIVATIVELY THROUGH ANY OF THE
FOREGOING, FROM ANY CLAIM OR CAUSE OF ACTION EXISTING AS OF THE EFFECTIVE DATE
ARISING
Plan - 39
FROM, BASED ON OR RELATING TO, IN WHOLE OR IN PART (a) THE SUBJECT MATTER OF, OR
THE TRANSACTION OR EVENT GIVING RISE TO, THE CLAIM OR INTEREST OF SUCH RELEASE
OBLIGOR AND (b) ANY ACT, OMISSION, OCCURRENCE OR EVENT IN ANY MANNER RELATED TO
SUCH SUBJECT MATTER, TRANSACTION OR OBLIGATION.
12.10 RELEASE BY INSURED PERSONS
(a) ANY PERSON THAT CLAIMS BENEFITS OF INSURANCE UNDER, OR THAT QUALIFIES
OR CLAIMS TO QUALIFY, OR HAS, OR MAY CLAIM TO HAVE, ANY RIGHT OR INTEREST AS AN
INSURED UNDER THE RESOLVED INSURANCE POLICIES, WHETHER AS A NAMED INSURED,
ADDITIONAL NAMED INSURED OR SUCCESSOR OR ASSIGNEE TO A NAMED AND/OR ADDITIONAL
INSURED, OR IN ANY OTHER MANNER, SHALL HAVE NO RIGHT OF ACTION OR ANY OTHER
RIGHT, INCLUDING THE RIGHT TO TENDER OR PRESENT ANY CLAIMS AGAINST THE SETTLING
INSURERS BASED UPON, RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THE RESOLVED INSURANCE POLICIES.
(b) ANY PERSON THAT CLAIMS BENEFITS OF INSURANCE UNDER, OR THAT QUALIFIES
OR CLAIMS TO QUALIFY, OR HAS, OR MAY CLAIM TO HAVE, ANY RIGHT OR INTEREST AS AN
INSURED UNDER THE RESOLVED INSURANCE POLICIES, WHETHER AS A NAMED INSURED,
ADDITIONAL NAMED INSURED OR SUCCESSOR OR ASSIGNEE TO A NAMED AND/OR ADDITIONAL
INSURED, OR IN ANY OTHER MANNER, SHALL BE PERMANENTLY RESTRAINED AND ENJOINED
FROM TAKING ANY ACTION, OR COMMENCING OR CONTINUING ANY ACTION, EMPLOYMENT OF
PROCESS OR ANY OTHER ACT TO ENFORCE, COLLECT, OFFSET OR RECOVER ANY CLAIM, CAUSE
OF ACTION OR EQUITABLE CLAIM OR RIGHT AGAINST THE SETTLING INSURERS BASED UPON,
RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE RESOLVED INSURANCE
POLICIES.
12.11 INJUNCTION
THE SATISFACTION, RELEASE AND DISCHARGE PURSUANT TO ARTICLE XII OF THE PLAN
SHALL ALSO ACT AS AN INJUNCTION AGAINST ANY PERSON COMMENCING OR CONTINUING ANY
ACTION, EMPLOYMENT OF PROCESS OR ACT TO COLLECT, OFFSET OR RECOVER ANY CLAIM OR
CAUSE OF ACTION SATISFIED, RELEASED OR DISCHARGED UNDER THE PLAN TO THE FULLEST
EXTENT AUTHORIZED OR PROVIDED BY THE BANKRUPTCY CODE, INCLUDING, WITHOUT
LIMITATION, TO THE EXTENT PROVIDED FOR OR AUTHORIZED BY SECTIONS 524 AND 1141
THEREOF.
ARTICLE XIII
CONDITIONS PRECEDENT
13.1 CONDITIONS TO CONFIRMATION
The following are conditions precedent to confirmation of the Plan, each of
which may be satisfied or waived in accordance with Section 13.3 of the Plan:
(a) The Bankruptcy Court shall have approved by Final Order a disclosure
statement with respect to the Plan in form and substance reasonably acceptable
to the Debtors.
(b) The Confirmation Order shall be in form and substance reasonably
acceptable to the Debtors.
13.2 CONDITIONS TO CONSUMMATION
The following are conditions precedent to the occurrence of the Effective
Date, each of which may be satisfied or waived in accordance with Section 13.3
of the Plan:
(a) The Bankruptcy Court shall have entered one or more orders (which may
include the Confirmation Order) authorizing the rejection of leases and
executory contracts by the Reorganized Debtors as contemplated by Section 7.1 of
the Plan.
Plan - 40
(b) The Debtors shall have entered into the Exit Facility and all
conditions precedent to the consummation thereof shall have been waived or
satisfied in accordance with the terms thereof.
(c) The Confirmation Order shall have been entered by the Bankruptcy Court
and shall be a Final Order, and no request for revocation of the Confirmation
Order under section 1144 of the Bankruptcy Code shall have been made, or, if
made, shall remain pending.
(d) The Debtors shall have received the proceeds of the Laidlaw Claim.
(e) The Confirmation Date shall have occurred and the Confirmation Order
shall, among other things, provide that:
(i) the provisions of the Confirmation Order are non-severable and
mutually dependent;
(ii) all executory contracts or unexpired leases assumed (and not
otherwise previously assigned) by the Debtors during the Chapter 11 Cases
or under the Plan shall be assigned and transferred to, and remain in full
force and effect for the benefit of, the Reorganized Debtors,
notwithstanding any provision in such contract or lease (including those
described in sections 365(b)(2) and (f) of the Bankruptcy Code) that
prohibits such assignment or transfer or that enables or requires
termination of such contract or lease;
(iii) the transfers of property by the Debtors (A) to the Reorganized
Debtors (1) are or shall be legal, valid, and effective transfers of
property, (2) vest or shall vest good title to such property in the
Reorganized Debtors free and clear of all liens, charges, claims,
encumbrances or interests, except as expressly provided in the Plan or
Confirmation Order, (3) do not and shall not constitute avoidable transfers
under the Bankruptcy Code or under applicable nonbankruptcy law and (4) do
not and shall not subject the Reorganized Debtors to any liability by
reason of such transfer under the Bankruptcy Code or under applicable
nonbankruptcy law, including, without limitation, any laws affecting
successor or transferee liability and (B) to Claimholders under the Plan
are for good consideration and value and are in the ordinary course of the
Debtors' businesses;
(iv) except as expressly provided in the Plan or the Confirmation
Order, each of the Debtors is discharged effective upon the Effective Date
from any Debt, and each of the Debtor's liability in respect thereof is
extinguished completely, whether reduced to judgment or not, liquidated or
unliquidated, contingent or noncontingent, asserted or unasserted, fixed or
unfixed, matured or unmatured, disputed or undisputed, legal or equitable,
known or unknown, or that arose from any agreement of a Debtor entered into
or obligation of a Debtor incurred before the Effective Date, or from any
conduct of a Debtor prior to the Effective Date, or that otherwise arose
before the Effective Date, including, without limitation, all interest, if
any, on any such debts, whether such interest accrued before or after the
Petition Date, and any liability (including withdrawal liability) to the
extent such liability relates to services performed by employees of the
Debtors prior to the Petition Date and that arise from a termination of
employment or a termination of any employee or retiree benefit program
regardless of whether such termination occurred prior to or after the
Petition Date;
(v) except as expressly provided in the Plan, all Interests shall be
terminated effective upon the Effective Date;
(vi) New Holdco is authorized to issue the New Common Stock and
Reorganized Systems is authorized to issue the New Subordinated Notes; and
Plan - 41
(vii) the Bankruptcy Court shall have determined that the New Common
Stock and New Subordinated Notes issued under the Plan in exchange for
Claims against the Debtors are exempt from registration under the
Securities Act of 1933 pursuant to, and to the extent provided by, section
1145 of the Bankruptcy Code.
13.3 WAIVER OF CONDITIONS TO CONFIRMATION OR CONSUMMATION
The conditions set forth in Sections 13.1 and 13.2 of the Plan may be
waived by the Debtors in their sole discretion without any notice to parties in
interest or the Bankruptcy Court and without a hearing. The failure to satisfy
or waive any condition to the Confirmation Date or the Effective Date may be
asserted by the Debtors in their sole discretion regardless of the circumstances
giving rise to the failure of such condition to be satisfied (including any
action or inaction by the Debtors in their sole discretion). The failure of the
Debtors in their sole discretion to exercise any of the foregoing rights shall
not be deemed a waiver of any other rights and each such right shall be deemed
an ongoing right, which may be asserted at any time.
ARTICLE XIV
RETENTION OF JURISDICTION
Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, the Bankruptcy
Court shall have exclusive jurisdiction of all matters arising out of, and
related to, the Chapter 11 Cases and the Plan, including, among other things,
the following matters:
(a) to hear and determine pending motions for the assumption or rejection
of executory contracts or unexpired leases or the assumption and assignment, as
the case may be, of executory contracts or unexpired leases to which any of the
Debtors is a party or with respect to which any of the Debtors may be liable,
and to hear and determine the allowance of Claims resulting therefrom including
the amount of Cure, if any, required to be paid to such Claimholders;
(b) to adjudicate any and all adversary proceedings, applications and
contested matters that may be commenced or maintained pursuant to the Chapter 11
Cases or the Plan, including, without limitation, any adversary proceeding or
contested matter with respect to a Trust Claim and all controversies and issues
arising from or relating to any of the foregoing;
(c) to ensure that distributions to holders of Allowed Claims are
accomplished as provided herein;
(d) to hear and determine any and all objections to the allowance or
estimation of Claims filed, both before and after the Confirmation Date,
including any objections to the classification of any Claim or Interest, and to
allow or disallow any Claim, in whole or in part;
(e) to enter and implement such orders as may be appropriate if the
Confirmation Order is for any reason stayed, revoked, modified or vacated;
(f) to issue orders in aid of execution, implementation or consummation of
the Plan;
(g) to consider any modifications of the Plan, to cure any defect or
omission, or to reconcile any inconsistency in any order of the Bankruptcy
Court, including, without limitation, the Confirmation Order;
(h) to hear and determine all applications for compensation and
reimbursement of Professional Claims under the Plan or under sections 330, 331,
363, 503(b), 1103 and 1129(a)(4) of the Bankruptcy Code; provided, however, that
from and after the Confirmation Date, the payment of the fees and expenses of
the
Plan - 42
retained professionals of the Reorganized Debtors accruing on or after the
Confirmation Date shall be made in the ordinary course of business and shall not
be subject to the approval of the Bankruptcy Court;
(i) to determine requests for the payment of Claims entitled to priority
under section 507(a)(1) of the Bankruptcy Code, including compensation of and
reimbursement of expenses of parties entitled thereto;
(j) to hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan, including disputes
arising under agreements, documents or instruments executed in connection with
the Plan;
(k) to hear and determine all suits or adversary proceedings to recover
assets of the Debtors and property of their Estates, wherever located;
(l) to hear and determine matters concerning state, local and federal taxes
in accordance with sections 346, 505 and 1146 of the Bankruptcy Code;
(m) to hear any other matter not inconsistent with the Bankruptcy Code;
(n) to hear and determine all disputes involving the existence, nature or
scope of the Debtors' discharge, including any dispute relating to any liability
arising out of the termination of employment or the termination of any employee
or retiree benefit program, regardless of whether such termination occurred
prior to or after the Effective Date;
(o) to hear and determine disputes arising in connection with the
Safety-Kleen Creditor Trust and the interpretation, implementation or
enforcement of the Trust Agreement;
(p) to enter a final decree closing the Chapter 11 Cases; and
(q) to enforce all orders previously entered by the Bankruptcy Court.
Notwithstanding anything contained herein to the contrary and only to the extent
the Bankruptcy Court has previously ordered otherwise, the Bankruptcy Court
retains exclusive jurisdiction to hear and determine disputes concerning Claims,
Retained Actions and Trust Claims and any motions to compromise or settle such
disputes. Despite the foregoing, if the Bankruptcy Court is determined not to
have jurisdiction with respect to any of the foregoing, or if the Reorganized
Debtors or the Safety-Kleen Creditor Trust chooses to pursue any Retained Action
or Trust Claim (as applicable) in another court of competent jurisdiction, the
Reorganized Debtors or the Safety-Kleen Creditor Trust (as applicable) shall
have authority to bring such action in any other court of competent
jurisdiction.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of the Debtors, the
Reorganized Debtors, all present and former Claimholders, all present and former
Interestholders, other parties in interest and their respective successors and
assigns.
Plan - 43
15.2 MODIFICATION AND AMENDMENTS
The Debtors may alter, amend or modify the Plan or any Exhibits thereto
under section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Hearing. Following the Confirmation Date, the Debtors may make
ministerial changes as the Debtors or Reorganized Debtors deem necessary,
without notice and a hearing under section 1127(b) of the Bankruptcy Code or
disclosure or re-solicitation under section 1127(c) of the Bankruptcy Code, as
long as such changes do not materially and adversely affect the rights of any
party-in-interest without the consent of such party in interest. Additionally,
after the Confirmation Date and prior to substantial consummation of the Plan as
defined in section 1101(2) of the Bankruptcy Code, the Debtors or Reorganized
Debtors may, under section 1127(b) of the Bankruptcy Code, institute proceedings
in the Bankruptcy Court to remedy any defect or omission or reconcile any
inconsistencies in the Plan, the Disclosure Statement or the Confirmation Order,
and such matters as may be necessary to carry out the purposes and effects of
the Plan.
15.3 WITHHOLDING AND REPORTING REQUIREMENTS
In connection with the Plan and all instruments issued in connection
therewith and distributions thereon, the Debtors shall comply with all
withholding and reporting requirements imposed by any federal, state, local or
foreign taxing authority, and all distributions hereunder shall be subject to
any such withholding and reporting requirements.
15.4 COMMITTEES
Effective on the Effective Date, the Creditors' Committee shall dissolve
whereupon its members, Professionals and agents shall be released from any
further duties and responsibilities in the Chapter 11 Cases and under the
Bankruptcy Code, except with respect to filing applications for Professional
Claims.
15.5 REVOCATION, WITHDRAWAL OR NON-CONSUMMATION
(a) RIGHT TO REVOKE OR WITHDRAW
The Debtors reserve the right to revoke or withdraw the Plan as to all
Debtors, or as to one or more but less than all Debtors, at any time prior to
the Effective Date.
(b) EFFECT OF WITHDRAWAL, REVOCATION OR NON-CONSUMMATION
If the Debtors revoke or withdraw the Plan with respect to one or more
Debtors prior to the Effective Date, or if the Confirmation Date or the
Effective Date does not occur with respect to one or more Debtors (any such
Debtor, a "Non-Consummating Debtor"), then the Plan, any settlement or
compromise embodied in the Plan (including the fixing or limiting to an amount
certain any Claim or Class of Claims), the assumption or rejection of executory
contracts or unexpired leases effected by the Plan and any document or agreement
executed pursuant to the Plan shall be null and void with respect to a
Non-Consummating Debtor. In such event, nothing contained herein, and no acts
taken in preparation for consummation of the Plan, shall be deemed to constitute
a waiver or release of any claims by or against a Non-Consummating Debtor or any
other Person, to prejudice in any manner the rights of a Non-Consummating Debtor
or any Person in any further proceedings involving such Non-Consummating Debtor
or to constitute an admission of any sort by such Non-Consummating Debtor any
other Person.
Plan - 44
15.6 PAYMENT OF STATUTORY FEES
All fees payable under section 1930 of title 28 of the United States Code,
as determined by the Bankruptcy Court at the Confirmation Hearing, shall be paid
on or before the Effective Date. All such fees that arise after the Effective
Date but before the closing of the Chapter 11 Cases shall be paid by the
Reorganized Debtors.
15.7 PREPAYMENT
Except as otherwise provided in the Plan, any ancillary documents entered
into in connection herewith or the Confirmation Order, the Debtors shall have
the right to prepay, without penalty, all or any portion of an Allowed Claim at
any time; provided, however, that any such prepayment shall not be violative of,
or otherwise prejudice, the relative priorities and parities among the Classes
of Claims.
15.8 NOTICES
Any notice required or permitted to be provided to the Debtors, the
Creditors' Committee, the DIP Agent or the Prepetition Agent under the Plan
shall be in writing and served by (a) certified mail, return receipt requested,
(b) hand delivery or (c) overnight delivery service, to be addressed as follows:
If to the Debtors:
Safety-Kleen Systems, Inc.
1301 Gervais Street
Suite 300
Columbia, South Carolina 22920
Attention: General Counsel
and
Safety-Kleen Systems, Inc.
5400 Legacy Drive
Plano, Texas 75024-3015
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: D. J. Baker, Esq.
J. Gregory St. Clair, Esq.
If to the Creditors' Committee:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Luc Despins, Esq.
Susheel Kirpalani, Esq.
Plan - 45
If to the DIP Agent:
Toronto Dominion (Texas), Inc.
31 West 52nd Street
New York, New York 10019
Attention: Peter Spielman
and
Toronto Dominion
900 Fannin, Suite 1700
Houston, Texas 77010
Attention: James Birdwell
with a copy to:
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Mark Thompson, Esq.
If to the Prepetition Agent:
Toronto Dominion (Texas), Inc.
31 West 52nd Street
New York, New York 10019
Attention: Peter Spielman
and
Toronto Dominion
900 Fannin, Suite 1700
Houston, Texas 77010
Attention: James Birdwell
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Kathryn Turner, Esq.
15.9 TERM OF INJUNCTIONS OR STAYS
Unless otherwise provided herein or in the Confirmation Order, all
injunctions or stays provided for in the Chapter 11 Cases under sections 105 or
362 of the Bankruptcy Code or otherwise, and extant on the Confirmation Date,
shall remain in full force and effect until the Effective Date.
Plan - 46
15.10 GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law (including the
Bankruptcy Code and Bankruptcy Rules) or unless otherwise specifically stated,
the laws of the State of Delaware shall govern the construction and
implementation of the Plan, any agreements, documents and instruments executed
in connection with the Plan, and corporate governance matters.
15.11 NO WAIVER OR ESTOPPEL
Each Claimholder or Interestholder shall be deemed to have waived any right
to assert that its Claim or Interest should be Allowed in a certain amount, in a
certain priority, secured or not subordinated by virtue of an agreement made
with the Debtors and/or their counsel, the Creditors' Committee and/or its
counsel, or any other party, if such agreement was not disclosed in the Plan,
the Disclosure Statement or papers filed with the Bankruptcy Court.
15.12 NO SUBSTANTIVE CONSOLIDATION
The Plan does not provide for substantive consolidation of the Debtors'
Estates. The structure of the Plan shall not operate to impose liability on any
Reorganized Debtor for the Claims against any other Debtor or the debts and
obligations of any other Reorganized Debtor.
15.13 ALLOCATION OF PLAN DISTRIBUTIONS BETWEEN PRINCIPAL AND INTEREST
To the extent that any Allowed Claim entitled to a distribution under the
Plan is composed of indebtedness and accrued but unpaid interest thereon, such
distribution shall, for federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
15.14 COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, unless
otherwise expressly provided, the provisions of Bankruptcy Rule 9006(a) shall
apply.
15.15 EXHIBITS
All Exhibits referenced in the Plan are incorporated into and are a part of
the Plan as if set forth in full herein and, to the extent not annexed hereto,
shall be filed with the Bankruptcy Court on or before the Exhibit Filing Date.
After the Exhibit Filing Date, copies of Exhibits can be obtained by (a)
accessing a website, the address of which will be provided, and downloading them
at no charge or (b) requesting them by calling (i) Skadden, Arps, Slate, Meagher
& Flom LLP at (888) 358-9792 or (ii) Innisfree M&A Incorporated at (877)
750-2689.
Plan - 47
Dated: November 27, 2002
Respectfully submitted,
SAFETY-KLEEN CORP. AND CERTAIN OF ITS SUBSIDIARIES AND
AFFILIATES WHO ARE ALSO DEBTORS AND
DEBTORS-IN-POSSESSION IN THE CHAPTER 11 CASES
By: /s/ Larry W. Singleton
--------------------------------------------------
Larry W. Singleton
Their: Executive Vice President, Chief Financial
Officer and Executive Officer
PLAN EXHIBIT A
SCHEDULE OF PROPONENTS OF THE PLAN
AND CORRESPONDING BANKRUPTCY CASE NUMBERS
- ------------------------------------------------------------------------------------------------------
NAME OF DEBTOR BANKRUPTCY CASE NUMBER
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN CORP. 00-2303(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN SERVICES, INC. 00-2304(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (CONSULTING), INC. 00-2305(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (LONE AND GRASSY MOUNTAIN), INC. 00-2306(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (TULSA), INC. 00-2307(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (SAN ANTONIO), INC. 00-2308(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (WICHITA), INC. 00-2309(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (DELAWARE), INC. 00-2310(PJW)
- ------------------------------------------------------------------------------------------------------
SK SERVICES (EAST), L.C. 00-2311(PJW)
- ------------------------------------------------------------------------------------------------------
SK SERVICES, L.C. 00-2312(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (ROSEMOUNT), INC. 00-2313(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (SAWYER), INC. 00-2314(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (PPM), INC. 00-2315(PJW)
- ------------------------------------------------------------------------------------------------------
NINTH STREET PROPERTIES, INC. 00-2316(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (SAN JOSE), INC. 00-2317(PJW)
- ------------------------------------------------------------------------------------------------------
CHEMCLEAR, INC. OF LOS ANGELES 00-2318(PJW)
- ------------------------------------------------------------------------------------------------------
USPCI, INC. OF GEORGIA 00-2319(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN HOLDINGS, INC. 00-2320(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (WESTMORELAND), INC. 00-2321(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (BUTTONWILLOW), INC. 00-2322(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (NE), INC. 00-2323(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (CROWLEY), INC. 00-2324(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (LAPORTE), INC. 00-2325(PJW)
- ------------------------------------------------------------------------------------------------------
Plan Ex. A - 1
- ------------------------------------------------------------------------------------------------------
NAME OF DEBTOR BANKRUPTCY CASE NUMBER
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (TG), INC. 00-2326(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (ROEBUCK), INC. 00-2327(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (TS), INC. 00-2328(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (COLFAX), INC. 00-2329(PJW)
- ------------------------------------------------------------------------------------------------------
GSX CHEMICAL SERVICES OF OHIO, INC. 00-2330(PJW)
- ------------------------------------------------------------------------------------------------------
LEMC, INC. 00-2331(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN CHEMICAL SERVICES, INC. 00-2332(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (ALTAIR), INC. 00-2333(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (FS), INC. 00-2334(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (BDT), INC. 00-2335(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (GS), INC. 00-2336(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (CLIVE), INC. 00-2337(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (WT), INC. 00-2338(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN OSCO HOLDINGS, INC. 00-2339(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (NASHVILLE), INC. 00-2340(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (BARTOW), INC. 00-2341(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (CALIFORNIA), INC. 00-2342(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (CHATTANOOGA), INC. 00-2343(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (PECATONICA), INC. 00-2344(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (PINEWOOD), INC. 00-2345(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (WHITE CASTLE), INC. 00-2346(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (PUERTO RICO), INC. 00-2347(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (BRIDGEPORT), INC. 00-2348(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (DEER PARK), INC. 00-2349(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (BATON ROUGE), INC. 00-2350(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (PLAQUEMINE), INC. 00-2351(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (CUSTOM TRANSPORT), INC. 00-2352(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (LOS ANGELES), INC. 00-2353(PJW)
- ------------------------------------------------------------------------------------------------------
Plan Ex. A - 2
- ------------------------------------------------------------------------------------------------------
NAME OF DEBTOR BANKRUPTCY CASE NUMBER
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (TIPTON), INC. 00-2354(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (GLOUCESTER), INC. 00-2355(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (DEER TRAIL), INC. 00-2356(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (MT. PLEASANT), INC. 00-2357(PJW)
- -----------------------------------------------------------------------------------------------------
SAFETY-KLEEN (MINNEAPOLIS), INC. 00-2358(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (ARAGONITE), INC. 00-2359(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (SUSSEX), INC. 00-2360(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN (ENCOTEC), INC. 00-2361(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN SYSTEMS, INC. 00-2362(PJW)
- ------------------------------------------------------------------------------------------------------
ECOGARD, INC. 00-2363(PJW)
- ------------------------------------------------------------------------------------------------------
SK EUROPE, INC. 00-2364(PJW)
- ------------------------------------------------------------------------------------------------------
DIRT MAGNET, INC. 00-2365(PJW)
- ------------------------------------------------------------------------------------------------------
THE MIDWAY GAS AND OIL CO. 00-2366(PJW)
- ------------------------------------------------------------------------------------------------------
ELGINT CORP. 00-2367(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN ENVIROSYSTEMS COMPANY 00-2368(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN ENVIROSYSTEMS COMPANY OF PUERTO RICO 00-2369(PJW)
- ------------------------------------------------------------------------------------------------------
PETROCON, INC. 00-2370(PJW)
- ------------------------------------------------------------------------------------------------------
PHILLIPS ACQUISITION CORP. 00-2371(PJW)
- ------------------------------------------------------------------------------------------------------
SK REAL ESTATE INC. 00-2372(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN INTERNATIONAL, INC. 00-2373(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN OIL RECOVERY CO. 00-2374(PJW)
- ------------------------------------------------------------------------------------------------------
SAFETY-KLEEN OIL SERVICES, INC. 00-2375(PJW)
- ------------------------------------------------------------------------------------------------------
THE SOLVENTS RECOVERY SERVICE OF NEW JERSEY, INC. 00-2376(PJW)
- ------------------------------------------------------------------------------------------------------
Plan Ex. A - 3
PLAN EXHIBIT B
SAFETY-KLEEN CREDITOR TRUST AGREEMENT
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT C
RESTATED ARTICLES OF INCORPORATION
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT D
RESTATED BYLAWS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT E
SCHEDULE OF ASSUMED EXECUTORY CONTRACTS AND UNEXPIRED LEASES
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT F
SCHEDULE OF CLASS 7 GENERAL UNSECURED CLAIMS SUB-CLASSES
Class 7.01: Safety-Kleen (Encotec), Inc. General Unsecured Claims
Class 7.01 consists of all Safety-Kleen (Encotec), Inc. General Unsecured
Claims.
Class 7.02: Safety-Kleen Systems, Inc. Claims
Class 7.02 consists of all Safety-Kleen Systems, Inc. General Unsecured
Claims.
Class 7.03: Ecogard Inc. General Unsecured Claims
Class 7.03 consists of all Ecogard Inc. General Unsecured Claims.
Class 7.04: SK Europe, Inc. General Unsecured Claims
Class 7.04 consists of all SK Europe, Inc. General Unsecured Claims.
Class 7.05: Dirt Magnet, Inc. General Unsecured Claims
Class 7.05 consists of all Dirt Magnet, Inc. General Unsecured Claims.
Class 7.06: The Midway Gas and Oil Co. General Unsecured Claims
Class 7.06 consists of all The Midway Gas and Oil Co. General Unsecured
Claims.
Class 7.07: Elgint Corp. General Unsecured Claims
Class 7.07 consists of all Elgint Corp. General Unsecured Claims.
Class 7.08: Safety-Kleen Envirosystems Company General Unsecured Claims
Class 7.08 consists of all Safety-Kleen Envirosystems Company General
Unsecured Claims.
Class 7.09: Safety-Kleen Envirosystems Company of Puerto Rico General Unsecured
Claims
Class 7.09 consists of all Safety-Kleen Envirosystems Company of Puerto
Rico General Unsecured Claims.
Class 7.10: Petrocon, Inc. General Unsecured Claims
Class 7.10 consists of all Petrocon, Inc. General Unsecured Claims.
Plan Ex. F - 1
Class 7.11: Phillips Acquisition Corp. General Unsecured Claims
Class 7.11 consists of all Phillips Acquisition Corp. General Unsecured
Claims.
Class 7.12: SK Real Estate Inc. General Unsecured Claims
Class 7.12 consists of all SK Real Estate Inc. General Unsecured Claims.
Class 7.13: Safety-Kleen International, Inc. General Unsecured Claims
Class 7.13 consists of all Safety-Kleen International, Inc. General
Unsecured Claims.
Class 7.14: Safety-Kleen Oil Recovery Co. General Unsecured Claims
Class 7.14 consists of all Safety-Kleen Oil Recovery Co. General Unsecured
Claims.
Class 7.15: Safety-Kleen Oil Services, Inc. General Unsecured Claims
Class 7.15 consists of all Safety-Kleen Oil Services, Inc. General
Unsecured Claims.
Class 7.16: The Solvents Recovery Service of New Jersey, Inc. General Unsecured
Claims
Class 7.16 consists of all The Solvents Recovery Service of New Jersey,
Inc. General Unsecured Claims.
Class 7.17: Safety-Kleen Services, Inc. General Unsecured Claims
Class 7.17 consists of all Safety-Kleen Services, Inc. General Unsecured
Claims.
Class 7.18: Safety-Kleen (Consulting), Inc. General Unsecured Claims
Class 7.18 consists of all Safety-Kleen (Consulting), Inc. General
Unsecured Claims.
Class 7.19: Safety-Kleen (Lone and Grassy Mountain), Inc. General Unsecured
Claims
Class 7.19 consists of all Safety-Kleen (Lone and Grassy Mountain), Inc.
General Unsecured Claims.
Class 7.20: Safety-Kleen (Tulsa), Inc. General Unsecured Claims
Class 7.20 consists of all Safety-Kleen (Tulsa), Inc. General Unsecured
Claims.
Class 7.21: Safety-Kleen (San Antonio), Inc. General Unsecured Claims
Class 7.21 consists of all Safety-Kleen (San Antonio), Inc. General
Unsecured Claims.
Class 7.22: Safety-Kleen (Wichita), Inc. General Unsecured Claims
Class 7.22 consists of all Safety-Kleen (Wichita), Inc. General Unsecured
Claims.
Plan Ex. F - 2
Class 7.23: Safety-Kleen (Delaware), Inc. General Unsecured Claims
Class 7.23 consists of all Safety-Kleen (Delaware), Inc. General Unsecured
Claims.
Class 7.24: SK Services (East), L.C. General Unsecured Claims
Class 7.24 consists of all SK Services (East), L.C. General Unsecured
Claims.
Class 7.25: SK Services, L.C. General Unsecured Claims
Class 7.25 consists of all SK Services, L.C. General Unsecured Claims.
Class 7.26: Safety-Kleen (Rosemount), Inc. General Unsecured Claims
Class 7.26 consists of all Safety-Kleen (Rosemount), Inc. General Unsecured
Claims.
Class 7.27: Safety-Kleen (Sawyer), Inc. General Unsecured Claims
Class 7.27 consists of all Safety-Kleen (Sawyer), Inc. General Unsecured
Claims.
Class 7.28: Safety-Kleen (PPM), Inc. General Unsecured Claims
Class 7.28 consists of all Safety-Kleen (PPM), Inc. General Unsecured
Claims.
Class 7.29: Ninth Street Properties, Inc. General Unsecured Claims
Class 7.29 consists of all Ninth Street Properties, Inc. General Unsecured
Claims.
Class 7.30: Safety-Kleen (San Jose), Inc. General Unsecured Claims
Class 7.30 consists of all Safety-Kleen (San Jose), Inc. General Unsecured
Claims.
Class 7.31: Chemclear, Inc. of Los Angeles General Unsecured Claims
Class 7.31 consists of all Chemclear, Inc. of Los Angeles General Unsecured
Claims.
Class 7.32: USPCI, Inc. of Georgia General Unsecured Claims
Class 7.32 consists of all USPCI, Inc. of Georgia General Unsecured Claims.
Class 7.33: Safety-Kleen Holdings, Inc. General Unsecured Claims
Class 7.33 consists of all Safety-Kleen Holdings, Inc. General Unsecured
Claims.
Class 7.34: Safety-Kleen (Westmorland), Inc. General Unsecured Claims
Class 7.34 consists of all Safety-Kleen (Westmorland), Inc. General
Unsecured Claims.
Class 7.35: Safety-Kleen (Buttonwillow), Inc. General Unsecured Claims
Class 7.35 consists of all Safety-Kleen (Buttonwillow), Inc. General
Unsecured Claims.
Plan Ex. F - 3
Class 7.36: Safety-Kleen (NE), Inc. General Unsecured Claims
Class 7.36 consists of all Safety-Kleen (NE), Inc. General Unsecured
Claims.
Class 7.37: Safety-Kleen (Crowley), Inc. General Unsecured Claims
Class 7.37 consists of all Safety-Kleen (Crowley), Inc. General Unsecured
Claims.
Class 7.38: Safety-Kleen (Laporte), Inc. General Unsecured Claims
Class 7.38 consists of all Safety-Kleen (Laporte), Inc. General Unsecured
Claims.
Class 7.39: Safety-Kleen (TG), Inc. General Unsecured Claims
Class 7.39 consists of all Safety-Kleen (TG), Inc. General Unsecured
Claims.
Class 7.40: Safety-Kleen (Roebuck), Inc. General Unsecured Claims
Class 7.40 consists of all Safety-Kleen (Roebuck), Inc. General Unsecured
Claims.
Class 7.41: Safety-Kleen (TS), Inc. General Unsecured Claims
Class 7.41 consists of all Safety-Kleen (TS), Inc. General Unsecured
Claims.
Class 7.42: Safety-Kleen (Colfax), Inc. General Unsecured Claims
Class 7.42 consists of all Safety-Kleen (Colfax), Inc. General Unsecured
Claims.
Class 7.43: GSX Chemical Services of Ohio, Inc. General Unsecured Claims
Class 7.43 consists of all GSX Chemical Services of Ohio, Inc. General
Unsecured Claims.
Class 7.44: LEMC, Inc. General Unsecured Claims
Class 7.44 consists of all LEMC, Inc. General Unsecured Claims.
Class 7.45: Safety-Kleen Chemical Services, Inc. General Unsecured Claims
Class 7.45 consists of all Safety-Kleen Chemical Services, Inc. General
Unsecured Claims.
Class 7.46: Safety-Kleen (Altair), Inc. General Unsecured Claims
Class 7.46 consists of all Safety-Kleen (Altair), Inc. General Unsecured
Claims.
Class 7.47: Safety-Kleen (FS), Inc. General Unsecured Claims
Class 7.47 consists of all Safety-Kleen (FS), Inc. General Unsecured
Claims.
Plan Ex. F - 4
Class 7.48: Safety-Kleen (BDT), Inc. General Unsecured Claims
Class 7.48 consists of all Safety-Kleen (BDT), Inc. General Unsecured
Claims.
Class 7.49: Safety-Kleen (GS), Inc. General Unsecured Claims
Class 7.49 consists of all Safety-Kleen (GS), Inc. General Unsecured
Claims.
Class 7.50: Safety-Kleen (Clive), Inc. General Unsecured Claims
Class 7.50 consists of all Safety-Kleen (Clive), Inc. General Unsecured
Claims, including the Clive Industrial Revenue Bond Claims against
Safety-Kleen (Clive), Inc.
Class 7.51: Safety-Kleen (WT), Inc. General Unsecured Claims
Class 7.51 consists of all Safety-Kleen (WT), Inc. General Unsecured
Claims.
Class 7.52: Safety-Kleen Osco Holdings, Inc. General Unsecured Claims
Class 7.52 consists of all Safety-Kleen Osco Holdings, Inc. General
Unsecured Claims.
Class 7.53: Safety-Kleen (Nashville), Inc. General Unsecured Claims
Class 7.53 consists of all Safety-Kleen (Nashville), Inc. General Unsecured
Claims, including the Osco Treatment Systems Industrial Revenue Bond Claims
against Safety-Kleen (Nashville), Inc.
Class 7.54: Safety-Kleen (Bartow), Inc. General Unsecured Claims
Class 7.54 consists of all Safety-Kleen (Bartow), Inc. General Unsecured
Claims.
Class 7.55: Safety-Kleen (California), Inc. General Unsecured Claims
Class 7.55 consists of all Safety-Kleen (California), Inc. General
Unsecured Claims.
Class 7.56: Safety-Kleen (Chattanooga), Inc. General Unsecured Claims
Class 7.56 consists of all Safety-Kleen (Chattanooga), Inc. General
Unsecured Claims.
Class 7.57: Safety-Kleen (Pecatonica), Inc. General Unsecured Claims
Class 7.57 consists of all Safety-Kleen (Pecatonica), Inc. General
Unsecured Claims.
Class 7.58: Safety-Kleen (Pinewood), Inc. General Unsecured Claims
Class 7.58 consists of all Safety-Kleen (Pinewood), Inc. General Unsecured
Claims.
Class 7.59: Safety-Kleen (White Castle), Inc. General Unsecured Claims
Class 7.59 consists of all Safety-Kleen (White Castle), Inc. General
Unsecured Claims.
Plan Ex. F - 5
Class 7.60: Safety-Kleen (Puerto Rico), Inc. General Unsecured Claims
Class 7.60 consists of all Safety-Kleen (Puerto Rico), Inc. General
Unsecured Claims.
Class 7.61: Safety-Kleen (Bridgeport), Inc. General Unsecured Claims
Class 7.61 consists of all Safety-Kleen (Bridgeport), Inc. General
Unsecured Claims.
Class 7.62: Safety-Kleen (Deer Park), Inc. General Unsecured Claims
Class 7.62 consists of all Safety-Kleen (Deer Park), Inc. General Unsecured
Claims.
Class 7.63: Safety-Kleen (Baton Rouge), Inc. General Unsecured Claims
Class 7.63 consists of all Safety-Kleen (Baton Rouge), Inc. General
Unsecured Claims.
Class 7.64: Safety-Kleen (Plaquemine), Inc. General Unsecured Claims
Class 7.64: consists of all Safety-Kleen (Plaquemine), Inc. General
Unsecured Claims.
Class 7.65: Safety-Kleen (Custom Transport), Inc. General Unsecured Claims
Class 7.65 consists of all Safety-Kleen (Custom Transport), Inc. General
Unsecured Claims.
Class 7.66: Safety-Kleen (Los Angeles), Inc. General Unsecured Claims
Class 7.66 consists of all Safety-Kleen (Los Angeles), Inc. General
Unsecured Claims.
Class 7.67: Safety-Kleen (Tipton), Inc. General Unsecured Claims
Class 7.67 consists of all Safety-Kleen (Tipton), Inc. General Unsecured
Claims.
Class 7.68: Safety-Kleen (Gloucester), Inc. General Unsecured Claims
Class 7.68 consists of all Safety-Kleen (Gloucester), Inc. General
Unsecured Claims.
Class 7.69: Safety-Kleen (Deer Trail), Inc. General Unsecured Claims
Class 7.69 consists of all Safety-Kleen (Deer Trail), Inc. General
Unsecured Claims.
Class 7.70: Safety-Kleen (Mt. Pleasant), Inc. General Unsecured Claims
Class 7.70 consists of all Safety-Kleen (Mt. Pleasant), Inc. General
Unsecured Claims.
Class 7.71: Safety-Kleen (Minneapolis), Inc. General Unsecured Claims
Class 7.71 consists of all Safety-Kleen (Minneapolis), Inc. General
Unsecured Claims.
Plan Ex. F - 6
Class 7.72: Safety-Kleen (Aragonite), Inc. General Unsecured Claims
Class 7.72 consists of all Safety-Kleen (Aragonite), Inc. General Unsecured
Claims.
Class 7.73: Safety-Kleen (Sussex), Inc. General Unsecured Claims
Class 7.73 consists of all Safety-Kleen (Sussex), Inc. General Unsecured
Claims.
Plan Ex. F - 7
PLAN EXHIBIT G
SCHEDULE OF RESOLVED INSURANCE POLICIES
- ------------------------------------------------------------------------------------------------------
POLICY PERIOD CARRIER POLICY NO.
- ------------------------------------------------------------------------------------------------------
11/1/78 - 8/30/79 First State Insurance Company 922238
- ------------------------------------------------------------------------------------------------------
8/30/82 - 8/30/83 First State Insurance Company 912761
- ------------------------------------------------------------------------------------------------------
8/30/83 - 8/30/84 First State Insurance Company 980370
- ------------------------------------------------------------------------------------------------------
11/10/78 - 1/1/80 First State Insurance Company 927334
- ------------------------------------------------------------------------------------------------------
1/1/84 - 1/1/85 First State Insurance Company EU936395
- ------------------------------------------------------------------------------------------------------
2/11/77 - 2/15/78 First State Insurance Company 923947
- ------------------------------------------------------------------------------------------------------
2/15/78 - 2/15/79 First State Insurance Company 924971
- ------------------------------------------------------------------------------------------------------
10/1/87 - 10/1/88 First State Insurance Company EU 005982
- ------------------------------------------------------------------------------------------------------
10/1/88 - 10/1/89 First State Insurance Company FL 0000204
- ------------------------------------------------------------------------------------------------------
10/1/89 - 10/1/90 First State Insurance Company FL 0001120
- ------------------------------------------------------------------------------------------------------
1/1/84 - 1/1/85 Hartford Insurance Company FXS 100015
- ------------------------------------------------------------------------------------------------------
3/25/73 - 3/25/74 Hartford Accident and Indemnity Company 18C839970
- ------------------------------------------------------------------------------------------------------
3/25/74 - 3/25/75 Hartford Accident and Indemnity Company 18C843592
- ------------------------------------------------------------------------------------------------------
3/25/75 - 3/25/76 Hartford Accident and Indemnity Company 18C848109
- ------------------------------------------------------------------------------------------------------
3/25/76 - 3/25/77 Hartford Accident and Indemnity Company 13C706518
- ------------------------------------------------------------------------------------------------------
3/25/77 - 3/25/78 Hartford Accident and Indemnity Company 13C711056
- ------------------------------------------------------------------------------------------------------
3/25/78 - 8/11/78 Hartford Accident and Indemnity Company 13C714344
- ------------------------------------------------------------------------------------------------------
5/25/83 - 5/25/84 Hartford Fire Insurance Company 08CJC0090
- ------------------------------------------------------------------------------------------------------
5/25/84 - 5/25/85 Hartford Fire Insurance Company 08CXJ3499
- ------------------------------------------------------------------------------------------------------
5/25/85 - 5/25/86 Hartford Fire Insurance Company 08CMB2340
- ------------------------------------------------------------------------------------------------------
1/1/83 - 1/1/84 Hartford Fire Insurance Company 10CLRC30101
- ------------------------------------------------------------------------------------------------------
1/1/84 - 1/1/85 Hartford Fire Insurance Company 10CLRC30114
- ------------------------------------------------------------------------------------------------------
1/1/83 - 1/1/84 Hartford Fire Insurance Company 10CLRC30100
- ------------------------------------------------------------------------------------------------------
2/15/78 - 5/4/78 New England Reinsurance Company 683806
- ------------------------------------------------------------------------------------------------------
8/30/82 - 8/30/83 Nutmeg Insurance Company BXS 100413
- ------------------------------------------------------------------------------------------------------
8/30/83 - 8/30/84 Nutmeg Insurance Company BXS 100413
- ------------------------------------------------------------------------------------------------------
6/30/82 - 6/30/83 Twin City Fire Insurance Company TXU 104593
- ------------------------------------------------------------------------------------------------------
6/30/83 - 6/30/84 Twin City Fire Insurance Company TXU 107529
- ------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 American Centennial Insurance Company CC-01-60-55
- ------------------------------------------------------------------------------------------------------
1/1/79 - 1/1/80 Puritan Insurance Company ML 651560
- ------------------------------------------------------------------------------------------------------
8/30/76 - 8/30/77 Manhattan Fire & Marine Insurance Company ML650710
- ------------------------------------------------------------------------------------------------------
1/1/70 - 1/1/71 Fidelity & Casualty Company of New York LX 1216400
- ------------------------------------------------------------------------------------------------------
6/1/71 - 6/1/72 Continental Insurance Company CBP 404464
- ------------------------------------------------------------------------------------------------------
1/1/71 - 1/1/72 Fidelity & Casualty Company of New York LX 1216400
- ------------------------------------------------------------------------------------------------------
6/1/72 - 6/1/73 Continental Insurance Company CBP 404464
- ------------------------------------------------------------------------------------------------------
1/1/72 - 1/1/73 Fidelity & Casualty Company of New York LX 1216400
- ------------------------------------------------------------------------------------------------------
6/1/73 - 6/1/74 Continental Insurance Company CBP 404464
- ------------------------------------------------------------------------------------------------------
1/1/73 - 1/1/74 Fidelity & Casualty Company of New York LX 1216437
- ------------------------------------------------------------------------------------------------------
6/1/74 - 1/1/75 Continental Insurance Company CBP 407996
- ------------------------------------------------------------------------------------------------------
1/1/74 - 1/1/75 Fidelity & Casualty Company of New York LX 1216437
- ------------------------------------------------------------------------------------------------------
1/1/75 - 1/1/76 Continental Insurance Company CBP 407996
- ------------------------------------------------------------------------------------------------------
Plan Ex. G - 1
- --------------------------------------------------------------------------------------------------------
POLICY PERIOD CARRIER POLICY NO.
- --------------------------------------------------------------------------------------------------------
1/1/75 - 1/1/76 Fidelity & Casualty Company of New York LX 1216437
- --------------------------------------------------------------------------------------------------------
1/1/76 - 1/1/77 Fidelity & Casualty Company of New York L6342307
- --------------------------------------------------------------------------------------------------------
2/4/77 - 1/1/78 Columbia Casualty Company RDU 3652820
- --------------------------------------------------------------------------------------------------------
1/26/78 - 1/26/79 Continental Casualty Company RDX 1770229
- --------------------------------------------------------------------------------------------------------
1/1/79 - 1/1/80 Continental Casualty Company RDX 1779733
- --------------------------------------------------------------------------------------------------------
1/1/79 - 1/1/80 Continental Casualty Company RDX 1779727
- --------------------------------------------------------------------------------------------------------
6/1/79 - 6/1/80 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
8/30/79 - 8/30/80 Columbia Casualty Company RDX4169838
- --------------------------------------------------------------------------------------------------------
8/30/79 - 8/30/80 Continental Insurance Company SRX 2153320
- --------------------------------------------------------------------------------------------------------
8/30/79 - 8/30/80 Harbor Insurance Company 127038
- --------------------------------------------------------------------------------------------------------
1/1/80 - 1/1/81 Continental Insurance Company CCP 005-3126-10
- --------------------------------------------------------------------------------------------------------
1/1/81 - 1/1/82 Continental Insurance Company CCP 005-3126-10
- --------------------------------------------------------------------------------------------------------
8/30/80 - 8/30/81 Continental Insurance Company SRX 3192904
- --------------------------------------------------------------------------------------------------------
8/30/80 - 8/30/81 Columbia Casualty Company RDX4170082
- --------------------------------------------------------------------------------------------------------
6/1/80 - 6/1/81 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
6/1/81 - 6/1/82 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
8/30/81 - 8/30/82 Continental Insurance Company SRX 1591513
- --------------------------------------------------------------------------------------------------------
TBD - 2/15/82 Fidelity & Casualty Company of New York L2872505
- --------------------------------------------------------------------------------------------------------
6/1/82 - 6/1/83 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
8/30/82 - 8/30/83 Continental Insurance Company SRX 1591768
- --------------------------------------------------------------------------------------------------------
6/1/83 - 6/1/84 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
8/30/83 - 8/30/84 Continental Insurance Company SRX 1592040
- --------------------------------------------------------------------------------------------------------
6/1/84 - 6/1/85 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 Continental Insurance Company SRX 1592229
- --------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 Harbor Insurance Company HI 179641
- --------------------------------------------------------------------------------------------------------
10/1/84 - 10/1/85 Harbor Insurance Company HI 180291
- --------------------------------------------------------------------------------------------------------
10/1/84 - 10/1/85 Columbia Casualty Company RDX 9176461
- --------------------------------------------------------------------------------------------------------
6/1/85 - 6/1/86 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------------------------------
8/30/85 - 8/30/86 Continental Insurance Company SRX 1592261
- --------------------------------------------------------------------------------------------------------
10/1/86 - 10/1/87 Harbor Insurance Company HI 211437
- --------------------------------------------------------------------------------------------------------
10/1/87 - 10/1/88 Harbor Insurance Company HI 217036
- --------------------------------------------------------------------------------------------------------
10/1/88 - 10/1/89 Harbor Insurance Company HI 238125
- --------------------------------------------------------------------------------------------------------
10/1/89 - 10/1/90 Harbor Insurance Company HI 239816
- --------------------------------------------------------------------------------------------------------
2/10/84 - 2/10/85 Hudson Insurance Company HL 01826
- --------------------------------------------------------------------------------------------------------
8/30/82 - 8/30/83 Hudson Insurance Company HN 00145
- --------------------------------------------------------------------------------------------------------
8/30/83 - 8/30/84 Hudson Insurance Company HN 01196
- --------------------------------------------------------------------------------------------------------
9/14/78 - 8/22/79 North Star Reinsurance Corporation NSX 16554
- --------------------------------------------------------------------------------------------------------
2/15/79 - 4/1/80 Federal Insurance Company (80)79226379
- --------------------------------------------------------------------------------------------------------
8/30/76 - 8/30/78 Federal Insurance Company 7932-95-85
- --------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 Federal Insurance Company 7935-83-28
- --------------------------------------------------------------------------------------------------------
4/11/78 - 1/1/79 Federal Insurance Company 7933-26-60
- --------------------------------------------------------------------------------------------------------
3/25/72 - 3/25/73 Globe Indemnity Company LU 705256
- --------------------------------------------------------------------------------------------------------
7/1/80 - 7/1/81 Royal Globe Insurance Company PLU 583843
- --------------------------------------------------------------------------------------------------------
1/1/82 - 7/1/83 Royal Insurance Company of America PLU 625049
- --------------------------------------------------------------------------------------------------------
7/1/83 - 7/1/84 Royal Insurance Company of America PLU 625049
- --------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 Royal Indemnity Company ED 102963
- --------------------------------------------------------------------------------------------------------
7/1/83 - 7/1/84 Newark Insurance Company NLA 151003
- --------------------------------------------------------------------------------------------------------
1/26/78 - 1/26/79 Fireman's Fund Insurance Company XLX 1363699
- --------------------------------------------------------------------------------------------------------
1/26/79 - 1/1/80 Fireman's Fund Insurance Company XLX 1364997
- --------------------------------------------------------------------------------------------------------
1/1/85 - 1/1/86 The American Insurance Company XLX1734327
- --------------------------------------------------------------------------------------------------------
Plan Ex. G - 2
- ---------------------------------------------------------------------------------------------------------
POLICY PERIOD CARRIER POLICY NO.
- ---------------------------------------------------------------------------------------------------------
5/25/78 - 5/25/81 The American Insurance Company MXX 3265572
- ---------------------------------------------------------------------------------------------------------
5/25/81 - 5/25/82 National Surety Corporation MXX 66200939
- ---------------------------------------------------------------------------------------------------------
5/25/82 - 5/25/83 National Surety Corporation MXX 4585096
- ---------------------------------------------------------------------------------------------------------
5/25/75 - 5/25/78 The American Insurance Company MXP 273 00 85
- ---------------------------------------------------------------------------------------------------------
10/1/82 - 1/22/85 Fireman's Fund Insurance Company MXX 61702184
- ---------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 The American Insurance Company XLX 1685319
- ---------------------------------------------------------------------------------------------------------
1/1/84 - 1/1/85 The American Insurance Company XLX 1618303
- ---------------------------------------------------------------------------------------------------------
10/1/82 - 10/1/83 National Surety Corporation XLX 1482571
- ---------------------------------------------------------------------------------------------------------
10/1/83 - 10/1/84 National Surety Corporation XLX 1530294
- ---------------------------------------------------------------------------------------------------------
10/1/84 - 10/1/85 National Surety Corporation XLX 1687439
- ---------------------------------------------------------------------------------------------------------
10/1/84 - 10/1/85 National Surety Corporation XLX 1687437
- ---------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/85 The American Insurance Company XLX 168 53 18
- ---------------------------------------------------------------------------------------------------------
4/1/73 - 4/1/1974 Protective Insurance Company X-147-73
- ---------------------------------------------------------------------------------------------------------
7/15/73 - 7/15/1974 Protective Insurance Company U-117
- ---------------------------------------------------------------------------------------------------------
4/1/74 - 4/1/1975 Protective Insurance Company X-147-74
- ---------------------------------------------------------------------------------------------------------
7/15/74 - 7/15/1975 Protective Insurance Company U-1012
- ---------------------------------------------------------------------------------------------------------
7/15/74 - 7/15/1975 Protective Insurance Company U-1013
- ---------------------------------------------------------------------------------------------------------
4/1/75 - 4/1/1976 Protective Insurance Company X-147-75
- ---------------------------------------------------------------------------------------------------------
7/15/75 - 8/15/1976 Protective Insurance Company U-1050
- ---------------------------------------------------------------------------------------------------------
7/15/75 - 7/15/1976 Protective Insurance Company U-1051
- ---------------------------------------------------------------------------------------------------------
4/1/76 - 4/1/1977 Protective Insurance Company X-147-76
- ---------------------------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 Protective Insurance Company U-1104
- ---------------------------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 Protective Insurance Company U-1103
- ---------------------------------------------------------------------------------------------------------
4/1/77 - 4/1/1978 Protective Insurance Company X-147-77
- ---------------------------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 Protective Insurance Company U-1156
- ---------------------------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 Protective Insurance Company U-1155
- ---------------------------------------------------------------------------------------------------------
4/1/78 - 6/1/1979 Protective Insurance Company X-147-78
- ---------------------------------------------------------------------------------------------------------
7/15/72 - 7/15/1973 Protective Insurance Company U-107
- ---------------------------------------------------------------------------------------------------------
TBD - TBD Protective Insurance Company X147-79
- ---------------------------------------------------------------------------------------------------------
1/1/76 - 1/1/1979 Liberty Mutual Insurance Company LG1-612-004135-026
- ---------------------------------------------------------------------------------------------------------
1/1/79 - 1/1/1980 Liberty Mutual Insurance Company LG1-612-004135-029
- ---------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/1985 Evanston Insurance Company EX 11495
- ---------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/1985 Evanston Insurance Company EX 11518
- ---------------------------------------------------------------------------------------------------------
1/1/85 - 1/1/1986 Evanston Insurance Company EX 11522
- ---------------------------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 Associated International Insurance Company AEL 050194
- ---------------------------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 Associated International Insurance Company AEL050489
- ---------------------------------------------------------------------------------------------------------
11/6/84 - 11/6/1985 Associated International Insurance Company XS 108810
- ---------------------------------------------------------------------------------------------------------
4/1/80 - 10/1/1980 Ranger Insurance Company CGL 506375
- ---------------------------------------------------------------------------------------------------------
10/1/80 - 10/1/1981 Ranger Insurance Company CGL 509034
- ---------------------------------------------------------------------------------------------------------
10/1/81 - 10/1/1982 Ranger Insurance Company CGL 528111
- ---------------------------------------------------------------------------------------------------------
10/1/82 - 10/1/1983 Ranger Insurance Company CGL 528759
- ---------------------------------------------------------------------------------------------------------
7/15/72 - 7/15/1973 International Insurance Company XSI-1320
- ---------------------------------------------------------------------------------------------------------
7/15/73 - 7/15/1974 International Insurance Company XSI-1741
- ---------------------------------------------------------------------------------------------------------
7/15/74 - 7/15/1975 International Insurance Company XSI-2067
- ---------------------------------------------------------------------------------------------------------
7/15/75 - 8/30/1976 International Insurance Company XSI-2270
- ---------------------------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 International Insurance Company XSI-2651
- ---------------------------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 International Insurance Company XSI 3966
- ---------------------------------------------------------------------------------------------------------
8/30/82 - 8/30/1983 International Insurance Company XSI 8372
- ---------------------------------------------------------------------------------------------------------
8/30/83 - 8/30/1984 International Insurance Company XSI 8608
- ---------------------------------------------------------------------------------------------------------
8/30/84 - 8/30/1985 International Insurance Company XSI 8912
- ---------------------------------------------------------------------------------------------------------
10/1/95 - 10/1/1996 TIG Insurance Company XLX 9271038
- ---------------------------------------------------------------------------------------------------------
Plan Ex. G - 3
- ------------------------------------------------------------------------------------------------------
POLICY PERIOD CARRIER POLICY NO.
- ------------------------------------------------------------------------------------------------------
10/1/96 - 10/1/1997 TIG Insurance Company XLX 9271167
- ------------------------------------------------------------------------------------------------------
10/1/97 - 10/1/1998 TIG Insurance Company XLX 9271308
- ------------------------------------------------------------------------------------------------------
5/7/75 - 5/7/1978 United States Fire Insurance Company DCL737656
- ------------------------------------------------------------------------------------------------------
5/7/78 - 5/7/1979 United States Fire Insurance Company 520-352424-9
- ------------------------------------------------------------------------------------------------------
5/7/79 - 5/7/1980 United States Fire Insurance Company 523-007918-1
- ------------------------------------------------------------------------------------------------------
5/7/80 - 5/25/1981 United States Fire Insurance Company 523-063453-5
- ------------------------------------------------------------------------------------------------------
5/25/81 - 5/25/1982 United States Fire Insurance Company 523-117324-8
- ------------------------------------------------------------------------------------------------------
5/25/82 - 5/25/1983 United States Fire Insurance Company 523-235166-3
- ------------------------------------------------------------------------------------------------------
5/25/83 - 5/25/1984 United States Fire Insurance Company 523-270487-7
- ------------------------------------------------------------------------------------------------------
5/25/84 - 5/25/1985 United States Fire Insurance Company 523-367728-2
- ------------------------------------------------------------------------------------------------------
10/1/83 - 10/1/1984 International Insurance Company (novated to United 5406288966
States Fire Insurance Company)
- ------------------------------------------------------------------------------------------------------
9/18/75 - 9/18/76 Unigard Insurance Company CL 07-2121
- ------------------------------------------------------------------------------------------------------
9/18/75 - 9/18/76 Unigard Insurance Company BC 01-2091
- ------------------------------------------------------------------------------------------------------
9/18/76 - 9/18/77 Unigard Insurance Company CL 07-2121
- ------------------------------------------------------------------------------------------------------
9/18/76 - 9/18/77 Unigard Insurance Company BC 01-2091
- ------------------------------------------------------------------------------------------------------
9/18/77 - 9/18/78 Unigard Insurance Company CL 07-2121
- ------------------------------------------------------------------------------------------------------
9/18/77 - 9/18/78 Unigard Insurance Company BC 01-2091
- ------------------------------------------------------------------------------------------------------
9/18/78 - 7/25/79 Unigard Insurance Company GL 33-1008
- ------------------------------------------------------------------------------------------------------
9/18/78 - 9/18/79 Unigard Insurance Company BC 01-2091
- ------------------------------------------------------------------------------------------------------
Plan Ex. G - 4
PLAN EXHIBIT H
SCHEDULE OF SETTLING INSURERS
American Casualty Company of Reading, Pennsylvania
American Centennial Insurance Company
American Loyalty Insurance Company
Asia Insurance Company, Ltd.
Associated International Insurance Company
Bankers and Shippers Insurance Company
Bayside Reinsurance Company, Ltd.
Boston Indemnity Insurance Company, Ltd.
Boston Marine Insurance Company
Boston Old Colony Insurance Company
Buckeye Union Insurance Company
Buffalo Reinsurance Company Casualty Insurance Company
Casualty Insurance Company
Cornerstone Insurance Company
CNA Assurance Company of Connecticut
CNA Casualty of California
CNA Casualty of Illinois
CNA Casualty of Puerto Rico
CNA Casualty Company of South Carolina
CNA Casualty Company of Texas
CNA Chile Compania De Seguros De Vida, S.A.
CNA Group Life Assurance Company
CNA International Life Company, SPC Limited
CNA Insurance Company (Europe) Ltd.
CNA Lakeview Insurance Company
CNA Life Insurance Company of Canada
CNA Lloyd's of Texas
CNA Reinsurance Company
CNA Reinsurance Company Limited
Columbia Casualty Company
Commercial Insurance Company of Newark, New Jersey
Commercial Life Insurance Company
Continental Assurance Company
Continental Casualty Company
Continental Insurance Company
Continental Insurance Company of New Jersey
Continental Insurance Company of Puerto Rico
Continental Life (International), Ltd.
Continental Lloyd's Insurance Company
Continental National Indemnity Company
Continental Pacific Insurance Company (Australia), Limited
Continental Reinsurance Company
Continental Reinsurance Corporation
Plan Ex. H - 1
Continental Reinsurance Corporation International, Ltd.
Continental Reinsurance Corporation (U.K.), Ltd.
De Montfort Insurance Company PLC
Deutsche Continental Reinsurance AG
Dominion Insurance Company
East River Indemnity Company (Barbados), Ltd.
East River Insurance Company (Bermuda), Ltd.
Equitable Fire Insurance Company
Evanston Insurance Company
Federal Insurance Company
Fidelity & Casualty Company of New York
Fireman's Fund Insurance Company
Firemen's Insurance Company of New York
Firemen's Insurance Company of Newark, New Jersey
First Fire and Casualty Insurance of Hawaii, Inc.
First Indemnity Insurance of Hawaii, Inc.
First Insurance Company of Hawaii, Ltd.
First Security Insurance of Hawaii, Inc.
First State Insurance Company
Galway Insurance Company
Glens Falls Insurance Company
Globe Indemnity Company
Hallmark Insurance Company
Harbor Insurance Company
Hartford Accident and Indemnity Company
Hartford Fire Insurance Company
Hartford Insurance Company
Hong Kong Fire Insurance Company, Ltd.
Hudson Insurance Company
Intergroup
International Insurance Company
Jersey Insurance Company of New York
Kansas City Fire and Marine Insurance Company
Liberty Mutual Insurance Company
Lombard General Insurance
Lombard Insurance Company, Limited
London Guarantee & Accident of New York
Loyalty Life Insurance Company
Manhattan Fire & Marine Insurance Company
Marine Office of America Corporation
Maritime Insurance Company Limited
Mayflower Insurance Company, Ltd.
Mid-States Insurance Company
MUI Continental Insurance
National-Ben Franklin Insurance Company of Illinois
National-Ben Franklin Life Insurance Company
National Surety Corporation
New England Reinsurance Company
Plan Ex. H - 2
Newark Insurance Company
Niagara Fire Insurance Company
North Rock Insurance Company, Limited
North Star Reinsurance Corporation
Nutmeg Insurance Company
Omega Aseguaradora de Riesgo de Trabajo
Pacific Insurance Company
Pacific Insurance Company of New York
Phoenix Assurance Company of Canada
Phoenix Assurance Company of New York
Protective Insurance Company
Puerto Rican-American Insurance Company
Puritan Insurance Company
Ranger Insurance Company
Royal Globe Insurance Company
Royal Indemnity Company
Royal Insurance Company of America
Royal Insurance Company of Canada
R.V.I. America Insurance Company
R.V.I. Guaranty Company Ltd.
Seaboard Fire & Marine
Surety Bonding Company of America
The American Insurance Company
The Century Insurance Company of Canada
The Manhattan Fire & Marine Insurance Company
TIG Insurance Company
Tokio Marine & Fire Insurance Company
Transcontinental Insurance Company
Transportation Insurance Company
Troy Fain Insurance, Inc.
Twin City Fire Insurance Company
Unigard Insurance Company
Unionamerica Insurance Company
United States Branch of Chiyoda Fire & Marine
United States Fire Insurance Company
Universal Surety of America
Valley Forge Insurance Company
Valley Forge Life Insurance Company
Washington General Insurance Corporation
Western Surety Company
Westport Insurance Company, as successor to Manhattan Fire & Marine Insurance
Company & Puritan Insurance Company
William Penn Life Insurance Company of New York
William Penn Life Assurance Company
The following Settling Insurers entered into final settlements with the
Debtors only shortly before the filing of the Plan: (a) Royal Indemnity Company,
Royal Globe Insurance Company, Globe Indemnity Company, Newark Insurance
Company, Royal Insurance Company of America and Royal Insurance Company of
Canada (collectively, "Royal"); (b) North Star Reinsurance Corporation ("North
Star"); (c) Fireman's Fund Insurance Company, The American Insurance Company and
National Surety Corporation (collectively, "Fireman's Fund"); and (d) Liberty
Mutual Insurance Company ("Liberty Mutual"). The Debtors intend to seek
Bankruptcy Court
Plan Ex. H - 3
approval of the settlement agreements with Royal, North Star, Fireman's Fund,
and Liberty Mutual. The insurance policies to be resolved with respect to these
Settling Insurers are included on Exhibit G to the Plan.
In addition, the following insurers have entered into
settlements-in-principle with the Debtors: (a) Protective Insurance Company
("Protective"); (b) Evanston Insurance Company ("Evanston"); (c) Associated
International Insurance Company ("Associated International"); (d) Ranger
Insurance Company, International Insurance Company, TIG Insurance Company,
United States Fire Insurance Company (collectively, "Fairfax"); and (e) Unigard
Insurance Company ("Unigard"). The Debtors intend to seek Bankruptcy Court
approval of the settlement agreements with Protective, Evanston, Associated
International, Fairfax and Unigard upon finalizing such settlement agreements.
The insurance policies to be resolved with respect to these Settling Insurers
are included on Exhibit G to the Plan.
Plan Ex. H - 4
PLAN EXHIBIT I
SCHEDULE OF RETAINED ACTIONS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT J
SCHEDULE OF REVESTING OF ASSETS FOR DISSOLVING DEBTORS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT K
SCHEDULE OF NON-RELEASED PERSONS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
- --------------------------------------------------------------------------------
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT UNDER
SECTION 1125(B) OF THE BANKRUPTCY CODE FOR USE IN THE SOLICITATION OF
ACCEPTANCES OF THE PLAN OF REORGANIZATION DESCRIBED HEREIN. THE FILING AND
DISTRIBUTION OF THIS DISCLOSURE STATEMENT IS NOT INTENDED, AND SHOULD NOT BE
CONSTRUED, AS A SOLICITATION OF ACCEPTANCES OF SUCH PLAN. THE INFORMATION
CONTAINED HEREIN SHOULD NOT BE RELIED UPON FOR ANY PURPOSE BEFORE A
DETERMINATION BY THE BANKRUPTCY COURT THAT THIS DISCLOSURE STATEMENT CONTAINS
"ADEQUATE INFORMATION" WITHIN THE MEANING OF SECTION 1125(A) OF THE BANKRUPTCY
CODE.
- --------------------------------------------------------------------------------
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - - - - X
:
IN RE : CHAPTER 11
:
SAFETY-KLEEN CORP., ET AL. : CASE NO. 00-2303 (PJW)
-- --- :
DEBTORS. : JOINTLY ADMINISTERED
:
- - - - - - - - - - - - - - - - - - - - - - - X
DISCLOSURE STATEMENT WITH RESPECT TO
JOINT PLAN OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Four Times Square
New York, New York 10036-6522
Attn: D. J. Baker
J. Gregory St. Clair
Steven B. Eichel
- and -
One Rodney Square
Wilmington, Delaware 19899
Attn: Gregg M. Galardi
ATTORNEYS FOR SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES
AND AFFILIATES, DEBTORS AND
DEBTORS-IN-POSSESSION
Dated: November 27, 2002
THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE JOINT PLAN OF
REORGANIZATION DESCRIBED HEREIN, A COPY OF WHICH IS ANNEXED TO THIS DISCLOSURE
STATEMENT AS APPENDIX A. ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT.
DISCLAIMER
SAFETY-KLEEN CORP. ("SKC") AND EACH OF ITS DIRECT AND INDIRECT SUBSIDIARIES
LISTED ON EXHIBIT A TO THE PLAN, DEBTORS AND DEBTORS-IN-POSSESSION IN THE ABOVE
CAPTIONED JOINTLY ADMINISTERED CHAPTER 11 REORGANIZATION CASES (TOGETHER WITH
SKC, THE "DEBTORS"), ARE FURNISHING THIS DISCLOSURE STATEMENT AND THE APPENDICES
HERETO, THE ACCOMPANYING BALLOTS AND THE RELATED MATERIALS DELIVERED HEREWITH
PURSUANT TO SECTION 1125 OF THE UNITED STATES BANKRUPTCY CODE, 11 U.S.C.
Sections 101-1330, AS AMENDED (THE "BANKRUPTCY CODE"), IN CONNECTION WITH THEIR
SOLICITATION (THE "SOLICITATION") FROM HOLDERS OF CLAIMS IN CLASSES 3 THROUGH 7
OF ACCEPTANCES OF THE PROPOSED JOINT REORGANIZATION PLANS DESCRIBED THEREIN (THE
"PLAN," A COPY OF WHICH IS ANNEXED TO THIS DISCLOSURE STATEMENT AS APPENDIX A).
IN THE EVENT THAT HOLDERS OF CLAIMS IN CLASSES 3 THROUGH 7 VOTE TO REJECT THE
PLAN, THE DEBTORS INTEND TO SEEK CONFIRMATION OF THE PLAN NOTWITHSTANDING SUCH
REJECTION PURSUANT TO THE CRAMDOWN PROVISION OF SECTION 1129(b) OF THE
BANKRUPTCY CODE.
THIS DISCLOSURE STATEMENT IS TO BE USED BY HOLDERS OF CLAIMS IN CLASSES 3
THROUGH 7 SOLELY IN CONNECTION WITH THEIR EVALUATION OF THE PLAN; USE OF THE
DISCLOSURE STATEMENT FOR ANY OTHER PURPOSE IS NOT AUTHORIZED.
THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY OTHER FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR HAS THE SEC OR ANY OTHER
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. PERSONS OR ENTITIES
TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING SECURITIES OR CLAIMS
OF ANY OF THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN
LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED.
IN MAKING A DECISION, HOLDERS OF CLAIMS IN CLASSES 3 THROUGH 7 MUST RELY ON
THEIR OWN EXAMINATION OF THE DEBTORS AND THE TERMS OF THE PLAN, INCLUDING THE
MERITS AND RISKS INVOLVED. HOLDERS OF CLAIMS IN CLASSES 3 THROUGH 7 SHOULD NOT
CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL,
BUSINESS, FINANCIAL OR TAX ADVICE. EACH HOLDER OF A CLAIM IN CLASSES 3 THROUGH 7
SHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS WITH
RESPECT TO ANY SUCH MATTERS CONCERNING THIS DISCLOSURE STATEMENT, THE
SOLICITATION, THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE CONFIRMATION AND EFFECTIVENESS OF THE PLAN ARE SUBJECT TO MATERIAL
CONDITIONS PRECEDENT. SEE ARTICLE VIII OF THE DISCLOSURE STATEMENT, ENTITLED
"CONDITIONS PRECEDENT." THERE CAN BE NO ASSURANCE THAT THOSE CONDITIONS WILL BE
SATISFIED.
THIS DISCLOSURE STATEMENT CONTAINS CERTAIN PROJECTED FINANCIAL INFORMATION
RELATING TO THE REORGANIZED DEBTORS, AS WELL AS CERTAIN OTHER STATEMENTS THAT
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE FEDERAL
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH PROJECTIONS AND
STATEMENTS ARE BASED ON CERTAIN ESTIMATES AND ASSUMPTIONS MADE BY AND ON
INFORMATION AVAILABLE TO THE DEBTORS. WHEN USED IN THIS DOCUMENT, THE WORDS
"ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT" AND SIMILAR EXPRESSIONS, AS THEY
RELATE TO THE DEBTORS AND THEIR MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THE DEBTORS INTEND FOR SUCH FORWARD-LOOKING
STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING
STATEMENTS CONTAINED IN THE FEDERAL PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995, AND THE DEBTORS SET FORTH THIS STATEMENT AND THE FOLLOWING RISK FACTORS IN
ORDER TO COMPLY WITH SUCH SAFE HARBOR PROVISIONS. SUCH PROJECTED FINANCIAL
INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS REFLECT THE CURRENT VIEWS OF
THE DEBTORS AND ARE SUBJECT TO CERTAIN RISKS,
-ii-
UNCERTAINTIES AND ASSUMPTIONS. MANY FACTORS COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE DEBTORS TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY
SUCH PROJECTED FINANCIAL INFORMATION AND FORWARD-LOOKING STATEMENTS, INCLUDING,
BUT NOT LIMITED TO, THE RISKS DISCUSSED IN ARTICLE XIII TO THIS DISCLOSURE
STATEMENT, ENTITLED "CERTAIN FACTORS TO BE CONSIDERED" AND RISKS, UNCERTAINTIES
AND OTHER FACTORS DISCUSSED FROM TIME TO TIME IN FILINGS MADE BY THE DEBTORS
WITH THE SEC AND OTHER REGULATORY AUTHORITIES. SHOULD ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD ASSUMPTIONS UNDERLYING THE PROJECTED
FINANCIAL INFORMATION OR OTHER FORWARD-LOOKING STATEMENTS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED OR EXPECTED. THE DEBTORS DO NOT INTEND, AND DO NOT ASSUME
ANY DUTY OR OBLIGATION, TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS,
WHETHER AS THE RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
EXCEPT AS SET FORTH IN ARTICLE XIX TO THIS DISCLOSURE STATEMENT, ENTITLED
"THE SOLICITATION; VOTING PROCEDURES," NO PERSON HAS BEEN AUTHORIZED BY THE
DEBTORS IN CONNECTION WITH THE PLAN OR THE SOLICITATION OF ACCEPTANCES TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
DISCLOSURE STATEMENT AND THE APPENDICES AND EXHIBITS ANNEXED HERETO OR
INCORPORATED BY REFERENCE OR REFERRED TO HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE DEBTORS.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE
DATE HEREOF, AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR ANY
EXCHANGE OF EXISTING SECURITIES MADE PURSUANT TO THE PLAN WILL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF. ANY ESTIMATES OF CLAIMS AND
INTERESTS SET FORTH IN THIS DISCLOSURE STATEMENT MAY VARY FROM THE AMOUNTS OF
CLAIMS OR INTERESTS ULTIMATELY ALLOWED BY THE BANKRUPTCY COURT.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING, BUT NOT
LIMITED TO, THE INFORMATION REGARDING THE HISTORY, BUSINESSES AND OPERATIONS OF
THE DEBTORS, THE HISTORICAL AND PROJECTED FINANCIAL INFORMATION OF THE DEBTORS
(INCLUDING THE PROJECTED RESULTS OF OPERATIONS OF THE REORGANIZED DEBTORS) AND
THE LIQUIDATION ANALYSIS RELATING TO THE DEBTORS IS INCLUDED HEREIN FOR PURPOSES
OF SOLICITING ACCEPTANCES OF THE PLAN. AS TO CONTESTED MATTERS, HOWEVER, SUCH
INFORMATION IS NOT TO BE CONSTRUED AS ADMISSIONS OR STIPULATIONS BUT RATHER AS
STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS.
-iii-
TABLE OF CONTENTS
Page
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ARTICLE I INTRODUCTION ................................................................................................... 1
ARTICLE II SUMMARY OF THE PLAN OF REORGANIZATION .......................................................................... 1
A. Overall Structure of the Plan .................................................................................. 2
B. Development of the Plan of Reorganization and Summary of Plan Terms ............................................ 2
C. New Business Plan .............................................................................................. 3
D. Compromise and Settlement of Disputes .......................................................................... 3
E. Classification and Treatment of Claims and Interests ........................................................... 3
1. Unclassified Claims..................................................................................... 4
2. Classified Claims and Interests ........................................................................ 7
3. Intercompany Claims .................................................................................... 12
4. Reservation of Rights Regarding Unimpaired Claims....................................................... 12
F. Confirmability and Severability of a Plan ...................................................................... 12
G. Summary of Debt to Be Incurred and Securities to Be Issued in Connection with the Plan ......................... 13
1. Exit Facility........................................................................................... 13
2. New Subordinated Notes.................................................................................. 13
(a) New Subordinated PIK Notes ....... .............................................................. 13
(b) New Subordinated Cash Pay Notes ................................................................. 13
3. New Common Stock ....................................................................................... 14
H. Post-Consummation Operations of the Debtors and Means for Implementation of the Plan ........................... 14
1. Continued Corporate Existence for Branch Sales and Service Division..................................... 14
2. Corporate Action........................................................................................ 14
(a) Dissolution of Corporate Existence of Certain Debtors............................................ 14
(b) Cancellation of Existing Securities and Agreements............................................... 15
(c) Implementation of the New Holding Company Structure.............................................. 15
(d) Post-Effective Date Restructuring Transactions................................................... 15
I. Directors and Officers.......................................................................................... 16
J. Management Incentive Compensation Plan.......................................................................... 16
K. Preservation of Causes of Action................................................................................ 16
L. Exclusivity Period.............................................................................................. 17
M. Effectuating Documents; Further Transactions.................................................................... 17
N. Exemption from Certain Transfer Taxes........................................................................... 17
ARTICLE III PROVISIONS GOVERNING DISTRIBUTIONS.............................................................................. 17
A. Time of Distributions........................................................................................... 17
B. Interest on Claims.............................................................................................. 17
C. Disbursing Agent................................................................................................ 18
D. Trustee......................................................................................................... 18
E. Surrender of Securities or Instruments.......................................................................... 18
F. Instructions to Indenture Trustees.............................................................................. 18
G. Notification Date for Distributions to Holders of Prepetition Notes and Industrial Revenue Bonds................ 18
H. Claims Administration Responsibility............................................................................ 18
I. Objection Deadline.............................................................................................. 19
J. Delivery of Distributions....................................................................................... 19
K. Procedures for Treating and Resolving Disputed and Contingent Claims............................................ 19
1. No Distributions Pending Allowance...................................................................... 19
2. Trust Distribution Reserve.............................................................................. 19
3. Lender Claims Reserve................................................................................... 20
4. Distributions After Allowance........................................................................... 20
5. Partial Distributions................................................................................... 20
6. Claims Allowable Against Multiple Debtors............................................................... 20
L. Calculation of Distribution Amounts............................................................................. 21
-iv-
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ARTICLE IV SAFETY-KLEEN CREDITOR TRUST..................................................................................... 21
A. Appointment of Trustee.......................................................................................... 21
B. Assignment of Trust Assets to the Safety-Kleen Creditor Trust................................................... 21
C. The Safety-Kleen Creditor Trust................................................................................. 21
D. The Trust Advisory Board........................................................................................ 22
E. Funding of the Initial Deposit.................................................................................. 23
F. Distributions of Trust Assets................................................................................... 23
ARTICLE V TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES........................................................... 24
A. Rejected Contracts and Leases................................................................................... 24
B. Rejection Damages Bar Date...................................................................................... 24
C. Assumed Contracts and Leases.................................................................................... 24
D. Payments Related to Assumption of Executory Contracts and Unexpired Leases...................................... 25
E. Employment, Retirement, Indemnification and Other Employee Related Agreements................................... 25
ARTICLE VI ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS.......................................................... 25
A. DIP Facility Claim.............................................................................................. 25
B. Professional Claims............................................................................................. 25
1. Final Fee Applications.................................................................................. 25
2. Payment of Interim Amounts.............................................................................. 25
3. Terminating Fee Application Requirements................................................................ 25
C. Substantial Contribution Compensation and Expenses Bar Date..................................................... 26
D. Other Administrative Claims..................................................................................... 26
E. Administrative Claims Allowance Against Multiple Debtors........................................................ 26
ARTICLE VII EFFECT OF THE PLAN.............................................................................................. 26
A. Revesting of Assets............................................................................................. 26
B. Discharge of the Debtors........................................................................................ 26
C. Compromises and Settlements..................................................................................... 27
D. Setoffs......................................................................................................... 27
E. Satisfaction of Subordination Rights............................................................................ 27
F. Exculpation and Limitation on Liability......................................................................... 27
G. Indemnification Obligations..................................................................................... 28
H. Release by Debtors and Debtors-in-Possession.................................................................... 28
I. Release by Holders of Claims and Interests...................................................................... 29
J. Release by Insured Persons...................................................................................... 29
K. Injunction...................................................................................................... 29
ARTICLE VIII CONDITIONS PRECEDENT............................................................................................ 29
A. Conditions to Confirmation...................................................................................... 29
B. Conditions to Consummation...................................................................................... 30
C. Waiver of Conditions to Confirmation or Consummation............................................................ 31
ARTICLE IX MISCELLANEOUS PLAN PROVISIONS................................................................................... 31
A. Binding Effect.................................................................................................. 31
B. Modifications and Amendments.................................................................................... 31
C. Withholding and Reporting Requirements.......................................................................... 31
D. Committees...................................................................................................... 31
E. Revocation, Withdrawal or Non-Consummation...................................................................... 32
1. Right to Revoke or Withdraw............................................................................. 32
2. Effect of Withdrawal, Revocation or Non-Consummation.................................................... 32
F. Payment of Statutory Fees....................................................................................... 32
G. Prepayment...................................................................................................... 32
H. Term of Injunctions or Stays.................................................................................... 32
I. Governing Law................................................................................................... 32
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J. No Waiver or Estoppel........................................................................................... 32
K. No Substantive Consolidation.................................................................................... 33
L. Retention of Jurisdiction....................................................................................... 33
M. Exhibits........................................................................................................ 33
ARTICLE X HISTORY OF THE DEBTORS AND EVENTS LEADING TO CHAPTER 11 FILING AND PLAN......................................... 33
A. Business and Organization....................................................................................... 33
B. Overview of Business Operations................................................................................. 33
1. Business Segments....................................................................................... 33
(a) Branch Sales and Service Division............................................................... 34
(b) Chemical Services Division...................................................................... 35
2. Accompanying Financial Data............................................................................. 36
C. Legal Proceedings............................................................................................... 36
1. Matters Related to Investigation of Financial Results; Stockholder and Bondholder Litigation............ 36
2. PwC Litigation.......................................................................................... 36
3. D&O Insurance Recovery Action........................................................................... 37
4. SEC Investigation....................................................................................... 37
5. Pinewood Litigation..................................................................................... 38
6. Financial Assurance Compliance.......................................................................... 38
7. Products Liability Cases and Insurance Coverage Action.................................................. 38
D. Capital Structure of the Debtors................................................................................ 39
1. Debtor-in-Possession (DIP) Credit Facility.............................................................. 39
2. Other Domestic Borrowings............................................................................... 40
3. Other Material Prepetition Borrowings................................................................... 41
4. Canadian Borrowings..................................................................................... 41
5. Interest Expense........................................................................................ 42
E. Events Contributing to the Need for Restructuring............................................................... 42
1. Investigation of Financial Results...................................................................... 42
2. Financial Assurance Issues.............................................................................. 43
3. Note Defaults........................................................................................... 43
4. Pinewood................................................................................................ 43
ARTICLE XI CORPORATE STRUCTURE AND MANAGEMENT OF THE DEBTORS............................................................... 44
A. Current Corporate Structure..................................................................................... 44
B. Board of Directors.............................................................................................. 44
C. Executive Officers.............................................................................................. 46
ARTICLE XII CHAPTER 11 CASES................................................................................................ 47
A. Commencement of the Chapter 11 Cases; Continuation of Business; Stay of Litigation.............................. 47
1. Initial Relief Granted by the Bankruptcy Court.......................................................... 48
2. Parties In Interest and Advisors........................................................................ 48
(a) The Bankruptcy Court............................................................................ 48
(b) Advisors to the Debtors......................................................................... 49
(c) Appointment of the Creditors' Committee......................................................... 49
B. Post-Petition Operations and Liquidity.......................................................................... 49
1. Financing............................................................................................... 49
2. Financial Assurance Requirements........................................................................ 50
3. Sale of the Chemical Services Division.................................................................. 51
4. Financial Restatements.................................................................................. 53
5. Sale of European Operations............................................................................. 53
6. Sale of 3E Assets....................................................................................... 53
7. Claim Objection Process................................................................................. 53
(a) Schedules and Statements........................................................................ 53
(b) Claims Bar Date................................................................................. 54
(c) Claims Objection Process........................................................................ 54
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8. Sale of Assets in Holly Hill, South Carolina............................................................ 54
9. Other Asset Dispositions................................................................................ 54
10. Outsourcing Agreements.................................................................................. 54
11. Business Transactions................................................................................... 55
12. Relocation of Headquarters.............................................................................. 55
13. Employment Matters...................................................................................... 56
(a) Employment Contracts............................................................................ 56
(b) Advancement and Reimbursement of Legal Fees and Expenses........................................ 56
(c) Reduction of Labor Force........................................................................ 56
14. Extensions to the Exclusive Period for the Debtors to File a Plan of Reorganization..................... 57
15. Preference Actions...................................................................................... 57
16. Insurance Settlements................................................................................... 57
17. Extension of Time to Assume or Reject Unexpired Leases.................................................. 58
18. Disposition of Executory Contracts and Unexpired Leases................................................. 58
19. Laidlaw Litigation/Settlement........................................................................... 58
20. PricewaterhouseCoopers Issues........................................................................... 59
21. Payment of Superfund Obligations........................................................................ 59
22. Consent Agreement with EPA.............................................................................. 59
C. Settlement and Compromise under the Plan........................................................................ 59
1. Pinewood and South Carolina Department of Health and Environment Control Settlement..................... 59
ARTICLE XIII CERTAIN FACTORS TO BE CONSIDERED................................................................................ 62
A. General Considerations.......................................................................................... 62
1. Failure to Confirm the Plan............................................................................. 62
2. Failure to Consummate the Plan.......................................................................... 62
3. Certain Provisions of the Certificate of Incorporation and the Bylaws................................... 62
B. Outcome of Creditors' Committee/Lenders Litigation.............................................................. 63
C. Material United States Federal Income Tax Considerations........................................................ 64
D. Inherent Uncertainty of Financial Projections................................................................... 64
E. Risks Associated with Exit Facility............................................................................. 64
F. Risks Associated with New Common Stock; Concentration of Control................................................ 64
G. Risks Associated with New Subordinated Notes.................................................................... 65
H. Disruption of Operations Due to Failure to Confirm Plan......................................................... 66
I. Financial Uncertainty........................................................................................... 66
J. Risks Associated with Business and Competition.................................................................. 66
K. Risks Associated with CSD Sale/Assumed Liabilities.............................................................. 66
L. Environmental Matters........................................................................................... 67
1. Environmental Regulations............................................................................... 67
2. Public Concerns......................................................................................... 67
3. Environmental Insurance Coverage........................................................................ 68
4. Jurisdictional Restrictions on Waste Transfers.......................................................... 68
M. Claims Estimates................................................................................................ 68
N. Litigation...................................................................................................... 68
O. Reliance on Key Personnel....................................................................................... 69
ARTICLE XIV SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN............................................................. 69
A. New Common Stock................................................................................................ 69
B. New Subordinated Notes.......................................................................................... 69
1. New Subordinated PIK Notes.............................................................................. 69
2. New Subordinated Cash Pay Notes......................................................................... 70
ARTICLE XV APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS.............................................................. 70
A. Offer and Sale of New Common Stock and the New Subordinated Notes Pursuant to the Plan: Bankruptcy Code
Exemption from Registration Requirements........................................................................ 70
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B. Subsequent Transfers of the New Common Stock and the New Subordinated Notes........... ......................... 70
ARTICLE XVI MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.............................................. 73
A. Effective Date Transactions..................................................................................... 73
B. Material United States Federal Income Tax Consequences to the Debtors........................................... 74
1. Regular United States Federal Income Tax Consequences................................................... 74
(a) Restructuring Transactions...................................................................... 74
(b) Cancellation of Indebtedness.................................................................... 75
2. Alternative Minimum Tax................................................................................. 76
C. United States Federal Income Tax Treatment of the Safety-Kleen Creditor Trust................................... 76
D. Material United States Federal Income Tax Consequences to Claimholders.......................................... 76
1. Holders of Canadian Lender Administrative Claims........................................................ 77
2. Holders of U.S. Lender Claims (Classes 3, 4 and 7)...................................................... 77
3. Holders of SKC General Unsecured Claims, 9 1/4% Senior Notes Claims and 9 1/4% Senior
Subordinated Notes Claims (Classes 4 through 6)......................................................... 78
4. Holders of General Unsecured Claims (Class 7)........................................................... 78
5. Market Discount......................................................................................... 78
6. Allocation Between Principal and Interest............................................................... 78
E. Information Reporting and Backup Withholding.................................................................... 78
F. Importance of Obtaining Professional Tax Assistance............................................................. 79
ARTICLE XVII FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS......................................................... 79
A. Feasibility of the Plan......................................................................................... 79
1. Reorganizing Debtors.................................................................................... 79
2. Liquidating Debtors..................................................................................... 80
B. Acceptance of the Plan.......................................................................................... 80
C. Best Interests Test and Liquidation Analysis.................................................................... 80
D. Valuation of the Reorganized Debtors............................................................................ 82
1. Overview................................................................................................ 82
2. Summary of Financial Analysis........................................................................... 83
E. Application of the "Best Interests" Test to the Liquidation Analysis and the Valuation of the
Reorganized Debtors............................................................................................. 86
F. Confirmation Without Acceptance of All Impaired Classes: The "Cramdown" Alternative............................. 86
ARTICLE XVIII ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN....................................................... 87
A. Alternative Plan(s) of Reorganization........................................................................... 87
B. Liquidation Under Chapter 7 or Chapter 11....................................................................... 88
ARTICLE XIX THE SOLICITATION; VOTING PROCEDURES............................................................................. 88
A. Solicitation of Votes........................................................................................... 88
B. Voting Deadline................................................................................................. 89
C. Voting Procedures............................................................................................... 89
D. Specific Instructions for Debt Securities Holders............................................................... 89
1. Beneficial Owners....................................................................................... 89
2. Nominees................................................................................................ 90
(a) Prevalidated Ballots............................................................................ 90
(b) Master Ballots.................................................................................. 90
3. Miscellaneous........................................................................................... 91
E. Fiduciaries and Other Representatives........................................................................... 91
F. Waivers of Defects, Irregularities, Etc......................................................................... 91
G. Withdrawal of Ballots; Revocation............................................................................... 91
H. Further Information; Additional Copies.......................................................................... 92
ARTICLE XX RECOMMENDATION AND CONCLUSION................................................................................... 92
-viii-
TABLE OF APPENDICES
Appendix Name
- -------- ----
A Joint Plan of Reorganization of Safety-Kleen Corp. and Certain of its Subsidiaries and Affiliates
B Corporate Structure of the Debtors, as of June 9, 2000
C Estimated Allowed Sub-Class 7 Claims
D Reorganized Debtors' Corporate Structure
E-1 10-K for the Fiscal Year Ended August 31, 2001
E-2 10-K/A for the Fiscal Year Ended August 31, 2001
E-3 Unaudited Consolidated Financial Statements for the Year Ended August 31, 2002
F Liquidation Analysis
G Projected Financial Information
H CSD Selling Subsidiaries
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ARTICLE I
INTRODUCTION
This Disclosure Statement sets forth certain information regarding the
Debtors' prepetition operating and financial history, the need to seek chapter
11 protection, significant events that have occurred or are expected to occur
during the Debtors' chapter 11 cases, and the anticipated organization,
operations and financing of the Debtors upon successful emergence from chapter
11. This Disclosure Statement also describes terms and provisions of the Plan,
including certain alternatives to the Plan, certain effects of confirmation of
the Plan, certain risk factors associated with securities to be issued under the
Plan, and the manner in which distributions will be made under the Plan. In
addition, this Disclosure Statement discusses the confirmation process and the
voting procedures that holders of Claims entitled to vote under the Plan must
follow for their votes to be counted.
Except as otherwise provided herein, capitalized terms not otherwise
defined in this Disclosure Statement have the meanings ascribed to them in the
Plan. Unless otherwise noted herein, all dollar amounts provided in this
Disclosure Statement and in the Plan are given in United States dollars.
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF
THE PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATING TO THE PLAN,
CERTAIN EVENTS EXPECTED TO OCCUR IN THE CHAPTER 11 CASES AND CERTAIN FINANCIAL
INFORMATION. ALTHOUGH THE DEBTORS BELIEVE THAT THE PLAN AND RELATED DOCUMENT
SUMMARIES ARE FAIR AND ACCURATE, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT
THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS.
FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY
THE DEBTORS' MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE DEBTORS
DO NOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN, INCLUDING THE
FINANCIAL INFORMATION, IS WITHOUT ANY MATERIAL INACCURACY OR OMISSION.
THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO
SUCCESSFULLY REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THE HOLDERS
OF CLAIMS IN CLASSES 3 THROUGH 7. THE DEBTORS URGE HOLDERS OF CLAIMS IN CLASSES
3 THROUGH 7 TO VOTE TO ACCEPT THE PLAN.
THE PLAN PROVIDES THAT NO DISTRIBUTIONS WILL BE MADE TO HOLDERS OF
CLAIMS OR INTERESTS IN CLASSES 8 AND 9.
FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT
THE PLAN, SEE ARTICLE XIX TO THIS DISCLOSURE STATEMENT, ENTITLED "THE
SOLICITATION; VOTING PROCEDURES."
ARTICLE II
SUMMARY OF THE PLAN OF REORGANIZATION
THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE, CLASSIFICATION,
TREATMENT AND MEANS OF IMPLEMENTATION OF THE PLAN AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN, WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT,
AND TO THE EXHIBITS ATTACHED THERETO.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN WILL CONTROL THE
TREATMENT OF CREDITORS AND EQUITY SECURITY HOLDERS UNDER THE PLAN AND WILL, UPON
THE EFFECTIVE DATE, BE BINDING UPON HOLDERS OF CLAIMS AGAINST, OR INTERESTS IN,
THE DEBTORS, THE REORGANIZED DEBTORS AND OTHER PARTIES IN INTEREST.
A. OVERALL STRUCTURE OF THE PLAN
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of its creditors. Upon the filing of a petition for
relief under chapter 11, section 362 of the Bankruptcy Code provides for an
automatic stay of substantially all acts and proceedings against the debtor and
its property, including all attempts to collect claims or enforce liens that
arose prior to the commencement of the chapter 11 case.
The consummation of a plan of reorganization is the principal
objective of a chapter 11 case. A plan of reorganization sets forth the means
for satisfying claims against and interests in a debtor. Confirmation of a plan
of reorganization by the Bankruptcy Court makes the plan binding upon the
debtor, any issuer of securities under the plan, any person or entity acquiring
property under the plan, and any creditor of or equity security holder in the
debtor, whether or not such creditor or equity security holder (1) is impaired
under or has accepted the plan or (2) receives or retains any property under the
plan.
Subject to certain limited exceptions and other than as provided in
the Plan itself or the Confirmation Order, the Confirmation Order discharges the
Debtors from any debt that arose prior to the Effective Date of the Plan,
substitutes therefor the obligations specified under the confirmed Plan, and
terminates all rights and interests of equity security holders. The terms of the
Plan are based upon, among other things, the Debtors' assessment of their
ability to achieve the goals of their business plan, make the distributions
contemplated under the Plan and pay certain of their continuing obligations in
the ordinary course of the Reorganized Debtors' businesses. Under the Plan,
Claims against, and Interests in, the Debtors are divided into Classes according
to their relative seniority and other criteria.
Each Debtor is a proponent of the Plan within the meaning of section
1129 of the Bankruptcy Code. With respect to the Debtors that are reorganizing
under the Plan, the businesses that make up SKC's Branch Sales and Service
Division ("BSSD"), the Debtors believe that their core businesses and assets
have significant value that would not be realized in a liquidation, either in
whole or in substantial part. As is demonstrated by the analyses the Debtors
have prepared with the assistance of their financial advisors, the value of the
Debtors reorganizing under the Plan is greater as a going concern than in a
liquidation. With respect to the Debtors that are dissolving under the Plan, the
Debtors believe that the orderly dissolution of such Debtors as provided in the
Plan will result in greater recovery to creditors of such Debtors than would be
obtained if such Debtors were liquidated under chapter 7 of the Bankruptcy Code.
The Plan consists of separate plans of reorganization for each of the
Debtors in the jointly-administered chapter 11 proceedings. The Plan does not
contemplate the substantive consolidation of the Debtors. Except to the extent a
Reorganized Debtor expressly assumes an obligation or liability of a Debtor or
another Reorganized Debtor, the Plan will not operate to impose liability on any
Reorganized Debtor for the Claims against any other Debtor or the debts and
obligations of any other Reorganized Debtor. From and after the Effective Date,
each Reorganized Debtor will be separately liable only for its own debts and
obligations.
For voting and distribution purposes, the Plan contemplates (1)
separate classes for each Debtor and (2) separate plans of reorganization for
each Debtor. A list of each Debtor who is a proponent of a Plan contained herein
and its corresponding bankruptcy case number is attached to the Plan as
Exhibit A.
B. DEVELOPMENT OF THE PLAN OF REORGANIZATION AND SUMMARY OF PLAN TERMS
Following (1) the restatements of the Debtors' financial statements
for the fiscal years 1997, 1998 and 1999 described in Section XII.B.4 to this
Disclosure Statement, entitled "Chapter 11 Cases -- Post-Petition Operations and
Liquidity," (2) the settlement with the Laidlaw Debtors as described in Section
XII.B.18 to this Disclosure Statement, entitled "Chapter 11 Cases --
Post-Petition Operations and Liquidity," (3) the sale of substantially all of
the assets and certain equity interests of the Debtors' Chemical Services
Divisions (the "CSD") as described in Section XII.B.3 to this Disclosure
Statement, entitled "Chapter 11 Cases -- Post-Petition Operations and Liquidity"
and (4) the settlement with the South Carolina Department of Health and
Environmental Control ("DHEC"), as described in Section XII.C to this Disclosure
Statement, entitled "Chapter 11 Cases -- Settlement and Compromise under the
Plan," the Debtors have been able to make significant strides in formulating a
reorganization plan to enable the BSSD to emerge as a reorganized entity and to
make distributions to certain Claimholders.
2
Although the sale of the CSD and the settlements with Laidlaw Debtors
and DHEC resolved certain major issues that the Debtors faced in their
reorganization efforts, additional issues remain outstanding, including the
dispute between the official committee of unsecured Creditors (the "Creditors'
Committee") and the Lenders concerning, among other things, the extent to which
the Lenders' Claims are properly secured and whether such Claims can be avoided
or limited. To the extent the Lenders' Claims are properly secured and cannot be
avoided or limited, substantially all of the Debtors' assets are pledged as
collateral to secure the Lenders' Claims, thus the Lenders will be entitled to
substantially all distributions in the Chapter 11 Cases. To the extent the
Lenders' Claims can be avoided or limited, the distribution available to holders
of Claims in Classes 4 through 7 may be greater than if such Lenders' Claims are
not avoided or limited. An overview of the dispute between the Creditors'
Committee and the Lenders as set forth in Section XIII.B to this Disclosure
Statement, entitled "Certain Factors to be Considered -- Outcome of Creditors'
Committee/Lenders Litigation."
C. NEW BUSINESS PLAN
The Plan assumes the reorganization value of the Reorganized Debtors
as an ongoing concern basis to be between $480 million and $660 million. The
Plan is based on the Debtors' management's strategic business plan for the
Reorganized Debtors going forward (the "Business Plan"), which provides for the
BSSD Debtors to emerge from chapter 11 in accordance with the Restructuring
Transactions with a revised capital structure. As part of the implementation of
the Business Plan, the Debtors have sold substantially all of the assets of the
CSD, as discussed in Section XII.B.3 to this Disclosure Statement, entitled
"Chapter 11 Cases -- Post-Petition Operations and Liquidity." Similarly, the
Debtors have, among other things, sold non-essential assets, streamlined
operations through various outsourcing agreements and are implementing advanced
technology tools. Upon emergence from chapter 11, the Reorganized Debtors expect
to be more focused and efficient with an enhanced balance sheet and access to
capital pursuant to the Exit Facility, and believe that they will be better
positioned to meet the needs and expectations of the Reorganized Debtors'
customers going forward. A description of the BSSD Debtors' operations are set
forth more fully in Section X.B to this Disclosure Statement, entitled "History
of the Debtors and Events Leading to Chapter 11 Filing and Plan -- Overview of
Business Operations." The Reorganized Debtors' corporate structure on the
Effective Date is reflected in Appendix D.
The terms of the Business Plan are set forth in greater detail in the
projections financial information, annexed hereto as Appendix G.
D. COMPROMISE AND SETTLEMENT OF DISPUTES
The Plan incorporates the compromise and settlement of certain
disputes among the Debtors and certain of their creditors, all as more fully
discussed herein. These compromises and settlements include among other things:
(1) the terms of the Pinewood Settlement Agreement, which agreement is a
material and integral part of the Plan, and which provides for the settlement of
significantly all of the claims filed by DHEC, South Carolina Public Service
Authority and the South Carolina Department of Natural Resources against
Safety-Kleen (Pinewood), Inc. ("Pinewood") and certain other Debtors as well as
their assertions that in excess of $100 million of such claims were entitled to
treatment as Administrative Claims, (2) the settlement and compromise reached
between the Debtors and the Laidlaw Debtors and (3) the compromise and
settlement reached with certain insurance companies in connection with the
certain coverage actions that the Debtors commenced prepetition.
To the extent necessary, the Plan constitutes a motion for approval of
the compromises and settlements. The Confirmation Order, subject to the
occurrence of the Effective Date, will constitute an order of the Bankruptcy
Court approving the compromises and settlements.
E. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization must classify the claims and interests of a debtor's creditors
and equity interest holders. In accordance with section 1123, the Plan divides
Claims and Interests into Classes and sets forth the treatment for each Class
(other than Administrative Claims, Canadian Lender Administrative Claims, DIP
Facility Claims, Priority Tax Claims, and the DHEC Administrative Claim which,
pursuant to section 1123(a)(1), do not need to be classified). The Debtors also
are required, under section 1122 of the Bankruptcy Code, to classify Claims
against and Interests in the Debtors into Classes that contain Claims and
Interests that are substantially similar to the other Claims and Interests in
such Class. The Debtors believe that the Plan has classified all Claims and
Interests in compliance with the provisions of section 1122 and that (1) a Claim
or Interest is placed in a particular Class only
3
to the extent that the Claim or Interest falls within the description of that
Class and is classified in other Classes to the extent that any portion of the
Claim or Interest falls within the description of such other Classes and (2) a
Claim is also placed in a particular Class for the purpose of receiving
distributions pursuant to the Plan only to the extent that such Claim is an
Allowed Claim in that Class and such Claim has not been paid, released or
otherwise settled prior to the Effective Date. An Allowed Claim is a Claim or
any portion thereof (a) that has been allowed by a Final Order, or (b) as to
which, on or by the Effective Date (i) no proof of claim has been filed with the
Bankruptcy Court and (ii) the liquidated and noncontingent amount of which is
Scheduled, other than a Claim that is scheduled at zero, in an unknown amount,
or as disputed or (c) for which a proof of claim in a liquidated amount has been
timely filed pursuant to the Bankruptcy Code, any Final Order of the Bankruptcy
Court or other applicable bankruptcy law, and as to which either (x) no
objection to its allowance has been filed within the periods of limitation fixed
by the Plan, the Bankruptcy Code or by any order of the Bankruptcy Court or (y)
any objection to its allowance has been settled, waived through payment, or
withdrawn, or has been denied by a Final Order or (d) that is expressly allowed
in a liquidated amount in the Plan.
It is possible that a holder of a Claim or Interest may challenge the
Debtors' classification of Claims and Interests and that the Bankruptcy Court
may find that a different classification is required for the Plan to be
confirmed. In that event, the Debtors intend, to the extent permitted by the
Bankruptcy Code, the Plan and the Bankruptcy Court, to make such reasonable
modifications of the classifications under the Plan to permit confirmation and
to use the Plan acceptances received in this solicitation for purposes of
obtaining the approval of the reconstituted Class or Classes of which each
accepting holder ultimately is deemed to be a member.
The amount of any Claim that ultimately is allowed by the Bankruptcy
Court may vary from any estimated allowed amount of such Claim and accordingly
the total Claims ultimately allowed by the Bankruptcy Court with respect to each
Class of Claims may also vary from any estimates contained herein with respect
to the aggregate Claims in any Impaired Class. Thus, the value of the property
that ultimately will be received by a particular holder of an Allowed Claim
under the Plan may be adversely or favorably affected by the aggregate amount of
Claims ultimately allowed in the applicable Class. There can be no assurance
that the actual aggregate amounts of Allowed Claims will not materially exceed
the aggregate amounts estimated by the Debtors. Similarly, the ultimate outcome
of the dispute between the Creditors' Committee and the Lenders concerning the
Lenders' secured status may affect materially the level of distributions under
the Plan for certain Classes. Thus, no representation can be or is being made
with respect to the accuracy of the expected percentage recovery by the holder
of an Allowed Claim in any particular Class and all statements contained in this
Disclosure Statement with respect to the estimated Allowed amounts of the claims
in any Class or the expected percentage recovery by any particular Class reflect
management's best current estimate based on a preliminary review of the
information then available.
The classification of Claims and Interests and the nature of
distributions to members of each Class are summarized below. The Debtors believe
that the consideration, if any, provided under the Plan to holders of Claims and
Interests reflects an appropriate resolution of their Claims and Interests,
taking into account the differing nature and priority of such Claims and
Interests and the fair value of the Debtors' assets. In view of the deemed
rejection by Classes 8 and 9, however, as set forth below, the Debtors will seek
confirmation of the Plan pursuant to the "cramdown" provisions of the Bankruptcy
Code. Similarly, to the extent that any other Impaired Class rejects the Plan or
is deemed to have rejected the Plan, the Debtors will request confirmation of
the Plan, as it may be modified from time to time, under section 1129(b) of the
Bankruptcy Code with respect to such other Impaired Class. Specifically, section
1129(b) of the Bankruptcy Code permits confirmation of a chapter 11 plan in
certain circumstances even if the plan has not been accepted by all impaired
classes of claims and interests. Although the Debtors believe that the Plan
could be confirmed under section 1129(b) of the Bankruptcy Code, there can be no
assurance that the requirements of such section would be satisfied. The Debtors
reserve the right to alter, amend, modify, revoke, or withdraw the Plan, as to
all Debtors, or with respect to one or more Debtors but not all Debtors, the
Plan Supplement, any Exhibit, Appendix or Schedule attached to the Plan or this
Disclosure Statement, including to amend or modify it to satisfy the
requirements of section 1129(b) of the Bankruptcy Code, if necessary.
1. Unclassified Claims
Under section 1123 of the Bankruptcy Code, certain claims entitled to
priority treatment are not to be classified along with all other classes of
Claims and Interests. Accordingly, set forth below is a discussion of the
treatment of Administrative Claims, Canadian Lender Administrative Claims, DIP
Facility Claims, Priority Tax Claims and the DHEC Administrative Claim under the
Plan. The treatment of these claims will be made in accordance with the
procedures established by the Bankruptcy Code and the Bankruptcy Rules and is
subject to approval of the Bankruptcy Court as being
4
reasonable. The procedure for the allowance of such Claims is described in
Article VI to this Disclosure Statement, entitled "Allowance and Payment of
Certain Administrative Claims."
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CLASS DESCRIPTION TREATMENT UNDER PLAN
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Administrative Claims An Administrative Claim is a Claim for payment of an administrative expense of a
kind specified in section 503(b) of the Bankruptcy Code and entitled to priority
Estimated Allowed Claims: $68.5 million pursuant to section 507(a)(1) of the Bankruptcy Code, including, but not limited to
the actual, necessary costs and expenses, incurred after the Petition Date, of
preserving the Estates and operating the businesses of the Debtors, including wages,
salaries or commissions for services rendered after the commencement of the Chapter
11 Cases, Professional Claims and all fees and charges assessed against the Estates
under chapter 123 of title 28, United States Code and all Allowed Claims that are
entitled to be treated as Administrative Claims pursuant to a Final Order under
Section 546(c) of the Bankruptcy Code.
Except as otherwise provided in the Plan, and subject to the provisions of Article X
of the Plan, on, or as soon as reasonably practicable after, the latest of: (a) the
Initial Distribution Date, (b) the date such Administrative Claim becomes an Allowed
Administrative Claim or (c) the date such Administrative Claim becomes payable
pursuant to any agreement between a Debtor and the holder of such Administrative
Claim, a holder of an Allowed Administrative Claim will receive, in full
satisfaction, settlement, release and discharge of and in exchange for such Allowed
Administrative Claim (i) Cash equal to the unpaid portion of such Allowed
Administrative Claim or (ii) such other less favorable treatment as to which the
Debtors and such holder of an Allowed Administrative Claim will have agreed upon in
writing; provided, however, that Allowed Administrative Claims with respect to
liabilities incurred by the BSSD Debtors in the ordinary course of business during
the Chapter 11 Cases will be paid in the ordinary course of business in accordance
with the terms and conditions of any agreements relating thereto.
Administrative Claims are not classified and are treated as required by the
Bankruptcy Code. The holders of such Claims are not entitled to vote on the Plan.
Estimated percentage recovery: 100%
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Canadian Lender Administrative Claims Canadian Lender Administrative Claims are the obligations owed to the Canadian banks
and financial institutions or entities from time to time that are parties to the
Estimated Allowed Claims: $79.4 million Prepetition Credit Agreement and that certain bilateral agreement between
Toronto-Dominion Bank and Safety-Kleen Ltd. (the "Canadian Lenders") which have been
assumed by Safety-Kleen Services, Inc. ("SK Services"), pursuant to the Order Under
11 U.S.C. Sections 105 and 363(b) In Aid of Consummation of the Sale of
Substantially All of the Assets and Certain Equity Interest of the Debtors' Chemical
Services Division to Clean Harbors, Inc., dated September 6, 2002 (the "Assumption
Order").
The Canadian Lender Administrative Claims are, pursuant to the Assumption Order,
Allowed Administrative Claims against SK Services in the approximate aggregate
amount of U.S. $79.4 million (as of November 25, 2002) plus accrued interest at the
contractual non-default rate through the Effective Date, less any amounts with
respect to the letters of credit outstanding as of
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5
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CLASS DESCRIPTION TREATMENT UNDER PLAN
- ------------------------------------------------------------------------------------------------------------------------------------
the Effective Date that are replaced or backstopped under the Exit Facility. On the
Initial Distribution Date, or as soon as reasonably practicable thereafter, each
holder of an Allowed Canadian Lender Administrative Claim will receive, in full
satisfaction, settlement, release and discharge of and in exchange for such
Canadian Lender Administrative Claim, such holder's Pro Rata share of (i) the New
Common Stock having a value equal to 72% of the full face amount of such holder's
Allowed Canadian Lender Administrative Claim and (ii) the New Subordinated Notes in
an amount equal to 28% of the full face amount of such holder's Allowed Canadian
Lender Administrative Claim.
Canadian Lender Administrative Claims are not classified and are treated as
required by the Bankruptcy Code. The holders of such Claims are not entitled to
vote on the Plan.
Estimated percentage recovery: 100%
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DIP Facility Claims DIP Facility Claims are all Claims of the DIP Agent and the DIP Lenders arising
under or pursuant to the DIP Facility.
Estimated Allowed Claims: $50 million
Under the Plan, each holder of an Allowed DIP Facility Claim will receive on the
later of the Effective Date or the date on which such DIP Facility Claim becomes
payable pursuant to any agreement between the Debtors and the holder of such DIP
Facility Claim, in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed DIP Facility Claim: (a) Cash equal to the full amount of
such Allowed DIP Facility Claim or (b) such other treatment as to which the Debtors
and such holder will have agreed upon in writing.
DIP Facility Claims are not classified and are treated as required by the Bankruptcy
Code. The holders of such Claims are not entitled to vote on the Plan.
Estimated percentage recovery: 100%
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Priority Tax Claims Priority Tax Claims are those tax Claims entitled to priority pursuant to section
507(a)(8) of the Bankruptcy Code.
Estimated Allowed Claims: $10.5 million
Under the Plan, with respect to each Allowed Priority Tax Claim, at the sole option
of the applicable Reorganized Debtor, the holder of an Allowed Priority Tax Claim
will be entitled to receive on account of such Allowed Priority Tax Claim, in full
satisfaction, settlement, release and discharge of and in exchange for such Allowed
Priority Tax Claim: (a) equal Cash payments made on the last Business Day of every
three-month period following the Initial Distribution Date, over a period not
exceeding six years after the assessment of the tax on which such Allowed Priority
Tax Claim is based, totaling the principal amount of such Allowed Priority Tax Claim
plus simple interest on any outstanding balance from the Initial Distribution Date
calculated at the interest rate available on ninety (90) day United States
Treasuries on the Initial Distribution Date, (b) payment in full in Cash or (c) such
other treatment agreed to by the holder of the Allowed Priority Tax Claim and the
Debtors or the applicable Reorganized Debtor; provided, such treatment is on more
favorable terms to the Debtors or the applicable Reor-
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6
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CLASS DESCRIPTION TREATMENT UNDER PLAN
- ------------------------------------------------------------------------------------------------------------------------------------
ganized Debtor, as the case may be, than the treatment set forth in clauses (a) or
(b) hereof; provided, that the Debtors reserve the right to pay any Allowed
Priority Tax Claim, or any remaining balance of any Allowed Priority Tax Claim, in
full at any time on or after the Initial Distribution Date without premium or
penalty, and, provided further, that no holder of an Allowed Priority Tax Claim
will be entitled to any payments on account of any pre-Effective Date interest
accrued on or penalty arising after the Petition Date with respect to or in
connection with such Allowed Priority Tax Claim.
Priority Tax Claims are not classified and are treated as required by the
Bankruptcy Code. The holders of such Claims are not entitled to vote on the Plan.
Estimated percentage recovery: 100%
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DHEC Administrative Claim The DHEC Administrative Claim means all Claims or requests for payment filed by DHEC
relating to the hazardous waste treatment, storage and disposal facility in Sumter
Estimated Allowed Claim: $50 million County, South Carolina, previously operated by Pinewood (the "Pinewood Facility").
Under the Plan and pursuant to the terms of the Pinewood Settlement Agreement, on
the Effective Date, in full satisfaction, settlement, release and discharge of and
in exchange for the Allowed DHEC Administrative Claim, the following will occur: (a)
Pinewood will transfer the Pinewood Facility and related personal property including
vehicles, machines, equipment and supplies located at the Pinewood Facility to the
Site Trust; (b) the Debtors will (i) pay $13,162,768 (subject to adjustment for work
performed prior to the Effective Date and for certain administrative costs of the
Site Trust) to the Site Trust and (ii) transfer to the Site Trust ownership of a
single-payment, fully guaranteed annuity, which will pay out $133 million (subject
to adjustment for certain administrative costs of the Site Trust) over the next 100
years; (c) the Debtors will create the New Environmental Impairment Trust Fund into
which the funds presently in the GSX Contribution Trust Fund will be transferred and
(d) the Debtors will pay $14.5 million into the New Environmental Impairment Trust
Fund. The Debtors intend to make all such payments out of the proceeds received from
the Laidlaw Claim.
The DHEC Administrative Claim is not classified and is treated as required
by the Bankruptcy Code. The holder of the DHEC Administrative claim is not
entitled to vote on the Plan.
Estimated percentage recovery: 100% of settlement amount.
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2. Classified Claims and Interests
Under the Plan, classified Claims against and Interests in the Debtors
are divided into nine Classes (including subclasses), and are summarized in the
following table.
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CLASS DESCRIPTION TREATMENT UNDER PLAN
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Class 1: Other Priority Claims Class 1 consists of all Other Priority Claims against the Debtors, which are Claims
entitled to priority pursuant to section 507(a) of the Bankruptcy Code
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7
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CLASS DESCRIPTION TREATMENT UNDER PLAN
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Estimated Allowed Claims: $3.4 million other than a Priority Tax Claim, DIP Facility Claim, the DHEC Administrative Claim,
Canadian Lender Administrative Claim or Administrative Claim.
The Plan provides that on, or as soon as reasonably practicable after, the latest of
(a) the Initial Distribution Date, (b) the date such Class 1 Other Priority Claim
becomes an Allowed Class 1 Other Priority Claim or (c) the date such Class 1 Other
Priority Claim becomes payable pursuant to any agreement between a Debtor and the
holder of such Class 1 Other Priority Claim, a holder of an Allowed Class 1 Other
Priority Claim will receive, in full satisfaction, settlement, release and discharge
of and in exchange for such Allowed Class 1 Other Priority Claim, (i) Cash equal to
the unpaid portion of such Allowed Class 1 Other Priority Claim or (ii) such other
treatment as to which the Debtors and such Claimholder will have agreed upon in
writing.
Other Priority Claims are Unimpaired. The holders of such Claims, therefore, are
not entitled to vote on the Plan.
Estimated percentage recovery: 100%
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Class 2: Miscellaneous Secured Claims Class 2 consists of separate sub-Classes for each Miscellaneous Secured Claim
against any of the Debtors. Each sub-Class is deemed to be a separate Class for all
Estimated Allowed Claims: $10.2 million purposes under the Bankruptcy Code, including for voting purposes. A Miscellaneous
Secured Claim is any Secured Claim other than a Secured Claim arising under the
Prepetition Credit Facility. Miscellaneous Secured Claims also will include Claims
secured by liens junior in priority to existing liens, whether by operation of law,
contract or otherwise, but solely to the extent of the value of the lien after
giving effect to all security interests or liens senior in priority.
Each holder of an Allowed Class 2 Miscellaneous Secured Claim will, at the option of
the Debtors or the applicable Reorganized Debtor, be entitled to the treatment set
forth below in option A, B, C or D:
Option A: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option A will, on, or as
soon as reasonably practicable after, the later of (a) the Initial Distribution Date
or (b) the date such Class 2 Miscellaneous Secured Claim becomes an Allowed Class 2
Miscellaneous Secured Claim, be paid in Cash, in full, by the Reorganized Debtors.
Option B: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option B will be
Reinstated. The Debtors' failure to object to any Class 2 Miscellaneous Secured
Claim that is Reinstated in the Chapter 11 Case will be without prejudice to the
Debtors' or the Reorganized Debtors' right to contest or otherwise defend against
such Claim in the appropriate forum when and if such Claim is sought to be enforced.
Option C: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option C will be satisfied
by the surrender to Claimholder of the collateral securing the applicable Class 2
Miscellaneous Secured Claim.
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8
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CLASS DESCRIPTION TREATMENT UNDER PLAN
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Option D: Allowed Class 2 Miscellaneous Secured Claims with respect to
which the applicable Debtor or Reorganized Debtor elects Option D will be satisfied
in accordance with such other terms and conditions as may be agreed upon by the
applicable Debtor or Reorganized Debtor and the holder of such Allowed Class 2
Miscellaneous Secured Claim.
The applicable Debtor or Reorganized Debtor will be deemed to have elected
Option B with respect to all Allowed Class 2 Miscellaneous Secured Claims except
those with respect to which the applicable Debtor elects another option in writing
prior to the Confirmation Hearing.
Miscellaneous Secured Claims are Unimpaired. The holders of such Claims,
therefore, are not entitled to vote on the Plan.
Estimated percentage recovery: 100%
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Class 3: Secured U.S. Lender Claims Class 3 consists of (a) the portion of U.S. Lender Claims that are Secured Claims
arising under or as a result of the Prepetition Credit Agreement, including the
Estimated Allowed Claims: $480 - secured portion of any claim for reimbursement obligations related to letters of
$660 million credit posted under the Prepetition Credit Agreement that remain outstanding as of
the Effective Date and (b) the Secured Claims of the Swap Parties arising under or
as a result of (i) the ISDA Master Agreement dated as of August 20, 1999, as
amended, modified or supplemented, by and between SK Services and Citibank, N.A. and
(ii) the ISDA Master Agreement dated as of March 31, 1997, as amended, modified or
supplemented, by and between SK Services and Toronto Dominion (Texas), Inc. Class 3
consists of separate sub-Classes of Secured U.S. Lender Claims against each Debtor.
Each sub-Class is deemed to be a separate Class for voting purposes.
The Plan provides that on the Effective Date each holder of an Allowed Class 3
Secured U.S. Lender Claim will be entitled to receive, on or as soon as reasonably
practicable after, the Initial Distribution Date, in full satisfaction, settlement,
release and discharge of and in exchange for such Allowed Class 3 Secured U.S.
Lender Claim against each Debtor, such holder's Pro Rata share of (a) the New Common
Stock after deducting therefrom the New Common Stock distributed to the holders of
the Canadian Lender Administrative Claims and (b) the New Subordinated Notes after
deducting therefrom the New Subordinated Notes distributed to the holders of the
Canadian Lender Administrative Claims.
Secured U.S. Lender Claims are Impaired. The holders of such Claims that are
neither Disputed Claims nor Disallowed Claims, therefore, are entitled to vote on
the Plan.
Estimated percentage recovery: Undetermined
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Class 4: SKC General Unsecured Claims Class 4 consists of all General Unsecured Claims against SKC, including (a) the
Aragonite Industrial Revenue Bond Claims, (b) the California Pollution Control
Estimated Allowed Claims: $1.2 - Financing Authority Industrial Revenue Bond Claims and (c) the deficiency claims of
$1.4 billion the U.S. Lenders against SKC; excluding, however, (x) the Class 5 9 1/4% Senior
Notes Claims asserted against SKC and (y) the guaranty claims of the holders of the
Class 6 9 1/4% Senior Subordinated
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9
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CLASS DESCRIPTION TREATMENT UNDER PLAN
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Notes Claims against SKC.
The Plan provides that on, or as soon as reasonably practicable after, the later of
(a) the Initial Distribution Date or (b) subject to Article IX of the Plan, the date
on which a Class 4 SKC General Unsecured Claim becomes an Allowed Class 4 SKC
General Unsecured Claim, each holder of an Allowed Class 4 SKC General Unsecured
Claim will receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class 4 SKC General Unsecured Claim, such holder's Pro
Rata share of (x) the beneficial interests in the Safety-Kleen Creditor Trust
(together with all holders of Allowed Claims in Classes 5 through 7) and (y) the net
proceeds of any recoveries on the PwC Litigation Claim (together with all holders of
Allowed Claims in Classes 5 and 6).
SKC General Unsecured Claims are Impaired. The holders of such Claims that are
neither Disputed Claims nor Disallowed Claims, therefore, are entitled to vote on
the Plan.
Estimated percentage recovery: Undetermined
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Class 5: 9 1/4% Senior Notes Claims Class 5 consists of all 9 1/4% Senior Notes Claims against SKC, which are the 9 1/4%
Senior Notes due 2009 in the principal amount of approximately $225 million.
Estimated Allowed Claims: $236.8 million
The Plan provides that on, or as soon as reasonably practicable after, the later of
(a) the Initial Distribution Date or (b) subject to Article IX of the Plan, the date
on which a Class 5 9 1/4% Senior Notes Claim becomes an Allowed Class 5 9 1/4%
Senior Notes Claim, a holder of an Allowed Class 5 9 1/4% Senior Notes Claim will
receive, in full satisfaction, settlement, release and discharge of and in exchange
for such Allowed Class 5 9 1/4% Senior Notes Claim and for SKC's obligations under
the 9 1/4% Senior Notes Indenture, such holder's Pro Rata share of (x) the
beneficial interests in the Safety-Kleen Creditor Trust (together with all holders
of Allowed Claims in Classes 4, 6 and 7) and (y) the proceeds of any recoveries on
the PwC Litigation Claim (together with all holders of Allowed Claims in Classes 4
and 6).
9 1/4% Senior Notes Claims are Impaired. The holders of such Claims that are
neither Disputed Claims nor Disallowed Claims, therefore, are entitled to vote on
the Plan.
Estimated percentage recovery: Undetermined
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Class 6: 9 1/4% Senior Subordinated Notes Class 6 consists of all 9 1/4% Senior Subordinated Notes Claims against each of the
Claims Debtors. The 9 1/4% Senior Subordinated Notes Claims are the 9 1/4% Senior
Subordinated Notes due 2008 in the principal amount of approximately $325 million.
Estimated Allowed Claims: $340.8 million
The Plan provides that on, or as soon as reasonably practicable after, the later of
(a) the Initial Distribution Date or (b) subject to Article IX of the Plan, the date
on which a Class 6 9 1/4% Senior Subordinated Notes Claim becomes an Allowed Class 6
9 1/4% Senior Subordinated Notes Claim, a holder of an Allowed Class 6 9 1/4% Senior
Subordinated Notes Claim will receive in full satisfaction, settlement, release and
discharge of and in
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10
CLASS DESCRIPTION TREATMENT UNDER PLAN
- ----------------- --------------------
exchange for such Allowed Class 6 9 1/4% Senior Subordinated Notes Claim
and for the Debtors' obligations under the 9 1/4% Senior Subordinated Notes
Indenture, such holder's Pro Rata share of (x) the beneficial interests in
the Safety-Kleen Creditor Trust (together with all holders of Allowed
Claims in Classes 4, 5 and 7) and (y) the proceeds of any recoveries on the
PwC Litigation Claim (together with all holders of Allowed Claims in
Classes 4 and 5). The 9 1/4% Senior Subordinated Notes Claims are
contractually subordinated to the U.S. Lender Claims and nothing in the
Plan impacts that contractual subordination.
9 1/4% Senior Subordinated Notes Claims are Impaired. The holders of such
Claims that are neither Disputed Claims nor Disallowed Claims, therefore,
are entitled to vote on the Plan.
Estimated percentage recovery: Undetermined
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Class 7: General Unsecured Claims Class 7 consists of separate sub-Classes for all General Unsecured Claims
against each Debtor other than SKC. A list of all separate Class 7
Estimated Allowed Claims: $223 million sub-Classes is set forth on Exhibit F to the Plan. A General Unsecured
Claim is a Claim against any Debtor (including any undersecured portion of
Appendix C to this Disclosure Statement sets a Secured Claim) that is not an Administrative Claim, DIP Facility Claim,
forth the Estimated Allowed Claims for each Priority Tax Claim, the DHEC Administrative Claim, Other Priority Claim,
sub-Class in Class 7. Intercompany Claim, Miscellaneous Secured Claim, Canadian Lender
Administrative Claim or that is otherwise classified in Classes 3, 5, 6, 8
or 9.
The Plan provides that on, or as soon as reasonably practicable after, the
later of (a) the Initial Distribution Date or (b) subject to Article IX of
the Plan, the date on which a Class 7 General Unsecured Claim becomes an
Allowed Class 7 General Unsecured Claim, a holder of an Allowed Class 7
General Unsecured Claim will receive in full satisfaction, settlement,
release and discharge of and in exchange for such Allowed Class 7 General
Unsecured Claim, such holder's Pro Rata share (together with all holders of
Allowed Claims in Classes 4 through 6) of the beneficial interests in the
Safety-Kleen Creditor Trust.
General Unsecured Claims are Impaired. The holders of such Claims that are
neither Disputed Claims nor Disallowed Claims, therefore, are entitled to
vote on the Plan.
Estimated percentage recovery: Undetermined
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Class 8: Subordinated Claims Class 8 consists of all Subordinated Claims against the Debtors, which are
Estimated Allowed Claims: Not Determined Claims subject to subordination under section 510 of the Bankruptcy Code
that arise from rescission of, or for damages, indemnification,
reimbursement or contribution with respect to, a purchase or sale of Old
Common Stock or other debt or equity securities of SKC or its Affiliates.
The Plan provides that the holders of Subordinated Claims will not receive
or retain any property under the Plan on account of such Subordinated
Claims and all Class 8 Subordinated Claims will be discharged as of the
Effective Date.
Subordinated Claims are Impaired and will receive no distributions under
the
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11
CLASS DESCRIPTION TREATMENT UNDER PLAN
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Plan. The holders of such Claims, therefore, are deemed to have rejected
the Plan and are not entitled to vote on the Plan.
Estimated percentage recovery: 0%
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Class 9: Interests Class 9 consists of Interests, which are the rights of any current or
former holder or owner with respect to Old Common Stock or any other equity
securities of the Debtors authorized and issued prior to the Effective
Date. Old Common Stock means shares of SKC's common stock and all options,
warrants or rights, contractual or otherwise, if any, to acquire any such
common stock outstanding as of June 9, 2000 (the "Petition Date").
The Plan provides that on the Effective Date, all Class 9 Interests will be
deemed cancelled and extinguished. The holders of Class 9 Interests will
not receive or retain any property under the Plan on account of their Class
9 Interests.
Interests are Impaired and will receive no distribution under the Plan. The
holders of such Interests, therefore, are deemed to have rejected the Plan
and are not entitled to vote on the Plan.
Estimated percentage recovery: 0%
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3. Intercompany Claims
All Claims between and among the Debtors will, in the sole
discretion of the applicable Debtor or Reorganized Debtor, (a) be preserved and
Reinstated, (b) be released, waived and discharged as of the Effective Date or
(c) be contributed to the capital of the obligor corporation.
4. Reservation of Rights Regarding Unimpaired Claims
Except as otherwise explicitly provided in the Plan, nothing will
affect the Debtors' or the Reorganized Debtors' rights and defenses, both legal
and equitable, with respect to any Unimpaired Claims, including, but not limited
to, all rights with respect to legal and equitable defenses to alleged rights of
setoff or recoupment of Unimpaired Claims. Except to the extent a Reorganized
Debtor expressly assumes an obligation or liability of a Debtor or another
Reorganized Debtor, the Plan will not operate to impose liability on any
Reorganized Debtor for the Claims against any other Debtor or the debts and
obligations of any other Debtor or Reorganized Debtor, and from and after the
Effective Date, each Reorganized Debtor, subject to the Restructuring
Transactions, will be separately liable only for its own debts and obligations.
F. CONFIRMABILITY AND SEVERABILITY OF A PLAN
As set forth above, the Debtors will not be substantively
consolidated; accordingly, the confirmation requirements of section 1129 of the
Bankruptcy Code must be satisfied separately with respect to each Debtor. Except
as limited in the Plan, if the Bankruptcy Court holds that any provision of the
Plan is invalid, void or unenforceable, the Debtors, at their option, may alter,
amend, modify, revoke or withdraw the Plan as it applies to any particular
Debtor. A determination by the Bankruptcy Court that the Plan, as it applies to
one or more Debtors, is not confirmable pursuant to section 1129 of the
Bankruptcy Code will not limit or affect: (1) the confirmability of the Plan as
it applies to any other Debtor or (2) the Debtors' ability to modify the Plan,
as it applies to any other Debtor, to satisfy the confirmation requirements of
section 1129 of the Bankruptcy Code. The Debtors may seek to confirm the Plan,
as amended or modified, without the necessity to resolicit the Plan for voting,
provided, however, that the Plan, as amended, does not materially adversely
affect the treatment of Classes entitled to receive a distribution under the
Plan, as determined by the Bankruptcy Court at the Confirmation Hearing, or
otherwise, or such modification is consented to by any such Class.
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G. SUMMARY OF DEBT TO BE INCURRED AND SECURITIES TO BE ISSUED IN CONNECTION
WITH THE PLAN
On the Effective Date, except as otherwise provided for in the
Plan, the existing securities (i.e., 9 1/4% Senior Notes, 9 1/4% Senior
Subordinated Notes and Old Common Stock) and any other note, bond, indenture, or
other instrument or document evidencing or creating any indebtedness or
obligation of the Debtors, except such notes or other instruments evidencing
indebtedness or obligations of the Debtors that are Reinstated under the Plan,
will be cancelled. Under the Plan, the Reorganized Debtors will issue the New
Subordinated Notes and the New Common Stock and will enter into the Exit
Facility, which funds will be used to pay, among other things, the amounts due
under the DIP Facility.
1. Exit Facility
Amounts due and owing under the DIP Facility, described more fully
in Section X.D of the Disclosure Statement, entitled "History of the Debtors and
Events Leading to Chapter 11 Filing and Plan - - Capital Structure of the
Debtors," must be repaid on the earlier of March 21, 2003, or the effective date
of a plan of reorganization. The Debtors anticipate that they will finalize the
material terms of a new revolving credit facility prior to the Confirmation
Date.
(a) The Reorganized Debtors expect to enter into a $250 million
Exit Facility, with a letter of credit sub-limit of $125 million, in order to
obtain the funds necessary to repay the DIP Facility Claims, make other required
payments and conduct their post-reorganization operations. The Exit Facility is
expected to be secured by a first lien on substantially all of the assets of the
Reorganized Debtors. The Debtors intend to use availability under the Exit
Facility to provide for the release of the Lenders' obligations with respect to
pre-petition letters of credit outstanding as of the Effective Date, with the
exception of the letters of credit posted in favor of Frontier Insurance
Company, for which the Debtors will use their reasonable best efforts to cause
their release.
(b) The Debtors will file documents evidencing the Exit Facility
by the Exhibit Filing Date, which will be at least five calendar days prior to
the deadline to cast ballots (the "Voting Deadline"). The Bankruptcy Court will
(i) approve the Exit Facility in substantially the form filed with the
Bankruptcy Court and (ii) authorize the Debtors to execute the same together
with such other documents as the Exit Facility lenders or participants may
reasonably require.
2. New Subordinated Notes
The Plan provides for the issuance of two series of New
Subordinated Notes to the U.S. Lenders and the holders of Canadian Lender
Administrative Claims in partial satisfaction of their Allowed Class 3 Secured
U.S. Lender Claims and Allowed Canadian Lender Administrative Claims. The form
of the New Subordinated Notes will be in substantially the form attached in the
Plan Supplement.
(a) New Subordinated PIK Notes
The New Subordinated PIK Notes will have a term of 10 years and be
issued in the principal amount of up to $100 million. The interest rate will be
7.5% with no principal amortization during the 10 year term and principal and
any accrued interest payable in full in year 10. For years 1-3 the Reorganized
Debtors may, at their option, elect to have interest paid in kind at 8.75%.
Thereafter, the Reorganized Debtors will pay interest in cash semi-annually. The
New Subordinated PIK Notes will be secured with liens on substantially all of
the Reorganized Debtors' assets, subordinated only to the liens of the Exit
Facility and pari passu with the New Subordinated Cash Pay Notes. The Debtors
will file documents evidencing the New Subordinated PIK Notes by the Exhibit
Filing Date.
The issuance of the New Subordinated PIK Notes will be authorized
without further act or action under applicable law. The New Subordinated PIK
Notes will be issued and distributed in accordance with the terms of the Plan
without further act or action under applicable law, regulation, order or rule
and will be exempt from registration under applicable securities laws pursuant
to section 1145(a) of the Bankruptcy Code.
(b) New Subordinated Cash Pay Notes
The New Subordinated Cash Pay Notes will be 7 year notes in the
principal amount of $50 million. The interest rate will be 7% with amortization
of principal beginning in year 4 in equal installments on a semi-annual basis.
The Reorganized Debtors will pay interest in cash semi-annually. The New
Subordinated Cash Pay Notes will be secured with
13
liens on all of the assets of the Reorganized Debtors, subordinated only to the
liens of the Exit Facility and pari passu with the New Subordinated PIK Notes.
The Debtors will file documents evidencing the New Subordinated Cash Pay Notes
by the Exhibit Filing Date.
The issuance of the New Subordinated Cash Pay Notes will be
authorized without further act or action under applicable law. The New
Subordinated Cash Pay Notes will be issued and distributed in accordance with
the terms of the Plan without further act or action under applicable law,
regulation, order or rule and will be exempt from registration under applicable
securities laws pursuant to section 1145(a) of the Bankruptcy Code.
3. New Common Stock
The Plan provides that the articles of incorporation and bylaws of
each of the BSSD Reorganized Debtors will be amended as necessary to satisfy the
provisions of the Plan and the Bankruptcy Code. The articles of incorporation of
New Holdco will among other things: (a) authorize the issuance of the shares of
New Common Stock and (b) provide, pursuant to section 1123(a)(6) of the
Bankruptcy Code, for (i) a provision prohibiting the issuance of non-voting
equity securities, and, if applicable, (ii) a provision as to the classes of
securities issued pursuant to the Plan or thereafter possessing voting power,
for an appropriate distribution of such power among such classes, including, in
the case of any class of equity securities having a preference over another
class of equity securities with respect to dividends, adequate provisions for
the election of directors representing such preferred class in the event of
default in the payment of such dividends.
The issuance of the New Common Stock will be authorized without
further act or action under applicable law. The New Common Stock will be issued
and distributed in accordance with the terms of the Plan without further act or
action under applicable law, regulation, order or rule and will be exempt from
registration under applicable securities laws pursuant to section 1145(a) of the
Bankruptcy Code.
H. POST-CONSUMMATION OPERATIONS OF THE DEBTORS AND MEANS FOR IMPLEMENTATION
OF THE PLAN
1. Continued Corporate Existence for Branch Sales and Service
Division
Subject to the Restructuring Transactions described in Section
6.2(d) of the Plan, the BSSD Reorganized Debtors will continue to exist after
the Effective Date as separate corporate entities, with all the powers of a
corporation under applicable law in the jurisdiction in which each is
incorporated and pursuant to the certificate of incorporation and bylaws in
effect prior to the Effective Date, except to the extent such certificate of
incorporation and bylaws are amended by the Plan, without prejudice to any right
to terminate such existence (whether by merger or otherwise) under applicable
law after the Effective Date.
2. Corporate Action
Each of the matters provided for under the Plan involving the
corporate structure of any Debtor or Reorganized Debtor or corporate action to
be taken by or required of any Debtor or Reorganized Debtor will, as of the
Effective Date, be deemed to have occurred and be effective as provided herein,
and will be authorized and approved in all respects without any requirement of
further action by stockholders or directors of any of the Debtors or the
Reorganized Debtors.
(a) Dissolution of Corporate Existence of Certain Debtors
The Plan provides that on the Effective Date, each of SKC, SK
Services and each CSD Subsidiary will be deemed dissolved and have no continuing
corporate existence, subject only to each such Debtor's individual Plan imposed
obligation to satisfy Allowed Administrative Claims, Allowed DIP Facility
Claims, Allowed Priority Tax Claims, Allowed Other Priority Claims and Allowed
DHEC Administrative Claim against such Debtor's estate, if any. With respect to
each such Debtor, upon either (i) the final payment and satisfaction of the last
of such Plan imposed obligations or (ii) the assumption of the last of such Plan
imposed obligations by another Debtor or a Reorganized Debtor, the Debtor: (A)
will be deemed to have been discharged as of the Effective Date and immediately
thereafter deemed to have dissolved for all purposes and withdrawn its business
operations from any state or country in which it was previously conducting, or
is registered or licensed to conduct, its business operations, and will not be
required to file any document, pay any sum or take any other action in order to
effectuate such dissolution and withdrawal; (B) will be deemed to have had all
of its Interests
14
cancelled pursuant to the Plan and (C) will not be liable in any manner to any
taxing authority for franchise, business, capital, license or similar taxes that
otherwise would have accrued on or after the Effective Date, all without the
necessity for any other or further actions to be taken on behalf of such Debtor;
provided, however, that the Reorganized Debtors may, if they so elect, and any
officer of a Reorganized Debtor will be an authorized signatory for such
purpose, prepare and file all corporate resolutions, statements, notices, tax
returns or certificates of dissolution in such Debtors' jurisdiction of
incorporation or organization or other jurisdiction. The Reorganized Debtors
will not have or incur any liability for any actions taken or not taken under
Section 6.2(a) of the Plan with respect to SKC, SK Services or any CSD
Subsidiary.
(b) Cancellation of Existing Securities and Agreements
The Plan provides that on the Effective Date, except as otherwise
provided for therein (i) the Existing Securities and any other note, bond,
indenture or other instrument or document evidencing or creating any
indebtedness or obligation of the Debtors, except such notes or other
instruments evidencing indebtedness or obligations of the Debtors that are
Reinstated under the Plan, will be cancelled and (ii) the obligations of, and/or
Claims against, the Debtors under, relating or pertaining to any agreements,
indentures or certificates of designations governing the Existing Securities and
any other note, bond, indenture or other instrument or document evidencing or
creating any indebtedness or obligation of the Debtors, except such notes or
other instruments evidencing indebtedness or obligations of the Debtors that are
Reinstated under the Plan, as the case may be, will be released and discharged;
provided, however, that each indenture or other agreement that governs the
rights of the Claimholder and that is administered by an Indenture Trustee, an
agent or a servicer will continue in effect solely for the purposes of allowing
such Indenture Trustee, agent or servicer to make the distributions to be made
on account of such Claims under the Plan as provided in Article IX of the Plan;
provided, further, that the provisions of this proviso will not affect the
discharge of the Debtors' liabilities under the Bankruptcy Code and the
Confirmation Order or result in any expense or liability to the Reorganized
Debtors.
(c) Implementation of the New Holding Company Structure
The Plan provides that on the Effective Date, the following
transactions will occur in the following order:
(i) New Holdco will be incorporated.
(ii) New Holdco will cause New Parent to be incorporated as
a new wholly-owned subsidiary and New Holdco will contribute the
New Common Stock to New Parent.
(iii) New Parent will cause New Subsidiary to be
incorporated as a new wholly-owned subsidiary and New Parent will
contribute the New Common Stock to New Subsidiary.
(iv) New Subsidiary will cause Merger Sub to be
incorporated as a new wholly-owned subsidiary.
(v) Merger Sub will merge with and into SK Systems pursuant
to the Merger Agreement, with SK Systems surviving as Reorganized
Systems.
(vi) Pursuant to the Merger Agreement, Reorganized Systems
will cause the New Common Stock to be distributed to the holders
of the Canadian Lender Administrative Claims and the holders of
the U.S. Lender Claims in exchange for all or part of their
respective Claims. All distributions will be in accordance with
the Plan.
(vii) New Subsidiary will elect pursuant to section
338(h)(10) of the Internal Revenue Code to treat the merger as if
Reorganized Systems acquired all of the Systems Assets at fair
market value.
(d) Post-Effective Date Restructuring Transactions
The Plan further provides that on or after the Effective Date, the
applicable Reorganized Debtors may enter into such transactions and may take
such actions as may be necessary or appropriate to effect a corporate
restructuring of their respective businesses, to simplify otherwise the overall
corporate structure of the Reorganized Debtors, or to reincorporate certain of
the Debtors under the laws of jurisdictions other than the laws of which the
applicable Debtors are presently
15
incorporated. Such restructuring is contemplated to include one or more mergers,
consolidations, restructures, dispositions, liquidations, or dissolutions, as
may be determined by the Debtors or Reorganized Debtors to be necessary or
appropriate (collectively, the "Restructuring Transactions"). The actions to
effectuate the Restructuring Transactions may include: (i) the execution and
delivery of appropriate agreements or other documents of merger, consolidation,
restructuring, disposition, liquidation or dissolution containing terms that are
consistent with the terms of the Plan and that satisfy the applicable
requirements of applicable state law and such other terms to which the
applicable entities may agree; (ii) the execution and delivery of appropriate
instruments of transfer, assignment, assumption or delegation of any asset,
property, right, liability, duty or obligation on terms consistent with the
terms of the Plan and having such other terms to which the applicable entities
may agree; (iii) the filing of appropriate certificates or articles of merger,
consolidation or dissolution pursuant to applicable state law and (iv) all other
actions that the applicable entities determine to be necessary or appropriate,
including making filings or recordings that may be required by applicable state
law in connection with such transactions. The Restructuring Transactions may
include one or more mergers, consolidations, restructurings, dispositions,
liquidations or dissolutions, as may be determined by the Reorganized Debtors to
be necessary or appropriate to result in substantially all of the respective
assets, properties, rights, liabilities, duties and obligations of certain of
the Reorganized Debtors vesting in one or more surviving, resulting or acquiring
corporations.
I. DIRECTORS AND OFFICERS
1. The existing officers of SKC will serve as officers of New Holdco in
their current capacities after the Effective Date pending the appointment of new
officers by the board of directors of New Holdco.
2. The initial board of directors of New Holdco will consist of nine
directors to be selected by the Lenders. Directors will be classified into three
classes. One class consisting of three directors will hold office initially for
a term expiring at the 2004 annual meeting of shareholders. The second class
consisting of three directors will hold office initially for a term expiring at
the 2005 annual meeting of shareholders. Finally, the third class consisting of
three directors will hold office for a term expiring at the 2006 annual meeting
of shareholders.
J. MANAGEMENT INCENTIVE COMPENSATION PLAN
On or before the Exhibit Filing Date, the Debtors intend to file
with the Bankruptcy Court a copy of any Management Incentive Compensation Plan
proposed to be adopted by the Reorganized Debtors on the Effective Date.
K. PRESERVATION OF CAUSES OF ACTION
1. The Plan provides that in accordance with section 1123(b)(3) of the
Bankruptcy Code, and except as otherwise provided in the Plan, the Confirmation
Order or in any contract, instrument, release or other agreement entered into in
connection with the Plan, the Reorganized Debtors will retain and may enforce
the Retained Actions. The Retained Actions means: (a) all Causes of Action,
including, but not limited to, those Causes of Action identified on Exhibit I to
the Plan and all Causes of Action, whether or not listed on Exhibit I to the
Plan, including all claims, rights of action, suits and proceedings, whether in
law or in equity, whether known or unknown, which the Debtors may hold against
any entity, including, without limitation, any Causes of Action brought prior to
or after the Petition Date, and actions against any Persons for failure to pay
for products or services rendered by the Debtors, (b) all claims, Causes of
Action, suits and proceedings relating to enforcement of the Debtors'
intellectual property rights, including patents, copyrights and trademarks and
(c) all claims or Causes of Action seeking the recovery of the Debtors' or the
Reorganized Debtors' accounts receivable or other receivables or rights to
payment created or arising in the ordinary course of the Debtors' or the
Reorganized Debtors' businesses; provided, however, that each of the foregoing
will not include Trust Claims.
2. The Reorganized Debtors, in their sole discretion, will determine
whether to enforce, prosecute, settle or compromise (or decline to do any of the
foregoing) any of the Retained Actions, and the Safety-Kleen Creditor Trust, in
the exercise of its business judgment, will determine whether to enforce,
prosecute, settle or compromise (or decline to do any of the foregoing) any of
the Trust Claims.
3. The Reorganized Debtors and the Safety-Kleen Creditor Trust will be
entitled to pursue their respective claims against persons allegedly liable both
to the Reorganized Debtors in respect of a Retained Action and to the
Safety-Kleen Creditor Trust in respect of a Trust Claim (any such person, a
"Common Defendant"). The Reorganized Debtors and the Safety-Kleen Creditor Trust
may, but will be under no obligation to, enter into arrangements for the joint
prosecution of
16
their respective claims, the sharing of litigation costs and/or recoveries and
any other arrangements that are mutually acceptable to each such party. Neither
the Reorganized Debtors nor the Safety-Kleen Creditor Trust will have the right
to release a Common Defendant (or any other entity) from the claims of the
other.
4. The failure of the Debtors to specifically list any claim, right of
action, suit or proceeding in the Debtors' Schedules or in Exhibit I to the Plan
does not, and will not be deemed to, constitute a waiver or release by the
Debtors of such claim, right of action, suit or proceeding, and the Reorganized
Debtors will retain the right to pursue such claims, rights of action, suits or
proceedings in their sole discretion and, therefore, no preclusion doctrine,
collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial,
equitable or otherwise) or laches will apply to such claim, right of action,
suit or proceeding upon or after the confirmation or consummation of the Plan.
L. EXCLUSIVITY PERIOD
The Debtors will retain the exclusive right to amend or modify the
Plan and to solicit acceptances of any amendments to or modifications of the
Plan, through and until the Effective Date.
M. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS
The Chairman of the Board of Directors, the Chief Executive
Officer or any other officer of the Reorganized Debtors, will be authorized to
execute, deliver, file or record such contracts, instruments, releases,
indentures and other agreements or documents, and take such actions as may be
necessary or desirable to effectuate and further evidence the terms and
conditions of the Plan, including any actions necessary or desirable to formally
dissolve SKC, SK Services and the CSD Subsidiaries. The Secretary or Assistant
Secretary of the Reorganized Debtors will be authorized to certify or attest to
any of the foregoing actions.
N. EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers
from a Debtor to a Reorganized Debtor or any other Person or among Reorganized
Debtors pursuant to the Restructuring Transactions or the Plan in the United
States will not be subject to any document recording tax, stamp tax, conveyance
fee, or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage
recording tax, or other similar tax or governmental assessment, and the
Confirmation Order will direct the appropriate state or local governmental
officials or agents to forego the collection of any such tax or governmental
assessment and to accept for filing and recordation any of the foregoing
instruments or other documents without the payment of any such tax or
governmental assessment.
ARTICLE III
PROVISIONS GOVERNING DISTRIBUTIONS
A. TIME OF DISTRIBUTIONS
Except as otherwise provided for in the Plan or ordered by the
Bankruptcy Court, distributions under the Plan will be made on the later to
occur of: (1) the Effective Date (or as soon thereafter as is practicable), (2)
when such Claim becomes an Allowed Claim or (3) the Initial Distribution Date.
B. INTEREST ON CLAIMS
Unless otherwise specifically provided for in the Plan, the
Confirmation Order, the DIP Credit Agreement or any other Order of the
Bankruptcy Court, or required by applicable bankruptcy law, postpetition
interest will not accrue or be paid on Claims, and no Claimholder will be
entitled to interest accruing on or after the Petition Date on any Claim.
Interest will not accrue or be paid upon any Disputed Claim in respect of the
period from the Petition Date to the date a final distribution is made thereon
if and after such Disputed Claim becomes an Allowed Claim.
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C. DISBURSING AGENT
The Disbursing Agent will make all distributions required under
the Plan with respect to (1) the Unclassified Claims, (2) Classes 1 through 3
and (3) Classes 4 through 6 with respect to any proceeds from the PwC Litigation
Claim. The Disbursing Agent will reasonably cooperate with the Trustee and any
Indenture Trustee that will be making distributions in accordance with the Plan.
D. TRUSTEE
The Trustee will make all distributions to the holders of Claims
in Classes 4 through 7 from the Safety-Kleen Creditor Trust. The Trustee will
reasonably cooperate with the Disbursing Agent and any Indenture Trustee that
will be making distributions in accordance with the Plan.
E. SURRENDER OF SECURITIES OR INSTRUMENTS
On or before the date that distributions are first made by the
Safety-Kleen Creditor Trust, each holder of an instrument evidencing a Claim on
account of Prepetition Notes or any of the Industrial Revenue Bonds (a
"Certificate") will surrender such Certificate to the Trustee, or, with respect
to indebtedness that is governed by an indenture or other agreement, the
respective Indenture Trustee, agent or servicer, as the case may be, and such
Certificate will be cancelled. No distribution of property hereunder will be
made to or on behalf of any such Claimholder unless and until such Certificate
is received by the Trustee or the respective Indenture Trustee, agent or
servicer, as the case may be, or the unavailability of such Certificate is
reasonably established to the satisfaction of the Trustee or the respective
Indenture Trustee, agent or servicer, as the case may be. Any such Claimholder
who fails to surrender or cause to be surrendered such Certificate or fails to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to the Trustee or the respective Indenture Trustee, agent or servicer, as the
case may be, prior to the second (2nd) anniversary of the Effective Date, will
be deemed to have forfeited all rights and Claims in respect of such Certificate
and will not participate in any distribution hereunder, and all property in
respect of such forfeited distribution, including interest accrued thereon, will
revert to the Safety-Kleen Creditor Trust notwithstanding any federal or state
escheat laws to the contrary.
F. INSTRUCTIONS TO INDENTURE TRUSTEES
Prior to any distribution on account of any Prepetition Notes or
Industrial Revenue Bonds, the Indenture Trustees, agents or servicers of the
Prepetition Notes or Industrial Revenue Bonds will (1) inform the Trustee as to
the amount of properly surrendered Prepetition Notes or Industrial Revenue Bonds
and (2) inform the Trustee, in a form and manner that the Trustee reasonably
determines to be acceptable, of the names of such Allowed Claimholders that have
properly surrendered their respective Prepetition Notes or Industrial Revenue
Bonds and the denominations of such surrendered Prepetition Notes or Industrial
Revenue Bonds.
G. NOTIFICATION DATE FOR DISTRIBUTIONS TO HOLDERS OF PREPETITION NOTES AND
INDUSTRIAL REVENUE BONDS
At the close of business on the Distribution Notification Date,
the transfer ledgers of the Indenture Trustees, agents and servicers of the
Prepetition Notes and Industrial Revenue Bonds will be closed, and there will be
no further changes in the record holders of the Prepetition Notes and Industrial
Revenue Bonds. The Reorganized Debtors and the Indenture Trustees, agents and
servicers for the Prepetition Notes and Industrial Revenue Bonds and the Trustee
will have no obligation to recognize any transfer of any of the Prepetition
Notes and Industrial Revenue Bonds occurring after the Distribution Notification
Date. The Reorganized Debtors and the Indenture Trustees, agents and servicers
for the Prepetition Notes and Industrial Revenue Bonds and the Trustee will be
entitled instead to recognize and deal for all purposes hereunder with only
those record holders stated on the transfer ledgers as of the close of business
on the Distribution Notification Date.
H. CLAIMS ADMINISTRATION RESPONSIBILITY
The Disbursing Agent will be responsible for administering,
disputing, objecting to, compromising or otherwise resolving and making
distributions on account of (1) Administrative Claims, (2) Priority Tax Claims,
(3) Other Priority Claims, (4) Secured U.S. Lender Claims, (5) Canadian Lender
Administrative Claims, (6) the DHEC Administrative Claim and (7) Miscellaneous
Secured Claims. The Trustee on behalf of the Safety-Kleen Creditor Trust will
have responsibility for performing such functions with respect to the holders of
Claims that are the beneficiaries of the Safety-
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Kleen Creditor Trust. The Trustee will be deemed substituted as party to any
claims objections filed by the Debtors concerning any Claims in Classes 4
through 7 that are pending as of the Effective Date and will be authorized and
empowered thereafter to prosecute such objections and file new objections in the
name of and in substitution for the Debtors with respect to Classes 4 through 7.
I. OBJECTION DEADLINE
1. As soon as practicable, but no later than the Claims Objection
Deadline, the Disbursing Agent and/or the Trustee will file objections with the
Bankruptcy Court and serve such objections on the creditors holding the Claims
to which objections are made. Nothing contained herein, however, will limit the
Disbursing Agent's or the Trustee's right to object to Claims, if any, filed or
amended after the Claims Objection Deadline.
2. The Claims Objection Deadline may be extended by the Bankruptcy Court
upon motion by either the Disbursing Agent or the Trustee without notice or
hearing.
J. DELIVERY OF DISTRIBUTIONS
Distributions to Allowed Claimholders will be made by the Trustee,
the Disbursing Agent or the appropriate Indenture Trustee, agent or servicer, as
the case may be (1) at the addresses set forth on the proofs of claim filed by
such Claimholders (or at the last known addresses of such Claimholders if no
proof of claim is filed or if the Debtors have been notified of a change of
address), (2) at the addresses set forth in any written notices of address
changes delivered to the Trustee, the Disbursing Agent or the appropriate
Indenture Trustee after the date of any related proof of claim, (3) at the
addresses reflected in the Schedules if no proof of claim has been filed and the
Trustee or the Disbursing Agent, as the case may be, has not received a written
notice of a change of address or (4) in the case of a Claimholder whose Claim is
governed by an indenture or other agreement and is administered by an Indenture
Trustee, agent or servicer, at the addresses contained in the official records
of such Indenture Trustee, agent or servicer. If any Claimholder's distribution
is returned as undeliverable, no further distributions to such Claimholder will
be made unless and until the Trustee, the Disbursing Agent or the appropriate
Indenture Trustee, agent or servicer is notified of such Claimholder's then
current address, at which time all missed distributions will be made to such
Claimholder without interest. Amounts in respect of undeliverable distributions
will be returned to (a) the Safety-Kleen Creditor Trust with respect to
distributions made by the Trustee or any Indenture Trustee, agent or servicer
and (b) the Reorganized Debtors with respect to distributions made by the
Disbursing Agent, until such distributions are claimed. All claims for
undeliverable distributions will be made on or before the second (2nd)
anniversary of the Effective Date. After such date, all unclaimed property
relating to distributions to be made from the Safety-Kleen Creditor Trust will
revert to the Safety-Kleen Creditor Trust and all the other unclaimed property
will revert to the Reorganized Debtors. Upon such reversion, the claim of any
Claimholder or successor to such Claimholder with respect to such property will
be discharged and forever barred notwithstanding any federal or state escheat
laws to the contrary.
K. PROCEDURES FOR TREATING AND RESOLVING DISPUTED AND CONTINGENT CLAIMS
1. No Distributions Pending Allowance
Except as set forth in Section 9.12(e) of the Plan, no payments or
distributions will be made with respect to all or any portion of a Disputed
Claim unless and until all objections to such Disputed Claim have been settled
or withdrawn or have been determined by a Final Order and the Disputed Claim has
become an Allowed Claim. All objections to Claims must be filed on or before the
Claims Objection Deadline.
2. Trust Distribution Reserve
The Trustee will establish the Trust Distribution Reserve by
withholding the Trust Distribution Reserve from the Trust Assets to be
distributed to Claimholders in Classes 4 through 7 under the Plan. The Trustee
may request estimation for any Class 4 through 7 Disputed Claim that is
contingent or unliquidated and the Trustee will withhold the Trust Distribution
Reserve based upon the estimated amount of each such Claim as estimated by the
Bankruptcy Court. If the Trustee elects not to request such an estimation from
the Bankruptcy Court with respect to a Disputed Claim that is contingent, the
Trustee will withhold the Trust Distribution Reserve based upon the Face Amount
of such Claim. In addition, the Trustee will place in the Trust Distribution
Reserve any dividends, payments or other distributions made on account of, as
well as any obligations arising from, the property withheld as the Trust
Distribution Reserve, to the extent that such property
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continues to be withheld as the Trust Distribution Reserve at the time such
distributions are made or such obligations arise. If practicable, the Trustee
will invest any Cash that is withheld as the Trust Distribution Reserve in a
manner that will yield a reasonable net return, taking into account the safety
of the investment. Nothing in the Plan or Disclosure Statement will be deemed to
entitle the Claimholder of a Disputed Claim to postpetition interest on such
Claim.
3. Lender Claims Reserve
The Disbursing Agent will establish a Lender Claims Reserve by
withholding the New Subordinated Notes and the New Common Stock to be
distributed to the holders of the secured portion of any Claim for reimbursement
obligations related to letters of credit posted under the Prepetition Credit
Agreement and outstanding as of the Effective Date not otherwise replaced or
backstopped through letters of credit issued under the Exit Facility. To the
extent such Claim becomes noncontingent and liquidated, the holder of such Claim
will receive its Pro Rata share of the Lender Claims Reserve. If such Claim is
withdrawn or disallowed, then the New Subordinated Notes and the New Common
Stock in the Lender Claims Reserve will be distributed Pro Rata to the Allowed
Class 3 Claimholders and holders of Allowed Canadian Lender Administrative
Claims.
All distributions made under Section 9.12(c) of the Plan on
account of an Allowed Claim will be made together with any dividends, payments
or other distributions made on account of, as well as any obligations arising
from, the distributed property as if such Allowed Claim had been an Allowed
Claim on the dates distributions were previously made to holders of Secured U.S.
Lender Claims and Canadian Lender Administrative Claims, as appropriate.
4. Distributions After Allowance
Payments and distributions from the Trust Distribution Reserve to
each Claimholder of a Disputed Claim, to the extent that such Disputed Claim
ultimately becomes an Allowed Claim, will be made in accordance with the
provisions of the Plan that govern distributions of Allowed Claims in that
Class.
Upon entry of an order or judgment of the Bankruptcy Court
allowing all or part of such Claim, and such order or judgment becomes a Final
Order, the Trustee will distribute to the holders of Claims in Classes 4 through
7 any Cash in the Trust Distribution Reserve that would have been distributed on
any previous Distribution Dates to that Allowed Class had such Allowed Claim
been an Allowed Claim on such previous Distribution Dates. After a Final Order
has been entered, or other final resolution has been reached with respect to all
Disputed Claims in Classes 4 through 7, any remaining Cash held in the Trust
Distribution Reserve will be distributed Pro Rata to holders of Allowed Claims
in Classes 4 through 7 on the next Distribution Date. All distributions made
under this Article IX on account of an Allowed Claim will be made together with
any dividends, payments or other distributions made on account of, as well as
any obligations arising from, the distributed property as if such Allowed Claim
had been an Allowed Claim on the previous Distribution Dates on which
distributions were made to holders of Claims in Allowed Classes 4 through 7.
5. Partial Distributions
Notwithstanding any provision of the Plan or the documents
referred to by the Plan, the Trust Advisory Board may direct the Trustee to make
one or more distributions to the holders of Disputed Claims, based on the
distributions which such holders would otherwise be entitled to receive based on
the undisputed portions of such Claims if their Claims had not been objected to,
if any. This power of direction may not be used to select individual Disputed
Claims for payment. The Trust Advisory Board may only direct the Trustee to make
distributions on the undisputed portions of all Disputed Claims, or none at all.
Notwithstanding the foregoing, the Trust Advisory Board may not authorize or
direct the Trustee to pay any distribution to entities that may be liable to the
Safety-Kleen Creditor Trust with respect to a Trust Claim unless the holder of
such Claim has discharged its liability to the Safety-Kleen Creditor Trust on
account of the Trust Claim by settlement or otherwise.
6. Claims Allowable Against Multiple Debtors
Notwithstanding anything herein or in the Schedules to the
contrary, to the extent a Claimholder in Classes 4 through 7 has an Allowed
Claim against more than one of the Debtors based upon the same ground or theory
of liability, such Claim will only be counted once for determination of
distributions of Trust Assets to be paid to such Claimholder from the
Safety-Kleen Creditor Trust.
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L. CALCULATION OF DISTRIBUTION AMOUNTS
1. New Common Stock
No fractional shares of New Common Stock will be issued or
distributed under the Plan. Each Person entitled to receive New Common Stock
will receive the total number of whole shares of New Common Stock to which such
Person is entitled. Whenever any distributions to a Person would otherwise call
for distribution of a fraction of a share of New Common Stock, the actual
distribution of shares of such New Common Stock will be rounded to the next
higher or lower whole number as follows: fractions 1/2 or greater will be
rounded to the next higher whole number, and fractions of less than 1/2 will be
rounded to the next lower whole number. No consideration will be provided in
lieu of fractional shares that are rounded down. The total number of shares of
New Common Stock to be distributed to each Class of Claims will be adjusted as
necessary to account for the rounding provided for in Section 9.10 of the Plan.
2. New Subordinated Notes
New Subordinated Notes will be issued in denominations of $1,000
and such fractions thereof as is necessary.
3. Conversion Rate
Canadian dollar Claims will be converted to United States dollars
for purposes of distributions by applying the September 6, 2002 exchange rate of
..63610.
ARTICLE IV
SAFETY-KLEEN CREDITOR TRUST
The Plan provides for the creation of the Safety-Kleen Creditor
Trust to be administered by a trustee with the advice and direction of the Trust
Advisory Board. As set forth below and in the Plan, the Safety-Kleen Creditor
Trust is being established for and on behalf of holders of Allowed Claims in
Classes 4 through 7.
A. APPOINTMENT OF TRUSTEE
1. The Trustee for the Safety-Kleen Creditor Trust will be designated by
the Trust Advisory Board. The Person designated as Trustee will file an
affidavit demonstrating that such Person is disinterested. The Person so
designated by the Trust Advisory Board will become the Trustee upon the
Bankruptcy Court entering an order approving the designation after consideration
of the same and any objections thereto at the Confirmation Hearing.
2. The Trustee will have and perform all of the duties, responsibilities,
rights and obligations set forth in the Trust Agreement.
B. ASSIGNMENT OF TRUST ASSETS TO THE SAFETY-KLEEN CREDITOR TRUST
On the Effective Date, the Debtors will transfer and will be
deemed to have transferred to the Safety-Kleen Creditor Trust, for and on behalf
of the beneficiaries of the Safety-Kleen Creditor Trust: (1) the Initial Deposit
in the amount of $1 million to be paid to the Safety-Kleen Creditor Trust
pursuant to Section 11.5 of the Plan and (2) the Trust Claims, which consist of
the Avoidance Claims that have been previously commenced by the Debtors or that
are the subject of a tolling agreement and have not otherwise been released or
dismissed pursuant to the Plan.
C. THE SAFETY-KLEEN CREDITOR TRUST
1. Without any further action of the directors or shareholders of the
Debtors, on the Effective Date, the Trust Agreement, substantially in the form
of Exhibit B to the Plan, will become effective. The Trustee will accept the
Safety-Kleen Creditor Trust and sign the Trust Agreement on that date and the
Safety-Kleen Creditor Trust then will be deemed created and effective.
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2. The Trustee will have full authority to take any steps necessary to
administer the Trust Agreement, including, without limitation, the duty and
obligation to liquidate Trust Assets, to make distributions to the holders of
Allowed Claims in Classes 4 through 7, to review and, if appropriate and
authorized by a majority of the members of the Trust Advisory Board authorized
to vote, to pursue and compromise objections to General Unsecured Claims and, if
authorized by majority vote of those members of the Trust Advisory Board
authorized to vote, to pursue and settle any other Trust Claims. Upon the
assignment of the Trust Claims (which, as stated above, will be transferred on
the Effective Date), the Trustee, on behalf of the Safety-Kleen Creditor Trust,
will assume and be responsible for all of the Debtors' responsibilities, duties
and obligations with respect to the subject matter of the Trust Claims, and the
Debtors, the Disbursing Agent and the Reorganized Debtors will have no other
further rights or obligations with respect thereto.
3. The Trustee will take such steps as it deems necessary (having first
obtained such approvals from the Trust Advisory Board as may be necessary, if
any) to reduce the Trust Assets to Cash to make distributions required
hereunder, provided that the Trustee's actions with respect to disposition of
the Trust Assets should be taken in such a manner so as reasonably to maximize
the value of the Trust Assets.
4. All costs and expenses associated with the administration of the
Safety-Kleen Creditor Trust, including those rights, obligations and duties
described in Section 11.3(b) of the Plan, will be the responsibility of and paid
by the Safety-Kleen Creditor Trust. Notwithstanding the foregoing, the
Reorganized Debtors will cooperate with the Trustee in pursuing the Trust
Recoveries and will afford reasonable access during normal business hours, upon
reasonable notice, to personnel and books and records of the Reorganized Debtors
to representatives of the Safety-Kleen Creditor Trust to enable the Trustee to
perform the Trustee's tasks under the Trust Agreement and the Plan; provided,
however, that the Reorganized Debtors will not be required to make expenditures
in response to such requests determined by them to be unreasonable. The
Bankruptcy Court retains jurisdiction to determine the reasonableness of any
request for assistance or related expenditure. Any requests for assistance will
not interfere with the Reorganized Debtors' business operations.
5. The Trustee may retain professionals, including, but not limited to,
attorneys, accountants, experts, advisors, consultants, investigators,
appraisers or auctioneers as it may deem necessary, in its sole discretion, to
aid in the performance of its responsibilities pursuant to the terms of the
Trust Agreement and the Plan including, without limitation, the liquidation and
distribution of Trust Assets. Such retained professionals will continue to
prepare monthly statements in the same manner and in the same detail as required
pursuant to the Professional Fee Orders and will serve such statements on each
member of the Trust Advisory Board. In the event two or more members of the
Trust Advisory Board object to the reasonableness of such fees and expenses, the
matter will be submitted to the Bankruptcy Court for approval of the
reasonableness of such fees and expenses.
6. For federal income tax purposes, it is intended that the Safety-Kleen
Creditor Trust be classified as a liquidating trust under section 301.7701-4 of
the Treasury regulations and that such trust is owned by its beneficiaries.
Accordingly, for United States federal income tax purposes, it is intended that
the beneficiaries be treated as if they had received a distribution of an
undivided interest in the Trust Assets and then contributed such interests to
the Safety-Kleen Creditor Trust.
7. The Trustee will be responsible for filing all federal, state and
local tax returns for the Safety-Kleen Creditor Trust.
D. THE TRUST ADVISORY BOARD
1. The Trust Advisory Board will be comprised of five (5) members. The
Creditors' Committee and the Lenders will each designate two (2) members and
those four members will designate the remaining member. Such parties will give
written notice of the identities of such members, file it of record and serve
such notice on each other and on the Debtors on a date that is not less than
five (5) Business Days prior to the Confirmation Hearing. The Trustee will
consult regularly with the Trust Advisory Board when carrying out the purpose
and intent of the Safety-Kleen Creditor Trust. Members of the Trust Advisory
Board will be entitled to compensation in accordance with the Trust Agreement
and to reimbursement of the reasonable and necessary expenses incurred by them
in carrying out the purpose of the Trust Advisory Board. Reimbursement of the
reasonable and necessary expenses of the members of the Trust Advisory Board and
their compensation to the extent provided for in the Trust Agreement will be
payable by the Safety-Kleen Creditor Trust.
22
2. In the case of an inability or unwillingness of any member of the
Trust Advisory Board to serve, such member will be replaced by designation of
the remaining members of the Trust Advisory Board. If any position on the Trust
Advisory Board remains vacant for more than thirty (30) calendar days, such
vacancy will be filled within fifteen (15) calendar days thereafter by the
designation of the Trustee without the requirement of a vote by the other
members of the Trust Advisory Board.
3. Upon the certification by the Trustee that all Trust Assets have been
distributed, abandoned or otherwise disposed of, the members of the Trust
Advisory Board will resign their positions, whereupon they will be discharged
from further duties and responsibilities.
4. The Trust Advisory Board may, by majority vote, approve all
settlements of Trust Claims which the Trustee may propose, subject to Bankruptcy
Court approval of such settlements after notice and a hearing; provided,
however, that (a) no member of the Trust Advisory Board may cast a vote with
respect to any Trust Claim to which it is a party and (b) the Trustee may seek
Bankruptcy Court approval of a settlement of a Trust Claim if the Trust Advisory
Board fails to act on a proposed settlement of such Trust Claim within thirty
(30) calendar days of receiving notice of such proposed settlement by the
Trustee.
5. The Trust Advisory Board may, by majority vote, authorize the Trustee
to invest the corpus of the Trust in prudent investments in addition to those
described in section 345 of the Bankruptcy Code.
6. The Trust Advisory Board may remove the Trustee in the event of gross
negligence or willful misconduct; provided, however, that such removal must be
approved by four (4) members of the Trust Advisory Board. In the event the
requisite approval is not obtained, the Trustee may be removed by the Bankruptcy
Court for cause shown. In the event of the resignation or removal of the
Trustee, the Trust Advisory Board will, by majority vote, designate a person to
serve as successor Trustee.
7. The Trust Advisory Board will require a fidelity bond from the Trustee
in such reasonable amount as may be agreed to by majority vote of the Trust
Advisory Board.
8. The Trust Advisory Board will govern its proceedings through the
adoption of bylaws, which the Trust Advisory Board may adopt by majority vote.
No provision of such bylaws will supersede any express provision of the Plan.
E. FUNDING OF THE INITIAL DEPOSIT
On the Effective Date or as soon thereafter as practicable, SKC
will fund the Safety-Kleen Creditor Trust with a $1 million Initial Deposit to
be used by the Trustee consistent with the purpose of the Safety-Kleen Creditor
Trust and subject to the terms and conditions of the Trust Agreement and the
Plan.
F. DISTRIBUTIONS OF TRUST ASSETS
1. The Trust will reimburse the Reorganized Debtors for the full amount
of the Initial Deposit from the Trust Recoveries. The Trustee will pay the
Reorganized Debtors from the Safety-Kleen Creditor Trust one-half (1/2) of all
Trust Recoveries until the Reorganized Debtors are reimbursed for the full
amount of the Initial Deposit.
2. Subject to Section 11.6(a)of the Plan and except as otherwise provided
therein, the Trustee will distribute the remaining Trust Assets as follows:
first, to pay Trust Expenses; second, to repay amounts, if any, borrowed by the
Trustee in accordance with the Trust Agreement and, third, to pay the Pro Rata
distributions to Classes 4 through 7 as required by the Plan. Distributions to
holders of Allowed Claims in Classes 4 through 7 will be made on a Distribution
Date; provided, however, that the Trustee will not be required to make any such
distribution on a Distribution Date in the event that, in the Trustee's
discretion (after consultation with the Trust Advisory Board), the aggregate
proceeds and income available for distribution to such Claimholders is not
sufficient to make such a distribution. From time to time, but no less
frequently than quarterly, the Trustee, in consultation with the Trust Advisory
Board, will estimate the amount of Trust Assets required to pay then outstanding
and reasonably anticipated Trust Expenses. The Cash portion of Trust Assets in
excess of such actual and estimated Trust Expenses will be made available for
distribution to Classes 4 through 7 Claimholders in the amounts, on the dates
and subject to the other terms and conditions provided in the Plan. The Trustee
will make continuing efforts to dispose of the Trust Assets, make timely
distributions and not unduly prolong the duration of the Safety-Kleen Creditor
Trust.
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ARTICLE V
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under section 365 of the Bankruptcy Code, the Debtors have the
right, subject to Bankruptcy Court approval, to assume or reject any executory
contracts or unexpired leases. If the Debtors reject an executory contract or
unexpired lease that was entered into before the Petition Date, the contract or
lease will be treated as if it had been breached on the date immediately
preceding the Petition Date, and the other party to the agreement will have an
Impaired General Unsecured Claim for damages incurred as a result of the
rejection. In the case of rejection of employment severance agreements and real
property leases, damages are subject to certain limitations imposed by sections
365 and 502 of the Bankruptcy Code.
A. REJECTED CONTRACTS AND LEASES
Each executory contract and unexpired lease to which any of the
Debtors is a party will be deemed automatically rejected as of the Effective
Date, unless such executory contract or unexpired lease: (1) will have been
previously assumed by the Debtors, (2) is the subject of a motion to assume
filed on or before the Confirmation Date or (3) is listed on the schedule of
assumed contracts and leases annexed as Exhibit E to the Plan. The Debtors may
supplement or otherwise modify Exhibit E to the Plan through the Exhibit Filing
Date and may remove any contract or lease from Exhibit E to the Plan through the
later of the Effective Date or the date an order is entered determining the Cure
for any contract or lease in which Cure was disputed. The Confirmation Order
will constitute an order of the Bankruptcy Court approving such rejections,
pursuant to section 365 of the Bankruptcy Code, as of the Effective Date. The
Debtors reserve the right to file a motion on or before the Confirmation Date to
assume and assign or reject any executory contract or unexpired lease whether or
not initially identified on Exhibit E to the Plan.
B. REJECTION DAMAGES BAR DATE
If the rejection, pursuant to the Plan or otherwise, of an
executory contract or unexpired lease results in a Claim, then such Claim will
be forever barred and will not be enforceable against the Debtors or the
Reorganized Debtors or the properties of either of them unless, within thirty
(30) calendar days after service of the notice of the Effective Date, a proof of
claim is filed with Trumbull Services, L.L.C. ("Trumbull Services") at the
address set forth in the Plan and served upon counsel to the Debtors and either
(1) counsel to the Creditors' Committee, if prior to the Effective Date or (2)
counsel to the Trustee to the Safety-Kleen Creditor Trust if after the Effective
Date.
C. ASSUMED CONTRACTS AND LEASES
Except as otherwise provided in the Plan or the Confirmation
Order, all executory contracts and unexpired leases identified in Exhibit E to
the Plan will be deemed automatically assumed as of the Effective Date.
Each executory contract and unexpired lease that is assumed and
relates to the use, ability to acquire or occupancy of real property will
include all modifications, amendments, renewals, supplements, restatements or
other agreements made directly or indirectly by any agreement, instrument or
other document that in any manner affect such executory contract or unexpired
lease and all executory contracts or unexpired leases appurtenant to the
premises, including all easements, licenses, permits, rights, privileges,
immunities, options, rights of first refusal, powers, uses, reciprocal easement
agreements and any other interests in real estate or rights in rem related to
such premises, unless any of the foregoing agreements has been rejected pursuant
to a Final Order of the Bankruptcy Court or is otherwise rejected as a part of
the Plan. To the extent the Debtor who is party to the unexpired lease or
executory contract is to be merged or liquidated as a part of a Restructuring
Transaction, the non-debtor parties to such unexpired lease or executory
contract will, upon assumption as contemplated herein, be deemed to have
consented to the assignment of such unexpired lease or executory contract to the
Reorganized Debtor set forth on Exhibit E to the Plan.
The Confirmation Order will constitute an order of the Bankruptcy
Court approving the assumption of such executory contracts and unexpired leases,
pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
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D. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Any monetary amounts by which each executory contract and
unexpired lease to be assumed under the Plan may be in default will be
satisfied, under section 365(b)(1) of the Bankruptcy Code by Cure. In the event
of a dispute regarding: (1) the nature or the amount of any Cure, (2) the
ability of the Reorganized Debtors or any assignee to provide "adequate
assurance of future performance" (within the meaning of section 365 of the
Bankruptcy Code) under the contract or lease to be assumed or (3) any other
matter pertaining to assumption, Cure will occur following the entry of a Final
Order resolving the dispute and approving the assumption and, as the case may
be, assignment.
E. EMPLOYMENT, RETIREMENT, INDEMNIFICATION AND OTHER EMPLOYEE RELATED
AGREEMENTS
On the Effective Date, the Debtors will be deemed to have rejected
all existing prepetition employment, retirement, indemnification and other
employee related plans, agreements and programs, including the SERP, except as
set forth in Section 12.7(c) of the Plan and those agreements, plans and
programs specifically set forth on Exhibit E to the Plan.
ARTICLE VI
ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS
A. DIP FACILITY CLAIM
The Plan provides that on the Effective Date, all obligations of
the Debtors under the DIP Facility will be paid in full in Cash or otherwise
satisfied in a manner acceptable to such Claimholders in accordance with the
terms of the DIP Facility and all liens and security interests granted to secure
such obligations will be deemed cancelled and will be of no further force and
effect. The Debtors anticipate that all outstanding undrawn letters of credit
issued under the DIP Facility will be replaced or backstopped through letters of
credit issued under the Exit Facility.
B. PROFESSIONAL CLAIMS
1. Final Fee Applications
Under the Plan, all final requests for payment of Professional
Claims must be filed no later than sixty (60) calendar days after the
Confirmation Date. The deadline to file final requests for payment of
Professional Claims may be extended by the Bankruptcy Court upon motion by a
Professional. After notice and a hearing in accordance with the procedures
established by the Bankruptcy Code and prior orders of the Bankruptcy Court, the
allowed amounts of such Professional Claims will be determined by the Bankruptcy
Court.
2. Payment of Interim Amounts
Subject to the Holdback Amount, on the Effective Date, the Debtors
will pay all undisputed amounts owing to Professionals for all outstanding
amounts relating to prior periods through the Confirmation Date.
In order to receive payment on the Effective Date for unbilled
fees and expenses incurred through the Confirmation Date, the Professionals will
estimate fees and expenses due for periods that have not been billed as of the
Confirmation Date and will deliver such estimate to counsel for the Debtors, the
Creditors' Committee, the Prepetition Agent and the DIP Agent. Within thirty
(30) calendar days after the Effective Date, a Professional receiving payment
for estimated fees will submit a detailed invoice covering such estimated
amounts in the manner and providing the detail as set forth in the Professional
Fee Orders.
3. Terminating Fee Application Requirements
Upon the Confirmation Date, any requirement that Professionals
comply with sections 327 through 331 and 363 of the Bankruptcy Code in seeking
retention or compensation for services rendered after such date will terminate
and will not apply to any services rendered after the Confirmation Date.
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C. SUBSTANTIAL CONTRIBUTION COMPENSATION AND EXPENSES BAR DATE
Any Person that requests compensation or expense reimbursement for
making a substantial contribution in the Chapter 11 Cases pursuant to section
503(b)(3), (4) or (5) of the Bankruptcy Code must file an application with the
Clerk of the Bankruptcy Court, on or before the date that is fifteen (15)
calendar days after the Confirmation Date and serve such application on counsel
for the Debtors, the Trustee, the DIP Agent and the Prepetition Agent and as
otherwise required by the Bankruptcy Court and the Bankruptcy Code or be forever
barred from seeking such compensation or expense reimbursement.
D. OTHER ADMINISTRATIVE CLAIMS
All other requests for payment of an Administrative Claim (other
than as set forth in Sections 10.2 and 10.3 of the Plan) must be filed with the
Bankruptcy Court and served on counsel for the Debtors no later than thirty (30)
calendar days after the Confirmation Date. Unless the Debtors or the Disbursing
Agent object to an Administrative Claim within ninety (90) calendar days after
such bar date, such Administrative Claim will be deemed allowed in the amount
requested against the appropriate Debtor's Estate. In the event that the Debtors
object to an Administrative Claim, the Bankruptcy Court will determine the
Allowed amount of such Administrative Claim. Notwithstanding the foregoing, no
request for payment of an Administrative Claim need be filed with respect to an
Administrative Claim which is paid or payable by the BSSD Debtors in the
ordinary course of business. The deadline to file an objection to an
Administrative Claim may be extended by the Bankruptcy Court upon motion by the
Debtors or the Disbursing Agent.
E. ADMINISTRATIVE CLAIMS ALLOWANCE AGAINST MULTIPLE DEBTORS
Notwithstanding anything in the Plan to the contrary, if a holder
of an Administrative Claim, Canadian Lender Administrative Claim, DIP Facility
Claim, Priority Tax Claim, or DHEC Administrative Claim has an Allowed Claim
against more than one of the Debtors based upon the same ground or theory of
liability, then such Claim will only be paid once under the Plan.
ARTICLE VII
EFFECT OF THE PLAN
A. REVESTING OF ASSETS
Except as otherwise provided in the Plan, on the Effective Date
all property comprising the Estates of each Debtor (other than a Dissolving
Debtor) will revest in the respective Reorganized Debtor or its successor as a
result of a Restructuring Transaction, free and clear of all Claims, liens,
charges, encumbrances and Interests of creditors and equity security holders
(other than as expressly provided in the Plan or the Confirmation Order). On the
Effective Date, any property of Dissolving Debtors not previously distributed
under the Plan will, at the option of the Reorganized Debtors, vest in one or
more Reorganized Debtor as set forth on Exhibit J to the Plan, free and clear of
all Claims, liens, charges, encumbrances and Interests of creditors and equity
security holders of such Dissolving Debtor (other than as expressly provided in
the Plan or the Confirmation Order). As of the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests without supervision of the Bankruptcy
Court free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other
than those restrictions expressly imposed by the Plan and Confirmation Order.
B. DISCHARGE OF THE DEBTORS
Pursuant to section 1141(d) of the Bankruptcy Code, except as
otherwise specifically provided in the Plan or in the Confirmation Order, the
distributions and rights that are provided in the Plan will be in exchange for
and in complete satisfaction, discharge and release, effective as of the
Effective Date, of Claims and Causes of Action (whether known or unknown)
against, liabilities of, liens on, obligations of and Interests in the Debtors
or the Reorganized Debtors or any of their assets or properties, regardless of
whether any property will have been distributed or retained pursuant to the Plan
on account of such Claims, including, but not limited to, demands and
liabilities that arose on or before the Effective Date, any liability (including
withdrawal liability) to the extent such Claims relate to services performed by
employees of the Debtors prior to the Petition Date and that arise from a
termination of employment or a termination of any employee or retiree benefit
program regardless of whether such termination occurred prior to or after the
Petition Date, and all debts of the kind specified in
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sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (1) a
proof of claim based upon such debt is filed or deemed filed under section 501
of the Bankruptcy Code, (2) a Claim based upon such debt is Allowed under
section 502 of the Bankruptcy Code or (3) the Claimholder of such a Claim
accepted the Plan. The Confirmation Order will be a judicial determination of
the discharge of all liabilities of the Debtors, subject to the Effective Date
occurring.
C. COMPROMISES AND SETTLEMENTS
Under the Plan, from and after the Effective Date, the Reorganized
Debtors may compromise and settle various Claims against them and claims and
Causes of Action that they have against other Persons without further Bankruptcy
Court approval. After the Effective Date, the Safety-Kleen Creditor Trust may
settle all claims and Causes of Action for which it has authority to liquidate
or affirmatively pursue without further Bankruptcy Court approval for Claims
Allowed in amounts that do not exceed $1,000,000 or for affirmative recoveries
that do not exceed $100,000.
D. SETOFFS
The Debtors or the Reorganized Debtors may, but will not be
required to, set off against any Claim, and the payments or other distributions
to be made pursuant to the Plan in respect of such Claim, claims of any nature
whatsoever that the Debtors may have against such Claimholder; but neither the
failure to do so nor the allowance of any Claim hereunder will constitute a
waiver or release by the Debtors of any such claim that the Debtors or the
Reorganized Debtors may have against such Claimholder.
E. SATISFACTION OF SUBORDINATION RIGHTS
All Claims against the Debtors and all rights and claims between
or among Claimholders relating in any manner whatsoever to Claims against the
Debtors, based upon any claimed subordination rights (if any), will be deemed
satisfied by the distributions under the Plan to Claimholders having such
subordination rights, and such subordination rights will be deemed waived,
released, discharged and terminated as of the Effective Date. Distributions to
the various Classes of Claims hereunder will not be subject to levy,
garnishment, attachment or similar legal process by any Claimholder by reason of
any claimed subordination rights or otherwise, so that each Claimholder will
have and receive the benefit of the distributions in the manner set forth in the
Plan. Notwithstanding anything in Section 12.5 of the Plan, the subordination
rights between the Lenders and the holders of the 9 1/4% Senior Subordinated
Notes will remain in effect and be preserved.
F. EXCULPATION AND LIMITATION ON LIABILITY
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THE PLAN (INCLUDING
SECTION 12.7(d)), THE DEBTORS, THE REORGANIZED DEBTORS, THE CREDITORS'
COMMITTEE, THE MEMBERS OF THE CREDITORS' COMMITTEE IN THEIR REPRESENTATIVE
CAPACITY, THE LENDERS, THE PREPETITION AGENT, THE DIP LENDERS, THE DIP AGENT,
ANY OF SUCH PARTIES' RESPECTIVE PRESENT OR FORMER MEMBERS, OFFICERS, DIRECTORS,
EMPLOYEES, ADVISORS, ATTORNEYS, REPRESENTATIVES, FINANCIAL ADVISORS, INVESTMENT
BANKERS OR AGENTS AND ANY OF SUCH PARTIES' SUCCESSORS AND ASSIGNS, WILL NOT HAVE
OR INCUR, AND ARE HEREBY RELEASED FROM, ANY CLAIM, OBLIGATION, CAUSES OF ACTION
OR LIABILITY TO ONE ANOTHER OR TO ANY CLAIMHOLDER OR INTERESTHOLDER, OR ANY
OTHER PARTY IN INTEREST, OR ANY OF THEIR RESPECTIVE AGENTS, EMPLOYEES,
REPRESENTATIVES, FINANCIAL ADVISORS, ATTORNEYS OR AFFILIATES, OR ANY OF THEIR
SUCCESSORS OR ASSIGNS, FOR ANY POSTPETITION ACT OR OMISSION IN CONNECTION WITH,
RELATING TO OR ARISING OUT OF THE DEBTORS' CHAPTER 11 CASES, THE PURSUIT OF
CONFIRMATION OF THE PLAN, THE CONSUMMATION OF THE PLAN, THE ADMINISTRATION OF
THE PLAN OR THE PROPERTY TO BE DISTRIBUTED UNDER THE PLAN, EXCEPT FOR ANY ACT OR
OMISSION TO THE EXTENT SUCH ACT OR OMISSION IS DETERMINED IN A FINAL ORDER TO
HAVE CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AND IN ALL RESPECTS
WILL BE ENTITLED TO REASONABLY RELY UPON THE ADVICE OF COUNSEL WITH RESPECT TO
THEIR DUTIES AND RESPONSIBILITIES UNDER THE PLAN.
NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN, NO CLAIMHOLDER OR
INTERESTHOLDER, OR OTHER PARTY IN INTEREST, NONE OF THEIR RESPECTIVE AGENTS,
EMPLOYEES, REPRESENTATIVES, FINANCIAL ADVISORS, ATTORNEYS OR AFFILIATES, AND NO
SUCCESSORS OR ASSIGNS OF ANY OF THE FOREGOING, WILL HAVE ANY RIGHT OF ACTION
AGAINST THE DEBTORS, THE REORGANIZED DEBTORS, THE CREDITORS' COMMITTEE, THE
MEMBERS OF THE CREDITORS' COMMITTEE IN THEIR REPRESENTATIVE CAPACITY, THE
LENDERS, THE PREPETITION AGENT, THE DIP LENDERS, THE DIP AGENT OR ANY OF SUCH
PARTIES' RESPECTIVE PRESENT OR FORMER MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES,
ADVISORS, ATTORNEYS, REPRESENTATIVES, FINANCIAL ADVISORS, INVESTMENT BANKERS OR
AGENTS OR SUCH PARTIES' SUCCESSORS AND ASSIGNS, FOR ANY POSTPETITION ACT OR
OMISSION IN CONNECTION WITH, RELATING TO OR ARISING OUT OF THE DEBTORS' CHAPTER
11 CASES, THE PURSUIT OF CONFIRMATION OF THE PLAN, THE CONSUMMATION OF THE PLAN,
THE ADMINISTRATION OF THE PLAN
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OR THE PROPERTY TO BE DISTRIBUTED UNDER THE PLAN, EXCEPT FOR ANY ACT OR OMISSION
TO THE EXTENT SUCH ACT OR OMISSION IS DETERMINED IN A FINAL ORDER TO HAVE
CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
G. INDEMNIFICATION OBLIGATIONS
1. Indemnification Obligations owed to any Professional or advisor of the
Debtors who actively served in such capacity as of the Confirmation Date,
including, without limitation, accountants, auditors, financial consultants,
underwriters, or outside attorneys arising under contracts that applied, in
whole or in part, to any period occurring on or after the Petition Date will be
deemed to be, and will be treated as though they are, executory contracts that
are assumed pursuant to section 365 of the Bankruptcy Code under the Plan.
2. Indemnification Obligations owed to any other Professional or advisor
of the Debtors, including, without limitation, accountants, auditors, financial
advisors and investment bankers and outside attorneys, including without
limitation any party set forth as Exhibit K to the Plan, will be deemed to be,
and will be treated as though they are, executory contracts that are rejected
pursuant to section 365 of the Bankruptcy Code under the Plan. Therefore, after
the Effective Date, the Reorganized Debtors will have no ongoing obligations to
indemnify such Professional or advisor of the Debtors.
3. Indemnification Obligations owed to Current Directors and Officers as
of the Confirmation Date, whether pursuant to charter, bylaws, contract, or
applicable state law, will be deemed to be, and will be treated as though they
are, executory contracts that are assumed pursuant to section 365 of the
Bankruptcy Code under the Plan, and such obligations (subject to any defense
thereto) will survive confirmation of the Plan and remain unaffected thereby,
irrespective of whether indemnification is owed in connection with a
pre-Petition Date or post-Petition Date occurrence; provided, however, that the
foregoing assumption will not affect any release of such obligations given to
the Debtors before the Effective Date or the Reorganized Debtors on or after the
Effective Date.
4. Indemnification Obligations owed to any other Person not specified in
Section 12.7(c) of the Plan will be deemed to be, and will be treated as though
they are, executory contracts that are rejected pursuant to section 365 of the
Bankruptcy Code under the Plan. Therefore, after the Effective Date, the
Reorganized Debtors will have no ongoing obligations to indemnify such Persons.
H. RELEASE BY DEBTORS AND DEBTORS-IN-POSSESSION
1. Pursuant to section 1123(b)(3) of the Bankruptcy Code, and unless
otherwise provided herein or in the Confirmation Order effective as of the
Effective Date, the Debtors, in their individual capacities and as
debtors-in-possession, for and on behalf of the Estates, release and discharge:
(a) the Lenders, the Prepetition Agent, the DIP Lenders and the DIP Agent in
their respective capacities as such; (b) all directors of the Debtors serving in
such capacity postpetition; (c) all officers of the Debtors serving in such
capacity as of the Confirmation Date; (d) attorneys, accountants, auditors,
financial advisors, investment bankers of the Debtors actively serving in such
capacities as of the Confirmation Date and (e) all members of the Creditors'
Committee in their capacity as Creditors' Committee members, agents of or acting
for the Creditors' Committee, including all professionals retained by the
Creditors' Committee (each of the Persons described in clauses (a), (b), (c),
(d) and (e) a "Released Person") for and from any and all claims or Causes of
Action existing as of the Effective Date in any manner arising from, based on or
relating to, in whole or in part, the subject matter of, or the transactions or
events giving rise to, any Claim or Interest that is treated in the Plan, the
business or contractual arrangements between any Debtor or any Released Person,
the restructuring of Claims and Interests prior to or in the Chapter 11 Cases,
or any act, omission, occurrence or event in any manner related to any such
Claims, Interest, restructuring or the Chapter 11 Cases.
2. The Safety-Kleen Creditor Trust, the Reorganized Debtors and any
newly-formed entities that will be continuing the Debtors' businesses after the
Effective Date will be bound, to the same extent the Debtors are bound, by the
releases in Section 12.8(a) of the Plan.
3. Notwithstanding anything else contained in Section 12.8 of the Plan, a
Released Person will not include, (i) a Person, other than a Debtor, that is a
party to a Retained Action with respect to that Retained Action; (ii) any
director, officer or employee who has filed and not released, settled or
withdrawn with prejudice, any Priority Claim, Administrative Claim or request
for payment of Administrative Claim and (iii) the parties set forth on Exhibit K
to the Plan
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I. RELEASE BY HOLDERS OF CLAIMS AND INTERESTS
A RELEASE OBLIGOR WILL BE PRESUMED CONCLUSIVELY TO HAVE
ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND FOREVER, RELEASED AND DISCHARGED
EACH RELEASED PERSON, AND ANY PERSON THAT MAY BE LIABLE DERIVATIVELY THROUGH ANY
OF THE FOREGOING, FROM ANY CLAIM OR CAUSE OF ACTION EXISTING AS OF THE EFFECTIVE
DATE ARISING FROM, BASED ON OR RELATING TO, IN WHOLE OR IN PART, (1) THE SUBJECT
MATTER OF, OR THE TRANSACTION OR EVENT GIVING RISE TO, THE CLAIM OR INTEREST OF
SUCH RELEASE OBLIGOR AND (2) ANY ACT, OMISSION, OCCURRENCE OR EVENT IN ANY
MANNER RELATED TO SUCH SUBJECT MATTER, TRANSACTION OR OBLIGATION. A RELEASE
OBLIGOR MEANS A PERSON WHO VOTES TO ACCEPT THE PLAN.
J. RELEASE BY INSURED PERSONS
To preserve property of the Debtors' estates, and to safeguard the
settlements with the Settling Insurers, the Plan provides for the following
release and injunction:
1. ANY PERSON THAT CLAIMS THE BENEFITS OF INSURANCE UNDER, OR THAT
QUALIFIES OR CLAIMS TO QUALIFY, OR HAS, OR MAY CLAIM TO HAVE, ANY RIGHT OR
INTEREST AS AN INSURED UNDER THE RESOLVED INSURANCE POLICIES, WHETHER AS A NAMED
INSURED, ADDITIONAL NAMED INSURED OR SUCCESSOR OR ASSIGNEE TO A NAMED AND/OR
ADDITIONAL INSURED, OR IN ANY OTHER MANNER, WILL HAVE NO RIGHT OF ACTION OR ANY
OTHER RIGHT, INCLUDING THE RIGHT TO TENDER OR PRESENT ANY CLAIMS AGAINST THE
SETTLING INSURERS BASED UPON, RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE RESOLVED INSURANCE POLICIES.
2. ANY PERSON THAT CLAIMS THE BENEFITS OF INSURANCE UNDER, OR THAT
QUALIFIES OR CLAIMS TO QUALIFY, OR HAS, OR MAY CLAIM TO HAVE, ANY RIGHT OR
INTEREST AS AN INSURED UNDER THE RESOLVED INSURANCE POLICIES, WHETHER AS A NAMED
INSURED, ADDITIONAL NAMED INSURED OR SUCCESSOR OR ASSIGNEE TO A NAMED AND/OR
ADDITIONAL INSURED, OR IN ANY OTHER MANNER, WILL BE PERMANENTLY RESTRAINED AND
ENJOINED FROM TAKING ANY ACTION, OR COMMENCING OR CONTINUING ANY ACTION,
EMPLOYMENT OF PROCESS OR ANY OTHER ACT TO ENFORCE, COLLECT, OFFSET, OR RECOVER
ANY CLAIM, CAUSE OF ACTION OR EQUITABLE CLAIM OR RIGHT AGAINST THE SETTLING
INSURERS BASED UPON, RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THE RESOLVED INSURANCE POLICIES.
The Debtors believe that such relief is equitable given the
substantial contribution, made by the Settling Insurers, in resolving the
disputes related to the Resolved Insurance Policies. For a discussion of the
settlement agreements and the dispute between the Debtors and the Settling
Insurers see Sections X.C.7 and XII.B.16 to this Disclosure Statement.
K. INJUNCTION
THE SATISFACTION, RELEASE AND DISCHARGE PURSUANT TO ARTICLE XII OF
THE PLAN WILL ALSO ACT AS AN INJUNCTION AGAINST ANY PERSON COMMENCING OR
CONTINUING ANY ACTION, EMPLOYMENT OF PROCESS OR ACT TO COLLECT, OFFSET OR
RECOVER ANY CLAIM OR CAUSE OF ACTION SATISFIED, RELEASED OR DISCHARGED UNDER THE
PLAN TO THE FULLEST EXTENT AUTHORIZED OR PROVIDED BY THE BANKRUPTCY CODE,
INCLUDING, WITHOUT LIMITATION, TO THE EXTENT PROVIDED FOR OR AUTHORIZED BY
SECTIONS 524 AND 1141 THEREOF.
ARTICLE VIII
CONDITIONS PRECEDENT
The Bankruptcy Court will determine at the Confirmation Hearing
whether the requirements of section 1129 of the Bankruptcy Code have been
satisfied. In addition, the Plan provides for the following conditions to be
satisfied for confirmation and consummation of the Plan:
A. CONDITIONS TO CONFIRMATION
The following are conditions precedent to confirmation of the
Plan, each of which may be satisfied or waived in accordance with Section 13.3
of the Plan:
1. The Bankruptcy Court will have approved by Final Order a disclosure
statement with respect to the Plan in form and substance reasonably acceptable
to the Debtors.
29
2. The Confirmation Order will be in form and substance reasonably
acceptable to the Debtors.
B. CONDITIONS TO CONSUMMATION
The following are conditions precedent to the occurrence of the
Effective Date, each of which may be satisfied or waived in accordance with
Section 13.3 of the Plan:
1. The Bankruptcy Court will have entered one or more orders (which may
include the Confirmation Order) authorizing the rejection of leases and
executory contracts by the Reorganized Debtors as contemplated by Section 7.1 of
the Plan.
2. The Debtors will have entered into the Exit Facility and all
conditions precedent to the consummation thereof will have been waived or
satisfied in accordance with the terms thereof.
3. The Confirmation Order will have been entered by the Bankruptcy Court
and will be a Final Order, and no request for revocation of the Confirmation
Order under section 1144 of the Bankruptcy Code will have been made, or, if
made, will remain pending.
4. The Debtors will have received the proceeds of the Laidlaw Claim.
5. The Confirmation Date will have occurred and the Confirmation Order
will, among other things, provide that:
(a) the provisions of the Confirmation Order are non-severable and
mutually dependent;
(b) all executory contracts or unexpired leases assumed (and not
otherwise previously assigned) by the Debtors during the Chapter 11 Cases
or under the Plan will be assigned and transferred to, and remain in full
force and effect for the benefit of the Reorganized Debtors,
notwithstanding any provision in such contract or lease (including those
described in sections 365(b)(2) and (f) of the Bankruptcy Code) that
prohibits such assignment or transfer or that enables or requires
termination of such contract or lease;
(c) the transfers of property by the Debtors (i) to the
Reorganized Debtors (A) are or will be legal, valid, and effective
transfers of property, (B) vest or will vest good title to such property
in the Reorganized Debtors free and clear of all liens, charges, claims,
encumbrances or interests, except as expressly provided in the Plan or
Confirmation Order, (C) do not and will not constitute avoidable
transfers under the Bankruptcy Code or under applicable nonbankruptcy law
and (D) do not and will not subject the Reorganized Debtors to any
liability by reason of such transfer under the Bankruptcy Code or under
applicable nonbankruptcy law, including, without limitation, any laws
affecting successor or transferee liability and (ii) to Claimholders
under the Plan are for good consideration and value and are in the
ordinary course of the Debtors' businesses;
(d) except as expressly provided in the Plan or the Confirmation
Order, each of the Debtors is discharged effective upon the Effective
Date from any Debt (which consists of the liability of one or more
Debtors on a Claim), and each of the Debtors' liability in respect
thereof is extinguished completely, whether reduced to judgment or not,
liquidated or unliquidated, contingent or noncontingent, asserted or
unasserted, fixed or unfixed, matured or unmatured, disputed or
undisputed, legal or equitable, known or unknown, or that arose from any
agreement of a Debtor entered into or obligation of a Debtor incurred
before the Effective Date, or from any conduct of a Debtor prior to the
Effective Date, or that otherwise arose before the Effective Date,
including, without limitation, all interest, if any, on any such debts,
whether such interest accrued before or after the Petition Date, and any
liability (including withdrawal liability) to the extent such liability
relates to services performed by employees of the Debtors prior to the
Petition Date and that arise from a termination of employment or a
termination of any employee or retiree benefit program regardless of
whether such termination occurred prior to or after the Petition Date;
(e) except as expressly provided in the Plan, all Interests will
be terminated effective upon the Effective Date;
30
(f) New Holdco is authorized to issue the New Common Stock and
Reorganized Systems is authorized to issue the New Subordinated Notes;
and
(g) the Bankruptcy Court will have determined that the New Common
Stock and New Subordinated Notes issued under the Plan in exchange for
Claims against the Debtors is exempt from registration under the
Securities Act of 1933 pursuant to, and to the extent provided by,
section 1145 of the Bankruptcy Code.
C. WAIVER OF CONDITIONS TO CONFIRMATION OR CONSUMMATION
The conditions set forth in Sections 13.1 and 13.2 of the Plan may
be waived by the Debtors in their sole discretion without any notice to parties
in interest or the Bankruptcy Court and without a hearing. The failure to
satisfy or waive any condition to the Confirmation Date or the Effective Date
may be asserted by the Debtors in their sole discretion regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by the Debtors in their sole discretion). The
failure of the Debtors in their sole discretion to exercise any of the foregoing
rights will not be deemed a waiver of any other rights, and each such right will
be deemed an ongoing right, which may be asserted at any time.
ARTICLE IX
MISCELLANEOUS PLAN PROVISIONS
A. BINDING EFFECT
The Plan will be binding upon and inure to the benefit of the
Debtors, the Reorganized Debtors, all present and former Claimholders, all
present and former Interestholders, other parties in interest and their
respective successors and assigns.
B. MODIFICATIONS AND AMENDMENTS
The Debtors may alter, amend or modify the Plan or any Exhibits
thereto under section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Hearing. Following the Confirmation Date, the Debtors may make
ministerial changes as the Debtors or Reorganized Debtors deem necessary,
without notice and a hearing under section 1127(b) of the Bankruptcy Code or
disclosure or re-solicitation under 1127(c) of the Bankruptcy Code, as long as
such changes do not materially and adversely affect the rights of any party in
interest without the consent of such party in interest. Additionally, after the
Confirmation Date and prior to substantial consummation of the Plan as defined
in section 1101(2) of the Bankruptcy Code, the Debtors or Reorganized Debtors
may, under section 1127(b) of the Bankruptcy Code, institute proceedings in the
Bankruptcy Court to remedy any defect or omission or reconcile any
inconsistencies in the Plan, the Disclosure Statement or the Confirmation Order,
and such matters as may be necessary to carry out the purposes and effects of
the Plan.
C. WITHHOLDING AND REPORTING REQUIREMENTS
In connection with the Plan and all instruments issued in
connection therewith and distributions thereon, the Debtors will comply with all
withholding and reporting requirements imposed by any federal, state, local or
foreign taxing authority, and all distributions hereunder will be subject to any
such withholding and reporting requirements.
D. COMMITTEES
Effective on the Effective Date, the Creditors' Committee will
dissolve, whereupon its members, Professionals and agents will be released from
any further duties and responsibilities in the Chapter 11 Cases and under the
Bankruptcy Code, except with respect to filing applications for Professional
Claims.
31
E. REVOCATION, WITHDRAWAL OR NON-CONSUMMATION
1. Right to Revoke or Withdraw
The Debtors reserve the right to revoke or withdraw the Plan as to
all Debtors, or as to one or more but less than all Debtors, at any time prior
to the Effective Date.
2. Effect of Withdrawal, Revocation or Non-Consummation
If the Debtors revoke or withdraw the Plan with respect to one or
more Debtors prior to the Effective Date, or if the Confirmation Date or the
Effective Date does not occur with respect to one or more Debtors (any such
Debtor, a "Non-Consummating Debtor"), then the Plan, any settlement or
compromise embodied in the Plan (including the fixing or limiting to an amount
certain any Claim or Class of Claims), the assumption or rejection of executory
contracts or unexpired leases effected by the Plan and any document or agreement
executed pursuant to the Plan will be null and void with respect to a
Non-Consummating Debtor. In such event, nothing contained in the Plan, and no
acts taken in preparation for consummation of the Plan, will be deemed to
constitute a waiver or release of any claims by or against a Non-Consummating
Debtor or any other Person, to prejudice in any manner the rights of a
Non-Consummating Debtor or any Person in any further proceedings involving such
Non-Consummating Debtor or to constitute an admission of any sort by such
Non-Consummating Debtor any other Person.
F. PAYMENT OF STATUTORY FEES
All fees payable under section 1930 of title 28 of the United
States Code, as determined by the Bankruptcy Court at the Confirmation Hearing,
will be paid on or before the Effective Date. All such fees that arise after the
Effective Date but before the closing of the Chapter 11 Cases will be paid by
the Reorganized Debtors.
G. PREPAYMENT
Except as otherwise provided in the Plan, in any ancillary
documents entered into in connection with the Plan or in the Confirmation Order,
the Debtors will have the right to prepay, without penalty, all or any portion
of an Allowed Claim at any time; provided, however, that any such prepayment
will not be violative of, or otherwise prejudice, the relative priorities and
parities among the Classes of Claims.
H. TERM OF INJUNCTIONS OR STAYS
Unless otherwise provided in the Plan or in the Confirmation
Order, all injunctions or stays provided for in the Chapter 11 Cases under
sections 105 or 362 of the Bankruptcy Code or otherwise, and extant on the
Confirmation Date, will remain in full force and effect until the Effective
Date.
I. GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law
(including the Bankruptcy Code and Bankruptcy Rules) or unless otherwise
specifically stated, the laws of the State of Delaware will govern the
construction and implementation of the Plan, any agreements, documents and
instruments executed in connection with the Plan, and corporate governance
matters.
J. NO WAIVER OR ESTOPPEL
Each Claimholder or Interestholder will be deemed to have waived
any right to assert that its Claim or Interest should be Allowed in a certain
amount, in a certain priority, secured or not subordinated by virtue of an
agreement made with the Debtors and/or their counsel, the Creditors' Committee
and/or its counsel, or any other party, if such agreement was not disclosed in
the Plan, the Disclosure Statement or papers filed with the Bankruptcy Court.
32
K. NO SUBSTANTIVE CONSOLIDATION
The Plan does not provide for substantive consolidation of the
Debtors' Estates. The structure of the Plan will not operate to impose liability
on any Reorganized Debtor for the Claims against any other Debtor or the debts
and obligations of any other Reorganized Debtor.
L. RETENTION OF JURISDICTION
Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the Effective
Date, the Bankruptcy Court will, to the fullest extent permitted by law, retain
exclusive jurisdiction over all matters arising out of, and related to, the
Chapter 11 Cases and the Plan, as more fully set forth in Article XIV of the
Plan.
M. EXHIBITS
All Exhibits referenced in the Plan are incorporated into and are
a part of the Plan as if set forth in full herein and, to the extent not annexed
hereto, will be filed with the Bankruptcy Court on or before the Exhibit Filing
Date. After the Exhibit Filing Date, copies of Exhibits can be obtained by: (i)
accessing [name of website] and downloading them at no charge or (ii) requesting
them by calling (A) Skadden, Arps, Slate, Meagher & Flom LLP at (888)-358-9792
or (B) Innisfree M&A Incorporated at (877) 750-2689.
ARTICLE X
HISTORY OF THE DEBTORS AND EVENTS LEADING TO CHAPTER 11 FILING AND PLAN
A. BUSINESS AND ORGANIZATION
SKC was incorporated in Delaware in 1978 as Rollins Environmental
Services, Inc. ("Rollins") and later changed its name to Laidlaw Environmental
Services, Inc. ("LESI").
On May 15, 1997, pursuant to a stock purchase agreement among
Rollins; Laidlaw Inc., a Canadian corporation ("Laidlaw"); and its subsidiary,
Laidlaw Transportation Inc. ("LTI"), Rollins acquired the hazardous and
industrial waste operations of Laidlaw (the "Rollins Acquisition"). The business
combination was accounted for as a reverse acquisition using the purchase method
of accounting. Coincident with the closing of the Rollins Acquisition, the
continuing legal entity changed its name from Rollins Environmental Services,
Inc. to Laidlaw Environmental Services, Inc. As a result of the Rollins
Acquisition, Laidlaw owned 67% of the issued common shares of LESI.
On May 26, 1998, LESI completed the acquisition (the "Safety-Kleen
Acquisition") of the former Safety-Kleen Corp., a Wisconsin corporation ("Old
Safety-Kleen"). Old Safety-Kleen changed its name to Safety-Kleen Systems, Inc.
Effective July 1, 1998, LESI began doing business as "Safety-Kleen Corp." and
its stock began trading on the New York Stock Exchange under the name
"Safety-Kleen Corp." and the ticker symbol SK.
The Debtors provide a range of services designed to collect,
transport, process, recycle or dispose of hazardous and non-hazardous industrial
and commercial waste streams. Prior to the sale of the CSD, as discussed more
fully in Section XII.B.3, entitled "Chapter 11 Cases-Post-Petition Operations
and Liquidity," the Debtors, together with their non-debtor subsidiaries,
provided these services in 50 states, seven Canadian provinces, Puerto Rico,
Mexico and Saudi Arabia from approximately 375 collection, processing and other
locations.
B. OVERVIEW OF BUSINESS OPERATIONS
1. Business Segments
Historically, the Debtors' business has been organized into two
operating divisions: (a) the Branch Sales and Service Division (the "BSSD"), and
(b) the Chemical Services Division (the "CSD"). As a result of the restructuring
transactions contemplated under the Plan, the BSSD will be reorganized and the
CSD will be dissolved as set forth more fully
33
in the Plan. A chart setting forth the Debtors' corporate structure prior to
June 9, 2000 is annexed to the Disclosure Statement as Appendix B.
(a) Branch Sales and Service Division
The BSSD consists of Safety-Kleen Systems, Inc. and each of its
direct and indirect subsidiaries. The BSSD includes part cleaner services and
other specialized services provided to automotive repair, commercial and
manufacturing customers. The BSSD provides its services in the United States,
Canada and Puerto Rico primarily through a network of approximately 159 branches
supported by 10 accumulation centers, eight solvent recycling plants, seven
distribution facilities, two fuel blending facilities, 10 oil terminals, two oil
re-refining plants and 44 other miscellaneous and satellite locations. The
BSSD'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 BSSD is divided into branch operations; oil and recycle
operations; logistics and supply chain; and administration/other. The BSSD
provides services to customers that operate in a wide array of industrial
settings, including automotive repair shops, auto dealers, manufacturing plants,
photo processing facilities, dry cleaners and medical facilities.
The largest service component of the BSSD is its parts cleaner
service. Other service offerings of the BSSD are paint-gun cleaning services,
imaging service, dry cleaner services, 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.
(i) Parts Cleaner Services
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 cleaning fluids at customer locations. Service
representatives then make service calls at regular intervals to clean and
maintain equipment and remove and replace the used cleaning fluids with fresh
cleaning fluids. The majority of used solvent is recycled for reuse. The BSSD
offers several models of parts cleaners to customers as part of the Parts
Cleaner Services. The BSSD also provides service to customers who own their own
parts cleaner equipment. As an alternative to solvent-based systems, the BSSD
offers a line of water-based cleaning systems.
(ii) Paint-Gun Cleaning Services
Paint-gun cleaning services are supplied to new and used
car dealers, auto body repair and paint shops and fiberglass product
manufacturers for use in cleaning paint-gun and spray-paint booths. Similar to
the Parts Cleaner Services, BSSD representatives place a machine and solvent
with each customer, maintain the machine and regularly remove the used solvent
and replace it with clean solvent. The BSSD either recycles the used 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. BSSD 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 BSSD's distribution system.
(iii) Imaging Services
Imaging services ("Imaging Services") provide processing
and silver recovery services to health care, printing, photo processing and
other businesses and industries, which utilize image capture, processing,
storage, output, or delivery of images. Imaging Services recover the silver
contained in the used photochemical solutions collected 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.
34
(iv) 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 BSSD may be recycled into usable solvent, processed
into a waste-derived fuel for use in the cement manufacturing industry, or
disposed of in accordance with applicable laws and regulations.
(v) Used Oil Collection and Re-refining Services
The BSSD also provides used oil collection and re-refining
services. The BSSD 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 then manufactured into a variety of finished high-quality lubrication
products. The BSSD 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 BSSD also may 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 BSSD's extensive
branch network enables it to collect waste oil in sufficient volumes to support
oil re-refining operations, which produce lubricating oil that can be sold at
higher prices than industrial fuels. The BSSD 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 BSSD'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.
(vi) 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 reasonably possible, chemicals
are recycled and recovered for reuse.
(vii) 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.
(viii) Automotive Recovery Services
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.
(b) Chemical Services Division
Prior to the Sale of the CSD in September 2002 (described
in Section XII.B.3 to the Disclosure Statement, entitled "Chapter 11 Cases --
Post-Petition Operatives and Liquidity"), the CSD consisted of all of the direct
and indirect subsidiaries of SK Services except for Safety-Kleen Systems, Inc.
and its direct and indirect subsidiaries. The CSD provided services including
hazardous and non-hazardous waste collection, treatment, recycling, disposal and
destruction at SKC owned and/or operated facilities in the United States, Canada
and Mexico. Its primary service was the collection of a wide variety of liquid
and solid wastes, hazardous or non-hazardous, in drum, tanker or roll-off
containers from customer locations. The CSD also provided other comprehensive
environmental and technical services, such as (i) lab pack services (the
collection and proper management of miscellaneous, and often unidentified,
chemicals stored in small containers), (ii) preparing the paperwork and
packaging waste for shipment, (iii) providing transportation and disposal
management, and (iv) providing final treatment and disposal services designed to
manage hazardous and non-hazardous wastes, which could not otherwise be
economically recycled or reused. The CSD also provided a complement of other
35
services, such as wastewater treatment, deepwell injection, consulting and
industrial services, PCB management, and transportation services for more
specialized or economical handling of certain waste streams.
The CSD utilized its incineration facilities to destroy
organic hazardous waste and contaminants at temperatures in excess of 2,000
degrees Fahrenheit. In the United States, the CSD operated two solids and
liquids-capable incineration facilities, one lower-volume specialty incineration
facility and one Resource Conservation and Recovery Act, as amended ("RCRA")
subpart X facility permitted to burn explosives. The CSD also operated two
hazardous waste liquid injection incinerators in Canada.
In addition, the CSD operated 10 commercial landfills
located throughout the United States and Canada. A total of eight landfills were
designed and permitted for the disposal of hazardous wastes. Of these
facilities, six were located in the United States and two were located in
Canada. Two landfills were operated for non-hazardous industrial waste disposal
and, to a lesser extent, municipal solid waste. These two non-hazardous
industrial waste landfills were located in the United States. The CSD also owned
and operated a non-commercial landfill which only accepted waste from an on-site
incinerator.
2. Accompanying Financial Data
The financial data contained in SKC's (a) Annual Report on Form
10-K for the fiscal year ended August 31, 2001, (b) Annual Report on Form 10-K/A
for the fiscal year ended August 31, 2001 and (c) Unaudited Consolidated
Financial Statements For the Year Ended August 31, 2002 are attached as Appendix
E-1, E-2 and E-3 to this Disclosure Statement, respectively, and are herein
incorporated by reference.
C. LEGAL PROCEEDINGS
1. Matters Related to Investigation of Financial Results; Stockholder
and Bondholder Litigation
As set forth in more detail in Section X.E of the Disclosure
Statement, entitled "History of the Debtors and Events Leading to Chapter 11
Filing and Plan. -- Events Contributing to the Need for Restructuring" the
Debtors were required to restate their financial statements for the fiscal
years, 1997, 1998 and 1999.
As previously disclosed by the Debtors in their public filings,
the Debtors, together with former officers and directors of the Debtors, had
been named in numerous shareholder and bondholder suits. The Debtors are no
longer a party to these actions. With respect to indemnification claims brought
by the former officers and directors of the Debtors, the Debtors recently
entered into a settlement with certain of the former directors whereby the
Debtors would pay up to $5 million dollars of their attorney's fees in
connection with various actions, from the summer of 2002 forward. To the extent
the Debtors have any liability or additional liability, such liability either
will be treated as a general unsecured claim or be subordinated.
2. PwC Litigation
On October 7, 2001, SKC, 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 ("PwC") and
PricewaterhouseCoopers LLP (Canada) ("PwC - Canada"), Civil No. 3:01-4247-17
(the "PwC Action"). The complaint seeks in excess of $1.0 billion from the
defendants. 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 Debtors' 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. PwC and PwC-Canada have
filed counterclaims for contribution and indemnity. Furthermore, PwC has filed
counterclaims alleging fraud, deceit, negligent misrepresentation and violations
of the federal Racketeer Influenced and Corrupt Organizations Act. Each of these
counterclaims are for setoff purposes only and pursuant to a stipulation and
order entered by the Bankruptcy Court on August 13, 2002, neither PwC nor
PwC-Canada is seeking affirmative relief from SKC. SKC has filed a motion to
dismiss all of the counterclaims. The PwC Action is pending in state court. The
court has not ruled on SKC's motion to dismiss the counterclaims.
36
On December 13, 2000, thirteen prepetition lenders to SKC, sued
PwC in the State Court of Fulton County, Georgia, alleging negligent
misrepresentation by PwC in connection with the financial statements of the
Debtors for fiscal years 1997, 1998 and 1999. The case was captioned Toronto
Dominion (Texas), Inc., et al. v. PricewaterhouseCoopers LLP Civil Action No. 00
VS 02679 F (the "Lenders' Action Against PwC"). The complaint has been amended
three times, and the plaintiffs now number over 90 lenders to SKC. On October
23, 2001, PwC filed a motion for leave to file a third-party complaint naming
SKC and their former officers Kenneth W. Winger, Michael J. Bragagnolo, and Paul
R. Humphreys as third party defendants in a third party claim for indemnity or
contribution. The Georgia state court granted the motion and PwC served a
third-party complaint for indemnity and contribution against, among others, SKC.
SKC then filed a motion in Bankruptcy Court alleging that PwC had violated the
automatic stay provisions of the Bankruptcy Code and seeking to enforce the
automatic stay. The Bankruptcy Court granted SKC's motion and declared PwC's
third party complaint against SKC void ab initio. PwC then filed a motion in the
Bankruptcy Court seeking to lift the automatic stay for the limited purpose of
allowing the trier of fact to allocate a percentage of the plaintiffs' harm to
the Debtors. PwC does not seek affirmative recovery from SKC, though it does
seek the right to set-off any judgment SKC obtains from PwC. A stipulation and
order was entered by the Bankruptcy Court on August 13, 2002 for the purpose of
permitting (a) PwC to pursue, for allocation purposes only, its contribution and
indemnity claims in the Lenders' Action Against PwC, and (b) PwC and PwC-Canada
to pursue, by way of set-off only, their counterclaims in the litigation brought
against PwC and PwC-Canada by SKC in the PwC Action pending in South Carolina.
SKC has filed a motion to dismiss PwC's third party claim for contribution. The
court has not ruled on SKC's motion to dismiss.
3. D&O Insurance Recovery Action
On November 13, 2001, the Debtors, 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 mentioned 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 Debtors intend to pursue this claim
vigorously. Discovery is ongoing and the parties are participating in mediation.
4. SEC Investigation
Shortly after the Debtors' March 6, 2000 announcement relating to
the internal investigation of their previously reported financial results and
certain of their accounting policies and practices, the Debtors' representatives
met with officials of the SEC and advised the SEC of the alleged accounting
irregularities and the Debtors' internal investigation with respect to the
allegations. On March 10, 2000, the Debtors were advised that the SEC had
initiated a formal investigation of the Debtors. Also on March 10, 2000, the SEC
issued a subpoena to the Debtors requiring the production of certain financial
and corporate documents relating to the preparation of the Debtors' 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 SEC
issued a second subpoena to the Debtors requiring additional documents relating
to the preparation of the Debtors' financial statements, reports and audits for
fiscal years 1998, 1999 and portions of fiscal years 1997 and 2000. On October
7, 2002, the SEC issued a third subpoena for deposition transcripts of certain
parties and witnesses in the Lenders' Action Against PwC. The Debtors have
responded to the subpoenas and cooperated with the investigation. SKC has
consented to the entry of an injunction permanently enjoining SKC, its agents,
servants, employees, attorneys-in-fact, and all other persons in active concert
or participation with them who receive actual notice of the injunction from
violating the books and records, reporting and anti-fraud provisions of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and certain
rules promulgated thereunder. SKC consented to the injunction without admitting
or denying any allegations against it except that SKC admitted that a court
would have jurisdiction to enter the injunction.
In addition, the Debtors are subject to an investigation in the
Southern District of New York. On or about March 22, 2000, the Debtors were
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 Debtors have
responded to the subpoena and have cooperated with the investigation.
37
5. Pinewood Litigation
For a discussion of litigation between Pinewood and DHEC, see
Section XII.C to this Disclosure Statement, entitled "Chapter 11 Cases --
Settlement and Compromise under the Plan."
6. Financial Assurance Compliance
For a discussion of the Debtors' compliance with various financial
assurance requirements, see Section XII.B.2 to this Disclosure Statement,
entitled "Chapter 11 Cases -- Post-Petition Operations and Liquidity."
7. Products Liability Cases and Insurance Coverage Action
From time to time, the Debtors are named as defendants in various
lawsuits arising in the ordinary course of business, including proceedings
wherein persons claim personal injury resulting from the use of the Debtors'
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 Debtors' parts cleaner equipment contains contaminants
and/or that the Debtors' recycling process does not effectively remove the
contaminants that become entrained in the solvent during its use. In addition,
certain claimants assert that the Debtors failed to adequately warn the product
user of potential risks. In the aggregate, the plaintiffs' claims are in excess
of $150 million. The Debtors believe that these claims are not meritorious and
intend to vigorously defend itself against any and all such claims. The Debtors
maintain insurance which it believes will provide coverage for these claims over
self-insured retentions and deductibles which, in the aggregate, the Debtors
believe are less than $10 million.
Certain of the Debtors' insurance carriers have disputed, and
continue to dispute, whether or to what extent the insurance policies issued by
such carriers provide coverage to Debtors for third-party bodily injury,
personal injury and property damage claims against the Debtors. As a result, the
Debtors initiated the following two actions: (a) The Solvents Recovery Service
of New Jersey, Inc., et al., v. American Reinsurance Company, et al., pending in
the Superior Court of New Jersey, Hudson County, Law Division, Docket No.
L-3095-00 (the "New Jersey Coverage Action"), (b) Safety-Kleen Corp. v. Unigard
Security Ins. Co., et al., Docket No. 01-2-10468-3 SEA pending in the Superior
Court of Washington, King County (the "Washington Coverage Action") and (iii)
Safety-Kleen Corp. v. Continental Insurance Company, et al., Case No. BC 216723,
pending in the Superior Court of California, County of Los Angeles (the
"California Coverage Action").
In the New Jersey Coverage Action and the Washington Coverage
Action, the Debtors seek insurance coverage for environmental liabilities under
certain historical comprehensive general liability insurance policies.
Specifically, the Debtors contend that their general liability insurance
carriers are obligated to pay the costs, expenses and liabilities arising out of
claims, demands and suits brought against the Debtors for property damage,
bodily injury and personal injury arising out of environmental and related
damage allegedly caused by the Debtors or arising out of the Debtors' business
operations.
In the California Coverage Action, the Debtors seek insurance
coverage under certain other historical comprehensive general liability policies
for bodily injury and other claims arising out of product liability toxic tort
suits and claims and similar or related claims, losses and liabilities asserted
against the Debtors.
In February 2002, the New Jersey Superior Court issued a Mediation
Order which stayed the New Jersey Coverage Action and directed the parties to
engage in mediation proceedings. The Mediation Order has been extended several
times since its initial entry, and is presently in force. During the pendency of
the Mediation Order, the Debtors have reached settlement and have finalized
settlement agreements (the "Insurance Settlements") with the following insurance
carriers: (a) the Hartford Financial Services Group, Inc. and certain of its
affiliates (collectively, "Hartford"), (b) Continental Insurance Company,
Fidelity & Casualty Company of New York, Columbia Casualty and Continental
Casualty Company and certain of their affiliates (collectively, "CNA"), (c)
American Centennial Insurance Company and certain of its affiliates
(collectively, "American Centennial"), (d) Westport Insurance Company
(collectively, "Westport"), (e) North Star Reinsurance Corporation ("North
Star"), (f) Fireman's Fund Insurance Company, The American Insurance Company and
National Surety Corp. (collectively, "Fireman's Fund"), (g) Royal Indemnity
Company, Royal Globe Insurance Company, Globe Indemnity Company, Newark
Insurance Company, Royal Insurance Company of America, Royal Insurance Company
of Canada (collectively, "Royal") and (h) Liberty Mutual Insurance Company
("Liberty Mutual"). In addition, the following insurers have entered into
settlements-in-principle with the Debtors: (i) Protective Insurance Company
("Protective"), (ii) Evanston Insurance Company ("Evanston"), (iii) Associated
International Insurance Company ("Associated International"),
38
(iv) Ranger Insurance Company, International Insurance Company, TIG Insurance
Company, United States Fire Insurance Company (collectively, "Fairfax") and (v)
Unigard Insurance Company ("Unigard"). The Debtors intend to seek Bankruptcy
Court approval of the settlement agreements with Protective, Liberty Mutual,
Evanston, Associated International, Fairfax and Unigard upon finalizing such
settlement agreements. The settlement agreements with Hartford, CNA, American
Centennial and Westport were approved by the Order of the Bankruptcy Court dated
October 16, 2002. Prior to the entry of the New Jersey Superior Court's
Mediation Order, the Debtors also reached an insurance settlement with Federal
Insurance Company.
A list of the Resolved Insurance Policies and the Settling
Insurers are set forth in Exhibit G and Exhibit H to the Plan, respectively. A
general description of the Insurance Settlements are discussed in Section
XII.B.16 to this Disclosure Statement, entitled "Chapter 11 Cases --
Post-Petition Operations and Liquidity."
Mediation also has been ordered in the California Coverage Action,
in this instance by the Los Angeles County, California, Superior Court. The
initial mediation session with the California insurance carrier defendants will
take place on December 11 and 12, 2002. Meanwhile, the above-referenced
settlements with Hartford and CNA have resolved certain of the Debtors' coverage
claims against Hartford and CNA in the California Coverage Action. The Debtors
also have negotiated settlements-in-principle with certain other insurance
carrier defendants in the California Coverage Action.
The Debtors are continuing to negotiate with a number of other of
the insurance carrier defendants in both the New Jersey Coverage Action and in
the California Coverage Action, and may enter into additional settlements.
Coverage counsel's prior experience in comparable insurance coverage cases
suggests that the foregoing settlements, the Debtors' continued litigation
efforts in and the court-ordered mediation of the Debtors' respective New Jersey
and California coverage actions, and confirmation of the Debtors' Plan of
Reorganization likely will encourage settlements by other of the Debtors'
insurance carriers, although it cannot be determined precisely when such
settlements will be consummated or what sorts and amounts of consideration will
be exchanged pursuant to such settlements.
See also Sections VII.J and XII.B.16 to this Disclosure Statement,
entitled "Effect of the Plan -- Release by Insured Persons" and "Chapter 11
Cases -- Post-Petition Operations and Liquidity."
D. CAPITAL STRUCTURE OF THE DEBTORS
1. Debtor-in-Possession (DIP) Credit Facility
On July 19, 2000, the Bankruptcy Court granted final approval of a
revolving credit agreement (the "Initial DIP Facility") among the Debtors,
Toronto Dominion (Texas), Inc., as general administrative agent and underwriter,
The CIT Group/Business Credit, Inc., as collateral agent and underwriter, and
the lenders party thereto. Under the terms of the Initial DIP Facility, the
proceeds could be used, among other things, to pay expenses in the Chapter 11
Cases and to finance working capital needs and capital expenditures of the
Debtors. The total amount committed under the Initial DIP Facility was $100
million, with a $35 million sublimit for letters of credit.
On March 20, 2002, the Debtors obtained Bankruptcy Court approval
to enter into a Second Amended and Restated Debtor-in-Possession Credit
Agreement (the "DIP Facility") which provided that the total commitments under
the post-petition loan would be increased to $200 million. The amount
outstanding under the Initial DIP Facility, $75 million, would constitute
"Tranche A" of the DIP Facility and an additional "Tranche B" of $125 million
was added. The total sublimit for letters of credit under both tranches was
increased to $125 million.
Under the Final DIP Order, the lenders under the DIP Facility were
granted superpriority claim status over any and all administrative expense
claims specified in sections 503(b) and 507(b) of the Bankruptcy Code, subject
to certain carve-outs.
The Tranche A lenders under the DIP Facility also were granted
liens in substantially all of the Debtors' assets including: (i) a first lien on
substantially all of the Debtors' assets that were not encumbered as of the
Petition Date, (ii) a priming lien on substantially all of the Debtors' assets
that secured the Lenders' prepetition Claims and (iii) a second priority junior
lien on all other assets that were subject to a lien as of the Petition Date.
Similarly, the Tranche B lenders under the DIP Facility were
granted liens in substantially all of the Debtors' assets including: (i) a
second priority lien on substantially all of the Debtors' assets that were not
encumbered as of
39
the Petition Date, (ii) a first priority lien on the first $35 million of
proceeds from recoveries with respect to certain causes of action under chapter
5 of the Bankruptcy Code, (iii) a second priority priming lien on substantially
all of the Debtors' assets that secured the Lenders' prepetition Claims and (iv)
a third priority junior lien on all other assets that were subject to a lien as
of the Petition Date.
The interest rate under Tranche A of the DIP Facility is base rate
plus 1% per annum or LIBOR plus 3% per annum, depending on the nature of the
borrowings. The interest rate under Tranche B of the DIP Facility is LIBOR or
base rate plus a margin of 7.25%, but in any case not lower than 12%. In
addition, beginning on September 1, 2002, the margin under Tranche B started to
increase by .5% on the first calendar day of each month. On top of the cash
interest due with respect to Tranche B, an additional 3% per annum is added to
the Tranche B principal each month, such rate increasing by 1% each month
commencing on September 1, 2002. A fee of 3% per annum is charged on the
outstanding face amount of Tranche A letters of credit and a fee of 12% per
annum is charged on the outstanding face amount of Tranche B letters of credit
(plus, in each case, a fronting fee of 0.25%). The DIP Facility matures on the
earlier of March 21, 2003, or the effective date of a plan of reorganization.
2. Other Domestic Borrowings
(a) Prepetition Credit Facility -- In April 1998, the Debtors
repaid their then existing bank credit facility and established a $2.2 billion
prepetition credit facility (the "Prepetition Credit Facility") pursuant to a
credit agreement between SK Services and a syndicate of banks and other
financial institutions. In connection with this refinancing, the Debtors
recognized an extraordinary loss in fiscal year 1998 of approximately $18.8
million ($11.3 million after tax, or $0.18 per share) related to the write-off
of previous deferred debt issuance costs and repayment penalties. In June 1998,
the availability of the Prepetition Credit Facility was permanently reduced by
$325 million to $1.875 billion by the subsequent issuance of the 9 1/4% Senior
Subordinated Notes described below. The Prepetition Credit Facility consists of
five parts: (i) a $550 million six-year Senior Secured Revolving Credit Facility
with a $200 million letter of credit sublimit and $400 million sublimit for
loans (the "Revolver"), (ii) a $455 million six-year Senior Secured Amortizing
Term Loan, (iii) a $70 million six-year Senior Secured Amortizing Term Loan,
(iv) a $400 million minimally amortizing seven-year Senior Secured Term Loan,
and (v) a $400 million minimally amortizing eight-year Senior Secured Term Loan.
The term loans referred to in clauses (ii), (iii), (iv), and (v) are
collectively referred to herein as the "Term Loans."
Interest costs on the Prepetition Credit Facility vary depending
on the particular facility and whether the Debtors chose to borrow under LIBOR
or base rate loans. Interest rates applicable to the Prepetition Credit Facility
on June 1, 2000 ranged from 7.56% to 12.88%, including a 2% default premium.
As of August 31, 2002, the Term Loans were drawn in full and
borrowings outstanding under the Revolver totaled $340 million. In addition,
there were approximately $83 million of letters of credit issued under the terms
of the Revolver. As a result of the Debtors' Chapter 11 Cases, all additional
availability under the Revolver was terminated, although the letters of credit
remain outstanding.
Domestic borrowings under the Prepetition Credit Facility were
collateralized by all of the tangible assets of the domestic subsidiaries of SK
Services plus 65% of the stock of the Canadian subsidiaries. Substantially all
of the capital stock of the Debtors is pledged to the lenders, and such
subsidiaries guaranteed the obligations of the Debtors to the lenders.
(b) 9 1/4% Senior Subordinated Notes -- On May 28, 1998, SK
Services issued $325 million 9.25% Senior Subordinated Notes due 2008 (the "9
1/4% Senior Subordinated Notes") in a Rule 144A private placement. In accordance
with an Exchange and Registration Rights Agreement entered at the time of the
issuance of the 9 1/4% Senior Subordinated Notes, SK Services filed a
registration statement with the SEC on June 24, 1998, pursuant to which SK
Services exchanged the 9 1/4% Senior Subordinated Notes for notes of SK Services
with terms identical to the 9 1/4% Senior Subordinated Notes, other than certain
restrictions on transfers. Net proceeds from the sale of the 9 1/4% Senior
Subordinated Notes, after the underwriting fees and other expenses, were
approximately $316.8 million. The proceeds were used to repay a portion of the
borrowings outstanding under the Prepetition Credit Facility.
The 9 1/4% Senior Subordinated Notes are general unsecured
obligations of SK Services, subordinated in right of payment to all existing and
future senior indebtedness, as defined, of SK Services. The payment of the 9
1/4% Senior Subordinated Notes are guaranteed on a
40
senior subordinated basis by SKC and are jointly and severally guaranteed on a
senior subordinated basis by SKC's wholly-owned domestic subsidiaries. No
foreign direct or indirect subsidiary or non-wholly-owned domestic subsidiary is
an obligor or guarantor on the financing.
(c) 9 1/4% Senior Notes -- On May 17, 1999, SKC issued $225
million 9.25% Senior Notes due 2009 (the "9 1/4% Senior Notes") in a Rule 144A
private placement which were subsequently exchanged for substantially identical
notes in an offering registered with the SEC in September 1999. Net proceeds,
after the underwriting fees and other expenses, were approximately $219 million
and were used to finance the cash portion of the purchase price for the
repurchase of the pay-in-kind debenture, for expenses relating to such
repurchase and for general corporate purposes.
The 9 1/4% Senior Notes are unsecured claims against SKC, rank
equally with all existing and future senior indebtedness of SKC and are senior
to all existing and future subordinated indebtedness of SKC. The 9 1/4% Senior
Notes are not guaranteed by any of the subsidiaries of SKC.
3. Other Material Prepetition Borrowings
(a) A $60 million promissory note issued on May 15, 1997 in favor
of Westinghouse Electric Corporation and thereafter assigned to Toronto Dominion
(Texas) Inc. (the "$60 million Promissory Note").
(b) The industrial revenue bonds issued by Tooele County, Utah on
July 1, 1997, in the principal amount of $45,700,000.
(c) The industrial revenue bonds issued by the California
Pollution Control Financing Authority on July 1, 1997, in the principal amount
of $19,500,000.
(d) The industrial revenue bonds issued by Tooele County, Utah on
August 1, 1995, in the principal amount of $10,000,000.
(e) The industrial revenue bonds issued by the Industrial
Development Board of the Metropolitan Government of Nashville and Davidson
County on May 1, 1993, in the principal amount of $15,200,000, with
approximately $5.6 million outstanding as of August 31, 2002.
4. Canadian Borrowings
(a) Prepetition Credit Facility -- The Debtors' Canadian
subsidiaries participated in the Prepetition Credit Facility under which they
established and initially borrowed $70.0 million (USD) from a syndicate of five
banks. The term loan has a floating interest rate based on Canadian prime plus a
maximum of 1.375% and a six year term. As a result of the Debtors' filing for
chapter 11 bankruptcy protection, the Canadian subsidiaries are in default of
the loan conditions and a notice of default was issued by the banks making the
loan payable on demand. Accordingly, the outstanding loan balance was classified
as current at the end of fiscal year 2002 and interest continues to accrue.
(b) Short term borrowings -- On April 3, 1998, the Debtors'
Canadian subsidiaries entered into a letter agreement with the Toronto Dominion
Bank providing an uncommitted operating line of credit of up to $35.0 million
(CDN) (the "Canadian Operating Facility"). The letter agreement has a floating
interest rate based on Canadian prime plus a maximum of 1.375% for Canadian
borrowings and prime plus 1.375% for US borrowings. The interest rate applied to
the loan is at Safety-Kleen Canada Inc.'s discretion. On March 4, 2000, Toronto
Dominion Bank cancelled this letter agreement at which time Safety-Kleen Canada
Inc. had borrowings of $17.2 million and letters of credit totaling $3.8
million. The full amount borrowed was in default at August 31, 2002, due to
breaches of loan covenants by the local subsidiary. Accordingly, the outstanding
loan balance was classified as current as of August 31, 2002.
(c) Effect of CSD Sale -- Pursuant to the Prepetition Credit
Agreement, SK Services guaranteed all of the obligations (the "Canadian
Guaranty") of Safety-Kleen Ltd., then a nondebtor Canadian subsidiary of SK
Services ("SK Ltd."), under both the Prepetition Credit Facility discussed in
subclause 4(a) and the Canadian Operating Facility described in subclause 4(b)
(collectively, the "Canadian Debt"). Under the Amended and Restated Guarantee
and Collateral Agreement, dated April 3, 1998, SK Services secured its
obligations under the Prepetition Credit Agreement, including its obligations
under the Canadian Guaranty, by granting a lien on substantially all of its
assets for the benefit of the lenders under the Prepetition Credit Agreement.
41
As a result of the divestiture of the CSD to Clean Harbors, Inc.
("Clean Harbors"), the acquisition agreement provided that the equity interests
of certain Canadian subsidiaries would be transferred to Clean Harbors free and
clear of certain secured liens and, thus, as part of the sale of the CSD, SK
Services was to cause, on or before closing of the sale: (i) the release of each
direct and indirect subsidiary of SK Ltd. (collectively, the "Canadian
Subsidiaries") for its primary obligation under the Canadian Debt; (ii) the
release of the Canadian Subsidiaries from their respective guarantee obligation
under the Canadian Debt and (iii) the release of all security granted by SK Ltd.
and each of the Canadian Subsidiaries to collateralize payment of the Canadian
Facility (collectively, the "Canadian Release Condition").
As a requirement to consummate the sale of the CSD, and to satisfy
the Canadian Release Condition, the Debtors sought the Bankruptcy Court's
authority to restructure the obligations under the Canadian Debt so that SK
Services would become the primary obligor under the Canadian Debt in
substitution for SK Ltd. - obligations for which SK Services was already liable
- - and such obligations would be allowed as an administrative expense claim
against SK Services, provided that such administrative expense claim would be
satisfied solely through a distribution to the Canadian Lenders under the
Canadian Debt of the same form of consideration that would be distributed to the
U.S. Lenders. By order dated September 6, 2002, the Bankruptcy Court approved
the restructure and reclassification of SK Services' secured obligations under
the Canadian Debt.
5. Interest Expense
The Debtors entered into interest rate swap agreements to alter
interest rate exposures. Interest expense incurred under the Debtors' credit
facilities and other borrowings was $5.3 million, $5.0 million, $141.9 million
and $186.2 million (net of interest income of $1.5 million, $3.7 million, $3.6
million and $7.6 million) for fiscal years ended August 31, 2002, 2001, 2000 and
1999, respectively.
E. EVENTS CONTRIBUTING TO THE NEED FOR RESTRUCTURING
1. Investigation of Financial Results
On March 6, 2000, the Debtors announced that they had initiated an
internal investigation of their previously reported financial results and
certain of their accounting policies and practices following receipt by SKC's
Board of Directors of information alleging possible accounting irregularities
that may have affected the Debtors' previously reported financial results since
fiscal year 1998. The internal investigation was subsequently expanded to
include fiscal years 1997 and 1998. The Board appointed a special committee,
consisting of four directors who were then independent outside directors of SKC,
to conduct the internal investigation (the "Special Investigation Committee").
The Special Investigation Committee was later expanded to five directors, with
the addition of one additional independent outside director. The Special
Investigation Committee engaged the law firm of Shaw Pittman LLP ("Shaw
Pittman"), and Shaw Pittman, in turn, engaged the accounting firm Arthur
Andersen LLP, to assist with the comprehensive investigation of these matters.
The Board placed Kenneth W. Winger, then President and Chief Executive Officer
and a Director of SKC; Michael J. Bragagnolo, then Executive Vice President and
Chief Operating Officer; and Paul R. Humphreys, then Sr. Vice President of
Finance and Chief Financial Officer on administrative leave on March 5, 2000.
SKC 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.
On March 8, 2000, PricewaterhouseCoopers LLP, the Debtors'
independent accountants, withdrew its audit reports covering the Debtors'
financial statements for fiscal years 1997, 1998 and 1999. On August 1, 2000,
the Debtors dismissed PricewaterhouseCoopers LLP as their independent
accountants and engaged Arthur Andersen LLP as successor independent
accountants.
Shortly after the Debtors' March 6, 2000 announcement, the Debtors
representatives met with officials of the SEC and advised the SEC of the alleged
accounting irregularities and the Debtors' internal investigation with respect
to the allegations. On March 10, 2000, the Debtors were advised that the SEC had
initiated a formal investigation of the Debtors. Also on March 10, 2000, the SEC
issued a subpoena to the Debtors requiring the production of certain financial
and corporate documents relating to the preparation of the Debtors' financial
statements, reports and audits for fiscal years 1998, 1999 and portions of
fiscal years 1997 and 2000 and of various other documents pertaining to and
ancillary to the alleged accounting irregularities. On May 24, 2000, the SEC
issued a second subpoena to the Debtors requiring the production of
42
additional documents relating to the preparation of the Debtors' financial
statements, reports and audits for fiscal years 1998, 1999 and portions of
fiscal years 1997 and 2000.
On or about March 22, 2000, the Debtors were also 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 SEC's original subpoena.
As noted above, beginning in March 2000, a number of lawsuits were
filed, on behalf of various classes of investors against the Debtors, certain
directors, former directors, and others alleging, among other things, that the
defendants made false and misleading statements and violated certain federal
securities laws. Generally, the actions seek to recover damages in unspecified
amounts that the plaintiffs allegedly sustained by acquiring shares of the SKC
common stock or purchasing debt of SKC and SK Services.
2. Financial Assurance Issues
Under RCRA, the Toxic Substances Control Act ("TSCA") and
analogous provisions of state law, owners and operators of certain waste
management facilities are subject to financial assurance requirements to ensure
performance of their closure, post-closure, third party liability and corrective
action obligations. SKC and certain of its subsidiaries as owners and operators
of RCRA and TSCA waste management facilities are subject to these financial
assurance requirements. Applicable regulations allow owners and operators to
provide financial assurance through several methods, including a surety bond
from an approved surety. On May 31, 2000, the United States Department of the
Treasury declared that Frontier Insurance Company ("Frontier"), from which SKC
and its subsidiaries had obtained more than 50 percent of the required assurance
in the form of surety bonds, was no longer qualified as an acceptable surety on
federal bonds.
In addition to Frontier, Reliance Insurance Company of Illinois
("Reliance") also provided a significant proportion of coverages for closure,
post-closure and corrective action activities. SKC received expressions of
concern from various states about the quality of this coverage and a small
number of states indicated that they did not consider Reliance policies to
satisfy requirements of state law. Accordingly, effective May 31, 2000, SKC and
its affiliates no longer had compliant financial assurance for many facilities.
Under applicable regulations, SKC and its affected subsidiaries were required to
obtain compliant financial assurance within sixty days and, in some states, more
quickly. See also Section XII.B.2 to this Disclosure Statement, entitled
"Chapter 11 Cases - - Post-Petition Operations and Liquidity."
3. Note Defaults
At the time the Debtors filed the Chapter 11 Cases, SKC was in
default on certain of its senior securities and its Prepetition Credit Facility.
Specifically, the Debtors (a) had not made interest payments upon the $60
Million Promissory Note, (b) had not made interest payments on its $325 million
9 1/4% Senior Subordinated Notes due in 2008, (c) had not made interest payments
on its $225 million 9 1/4% Senior Notes due in 2009 and (d) had not made
principal and interest payments under the Prepetition Credit Facility.
4. Pinewood
Pinewood, an indirect subsidiary of SKC, owns and operated a
hazardous waste landfill near the Town of Pinewood in Sumter County, South
Carolina. By order dated May 19, 1994 ("the Pinewood Order"), the South Carolina
Board of Health and Environmental Control approved the issuance by DHEC of a
RCRA Part B permit (the "Pinewood Permit") for operation of the Pinewood
Facility. 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.
In June 1995, the South Carolina legislature approved regulations
(the "S.C. Regulations") governing financial assurance for environmental cleanup
and restoration of environmental impairment. The S.C. Regulations gave
owner/operators of hazardous waste facilities the right to choose from among
alternative 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. Pinewood elected to utilize the
insurance option.
43
Following extensive litigation, the South Carolina Court of
Appeals issued a decision on April 4, 2000 (which became final on June 14, 2000)
holding that (a) the S.C. Regulations were invalid due to insufficient public
notice during the promulgation procedure and Pinewood was required to
immediately comply with the cash financial assurance requirements of the
Pinewood Order and (b) both non-hazardous and hazardous waste disposed of at the
landfill from the beginning of waste disposal needed to be counted against
Pinewood's permitted capacity, thereby leaving Pinewood with no unused permitted
capacity.
For further discussion of Pinewood and related litigation see also
Section XII.C to this Disclosure Statement, entitled "Chapter 11 Cases --
Settlement and Compromise under the Plan."
ARTICLE XI
CORPORATE STRUCTURE AND MANAGEMENT OF THE DEBTORS
A. CURRENT CORPORATE STRUCTURE
SKC is incorporated in Delaware and has its principal executive
office at 1301 Gervais Street, Suite 300, Columbia, South Carolina 29201. The
BSSD Debtors are in the process of transferring their principal offices to 5400
Legacy Drive, Plano, Texas 75024.
SKC is a holding company that owns 100% of the common stock of SK
Services, which is SKC's primary operating subsidiary. SK Services, in turn,
directly or indirectly owns more than 90 additional subsidiaries, including (a)
the other Debtors and (b) (i) non-U.S. subsidiaries, (ii) non-wholly owned U.S.
subsidiaries and (iii) a wholly owned non-debtor U.S. subsidiary (collectively
with the non-U.S. subsidiaries and the non-wholly owned U.S. Subsidiaries, the
"Non-Debtor Affiliates"). Certain of the Non-Debtor Affiliates are owned in part
by SK Services or other Debtors and in part by unaffiliated third parties.
Prior to the sale of the CSD (described in Section XII.B.3 to this
Disclosure Statement, entitled "Chapter 11 Cases -- Post-Petition Operations
and Liquidity"), the Debtors were North America's largest hazardous and
industrial waste services company, providing high-quality collection,
processing, recycling, and disposal services through their network of more than
200 operating facilities in 47 states and four Canadian provinces.
B. BOARD OF DIRECTORS
The Debtors' Board of Directors has changed significantly during
the months before and during the Chapter 11 Cases.
Following the Rollins Acquisition in May 1997, the Board of
Directors was comprised of three directors designated by Laidlaw (Messrs. James
R. Bullock, Leslie W. Haworth and John R. Gainger); three directors designated
by Rollins (Messrs. John W. Rollins, Sr., John W. Rollins, Jr. and Henry B.
Tippie); three directors designated jointly by Rollins and LTI (Messrs. David E.
Thomas, Jr., Grover C. Wrenn and James L. Wareham) and Mr. Kenneth W. Winger,
who was employed by a subsidiary of LTI that owned the hazardous and industrial
waste operations of Laidlaw and was named the President and Chief Executive
Officer of LESI. Mr. Bullock was appointed Chairman of the Board of Directors.
In March 1999, Mr. Grainger resigned as a director and Mr. Robert
W. Luba was appointed in his place. In January 2000, Mr. Bullock resigned as
Chairman of the Board of Directors and from his position as a Director of SKC.
On February 9, 2000, the Board of Directors appointed Mr. Peter N.T. Widdrington
as a Director and the Chairman. On May 4, 2000, the Board of Directors appointed
(i) Mr. Kenneth K. Chalmers as a Director to fill the unexpired term of the late
John W. Rollins, Sr. and (ii) Mr. Thomas to replace Mr. Widdrington as the
Chairman of the Board. Mr. Winger resigned his position of President and Chief
Executive Officer in May 2000 and resigned his position as Director in June
2000.
In continued efforts to revitalize and reinvigorate SKC, the Board
of Directors appointed Messrs. Peter E. Lengyel and David W. Wallace as
Directors in March 2001 and Mr. Ronald A. Rittenmeyer as a Director in April
2001.
On August 30, 2002, SKC accepted the resignations of Messrs. Luba,
Rollins, Thomas, Tippie, Wareham and Wrenn from their positions as Directors of
SKC, including all committees thereof. The Board of Directors subsequently
44
appointed Mr. Larry W. Singleton as a Director of SKC to fill the unexpired term
of Mr. Tippie. The Board of Directors also appointed Mr. Thomas W. Arnst as a
Director of SKC to fill the unexpired term of Mr. Luba. The Board of Directors
does not intend to fill the remaining positions during the Chapter 11 Cases.
The following is a list as of October 31, 2002, of the names and
ages of each of the Directors of SKC as well as information regarding each
Director.
NAME, PRESENT POSITION(S) AND PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST
TERM WITH SKC AGE FIVE YEARS, DIRECTORSHIPS OF PUBLIC COMPANIES
- ---------------------------------------------------- -------- --------------------------------------------------------
Ronald A. Rittenmeyer 55 See "Executive Officers" below.
Director of SKC since April 17, 2001
Thomas W. Arnst 40 See "Executive Officers" below.
Director of SKC since August 30, 2002
Larry W. Singleton 52 See "Executive Officers" below.
Director of SKC since August 30, 2002
Peter E. Lengyel 62 Since 1998, Mr. Lengyel has been a private investor.
Director of SKC since March 9, 2001 For more than one year prior to that, he held Senior
Executive positions at Bankers Trust Company,
including Managing Director and Partner and Executive
Vice President and Partner. Mr. Lengyel is a member
of the Audit Committee and the Human Resources and
Compensation Committee.
Kenneth K. Chalmers 73 Since 1997, Mr. Chalmers has been a business
Director of SKC since May 4, 2000 consultant and director of various organizations.
From 1994 to 1998, he served as a Trustee of First
Union Real Estate Equity and Mortgage Investments. He
is a member of the Board of Directors of Learning
Insights, Inc., a publisher of interactive multimedia
training and reference products. From 1997 to 1998,
he was a director of Profile Systems, LLC, a provider
of wireless data communications services. Since May
2002 he has been a director of Doverdowns Gaming &
Entertainment, Inc. and Dover Motorsports, Inc. From
1997 to 2001 he was an Advisory Board Member of
Magnify, Inc. and Advisor to Paradigm Capital Ltd.
Mr. Chalmers also served as a Director of Catholic
Health Partners and Chairman of its Finance/Audit
Committee from 1995 to 2001. He was Vice Chairman and
Member of the Executive Committee of Catholic Health
Partners Foundation and Member of the Alumni Advisory
Board of the Kellogg Graduate School of Management,
Northwestern University. Mr. Chalmers is the Chair of
the Audit Committee, and is a member of the Human
Resources and Compensation Committee.
David W. Wallace 78 Mr. Wallace served as the Chairman of the Board and
Director of SKC since March 11, 2001 CEO of Lone Star Industries from January 1990 until
November 1999. Currently, he is President and a
45
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 and is the Chair of the Human Resources and
Compensation Committee.
C. EXECUTIVE OFFICERS
The Debtors' Executive Officers also have changed significantly
during the months before and during the Chapter 11 Cases.
On May 12, 2000, SKC announced the resignations of its Chief
Executive Officer ("CEO") and President, Kenneth W. Winger, Chief Operating
Officer ("COO"), Michael J. Bragagnolo and Chief Financial Officer ("CFO"), Paul
R. Humphreys. David E. Thomas, Jr. who had become the Chairman of the Board in
May 2000, assumed the role of CEO and Grover C. Wrenn assumed the roles of COO
and President. The Board of Directors appointed Larry W. Singleton as SKC's new
CFO in August 2000.
This shift in management continued when in September 2001 Messrs.
Thomas and Wrenn resigned from their positions of Chairman of the Board and CEO
and President and COO, respectively. At that time, Mr. Rittenmeyer was appointed
SKC's new Chairman, CEO and President. On October 17, 2001, Roy D. Bullinger,
President of the BSSD since May 2000, ceased to be employed by the Debtors. On
November 16, 2001, Henry H. Taylor, who had served as Senior Vice President,
General Counsel and Secretary of SKC, ceased to be employed by the Debtors.
Shortly thereafter, on November 27, 2001, David M. Sprinkle, who had served as
the President of the CSD since May 2000, was elected COO of SKC and James K.
Lehman was elected to the positions of Senior Vice President, General Counsel
and Secretary of SKC. Also, in November 2001, Thomas W. Arnst was elected
Executive Vice President and Chief Administrative Officer.
On October 4, 2002, Bruce E. Roberson became Executive Vice
President, Sales & Marketing and David M. Sprinkle's title changed to Executive
Vice President, Operations.
The following sets forth certain information with respect to the
current Executive Officers of SKC:
NAME AGE POSITION HELD
------------------------------------ ------- ---------------------------------------
Ronald A. Rittenmeyer 55 Chairman of the Board, Chief
Executive Officer and President
Larry W. Singleton 52 Executive Vice President and Chief
Financial Officer
David M. Sprinkle 49 Executive Vice President, Operations
Thomas W. Arnst 40 Executive Vice President and Chief
Administrative Officer
Bruce E. Roberson 44 Executive Vice President, Sales &
Marketing
James K. Lehman 36 Senior Vice President, General
Counsel and Secretary
Mr. Rittenmeyer has been Chairman of the Board, Chief Executive
Officer and President of SKC since September 2001. Since December 2000, Mr.
Rittenmeyer has been the Plan Administrator for the post-confirmation estate of
AmeriServe Food Distribution, Inc. ("AmeriServe") and its affiliated debtors
(collectively, and together with Ameriserve, the "AFD Fund"). From February 2000
through November 2000, he was President and CEO and a member of the Board of
AmeriServe, a large food distributor business, where he led the restructuring of
the company which filed for protection under chapter 11 of the Bankruptcy Code
on January 31, 2000. From September 1998 through February 2000, he was Chairman,
46
President and CEO of RailTex, Inc. ("RailTex"), the world's largest shortline
railroad holding company. From March 1997 through August 1998, he was President
and COO of Ryder TRS, Inc. ("Ryder TRS"), the nation's second largest truck
rental company.
Larry W. Singleton, a CPA, has been Executive Vice President and
Chief Financial Officer of SKC since November 2001. From August 2000 until
November 2001 he was Senior Vice President and Chief Financial Officer. Mr.
Singleton is a restructuring advisor who has served in various management and
consulting roles to numerous companies during the last eighteen 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 to October 2001, Mr. Singleton was
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 of Directors after the 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.
David M. Sprinkle became Executive Vice President, Operations of
SKC on October 4, 2002. Mr. Sprinkle has been employed by SKC or one of its
subsidiaries for more than five years. From November 2001 through October 2002
he was Chief Operating Officer. He was President of the CSD from May 2000
through November 2001. Prior to that time, since October 1997 he served in
various capacities, including 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.
Thomas W. Arnst became Executive Vice President and Chief
Administrative Officer in November 2001. Since December 2000 Mr. Arnst has
served as Executive Vice President and Chief Administrative Officer of the AFD
Fund. From April 2000 to November 2000, he served as Executive Vice President
and Chief Administrative Officer of AmeriServe. From December 1998 until
February 2000, Mr. Arnst was Senior Vice President, General Counsel and
Secretary of RailTex. For more than 2 years prior, Mr. Arnst was Vice President,
General Counsel and Secretary of Ryder TRS.
Bruce E. Roberson became Executive Vice President, Sales &
Marketing of SKC on October 4, 2002. For more than five years prior to October
2002, Mr. Roberson served as a Director of McKinsey & Co., a leading global
strategic management consulting firm.
James K. Lehman has been Senior Vice President, General Counsel
and Secretary of SKC since November 2001. For more than four years prior, Mr.
Lehman was a partner at the law firm of Nelson Mullins Riley & Scarborough,
L.L.P.
ARTICLE XII
CHAPTER 11 CASES
A. COMMENCEMENT OF THE CHAPTER 11 CASES; CONTINUATION OF BUSINESS; STAY OF
LITIGATION
On June 9, 2000, the Debtors filed their voluntary petitions for
relief pursuant to chapter 11 of the Bankruptcy Code. Since the Petition Date,
the Debtors have continued in possession of their property and are operating and
managing their businesses as debtors-in-possession pursuant to sections 1107 and
1108 of the Bankruptcy Code. Although the Debtors are authorized to operate in
the ordinary course of business, the Debtors sought Bankruptcy Court approval of
transactions out of the ordinary course of business.
An immediate effect of the filing of the Debtors' bankruptcy
petitions was the imposition of the automatic stay under the Bankruptcy Code
which, with limited exceptions, enjoined the commencement or continuation of all
collection efforts by creditors, the enforcement of liens against property of
the Debtors and the continuation of litigation against the
47
Debtors. This relief provided the Debtors with the "breathing room" necessary to
assess and reorganize their businesses. The automatic stay remains in effect,
unless modified by the Bankruptcy Court, until the earliest of the time (1) the
case is closed, (2) the case is dismissed or (3) discharge is granted or denied.
1. Initial Relief Granted by the Bankruptcy Court
During the first days of the Chapter 11 Cases, the Debtors filed
several motions seeking orders intended to ensure a seamless transition between
the Debtors' prepetition and postpetition business operations by approving
certain regular business conduct that may not be authorized specifically under
the Bankruptcy Code, or as to which the Bankruptcy Code requires prior approval
by the Bankruptcy Court. The Bankruptcy Court authorized, among other things:
o The joint administration of each of the Debtors' Chapter 11 Cases.
o The retention of (a) Trumbull as claims and noticing agent for the
Debtors and (b) Innisfree M&A Incorporated as special noticing and
voting agent for the Debtors.
o The Debtors to mail initial notices and to file list of creditors
(without claim amounts) in lieu of matrices.
o Additional time for the Debtors to file schedules and statements.
o The Debtors' to continue to use their cash management system, bank
accounts, business forms, and deposit and investment guidelines;
and their continuation of intercompany transactions with
non-Debtor affiliates, and according superpriority status to all
postpetition intercompany claims.
o The Debtors to pay (a) the prepetition wages, salaries and
employee benefits earned or arising before the Petition Date of
all active employees and (b) withholding and payroll taxes. The
Bankruptcy Court also directed all banks to honor prepetition
checks for payment of all prepetition employee obligations
described above.
o The Debtors' to pay prepetition sales, use and other taxes
collected by the Debtors from their customers or incurred in the
ordinary course of their businesses to the appropriate taxing
authorities.
o The Debtors to pay certain critical prepetition shipping charges.
o The Debtors to pay certain prepetition obligations owed to
mechanics, materialmen and other such entities potentially holding
liens that the Debtors deemed necessary, including but not limited
to certain contractors in satisfaction of perfected or potential
liens and interests.
In addition, the Bankruptcy Court granted the Debtors' request to
prohibit the Debtors' utility service providers from altering, refusing or
discontinuing services on account of prepetition invoices. The Bankruptcy Court
further approved the Debtors' proposed procedures for determining requests by
the utility service providers for additional adequate assurance.
2. Parties In Interest and Advisors
The parties described below have been, among others, major parties
in interest, or advisors to them, in the Chapter 11 Cases to date.
(a) The Bankruptcy Court
The Honorable Peter J. Walsh, Chief United States
Bankruptcy Judge for the Bankruptcy Court for the District of Delaware, has
presided over the Debtors' Chapter 11 Cases.
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(b) Advisors to the Debtors
The Debtors obtained Bankruptcy Court authorization to retain,
among others, (i) Skadden, Arps, Slate, Meagher & Flom (Illinois) and affiliated
law practice entities, (ii) Shaw Pittman LLP, (iii) Williams & Connolly LLP,
(iv) Arnold and Porter, (v) Lazard Freres & Co. LLC ("Lazard"), (vi) Crowell &
Moring L.L.P., (vii) Plante & Moran, LLP, (viii) Arthur Andersen LLP ("Arthur
Andersen") and (ix) Alix Partners, LLC as professionals in the Debtors' cases.
In addition, the Debtors obtained Court approval to retain, comply and pay
additional ordinary course professionals to assist with the operating of their
businesses in the ordinary course. The Debtors have consulted with these
advisors on various aspects of their businesses, financial restructuring, and
operations as debtors-in-possession in the Chapter 11 Cases.
In September 2002, the Debtors obtained Bankruptcy Court approval
to replace Arthur Andersen with (i) Deloitte & Touche LLP, (ii) KPMG Consulting,
Inc., (iii) Lucidity Consulting Group, LP and (iv) Experio Solutions
Corporation.
(c) Appointment of the Creditors' Committee
On June 23, 2000, the United States Trustee appointed an official
committee of unsecured Creditors (the "Creditors' Committee"). Thereafter, the
Creditors' Committee applied and obtained consent to retain, among others, (i)
Milbank, Tweed, Hadley & McCloy LLP, as counsel, (ii) Jeffrey Chanin and Company
LLC, as financial advisor, and (iii) Morris, Nichols, Arsht and Tunnel, as
co-counsel and (iv) Deloitte and Touche LLP, as accountants and reorganization
consultants. In June 2002, the Creditors' Committee applied for, and the
Bankruptcy Court entered, an order authorizing the retention of Genovese,
Joblove & Battista P.A. as special litigation counsel to the Creditors'
Committee. On or about September 24, 2002, Deloitte and Touche LLP's retention
as the Creditors' Committee's accountants and reorganization consultants ended.
As of October 18, 2002, the Creditors' Committee consisted of the
following eight members: Teachers Insurance and Annuity Association of America;
ISG Resources, Inc./Creamer Investments (f/k/a RACT); Cole Taylor Bank (as
Indenture Trustee); Holnam, Inc.; New Pig Corporation; Wells Fargo Bank of
Minnesota, N.A. (as Indenture Trustee); Wilmington Trust Company (as Indenture
Trustee); and IBM Credit Corporation.
B. POST-PETITION OPERATIONS AND LIQUIDITY
1. Financing
As set forth above, on July 19, 2000, the Bankruptcy Court granted
final approval of the Initial DIP Facility among the Debtors, Toronto Dominion
(Texas), Inc., as general administrative agent and underwriter, The CIT
Group/Business Credit, Inc., as collateral agent and underwriter, and the
lenders party thereto. Under the terms of the Initial DIP Facility, the proceeds
could be used, among other things, to pay expenses in the Chapter 11 Cases and
to finance working capital needs and capital expenditures of the Debtor. The
total amount committed under the Initial DIP Facility was $100 million, with a
$35 million sublimit for letters of credit.
On March 20, 2002, the Debtors obtained Bankruptcy Court approval
to enter into the DIP Facility which provided that the total commitments under
the post-petition loan would be increased to $200 million. The amount
outstanding under the Initial DIP Facility, $75 million, would constitute
Tranche A of the DIP Facility and an additional Tranche B of $125 million was
added. The total sublimit for letters of credit under both tranches was
increased to $125 million.
Under the Final DIP Order, the lenders under the DIP Facility were
granted superpriority claim status over any all administrative expense claims
specified in sections 503(b) and 507(b) of the Bankruptcy Code, subject to
certain carve-outs.
The Tranche A lenders under the DIP Facility also were granted
liens in substantially all of the Debtors' assets including: (i) a first lien on
substantially all of the Debtors' assets that were not encumbered as of the
Petition Date, (ii) a priming lien on substantially all of the Debtors' assets
that secured the Lenders' prepetition Claims and (iii) a second priority junior
lien on all other assets that were subject to a lien as of the Petition Date.
49
Similarly, the Tranche B lenders under the DIP Facility were
granted liens in substantially all of the Debtors' assets including: (i) a
second priority lien on substantially all of the Debtors' assets that were not
encumbered as of the Petition Date, (ii) a first priority lien on the first $35
million of proceeds from recoveries with respect to certain causes of action
under chapter 5 of the Bankruptcy Code, (iii) a second priority priming lien on
substantially all of the Debtors' assets that secured the Lenders' prepetition
Claims and (iv) a third priority junior lien on all other assets that were
subject to a lien as of the Petition Date.
The interest rate under Tranche A of the DIP Facility is base rate
plus 1% per annum or LIBOR plus 3% per annum depending on the nature of the
borrowings. The interest rate under Tranche B of the DIP Facility is LIBOR or
base rate plus a margin of 7.25%, but in any case not lower than 12%. In
addition, beginning on September 1, 2002, the margin under Tranche B started to
increase by .5% on the first calendar day of each month. On top of the cash
interest due with respect to Tranche B, an additional 3% per annum is added to
the Tranche B principal each month, such rate increasing by 1% each month
commencing on September 1, 2002. A fee of 3% per annum is charged on the
outstanding face amount of Tranche A letters of credit and a fee of 12% per
annum is charged on the outstanding face amount of Tranche B letters of credit
(plus, in each case, a fronting fee of 0.25%). The DIP Facility matures on the
earlier of March 21, 2003, or the effective date of a plan of reorganization.
2. Financial Assurance Requirements
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. Certain Debtors, as owners and operators of RCRA
and TSCA waste management facilities, are 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, starting in 1997, many of the Debtors
procured surety bonds issued by Frontier as financial assurance at numerous
locations. Of the total amount of financial assurance required of the Debtors
under the environmental statutes, which approximated $500 million as of May 31,
2000, slightly more than half was 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, effective May 31,
2000, the Debtors no longer had compliant financial assurance for many of its
facilities. Under applicable regulations, these Debtors were required to obtain
compliant financial assurance within sixty days, and in some states, more
quickly (although the surety bonds issued by Frontier no longer qualified as
acceptable federal bonds, they remained effective until replaced). Immediately
following this U.S. Treasury announcement, the Debtors notified the United
States Environmental Protection Agency (the "EPA") of their lack of audited
consolidated financial statements for fiscal 1999, 1998 and 1997 and the
difficulties that certain alleged accounting irregularities would cause the
Debtors in attempting to obtain compliant financial assurance for its facilities
covered by the Frontier bonds. The Debtors and the EPA also contacted states in
which the non-compliant facilities were located and apprized such states of
these facts.
Following the Petition Date, the Debtors 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. Some states referred their
enforcement authority to the EPA for purposes of this CAFO and thus are, in
effect, parties to the CAFO. Other states entered separate, but similar, consent
agreements with certain Debtors. Some states did not enter separate written
agreements with the Debtors, but have allowed the Debtors to continue operating
while they obtained coverage to replace the Frontier bonds.
The main component of the CAFO (and of the consent agreements with
various states) was a compliance schedule for the Debtors to obtain compliant
financial assurance for the facilities covered by the Frontier bonds. That
schedule was modified on several occasions after the CAFO was entered and as the
Debtors replaced Frontier at various facilities. Over the course of the Chapter
11 Cases, the Debtors have been able to replace the Frontier bonds with
compliant financial assurance coverage by other providers at all but a handful
of facilities. Except for the Pinewood Facility, those remaining noncompliant
facilities were among the assets that Debtors sold to Clean Harbors as of
September 7, 2002. Clean
50
Harbors has since provided compliant replacement financial assurance at those
facilities. The Debtors have separately resolved the Frontier coverage issues
and other issues at the Pinewood Facility in a global settlement with DHEC. See
Section XII.C to this Disclosure Statement entitled, "Chapter 11 Cases - -
Settlement and Compromise under the Plan."
In the CAFO, the Debtors were required to waive certain arguments
they otherwise could have asserted under the Bankruptcy Code with respect to
their financial assurance and certain other obligations under environmental
laws, including with respect to discharge of claims. The Debtors' lenders and
the Creditors Committee have reserved their right to assert certain of such
arguments.
The CAFO also imposed a penalty of about $1.6 million on certain
Debtors, including SK Services. Some states have imposed financial assurance
penalties in addition to this amount. In several instances, the penalties are
co-mingled with penalties associated with unrelated violations, making it
difficult to attribute specific penalty amounts to financial assurance. The
Debtors believe such additional financial assurance penalties (except those set
forth and resolved in the Pinewood Settlement) would total approximately
$500,000 through December 31, 2002. However, more states may choose to assert
penalties. In most cases, the financial assurance penalties are, by agreement,
entitled to administrative priority.
The Debtors had posted a $28.5 million letter of credit in 1997
with Frontier as collateral for the Frontier coverage. Under the CAFO, Debtors
were not permitted to seek the return of this collateral while Frontier coverage
remained outstanding. Upon the completion of the Frontier replacement program,
the Debtors expect to seek the return of this collateral. There can be no
assurance that the Debtors will be able to secure return of this collateral.
The Debtors understand that, on August 27, 2001, Frontier entered
a rehabilitation proceeding that the New York Superintendent of Insurance will
administer pursuant to New York law.
3. Sale of the Chemical Services Division
In 1997, Rollins acquired Laidlaw Chem-Waste, Inc. ("Chem Waste"),
now known as SK Services, a wholly owned subsidiary of LTI. Rollins was
thereafter renamed Laidlaw Environmental Services, Inc. ("LESI"). Subsequently,
in May 1998, LESI acquired Old Safety-Kleen which essentially operated the BSSD
as it exists today. LESI then changed its name to SKC. Following the merger, SKC
continued to operate LESI's businesses as the CSD and attempted to integrate the
BSSD and the CSD in late 1998 to realize potential operational synergies. The
failure of this attempted integration, among other things, resulted in
diminished customer services and losses in revenue and profitability to the CSD.
In May of 2000, CSD operating management initiated an effort to
re-establish and enhance the CSD's organization and operations. Despite these
efforts, and after extensive consideration of their strategic alternatives,
SKC's management and board of directors decided that the best business strategy
going forward was to retain the operations of the BSSD and explore the
opportunities for a sale of the CSD.
To that end, the Debtors mounted a significant effort to identify
and contact potential purchasers of the CSD business, utilizing Lazard, the
Debtors' financial advisors. Lazard contacted almost 100 potential strategic and
financial buyers of the CSD business.
On February 22, 2002, the Debtors entered into a definitive
agreement with Clean Harbors to sell the CSD, excluding certain assets and
liabilities including the Pinewood Facility. On June 18, 2002, the Bankruptcy
Court approved the sale of the CSD to Clean Harbors (the "Sale Order"). The sale
of the CSD closed on September 10, 2002 and was effective September 7, 2002.
Under the terms of the agreement, as amended, Clean Harbors purchased the CSD's
net assets from certain of the Debtors for approximately $34,330,000, subject to
certain defined working capital adjustments, and the assumption of certain
environmental liabilities valued at approximately $265 million as of August 31,
2001 and other liabilities.
Under the Sale Order, the CSD assets (the "CSD Assets") sold to
Clean Harbors included (a) substantially all of the assets utilized in the
operation of the CSD owned by the Debtors set forth on Appendix H to this
Disclosure Statement (the "CSD Selling Subsidiaries"), (b) certain executory
contracts and unexpired leases identified by Clean Harbors and (c) all of the
shares of Safety-Kleen Ltd. and Clean Harbors (Mexico), Inc. (a subsidiary
established by SK Services to hold the stock of Laidlaw Environmental Services
de Mexico, S.A. de C.V.) (collectively, the "Transferred Subsidiaries").
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Safety-Kleen Ltd. is the Canadian parent and holding company of the following
Canadian subsidiaries: 510127 N.B. Inc.; Safety-Kleen Services (Quebec), Ltd.;
Safety-Kleen Services (Mercier), Ltd; and SK D'Incineration Inc.
Under the Sale Order, the CSD Assets were transferred free and
clear of all liens, claims, encumbrances and interests under section 363(f) of
the Bankruptcy Code, other than certain permitted exceptions and assumed
liabilities referenced in the sale agreement.
As part of the sale, Clean Harbors assumed certain liabilities
(the "Assumed Liabilities") from SK Services and the CSD Selling Subsidiaries
and agreed to thereafter pay, perform or otherwise discharge in accordance with
their terms, and indemnify SK Services and the CSD Selling Subsidiaries and
their affiliates, from all of the liabilities and obligations of SK Services,
the CSD Subsidiaries, the Transferred Subsidiaries and their respective direct
and indirect subsidiaries, with respect to, arising out of or relating to, the
ownership, possession or use of the CSD Assets and the operation of the CSD
business other than certain excluded liabilities, but including without
limitation, the following:
(a) liabilities and obligations with respect to, arising
out of or relating to, the ownership, possession or use of the CSD
Assets and the operation of the CSD business and arising after the
closing date of the CSD sale;
(b) liabilities and obligations, whether arising before or
after the closing date, in connection with (i) certain owned real
property, (ii) the real property subject to certain real property
leases, (iii) the real property owned or leased, directly or
indirectly, by the Transferred Subsidiaries or (iv) the operation
of the CSD business (including liabilities and obligations arising
under various environmental laws that relate to violations of
various environmental laws, including imposing liabilities or
obligations for, activities conducted at, from or in connection
with any of the foregoing, including exposure to the migration of
materials from the foregoing);
(c) liabilities and obligations arising from any violation
of various environmental laws by Clean Harbors, the direct or
indirect subsidiaries of Clean Harbors or the Transferred
Subsidiaries first occurring on or after the closing date;
(d) various liabilities and obligations in respect of
contracts and leases assigned to Clean Harbors;
(e) liabilities and obligations in connection with or
arising out of the requirement on and after the closing date that
Clean Harbors obtain financial assurance that complies with the
requirements of the governmental entities with jurisdiction over
certain owned real property or the real property subject to
various real property leases or the real property owned or leased
by any Transferred Subsidiary or any subsidiary of any Transferred
Subsidiary;
(f) liabilities which are included as part of the working
capital; and
(g) the liabilities as of the closing date of any
Transferred Subsidiary or any subsidiary of any Transferred
Subsidiary;
provided, however, Clean Harbors would not assume or agree to pay, perform or
otherwise discharge any liabilities and obligations with respect to, arising out
of or relating to, the ownership, possession or use of the CSD Assets and the
operation of the CSD business prior to the closing date
(a) which are to be discharged by the Bankruptcy Court in
accordance with section 3.8 of the sale agreement,
(b) with respect to fines imposed by various governmental
entities,
(c) with respect to injuries suffered by employees of SK
Services, any CSD Selling Subsidiary or Transferred Subsidiary,
52
(d) with respect to tort (other than environmental
clean-up) and common law claims for which post-1986 general
liability insurance containing pollution exclusions normally would
provide coverage,
(e) which are amounts due from the CSD business to BSSD, or
(f) which are taxes (other than taxes for which Clean
Harbors is expressly liable pursuant to the terms of the sale
agreement) arising out of or relating to any period or any portion
thereof ending on or prior to the closing date without regard to
when asserted, commenced or identified.
4. FINANCIAL RESTATEMENTS
As set forth in more detail above, the Debtors were required to
restate their financial statements for the fiscal years, 1997, 1998 and 1999. On
or about July 9, 2001, the Debtors filed with the SEC their Form 10-K/A,
Amendment No. 1 (the "10-K/A") for the fiscal year ended August 31, 2000. The
10-K/A included, among other things, the Debtors' restated financial results for
fiscal years 1997, 1998, 1999, as well as audited financial results for fiscal
year 2000. The restatements reflected an overall reduction in previously
reported earnings of approximately $534 million for fiscal years 1997 through
1999.
5. SALE OF EUROPEAN OPERATIONS
On August 11, 2000, the Debtors completed the sale of their
remaining 44% interest in their European operations. The Debtors received
approximately $34.4 million in cash and, subject to contingencies, approximately
$1.3 million in deferred payments. On December 23, 1998, the Debtors announced
the recapitalization of their European operations resulting in the sale of 56%
of the Debtors' equity interest in those operations. From these proceeds, and
the proceeds of the June, 2000 sale of the Debtors' landfill located in
Rosemount, Minnesota, approximately $19 million was paid to the U.S. Lenders as
an adequate protection payment.
6. SALE OF 3E ASSETS
As of August 1, 2002, SK Services owned a 75.78% interest in 3E
Company Environmental, Ecological and Engineering (the "3E Company"), a
Non-Debtor Affiliate of SK Systems, engaged in providing hazardous materials
information management and emergency response services for environmental health
and safety managers. The remaining 24.22% of 3E Company was held by minority
shareholders. On August 28, 2002, the Bankruptcy Court entered an order
authorizing SK Systems to vote its shares of stock in the 3E Company to approve
(a) the sale of substantially all of the assets of the 3E Company, to a
corporation formed by management of 3E Company, for $12,639,218, (b) the
purchase of the remaining 24.22% of the 3E Company stock for $625,062.08 and (c)
the assumption and assignment of certain unexpired leases.
7. CLAIM OBJECTION PROCESS
In a chapter 11 case, claims against a debtor are established
either as a result of being listed in the debtor's schedules of liabilities or
through assertion by the creditor in a timely filed proof of claim form. Once
established, the claims are either allowed or disallowed. If allowed, the claim
will be recognized and treated pursuant to a plan of reorganization. If
disallowed, the creditor will have no right to obtain any recovery on or to
otherwise enforce the claim against the debtor.
(a) Schedules and Statements
On September 8, 2001, the Debtors filed their schedules of assets
and liabilities and statements of financial affairs (together, and as may have
been amended, the "Schedules"). The Schedules set forth the Claims of known
Claimholders against each of the Debtors as of the Petition Date, based upon the
Debtors' books and records. The Debtors reserve the right to further amend their
Schedules during the remaining pendency of the Chapter 11 Cases.
53
(b) Claims Bar Date
By order dated August 11, 2000, the Bankruptcy Court established
October 31, 2000 as the deadline for filing proofs of claim against the Debtors
by those creditors required to do so (the "Bar Date"), other than governmental
units. Pursuant to section 502(b)(9), December 6, 2000 was the claims bar date
applicable to government units. In compliance with procedures approved by the
Bankruptcy Court, the Debtors (i) through their claims agent Trumbull Services
provided timely notice of the Bar Date by mail and (ii) published notice of the
bar date in The Wall Street Journal (National Edition) and The New York Times
(National Edition).
(c) Claims Objection Process
Proofs of claim aggregating over 17,400 in number and asserting in
excess of $181 billion in claim amounts (not including claims asserted in
unliquidated amounts) have been filed against the Debtors. The Debtors have been
engaged in the process of evaluating the proofs of claim to determine whether
objections seeking the disallowance, reclassification or reduction of certain
asserted Claims should be filed. As a result, numerous objections have been
filed to date, and the majority of the Claims subject to such objections have
been disallowed or reclassified. The Debtors intend to continue that process
until the Effective Date. The Debtors do not anticipate having objected to and
resolving all proofs of claim filed in these Chapter 11 Cases, by the
Confirmation Date. The Disbursing Agent and/or the Trustee will continue the
process after the Effective Date through the Claims Objection Deadline, as such
date may be extended in accordance with the Plan. If the Debtors, the
Reorganized Debtors, the Disbursing Agent, and/or the Trustee do not object to a
proof of claim by the deadline established in the Plan or such later date
approved by Bankruptcy Court Order, the Claim asserted therein will be deemed
Allowed pursuant to the Plan. As appropriate, the Disbursing Agent or the
Trustee may seek to negotiate and settle disputes as to asserted Claims as an
alternative to filing objections to the proofs of claim.
8. Sale of Assets in Holly Hill, South Carolina
By order dated August 28, 2002, the Bankruptcy Court authorized
the Debtors to sell to Holcim (U.S.) Inc. and its wholly owned subsidiary,
Energis, LLC certain assets used at the waste fuels blending facility located in
Holly Hill South Carolina, for approximately $2,625,000. In connection with the
sale of such assets, SK Systems entered into a new fuel agreement with Energis,
LLC under which systems provides certain waste materials to Energis to be
processed at the Holly Hill facility.
9. Other Asset Dispositions
As part of their overall plan to maximize the value of the
Debtors' Estates, the Debtors conducted an internal review of their properties
and business operations to identify and divest themselves of non-core and/or
non-profitable businesses or properties not necessary to a reorganization. The
properties identified included properties that were (a) never used by the
Debtors' operations, (b) underutilized by the Debtors and for which the
operations could be consolidated at other facilities and (c) properties no
longer used by the Debtors. In connection with this review, the Debtors
determined that a number of properties were not essential to their
reorganization and obtained court approval for the sale and divestiture of such
properties, including, among others, real property in the following locations
and amounts (i) Martinez, California for $1,825,000, (ii) Ann Arbor, Michigan
for $1,500,000 and (iii) Schaumburg, Illinois for $427,000. In addition, the
Debtors obtained the Bankruptcy Court's approval for certain of the Debtors to
enter into a purchase agreement with Cameron-Cole, LLC to sell certain assets,
including, but not limited to, certain consulting contracts, personal property,
leases of real and personal property, software licenses and intangible assets in
connection with the certain Debtors' consulting business for approximately
$1,350,000 in cash and notes.
10. Outsourcing Agreements
As part of their overall plan to restructure their operations, the
Debtors have focused on, among other things, identifying expensive and/or
inefficient in-house functions and services that could be provided or performed
more cost-effectively or efficiently if out-sourced to independent third parties
with relevant expertise. The following are examples of outsourcing arrangements
the Debtors entered into to maximize value to the Debtors' estates.
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(a) On August 11, 2000, the Bankruptcy Court entered an order
authorizing the Debtors to enter into an outsourcing arrangement with Acxiom to
outsource support, operation of the mainframe and server and to integrate the
mainframe and server platforms from the closed SKC Elgin data center to Acxiom's
facility in Downers Grove, Illinois. The term of the agreement is for five years
from the date of integration, and the cost is approximately $585,000 per month
for a total commitment of approximately $35 million over the five year period.
(b) In March of 2002, the Debtors obtained Bankruptcy Court
approval to enter into (i) a licensing agreement with SAP America, Inc. ("SAP")
whereby SAP granted Safety-Kleen, among other things, the use of its proprietary
software and (ii) a master services agreement with Electronic Data Systems
Corporation and EDS Information Services L.L.C. (collectively, "EDS") to, among
other things, implement the SAP software package. The Debtors entered into the
licencing agreement and master services agreement with SAP and EDS respectively
in an attempt to streamline operating and financial systems and controls. Under
the master services agreement, EDS agreed to, among other things: provide the
Debtors SAP implementation services to better configure, develop and implement
the SAP modules, thus significantly reducing the complexity of the Debtors'
financial software environment; host the SAP financial software and provide a
network connection between the EDS servers and the Debtors' facilities and
assume responsibility for the Debtors' accounts payable operation and
processing. The Debtors anticipate possibly entering into additional outsourcing
arrangements with EDS in the future.
(c) On August 30, 2002, the Bankruptcy Court entered an order
authorizing the Debtors to enter into agreements with Mellon Bank, N.A. and
Mellon Financial Service Corporation #1 (collectively, "Mellon") under which
Mellon will, among other things, provide certain lockbox and data processing
services, for Debtors at three centralized facilities and will provide to the
Debtors timely information with respect to payments on account of customer
remittances that Mellon processes. In addition, Mellon will, among other things,
be responsible for (i) sorting and reviewing the Debtors' customer remittances
that are sent to these facilities, (ii) processing customer remittances,
including mail processing, sorting and review, providing data transmission to
the Debtors, (iii) wiring payments to the Debtors' account on a daily basis and
(iv) providing single point of contact customer service.
(d) On August 30, 2002, the Bankruptcy Court also entered an order
authorizing the Debtors to enter into agreements with Cendian Corporation
("Cendian") under which Cendian will, among other things, plan, procure and
manage the logistics and transportation services necessary to transport certain
of the Debtors' and their customers' chemicals and hazardous waste materials to,
from and/or through various service locations.
11. Business Transactions
(a) A subsidiary of SKC 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 multi-year
agreement was approved by the Bankruptcy Court on December 15, 2000. The BSSD
locations across North America began marketing SystemOne's(R) products in early
2001.
(b) Pursuant to the EDS master services agreement described in
Section XII.B.10(b) above, EDS will also assist the Debtors in developing a
number of processes and solutions in order to enhance the Debtors' delivery to
its customers.
(c) On October 10, 2001, the Bankruptcy Court authorized the
Debtors to enter into a three-year telecommunications services agreement with
AT&T Corporation and its various affiliates to receive long distance service,
dedicated data circuits, inbound 800 service, and dial-up internet access. The
cost of the three-year agreement is approximately $9 million.
12. Relocation of Headquarters
The Debtors are relocating their corporate headquarters from South
Carolina to Texas. In connection therewith, the Debtors obtained court approval
to enter into a new lease for real property in Plano, Texas. The Debtors have
begun the transition process and believe the relocation process will continue
through 2003. As a result of this transition, some employees at the current
corporate headquarters will be relocated to Plano, Texas and the employment of
certain other employees from the current corporate headquarters will eventually
end. Until the transition is complete, there may be dual functions operating in
Plano, Texas and Columbia, South Carolina.
55
13. Employment Matters
(a) Employment Contracts
On August 11, 2000, the Bankruptcy Court authorized (i) the
implementation of key employee severance programs and (ii) the ratification of
the existing retention and severance arrangements with certain Elgin, Illinois
employees.
On August 11, 2000, the Court also authorized the Debtors to enter
into employment agreements with Chief Executive Officer and Chairman of the
Board, David E. Thomas, Jr.; President and Chief Operating Officer, Grover C.
Wrenn; and Senior Vice President and Chief Financial Officer, Larry W.
Singleton.
On September 5, 2001, the Bankruptcy Court authorized the Debtors
to enter into employment and indemnification agreements with Ronald A.
Rittenmeyer as Chairman of the Board, Chief Executive Officer and President. Mr.
Rittenmeyer succeeded David E. Thomas, Jr.
On September 5, 2001, the Bankruptcy Court also authorized the
Debtors to enter into termination and consulting agreements with David E.
Thomas, Jr. and Grover C. Wrenn.
On October 18, 2001, the Bankruptcy Court authorized the Debtors
to enter into employment and indemnification agreements with Thomas W. Arnst to
employ Mr. Arnst as Executive Vice President and Chief Administrative Officer of
the Debtors.
On August 28, 2002, the Bankruptcy Court authorized the Debtors to
enter into employment and indemnification agreements with Bruce E. Roberson to
retain Mr. Roberson to serve as the Executive Vice President - Sales and
Marketing of SKC.
(b) Advancement and Reimbursement of Legal Fees and Expenses
(i) Through orders entered on December 15, 2000, May 16,
2001, and August 21, 2001, the Bankruptcy Court authorized the Debtors to
advance certain officers and directors legal fees and expenses, with respect to
actions against such officers and directors, through August 21, 2002 ("Defense
Cost Orders").
In addition, as part of the Debtors' settlement with the Laidlaw
Defendants (as defined below), the Debtors obtained authorization to reimburse
certain former SKC directors for reasonable attorneys' fees and expenses
incurred in connection with the mediation and incurred or to be incurred with
the Debtors' and the Laidlaw Defendants' prosecution of claims against
PricewaterhouseCoopers LLP and PricewaterhouseCoopers LLP (Canada) in
Safety-Kleen Corp. et al. v. PricewaterhouseCoopers LLP, et al., Civil Action
No. 01-CP-40-4213 up to an amount authorized under the Defense Cost Orders. In
addition, the Debtors obtained authority to reimburse such directors for various
incurred defense costs and prosecution costs up to an additional $5 million.
(ii) By order dated August 21, 2000, the Bankruptcy Court
authorized the Debtors to pay up to an aggregate of $500,000 in legal fees on
behalf of nine individuals, after their employment terminated. The legal fees
were authorized in connection with the ongoing federal Grand Jury investigation
in the Southern District of New York and the formal order of investigation
issued by the SEC.
(c) Reduction of Labor Force
In connection with, among other things, the Debtors' sale of the
CSD and various outsourcing arrangements, the Debtors have reduced their
employee ranks from more than 10,000 employees at the beginning of the Chapter
11 Cases to approximately 5,100 employees, as of October 31, 2002.
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14. Extensions to the Exclusive Period for the Debtors to File a Plan
of Reorganization
Section 1121(b) of the Bankruptcy Code provides for an initial
period of 120 days after the commencement of a chapter 11 case during which a
debtor has the exclusive right to propose a plan of reorganization (the
"Exclusive Proposal Period"). In addition, section 1121(c)(3) of the Bankruptcy
Code provides that if a debtor proposes a plan within the Exclusive Proposal
Period, it has the remaining balance of 180 days after the commencement of a
chapter 11 case to solicit acceptance of such plan (the "Exclusive Solicitation
Period"). During the Exclusive Proposal Period and the Exclusive Solicitation
Period, plans may not be proposed by any party in interest other than the
debtor.
By orders dated on October 17, 2000, May 16, 2001, October 18,
2001, February 11, 2002 and finally on May 9, 2002, the Bankruptcy Court allowed
for additional time during which the Debtors would retain the exclusive right to
file a plan of reorganization and solicit acceptances of such plan through
October 31, 2002 and December 31, 2002, respectively. On October 31, 2002, the
Debtors filed a motion to further extend the Exclusive Proposal Period and the
Exclusive Solicitation Period through November 29, 2002 and February 28, 2003,
respectively.
15. Preference Actions
On May 17, 2002, the Bankruptcy Court entered an order (a)
establishing omnibus filing and pretrial procedures for certain adversary
proceedings, including adversary proceedings under 11 U.S.C. ss.ss. 544, 545,
547, 548 or 553, the commencement of which would arguably otherwise be time
barred after June 9, 2002 and (b) granting authority to abandon causes of
action. Under the procedures the Debtors filed more than 400 adversary
proceedings under seal without the necessity of immediately serving the
complaints.
16. Insurance Settlements
As set forth in Section X.C to this Disclosure Statement, entitled
"History of the Debtors and Events Leading to the Chapter 11 Filing and Plan --
Legal Proceedings", the Debtors initiated the following three actions for
contractual and declaratory relief against certain insurers that have disputed
whether or to what extent various insurance policies provide coverage for third
party claims arising from environmental liability and product liability claims:
(a) the New Jersey Coverage Action, (b) the Washington Coverage Action and (c)
the California Coverage Action.
The Debtors have reached settlements with the Settling Insurers
set forth on Exhibit H to the Plan with respect to the Resolved Insurance
Policies set forth on Exhibit G to the Plan. The majority of the Resolved
Insurance Policies are umbrella and excess policies whose limits would arguably
not be required to respond to claims until after the Debtors exhausted the
limits of the policies underlying these excess policies. To resolve the
disputes, the Settling Insurers agreed to, among other things, make settlement
payments in excess of $5.8 million to either (a) SKC or (b) a qualified
settlement trust, the establishment of which was authorized by Bankruptcy Court
order dated October 16, 2002. The qualified settlement trust fund was
established to (i) provide funds which may be used to pay for costs incurred by
the Debtors in connection with certain claims, suits and demands alleging
personal injury, bodily injury and property damage claims; (ii) provide funds to
be used to pay the legal fees of the Debtors and costs in conjunction with
litigation and other legal proceedings, including, without limitation,
administrative proceedings, arising from claims; (iii) provide advances to pay
for legal fees and settlement costs of claims asserted against the Debtors
pending reimbursement or indemnification by other responsible third parties,
including, without limitation, insurers of the Debtor; (iv) to pay for certain
contingent obligations to certain of the Settling Insurers pursuant to the
Settling Insurers' settlement agreements; and (v) to do all things necessary or
appropriate in connection with the foregoing.
The settlement agreements with the Settling Insurers also provided
that the qualified settlement trust or SKC would be required to indemnify the
Settling Insurers with respect to certain claims made against the Settling
Insurers. To avoid the potential claims against the Debtors and the reduction of
the value of the settlement to the Debtors' estates, the Plan provides for
releases from and injunctions against certain third parties with respect to the
Resolved Insurance Policies, as set forth in Section VII.J to this Disclosure
Statement, entitled "Effect of the Plan -- Release by Insured Persons."
The New Jersey Coverage Action, the Washington Coverage Action and
the California Coverage Action are continuing with respect to the non-settling
insurers.
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17. Extension of Time to Assume or Reject Unexpired Leases
Given the size and complexity of the Chapter 11 Cases, the Debtors
were unable to complete their analysis of all nonresidential real property
leases during the time limitation prescribed by section 365(d)(4) of the
Bankruptcy Code. By orders dated August 11, 2000, May 16, 2001 and finally
February 11, 2002, the Bankruptcy Court extended the time by which the Debtors
must elect to assume or reject unexpired leases and executory contracts for
non-residential property through and including the effective date of any
confirmed plan or plans of reorganization in the Chapter 11 Cases.
18. Disposition of Executory Contracts and Unexpired Leases
Pursuant to section 365 of the Bankruptcy Code, the Debtors may
choose to assume, assume and assign or reject executory contracts and unexpired
leases of real or personal property, subject to approval of the Bankruptcy
Court. The Debtors have rejected a number of executory contracts and real or
personal property leases, but they have generally deferred any assumption
decisions to the time of confirmation of the Plan.
19. Laidlaw Litigation/Settlement
Laidlaw directly or indirectly owns 43.6% of the outstanding
common stock of SKC and has various other arrangements and relationships with
the Debtors. On November 7, 2000, Laidlaw, on behalf of itself and its direct
and indirect subsidiaries (collectively referred to as the "Laidlaw Group"),
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 Laidlaw Group claims against
the Debtors fall into the following general categories: (a) claims for
indemnification; (b) contribution and reimbursement in connection with certain
litigation matters; (c) claims against the Debtors for fraudulent
misrepresentation, fraud, securities law violations, and related causes of
action; (d) insurance claims; (e) guaranty claims; (f) environmental
contribution claims; (g) tax reimbursement claims; and (h) additional
miscellaneous claims. On April 19, 2001, the Debtors filed with the Bankruptcy
Court an objection to the proof of claim filed by Laidlaw Group.
On April 19, 2001, the Debtors filed an action against Laidlaw and
its affiliates, LTI and Laidlaw International Finance Corporation ("LIFC", and
together with LTI, the "Laidlaw Defendants") in the Debtors' Chapter 11 Cases,
Adv. Pro. No. 01-01086 (PJW). The action sought to recover a transfer of over
$200 million in August 1999 (the "Transfer") made to or for the benefit of the
Laidlaw Defendants. The Debtors asserted that the transfer was recoverable
either 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
Debtors sought to recover the Transfer, plus interest and costs occurring from
the first date of demand from the Laidlaw Defendants.
On June 28, 2001, Laidlaw and five of its subsidiary holding
companies, Laidlaw Investments Ltd., LIFC, Laidlaw One, Inc., LTI and Laidlaw
USA, Inc. (collectively, the "Laidlaw Debtors") 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, Case Nos. 01-14099K
through 01-14104K. 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. On October 16, 2001, the
Debtors and the Creditors' Committee 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 Debtors in the
Laidlaw Debtors' chapter 11 cases. The claims against the Laidlaw Debtors fell
into the following general categories: (a) claims for fraud, racketeering,
breach of fiduciary duty, and other related misconduct; (b) preference and
fraudulent transfer claims; (c) breach of contract, misrepresentation, and other
related misconduct; (d) guaranty claims, and (e) indemnification, contribution,
and reimbursement claims.
In December 2001, pursuant to the Safety-Kleen/Laidlaw Mediation
Discovery Protocol approved by the Bankruptcy Court for the District of Delaware
and the Bankruptcy Court for the Western District of New York, the Debtors, the
Debtors' secured lenders, the Debtors' Creditors' Committee, certain of the
Debtors' directors, the Laidlaw Debtors and the Laidlaw Debtors creditors'
committee and subcommittees agreed to undertake, on an expedited and
consolidated basis, limited preliminary discovery to obtain information to
assist in presenting submissions to a mediator in an effort to resolve certain
outstanding claims between and among the parties in the Debtors' and Laidlaw
Debtors' bankruptcy cases. A mediation proceeding began in early April 2002. On
August 16, 2002 and August 30, 2002, the Bankruptcy Court for the District of
Delaware and the Bankruptcy Court for the Western District of New York,
respectively, approved a settlement resolving Laidlaw's $6.5 billion claim
against the Debtors, and the Debtors' claims against Laidlaw, claims by the
Debtors secured
58
lenders of $6.3 billion against Laidlaw, and claims by certain officers and
directors of each company against the other company. The central component of
the settlement between the two companies was the agreement by Laidlaw and its
major creditor groups to provide in the Laidlaw Debtors' plan of reorganization
for an allowed general unsecured claim of $225 million in favor of SKC, to be
classified as a Class 6 claim with other general unsecured claims under the
Laidlaw Debtors' reorganization plan.
In addition, the settlement provided that: (a) upon effectiveness
of the agreement, the Laidlaw parties will assign to Toronto Dominion (Texas),
Inc., on behalf of itself and as administrative agent for the Debtors' lenders
under the Prepetition Credit Facility, any and all rights the Laidlaw parties
may have to the funds, which aggregate approximately $2.5 million (as of June
26, 2002) plus accrued interest thereafter, maintained in account #1065366 at
Bank One, 1 Bank One Plaza, Chicago, IL, and the Debtors will promptly release
such funds to the Debtors' Lenders on the Effective Date, (b) Laidlaw will not
make further draws upon the Dai-Ichi Kangyo Bank Letter of Credit issued at the
request of the Debtors, and (c) Laidlaw agreed to waive any rights it may have
against the Debtors for payments of amounts due or to seek reimbursement for any
amounts that have been or may in future be paid by Laidlaw under the SKC
Insurance & Claims Handling Program 4/1/98 to 8/31/99 dated August 10, 1999, or
the Addendum to the Insurance Claims Handling Program, which extended the
Insurance Claims Handling Program through August 31, 2000.
20. PricewaterhouseCoopers Issues
The Debtors filed an action against PwC as set forth more fully in
Section X.C.2 to this Disclosure Statement, entitled "History of the Debtors and
Events Leading to Chapter 11 Filing and Plan -- Legal Proceedings."
21. Payment of Superfund Obligations
On September 8, 2000, March 15, 2001 and April 12, 2002, the
Bankruptcy Court authorized the Debtors to continue to pay certain superfund
obligations subject to certain approvals from the Lenders and the Creditors'
Committee.
22. Consent Agreement with EPA
On October 17, 2000, the Bankruptcy Court entered an order
approving the CAFO entered into by the Debtors and the EPA. The terms of the
CAFO are discussed more fully in Section XII.B.2, entitled "Chapter 11 Cases -
- -Post-Petition Operations and Liquidity." Following Bankruptcy Court approval of
the CAFO, the Bankruptcy Court approved amendments to the CAFO on May 16, 2001,
November 5, 2001 and May 8, 2002. By Agreement dated October 1, 2002, the CAFO
was further amended.
C. SETTLEMENT AND COMPROMISE UNDER THE PLAN
The Plan will constitute a motion for the Bankruptcy Court's
approval of the following settlement pursuant to Bankruptcy Rule 9019. Entry of
the Confirmation Order will constitute the Bankruptcy Court's approval of and
finding that the settlement is a good faith settlement pursuant to applicable
state and federal laws, given and made after due notice and opportunity for
hearing.
1. Pinewood and South Carolina Department of Health and Environment
Control Settlement
An indirect subsidiary of SKC, Pinewood, owns and operated a
hazardous waste landfill near the Town of Pinewood in Sumter County, South
Carolina. Under the Pinewood Order, dated May 19, 1994, the South Carolina Board
of Health and Environmental Control approved the issuance by DHEC of 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 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 EIF has two components: (a) the GSX Contribution Trust Fund, which was to be
funded by Pinewood in annual cash payments over a ten year period and (b) 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 Trust
Fund would be subject to evaluation by an independent arbitrator, who would
determine what level of funding, if any, was still
59
required. Pinewood was entitled to seek recovery of any excess amount so
determined. Upon termination of the GSX Contribution Trust Fund, any remaining
trust assets would revert to Pinewood. In 1993 and 1994, Pinewood paid
approximately $15.5 million in cash into the GSX Contribution Trust Fund, which
has grown to approximately $20.7 million as of August 31, 2002. In addition, as
of October 31, 2001, there was approximately $14.8 million in the State
Permitted Sites Fund.
In June 1995, the South Carolina legislature approved the S.C.
Regulations governing financial assurance for environmental cleanup and
restoration of environmental impairment. The S.C. Regulations gave
owner/operators of hazardous waste facilities the right to choose from among
alternative 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. Pinewood elected to utilize the
insurance option.
Following extensive litigation, the South Carolina Court of
Appeals issued a decision on April 4, 2000 (which became final on June 14,
2000). The Court of Appeals ruled that (a) the S.C. Regulations were invalid due
to insufficient public notice during the promulgation procedure and Pinewood was
required to immediately comply with the cash financial assurance requirements of
the May 19, 1994 Order and (b) both non-hazardous and hazardous waste disposed
of at the landfill from the beginning of waste disposal needed to be counted
against Pinewood's permitted capacity, thereby leaving Pinewood with no unused
permitted capacity.
On June 9, 2000, 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 December 19, 2001, the United States Court of Appeals for the Fourth
Circuit determined that DHEC's June 9, 2000 Emergency Order was not subject to
the automatic bankruptcy stay.
On June 14, 2000, when the Court of Appeals decision became final,
DHEC sent notice by letter to the Pinewood Facility directing that Pinewood
cease accepting waste for disposal in 30 days and commence steps to effect the
permanent closure of the Pinewood Facility.
On June 22, 2000, DHEC notified Pinewood that the Court of
Appeals' decision had vacated the S.C. Regulations and, therefore, Pinewood had
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 Trust Fund. On September 26, 2000,
the Pinewood Facility ceased accepting waste for disposal.
On December 4, 2000, DHEC filed proofs of claim against each of
(a) SKC, (b) SK Services, (c) Pinewood and (d) SK Systems with respect to the
EIF. Each proof of claim was filed in the amount of approximately $118.5 million
(in 1994 dollars).
On December 4, 2000, the South Carolina Public Service Authority
(also known as Santee Cooper) also filed proofs of claim against each of (a)
SKC, (b) SK Services, (c) Pinewood and (d) SK Systems (collectively, the "Santee
Cooper Claims"). The Santee Cooper Claims did not set forth an identifiable
amount or basis supporting such claims.
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. DHEC and Pinewood resolved these matters by entering into a Consent
Order on October 11, 2002, giving DHEC an allowed, general unsecured claim in
the amount of $24,600.
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) against Pinewood, reserving all
rights to file additional administrative expense claim motions against other
Debtors. 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.
60
On October 15, 2002, the Debtors entered into the Pinewood Site
Settlement Agreement with DHEC to resolve pending claims relating to the
landfill at the Pinewood Facility and certain other claims. The settlement is
subject to Bankruptcy Court approval and a number of other contingencies
explained in more detail below.
The principal terms of the Pinewood Settlement are as follows:
(a) The Pinewood Facility presently owned by Pinewood will be
transferred on the Effective Date to a trust to be created to own and manage the
Pinewood Facility through the closure and post-closure period. This trust
(called the "Site Trust") will have responsibility for completing closure of the
Pinewood Facility over the next two years and then undertaking post-closure care
over the next 100 years. Pinewood will transfer to the Site Trust: (i) real
property, including improvements thereto, owned by Pinewood and previously
utilized in the operation of the Pinewood Facility; (ii) personal property,
including vehicles, machines, equipment and supplies, owned by Pinewood and
located at the Pinewood Facility as of the Effective Date; (iii) leasehold
interests of Pinewood, subject to the terms of applicable leases, previously
utilized in the operation of the Pinewood Facility; and (iv) permits for the
Pinewood Facility issued by DHEC.
(b) Pinewood will provide specified funding to the Site Trust. It
will pay to the Site Trust $13,162,768 (subject to downward adjustment for work
by Pinewood in the interim) on the Effective Date, to cover closure, and will
transfer to the Site Trust ownership of a single-payment, fully guaranteed
annuity to be paid for by Pinewood, which will pay out $133 million over the
next 100 years. The cost of the annuity will depend on interest rates at the
time it is purchased. If it were purchased presently, it is estimated that the
cost would be approximately $21 million.
(c) Pinewood will propose, subject to DHEC's approval, a person or
firm to serve as trustee for the Site Trust. The funding to be provided by
Pinewood to the Site Trust will be increased to include compensation for the
trustee and certain other costs to be determined.
(d) A second trust, called the New Environmental Impairment Trust
Fund, will be created to provide funds to be used by DHEC in the event of
environmental impairment at the Pinewood Facility. The funds presently in the
GSX Contribution Trust Fund will be transferred to this new trust, and Pinewood
will pay another $14.5 million into it. This trust fund can be utilized by DHEC
for any environmental needs at the Pinewood Facility.
(e) The two trusts, the Site Trust and the New Environmental
Impairment Trust Fund, will stay in existence for the next hundred years. Any
funds or property remaining in such trusts when they terminate will be
transferred to new trusts if necessary to address continuing risks at the
Pinewood Facility, and otherwise to DHEC or its designees to be used for
environmentally beneficial purposes.
(f) In exchange for the foregoing, DHEC will release all of the
Debtors and the Reorganized Debtors, from any further responsibility for the
Pinewood Facility (except for any new violations arising between October 15,
2002 and the Effective Date). Once the required payments are made to the two
trusts, no Debtor or Reorganized Debtor will have any further liability to those
trusts.
(g) The settlement also resolves, with one exception, the many
proofs of claim filed by DHEC including some proofs of claim involving South
Carolina facilities other than Pinewood. Many of the proofs of claim filed by
DHEC will be withdrawn with prejudice as part of the settlement. A number of
other proofs of claim filed by DHEC are resolved by the allowance of general
unsecured claims totaling about $1.9 million, as specified in the Settlement
Agreement and its exhibits thereto. Some of these claims had been asserted as
administrative expense claims. DHEC also releases the Debtors from any other
known claims that it has, and the parties agree to dismiss pending litigation
between them. The settlement agreement does not resolve DHEC's claims for
response costs incurred at the Hollis Road site, more extensively detailed in
the case, entitled, South Carolina Department of Health and Environmental
Control v. Western Atlas, Inc., f/k/a/ Litton Industrial Automation Systems,
Inc. and successor-in-interest to Litton Business Systems, Inc., David Bright,
individually and d/b/a Superior Container Service, Safety-Kleen (TG), Inc.,
Safety-Kleen Systems, Inc., and Hoover Building Systems, Inc., Case No.
3-00-1760, currently pending before the United States District Court for the
District of South Carolina.
(h) DHEC will assign and transfer to Pinewood or its designee any
and all claims that DHEC may have against Laidlaw or any of its subsidiaries or
affiliates.
61
(i) After the Pinewood Site Settlement Agreement was executed,
releases of claims relating to the Pinewood Facility were also obtained from
four other parties previously involved in litigation over the Pinewood Facility:
the South Carolina Department of Natural Resources, Santee Cooper, Sierra Club,
and State Senator Phil Leventis.
The Debtors believe that the terms of the Settlement Agreement are
in the best interests of the Debtors. As set forth above, DHEC and the Debtors
have been involved in significant litigation that the Settlement Agreement will
resolve including, among other things, (a) closure and post-closure care of the
Pinewood Facility, (b) the proofs of claim filed by DHEC and Santee Cooper and
(c) the administrative expense claims filed by DHEC.
ARTICLE XIII
CERTAIN FACTORS TO BE CONSIDERED
Holders of Claims in Classes 3 through 7 should carefully consider
the following factors, as well as the other information set forth in this
Disclosure Statement (and the documents delivered together herewith and/or
incorporated by reference herein), before deciding whether to vote to accept or
to reject the Plan.
A. GENERAL CONSIDERATIONS
The formulation of a plan of reorganization is the principal
purpose of the Chapter 11 Cases. The Plan sets forth the means for satisfying
the Claims against the Debtors. Certain Claims and the Interests will receive no
distributions pursuant to the Plan. See Section II.E to this Disclosure
Statement, entitled "Summary of the Plan of Reorganization - Classification and
Treatment of Claims and Interests." Reorganization of the Debtors' businesses
and operations under the proposed Plan also avoids the potentially adverse
impact of a liquidation on the Debtors' employees, and many of their customers,
trade creditors and lessors.
1. Failure to Confirm the Plan
Even if all Impaired voting classes vote in favor of the Plan and,
with respect to any Impaired Class deemed to have rejected the Plan, the
requirements for "cramdown" are met, the Bankruptcy Court, which, as a court of
equity, may exercise substantial discretion, and may still choose not to confirm
the Plan. Section 1129 of the Bankruptcy Code requires, among other things, a
showing that confirmation of the Plan will not be followed by liquidation or the
need for further financial reorganization of the Debtors, see Article XVII to
this Disclosure Statement, entitled "Feasibility of the Plan and Best Interests
of Creditors," and that the value of distributions to dissenting holders of
Claims and Interests may not be less than the value such holders would receive
if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. (See
Article XVII to this Disclosure Statement, entitled "Feasibility of the Plan and
Best Interests of Creditors.") Although the Debtors believe that the Plan will
meet such tests, there can be no assurance that the Bankruptcy Court will reach
the same conclusion.
2. Failure to Consummate the Plan
The Plan provides for certain conditions that must be fulfilled
prior to confirmation of the Plan and the Effective Date. As of the date of this
Disclosure Statement, there can be no assurance that any or all of the
conditions in the Plan will be met (or waived) or that the other conditions to
consummation, if any, will be satisfied. Accordingly, even if the Plan is
confirmed by the Bankruptcy Court, there can be no assurance that the Plan will
be consummated and the restructuring completed.
3. Certain Provisions of the Certificate of Incorporation and the
Bylaws
The certificate of incorporation and the bylaws may contain
provisions that have the effect of discouraging a third party from attempting to
obtain control of New Holdco. The certificate of incorporation will authorize
the issuance of 50,000,000 shares of New Common Stock of which up to 25,000,000
may be issued on the Effective Date, and may authorize the issuance of preferred
stock. This authorized and available New Common Stock could (within the limit
imposed by applicable law) be issued by New Holdco, generally without further
stockholder approval, and used to discourage a change in control of New Holdco.
The certificate of incorporation will provide that the directors be classified
into three classes, of three
62
directors each. One class will hold office initially for a term expiring at the
2004 annual meeting; another class will hold office initially for a term
expiring at the 2005 annual meeting; and another class will hold office
initially for a term expiring at the 2006 annual meeting. The proposed
classified board will extend the time required to effect a change in control of
the Board of Directors through the election of directors. With a classified
board of directors, it will take at least two annual meetings for stockholders
holding a majority of votes cast to effectuate a change in control of the Board
of Directors, because only a minority of the directors will be elected at each
meeting. The certificate of incorporation and bylaws may also contain provisions
which require supermajority vote of the stockholders on certain matters
including: (a) a merger or consolidation of Reorganized Systems with or into
another corporation, (b) any sale of substantially all the assets of New Holdco
and (c) any dissolution of New Holdco. In addition, the bylaws may contain
certain other provision that may be considered to be anti-takeover provisions.
Those provisions are expected to (a) impose advance notice requirements for
stockholder nominations to the Board of Directors and stockholders proposals,
(b) allow the Board of Directors to designate the annual meeting date without
restriction, (c) allow the Board of Directors to dictate the conduct of
stockholder meetings and (d) shorten the notice period for calling a special
meeting of the Board of Directors.
B. OUTCOME OF CREDITORS' COMMITTEE/LENDERS LITIGATION
On June 7, 2002, the Creditors' Committee filed an adversary
proceeding (the "Committee's Adversary Proceeding") in the Bankruptcy Court
against Toronto Dominion (Texas), Inc., as general administrative agent for the
pre-petition secured lenders and against each of the lenders in the pre-petition
facility. The complaint in the Committee's Adversary Proceeding objects to the
allowance of the secured claims filed on behalf of the pre-petition lenders and
seeks to avoid or limit in excess of $1.8 billion of certain pre-petition liens,
security interests and transfers to the pre-petition lenders as fraudulent
conveyances under applicable state law. In the Committee's Adversary Proceeding,
the Creditors' Committee alleges that the Debtors did not receive reasonably
equivalent value or fair consideration in exchange for in excess of $2.1 billion
dollars in debt the Debtors incurred to guaranty the hostile takeover by Laidlaw
of Old Safety-Kleen and its subsidiaries in 1998. The Creditors' Committee
argues that the liens and security interests the Debtors granted and the
payments made to the secured lenders pursuant to the loan documents should be
avoided under sections 544, 550(a)(1), and 551 of the Bankruptcy Code, and
applicable New York, Delaware, Wisconsin and/or Illinois fraudulent transfer
laws, and/or other applicable law, and the secured claims filed by the secured
lenders in the Chapter 11 Cases should be disallowed accordingly. The Creditors'
Committee further alleges that, alternatively, the liens and security interests
are avoidable because (1) the Debtors engaged in business for which the
remaining assets of Old Safety-Kleen constituted unreasonably small capital, (2)
the Debtors made the transfers with actual intent to hinder, delay, or defraud
their creditors or (3) and the Debtors' Lenders, to the extent they claim they
gave reasonably equivalent value or fair consideration, did not obtain their
secured claims in good faith because of, among other things, their knowledge of
the precarious financial condition of the Debtors prior to, and at the time of,
the closing of the transaction. Finally, the Creditors' Committee alleges that
the Debtors did not receive reasonably equivalent value or fair consideration in
exchange for approximately $650 million in debt undertaken to finance the
Rollins Acquisition in 1997. The defendants filed an answer to the Complaint in
the Committee's Adversary Proceeding on August 19, 2002. On September 11, 2002,
the Creditors' Committee filed a motion to withdraw the reference from the
Bankruptcy Court with respect to the Committee's Adversary Proceeding.
The Lenders and the Committee have been negotiating a settlement;
however, the Lenders have informed the Debtors that the negotiations are at an
impasse and that they do not believe that continued negotiations with the
Creditors' Committee would be fruitful. To the extent the Committee's Adversary
Proceeding is not consensually resolved, the Debtors will take those steps they
determine necessary to resolve any of the matters raised in the Committee's
Adversary Proceeding that may impact on the Debtors' ability to confirm the
Plan. Such steps may include, but are not limited to, (i) seeking an order
estimating the Lenders' secured claims, (ii) seeking an expedited ruling on
those matters raised in the Committee's Adversary Proceeding that may impact the
Debtors' ability to confirm the Plan and (iii) proposing and seeking Bankruptcy
Court approval of a compromise and settlement of the Committee's Adversary
Proceeding on such terms as the Debtors believe are appropriate, within the
range of reasonableness and in the best interest of the Estates. There can be no
assurances that either a consensual resolution or a final determination by the
District Court will be reached in a timely manner or that the Bankruptcy Court
would approve any settlement the Debtors propose over the objection of the
Secured Lenders or the Creditors' Committee. Morever, it is possible that a
consensual or nonconsensual resolution of the Committee's Adversary Proceeding
may require a Plan amendment that materially impacts the proposed distribution
to Claimholders. In such case the Debtors may be required to resolicit votes on
the Plan, as amended, from certain classes of Claims.
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C. MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THERE ARE A NUMBER OF MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS, RISKS AND UNCERTAINTIES ASSOCIATED WITH CONSUMMATION OF THE
PLAN. INTERESTED PARTIES SHOULD READ CAREFULLY THE DISCUSSION SET FORTH IN
ARTICLE XVI OF THE DISCLOSURE STATEMENT, ENTITLED "MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN" FOR A DISCUSSION OF THE MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES AND RISKS FOR THE DEBTORS AND FOR
U.S. HOLDERS OF CLAIMS THAT ARE ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN
RESULTING FROM THE TRANSACTIONS OCCURRING IN CONNECTION WITH THE PLAN.
D. INHERENT UNCERTAINTY OF FINANCIAL PROJECTIONS
The Projections set forth in Appendix G hereto cover the
Reorganized Debtors' operations through the period ending December 31, 2007.
These Projections are based on numerous assumptions that are an integral part of
the Projections, including confirmation and consummation of the Plan in
accordance with its terms, realization of the operating strategy of the
Reorganized Debtors, industry performance, no material changes in applicable
legislation or regulations, exchange rates, or generally accepted accounting
principles, general business and economic conditions, competition, adequate
financing, absence of material contingent or unliquidated litigation or
indemnity claims, and other matters, many of which are beyond the control of the
Reorganized Debtors and some or all of which may not materialize. In addition,
unanticipated events and circumstances occurring subsequent to the date of this
Disclosure Statement may affect the actual financial results of the Reorganized
Debtors' operations. Because the actual results achieved throughout the periods
covered by the Projections may vary from the projected results, the Projections
should not be relied upon as a guaranty, representation, or other assurance of
the actual results that will occur. (See Article XVII to this Disclosure
Statement, entitled "Feasibility of the Plan and Best Interests of Creditors.")
E. RISKS ASSOCIATED WITH EXIT FACILITY
The Debtors' operations are dependent on the availability and cost
of working capital financing and may be adversely affected by any shortage or
increased cost of such financing. The Debtors anticipate entering into the Exit
Facility, the terms of which will provide credit availability of up to $250
million secured with first liens on substantially all of the Reorganized
Debtors' assets, which liens will be senior to the liens securing the New
Subordinated Notes. The Debtors anticipate that the Exit Facility will be used
to (1) fund repayment of the DIP Facility, (2) provide short-term working
capital needs, (3) fund debt service on the New Subordinated Notes and (4) fund
letters of credit within a sub-limit of $125 million.
The Debtors believe that substantially all of their needs for
funds necessary for post-Effective Date working capital financing will be met by
projected operating cash flow or the Exit Facility. The proposed Exit Facility
may contain certain conditions and covenants that the Debtors may not be able to
meet, however. Moreover, if the Debtors require working capital greater than
that provided by the Exit Facility, they may be required either to (1) seek to
increase the availability under the Exit Facility, (2) obtain other sources of
financing or (3) curtail their operations. Some of the factors which may affect
the amount of financing required to consummate the Plan include, without
limitation, a delay in consummating the Plan, and whether the Debtors' cash flow
prior to the Effective Date is more or less than budgeted. The Debtors believe
that the recapitalization to be accomplished through the Plan will facilitate
the Debtors' ability to obtain additional or replacement working capital
financing. No assurance can be given, however, that any additional replacement
financing will be available on terms that are favorable or acceptable to the
Debtors. Moreover, there can be no assurance that the Debtors will be able to
obtain an acceptable credit facility upon expiration of the Exit Facility.
F. RISKS ASSOCIATED WITH NEW COMMON STOCK; CONCENTRATION OF CONTROL
The New Common Stock to be distributed under the Plan are new
securities for which there is no existing trading market. The Debtors do not
intend to register the New Common Stock under the Exchange Act or apply for
listing or quotation of the New Common Stock on any securities exchange, stock
market or interdealer quotation system. Accordingly, there can be no assurance
that any trading market will exist for the New Common Stock following the
consummation of the Plan. In such an event, a holder of the New Common Stock
could find it difficult to dispose of, or to obtain accurate quotations as to
the market value of such securities, following the consummation of the Plan.
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FOLLOWING CONSUMMATION OF THE PLAN, THE OWNERSHIP OF THE NEW
COMMON STOCK WILL BE SIGNIFICANTLY CONCENTRATED. IF THE PLAN IS APPROVED, THE
U.S. LENDERS WILL BE THE REORGANIZED DEBTORS' LARGEST SHAREHOLDER. AS A RESULT,
THE U.S. LENDERS WILL HAVE THE ABILITY TO CONTROL THE MANAGEMENT, POLICIES AND
FINANCING DECISIONS OF THE REORGANIZED DEBTORS', TO ELECT A MAJORITY OF THE
MEMBERS OF ITS BOARD AND TO CONTROL THE VOTE ON ALL MATTERS PRESENTED TO A VOTE
OF HOLDERS OF NEW COMMON STOCK. IN ADDITION, THE CONCENTRATION OF OWNERSHIP OF
NEW COMMON STOCK MAY BE EXPECTED TO DEPRESS THE MARKET VALUATION OF SUCH SHARES.
The New Common Stock will be distributed pursuant to the Plan
without registration under the Securities Act of 1933 and without qualification
or registration under state securities laws, pursuant to exemptions from such
registration and qualification contained in section 1145(a) of the Bankruptcy
Code. With respect to certain Persons who receive such securities pursuant to
the Plan, these Bankruptcy Code exemptions apply only to the distribution of
such securities under the Plan and not to any subsequent sale, exchange,
transfer or other disposition of such securities or any interest therein by such
Persons. Therefore, subsequent sales, exchanges, transfers or other dispositions
of such securities or any interest therein by "underwriters" or "issuers" would
not be exempted by section 1145 of the Bankruptcy Code from registration under
the Securities Act of 1933 or state securities laws.
Additionally, the Holders of the New Common Stock will be able to
sell their shares of New Common Stock only if a registration statement relating
to such shares is then in effect, or if such transaction is exempt from the
registration requirements of the Securities Act of 1933, and such shares are
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the purchaser of such shares resides. See Article XV
to this Disclosure Statement, entitled "Applicability of Federal and Other
Securities Laws."
G. RISKS ASSOCIATED WITH NEW SUBORDINATED NOTES
The New Subordinated Notes to be distributed under the Plan are
new securities for which there is no existing trading market. The Debtors do not
intend to register the New Subordinated Notes under the Exchange Act or apply
for listing or quotation of the New Subordinated Notes on any securities
exchange or interdealer quotation system. Accordingly, there can be no assurance
that any trading market will exist for the New Subordinated Notes following the
consummation of the Plan. In such an event, a holder of the New Subordinated
Notes could find it difficult to dispose of, or to obtain accurate quotations as
to the market value of such securities, following the consummation of the Plan.
The New Subordinated Notes will be distributed pursuant to the
Plan without registration under the Securities Act of 1933 and without
qualification or registration under state securities laws, pursuant to
exemptions from such registration and qualification contained in section 1145(a)
of the Bankruptcy Code. With respect to certain Persons who receive such
securities pursuant to the Plan, these Bankruptcy Code exemptions apply only to
the distribution of such securities under the Plan and not to any subsequent
sale, exchange, transfer or other disposition of such securities or any interest
therein by such Persons. Therefore, subsequent sales, exchanges, transfers or
other dispositions of such securities or any interest therein by "underwriters"
or "issuers" would not be exempted by section 1145 of the Bankruptcy Code from
registration under the Securities Act of 1933 or state securities laws.
Additionally, the Holders of the New Subordinated Notes will be
able to sell the New Subordinated Notes only if a registration statement
relating to such securities is then in effect, or if such transaction is exempt
from the registration requirements of the Securities Act of 1933, and such
shares are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the purchaser of such shares resides. See
Article XV to this Disclosure Statement, entitled "Applicability of Federal and
Other Securities Laws."
Because the New Subordinated Notes will be subordinated to the
Exit Facility, if the Debtors become insolvent, they may not have sufficient
assets to make payments on amounts due on any or all of the New Subordinated
Notes. The right to payment on the New Subordinated Notes will be subordinated
to the Exit Facility. If the Debtors subsequently become bankrupt, liquidate,
dissolve, reorganize or undergo a similar proceeding, the Debtors' assets will
be available to obligations on the New Subordinated Notes only after all
outstanding Exit Facility debt has been paid in full. In addition, an event of
default under the Exit Facility may prohibit the Debtors from paying the New
Subordinated Notes.
The inclusion of the New Subordinated Notes in the Plan increases
the financial risk of the Debtors, post-emergence. The Debtors' Business Plan
indicates that the Debtors will have significant capital expenditures in the
near term and, as a result, will not generate free cash flow in the first year
of the Business Plan. The indentures for the New
65
Subordinated Notes will have conditions and covenants which may be breached in
the event actual financial results deviate substantially from the Business Plan.
In this case or in the event that the Debtors are not able to satisfy the debt
service requirements of the New Subordinated Notes, the Debtors would be in
default under these securities which could potentially trigger an insolvency.
While the Debtors believe that the amount of debt in the capital structure is
supportable according to the Business Plan, there can be no assurance that the
Debtors' actual financial performance will be sufficient to enable the Debtors
to meet the debt service requirements of the New Subordinated Notes.
H. DISRUPTION OF OPERATIONS DUE TO FAILURE TO CONFIRM PLAN
The Debtors believe that relationships with their customers,
suppliers and employees will be maintained if the chapter 11 process continues
in a timely fashion. However, if there is a further protracted chapter 11
process, and if the Debtors' relationships with their customers, suppliers and
employees are adversely impacted, the Debtors' operations could be materially
affected. Weakened operating results could adversely affect the Debtors' ability
to complete the solicitation of acceptances of the Plan or, if such solicitation
is successfully completed, to obtain confirmation of the Plan. In the event that
the Debtors fail to confirm the Plan, the risks associated with a protracted
chapter 11 process or a liquidation must also be considered (See Article XVIII
to this Disclosure Statement, entitled "Alternatives to the Confirmation and
Consummation of the Plan").
I. FINANCIAL UNCERTAINTY
The past performance of the Debtors has resulted in significant
losses and negative cash flows. While partially due to the extraordinary expense
and burden of the Chapter 11 Cases, such circumstance is also a result of
continued weak financial performance on an operating basis. The Debtors'
financial forecast expects continued negative free cash flow as increased
capital expense and lingering costs from chapter 11 activities will further
deplete the Debtors' liquidity position. While the management team believes
these expenditures and other measures being taken will enhance the future
profitability of the Reorganized Debtors, there is no guarantee that such
efforts will be successful. The success of the plan also rests on the
realization of at least $90 million of cash from recoveries on the Laidlaw
Claim. To the extent such cash proceeds are less than forecast or are not
realized on a timely basis, the Debtors will need to use the Exit Facility as a
means to meet required expenses arising from chapter 11 emergence, as well as
ordinary course expenses associated with operations. The current market for
secured lending, even with senior priority with respect to assets, is currently
illiquid and in great turmoil. While the Debtors have received inquiries from
financial institutions with respect to providing financing, there can be no
certainty that the Debtors will successfully find banks willing to lend and
provide liquidity through a senior secured revolving credit facility upon
emergence.
J. RISKS ASSOCIATED WITH BUSINESS AND COMPETITION
The overall demand for services in the Debtors' core business has
been declining in recent years. In addition, during the Debtors' chapter 11
proceedings, they have been susceptible to competitors who have used the
negative perception of the Debtors' Chapter 11 Cases to their advantage and in
some instances competitors have engaged in activities the Debtors believe rise
to the level of unfair competition. The markets in which the Debtors operate are
competitive. There can be no certainty that the Debtors will not continue to
lose customers to competitors.
K. RISKS ASSOCIATED WITH CSD SALE/ASSUMED LIABILITIES
As part of the sale of the CSD to Clean Harbors, Clean Harbors
assumed the Assumed Liabilities from SK Services and the CSD Selling
Subsidiaries. The Assumed Liabilities are comprised of, among other things,
certain categories of liabilities that Clean Harbors has agreed to pay, perform
or otherwise discharge. Following the consummation of the sale, the Debtors and
Clean Harbors have been working toward classifying certain claims asserted
against the Debtors as either being included in the definition of Assumed
Liabilities or not being included in the definition of Assumed Liabilities.
There can be no assurance that Clean Harbors will agree on the Debtors'
classification of all claims. In the event that Clean Harbors does not agree on
the Debtors' proposed classification of all claims, and is ultimately successful
in its classification, or otherwise does not or is unable to meet its
obligations with respect to the Assumed Liabilities, the Debtors could be
subject to material claims against them which could adversely affect the
Debtors' financial condition and results of operations.
For a further description of the Assumed Liabilities, see Section
XII.B.3 to this Disclosure Statement, entitled "Chapter 11 Cases - Post-Petition
Operations and Liquidity."
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L. ENVIRONMENTAL MATTERS
1. Environmental Regulations
The Debtors' operations are subject to various comprehensive laws
and regulations related to the protection of the environment. Such laws and
regulations, among other things, (a) regulate the nature of the industrial
by-products and wastes that the Debtors can accept for processing at its
treatment, storage and disposal facilities, the nature of the treatment they can
provide at such facilities and the location and expansion of such facilities;
(b) impose liability for remediation and clean-up of environmental
contamination, both on-site and off-site, resulting from past and present
operations at the Debtors' facilities and (c) require financial assurance that
funds will be available for the closure and post-closure care of sites,
including acquired facilities. In addition, because the Debtors provide their
customers with services designed to protect the environment by cleaning and
removing materials or substances from their customers' equipment or sites that
must be properly handled, recycled or removed for ultimate disposal, the
Debtors' operations are subject to regulations which impose liability on persons
involved in handling, processing, generating or transporting hazardous
materials. These requirements also may be imposed as conditions of operating
permits or licenses that are subject to renewal, modification or revocation.
These laws and regulations are likely to continue to become increasingly
stringent. Existing laws and regulations, and new laws and regulations, may
require the Debtors to modify, supplement, replace or curtail their operating
methods, facilities or equipment at costs which may be substantial without any
corresponding increase in revenues.
Adverse impacts to soil or groundwater have been discovered at
many of the processing, transfer, storage, and disposal facilities used by the
Debtors. Remediation or other corrective action may be required at these sites
at substantial cost. For each of these sites, the Debtors, typically in
conjunction with an environmental consultant, have developed or are developing
cost estimates that are periodically reviewed and updated, and the Debtors
maintain reserves in accordance with Generally Accepted Accounting Practices for
these matters based on such cost estimates. Estimates of the Debtors' liability
for remediation of a particular site and the method and ultimate cost of
remediation require a number of assumptions and are inherently difficult. There
can be no assurance that the ultimate cost and expense of corrective action will
not substantially exceed such reserves and have a material adverse impact on the
Debtors' operations or financial condition.
In the normal course of business, and as a result of the extensive
governmental regulation of industrial and environmental services and resource
recovery, the Debtors have been the subject of administrative and judicial
proceedings by regulators and have been subject to requirements to remediate
environmental contamination or to take corrective action. There will be
administrative or court proceedings in the future in connection with the
Debtors' present and future operations or the operations of acquired businesses.
In such proceedings in the past, the Debtors have been subject to monetary fines
and certain orders requiring the Debtors to take environmental remedial action.
In the future, the Debtors may be subject to monetary fines, penalties,
remediation, clean-up or stop orders, injunctions or orders to cease or suspend
certain of their practices. The outcome of any proceeding and associated costs
and expenses could have a material adverse impact on the operations or financial
condition of the Debtors.
The Debtors' industrial services businesses are subject to
extensive governmental regulation, and the complexity of such regulation makes
consistent compliance with such laws and regulations extremely difficult. In
addition, the demand for certain of the Debtors' services may be adversely
affected by the amendment or repeal of federal, state, provincial, or foreign
laws and regulations or by changes in the enforcement policies of the regulatory
agencies concerning such laws and regulations.
2. Public Concerns
There is a high level of public concern over industrial
by-products recovery and waste management operations, including the siting and
operation of transfer, processing, storage and disposal facilities and the
collection, processing or handling of industrial by-products and waste
materials, particularly hazardous materials. Zoning, permit and licensing
applications and proceedings and regulatory enforcement proceedings are all
matters open to public scrutiny and comment. As a result, from time to time, the
Debtors have been, and may in the future be, subject to citizen opposition and
publicity which may have a negative effect on their operations and delay or
limit the expansion and development of operating properties and could have a
material adverse effect on their operations or financial condition.
67
3. Environmental Insurance Coverage
Consistent with waste disposal industry trends, the Debtors may
not be able to obtain adequate amounts of environmental impairment insurance at
a reasonable premium to cover liability to third parties for environmental
damages. Accordingly, if the Debtors were to incur liability for environmental
damage either not provided for under such coverage or in excess of such
coverage, the Debtors' financial position and results of operations could have a
material and adverse affect.
4. Jurisdictional Restrictions on Waste Transfers
In the past, various states, provinces, counties and
municipalities have attempted to restrict the flow of waste across their
borders, and various United States and Canadian federal, provincial, state,
county and municipal governments may seek to do the same in the future. Any such
border closing may result in the Debtors incurring increased third-party
disposal costs in connection with alternate disposal arrangements.
The Debtors are required under certain United States and Canadian
laws and regulations to demonstrate financial responsibility for possible bodily
injury and property damage to third parties caused by both sudden and non-sudden
occurrences. The Debtors also are required to provide financial assurance that
funds will be available when needed for closure and post-closure care at certain
of its treatment, storage and disposal facilities, the costs of which could be
substantial. Such laws and regulations allow the financial assurance
requirements to be satisfied by various means, including letters of credit,
surety bonds, trust funds, a financial (net worth) test and a guarantee by a
parent company. In the United States, a company must pay the closure costs for a
waste treatment, storage or disposal facility that it owns by it upon the
closure of the facility and thereafter pay post-closure care costs. There can be
no assurance that these costs will not materially exceed the amounts provided
pursuant to financial assurance requirements. In addition, if such a facility is
closed prior to its originally anticipated time, it is unlikely that sufficient
funds will have been accrued over the life of the facility to fund such costs,
and the owner of the facility could suffer a material adverse impact as a
result. Consequently, it may be difficult to close such facilities to reduce
operating costs at times when, as is currently the case in the industrial
services industry, excess treatment, storage or disposal capacity exists.
M. CLAIMS ESTIMATES
As noted above, proofs of claim aggregating over 17,400 in number
and asserting in excess of $181 billion in claim amount (not including Claims
asserted in unliquidated amounts) have been filed against the Debtors. The
Debtors have been engaged in the process of evaluating the proofs of claim and
believe there exist objections to many of the Claims. The estimated Claim
amounts reflected herein are the Debtors' best estimates as to the Allowed
amount of the Claims, assuming that the Debtors' assumptions prove to be
correct. There can be no assurance that the estimated percentage recovery
amounts set forth herein for Classes 3 through 7 are correct, and the actual
Allowed amount of Claims in Classes 3 through 7 may differ substantially from
the estimates. Estimated amounts are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the actual Allowed amount of
Claims in Classes 3 through 7 may vary from those estimated herein, and the Pro
Rata distributions is subject to such variation.
N. LITIGATION
The Reorganized Debtors will be subject to various claims and
legal actions arising in the ordinary course of their businesses. The Debtors
are not able to predict the nature and extent of any such claims and actions and
cannot guarantee that the ultimate resolution of such claims and actions will
not have a material adverse effect on the Reorganized Debtors.
There exists the possibility of future environmental and related
claims against the Reorganized Debtors by virtue of their businesses and
operation, in undetermined amounts. The Debtors believe that the sale of the CSD
to Clean Harbors and the discharge provided by the confirmation of the Plan
should mitigate the risk of future liabilities with respect to past actions, but
no assurances in that regard can be provided.
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O. RELIANCE ON KEY PERSONNEL
One of the Debtors' primary assets is their highly skilled
personnel, who have the ability to leave the Debtors and so deprive them of the
skill and knowledge essential for performance of new and existing contracts. The
Debtors operate a service business which is highly dependent on their customers'
belief that the Debtors will perform tasks of the highest standards over an
extended period of time. Deterioration of the Debtors' business, or loss of a
significant number of key personnel, will have a material adverse effect on the
Debtors and may threaten their ability to survive as going concerns.
The Debtors' successful transition through the restructuring
process is dependent in part on their ability to retain and motivate their
officers and key employees. The Debtors' financial difficulties have had a
detrimental effect on their ability to attract and retain key officers and
employees. There can be no assurance that the Debtors will be able to retain or
employ qualified management and technical personnel. While the Debtors have
entered into employment agreements with certain members of their senior
management, should any of these persons be unable or unwilling to continue their
employment with the Debtors, the business prospects of the Debtors could be
materially and adversely affected.
ARTICLE XIV
SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
The following discussion summarizes the material provisions of the
New Subordinated Notes and the New Common Stock. This summary does not purport
to be complete and is qualified in its entirety by the certificate of
incorporation and bylaws of the Reorganized Debtors, and the form of the New
Common Stock.
A. NEW COMMON STOCK
The New Common Stock will be issued to the various classes
according to the terms set forth above in Section II.E to this Disclosure
Statement, entitled "Summary of the Plan of Reorganization - Classification and
Treatment of Claims and Interests." The effects of certain provisions in the
certificate of incorporation and bylaws, which may contain defensive measures,
on the New Common Stock are described in Section XIII.A.3 to the Disclosure
Statement, entitled "Certain Factors to be Considered -- General
Considerations." Following the issuance of the New Common Stock to the various
classes, it is intended that the rights of holders of the New Common Stock will
be governed by the laws of Delaware, as well as by New Holdco's certificate of
incorporation and bylaws. Under New Holdco's certificate of incorporation, the
holders of New Common Stock will be entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders, including the
election of directors. The New Common Stock will not have cumulative voting
rights. As a result, the holders of more than fifty percent (50%) of New Common
Stock will be able to elect one hundred percent (100%) of the directors to be
elected at each annual meeting if they choose to do so. In such event, the
holders of the remaining New Common Stock will not be able to elect any
directors. Holders of New Common Stock will be entitled to participate equally
in such dividends as may be declared by the Board of Directors out of funds
legally available therefor. However, it is not anticipated that dividends will
be paid on the New Common Stock in the foreseeable future. In the event of a
liquidation, dissolution or winding up of New Holdco holders of New Common Stock
will be entitled to participate equally in all assets remaining after payment of
liabilities and the liquidation preference of any preferred shares of the New
Holdco. Holders of New Common Stock will have no preemptive rights. Holders of
New Common Stock will have no rights to convert their New Common Stock into any
other securities and will have no redemption provisions or sinking fund
provisions with respect to such shares.
B. NEW SUBORDINATED NOTES
The Plan provides for the issuance of two series of New
Subordinated Notes to the U.S. Lenders and the holders of Canadian Lender
Administrative Claims in partial satisfaction of their Allowed Class 3 Secured
U.S. Lender Claims and Allowed Canadian Lender Administrative Claims.
1. New Subordinated PIK Notes
The New Subordinated PIK Notes will have a term of 10 years and be
issued in the principal amount up to $100 million. The interest rate will be
7.5% with no principal amortization during the 10 year term and principal and
any
69
accrued interest payable in full in year 10. For years 1-3 the Reorganized
Debtors may, at their option, elect to have interest paid in kind at 8.75%.
Thereafter, the Reorganized Debtors will pay interest in cash semi-annually. The
New Subordinated PIK Notes will be secured with liens on substantially all of
the Reorganized Debtors' assets, subordinated only to the liens of the Exit
Facility and pari passu with the New Subordinated Cash Pay Notes. The Debtors
will file documents evidencing the New Subordinated PIK Notes by the Exhibit
Filing Date.
The issuance of the New Subordinated PIK Notes will be authorized
without further act or action under applicable law. The New Subordinated PIK
Notes will be issued and distributed in accordance with the terms of the Plan
without further act or action under applicable law, regulation, order or rule
and will be exempt from registration under applicable securities laws pursuant
to section 1145(a) of the Bankruptcy Code
2. New Subordinated Cash Pay Notes
The New Subordinated Cash Pay Notes will be 7 year notes in the
principal amount of $50 million. The interest rate will be 7% with amortization
of principal beginning in year 4 in equal installments on a semi-annual basis.
The Reorganized Debtors will pay interest in cash semi-annually. The New
Subordinated Cash Pay Notes will be secured with liens on all of the assets of
the Reorganized Debtors, subordinated only to the liens of the Exit Facility and
pari passu with the New Subordinated PIK Notes. The Debtors will file documents
evidencing the New Subordinated Cash Pay Notes by the Exhibit Filing Date.
The issuance of the New Subordinated Cash Pay Notes will be
authorized without further act or action under applicable law. The New
Subordinated Cash Pay Notes will be issued and distributed in accordance with
the terms of the Plan without further act or action under applicable law,
regulation, order or rule and will be exempt from registration under applicable
securities laws pursuant to section 1145(a) of the Bankruptcy Code.
ARTICLE XV
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
No registration statement will be filed under the Securities Act
of 1933 or any state securities laws with respect to the offer of the New Common
Stock and the New Subordinated Notes pursuant to this solicitation, issuance or
subsequent transfer of such securities under the Plan. The Debtors believe that,
subject to certain exceptions described below, various provisions of the
Securities Act of 1933, the Bankruptcy Code and state securities laws exempt
from federal and state securities registration requirements (a) the offer and
the sale of such securities pursuant to the Plan and (b) subsequent transfers of
such securities.
A. OFFER AND SALE OF NEW COMMON STOCK AND THE NEW SUBORDINATED NOTES
PURSUANT TO THE PLAN: BANKRUPTCY CODE EXEMPTION FROM REGISTRATION
REQUIREMENTS
Section 1145(a)(1) of the Bankruptcy Code exempts the offer and
sale of securities under a plan of reorganization from registration under both
the Securities Act of 1933 and state securities laws, if three principal
requirements are satisfied: (1) the securities must be issued "under a plan" of
reorganization by the debtor or its successor under a plan or by an affiliate
participating in a joint plan of reorganization with the debtor; (2) the
recipients of the securities must hold a pre-petition or administrative expense
claim against the debtor or an interest in the debtor and (3) the securities
must be issued entirely in exchange for the recipient's claim against or
interest in the debtor, or "principally" in such exchange and "partly" for cash
or property. The Debtors believe that the offer and sale of the New Common Stock
and the New Subordinated Notes under the Plan satisfies the requirements of
section 1145(a)(1) of the Bankruptcy Code and is, therefore, exempt from
registration under the Securities Act of 1933 and state securities laws.
B. SUBSEQUENT TRANSFERS OF THE NEW COMMON STOCK AND THE NEW SUBORDINATED
NOTES
Under section 1145(a) of the Bankruptcy Code, the issuance of the New
Common Stock and the New Subordinated Notes to be distributed under the Plan in
exchange for Claims against the Debtors, and the subsequent resale of such
securities by Persons that are not "underwriters" (as defined in section 1145(b)
of the Bankruptcy Code), is not subject to the registration requirements of
section 5 of the Securities Act of 1933. Because of the complex, subjective
nature of the question
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of whether a particular holder may be an underwriter, the Debtors do not make
any representation concerning the ability of any Person to dispose of the New
Common Stock or New Subordinated Notes to be distributed under the Plan.
Section 1145(b) of the Bankruptcy Code provides:
(b)(1) Except as provided in paragraph (2) of this subsection and
except with respect to ordinary trading transactions of an entity
that is not an issuer, an entity is an underwriter under section
2(11) of the Securities Act of 1933, if such entity -
(A) purchases a claim against, interest in, or claim for an
administrative expense in the case concerning, the debtor,
if such purchase is with a view to distribution of any
security received or to be received in exchange for such a
claim or interest;
(B) offers to sell securities offered or sold under the
plan for the holders of such securities;
(C) offers to buy securities offered or sold under the plan
from the holders of such securities, if such offer to buy
is -
(i) with view to distribution of such securities;
and
(ii) under an agreement made in connection with the
plan, with the consummation of the plan, or with the
offer or sale of securities under the plan; or
(D) is an issuer, as used in such section 2(11), with
respect to such securities.
(2) An entity is not an underwriter under section 2(11) of the
Securities Act of 1933 or under paragraph (1) of this subsection
with respect to an agreement that provides only for -
(A) the matching or combining of fractional interests in
securities offered or sold under the plan into whole
interest, or
(B) the purchase or sale for such entities of such
fractional or whole interest as are necessary to adjust for
any remaining fractional interests after such matching.
(3) An entity other than an entity of the kind specified in
paragraph (1) of this subsection is not an underwriter under
section 2(11) of the Securities Act of 1933 with respect to any
securities offered or sold to such entity in the manner specified
in subsection (a)(1) of this section.
GIVEN THE COMPLEX AND SUBJECTIVE NATURE OF THE QUESTION OF WHETHER
A PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATION
CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW COMMON STOCK OR THE NEW
SUBORDINATED NOTES. THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE NEW
COMMON STOCK AND THE NEW SUBORDINATED NOTES CONSULT THEIR OWN COUNSEL CONCERNING
WHETHER THEY MAY FREELY TRADE THE NEW COMMON STOCK OR NEW SUBORDINATED NOTES
WITHOUT COMPLIANCE WITH THE SECURITIES ACT OF 1933 OR THE EXCHANGE ACT.
It is anticipated that after the issuance of the New Common Stock
according to the terms set forth above in Section II.E to this Disclosure
Statement, entitled "Summary of the Plan of Reorganization - Classification and
Treatment of Claims and Interests," there will be fewer than 300 holders of
record of the New Common Stock. The Debtors intend to file a certification
regarding the number of holders of the New Common Stock with the Securities and
Exchange Commission terminating their periodic filing requirements pursuant to
the Securities Exchange Act of 1934. Holders of the New Common Stock and New
Subordinated Notes will be able to sell their shares of New Common Stock only if
a registration statement relating to the securities intended to be sold is then
in effect, of if such transaction is exempt from the registration requirements
of the Securities Act of 1933, and such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the purchaser of such securities resides. The Debtors cannot ensure that a
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liquid market will develop for the New Common Stock, that the holders of the New
Common Stock or New Subordinated Notes will be able to sell any of such
securities at a particular time if at all or that the prices that holders will
receive when they sell will be favorable. Since the New Common Stock and New
Subordinated Notes will be issued pursuant to an exemption from registration
under the Securities Act of 1933 and the Debtors intend to file a certification
terminating their periodic filing requirements, there will be no public market
for the New Common Stock or the New Subordinated Notes. There is no assurance as
to when or if the Debtors will complete an initial public offering for the New
Common Stock.
Until the New Common Stock and the New Subordinated Notes are registered,
if ever, under the Securities Act of 1933, they will each bear a legend
substantially similar to the following effect:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER:
(1) REPRESENTS THAT (A) IT HAS ACQUIRED THIS SECURITY IN
CONNECTION WITH THE JOINT PLAN OF REORGANIZATION OF SAFETY-KLEEN CORP. AND
CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES, (B) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (C) IT HAS
ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE SECURITIES ACT OR (D) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OR REGULATION D UNDER THE
SECURITIES ACT (AN "IAI")),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF
THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS SECURITY, (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
In addition, the shares of New Common Stock will be subject to certain
transfer restrictions set forth in a Stockholders Agreement between New Holdco
and holders of the shares of New Common Stock who receive their shares pursuant
to the Plan, as such Stockholders Agreement may be supplemented, modified,
amended or restated from time to time. Such transfer restrictions will include a
right of first refusal of New Holdco on any shares that holders of New Common
Stock wish to transfer. Until the Stockholders Agreement is terminated, the
shares of New Common Stock will bear an additional legend substantially to the
following effect:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF _____, 2003, AMONG NEW HOLDCO
(THE "COMPANY") AND THE STOCKHOLDERS NAMED THEREIN (AS SUCH AGREEMENT MAY BE
SUPPLEMENTED, MODIFIED, AMENDED OR RESTATED FROM TIME TO TIME, THE "STOCKHOLDERS
AGREEMENT") AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED (COLLECTIVELY,
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"TRANSFERRED") UNLESS AND UNTIL SUCH TRANSFER COMPLIES WITH THE STOCKHOLDERS
AGREEMENT, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY.
ARTICLE XVI
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes the material United States
federal income tax consequences of the Plan to the Debtors and to certain
Claimholders that are U.S. Holders (as defined below). This description is for
informational purposes only and, due to a lack of definitive judicial or
administrative authority or interpretation, substantial uncertainties exist with
respect to various tax consequences of the Plan as discussed herein. Only the
principal consequences of the Plan for the Debtors and for U.S. Holders of
Claims who are entitled to vote to accept or reject the Plan are described
below. No opinion of counsel has been sought or obtained with respect to any tax
consequences of the Plan. No rulings or determinations of the Internal Revenue
Service (the "IRS") or any other tax authorities have been or will be sought or
obtained with respect to the tax consequences of the Plan, and the discussion
below is not binding upon the IRS or such other authorities. The Debtors are not
making any representations regarding the particular tax consequences of the
confirmation or implementation of the Plan as to any Claimholder. No assurance
can be given that the IRS would not assert, or that a court would not sustain, a
different position from any discussed herein.
The discussion of material United States federal income tax
consequences below is based upon the Internal Revenue Code, the Treasury
regulations (including temporary regulations) promulgated and proposed
thereunder, judicial authorities, published opinions of the IRS and other
applicable authorities, all as in effect on the date hereof and all of which are
subject to change (possibly with retroactive effect) by legislation,
administrative action or judicial decision.
The following discussion generally does not address foreign, state
or local tax consequences of the Plan, nor does it purport to address the United
States federal income tax consequences of the Plan to special classes of
taxpayers (e.g., banks and certain other financial institutions, insurance
companies, tax-exempt organizations, Claimholders that are, or hold their Claims
through, pass-through entities, persons whose functional currency is not the
United States dollar, foreign persons, and dealers in securities). The following
discussion assumes that Claimholders hold their Claims as capital assets for
United States federal income tax purposes. Furthermore, the following discussion
does not address United States federal taxes other than income taxes.
For purposes of this discussion, a "U.S. person" is any of the following:
o an individual who is a citizen or resident of the United States;
o a corporation or partnership created or organized under the laws
of the United States or any state or political subdivision
thereof;
o an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
o a trust that (a) is subject to the primary supervision of a U.S.
court and which has one or more U.S. fiduciaries who have the
authority to control all substantial decisions of the trust, or
(b) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
As used herein, the term "U.S. Holder" means a Claimholder that is a U.S.
person, the term "non-U.S. person" means a person other than a U.S. person and
the term "Non-U.S. Holder" means a Claimholder that is a non-U.S. person.
EACH CLAIMHOLDER IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND ANY FOREIGN TAX
CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN OR IN THE PLAN.
A. EFFECTIVE DATE TRANSACTIONS
Under the Plan, the following transactions (the "Restructuring") will
occur on the Effective Date in the following order:
1. New Holdco will be incorporated.
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2. New Holdco will cause New Parent to be incorporated as a new
wholly-owned subsidiary and New Holdco will contribute the New Common
Stock to New Parent.
3. New Parent will cause New Subsidiary to be incorporated as a new
wholly-owned subsidiary and New Parent will contribute the New Common
Stock to New Subsidiary.
4. New Subsidiary will cause Merger Sub to be incorporated as a new
wholly-owned subsidiary.
5. Merger Sub will merge with and into SK Systems pursuant to the Merger
Agreement, with SK Systems surviving as Reorganized Systems.
6. Pursuant to the Merger Agreement, Reorganized Systems will cause the
New Common Stock to be distributed to the holders of the Canadian Lender
Administrative Claims and the holders of the U.S. Lender Claims in
exchange for all or part of their respective Claims. All distributions
will be in accordance with the Plan.
7. New Subsidiary will elect pursuant to section 338(h)(10) of the
Internal Revenue Code to treat the merger as if Reorganized Systems
acquired all of the Systems Assets at fair market value.
B. MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
1. Regular United States Federal Income Tax Consequences
(a) Restructuring Transactions
(i) Deemed Sale and Transfer of Assets of SK Systems
The merger of Merger Sub with and into SK Systems will be a
taxable transaction. New Subsidiary will elect under Internal Revenue Code
section 338(h)(10) to treat the merger for United States federal income tax
purposes as if (A) SK Systems had transferred the Systems Assets to Reorganized
Systems in exchange for the New Common Stock, (B) SK Systems immediately
thereafter liquidated and distributed the New Common Stock to SK Services and
(C) SK Services in turn distributed the New Common Stock to the holders of the
Canadian Lender Administrative Claims and the U.S. Lender Claims in full or
partial satisfaction of their Claims.
SK Systems will recognize gain or loss upon the deemed transfer of
the Systems Assets to Reorganized Systems in an amount equal to the difference
between the fair market value of the Systems Assets and SK Systems' tax basis in
such assets. The Debtors believe that no significant federal, state, or local
tax liability, if any, should be incurred upon the transfer. However, the
Debtors' determination of gain or loss and the resulting tax liability, if any,
may be subject to adjustment on audit by the IRS or other tax authorities. In
addition, the fair market value of the Systems Assets may vary from current
estimates and may be subject to challenge by the IRS or other tax authorities.
Any federal, state or local tax liabilities incurred by the Debtors as a
consequence of the transfer will be Administrative Claims in the Debtors'
Chapter 11 Cases and will have to be paid in full, which may reduce the value of
the distribution that other Claimholders would otherwise receive under the Plan.
The Debtors believe that no material tax consequences will result from the
deemed liquidation of SK Systems.
There can be no assurance that the merger will be treated by the
IRS as a taxable transaction. For example, the IRS might seek to recharacterize
the Restructuring as a non-taxable transaction. If the IRS were to prevail,
Reorganized Systems would have no net operating loss ("NOL") carryforwards
remaining after the attribute reduction discussed below in "Cancellation of
Indebtedness" and would have a tax basis in the Systems' Assets significantly
below the fair market value of such assets, with the result that future tax
depreciation and amortization with respect to the SK Systems' real and personal
property would be reduced. As a result, the taxable income, and thus the U.S.
federal income tax liability, of Reorganized Systems could be significantly
higher. The Debtors believe that the form of the Restructuring should be
respected and that any attempt to recharacterize the Restructuring as a tax-free
transaction should fail.
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(ii) Tax Attributes of Reorganized Systems
Because New Subsidiary will elect to treat the merger as if
Reorganized Systems acquired all of the assets of SK Systems at fair market
value, as discussed above, Reorganized Systems will obtain an aggregate tax
basis in the Systems Assets equal to their fair market value as of the Effective
Date and will not succeed to any tax attributes of SK Systems. Thus, Reorganized
Systems will have no net operating losses ("NOLs") or NOL carryforwards and no
accumulated earnings and profits as of the Effective Date.
(iii) Transfer of Assets to Safety-Kleen Creditor Trust
On the Effective Date, the Debtors will transfer to the
Safety-Kleen Creditor Trust, for and on behalf of holders of Allowed Claims in
Classes 4 through 7, the Initial Deposit and the Trust Claims. In consideration
thereof, the Safety-Kleen Creditor Trust will assume the Debtors' obligations to
make distributions in accordance with the Plan.
As discussed below, the Debtors believe that the Safety-Kleen
Creditor Trust will qualify as a liquidating trust, as defined in Treasury
regulation section 301.7701-4(d). Thus, the transfer of assets from the Debtors
to the Safety-Kleen Creditor Trust will be treated for United States federal
income tax purposes as if the Debtors transferred the Trust Assets to the
respective Claimholders who then in turn transferred the Trust Assets to the
Safety-Kleen Creditor Trust. The Debtors will be treated as having transferred
the Trust Assets to the Allowed Claimholders in return for relief from an amount
of debt equal to the fair market value of the Trust Assets. The Debtors will
realize gain or loss on the difference between the fair market value of the
Trust Assets and the Debtors' tax basis in such assets.
The Debtors believe that no significant federal, state or local
tax liability, if any, should be incurred in connection with the transfer of the
Trust Assets to the Safety-Kleen Creditor Trust has not been assessed.
Regardless, the Debtors' determination of gain or loss and the resulting tax
liability, if any, may be subject to adjustment on audit by the IRS or other tax
authorities. In addition, the fair market value of the Trust Assets transferred
to the Safety-Kleen Creditor Trust may vary from current estimates and may be
subject to challenge by the IRS or other tax authorities. Any federal, state or
local tax liabilities incurred by the Debtors as a consequence of the transfer
will be Administrative Claims in the Debtors' Chapter 11 Cases and will have to
be paid in full, which may reduce the value of the distribution that holders of
Allowed Claims in Classes 4 through 7 would otherwise receive under the Plan.
(b) Cancellation of Indebtedness
Upon implementation of the Plan, under general tax principles, the
Debtors will realize income from the discharge of indebtedness (also known as
"Cancellation of Indebtedness" or "COD") to the extent that an obligation to a
Claimholder is discharged pursuant to the Plan for an amount less than the
amount of such Claim. For this purpose, the amount paid to a Claimholder in
discharge of its Claim generally will equal the amount of Cash and the fair
market value on the Effective Date of any other property paid to such
Claimholder.
Because the Debtors will be debtors in a bankruptcy case at the
time they realize COD income, Internal Revenue Code section 108 will not require
the Debtors to include COD income in their gross income. Instead, the Debtors
will be required to reduce certain of their tax attributes - NOLs for the
taxable year of the discharge and NOL carryforwards to such taxable year,
credits, capital loss carryforwards, basis of property and passive activity
losses and credits - by the amount of COD income so excluded. Under the general
rules of Internal Revenue Code section 108, the required attribute reduction
would be applied first to reduce the Debtors' NOLs and NOL carryforwards, with
any excess excluded COD applied to reduce other tax attributes. Internal Revenue
Code section 108(b)(5) permits a corporation in bankruptcy proceedings to elect
to apply the required attribute reduction to reduce first the basis of its
depreciable property to the extent of such basis, with any excess applied next
to reduce its NOLs and NOL carryforwards, and then other tax attributes. The
Debtors have not yet determined whether they will make the election under
Internal Revenue Code section 108(b)(5). Regardless, any attribute reduction
will be applied as of the first day following the taxable year in which the
Debtors recognize COD income. In the event that the amount of COD attributable
to the Debtors exceeds all of their tax attributes, no income will be realized
by the Debtors as long as such cancellation occurs in connection with their
Chapter 11 Cases.
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2. Alternative Minimum Tax
A corporation may incur alternative minimum tax liability even in
the case that NOL carryovers and other tax attributes are sufficient to
eliminate its taxable income as computed under the regular corporate income tax.
It is possible that the Debtors will be liable for the alternative minimum tax.
C. UNITED STATES FEDERAL INCOME TAX TREATMENT OF THE SAFETY-KLEEN CREDITOR
TRUST
On the Effective Date, the Debtors will transfer the Initial
Deposit and the Trust Claims to the Safety-Kleen Creditor Trust for and on
behalf of holders of Allowed Claims in Classes 4 through 7 and Disputed Claims.
In consideration therefor, the Safety-Kleen Creditor Trust will assume the
Debtors' obligations to make distributions to the holders of Allowed Claims in
Classes 4 through 7 and to the holders of such Disputed Claims as become Allowed
Claims in accordance with the Plan.
Under the Internal Revenue Code, amounts earned by an escrow
account, settlement fund or similar fund must be subject to current tax.
Although certain Treasury regulations have been issued, no Treasury regulations
have been promulgated to address the tax treatment of such funds in a bankruptcy
context. Accordingly, the proper tax treatment of such funds is uncertain.
Depending on the facts and the relevant law, such funds possibly could be
treated as grantor trusts, separately taxable trusts, or otherwise.
The Debtors believe that the Safety-Kleen Creditor Trust will
qualify as a liquidating trust, as defined in Treasury regulation section
301.7701-4(d). The Debtors therefore intend to treat the Trust Assets held in
the Safety-Kleen Creditor Trust, including the assets held in the Distribution
Reserve, as held by a grantor trust with respect to which the holders of Allowed
Claims in Classes 4 through 7 and Disputed Claims are treated as the grantors.
Accordingly, no tax should be imposed on the Safety-Kleen Creditor Trust itself
on earnings generated by the Trust Assets. Instead, holders of Allowed Claims in
Classes 4 through 7 and Disputed Claims will be taxed on their allocable shares
of such earnings in each taxable year, whether or not they received any
distributions from the Safety-Kleen Creditor Trust. The Trustee will report each
year to each Claimholder the amount of items of income, gain, loss, deduction or
credit of the Safety-Kleen Creditor Trust allocable to such Claimholder. The
amount of distributions a Claimholder ultimately receives pursuant to the Plan
may be less than the amount of earnings generated by the Trust Assets that are
allocated and taxable to such Claimholder.
There can be no assurance that the IRS will respect the foregoing
treatment. For example, the IRS may characterize the Safety-Kleen Creditor Trust
as a grantor trust for the benefit of the Debtors or as otherwise owned by and
taxable to the Debtors. Alternatively, the IRS could characterize the
Safety-Kleen Creditor Trust as a so-called "complex trust" subject to a separate
entity-level tax on its earnings, except to the extent that such earnings are
distributed during the taxable year. Moreover, because the amount received by a
holder of an Allowed Claim in Classes 4 through 7 or a Disputed Claim in
satisfaction of such Claim may increase or decrease, depending upon whether the
Safety-Kleen Creditor Trust is treated as a grantor trust, such Claimholder
could be prevented from recognizing a loss until the time at which there are no
assets at all remaining in the Safety-Kleen Creditor Trust, including the
Distribution Reserve.
Holders of Allowed Claims in Classes 4 through 7 and Disputed
Claims are urged to consult their tax advisors regarding the potential United
States federal income tax treatment of the Safety-Kleen Creditor Trust and the
consequences to them of such treatment (including the effect on the computation
of a Claimholder's gain or loss in respect of its Claim and the possibility of
taxable income without a corresponding receipt of cash or property with which to
satisfy the liability).
D. MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO CLAIMHOLDERS
The tax treatment of Claimholders and the character and amount of
income, gain or loss recognized as a consequence of the Plan will depend upon,
among other things, (1) the manner in which a holder acquired a Claim; (2) the
length of time the Claim has been held; (3) whether the Claim was acquired at a
discount; (4) whether the holder has taken a bad debt deduction with respect to
the Claim (or any portion thereof) in the current or prior years; (5) whether
the holder has previously included accrued or unpaid interest with respect to
the Claim; (6) the method of tax accounting of the holder and (7) whether the
Claim is an installment obligation for United States federal income tax
purposes. Therefore, Claimholders should consult their tax advisors for
information that may be relevant to their particular situation and circumstances
and the particular tax consequences to them of the transactions contemplated by
the Plan.
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1. Holders of Canadian Lender Administrative Claims
A holder of a Canadian Lender Administrative Claim will recognize
gain or loss for United States federal income tax purposes in an amount equal to
the difference between its adjusted tax basis in such Claim, if any, and the
"amount realized" by such Claimholder in connection with such Claim, except as
described below under "Allocation Between Principal and Interest." The amount
realized by a holder of a Canadian Lender Administrative Claim will be equal to
the fair market value of such Claimholder's Pro Rata share of the New Common
Stock. A holder of a Canadian Lender Administrative Claim will take a basis in
its New Common Stock equal to the amount so taken into account as the amount
realized. A holder of a Canadian Lender Administrative Claim will have a holding
period for the New Common Stock determined by reference to the date of the
above-described exchange.
If a dividend is paid in connection with the New Common Stock, any
such dividend paid to a Non-U.S. Holder that receives New Common Stock in
exchange for its Canadian Lender Administrative Claim generally will be subject
to withholding of United States federal income tax at a 30 percent rate (or such
lower rate as may be specified by an applicable income tax treaty) unless the
dividend is effectively connected with the conduct of a trade or business of the
Non-U.S. Holder within the United States, in which case the dividend will be
taxed at ordinary United States federal income tax rates. If such Non-U.S.
Holder is a corporation, such effectively connected income may also be subject
to an additional "branch profits tax."
A Non-U.S. Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
New Common Stock received in exchange for a Canadian Lender Administrative Claim
unless (a) such gain is effectively connected with a United States trade or
business of the Non-U.S. Holder or (b) the Non-U.S. Holder is an individual who
holds such New Common Stock as a capital asset and who is present in the United
States for a period or periods aggregating 183 days or more during the calendar
year in which such sale or disposition occurs and certain other conditions are
met. In addition, if Reorganized Systems is a "United States real property
holding corporation," for United States federal income tax purposes, then a
Non-U.S. Holder that holds, directly or indirectly, more than 5 percent of New
Common Stock would be subject to United States federal income taxation on any
gain realized from the sale or exchange of such stock unless an exemption is
provided by an applicable treaty. The Debtors do not believe that Reorganized
Systems will be a United States real property holding corporation for United
States federal income tax purposes. Because Reorganized Systems will own
substantial real estate assets in the United States, however, there can be no
assurance that the IRS will respect this conclusion.
2. Holders of U.S. Lender Claims (Classes 3, 4 and 7)
A holder of a U.S. Lender Claim will recognize gain or loss for
United States federal income tax purposes equal to the difference between its
adjusted tax basis in such Claim, if any, and the amount realized by such
Claimholder in connection with such Claim except as described below under
"Allocation Between Principal and Interest." The amount realized by a holder of
a U.S. Lender Claim will be equal to the sum of (a) the fair market value of
such Claimholder's Pro Rata share of the New Common Stock, (b) the fair market
value of the New Subordinated Notes, (c) the fair market value of such
Claimholder's interest in the Safety-Kleen Creditor Trust and (d) the fair
market value of such Claimholder's interest in the PwC Litigation Claim. A
holder of a U.S. Lender Claim will take an aggregate basis in its New Common
Stock and New Subordinated Notes equal to the amount so taken into account as
the amount realized.
Generally, a holder of New Subordinated Notes will accrue the
interest thereon over the period in which such holder holds such New
Subordinated Notes. However, in the event that Reorganized Systems elects to
issue additional New Subordinated PIK Notes in lieu of paying cash interest (the
"Additional Notes"), the issuance of such Additional Notes would not be treated
as a payment of interest for United States federal income tax purposes. Rather,
the New Subordinated PIK Notes (including the Additional Notes) would be deemed
to be "reissued" with original issue discount ("OID") solely for purposes of
computing the amount of original issue discount ("OID") includible in income
during the remaining term of the New Subordinated PIK Notes (including the
Additional Notes). Holders of the New Subordinated PIK Notes would be required
to recognize such OID as ordinary income over the period during which they hold
the New Subordinated PIK Notes, and thus could recognize taxable income in
advance of receiving corresponding amounts of cash. The amount of OID includible
in ordinary income over the remaining term of the New Subordinated PIK Notes
(including the Additional Notes), determined on the basis of a constant yield
method, would be equal to the excess of (i) the sum of the principal amount of
the New Subordinated PIK Notes (including any Additional Notes) and all
remaining cash payments of stated interest over (ii) the adjusted issue price of
the New Subordinated PIK Notes (including any Additional Notes).
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3. Holders of SKC General Unsecured Claims, 9 1/4% Senior Notes
Claims and 9 1/4% Senior Subordinated Notes Claims (Classes 4 through 6)
A holder of an SKC General Unsecured Claim, a 9 1/4% Senior Notes
Claim or a 9 1/4% Senior Subordinated Notes Claim will probably recognize gain
or loss for United States federal income tax purposes equal to the difference
between its adjusted tax basis in such Claim, if any, and the amount realized by
such Claimholder in connection with such Claim. The amount realized by a holder
of an SKC General Unsecured Claim, a 9 1/4% Senior Notes Claim or a 9 1/4%
Senior Subordinated Notes Claim will be equal to the sum of (a) the fair market
value of such Claimholder's interest in the Safety-Kleen Creditor Trust and (b)
the fair market value of such Claimholder's interest in the PwC Litigation
Claim.
4. Holders of General Unsecured Claims (Class 7)
A holder of a General Unsecured Claim will probably recognize gain
or loss for United States federal income tax purposes equal to the difference
between its adjusted tax basis in such Claim, if any, and the amount realized by
such Claimholder in connection with such Claim. The amount realized by a holder
of a General Unsecured Claim will be equal to the fair market value of such
Claimholder's interest in the Safety-Kleen Creditor Trust.
5. Market Discount
The market discount provisions of the Internal Revenue Code may
apply to holders of certain Claims. In general, a debt obligation (other than a
debt obligation with a fixed maturity of one year or less) that is acquired by a
holder in the secondary market (or, in certain circumstances, upon original
issuance) is a "market discount bond" as to that holder if its stated redemption
price at maturity (or, in the case of a debt obligation having original issue
discount, its revised issue price) exceeds the tax basis of the debt obligation
in the holder's hands immediately after its acquisition. However, a debt
obligation will not be a market discount bond if such excess is less than a
statutory de minimis amount. Gain recognized by a Claimholder with respect to a
market discount bond generally will be treated as ordinary interest income to
the extent of the market discount accrued on such bond during the Claimholder's
period of ownership, unless the Claimholder elected to include the accrued
market discount in taxable income currently. A holder of a market discount bond
that is required under the market discount rules of the Internal Revenue Code to
defer deduction of all or a portion of the interest on indebtedness incurred or
maintained to acquire or carry the bond may be allowed to deduct such interest,
in whole or in part, on the disposition of such bond.
6. Allocation Between Principal and Interest
The Plan provides that, to the extent that any Allowed Claim
entitled to a distribution under the Plan is composed of indebtedness and
accrued but unpaid interest on such indebtedness, such distribution will, to the
extent permitted by applicable law, be allocated for United States federal
income tax purposes to the principal amount of the Claim first and then, to the
extent the consideration exceeds the principal amount of the Claim, to the
portion of the Claim representing accrued but unpaid interest. The Debtors
intend to take the position that any distribution made under the Plan with
respect to an Allowed Claim will be allocated first to the principal amount of
the Claim, with the excess over the principal amount being allocated to accrued
but unpaid interest. However, current federal income tax law is unclear on this
point and no assurance can be given that the IRS will not challenge the Debtors'
position. If any portion of the distribution were required to be allocated to
accrued interest, such portion would be taxable to the holder as interest income
rather than as gain or loss as described above, except to the extent the holder
has previously reported such interest income.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain payments, including the payments of Claims pursuant to the
Plan, are generally subject to information reporting by the payor (here the
relevant Debtor) to the IRS. Moreover, such reportable payments are subject to
backup withholding under certain circumstances. Under the Internal Revenue
Code's backup withholding rules, a Claimholder may be subject to backup
withholding with respect to distributions or payments made pursuant to the Plan
unless the holder (1) comes within certain exempt categories (which generally
include corporations) and, when required, demonstrates this fact or (2) provides
a correct United States taxpayer identification number and certifies under
penalty of perjury that the taxpayer identification number is correct and that
the taxpayer is not subject to backup withholding because of a failure to report
all dividend and interest income.
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Backup withholding is not an additional tax. Amounts withheld
under the backup withholding rules may be credited against a Claimholder's
United States federal income tax liability, and such Claimholder may obtain a
refund of any excess amounts withheld under the backup withholding rules by
filing an appropriate Claim for refund with the IRS (generally, a United States
federal income tax return).
F. IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE
DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX
CONSEQUENCES ARE IN MANY CASES UNCERTAIN AND MAY VARY DEPENDING ON A
CLAIMHOLDER'S PARTICULAR CIRCUMSTANCES. ACCORDINGLY, CLAIMHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS ABOUT THE UNITED STATES FEDERAL, STATE, LOCAL, AND
APPLICABLE FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.
ARTICLE XVII
FEASIBILITY OF THE PLAN AND BEST INTERESTS OF CREDITORS
A. FEASIBILITY OF THE PLAN
In connection with confirmation of the Plan, the Bankruptcy Court
will have to determine that the Plan is feasible pursuant to section 1129(a)(11)
of the Bankruptcy Code, which means that the confirmation of the Plan is not
likely to be followed by the liquidation or the need for further financial
reorganization of the Debtors.
1. Reorganizing Debtors
To support their belief in the feasibility of the Plan, the
Debtors have relied upon pro forma financial projections covering the
Reorganized Debtors' operations through December 31, 2007, as set forth in
Appendix G annexed to this Disclosure Statement (the "Projections").
The Projections indicate that the Reorganized Debtors should have
sufficient cash flow to pay and service their debt obligations, including the
New Subordinated Notes and the Exit Facility, and to fund their operations as
contemplated by the Business Plan. Accordingly, the Debtors believe that the
Plan complies with the financial feasibility standard of section 1129(a)(11) of
the Bankruptcy Code.
The Projections were not prepared with a view toward compliance
with the published guidelines of the American Institute of Certified Public
Accountants or any other regulatory or professional agency or body or generally
accepted accounting principles. Furthermore, the Debtors' independent certified
public accountants have not compiled or examined the Projections and accordingly
do not express any opinion or any other form of assurance with respect thereto
and assume no responsibility for the Projections.
The Projections assume that (a) the Plan will be confirmed and
consummated in accordance with its terms, (b) there will be no material change
in legislation or regulations, or the administration thereof, including
environmental legislation or regulations, that will have an unexpected effect on
the operations of the Reorganized Debtors, (c) there will be no change in
generally accepted accounting principles in the United States that will have a
material effect on the reported financial results of the Reorganized Debtors and
(d) there will be no material contingent or unliquidated litigation or indemnity
claims applicable to the Reorganized Debtors. To the extent that the assumptions
inherent in the Projections are based upon future business decisions and
objectives, they are subject to change. In addition, although they are presented
with numerical specificity and considered reasonable by the Debtors when taken
as a whole, the assumptions and estimates underlying the Projections are subject
to significant business, economic and competitive uncertainties and
contingencies, many of which will be beyond the control of the Reorganized
Debtors. Accordingly, the Projections are only an estimate that are necessarily
speculative in nature. It can be expected that some or all of the assumptions in
the Projections will not be realized and that actual results will vary from the
Projections, which variations may be material and are likely to increase over
time. The Projections should therefore not be regarded as a representation by
the Debtors or any other person that the results set forth in the Projections
will be achieved. In light of the foregoing, readers are cautioned not to place
undue reliance on the
79
Projections. The Projections should be read together with the information in
Article XIII to this Disclosure Statement, entitled "Certain Factors to be
Considered," which sets forth important factors that could cause actual results
to differ from those in the Projections.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: The Projections contain statements which constitute
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995. "Forward-looking statements" in the Projections
include the intent, belief or current expectations of the Debtors and members of
their management team with respect to the timing of, completion of and scope of
the current restructuring, reorganization plan, strategic business plan, bank
financing, and debt and equity market conditions and the Debtors' future
liquidity, as well as the assumptions upon which such statements are based.
While the Debtors believe that the expectations are based on reasonable
assumptions within the bounds of their knowledge of their business and
operations, parties in interest are cautioned that any such forward-looking
statements are not guarantees of future performance, and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. Important factors currently
known to management that could cause actual results to differ materially from
those contemplated by the forward-looking statements in the Projections include,
but are not limited to, further adverse developments with respect to the
Debtors' liquidity position or operations of the Debtors' various businesses,
adverse developments in the Debtors' efforts to renegotiate their funding and
adverse developments in the bank financing or public or private markets for debt
or equity securities, or adverse developments in the timing or results of the
Debtors' strategic business plan (including the time line to emerge from chapter
11), the difficulty in controlling industry costs and the ability of the Debtors
to realize the anticipated general and administrative expense savings and
overhead reductions presently contemplated, the ability of the Debtors to return
the Debtors' operations to profitability, the level and nature of any
restructuring and other one-time charges, the difficulty in estimating costs
relating to exiting certain markets and consolidating and closing certain
operations, and the possible negative effects of a change in applicable
legislation.
2. Liquidating Debtors
Section 1129(a)(11) of the Bankruptcy Code requires that
confirmation of the plan not be likely to be followed by the liquidation, or the
need for further financial reorganization, of the Debtors or any successors to
the Debtors under the Plan, unless such liquidation or reorganization is
proposed in the Plan. The Plan proposed by the Debtors provides for the
dissolution of certain Debtors. The ability of a Dissolving Debtor to make the
distributions described in the Plan does not depend on its future earnings.
Accordingly, the Debtors believe that the Plan with respect to the Dissolving
Debtors is feasible and meets the requirements of section 1129(a)(11) of the
Bankruptcy Code.
B. ACCEPTANCE OF THE PLAN
As a condition to confirmation, the Bankruptcy Code requires that
each Class of Impaired Claims vote to accept the Plan, except under certain
circumstances.
Section 1126(c) of the Bankruptcy Code defines acceptance of a
plan by a class of impaired claims as acceptance by holders of at least
two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of
claims in that class, but for that purpose counts only those who actually vote
to accept or to reject the Plan. Thus, Classes 3 through 7 (and each subclass
thereof) will have voted to accept the Plan only if two-thirds (2/3) in amount
and a majority in number actually voting in each Class cast their Ballots in
favor of acceptance. Holders of Claims who fail to vote are not counted as
either accepting or rejecting a plan.
C. BEST INTERESTS TEST AND LIQUIDATION ANALYSIS
As noted above, even if a plan is accepted by the holders of each
class of claims or interests, the Bankruptcy Code requires a bankruptcy court to
determine that the plan is in the best interests of all holders of Claims or
Interests that are impaired by the plan and that have not accepted the plan. The
"best interests" test, as set forth in section 1129(a)(7) of the Bankruptcy
Code, requires a bankruptcy court to find either that all members of an impaired
class of claims or interests have accepted the plan or that the plan will
provide a member who has not accepted the plan with a recovery of property of a
value, as of the effective date of the plan, that is not less than the amount
that such holder would recover if the debtor were liquidated under chapter 7 of
the Bankruptcy Code.
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To calculate the probable distribution to holders of each impaired
class of claims and interests if the debtor were liquidated under chapter 7, a
bankruptcy court must first determine the aggregate dollar amount that would be
generated from a debtor's assets if its chapter 11 case was converted to a
chapter 7 case under the Bankruptcy Code. This "liquidation value" would consist
primarily of the proceeds from a forced sale of the debtor's assets by a chapter
7 trustee.
If a chapter 7 liquidation were pursued for the Debtors, the
amount of liquidation value available to unsecured creditors would be reduced
by, first, the claims of secured creditors to the extent of the value of their
collateral, and, second, by the costs and expenses of liquidation, as well as by
other administrative expenses and costs of both the chapter 7 case and the
chapter 11 case. Costs of liquidation under chapter 7 of the Bankruptcy Code
would include the compensation of a trustee, as well as of counsel and other
professionals retained by the trustee, asset disposition expenses, all unpaid
expenses incurred by the debtor in its chapter 11 case (such as compensation of
attorneys, financial advisors and accountants) that are allowed in the chapter 7
case, litigation costs, and claims arising from the operations of the debtor
during the pendency of the chapter 11 case. The liquidation itself would trigger
certain priority payments that otherwise would be due in the ordinary course of
business. Those priority claims would be paid in full from the liquidation
proceeds before the balance would be made available to pay general unsecured
claims or to make any distribution in respect of equity interests. The
liquidation would also prompt the rejection of a large number of executory
contracts and unexpired leases and thereby create a significantly higher number
of unsecured claims.
If the Debtors were forced to liquidate under chapter 7 of the
Bankruptcy Code, the Debtors believe that all or substantially all of the
Debtors' assets would be used to pay the chapter 7 administrative expenses and
priority claims, the Secured U.S. Lender Claims, the DIP Facility Claims and if
any funds were still available would be used to pay Administrative Expense
Claims, Canadian Lender Administrative Claims, Tax Priority Claims and Other
Priority Claims. A copy of the Debtors' liquidation analysis is set forth on
Appendix F to this Disclosure Statement.
The Secured U.S. Lenders have liens on substantially all of the
assets of each of the Debtors, and accordingly, each Debtor would be required to
satisfy the Secured U.S. Lender Claims. The Debtors believe that the only assets
that arguably are not secured by the Lenders and the DIP Facility are certain
recoveries from the Avoidance Actions. Nevertheless, any available proceeds
would not be available to distribution to General Unsecured Creditors -- rather
they would be used to pay, among others, the chapter 7 administrative expenses
and priority claims, the DIP Facility Claims, Administrative Expense Claims,
Canadian Lender Administrative Claims, Priority Tax Claims and Other Priority
Claims.
Similarly, the Laidlaw Claim and the PwC Litigation Claim are
assets of SKC, and thus would only be available to creditors of SKC. Moreover,
the Secured U.S. Lenders argue that the Laidlaw Claim is secured because it is
the settlement of the Debtors' substantial claims asserted against the Laidlaw
Debtors. Even to the extent that the Laidlaw Claim is unsecured, the proceeds
available would be used to pay substantial administrative and priority claims,
including significant claims that the Debtors believe would be asserted by DHEC
against SKC relating to the Pinewood Facility, if the settlement with DHEC was
not approved in connection with the Plan. As set forth above and in Section II.E
to the Disclosure Statement, entitled "Summary of the Plan of Reorganization --
Classification and Treatment of Claims and Interests" the claims that would be
paid prior to any distribution for general unsecured creditors in a liquidation
are significant and the Debtors believe such claims will likely exceed any
anticipated recovery from the Laidlaw Claim.
The Lenders similarly argue that the PwC Litigation Claim is
secured. Regardless of whether the PwC Litigation Claim is secured, the general
unsecured creditors will be no worse off under the Plan, and may receive a
greater distribution under the Plan than in a chapter 7 liquidation. As set
forth in Section X.C.2 to the Disclosure Statement, entitled, "History of the
Debtor and Events Leading to Chapter 11 Filing and Plan -- Legal Proceedings,"
the PwC Litigation Claim is based on an action brought by SKC (and certain
former officers and directors of SKC). As such, the proceeds from any recovery
belong to the estate of SKC. Under the Plan, the proceeds from the PwC
Litigation Claim will be distributed to the unsecured creditors of SKC (Classes
4 through 6). In contrast, in a chapter 7 liquidation the proceeds from the PwC
Litigation Claim would first be used to pay, among other things, the DIP
Facility Claims, Administrative Claims, the Canadian Lender Administrative Claim
and other priority claims.
Accordingly, the Debtors believe that the Plan meets the "best
interests of creditors" test of section 1129(a)(7) of the Bankruptcy Code. The
Debtors believe that the members of each Impaired Class will receive the same or
greater value under the Plan than they would in a liquidation.
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D. VALUATION OF THE REORGANIZED DEBTORS
1. Overview
The Debtors have been advised by Lazard, its financial advisor,
with respect to the reorganization value of the Reorganized Debtors on a going
concern basis. Solely for the purposes of the Plan, the estimated range of
reorganization values of the Reorganized Debtors is estimated at approximately
$480 million to $660 million (with a midpoint value of $570 million), as of
January 1, 2003, the assumed Effective Date.
The assumed range of the reorganized value, as of the assumed
Effective Date reflects work performed by Lazard on the basis of information
regarding the business and assets of the Debtors available to Lazard as of
October 2002. Neither the Debtors nor Lazard have updated the estimated range of
the reorganization value to reflect information available to the Debtors or
Lazard subsequent to October 2002, but Lazard is not aware of any developments
that would materially affect the valuation.
Upon emergence, the amount of debt drawn under the Exit Facility
is estimated to be $32 million, assuming a net cash recovery of $90 million from
the Laidlaw Claim, and full payment of administrative claims and the Pinewood
Settlement. Based upon the assumed range of the reorganization value of the
Reorganized Debtors of $480 million to $660 million, and long term debt (net of
excess cash) of $182 million (including $150 million of New Subordinated Notes),
the Reorganized Debtors have an equity value range of $298 million to $478
million, with a midpoint value of $388 million. Assuming a distribution of 25
million shares of the New Common Stock pursuant to the Plan, the estimated range
of equity value of the New Common Stock is between $11.92 and $19.12 per share
with a midpoint value of $15.52 per share. This estimated range of values is
hypothetical and reflects the estimated intrinsic value of the Reorganized
Debtors derived through the application of various valuation techniques.
The foregoing estimates of the reorganization value of the
Reorganized Debtors are based on a number of assumptions, including, but not
limited to, (a) confirmation of the Plan on the assumed Effective Date, (b) a
successful reorganization of the Debtors' business and finances in a timely
manner, (c) the implementation of the Reorganized Debtors' Business Plan, (d)
the achievement of the forecasts reflected in the Projections, (e) market
conditions as of October 2002 continuing through the assumed Effective Date, and
(f) the Plan becoming effective in accordance with the estimates and other
assumptions discussed herein.
In estimating the range of the reorganization value of the
Reorganized Debtors, Lazard: (a) reviewed certain historical financial
information of the Debtors for recent years and interim periods; (b) reviewed
certain internal financial and operating data of the Debtors including financial
projections, prepared and provided by management, relating to its business and
its prospects, including those Projections set forth in Appendix G annexed to
this Disclosure Statement; (c) met with certain members of senior management to
discuss its business and projections; (d) reviewed publicly available financial
data and considered the market value of public companies which Lazard deemed
generally comparable to the operating business of the Debtors; (e) considered
certain economic and industry information relevant to the operating business;
(f) reviewed certain analyses prepared by other firms retained by the Debtors
and (g) conducted such other studies, analyses, inquiries and investigations as
it deemed appropriate.
In its review and analysis of the Debtors' business, operating
assets and liabilities and the Reorganized Debtors' business plans, Lazard
assumed and relied on the accuracy and completeness of all (a) financial and
other information furnished to it by the Debtors and by other firms retained by
the Debtors and (b) publicly available information, including to the extent
relevant, precedent transactions. Lazard did not independently verify
management's projections in connection with such estimates of the reorganization
value, and has assumed that such projections have been prepared reasonably in
good faith and on a basis reflecting the best currently available estimates and
judgments of the Debtors as to the future operating and financial performance of
the Debtors. Such projections assume the Debtors will operate the businesses
reflected in the Business Plan and that such businesses perform as expected in
the Business Plan. To the extent that the Debtors operate more or fewer
businesses during the projection period, and to the extent that all or a portion
of all of the businesses perform at levels inconsistent with those expected in
the Business Plan, such adjustments may have a material impact on the operating
projections and valuations as presented herein. No independent valuation or
appraisals of the Debtors were sought or obtained in connection herewith.
82
Estimates of the reorganization value do not purport to be
appraisals or necessarily reflect the values which may be realized if assets
were sold in liquidation or otherwise.
With respect to the valuation of the Reorganized Debtors, in
addition to the foregoing, Lazard relied upon the following assumptions:
o The enterprise value reflects the aggregate value of the
Reorganized Debtors and its subsidiaries (including Safety-Kleen
Canada and its subsidiaries);
o The enterprise valuation indicated represents the enterprise value
of the Reorganized Debtors and assumes pro forma debt levels (as
set forth in the Projections, annexed hereto as Appendix G) to
calculate a range of equity value;
o The Debtors will emerge from chapter 11 on or about January 1,
2003;
o The Projections of the Reorganized Debtors are predicated upon the
assumption that the Debtors will be able to obtain all of the
necessary financing, as described herein. Lazard makes no
representation as to whether the Debtors will obtain financing or
as to the forms in which such financing may be obtained;
o The present senior management of the Debtors will continue to
manage the business following consummation of the Plan, and
general financial and market conditions as of the assumed
Effective Date of the Plan will not differ materially from those
conditions prevailing as of the date of this Disclosure Statement.
The estimates of the reorganization value represent the
hypothetical reorganization enterprise value of the Reorganized Debtors. Such
estimates were developed solely to formulate and negotiate the Plan and analyze
the implied recoveries of the Claimholders. Such estimates reflect computations
of the range of the estimated reorganization enterprise value of the Reorganized
Debtors through the application of various valuation techniques and do not
purport to reflect or constitute appraisals. Liquidation values or estimates of
actual market value that may be realized through the sale of any securities to
be issued pursuant to the Plan may be significantly different than the amounts
set forth herein.
The value of an operating business is subject to numerous
uncertainties and contingencies which are difficult to predict, and will
fluctuate with changes in factors affecting the financial condition and
prospects of such a business. As a result, the estimate of the range of the
reorganization enterprise value of the Reorganized Debtors set forth herein is
not necessarily indicative of actual outcomes, which may be significantly more
or less favorable than those set forth herein. Because such estimates are
inherently subject to uncertainties, neither the Debtors, Lazard, nor any other
person assumes responsibility for their accuracy. In addition, the valuation of
newly-issued securities is subject to additional uncertainties and
contingencies, all of which are difficult to predict. Actual market prices of
such securities at issuance will depend upon, among other things, prevailing
interest rates, conditions in the financial markets, the anticipated initial
securities holdings by pre-petition creditors, some of which may prefer to
liquidate their investment rather than hold it on a long-term basis, and other
factors which generally influence the prices of securities.
The estimates of the reorganization value determined by Lazard
represent estimated reorganization values and do not reflect values that could
be attainable in the public or private markets. The imputed estimate of the
range of the reorganization equity values of the Reorganized Debtors, indicated
in the analysis, does not purport to be an estimate of the post-reorganization
market trading value. Any such trading value may be materially different from
the estimate of the reorganization equity value range for the Reorganized
Debtors according to Lazard's valuation analysis.
2. Summary of Financial Analysis
The following is a summary of certain financial analyses performed
by Lazard to arrive at its estimation of enterprise value of the Reorganized
Debtors. Lazard performed certain procedures, including each of the financial
analyses described below, and reviewed with the management of the Debtors the
assumptions on which such analyses were based. Lazard's estimate of enterprise
valuation must be considered as a whole and selecting just one methodology or
portions of the analysis, without considering the analysis as a whole, could
create a misleading or incomplete conclusion as to enterprise value.
Discounted Cash Flow Analysis. The discounted cash flow analysis
("DCF") valuation methodology relates the value of an asset or business to the
present value of expected future cash flows to be generated by that asset or
business. The DCF methodology is a "forward looking" approach that discounts the
expected future cash flows by a theoretical or observed discount rate determined
by calculating the average cost of debt and equity for publicly traded companies
that are similar to the Debtors. This approach has two components: the present
value of the projected un-levered free cash flows for a
83
determined period; and the present value of the terminal value (representing
firm value beyond the time horizon of the projections).
As the estimated cash flows, estimated discount rate and expected
capital structure of the Reorganized Debtors are used to derive a potential
value, an analysis of the results of such an estimate is not purely
mathematical, but instead involves complex considerations and judgments
concerning potential variances in the projected financial and operating
characteristics of the Reorganized Debtors, as well as other factors that could
affect the future prospects and cost of capital considerations for the
Reorganized Debtors.
In calculating the un-levered free cash flows for the Reorganized
Debtors, Lazard utilized management's financial projections as the primary
input. Beginning with earnings before interest and taxes (EBIT), the analysis
taxes this figure at an assumed rate of 40% to calculate an un-levered net
income figure. The analysis then adds back the non-cash operating expense of
depreciation and amortization. In addition, other factors affecting free cash
flow are taken into account, such as the change in working capital, capital
expenditures and liability expenditures, all of which do not affect the income
statement and therefore require separate adjustments in the calculation.
This calculation was performed for the projection period of
2003-2007 (the "Projection Period"). In performing the calculation, Lazard made
assumptions for the weighted average cost of capital (the "Discount Rate"),
which is used to value future cash flows based on the riskiness of the
projections, and the EBITDA exit multiple, which is used to determine the future
value of the enterprise at the end of the Projection Period. In determining the
Discount Rate, Lazard estimated the cost of equity and the after-tax cost of
debt for the Debtors, and applied a weighting to each according to a target
leverage ratio based on the observation of similar leverage ratios for
comparable companies in the industry. Lazard estimated the cost of equity based
on a capital asset pricing module which assumes that the required equity return
is a function of the risk-free cost of capital and the correlation ("Beta") of a
publicly traded stock's performance to the return on the broader market.
Since the Debtors do not have a publicly traded stock to provide
an empirical basis to estimate the equity cost of capital, Lazard used Betas
from comparable companies on an un-levered basis to determine a composite
un-levered Beta to be applied in determining an estimated cost of equity. Also
included in the calculation of the cost of equity was an implementation risk
premium of 9% to reflect the non-systemic risk associated with the fundamental
and unproven changes in the business model, which are being implemented as part
of management's turnaround plan. In estimating the Debtors' cost of debt, Lazard
considered a number of factors including the likely interest associated with the
Debtors' post-emergence financing, the expected term of such financing and the
effective yield for publicly traded debt securities for comparable companies in
the industry. Lazard's base case analysis estimated the Discount Rate at 15%
which included the calculation of a cost of equity of 18.1% and an after-tax
cost of debt of 7.2%, with a target debt to capital ratio of 25%. In determining
an EBITDA exit multiple, Lazard relied on the Publicly Traded Company Analysis,
described below, in assuming that the future enterprise value will be 5.0x the
EBITDA in 2007, the terminal year of the Projection Period.
The range of enterprise value, according to this analysis, is as
follows: $480 million (Discount Rate of 18%, Exit EBITDA Multiple of 5.0x) to
$630 million (Discount Rate of 12%, Exit EBITDA Multiple of 5.0x) with a
mid-point valuation of $555 million (Discount Rate of 15%, Exit EBITDA Multiple
of 5.0x).
Publicly Traded Company Analysis. A publicly traded company
analysis ("Publicly Traded Company Analysis") estimates value based on a
comparison of the target company's financial statistics with the financial
statistics of public companies that are generally similar to the target company.
The Publicly Traded Company Analysis establishes a benchmark for asset valuation
by deriving the value of "comparable" assets, standardized using a common
variable such as revenues, EBIT and EBITDA. The analysis includes a detailed
multi-year financial comparison of each company's income statement, balance
sheet and cash flow. In addition, each company's performance, profitability,
margins, leverage and business trends are also examined. Based on these
analyses, a number of financial multiples and ratios are calculated to gauge
each company's relative performance and valuation. It relies on the fact that
the price that an investor is willing to pay in the public markets for
securities of similar publicly traded companies represents the Reorganized
Debtors' current and future prospects, as well as the rate of return required on
the investment.
A key factor to this approach is the selection of companies with
relatively similar business and operational characteristics to the target
company. Criteria for selecting companies for the analysis include, among other
relevant characteristics, similar lines of businesses, business risks, growth
prospects, maturity of businesses, market presence, size and
84
scale of operations. The selection of truly comparable companies is often
difficult and subject to limitations due to sample size and the availability of
meaningful market-based information. Accordingly, an analysis of the results of
such comparison is not purely mathematical, but involves complex considerations
and judgments concerning the differences in historical and projected financial
and operating characteristics of the selected companies and other factors that
could affect the value of the selected companies or the Reorganized Debtors to
which they are being compared.
The peer group of publicly traded companies which Lazard
identified for the purposes of this analysis focused on the waste management
industry. While no particular company fits the precise business model presented
by the Debtors, these businesses have many similar characteristics in terms of
the nature of demand, the regulatory operating environment and the perception
among investors that such companies offer similar investment opportunities. The
companies selected for the purpose of this analysis are Allied Waste Industries,
Inc., Cassela Waste Industries, Inc., Republic Services, Inc., Waste Management,
Inc. and Waste Industries USA, Inc.
Lazard primarily observed valuation ratios as a function of the
total enterprise value indicated by the equity market capitalization of each
company in the peer group. While Lazard observed multiples according to revenues
and EBIT, the most emphasis was placed on the EBITDA multiple, which most
closely reflects the true cash-generating ability of each enterprise. On the
basis of enterprise value as a multiple of the last twelve months ("LTM") of
revenues, the peer group indicated a high of 2.14x, a low of 0.95x, a mean of
1.64x and a median of 1.96x. On the basis of enterprise value as a multiple of
LTM EBIT, the peer group indicated a high of 13.2x, a low of 9.7x, a mean of
10.7x and a median of 10.1x. Given the emphasis on EBITDA multiples, Lazard
observed multiples for both LTM EBITDA and projected 2003 EBITDA. For the LTM
EBITDA multiple, the peer group indicated a high of 8.0x, a low of 4.4x, a mean
of 6.3x and a median of 6.9x. For the 2003 EBITDA multiple, the peer group
indicated a high of 7.3x, a low of 4.5x, a mean of 5.8x and a median of 5.7x.
Lazard's application of these results took into account a variety
of factors, both quantitative and qualitative, in an effort to rank the Debtors
among the identified peer group and consider the relative valuation which the
Debtors would command given the availability of these alternative investments.
Those factors considered by Lazard include, but are not limited to, the
following: (a) the use of adjusted EBITDA figures for both the LTM and 2003
projection; (b) the extraordinary increase in EBITDA between the LTM and 2003,
which is largely attributed to management turnaround efforts, rather than, for
example, a commodity price change in the market which has already occurred; (c)
the relative performance of the Debtors to its peers with respect to a number of
operating metrics such as EBITDA margin, revenue growth, capital expense
efficiency and others and (d) a comparison of the historical trading multiples
of the peer group and the Debtors, prior to the acquisition of the Debtors by
LESI (which analysis indicated that the Debtors traded at an average discount to
the peer group of 30% for the period January, 1995 through December, 1997).
Taking these and other factors into account, the range of enterprise value,
according to this analysis, is as follows: (x) on the basis of LTM EBITDA, $390
million (4.4x) to $570 million (6.5x) with a mid-point of $480 million (5.5x)
and (y) on the basis of projected 2003 EBITDA, $540 million (4.1x) to $810
million (6.2x) with a mid-point of $675 million (5.2x).
Precedent Transaction Analysis. Precedent transaction analysis
("Precedent Transaction Analysis") estimates value by examining public merger
and acquisition or change of control transactions. An analysis of a company's
transaction value as a multiple of various operating statistics provides
industry-wide valuation multiples for companies in similar lines of businesses
to the Reorganized Debtors. These multiples were calculated based on the
purchase price (including any debt assumed) paid to acquire companies that are
comparable to the Reorganized Debtors. These multiples were then applied to the
Reorganized Debtors' key operating statistics to determine going concern values
or total enterprise values to a potential buyer. Lazard evaluated each of these
multiples and made judgments as to their relative significance in determining
the Reorganized Debtors' enterprise valuation range.
No reorganization or acquisition value used in any analysis is
identical to a target reorganization or transaction and as a result, valuation
conclusions cannot be based solely upon quantitative results. The reasons for,
and circumstances surrounding, each acquisition transaction are specific to such
acquisition and there are inherent differences between the businesses,
operations and prospects of each. Therefore, just as with the Publicly Traded
Company Analysis, qualitative judgments must be made concerning the differences
between the characteristics of these reorganizations and transactions and other
factors and issues which could affect the target's value.
In performing this analysis, Lazard identified the following
transactions (target/buyer) as precedents based on the nature of the business of
the target company: The Debtors' CSD / Clean Harbors, Sevenson Environmental
Services / SCC Contracting Inc., Hanson Waste Management / Waste Recycling Group
PLC, UK Waste (Waste Management, Inc.) /
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Severn Trent PLC, Waste Management, Inc. - Bio Gro / Syngaro Technologies Inc.,
Waste Management, Inc. - Waste Col / Waste Corp of America, Waste Management -
Nederland / Shanks group PLC, Browning Ferris Industries' Medical Waste Division
/ Stericycle Inc., Browning Ferris Industries Inc. / Allied Waste Industries,
Inc.
Just as in the Publicly Traded Company Analysis, Lazard primarily
observed valuation ratios as a function of the total enterprise value indicated
by the market capitalization for the enterprise according to the price paid for
the stock or the assets in each sample transaction. While Lazard observed
multiples according to revenues and EBIT, the most emphasis was placed on the
EBITDA multiple, which most closely reflects the true cash-generating ability of
each enterprise. On the basis of enterprise value as a multiple of LTM revenues,
the precedent transactions indicated a high of 3.33x, a low of 0.62x, a mean of
1.78x and a median of 1.79x. On the basis of enterprise value as a multiple of
LTM EBIT, the precedent transactions indicated a high of 18.1x, a low of 7.6x, a
mean of 11.6x and a median of 10.9x. Finally, on the basis of enterprise value
as a multiple of LTM EBITDA, the precedent transactions indicated a high of
16.5x, a low of 5.5x, a mean of 8.3x and a median of 6.5x.
Lazard's application of these results took into account a variety
of factors, including those mentioned above with respect to the Publicly Traded
Company Analysis. In addition, due to the fact that the results of a Precedent
Transaction Analysis often reflect a control premium, or are impacted by a
competitive dynamic due to multiple bidders, the valuation multiples indicate
aspects of value not necessarily present in a reorganization. Taking these and
other factors into account, the range of enterprise value according to this
analysis is as follows: $480 million (5.5x LTM EBITDA) to $660 million (7.5x LTM
EBITDA) with a mid-point of $570 million (6.5x LTM EBITDA).
It should be noted that the composite valuation indicated in the
beginning of this section was derived from an evaluation, weighing all of the
analyses described herein, and did not rely singularly on any specific analysis
or methodology. Any similarity in valuation ranges between the composite
valuation and the valuation range of a particular analysis is a matter of
coincidence and does not necessarily mean that such analysis was used as the
sole basis for determining the value of the Reorganized Debtors.
The summary set forth above does not purport to be a complete
description of the analyses performed by Lazard. The preparation of an estimate
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods in the particular
circumstances and, therefore, such an estimate is not readily susceptible to
summary description. The analyses performed by Lazard and the Debtors combined
numerous assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by Lazard are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
E. APPLICATION OF THE "BEST INTERESTS" TEST TO THE LIQUIDATION ANALYSIS AND
THE VALUATION OF THE REORGANIZED DEBTORS
It is impossible to determine with any specificity the value each
creditor will receive as a percentage of its Allowed Claim. This difficulty in
estimating the value of such recoveries is due to, among other things, (1) the
inherent uncertainty with respect to future performance of the Reorganized
Debtors, (2) the ability to liquidate the New Common Stock and (3) the amount of
proceeds to be available in the Safety-Kleen Creditor Trust. Such a valuation is
made even more difficult because the analysis regarding the amount of Claims in
Classes 3 through 7 that will ultimately be Allowed is preliminary and subject
to change.
After considering the effects that a chapter 7 liquidation would
have on the ultimate proceeds available for the distribution to creditors in the
Chapter 11 Cases versus the valuation of the Reorganized Debtors as a going
concern, each as set forth above, the Debtors have determined that the
confirmation of the Plan will provide each holder of an Allowed Claim in Classes
3 through 7 with a recovery that is not less than such holder would receive
pursuant to a liquidation under chapter 7.
F. CONFIRMATION WITHOUT ACCEPTANCE OF ALL IMPAIRED CLASSES: THE "CRAMDOWN"
ALTERNATIVE
In view of the deemed rejection by Classes 7 and 8, the Debtors
will seek confirmation of the Plan pursuant to the "cramdown" provisions of the
Bankruptcy Code. Specifically, section 1129(b) of the Bankruptcy Code provides
that a plan can be confirmed even if the plan is not accepted by all impaired
classes, as long as at least one impaired class of Claims
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has accepted it. The Bankruptcy Court may confirm a plan at the request of the
debtors if the plan "does not discriminate unfairly" and is "fair and equitable"
as to each impaired class that has not accepted the plan. A plan does not
discriminate unfairly within the meaning of the Bankruptcy Code if a dissenting
class is treated equally with respect to other classes of equal rank.
A plan is fair and equitable as to a class of secured claims that
rejects such plan if the plan provides (1)(a) that the holders of Claims
included in the rejecting class retain the liens securing those claims whether
the property subject to those liens is retained by the debtor or transferred to
another entity, to the extent of the allowed amount of such claims and (b) that
each holder of a claim of such class receives on account of that claim deferred
cash payments totaling at least the allowed amount of that claim, of a value, as
of the effective date of the plan, of at least the value of the holder's
interest in the estate's interest in such property; (2) for the sale, subject to
section 363(k) of the Bankruptcy Code, of any property that is subject to the
liens securing the claims included in the rejecting class, free and clear of the
liens, with the liens to attach to the proceeds of the sale, and the treatment
of the liens on proceeds under clause (1) or (3) of this paragraph or (3) for
the realization by such holders of the indubitable equivalent of such claims.
A plan is fair and equitable as to a class of unsecured claims
which rejects a plan if the plan provides (1) for each holder of a claim
included in the rejecting class to receive or retain on account of that claim
property that has a value, as of the effective date of the plan, equal to the
allowed amount of such claim or (2) that the holder of any claim or interest
that is junior to the claims of such class will not receive or retain on account
of such junior claim or interest any property at all.
A plan is fair and equitable as to a class of equity interests
that rejects a plan if the plan provides (1) that each holder of an interest
included in the rejecting class receive or retain on account of that interest
property that has a value, as of the effective date of the plan, equal to the
greatest of the allowed amount of any fixed liquidation preference to which such
holder is entitled, any fixed redemption price to which such holder is entitled,
or the value of such interest or (2) that the holder of any interest that is
junior to the interests of such class will not receive or retain under the plan
on account of such junior interest any property at all.
The Debtors also will seek confirmation of the Plan pursuant to
the "cramdown" provisions of the Bankruptcy Code with respect to Classes 8 and
9, and with respect to the holders of Claims in Classes 3 through 7 if such
Classes vote to reject the Plan.
ARTICLE XVIII
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors believe that the Plan affords Holders of Claims in
Classes 3 through 7 the potential for the greatest realization on the Debtors'
assets and, therefore, is in the best interests of such Holders.
If, however, the requisite acceptances are not received, or the
Plan is not confirmed and consummated, the theoretical alternatives include: (a)
formulation of an alternative plan or plans of reorganization or (b) liquidation
of the Debtors under chapter 7 or 11 of the Bankruptcy Code.
A. ALTERNATIVE PLAN(S) OF REORGANIZATION
If the requisite acceptances are not received or if the Plan is
not confirmed, the Debtors (or, if the Debtors' exclusive periods in which to
file and solicit acceptances of a plan of reorganization have expired), any
other party-in-interest could attempt to formulate and propose a different plan
or plans of reorganization. Such a plan or plans might involve either a
reorganization and continuation of the Debtors' businesses or an orderly
liquidation of assets.
Additionally, it is not clear whether the Debtors could survive as
going concerns in a protracted alternative plan of reorganization. They could
have difficulty sustaining operations in the face of high costs, erosion of
customer confidence, and liquidity difficulties that could well result if they
remained Debtors for any length of time.
With respect to an alternative plan, the Debtors have explored
various other alternatives in connection with the extensive formulation and
development of the Plan. The Debtors believe that the Plan, as described herein,
enables
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creditors to realize the greatest possible value under the circumstances, and,
that as compared to any alternative plan of reorganization, has the greatest
chance to be confirmed and consummated.
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If no plan is confirmed, the Chapter 11 Cases may be converted to
cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would
be elected or appointed to liquidate the Debtors' assets for distribution to
creditors in accordance with the priorities established by the Bankruptcy Code.
It is impossible to predict precisely how the proceeds of the liquidation would
be distributed to the respective holders of Claims against or Interests in the
Debtors.
The Debtors believe that in a liquidation under chapter 7, before
creditors receive any distribution, additional administrative expenses involved
in the appointment of a trustee or trustees and attorneys, accountants and other
professionals to assist such trustees would cause a substantial diminution in
the value of the Debtors' Estates. The assets available for distribution to
Creditors would be reduced by such additional expenses and by the Claims, some
of which would be entitled to priority, which would arise by reason of the
liquidation and from the rejection of leases and other executory contracts in
connection with the cessation of operations and the failure to realize the
greater going concern value of the Debtors' assets.
The Debtors could also be liquidated pursuant to the provisions of
a chapter 11 plan. In a liquidation under chapter 11, the Debtors' assets could
be sold in an orderly fashion over a more extended period of time than in a
liquidation under chapter 7. Thus, a chapter 11 liquidation might result in
larger recoveries than in a chapter 7 liquidation, but the delay in
distributions could result in lower present values received and higher
administrative costs. Because a trustee is not required in a chapter 11 case,
expenses for professional fees could be lower than in a chapter 7 case, in which
a trustee must be appointed. Any distribution to the holders of Claims under a
chapter 11 liquidation plan probably would be delayed substantially.
Although preferable to a chapter 7 liquidation, the Debtors
believe that any alternative liquidation under chapter 11 is a much less
attractive alternative to creditors than the Plan because of the greater return
the Debtors contemplate is provided by the Plan.
ARTICLE XIX
THE SOLICITATION; VOTING PROCEDURES
A. SOLICITATION OF VOTES
In general, a holder of a claim or interest may vote to accept or
to reject a plan if (1) the claim or interest is an "allowed" claim, which means
generally that no party in interest has objected to such claim or interest and
(2) the claim or interest is impaired by the plan of reorganization. If,
however, the holder of an impaired claim or interest will not receive or retain
any distribution under the plan on account of such claim or interest, the
Bankruptcy Code deems such holder to have rejected the plan, and, accordingly,
holders of such claims and interests do not actually vote on the plan. If a
claim or interest is not impaired by the plan, the Bankruptcy Code deems the
holder of such claim or interest to have accepted the plan and, accordingly,
holders of such claims and interests are not entitled to vote on the plan.
Under section 1124 of the Bankruptcy Code, a class of claims or
interests is deemed to be "impaired" under a plan unless (1) the plan leaves
unaltered the legal, equitable, and contractual rights to which such claim or
interest entitles the holder thereof or (2) notwithstanding any legal right to
an accelerated payment of such claim or interest, the plan cures all existing
defaults (other than defaults resulting from the occurrence of events of
bankruptcy) and reinstates the maturity of such claim or interest as it existed
before the default.
Claims in Classes 3 through 7 are Impaired under the Plan and
holders of such claims that are not Disputed Claims or Disallowed Claims are
entitled to vote on the Plan. Holders of Claims or Interests in Classes 8 and 9
will receive no distribution under the Plan. Such Classes are therefore Impaired
and by operation of law, holders of Claims or Interests in Classes 8 and 9 are
therefore deemed to have rejected the Plan and are not entitled to vote on the
Plan. In contrast, holders of
88
Claims in Classes 1 and 2 are Unimpaired and are not entitled to vote because,
by operation of law, they are deemed to have accepted the Plan.
Holders of Claims in Classes 3 through 7 are being furnished with
a copy of the Summary Disclosure Statement With Respect to Joint Plan of
Reorganization of Safety-Kleen Corp. and Certain of Its Subsidiaries and
Affiliates (the "Summary Disclosure Statement"), together with related
materials, as well as a Ballot to cast their vote (and pre-addressed,
postage-prepaid return envelope) appropriate for the specific creditor. Holders
of Claims or Interests in Classes 1, 2, 8, 9 (who are not entitled to vote
because they are either Unimpaired and deemed to have accepted the Plan or
Impaired and deemed to have rejected the Plan) will also be furnished with the
Summary Disclosure Statement as well as a notice of their non-voting status. Any
party in interest may expeditiously obtain the more comprehensive Disclosure
Statement and Plan by (i) accessing the website set forth in the Summary
Disclosure Statement and downloading a full copy of the Disclosure Statement
and/or the Plan at no charge or (ii) calling Skadden, Arps, Slate, Meagher &
Flom LLP at 1-888-358-9792 or Innisfree M&A Incorporated at (877) 750-2689 to
request such documents.
B. VOTING DEADLINE
All votes to accept or reject the Plan must be cast by using the
Ballot enclosed with the Summary Disclosure Statement. No other votes will be
counted. Ballots and Master Ballots (as defined herein) must be RECEIVED by the
Voting Agent (as defined below) no later than 4:00 p.m. (Eastern time) on
[January ___, 2003].
The Debtors reserve the absolute right to extend, by oral or
written notice to the Voting Agent, the period of time (on a daily basis, if
necessary) during which Ballots will be accepted for any reason including, but
not limited to, determining whether or not the requisite acceptances have been
received, by making a public announcement of such extension no later than 9:00
a.m. (Eastern time) on the first Business Day next succeeding the previously
announced Voting Deadline. Without limiting the manner in which the Debtors may
choose to make any public announcement, the Debtors will not have any obligation
to publish, advertise, or otherwise communicate any such public announcement,
other than by issuing a news release through the Dow Jones News Service. There
can be no assurance that the Debtors will exercise their right to extend the
solicitation period for the receipt of Ballots.
Except to the extent requested by the Debtors or as permitted by
the Bankruptcy Court, Ballots received after the Voting Deadline will not be
counted or otherwise used in connection with the Debtors' request for
confirmation of the Plan (or any permitted modification thereof).
C. VOTING PROCEDURES
The failure of a holder of a Claim in Classes 3 through 7 to
deliver a duly executed Ballot will be deemed to constitute an abstention by
such holder with respect to voting on the Plan and such abstentions will not be
counted as votes for or against the Plan.
Each voting Claimholder should provide all of the information
requested by the Ballots. Each voting Claimholder should complete and return all
Ballots received in the return envelope provided with each such Ballot. IN NO
CASE SHOULD A BALLOT BE DELIVERED TO ANY ENTITY OTHER THAN THE VOTING AGENT
(EXCEPT BENEFICIAL OWNERS OF DEBT SECURITIES ARE INSTRUCTED TO RETURN THEIR
BALLOTS TO THEIR NOMINEES).
D. SPECIFIC INSTRUCTIONS FOR DEBT SECURITIES HOLDERS
The record date to determine the holders of stock, bonds,
debentures, notes and other securities is [January ___, 2003].
1. Beneficial Owners
A registered record holder holding 9 1/4% Senior Notes, 9 1/4%
Senior Subordinated Notes, the Clive Industrial Revenue Bond Claims against
Safety-Kleen (Clive) Inc., the Osco Treatment System Industrial Revenue Bond
Claims against Safety-Kleen (Nashville), Inc., the Aragonite Industrial Revenue
Bond Claims against SKC, and the California Pollution Control Financing
Authority Industrial Revenue Bond Claims against SKC (the "Debt Securities"), or
an authorized
89
signatory for a beneficial owner should vote on the Plan by completing and
signing the Ballot and returning it directly to Innisfree M&A Incorporated
("Innisfree") on or before the Voting Deadline using the self-addressed,
postage-paid envelope enclosed with the Ballot.
A beneficial owner holding Debt Securities in "street name"
through a bank, broker, other intermediary, or agent thereof (each, a "Nominee")
may vote on the Plan by one of the following two methods (as selected by such
beneficial owner's Nominee):
(a) Complete and sign the beneficial owner Ballot and return the
Ballot to the Nominee as promptly as possible and in sufficient time to allow
such Nominee to process the Ballot and return it to Innisfree by the Voting
Deadline. If no self-addressed, postage-paid envelope was enclosed for this
purpose, the beneficial owner should contact Innisfree or the Nominee for
instructions, or
(b) Complete and sign the pre-validated Ballot (as described
below) provided by the Nominee and return the pre-validated Ballot to Innisfree
by the Voting Deadline using the return envelope provided.
Any Ballot returned to a Nominee by a beneficial owner will not be
counted for purposes of acceptance or rejection of the Plan until such Nominee
properly completes and delivers to Innisfree that Ballot or a Master Ballot.
If any beneficial owner owns Debt Securities through more than one
Nominee, such beneficial owner may receive multiple mailings containing the
Ballots. The beneficial owner should execute a separate Ballot for each block of
Debt Securities that it holds through any particular Nominee and return each
Ballot to the respective Nominee in the return envelope provided therewith.
Beneficial owners who execute multiple Ballots with respect to Debt Securities
held though more than one Nominee must indicate on each Ballot the additional
amounts of such Debt Securities so held and voted.
2. Nominees
A Nominee that on the Record Date is the registered holder of Debt
Securities for a beneficial owner can obtain the votes of the beneficial owners
of such Debt Securities, consistent with customary practices for obtaining the
votes of securities held in "street name," in one of the following two ways:
(a) Prevalidated Ballots . The Nominee may prevalidate the Ballot
by (i) signing the Ballot; (ii) indicating on the Ballot the name of the record
holder of the Debt Securities, the principal amount, and the appropriate account
numbers through which the beneficial owner's holdings are derived and (iii)
forwarding such Ballot, together with the Summary Disclosure Statement, to the
beneficial owner of the Debt Securities for voting so that the beneficial owner
may return the completed Ballot directly to the Voting Agent in the return
envelope provided, so that it is received by the Voting Deadline. A list of the
beneficial owners to whom prevalidated Ballots were delivered should be
maintained by the Nominees for inspection for at least one year from the Voting
Deadline; or
(b) Master Ballots . If the Nominee elects not to prevalidate
Ballots, the Nominee may obtain the votes of beneficial owners by forwarding to
the beneficial owners the unsigned Ballots, together with the Summary Disclosure
Statement, a return envelope provided by, and addressed to, the Nominee, and
other materials requested to be forwarded. Each such beneficial owner must then
indicate his/her or its vote on the Ballot, complete the information requested
in the Ballot, review the certifications contained in the Ballot, execute the
Ballot, and return the Ballot to the Nominee. After collecting the Ballots, the
Nominee should, in turn, complete a Ballot compiling the votes and other
information from the Ballot (a "Master Ballot"), execute the Master Ballot, and
deliver the Master Ballot to Innisfree so that it is received by Innisfree
before the Voting Deadline. All Ballots returned by beneficial owners should
either be forwarded to Innisfree (along with the Master Ballot) or be retained
by the Nominees for inspection for at least one year form the Voting Deadline.
EACH NOMINEE SHOULD ADVISE ITS BENEFICIAL OWNERS TO RETURN THEIR BALLOTS TO THE
NOMINEE BY A DATE CALCULATED TO ALLOW THE NOMINEE TO PREPARE AND RETURN THE
MASTER BALLOT TO THE VOTING AGENT SO THAT IT IS RECEIVED BY THE VOTING AGENT
BEFORE THE VOTING DEADLINE.
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3. Miscellaneous
Ballots or Master Ballots that are signed, dated and timely
received, but on which a vote to accept or reject the Plan has not been
indicated, will not be counted. Except as provided below, unless the appropriate
Ballot or Master Ballot is timely submitted to Innisfree before the Voting
Deadline, the Debtors may, in their sole discretion, reject such Ballot or
Master Ballot as invalid, and therefore decline to utilize it in connection with
seeking confirmation of the Plan.
E. FIDUCIARIES AND OTHER REPRESENTATIVES
If a Ballot is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, or another acting in a
fiduciary or representative capacity, such person should indicate such capacity
when signing and, unless otherwise determined by the Debtors, must submit proper
evidence satisfactory to the Debtors of authority to so act. Authorized
signatories should submit the separate Ballot of each beneficial owner for whom
they are voting.
F. WAIVERS OF DEFECTS, IRREGULARITIES, ETC.
Unless otherwise directed by the Bankruptcy Court, all questions
as to the validity, form, eligibility (including time of receipt), acceptance,
and revocation or withdrawal of Ballots will be determined by the Voting Agent
and the Debtors in their sole discretion, which determination will be final and
binding. As indicated below under "Withdrawal of Ballots; Revocation," effective
withdrawals of Ballots must be delivered to the Voting Agent prior to the Voting
Deadline. The Debtors reserve the absolute right to contest the validity of any
such withdrawal. The Debtors also reserve the right to reject any and all
Ballots not in proper form, the acceptance of which would, in the opinion of the
Debtors or their counsel, be unlawful. The Debtors further reserve the right to
waive any defects or irregularities or conditions of delivery as to any
particular Ballot. The interpretation (including the Ballot and the respective
instructions thereto) by the Debtors, unless otherwise directed by the
Bankruptcy Court, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with deliveries of Ballots must be cured
within such time as the Debtors (or the Bankruptcy Court) determine. Neither the
Debtors nor any other person will be under any duty to provide notification of
defects or irregularities with respect to deliveries of Ballots nor will any of
them incur any liabilities for failure to provide such notification. Unless
otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be
deemed to have been made until such irregularities have been cured or waived.
Ballots previously furnished (and as to which any irregularities have not
theretofore been cured or waived) will be invalidated.
G. WITHDRAWAL OF BALLOTS; REVOCATION
Any party who has delivered a valid Ballot for the acceptance or
rejection of the Plan may withdraw such acceptance or rejection by delivering a
written notice of withdrawal to the Voting Agent at any time prior to the Voting
Deadline. A notice of withdrawal, to be valid, must (1) contain the description
of the Claim(s) to which it relates and the aggregate principal amount
represented by such Claim(s), (2) be signed by the withdrawing party in the same
manner as the Ballot being withdrawn, (3) contain a certification that the
withdrawing party owns the Claim(s) and possesses the right to withdraw the vote
sought to be withdrawn and (4) be received by the Voting Agent in a timely
manner at the address set forth below under "Further Information; Additional
Copies." The Debtors intend to consult with the Voting Agent to determine
whether any withdrawals of Ballots were received and whether the requisite
acceptances of the Plan have been received. As stated above, the Debtors
expressly reserve the absolute right to contest the validity of any such
withdrawals of Ballots.
Unless otherwise directed by the Bankruptcy Court, a purported
notice of withdrawal of Ballots which is not received in a timely manner by the
Voting Agent will not be effective to withdraw a previously cast Ballot.
Any party who has previously submitted to the Voting Agent prior
to the Voting Deadline a properly completed Ballot may revoke such Ballot and
change his or its vote by submitting to the Voting Agent prior to the Voting
Deadline a subsequent properly completed Ballot for acceptance or rejection of
the Plan. In the case where more than one timely, properly completed Ballot is
received, only the Ballot which bears the latest date will be counted for
purposes of determining whether the requisite acceptances have been received.
91
H. FURTHER INFORMATION: ADDITIONAL COPIES
Any party wishing to review a comprehensive copy OF the Plan,
the Disclosure Statement, or any exhibits or appendices to such documents may
obtain them by accessing [name or website] or calling Skadden, ARPS, Slate,
Meagher & Flom at 1-888-358-9792. Moreover, any party that has any questions or
requires further information about the voting procedure or about the packet of
material received, may contact the Voting Agents listed below (each, a "Voting
Agent"):
CREDITORS OTHER THAN HOLDERS OF DEBT SECURITIES
SAFETY-KLEEN CORP.
c/o Trumbull Services LLC
Griffin Center
4 Griffin Rd.
North Windsor, CT 06095
Phone (860) 687-3916
or
HOLDERS OF EQUITY AND DEBT SECURITIES
SAFETY-KLEEN BALLOT TABULATION
c/o Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Phone (877) 750-2689
Bankers and brokers call (212) 750-5833
ARTICLE XX
RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement,
the Debtors believe that confirmation and consummation of the Plan is preferable
to all other alternatives. Consequently, the Debtors urge all holders of Claims
in Classes 3 through 7 to vote to ACCEPT the Plan, and to complete and return
their ballots so that they will he RECEIVED by the Voting Agent on or before
4:OO p.m. Eastern time on the Voting Deadline.
[SIGNATURE BLOCK ON NEXT PAGE]
92
Dated; November 27, 2002
Respectfully submitted,
SAFETY-KLEEN CORP. AND CERTAIN OF ITS SUBSIDIARIES AND
AFFILIATES WHO ARE ALSO DEBTORS AND
DEBTORS-IN-POSSESSION IN THE CHAPTER 11 CASES
By: /s/ Larry W. Singleton
---------------------------
Larry W. Singleton
Their: Executive Vice President, Chief Financial
Officer and Executive Officer
APPENDIX A
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
-----------------------------------------------
JOINT PLAN OF REORGANIZATION OF
SAFETY-KLEEN CORP., AND CERTAIN
OF ITS SUBSIDIARIES AND AFFILIATES
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- ----------------------------------------X
)
IN RE: ) CHAPTER 11
)
SAFETY-KLEEN CORP., ET AL., ) CASE NO. 00-2303 (PJW)
)
DEBTORS. ) JOINTLY ADMINISTERED
)
- ----------------------------------------X
JOINT PLAN OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES
--------------------------------------------------
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Four Times Square
New York, New York 10036-6522
Attn: D. J. Baker
J. Gregory St. Clair
Steven B. Eichel
- and -
One Rodney Square
Wilmington, Delaware 19899
Attn: Gregg M. Galardi
ATTORNEYS FOR SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES,
DEBTORS AND DEBTORS-IN-POSSESSION
Dated: November 27,2002
THE DISCLOSURE STATEMENT WITH RESPECT TO THIS JOINT PLAN OF REORGANIZATION HAS
NOT BEEN APPROVED BY THE BANKRUPTCY COURT. THE DEBTORS WILL SEPARATELY NOTICE A
HEARING TO CONSIDER THE ADEQUACY OF THE DISCLOSURE STATEMENT UNDER SECTION 1125
OF THE BANKRUPTCY CODE. THE DEBTORS RESERVE THE RIGHT TO MODIFY OR SUPPLEMENT
THIS JOINT PLAN OF REORGANIZATION AND THE ACCOMPANYING DISCLOSURE STATEMENT
PRIOR TO AND UP TO THE DATE OF SUCH HEARING.
TABLE OF CONTENTS
INTRODUCTION ......................................................... Plan - 1
ARTICLE I DEFINITIONS .............................................. Plan - 1
1.1 "Administrative Claim" ................................... Plan - 2
1.2 "Affiliates" ............................................. Plan - 2
1.3 "Allowed Claim" .......................................... Plan - 2
1.4 "Allowed . . . Claim" .................................... Plan - 2
1.5 "Aragonite Indenture" .................................... Plan - 2
1.6 "Aragonite Indenture Trustee" ............................ Plan - 2
1.7 "Aragonite Industrial Revenue Bonds" ..................... Plan - 2
1.8 "Avoidance Claims" ....................................... Plan - 2
1.9 "Bankruptcy Code" ........................................ Plan - 2
1.10 "Bankruptcy Court" ....................................... Plan - 2
1.11 "Bankruptcy Rules" ....................................... Plan - 2
1.12 "BSSD" ................................................... Plan - 2
1.13 "Business Day" ........................................... Plan - 3
1.14 "California Coverage Action" ............................. Plan - 3
1.15 "California Pollution Control Financing
Authority Indenture" .................................. Plan - 3
1.16 "California Pollution Control Financing
Authority Indenture Trustee" .......................... Plan - 3
1.17 "California Pollution Control Financing
Authority Industrial Revenue Bonds" ................... Plan - 3
1.18 "Canadian Lender Administrative Claim" ................... Plan - 3
1.19 "Canadian Lenders" ....................................... Plan - 3
1.20 "Cash" ................................................... Plan - 3
1.21 "Causes of Action" ....................................... Plan - 3
1.22 "Certificate" ............................................ Plan - 3
1.23 "Chapter 11 Cases" ....................................... Plan - 3
1.24 "Claim" .................................................. Plan - 3
1.25 "Claimholder" ............................................ Plan - 3
1.26 "Claims Objection Deadline" .............................. Plan - 4
1.27 "Class"................................................... Plan - 4
1.28 "Clive Indenture" ........................................ Plan - 4
1.29 "Clive Indenture Trustee" ................................ Plan - 4
1.30 "Clive Industrial Revenue Bonds" ......................... Plan - 4
1.31 "Common Defendant" ....................................... Plan - 4
1.32 "Confirmation Date" ...................................... Plan - 4
1.33 "Confirmation Hearing" ................................... Plan - 4
1.34 "Confirmation Order" ..................................... Plan - 4
1.35 "Creditors' Committee" ................................... Plan - 4
1.36 "CSD Subsidiaries" ....................................... Plan - 4
1.37 "Cure" ................................................... Plan - 4
1.38 "Current Directors and Officers" ......................... Plan - 4
1.39 "Debt" ................................................... Plan - 4
1.40 "Debtors" ................................................ Plan - 4
1.41 "DHEC" ................................................... Plan - 4
1.42 "DEHC Administrative Claim" .............................. Plan - 4
1.43 "DIP Agent" .............................................. Plan - 5
1.44 "DIP Credit Agreement" ................................... Plan - 5
1.45 "DIP Facility" ........................................... Plan - 5
1.46 "DIP Facility Claim" ..................................... Plan - 5
Plan - i
Page
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1.47 "DIP Facility Order" ..................................... Plan - 5
1.48 "DIP Lenders" ............................................ Plan - 5
1.49 "Disallowed Claim" ....................................... Plan - 5
1.50 "Disbursing Agent" ....................................... Plan - 5
1.51 "Disclosure Statement" ................................... Plan - 5
1.52 "Disputed Claim" ......................................... Plan - 5
1.53 "Dissolving Debtor"....................................... Plan - 6
1.54 "Distribution Dates"...................................... Plan - 6
1.55 "Distribution Notification Date".......................... Plan - 6
1.56 "Effective Date".......................................... Plan - 6
1.57 "Estates"................................................. Plan - 6
1.58 "Exhibit"................................................. Plan - 6
1.59 "Exhibit Filing Date"..................................... Plan - 6
1.60 "Existing Securities"..................................... Plan - 6
1.61 "Exit Facility"........................................... Plan - 6
1.62 "Face Amount"............................................. Plan - 6
1.63 "Final Order"............................................. Plan - 6
1.64 "Fiscal Year"............................................. Plan - 6
1.65 "Frontier Bonds".......................................... Plan - 6
1.66 "General Unsecured Claim"................................. Plan - 6
1.67 "GSX Contribution Trust Fund"............................. Plan - 7
1.68 "Holdback Amount"......................................... Plan - 7
1.69 "Impaired"................................................ Plan - 7
1.70 "Indemnification Obligations"............................. Plan - 7
1.71 "Indenture Trustees"...................................... Plan - 7
1.72 "Indenture Trustees' Fees"................................ Plan - 7
1.73 "Industrial Revenue Bonds"................................ Plan - 7
1.74 "Initial Deposit"......................................... Plan - 7
1.75 "Initial Distribution Date"............................... Plan - 7
1.76 "Insurance Coverage Actions".............................. Plan - 7
1.77 "Insurance Settlement".................................... Plan - 7
1.78 "Intercompany Claim"...................................... Plan - 7
1.79 "Interest"................................................ Plan - 7
1.80 "Interestholder".......................................... Plan - 7
1.81 "Internal Revenue Code"................................... Plan - 8
1.82 "Laidlaw Claim"........................................... Plan - 8
1.83 "Laidlaw Debtors"......................................... Plan - 8
1.84 "Lender Claims"........................................... Plan - 8
1.85 "Lender Claims Reserve"................................... Plan - 8
1.86 "Lenders"................................................. Plan - 8
1.87 "Management Incentive Compensation Plan".................. Plan - 8
1.88 "Merger Agreement"........................................ Plan - 8
1.89 "Merger Sub".............................................. Plan - 8
1.90 "Miscellaneous Secured Claim"............................. Plan - 8
1.91 "New Common Stock"........................................ Plan - 8
1.92 "New Environmental Impairment Trust Fund"................. Plan - 8
1.93 "New Holdco".............................................. Plan - 8
1.94 "New Jersey Coverage Action".............................. Plan - 8
1.95 "New Parent".............................................. Plan - 9
1.96 "New Subordinated Cash Pay Notes"......................... Plan - 9
Plan - ii
Page
----
1.97 "New Subordinated Cash Pay Notes Indenture"............... Plan - 9
1.98 "New Subordinated Notes".................................. Plan - 9
1.99 "New Subordinated PIK Notes".............................. Plan - 9
1.100 "New Subordinated PIK Notes Indenture".................... Plan - 9
1.101 "New Subsidiary".......................................... Plan - 9
1.102 "9 1/4% Senior Notes"..................................... Plan - 9
1.103 "9 1/4% Senior Notes Indenture"........................... Plan - 9
1.104 "9 1/4% Senior Notes Indenture Trustee"................... Plan - 9
1.105 "9 1/4% Senior Subordinated Notes"........................ Plan - 9
1.106 "9 1/4% Senior Subordinated Notes Indenture".............. Plan - 9
1.107 "9 1/4% Senior Subordinated Notes Indenture Trustee"...... Plan - 9
1.108 "Old Common Stock"........................................ Plan - 9
1.109 "Osco Treatment Systems Indenture"........................ Plan - 10
1.110 "Osco Treatment Systems Indenture Trustee"................ Plan - 10
1.111 "Osco Treatment Systems Industrial Revenue Bonds"......... Plan - 10
1.112 "Other Priority Claim".................................... Plan - 10
1.113 "Person".................................................. Plan - 10
1.114 "Petition Date"........................................... Plan - 10
1.115 "Pinewood"................................................ Plan - 10
1.116 "Pinewood Facility........................................ Plan - 10
1.117 "Pinewood Settlement"..................................... Plan - 10
1.118 "Pinewood Site Settlement Agreement"...................... Plan - 10
1.119 "Plan".................................................... Plan - 10
1.120 "Plan Supplement"......................................... Plan - 10
1.121 "Prepetition Agent"....................................... Plan - 10
1.122 "Prepetition Credit Agreement"............................ Plan - 10
1.123 "Prepetition Credit Facility"............................. Plan - 10
1.124 "Prepetition Guarantee and Collateral Agreement".......... Plan - 11
1.125 "Prepetition Notes"....................................... Plan - 11
1.126 "Priority Tax Claim"...................................... Plan - 11
1.127 "Pro Rata"................................................ Plan - 11
1.128 "Professional"............................................ Plan - 11
1.129 "Professional Claim"...................................... Plan - 11
1.130 "Professional Fee Orders"................................. Plan - 11
1.131 "Projections"............................................. Plan - 11
1.132 "PwC Litigation Claim".................................... Plan - 11
1.133 "Qualified Settlement Trust".............................. Plan - 11
1.134 "Reinstated" or "Reinstatement"........................... Plan - 11
1.135 "Release Obligor"......................................... Plan - 12
1.136 "Released Person"......................................... Plan - 12
1.137 "Reorganized ... "........................................ Plan - 12
1.138 "Reorganized Debtors"..................................... Plan - 12
1.139 "Reorganized Systems"..................................... Plan - 12
1.140 "Resolved Insurance Policies"............................. Plan - 12
1.141 "Restructuring Transactions".............................. Plan - 12
1.142 "Retained Actions"........................................ Plan - 12
1.143 "Safety-Kleen Creditor Trust"............................. Plan - 12
1.144 "Scheduled"............................................... Plan - 12
1.145 "Schedules"............................................... Plan - 12
1.146 "Secured Claim"........................................... Plan - 12
Plan - iii
Page
----
1.147 "Secured U.S. Lender Claim"............................. Plan - 13
1.148 "Securities Act of 1933"................................ Plan - 13
1.149 "SERP".................................................. Plan - 13
1.150 "Settling Insurers"..................................... Plan - 13
1.151 "Site Trust"............................................ Plan - 13
1.152 "Site Trust Agreement".................................. Plan - 13
1.153 "Site Trustee".......................................... Plan - 13
1.154 "SK Services"........................................... Plan - 13
1.155 "SK Systems"............................................ Plan - 13
1.156 "SKC"................................................... Plan - 13
1.157 "Subordinated Claim".................................... Plan - 13
1.158 "Swap Agreements"....................................... Plan - 13
1.159 "Swap Parties".......................................... Plan - 13
1.160 "Systems Assets"........................................ Plan - 13
1.161 "Trust Advisory Board".................................. Plan - 13
1.162 "Trust Agreement"....................................... Plan - 14
1.163 "Trust Assets".......................................... Plan - 14
1.164 "Trust Claims".......................................... Plan - 14
1.165 "Trust Distribution Reserve"............................ Plan - 14
1.166 "Trust Expenses"........................................ Plan - 14
1.167 "Trust Recoveries"...................................... Plan - 14
1.168 "Trustee"............................................... Plan - 14
1.169 "Unclassified Claims"................................... Plan - 14
1.170 "Unimpaired"............................................ Plan - 14
1.171 "U.S. Lender Claim"..................................... Plan - 14
1.172 "U.S. Lenders".......................................... Plan - 14
1.173 "Voting Deadline"....................................... Plan - 14
1.174 "Washington Coverage Action"............................ Plan - 14
ARTICLE II COMPROMISE AND SETTLEMENT OF DISPUTES................... Plan - 15
ARTICLE III CLASSIFICATION OF CLAIMS AND INTERESTS.................. Plan - 15
3.1 Introduction............................................ Plan - 15
3.2 Unimpaired Claims....................................... Plan - 15
3.3 Impaired Claims......................................... Plan - 16
3.4 Impaired Interests...................................... Plan - 16
ARTICLE IV TREATMENT OF CLAIMS AND INTERESTS....................... Plan - 17
4.1 Unclassified Claims..................................... Plan - 17
4.2 Unimpaired Classes of Claims............................ Plan - 18
4.3 Impaired Classes of Claims.............................. Plan - 19
4.4 Impaired Classes of Interests........................... Plan - 20
4.5 Reservation of Rights Regarding Unimpaired Claims....... Plan - 20
ARTICLE V ACCEPTANCE OR REJECTION OF THE PLAN..................... Plan - 21
5.1 Impaired Classes of Claims Entitled to Vote............. Plan - 21
5.2 Acceptance by the Impaired Class........................ Plan - 21
5.3 Presumed Acceptance by the Unimpaired Classes........... Plan - 21
5.4 Classes Deemed to Reject Plan........................... Plan - 21
5.5 Cramdown................................................ Plan - 21
Plan - iv
Page
----
5.6 Confirmability and Severability of a Plan.............. Plan - 21
ARTICLE VI MEANS FOR IMPLEMENTATION OF THE PLAN................... Plan - 22
6.1 Continued Corporate Existence for Branch Sales
and Service Division................................ Plan - 22
6.2 Corporate Action....................................... Plan - 22
6.3 Directors and Officers................................. Plan - 24
6.4 Management Incentive Compensation Plan................. Plan - 24
6.5 Exit Facility.......................................... Plan - 24
6.6 New Common Stock....................................... Plan - 25
6.7 New Subordinated Notes................................. Plan - 25
6.8 Preservation of Causes of Action....................... Plan - 25
6.9 Exclusivity Period..................................... Plan - 26
6.10 Intercompany Claims.................................... Plan - 26
6.11 Effectuating Documents; Further Transactions........... Plan - 26
6.12 Exemption from Certain Transfer Taxes.................. Plan - 26
ARTICLE VII EXECUTORY CONTRACTS AND UNEXPIRED LEASES............... Plan - 26
7.1 Rejected Contracts and Leases.......................... Plan - 26
7.2 Rejection Damages Bar Date............................. Plan - 27
7.3 Assumed Contracts and Leases........................... Plan - 27
7.4 Payments Related to Assumption of Executory
Contracts and Unexpired Leases...................... Plan - 27
7.5 Employment, Retirement, Indemnification and
Other Employee Related Agreements................... Plan - 27
ARTICLE VIII SECURITIES TO BE ISSUED IN CONNECTION WITH
THE PLAN............................................... Plan - 28
ARTICLE IX PROVISIONS GOVERNING DISTRIBUTIONS..................... Plan - 28
9.1 Time of Distributions.................................. Plan - 28
9.2 Interest on Claims..................................... Plan - 28
9.3 Disbursing Agent....................................... Plan - 28
9.4 Trustee................................................ Plan - 28
9.5 Surrender of Securities or Instruments................. Plan - 28
9.6 Instructions to Indenture Trustees..................... Plan - 29
9.7 Notification Date for Distributions to Holders
of Prepetition Notes and Industrial Revenue Bonds... Plan - 29
9.8 Claims Administration Responsibility................... Plan - 29
9.9 Objection Deadline..................................... Plan - 29
9.10 Calculation of Distribution Amounts.................... Plan - 30
9.11 Delivery of Distributions.............................. Plan - 30
9.12 Procedures for Treating and Resolving Disputed
and Contingent Claims............................... Plan - 31
ARTICLE X ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE
CLAIMS................................................. Plan - 32
10.1 DIP Facility Claim..................................... Plan - 32
10.2 Professional Claims.................................... Plan - 32
10.3 Substantial Contribution Compensation and
Expenses Bar Date................................... Plan - 33
10.4 Other Administrative Claims............................ Plan - 33
10.5 Administrative Claims Allowable Against
Multiple Debtors.................................... Plan - 33
ARTICLE XI SAFETY-KLEEN CREDITOR TRUST............................ Plan - 34
11.1 Appointment of Trustee................................. Plan - 34
11.2 Assignment of Trust Assets to the Safety-Kleen
Creditor Trust...................................... Plan - 34
Plan - v
Page
----
11.3 The Safety-Kleen Creditor Trust........................ Plan - 34
11.4 The Trust Advisory Board............................... Plan - 35
11.5 Funding of the Initial Deposit......................... Plan - 36
11.6 Distributions of Trust Assets.......................... Plan - 36
ARTICLE XII EFFECT OF THE PLAN..................................... Plan - 37
12.1 Revesting of Assets.................................... Plan - 37
12.2 Discharge of the Debtors............................... Plan - 37
12.3 Compromises and Settlements............................ Plan - 37
12.4 Setoffs................................................ Plan - 37
12.5 Satisfaction of Subordination Rights................... Plan - 38
12.6 Exculpation and Limitation of Liability................ Plan - 38
12.7 Indemnification Obligations............................ Plan - 38
12.8 Release by Debtors and Debtors-in-Possession........... Plan - 39
12.9 Release by Holders of Claims and Interests............. Plan - 39
12.10 Release by Insured Persons............................. Plan - 40
12.11 Injunction............................................. Plan - 40
ARTICLE XIII CONDITIONS PRECEDENT................................... Plan - 40
13.1 Conditions to Confirmation............................. Plan - 40
13.2 Conditions to Consummation............................. Plan - 40
13.3 Waiver of Conditions to Confirmation or
Consummation........................................ Plan - 42
ARTICLE XIV RETENTION OF JURISDICTION.............................. Plan - 42
ARTICLE XV MISCELLANEOUS PROVISIONS............................... Plan - 43
15.1 Binding Effect......................................... Plan - 43
15.2 Modification and Amendments............................ Plan - 44
15.3 Withholding and Reporting Requirements................. Plan - 44
15.4 Committees............................................. Plan - 44
15.5 Revocation, Withdrawal or Non-Consummation............. Plan - 44
15.6 Payment of Statutory Fees.............................. Plan - 45
15.7 Prepayment............................................. Plan - 45
15.8 Notices................................................ Plan - 45
15.9 Term of Injunctions or Stays........................... Plan - 46
15.10 Governing Law.......................................... Plan - 47
15.11 No Waiver or Estoppel.................................. Plan - 47
15.12 No Substantive Consolidation........................... Plan - 47
15.13 Allocation of Plan Distributions Between
Principal and Interest.............................. Plan - 47
15.14 Computation of Time.................................... Plan - 47
15.15 Exhibits............................................... Plan - 47
Plan - vi
EXHIBITS
Exhibit A - Schedule of Proponents of the Plan and Corresponding Bankruptcy Case
Numbers
Exhibit B - Safety-Kleen Creditor Trust Agreement
Exhibit C - Restated Articles of Incorporation
Exhibit D - Restated Bylaws
Exhibit E - Schedule of Assumed Executory Contracts and Unexpired Leases
Exhibit F - Schedule of Class 7 General Unsecured Claims Sub-classes
Exhibit G - Schedule of Resolved Insurance Policies
Exhibit H - Schedule of Settling Insurers
Exhibit I - Schedule of Retained Actions
Exhibit J - Schedule of Revesting of Assets for Dissolving Debtors
Exhibit K - Schedule of Non-Released Persons
Plan - vii
INTRODUCTION
Safety-Kleen Corp. ("SKC") and certain of its direct and indirect
subsidiaries, debtors and debtors-in-possession in the above-captioned jointly
administered chapter 11 reorganization cases (together with SKC, the "Debtors")
hereby propose the following joint reorganization plans (as such term is more
fully defined below, the "Plan") for the resolution of all outstanding claims
against, and equity interests in, the Debtors. Reference is made to the
Disclosure Statement (as defined herein) for results of operations, projections
for future operations, risk factors, a summary and analysis of the Plan and
certain related matters. The Debtors are the proponents of the Plan within the
meaning of section 1129 of the Bankruptcy Code (as defined herein).
These reorganization cases have been consolidated for procedural
purposes only and are being jointly administered pursuant to an order of the
United States Bankruptcy Court for the District of Delaware. The Plan does not
contemplate the substantive consolidation of any of the Debtors. Certain of the
Debtors may be dissolved or merged (or combined in another form of transaction)
with another Debtor as a means of implementing the Plan. For voting and
distribution purposes, the Plan contemplates (a) separate classes for each
Debtor and (b) separate plans of reorganization for each Debtor. A list of each
Debtor that is a proponent of the Plan contained herein with its corresponding
bankruptcy case number is attached as Exhibit A to the Plan.
Under section 1125(b) of the Bankruptcy Code, a vote to accept or
reject the Plan cannot be solicited from a Claimholder until such time as the
Disclosure Statement has been approved by the Bankruptcy Court (as defined
herein) and distributed to Claimholders and Interestholders. ALL CLAIMHOLDERS
ARE ENCOURAGED TO READ THE PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY
BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
Subject to certain restrictions and requirements set forth in section
1127 of the Bankruptcy Code, Rule 3019 of the Bankruptcy Rules (as defined
herein) and the Plan, the Debtors expressly reserve their right to alter, amend
or modify the Plan, one or more times, before its substantial consummation.
ARTICLE I
DEFINITIONS
For purposes of the Plan, except as expressly provided or unless the
context otherwise requires, all capitalized terms not otherwise defined shall
have the meanings ascribed to them in Article I of the Plan. Any term used in
the Plan that is not defined herein, but is defined in the Bankruptcy Code or
the Bankruptcy Rules, shall have the meaning ascribed to that term in the
Bankruptcy Code or the Bankruptcy Rules. Whenever it appears appropriate from
the context, each term stated in the singular or the plural includes the
singular and the plural, and each pronoun stated in the masculine, feminine or
neuter includes the masculine, feminine and neuter.
For purposes of the Plan: (a) any reference in the Plan to a contract,
instrument, release, indenture or other agreement or document being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions, (b) any reference in the Plan to an existing document or Exhibit
filed or to be filed means such document or Exhibit as it may have been or may
be amended, modified or supplemented, (c) unless otherwise specified, all
references in the Plan to Sections, Articles and Exhibits are references to
Sections, Articles and Exhibits of or to the Plan, (d) the words "herein",
"hereof', "hereunder" and "hereto" and other words of similar import refer to
the Plan in its entirety rather than to a particular portion of the Plan unless
the context requires otherwise, (e) captions and headings to Articles and
Sections are inserted for convenience of reference only and are not intended to
be a part of or to affect the interpretation of the Plan and (f) the rules of
construction set foal in section 102 of the Bankruptcy Code and in the
Bankruptcy Rules shall apply.
Plan - 1
1.1 "ADMINISTRATIVE CLAIM" means a Claim for payment of an administrative
expense of a kind specified in section 503(b) of the Bankruptcy Code and
entitled to priority pursuant to section 507(a)(1) of the Bankruptcy
Code, including, but not limited to, the actual, necessary costs and
expenses, incurred after the Petition Date, of preserving the Estates and
operating the businesses of the Debtors, including wages, salaries or
commissions for services rendered after the commencement of the Chapter
11 Cases, Professional Claims and all fees and charges assessed against
the Estates under chapter 123 of title 28, United States Code and all
Allowed Claims that are entitled to be treated as Administrative Claims
pursuant to a Final Order under section 546(c) of the Bankruptcy Code.
1.2 "AFFILIATES" means the meaning given to such term by section l0l(2) of
the Bankruptcy Code.
1.3 "ALLOWED CLAIM" means a Claim or any portion thereof (a) that has been
allowed by a Final Order, (b) as to which, on or by the Effective Date
(i) no proof of claim has been filed with the Bankruptcy Court and (ii)
the liquidated and noncontingent amount of which is Scheduled, other than
a Claim that is Scheduled at zero, in an unknown amount, or as disputed,
(c) for which a proof of claim in a liquidated amount has been timely
filed pursuant to the Bankruptcy Code, any Final Order of the Bankruptcy
Court or other applicable bankruptcy law, and as to which either (i) no
objection to its allowance has been filed within the periods of
limitation fixed by the Plan, the Bankruptcy Code or by any order of the
Bankruptcy Court or (ii) any objection to its allowance has been settled,
waived through payment or withdrawn, or has been denied by a Final Order
or (d) that is expressly allowed in a liquidated amount in the Plan.
1.4 "ALLOWED...CLAIM" means an Allowed Claim of the type described.
1.5 "ARAGONITE INDENTURE" means the indenture of trust, dated as of July
1,1997, between Tooele County, Utah, as issuer, and US. Bank, a national
banking association, as trustee.
1.6 "ARAGONITE INDENTURE TRUSTEE" means Wilmington Trust, successor to U.S.
Bank, a national banking association, as trustee under the Aragonite
Indenture.
1.7 "ARAGONITE INDUSTRIAL REVENUE BONDS" means, collectively, the industrial
revenue bonds issued by Tooele County, Utah in the principal amount of
$45,700,000.
1.8 "AVOIDANCE CLAIMS" means Causes of Action against Persons arising under
sections 502,510,541, 542,544,545,547 through 551 and/or 553 of the
Bankruptcy Code, or under related state or federal statutes and common
law, including fraudulent transfer and fraudulent conveyance laws, that
have not otherwise been released or dismissed pursuant to the Plan,
whether or not litigation has commenced to prosecute such Claims.
1.9 "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as amended and
codified in title 11 of the United States Code, 11 U.S.C. ss. 101-1330.
1.10 "BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Delaware, or such other court as may have jurisdiction over
the Chapter 11 Cases.
1.11 "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy Procedure and
the Official Bankruptcy Forms, as amended, the Federal Rules of Civil
Procedure, as amended, as applicable to the Chapter 11 Cases or
proceedings therein and the Local Rules of the Bankruptcy Court, as
applicable to the Chapter 11 Cases or proceedings therein, as the case
may be.
1.12 "BSSD" means SKC's Branch Sales and Service Division, which consists of
Safety-Kleen Systems, Inc. and each of its direct and indirect
subsidiaries.
Plan - 2
1.13 "BUSINESS DAY" means any day, excluding Saturdays, Sundays and legal
holidays, on which commercial banks are open for business in New York
City.
1.14 "CALIFORNIA COVERAGE ACTION" means that certain civil action styled as
Safety-Kleen Corp. v. Continental Insurance Company et al., pending in
the Superior Court of California, County of Los Angeles, Case No. BC
216723, in which the Debtors seek coverage under certain comprehensive
general liability insurance policies for the costs and expenses of
defense and settlement of lawsuits in which plaintiffs allege injury as a
result of alleged exposure to solvent products manufactured, sold,
distributed or used by the Debtors.
1.15 "CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY INDENTURE" means the
indenture of trust, dated as of July 1, 1997, between California
Pollution Control Financing Authority, as issuer, and U.S. Bank, a
national banking association, as trustee.
1.16 "CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY INDENTURE TRUSTEE"
means Wilmington Trust, successor to U.S. Bank, a national banking
association, as trustee under the California Pollution Control Financing
Authority Indenture.
1.17 "CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY INDUSTRIAL REVENUE
BONDS" means, collectively, the industrial revenue bonds issued by the
California Pollution Control Financing Authority in the principal amount
of $19,500,000.
1.18 "CANADIAN LENDER ADMINISTRATIVE CLAIM" means the obligations owed to the
Canadian Lenders arising under or relating to the Prepetition Credit
Agreement and that certain bilateral agreement between Toronto-Dominion
Bank and Safety-Kleen Ltd., which have been assumed by SK Services,
pursuant to the Order Under 11 U.S.C. Sec. 105 and 363(b) In Aid of
Consummation of the Sale of Substantially All of the Assets and Certain
Equity Interest of the Debtors' Chemical Services Division to Clean
Harbors, Inc., dated September 6, 2002.
1.19 "CANADIAN LENDERS" means the Canadian banks and financial institutions or
entities from time to time that are parties to the Prepetition Credit
Agreement and that certain bilateral agreement between Toronto-Dominion
Bank and Safety-Kleen Ltd.
1.20 "CASH" means legal tender of the United States.
1.21 "CAUSES OF ACTION" means any and all actions, causes of action, suits,
accounts, controversies, agreements, promises, rights to legal remedies,
rights to equitable remedies, rights to payment and claims, whether
known, unknown, reduced to judgment, not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured and whether asserted or assertable
directly or derivatively, in law, equity or otherwise.
1.22 "CERTIFICATE" means an instrument evidencing a Claim on account of the
Prepetition Notes or any of the Industrial Revenue Bonds.
1.23 "CHAPTER 11 CASES" means the chapter 1I cases of the Debtors pending in
the Bankruptcy Court and being jointly administered with one another, and
"Chapter 11 Case" means any one of the Chapter 11 Cases.
1.24 "CLAIM" means a claim against any of the Debtors, whether or not
asserted, as defined in section 101(5) of the Bankruptcy Code.
1.25 "CLAIMHOLDER" means a holder of a Claim.
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1.26 "CLAIMS OBJECTION DEADLINE" means that day which is 180 days after the
Effective Date, unless extended by the Bankruptcy Court in accordance
with Section 9.9(b) of the Plan.
1.27 "CLASS" means a category of Claimholders or Interestholders described in
Article I11 of the Plan
1.28 "CLIVE INDENTURE" means the indenture of trust, dated as of August I,
1995, between Tooele County, Utah, as issuer, and West One Bank, Utah, as
trustee.
1.29 "CLIVE INDENTURE TRUSTEE" means U.S. Bank, a national banking
association, successor to West One Bank, Utah, as trustee under the Clive
Indenture.
1.30 "CLIVE INDUSTRIAL REVENUE BONDS" means, collectively, the industrial
revenue bonds issued by Tooele County, Utah in the principal amount of
$10,000,000.
1.31 "COMMON DEFENDANT" means a Person allegedly liable both to the
Reorganized Debtors in respect of a Retained Action and to the
Safety-Kleen Creditor Trust in respect of a Trust Claim.
1.32 "CONFIRMATION DATE" means the date of entry of the Confirmation Order.
1.33 "CONFIRMATION HEARING" means the hearing before the Bankruptcy Court on
confirmation of the Plan and related matters under section 1128 of the
Bankruptcy Code.
1.34 "CONFIRMATION ORDER" means the order of the Bankruptcy Court confirming
the Plan pursuant to section 1129 of the Bankruptcy Code.
1.35 "CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors appointed pursuant to section 1102(a) of the Bankruptcy Code in
the Chapter 11 Cases.
1.36 "CSD SUBSIDIARIES" means, collectively, all of the direct and indirect
debtor subsidiaries of Safety- Kleen Services, Inc., except for
Safety-Kleen Systems, Inc. and its direct and indirect Subsidiaries.
1.37 "CURE" means the distribution within a reasonable period of time
following the Effective Date of Cash or such other property as may be
agreed upon by the parties, ordered by the Bankruptcy Court or determined
in such other manner as the Bankruptcy Court may specify with respect to
the assumption of an executory contract or unexpired lease, pursuant to
section 365(b) of the Bankruptcy Code and Article VII of the Plan.
1.38 "CURRENT DIRECTORS AND OFFICERS" means each director or officer of each
of the Debtors that served in such capacity as of the Confirmation Date.
1.39 "DEBT" means the liability of any Debtor on a Claim.
1.40 "DEBTORS" means Safety-Kleen Corp. and each of its direct and indirect
subsidiaries listed on Exhibit A to the Plan in their capacity as
debtors-in-possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code.
1.41 "DHEC" means South Carolina Department of Health and Environmental
Control.
1.42 "DHEC ADMINISTRATIVE CLAIM" means all Claims or requests for payment
filed by DHEC relating to the Pinewood Facility and asserted to be
entitled to treatment as Administrative Claims.
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1.43 "DIP AGENT" means Toronto Dominion (Texas), Inc. in its capacity as
administrative agent for the DIP Lenders under the DIP Credit Agreement.
1.44 "DIP CREDIT AGREEMENT" means the Second Amended and Restated Debtor in
Possession Credit Agreement, dated as of March 22,2002, among
Safety-Kleen Services, Inc., the lenders from time to time party thereto,
Toronto Dominion (Texas), Inc., as General Administrative Agent and
Underwriter, Goldman Sacks Credit Partners, L.P., as Underwriter, and The
CIT Group/Business Credit Inc., as Collateral Agent and Underwriter, as
such agreement has been amended, supplemented or otherwise modified from
time to time.
1.45 "DIP FACILITY" means the $200 million debtor-in-possession secured
financing facility provided to the Debtors by the DIP Lenders pursuant to
the DIP Credit Agreement, as amended and restated, authorized by the
Bankruptcy Court pursuant to the DIP Facility Order.
1.46 "DIP FACILITY CLAIM" means all Claims of the DIP Agent and the DIP
Lenders arising under or pursuant to the DIP Facility.
1.47 "DIP FACILITY ORDER" means, collectively, the interim order that was
entered by the Bankruptcy Court on June 13,2000, the final order that was
entered by the Bankruptcy Court on July 19,2000, authorizing and
approving the DIP Facility and the agreements related thereto and the
Bankruptcy Court Order, dated March 20,2002, authorizing additional and
extended postpetition financing on a superpriority basis pursuant to
section 364 of the Bankruptcy Code.
1.48 "DIP LENDERS" means the lenders from time to time that are parties to the
DIP Credit Agreement
1.49 "DISALLOWED CLAIM" means a Claim, or any portion thereof, that (a) has
been disallowed by a Final Order or (b) is Scheduled at zero or as
contingent, disputed or unliquidated and as to which no proof of claim
has been timely filed pursuant to either the Bankruptcy Code or any Final
Order of the Bankruptcy Court or otherwise deemed timely filed under
applicable law.
1.50 "DISBURSING AGENT" means the Debtors or the party designated by the
Debtors, in their sole discretion, to serve as a disbursing agent under
Section 9.3 of the Plan with respect to (a) the Unclassified Claims, (b)
Classes 1 through 3 and (c) Classes 4 through 6 with respect to any
proceeds from the PwC Litigation Claim.
1.51 "DISCLOSURE STATEMENT" means the written disclosure statement that
relates to the Plan, as approved by the Bankruptcy Court pursuant to
section 1125 of the Bankruptcy Code and Bankruptcy Rule 3017, as such
disclosure statement may be amended, modified or supplemented from time
to time.
1.52 "DISPUTED CLAIM" means, as applicable, any Claim not otherwise Allowed,
disallowed or paid pursuant to the Plan or an order of the Bankruptcy
Court (a) proof of which was required to be filed by order of the
Bankruptcy Court but as to which a proof of Claim was not timely or
properly filed, (b) proof of which was timely and properly filed and
which has been is listed on the Schedules as unliquidated, disputed or
contingent, (c) that is disputed in accordance with the provisions of the
Plan or (d) as to which any Debtor has interposed a timely objection or
request for estimation in accordance with the Plan, the Bankruptcy Code,
the Bankruptcy Rules and any orders of the Bankruptcy Court, or is
otherwise disputed by the Debtors in accordance with applicable law,
which objection, request for estimation or dispute has not been
withdrawn, waived through payment or determined by a Final Order;
provided, however, that for purposes of determining whether a particular
Claim is a Disputed Claim prior to the expiration of any period of
limitation fixed for the interposition by the Debtors of objections to
the allowance of Claims, any Claim that is not identified by the Debtors
as an Allowed Claim shall be deemed a Disputed Claim.
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1.53 "DISSOLVING DEBTOR" means a Debtor that is dissolving or deemed to have
been dissolved upon the Effective Date as a result of the Restructuring
Transactions.
1.54 "DISTRIBUTION DATES" means the Initial Distribution Date and each six
month anniversary thereafter.
1.55 "DISTRIBUTION NOTIFICATION DATE" means the notification date for purposes
of making distributions under the Plan on account of Allowed Claim, which
date shall be the Confirmation Date or such other date designated in the
Confirmation Order.
1.56 "EFFECTIVE DATE" means, in the sole discretion of the Reorganized
Debtors, either the last calendar day of the month or the first calender
day of the following month after all conditions to the consummation of
the Plan set forth in Section 13.2 hereof have been satisfied or waived
as provided in Section 13.3 hereof.
1.57 "ESTATES" means the estates created pursuant to section 541 of the
Bankruptcy Code upon the commencement of the Chapter 11 Cases.
1.58 "EXHIBIT" means an exhibit annexed to the Plan.
1.59 "EXHIBIT FILING DATE" means the date on which certain Exhibits to the
Plan shall be filed with the Bankruptcy Court, which date shall be at
least five calendar days prior to the Voting Deadline.
1.60 "EXISTING SECURITIES" means, collectively, the 9%%Senior Notes, the 9%%
Senior Subordinated Notes, the Aragonite Industrial Revenue Bonds, the
California Pollution Control Financing Authority Industrial Revenue
Bonds, the Clive Industrial Revenue Bonds, the Osco Treatment System
Industrial Revenue Bonds and the Old Common Stock.
1.61 "EXIT FACILITY" means the $250 million revolving credit facility, with a
letter of credit sub-limit of $125 million, to be extended as a means of
implementing the Plan and described in Section 6.5 hereof.
1.62 "FACE AMOUNT" means (a) when used in reference to a Disputed Claim or a
Disallowed Claim, the full stated amount claimed by the Claimholder in
any proof of claim timely filed or otherwise deemed timely filed by any
Final Order of the Bankruptcy Court or other applicable bankruptcy law
and (h) when used in reference to an Allowed Claim, the allowed amount of
such Claim.
1.63 "FINAL ORDER" means an order or judgment, the operation or effect of
which has not been stayed, reversed or amended and as to which order or
judgment (or any revision, modification or amendment thereof) the time to
appeal or seek review or rehearing has expired and as to which no appeal
or petition for review or rehearing was filed or, if filed, remains
pending.
1.64 "FISCAL YEAR" means, with respect to the Debtors, the fiscal year ending
on August 31 of each year or such other fiscal year as the Debtors may
designate.
1.65 "FRONTIER BONDS" means surety bonds issued pursuant to 40 C.F.R. Part 264
and 265, Subpart H, 40 C.F.R. Section 761.65(g) or analogous state
provisions of law, by Frontier Insurance Company on behalf of certain
subsidiaries of SKC and provided to relevant federal and state regulators
as financial assurance for certain closure, post-closure and corrective
action activities at facilities owned and/or operated by such
subsidiaries.
1.66 "GENERAL UNSECURED CLAIM" means a Claim against any Debtor (including any
unsecured portion of a Secured Claim) that is not an Administrative
Claim, DIP Facility Claim, Priority Tax Claim, the DHEC
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Administrative Claim, Other Priority Claim, Intercompany Claim,
Miscellaneous Secured Claim, Canadian Lender Administrative Claim or that
is otherwise classified in Classes 3, 5, 6, 8 or 9.
1.67 "GSX CONTRIBUTION TRUST FUND" means the environmental impairment trust
fund established pursuant to a TRUST agreement, dated October 5, 1992,
between Nationsbank of South Carolina, N.A., as trustee, and GSX Services
of South Carolina, Inc. (n/k/a Pinewood), as grantor.
1.68 "HOLDBACK AMOUNT" means the amount of fees billed to the Debtors in a
given month that was retained by the Debtors as a holdback on payment of
Professional Claims pursuant to the Professional Fee Orders.
1.69 "IMPAIRED" refers to any Claim or Interest that is impaired within the
meaning of section 1124 of the Bankruptcy Code.
1.70 "INDEMNIFICATION OBLIGATIONS" means any obligation of any of the Debtors
to indemnify, reimburse or provide contribution to any Professional,
advisor, director, officer, employee, agent or representative of the
Debtors, pursuant to bylaws, articles of incorporation, contract or
otherwise.
1.71 "INDENTURE TRUSTEES" means, collectively, (a) the 9-1/4% Senior Notes
Indenture Trustee, (b) the 9-1/4% Senior Subordinated Notes Indenture
Trustee, (c) the Aragonite Indenture Trustee, (d) the California
Pollution Control Financing Authority Indenture Trustee, (e) the Clive
Indenture Trustee and (f) the Osco Treatment Systems Indenture Trustee.
1.72 "INDENTURE TRUSTEES' FEES" means the fees and expenses incurred by the
Indenture Trustees from and after the Petition Date through the Effective
Date in accordance with the terms of the related indenture.
1.73 "INDUSTRIAL REVENUE BONDS" means, collectively, (a) the Aragonite
Industrial Revenue Bonds, (b) the Clive Industrial Revenue Bonds, (c) the
Osco Treatment Systems Industrial Revenue Bonds and (d) the California
Pollution Control Financing Authority Industrial Revenue Bonds.
1.74 "INITIAL DEPOSIT" means the amount of $1 million to be funded on the
Effective Date to the Safety-Kleen Creditor Trust.
1.75 "INITIAL DISTRIBUTION DATE" means the date, occurring as soon as
reasonably practicable after the Effective Date, upon which the first
distributions are made on account of Allowed Claims in a particular
Class.
1.76 "INSURANCE COVERAGE ACTIONS" means any claim, Cause of Action or right of
the Debtors, including without limitation the New Jersey Coverage Action,
the Washington Coverage Action and the California Coverage Action,
arising from or related to the Debtors' efforts to seek coverage under
any of their historical comprehensive general liability insurance
policies or other insurance policies.
1.77 "INSURANCE SETTLEMENT" means any settlement agreement entered into by the
Debtors with any of the insurers in the Insurance Coverage Actions.
1.78 "INTERCOMPANY CLAIM" means a Claim of a Debtor against another Debtor.
1.79 "INTEREST" means the rights of any current or former holder or owner of
any shares of Old Common Stock or any other equity securities of the
Debtors authorized and issued prior to the Confirmation Date,
1.80 "INTERESTHOLDER" means a holder of an Interest.
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1.81 "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended.
1.82 "LAIDLAW CLAIM" means the proceeds from the litigation between the
Debtors and the Laidlaw Debtors, which resulted in a mediation settlement
in which SKC was granted a $225 million allowed general unsecured claim
against the Laidlaw Debtors in their bankruptcy cases pending in the
United States Bankruptcy Court for the Western District of New York.
1.83 "LAIDLAW DEBTORS" means, collectively, Laidlaw USA, Inc., Laidlaw Inc.,
Laidlaw Investments Ltd., Laidlaw International Finance Corporation,
Laidlaw Transportation, Inc. and Laidlaw One, Inc.
1.84 "LENDER CLAIMS" means all Claims of the Prepetition Agent and the Lenders
arising under or pursuant to the Prepetition Credit Facility.
1.85 "LENDER CLAIMS RESERVE" means the reserve for the secured portion of any
Claim for letters of credit posted under the Prepetition Credit Agreement
that remain outstanding as of the Effective Date and are not otherwise
replaced or backstopped by new letters of credit issued under the Exit
Facility.
1.86 "LENDERS" means, collectively, the U.S. Lenders and the Canadian Lenders.
1.87 "MANAGEMENT INCENTIVE COMPENSATION PLAN" means a management incentive
compensation plan expected to be negotiated and executed by and among
certain members of management and the Reorganized Debtors.
1.88 "MERGER AGREEMENT" means the agreement of merger by and among New
Subsidiary, Merger Sub and Safety-Kleen Systems, Inc. as described in
Section 6.2(d) of the Plan.
1.89 "MERGER SUB" means a newly-incorporated wholly-owned subsidiary of New
Subsidiary as described in Section 6.2(d) of the Plan.
1.90 "MISCELLANEOUS SECURED CLAIM" means any Secured Claim other than a
Secured Claim arising under the Prepetition Credit Facility.
Miscellaneous Secured Claims shall include Claims secured by liens junior
in priority to existing liens, whether by operation of law, contract or
otherwise, but solely to the extent of the value of the lien after giving
effect to all security interests or liens senior in priority.
1.91 "NEW COMMON STOCK" means the shares of common stock of New Holdco
authorized and issued under the articles of incorporation of New Holdco
and Section 6.6 of the Plan.
1.92 "NEW ENVIRONMENTAL IMPAIRMENT TRUST FUND" means the trust fund
established in accordance with the Pinewood Site Settlement Agreement.
1.93 "NEW HOLDCO" means a newly-incorporated company that will be the ultimate
parent corporation of the Reorganized Debtors as described in Section
6.2(d) of the Plan.
1.94 "NEW JERSEY COVERAGE ACTION" means that certain civil action styled as
The Solvents Recovery Service of New Jersey, Inc. et al. v. American
Reinsurance Company, et al., pending in the Superior Court of New Jersey,
Hudson County, Law Division, Docket No. L-3095-00, in which the Debtors
seek coverage under certain historical comprehensive general liability
insurance policies for the costs, expenses and liabilities arising out of
claims, demands and suits brought against the Debtors for property
damage, bodily injury and personal injury arising out of environmental
and other damage allegedly caused by the Debtors and/or arising out of
the Debtors' ownership or business operations.
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1.95 "NEW PARENT" means a newly-incorporated, wholly-owned subsidiary of New
Holdco as described in Section 6.2(d) of the Plan.
1.96 "NEW SUBORDINATED CASH PAY NOTES" means the 7% subordinated secured notes
due 2010 that are to be governed by the terms of the New Subordinated
Cash Pay Notes Indenture, in an aggregate principal amount not to exceed
$50 million.
1.97 "NEW SUBORDINATED CASH PAY NOTES INDENTURE" means the indenture under
which the New Subordinated Cash Pay Notes shall be issued, which
indenture shall he substantially in the form included in the Plan
Supplement.
1.98 "NEW SUBORDINATED NOTES" means, collectively, the New Subordinated PIK
Notes and the New Subordinated Cash Pay Notes.
1.99 "NEW SUBORDINATED PIK NOTES" means the 8-3/4% subordinated secured PIK
Notes due 2013 that are to be governed by the terms of the New
Subordinated PIK Notes Indenture, in an aggregate principal amount not to
exceed $100 million.
1.100 "NEW SUBORDINATED PIK NOTES INDENTURE" means the indenture under which
the New Subordinated PIK Notes shall be issued, which indenture shall be
substantially in the form included in the Plan Supplement.
1.101 "NEW SUBSIDIARY" means a newly-incorporated, wholly-owned subsidiary of
New Parent as described in Section 6.2(d) of the Plan.
1.102 "9-1/4% SENIOR NOTES" means, collectively, the 9-1/4% Senior Notes due
2009 in the principal amount of approximately $225 million issued
pursuant to the 9-1/4% Senior Notes Indenture.
1.103 "9-1/4% SENIOR NOTES INDENTURE" means the indenture dated as of May 17,
1999, as amended, supplemented or otherwise modified prior to the
Petition Date, by and between SKC and Cole Taylor Bank, successor to The
Bank of Nova Scotia Trust Company of New York, as trustee.
1.104 "9-1/4% SENIOR NOTES INDENTURE TRUSTEE" means Cole Taylor Bank, successor
to The Bank of Nova Scotia Trust Company of New York, as trustee under
the 9-1/4% Senior Notes Indenture.
1.105 "9-1/4% SENIOR SUBORDINATED NOTES" means, collectively, the 9-1/4% Senior
Subordinated Notes due 2008 in the principal amount of approximately $325
million issued pursuant to the 9-1/4% Senior Subordinated Notes
Indenture.
1.106 "9-1/4% SENIOR SUBORDINATED NOTES INDENTURE" means the indenture dated as
of May 28, 1998, as amended, supplemented or otherwise modified prior to
the Petition Date, by and between SK Services and Wells Fargo Bank
Minnesota, National Association (f/k/a Norwest Bank Minnesota), successor
to The Bank of Nova Scotia Trust Company of New York, as trustee.
1.107 "9-1/4% SENIOR SUBORDINATED NOTES INDENTURE TRUSTEE" means Wells Fargo
Bank Minnesota, National Association f/k/a Norwest Bank Minnesota,
National Association, successor to The Bank of Nova Scotia Trust Company
of New York, as trustee under the 9-1/4% Senior Subordinated Notes
Indenture.
1.108 "OLD COMMON STOCK" means shares of SKC's common stock and all options,
warrants or rights, contractual or otherwise, if any, to acquire any such
common stock outstanding as of the Petition Date.
Plan - 9
1.109 "OSCO TREATMENT SYSTEMS INDENTURE" means the indenture, dated as of May
1, 1993, by and between the Industrial Development Board of the
Metropolitan Government of Nashville and Davidson County, as issuer, and
The Bank of New York, successor to Nationsbank of Tennessee, N.A., as
trustee.
1.110 "OSCO TREATMENT SYSTEMS INDENTURE TRUSTEE" means The Bank of New York,
successor to Nationsbank of Tennessee, N.A., as trustee under the Osco
Treatment Systems Indenture.
1.111 "OSCO TREATMENT SYSTEMS INDUSTRIAL REVENUE BONDS" means, collectively,
the industrial revenue bonds issued by the Industrial Development Board
of the Metropolitan Government of Nashville and Davidson County in the
principal amount of $15,200,000.
1.112 "OTHER PRIORITY CLAIM" means a Claim entitled to priority pursuant to
section 507(a) of the Bankruptcy Code other than a Priority Tax Claim,
DIP Facility Claim, the DHEC Administrative Claim, Canadian Lender
Administrative Claim or Administrative Claim.
1.113 "PERSON" means an individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, limited
liability partnership, trust, estate, unincorporated organization or
other entity.
1.114 "PETITION DATE" means June 9, 2000.
1.115 "PINEWOOD" means Safety-Kleen (Pinewood), Inc.
1.116 "PINEWOOD FACILITY" means the hazardous waste treatment, storage and
disposal facility in Sumter County, South Carolina, previously operated
by Pinewood.
1.117 "PINEWOOD SETTLEMENT" means the settlement by and between the Debtors and
DHEC with respect to, among other things, closure and post-closure care
at the Pinewood Facility.
1.118 "PINEWOOD SITE SETTLEMENT AGREEMENT" means the agreement, dated as of
October 15, 2002, setting forth the terms of the Pinewood Settlement.
1.119 "PLAN" means those plans of reorganization which are herein jointly
proposed by the Debtors for the resolution of outstanding Claims and
Interests in the Chapter 11 Cases, as such plans may be amended, modified
or supplemented from time to time in accordance with the Bankruptcy Code.
1.120 "PLAN SUPPLEMENT" means the compilation of documents and forms of
documents specified in the Plan that will be filed with the Bankruptcy
Court on or before the Exhibit Filing Date.
1.121 "PREPETITION AGENT" means Toronto Dominion (Texas), Inc. in its capacity
as general administrative agent under the Prepetition Credit Agreement.
1.122 "PREPETITION CREDIT AGREEMENT" means that certain Amended and Restated
Credit Agreement, dated as of April 3, 1998, as amended, supplemented or
otherwise modified prior to the Petition Date, by and among LES, Inc. and
Laidlaw Environmental Services (Canada) Ltd., as borrowers, Toronto
Dominion (Texas), Inc., as General Administrative Agent, the Toronto
Dominion Bank, as Canadian Administrative Agent, TD Securities (USA)
Inc., as arranger, and the Lenders.
1.123 "PREPETITION CREDIT FACILITY" means the financing accommodations
evidenced by the Prepetition Credit Agreement, Prepetition Guarantee and
Collateral Agreement and related documents.
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1.124 "PREPETITION GUARANTEE AND COLLATERAL AGREEMENT" means the Amended and
Restated Guarantee and Collateral Agreement, dated as of April 3, 1998,
as amended, supplemented or otherwise modified prior to the Petition
Date, among the Prepetition Agent and the Debtors.
1.125 "PREPETITION NOTES" means, collectively, the 9-1/4% Senior Notes and the
9-1/4% Senior Subordinated Notes.
1.126 "PRIORITY TAX CLAIM" means a Claim entitled to priority pursuant to
section 507(a)(8) of the Bankruptcy Code.
1.127 "PRO RATA" means, at any time, the proportion that the Face Amount of a
Claim in a particular Class or Classes bears to the aggregate Face Amount
of all Claims (including Disputed Claims, but excluding Disallowed
Claims) in such Class or Classes, as appropriate, unless the Plan
provides otherwise.
1.128 "PROFESSIONAL" means any professional employed in the Chapter 11 Cases
pursuant to sections 327, 363 or 1103 of the Bankruptcy Code or otherwise
and any professional seeking compensation or reimbursement of expenses in
connection with the Chapter 11 Cases pursuant to section 503(b)(4) of the
Bankruptcy Code.
1.129 "PROFESSIONAL CLAIM" means a Claim of a Professional pursuant to sections
327, 330, 331, 363, 503(b) or 1103 of the Bankruptcy Code or otherwise,
for compensation or reimbursement of costs and expenses relating to
services performed after the Petition Date and prior to and including the
Effective Date.
1.130 "PROFESSIONAL FEE ORDERS" means the Administrative Order Under 11 U.S.C.
Sec. 105(a) and 331 Establishing Procedures for Interim Compensation and
Reimbursement of Expenses of Professionals entered by the Bankruptcy
Court on July 11, 2000 and the Stipulation and Order, Pursuant to
Sections 105(a) and 331 of the Bankruptcy Code, Amending Administrative
Procedures for Interim Compensation and Reimbursement of Expenses of
Professionals, entered on December 22, 2000, authorizing the interim
payment of Professional Claims subject to the Holdback Amount.
1.131 "PROJECTIONS" means those financial projections concerning the
Reorganized Debtors' operations through December 31, 2007.
1.132 "PwC LITIGATION CLAIM" means that certain civil action styled as
Safety-Kleen Corp., et al. v. PricewaterhouseCoopers LLP and
PricewaterhouseCoopers LLP (Canada), pending in the Circuit Court of
South Carolina, Richland County, Civil No. 3:0l-4247-17.
1.133 "QUALIFIED SETTLEMENT TRUST" means that certain Qualified Settlement Fund
known as the "Safety-Kleen Settlement Trust," which has been approved by
and is subject to the continuing jurisdiction of the court in the New
Jersey Coverage Action in accordance with section 468B of the Internal
Revenue Code and related Treasury regulations promulgated thereunder, the
establishment of which was authorized and approved by Bankruptcy Court
order dated October 16, 2002.
1.134 "REINSTATED" or "REINSTATEMENT" means (a) leaving unaltered the legal,
equitable and contractual rights to which a Claim entitles the
Claimholder so as to leave such Claim Unimpaired in accordance with
section 1124 of the Bankruptcy Code or (b) notwithstanding any
contractual provision or applicable law that entitles the Claimholder to
demand or receive accelerated payment of such Claim after the occurrence
of a default (i) curing any such default that occurred before or after
the Petition Date, other than a default of a kind specified in section
365(b)(2) of the Bankruptcy Code, (ii) reinstating the maturity of such
Claim as such maturity existed before such default, (iii) compensating
the Claimholder for any damages incurred as a result of any reasonable
reliance by such Claimholder on such contractual provision or such
applicable law and (iv) not otherwise altering the legal, equitable or
contractual rights
Plan - 11
to which such Claim entitles the Claimholder; provided, however, that any
contractual right that does not pertain to the payment when due of
principal and interest on the obligation on which such Claim is based,
including, but not limited to, financial covenant ratios, negative
pledge covenants, covenants or restrictions on merger or consolidation
and affirmative covenants regarding corporate existence prohibiting
certain transactions or actions contemplated by the Plan or conditioning
such transactions or actions on certain factors, shall not be required to
be reinstated in order to accomplish Reinstatement.
1.135 "RELEASE OBLIGOR" means a Person who votes to accept the Plan.
1.136 "RELEASED PERSON" has the meaning ascribed to it in Section 12.8(a) of
the Plan.
1.137 "REORGANIZED ... " means, when used in reference to a particular Debtor,
such Debtor on and after the Effective Date.
1.138 "REORGANIZED DEBTORS" means those Debtors that are reorganized pursuant
to the Plan and that continue in existence after the Effective Date
without having been dissolved or merged into another Reorganized Debtor.
1.139 "REORGANIZED SYSTEMS" means Safety-Kleen Systems, Inc. from and after the
Effective Date.
1.140 "RESOLVED INSURANCE POLICIES" means the policies resolved in the
Insurance Settlements, including but not limited to those policies set
forth on Exhibit G to the Plan.
1.141 "RESTRUCTURING TRANSACTIONS" means those transactions described in
Section 6.2 (d) of the Plan.
1.142 "RETAINED ACTIONS" means (a) all Causes of Action, including, but not
limited to, those Causes of Action identified on Exhibit I to the Plan
and all Causes of Action, whether or not listed on Exhibit I to the Plan
including all claims, rights of action, suits and proceedings, whether in
law or in equity, whether known or unknown, which the Debtors may hold
against any entity, including, without limitation, any Causes of Action
brought prior to or after the Petition Date and actions against any
Persons for failure to pay for products or services rendered by the
Debtors, (b) all claims, Causes of Action, suits and proceedings relating
to enforcement of the Debtors' intellectual property rights, including
patents, copyrights and trademarks and (c) all claims or Causes of Action
seeking the recovery of the Debtors' or the Reorganized Debtors' accounts
receivable or other receivables or rights to payment created or arising
in the ordinary course of the Debtors' or the Reorganized Debtors'
businesses; provided, however, that each of the foregoing shall not
include Trust Claims.
1.143 "SAFETY-KLEEN CREDITOR TRUST" means the trust which is created pursuant
to the Plan to be administered by the Trustee with the advice and
direction of the Trust Advisory Board, all as more specifically set forth
in the Plan.
1.144 "SCHEDULED" means, with respect to any Claim or Interest, the status and
amount, if any, of such Claim or Interest as set forth in the Schedules.
1.145 "SCHEDULES" means the schedules of assets and liabilities and the
statements of financial affairs filed in the Bankruptcy Court by the
Debtors, as such schedules or statements have been or may be amended,
modified or supplemented from time to time in accordance with Bankruptcy
Rule 1009 or orders of the Bankruptcy Court.
1.146 "SECURED CLAIM" means a Claim secured by a lien on property in which an
Estate has an interest or that is subject to setoff under section 553 of
the Bankruptcy Code, to the extent of the value of the Claim-
Plan - 12
holder's interest in the Estate's interest in such property or to the
extent of the amount subject to setoff, as applicable, as determined
pursuant to section 506(a) of the Bankruptcy Code.
1.147 "SECURED U.S. LENDER CLAIM" means a Secured Claim of (a) a U.S. Lender
arising under or as a result of the Prepetition Credit Agreement,
including the secured portion of any Claim for reimbursement obligations
related to letters of credit posted under the Prepetition Credit
Agreement that are outstanding as of the Effective Date or (b) the Swap
Parties arising under or as a result of the Swap Agreements.
1.148 "SECURITIES ACT OF 1933" means the Securities Act of 1933, 15 U.S.C. Sec.
77a-77aa, as now in effect or hereafter amended.
1.149 "SERP" means the Debtors' Supplemental Executive Retirement Plan.
1.150 "SETTLING INSURERS" means the insurers set forth on Exhibit H to the
Plan, and their parents, holding companies, subsidiaries, past and
present affiliates, predecessors in interest, successors in interest,
respective directors, officers, employees, agents, assigns and related
companies, or any other insurer that hereafter enters into an Insurance
Settlement with the Debtors in connection with the Insurance Coverage
Actions prior to the Confirmation Date.
1.151 "SITE TRUST" means the trust established by the Site Trust Agreement.
1.152 "SITE TRUST AGREEMENT" means the Pinewood Site Custodial Trust Agreement
between the Debtors and the Site Trustee.
1.153 "SITE TRUSTEE" means the trustee of the Site Trust.
1.154 "SK SERVICES" means Safety-Kleen Services, Inc., debtor-in-possession in
the above-captioned case.
1.155 "SK SYSTEMS" means Safety-Kleen Systems, Inc., debtor-in-possession in
the above-captioned case.
1.156 "SKC" means Safety-Kleen Corp., debtor-in-possession in the
above-captioned case.
1.157 "SUBORDINATED CLAIM" means a Claim subject to subordination under section
510(b) of the Bankruptcy Code that arises from rescission of, or for
damages, indemnification, reimbursement or contribution with respect to,
a purchase or sale of Old Common Stock or other debt or equity securities
of SKC or its Affiliates prior to the Petition Date.
1.158 "SWAP AGREEMENTS" means, collectively, (a) the ISDA Master Agreement
dated as of August 20, 1999, as amended, modified or supplemented, by and
between SK Services and Citibank, N.A. and (b) the ISDA Master Agreement
dated as of March 31, 1997, as amended, modified or supplemented, by and
between SK Services and Toronto Dominion (Texas), Inc.
1.159 "SWAP PARTIES" means, collectively, (a) Citibank, N.A. and (b) Toronto
Dominion (Texas), Inc., in their capacities as parties to the Swap
Agreements.
1.160 "SYSTEMS ASSETS" means all of the assets of SK Systems, including the
equity interests of its direct and indirect subsidiaries.
1.161 "TRUST ADVISORY BOARD" means the board that is to be created pursuant to
Section 11.4 of the Plan for the purpose of advising and directing the
Trustee with respect to decisions affecting the Safety-Kleen Creditor
Trust.
Plan - 13
1.162 "TRUST AGREEMENT" means that certain Trust Agreement substantially in the
form set forth on Exhibit B to the Plan which is to govern the
Safety-Kleen Creditor Trust, pursuant to which, among other things, the
Trust Assets shall be liquidated and distributed to the Claimholders in a
manner consistent with the terms of the Plan.
1.163 "TRUST ASSETS" means those assets owned by the Safety-Kleen Creditor
Trust including, without limitation (a) the Initial Deposit, (b) the
Trust Claims and Trust Recoveries and (c) any and all proceeds of the
foregoing and interest accruing with respect thereto, less Trust
Expenses.
1.164 "TRUST CLAIMS" means those Avoidance Claims that have been previously
commenced by the Debtors or that are the subject of a tolling agreement
between the Debtors and certain third parties and are not otherwise
released in the Plan.
1.165 "TRUST DISTRIBUTION RESERVE" means the Cash for distribution to
Claimholders in Classes 4 through 7 (including all the sub-classes
therein) to be reserved pending allowance of Disputed Claims in
accordance with Section 9.12 of the Plan.
1.166 "TRUST EXPENSES" means all reasonable costs, expenses and fees incurred
by the Trustee and the Trust Advisory Board in the administration of
their duties or as contemplated pursuant to the Trust Agreement.
1.167 "TRUST RECOVERIES" means any and all proceeds received by the
Safety-Kleen Creditor Trust from (a) the prosecution to, and collection
of, a final judgment of a Trust Claim against a Person or (b) the
settlement or other compromise of a Trust Claim against a Person, not
including the Initial Deposit.
1.168 "TRUSTEE" means the trustee of the Safety-Kleen Creditor Trust as
contemplated by the Trust Agreement.
1.169 "UNCLASSIFIED CLAIMS" means, collectively, the Administrative Claims,
Canadian Lender Claims, DIP Facility Claims, Priority Tax Claims and the
DHEC Administrative Claim.
1.170 "UNIMPAIRED" refers to any Claim or Interest which is not Impaired within
the meaning of section 1124 of the Bankruptcy Code.
1.171 "U.S. LENDER CLAIM" means any Claim of a U.S. Lender arising under or
relating to the Prepetition Credit Agreement.
1.172 "U.S. LENDERS" means the United States banks and financial institutions
or entities from time to time that are parties to the Prepetition Credit
Agreement.
1.173 "VOTING DEADLINE" means January [ ], 2003 at 4:00 p.m. (Eastern time).
1.174 "WASHINGTON COVERAGE ACTION" means that certain civil action styled as
Safety-Kleen Corp. v. Unigard Security Ins. Co., et al., pending in the
Superior Court of Washington, King County, Docket No. 01-2-10468-3 SEA,
in which the Debtors seek coverage under certain historical comprehensive
general liability insurance policies for the costs, expenses and
liabilities arising out of claims, demands and suits brought against the
Debtors for property damage, bodily injury and personal injury arising
out of environmental and other damage allegedly caused by the Debtors
and/or arising out of the Debtors' ownership or business operations.
Plan - 14
ARTICLE II
COMPROMISE AND SETTLEMENT OF DISPUTES
The Plan incorporates the compromise and settlement of certain
disputes among the Debtors and certain of their creditors, all as more fully
discussed in the Disclosure Statement. These compromises and settlements include
among other things (a) the terms of the Pinewood Settlement Agreement, which
agreement is a material and integral part of the Plan, and which provides for
the settlement of significantly all of the claims filed by DHEC, South Carolina
Public Service Authority and the South Carolina Department of National Resources
against Pinewood and certain other Debtors as well as their assertions that in
excess of $100 million of such claims were entitled to treatment as
Administrative Claims, (b) the settlement and compromise reached between the
Debtors and the Laidlaw Debtors and (c) the compromise and settlement reached
with certain insurance companies in connection with the certain coverage actions
that the Debtors commenced prepetition.
To the extent necessary, the Plan constitutes a motion for approval of
the compromises and settlements. The Confirmation Order, subject to the
occurrence of the Effective Date, shall constitute an order of the Bankruptcy
Court approving the compromises and settlements.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 INTRODUCTION
The Plan does not contemplate the substantive consolidation of the
Debtors. Pursuant to section 1122 of the Bankruptcy Code, set forth below is a
designation of classes of Claims against and Interests in the Debtors. In
accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims, Canadian Lender Administrative Claims, DIP Facility Claims, Priority Tax
Claims and the DHEC Administrative Claim have not been classified, and the
respective treatment of such unclassified Claims is set forth in Section 4.1 of
the Plan.
A Claim or Interest is placed in a particular Class only to the extent
that the Claim or Interest falls within the description of that Class and is
classified in other Classes to the extent that any portion of the Claim or
Interest falls within the description of such other Classes. A Claim is also
placed in a particular Class for the purpose of receiving distributions pursuant
to the Plan only to the extent that such Claim is an Allowed Claim in that Class
and such Claim has not been paid, released or otherwise settled prior to the
Effective Date.
3.2 UNIMPAIRED CLAIMS
Class 1: Other Priority Claims
Class 1 consists of all Other Priority Claims against
the Debtors.
Class 2: Miscellaneous Secured Claims
Class 2 consists of separate sub-classes for each
Miscellaneous Secured Claim against any of the Debtors. Each sub-class is deemed
to he a separate Class for all purposes under the Bankruptcy Code, including for
voting purposes.
Plan - 15
3.3 IMPAIRED CLAIMS
Class 3: Secured U.S. Lender Claims
Class 3 consists of (a) the portion of U.S. Lender
Claims that are Secured Claims arising under or as a result of the Prepetition
Credit Agreement, including the secured portion of any Claim for reimbursement
obligations related to letters of credit posted under the Prepetition Credit
Agreement that are outstanding as of the Effective Date and (b) the Secured
Claims of the Swap Parties arising under or as a result of the Swap Agreements.
Class 3 consists of separate sub-Classes of Secured U.S. Lender Claims against
each Debtor. Each such sub-class is deemed to be a separate Class for voting
purposes.
Class 4: SKC General Unsecured Claims
Class 4 consists of all General Unsecured Claims
against SKC, including (a) the Aragonite Industrial Revenue Bond Claims, (b) the
California Pollution Control Financing Authority Industrial Revenue Bond Claims
and (c) the deficiency claims of the U.S. Lenders against SKC; excluding,
however, (x) the Class 5 9 1/4% Senior Notes Claims asserted against SKC and (y)
the guaranty claims of the holders of the Class 6 9 1/4% Senior Subordinated
Notes Claims against SKC.
Class 5: 9 1/4% Senior Notes Claims
Class 5 consists of all 9 1/4% Senior Notes Claims
against SKC.
Class 6: 9 1/4% Senior Subordinated Notes Claims
Class 6 consists of all 9 1/4% Senior Subordinated
Notes Claims against each of the Debtors.
Class 7: General Unsecured Claims
Class 7 consists of separate sub-classes for all
General Unsecured Claims against each Debtor other than SKC. A list of all
separate Class 7 sub-classes is set forth on Exhibit F to the Plan.
Class 8: Subordinated Claims
Class 8 consists of all Subordinated Claims against
the Debtors.
3.4 IMPAIRED INTERESTS
Class 9: Interests
Class 9 consists of all Interests.
Plan - 16
ARTICLE IV
TREATMENT OF CLAIMS AND INTERESTS
4.1 UNCLASSIFIED CLAIMS
(a) ADMINISTRATIVE CLAIMS
Except as otherwise provided for herein, and subject to the
provisions of Article X of the Plan, on, or as soon as reasonably practicable
after, the latest of (i) the Initial Distribution Date, (ii) the date such
Administrative Claim becomes an Allowed Administrative Claim or (iii) the date
such Administrative Claim becomes payable pursuant to any agreement between A
Debtor and the holder of such Administrative Claim, a holder of an Allowed
Administrative Claim shall receive, in full satisfaction, settlement, release
and discharge of and in exchange for such Allowed Administrative Claim (x) Cash
equal to the unpaid portion of such Allowed Administrative Claim or (y) such
other less favorable treatment as to which the Debtors and such holder of an
Allowed Administrative Claim shall have agreed upon in writing; provided,
however, that Allowed Administrative Claims with respect to liabilities incurred
by the BSSD Debtors in the ordinary course of business during the Chapter 11
Cases shall be paid in the ordinary course of business in accordance with the
terms and conditions of any agreements relating thereto.
(b) CANADIAN LENDER ADMINISTRATIVE CLAIMS
The Canadian Lender Administrative Claims are, pursuant to the
Order Under 11 U.S.C. Sec. 105 and 363(b) in Aid of Consummation of the Sale of
Substantially All of the Assets and Certain Equity Interests of the Debtors'
Chemical Services Division to Clean Harbors, Inc., dated September 6, 2002,
Allowed Administrative Claims against SK Services in the approximate aggregate
amount of U.S. $79.4 million (as of November 25, 2002) plus accrued interest at
the contractual non-default rate through the Effective Date, less any amounts
with respect to the letters of credit outstanding as of the Effective Date that
are replaced or backstopped under the Exit Facility. On the Initial Distribution
Date, or as soon as reasonably practicable thereafter, each holder of an Allowed
Canadian Lender Administrative Claim shall receive, in full satisfaction,
settlement, release and discharge of and in exchange for such Canadian Lender
Administrative Claim, such holder's Pro Rata share of (i) the New Common Stock
having a value equal to 72% of the full face amount of such holder's Allowed
Canadian Lender Administrative Claim and (ii) the New Subordinated Notes in an
amount equal to 28% of the full face amount of such holder's Allowed Canadian
Lender Administrative Claim.
(c) DIP FACILITY CLAIMS
Each holder of an Allowed DIP Facility Claim shall receive on
the later of the Effective Date or the date on which such DIP Facility Claim
becomes payable pursuant to any agreement between the Debtors and the holder of
such DIP Facility Claim, in full satisfaction, settlement, release and discharge
of and in exchange for such Allowed DIP Facility Claim (i) Cash equal to the
full amount of such Allowed DIP Facility Claim or (ii) such other treatment as
to which the Debtors and such holder shall have agreed upon in writing.
(d) PRIORITY TAX CLAIMS
With respect to each Allowed Priority Tax Claim, at the sole
option of the applicable Reorganized Debtor, the holder of an Allowed Priority
Tax Claim shall be entitled to receive on account of such Allowed Priority Tax
Claim, in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Priority Tax Claim: (i) equal Cash payments made on
the last Business Day of every three-month period following the Initial
Distribution Date, over a period not exceeding six years after the assessment of
the tax on which such Allowed Priority Tax Claim is based, totaling the
principal amount of such Allowed Priority Tax
Plan - 17
Claim plus simple interest on any outstanding balance from the Initial
Distribution Date calculated at the interest rate available on ninety (90) day
United States Treasuries on the Initial Distribution Date, (ii) payment in full
in Cash or (iii) such other treatment agreed to by the holder of the Allowed
Priority Tax Claim and the Debtors or the applicable Reorganized Debtor;
provided, such treatment is on more favorable terms to the Debtors or the
applicable Reorganized Debtor, as the case may be, than the treatment set forth
in clauses (i) or (ii) hereof; provided, that the Debtors reserve the right to
pay any Allowed Priority Tax Claim, or any remaining balance of any Allowed
Priority Tax Claim, in full at any time on or after the Initial Distribution
Date without premium or penalty, and; provided further, that no holder of an
Allowed Priority Tax Claim shall be entitled to any payments on account of any
pre-Effective Date interest accrued on or penalty arising after the Petition
Date with respect to or in connection with such Allowed Priority Tax Claim.
(e) DHEC ADMINISTRATIVE CLAIM
Pursuant to the terms of the Pinewood Settlement Agreement, on
the Effective Date, in full satisfaction, settlement, release and discharge of
and in exchange for the Allowed DHEC Administrative Claim, the following shall
occur: (i) Pinewood shall transfer the Pinewood Facility and related personal
property including vehicles, machines, equipment and supplies located at the
Pinewood Facility to the Site Trust; (ii) the Debtors shall (A) pay $13,162,768
(subject to adjustment for work performed prior to the Effective Date and for
certain administrative costs of the Site Trust) to the Site Trust and (B)
transfer to the Site Trust ownership of a single-payment, fully guaranteed
annuity, which will pay out $133 million (subject to adjustment for certain
administrative costs of the Site Trust) over the next 100 years; (iii) the
Debtors shall create the New Environmental Impairment Trust Fund into which the
funds presently in the GSX Contribution Trust Fund shall be transferred and (iv)
the Debtors shall pay $14.5 million into the New Environmental Impairment Trust
Fund. The Debtors intend to make all such payments out of the proceeds received
from the Laidlaw Claim.
4.2 UNIMPAIRED CLASSES OF CLAIMS
(a) CLASS 1: OTHER PRIORITY CLAIMS
On, or as soon as reasonably practicable after, the latest of
(i) the initial Distribution Date, (ii) the date such Class 1 Other Priority
Claim becomes an Allowed Class 1 Other Priority Claim or (iii) the date such
Class 1 Other Priority Claim becomes payable pursuant to any agreement between a
Debtor and the holder of such Class 1 Other Priority Claim, a holder of an
Allowed Class 1 Other Priority Claim shall receive, in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed Class 1
Other Priority Claim, (x) Cash equal to the unpaid portion of such Allowed Class
1 Other Priority Claim or (y) such other treatment as to which the Debtors and
such Claimholder shall have agreed upon in writing. Class 1 is Unimpaired and
the holders of Class 1 Other Priority Claims are not entitled to vote on the
Plan.
(b) CLASS 2: MISCELLANEOUS SECURED CLAIMS
Each holder of a Class 2 Miscellaneous Secured Claim shall be
treated as a separate class for all purposes under the Plan. Each holder of an
Allowed Class 2 Miscellaneous Secured Claim shall, at the option of the Debtors
or the applicable Reorganized Debtor, be entitled to the treatment set forth
below in option A, B, C or D:
Option A: Allowed Class 2 Miscellaneous Secured Claims with
respect to which the applicable Debtor or Reorganized Debtor elects Option A
will, on, or as soon as reasonably practicable after, the later of (i) the
Initial Distribution Date, or (ii) the date such Class 2 Miscellaneous Secured
Claim becomes an Allowed Class 2 Miscellaneous Secured Claim, be paid in Cash,
in full, by the Reorganized Debtors.
Option B: Allowed Class 2 Miscellaneous Secured Claims with
respect to which the applicable Debtor or Reorganized Debtor elects Option B
will be Reinstated. The Debtors' failure to object to any Class 2
Plan - 18
Miscellaneous Secured Claim that is Reinstated in the Chapter 11 Case shall be
without prejudice to the Debtors' or the Reorganized Debtors' right to contest
or otherwise defend against such Claim in the appropriate forum when and if
such Claim is sought to be enforced.
Option C: Allowed Class 2 Miscellaneous Secured Claims with
respect to which the applicable Debtor or Reorganized Debtor elects Option C
will be satisfied by the surrender to Claimholder of the collateral securing the
applicable Class 2 Miscellaneous Secured Claim.
Option D: Allowed Class 2 Miscellaneous Secured Claims with
respect to which the applicable Debtor or Reorganized Debtor elects Option D
will be satisfied in accordance with such other terms and conditions as may be
agreed upon by the applicable Debtor or Reorganized Debtor and the holder of
such Allowed Class 2 Miscellaneous Secured Claim.
The applicable Debtor or Reorganized Debtor will be deemed to
have elected Option B with respect to all Allowed Class 2 Miscellaneous Secured
Claims except those with respect to which the applicable Debtor elects another
option in writing prior to the Confirmation Hearing. Class 2 is Unimpaired and
the holders of Class 2 Miscellaneous Secured Claims are not entitled to vote on
the Plan.
4.3 IMPAIRED CLASSES OF CLAIMS
(a) CLASS 3: SECURED U.S. LENDER CLAIMS
On the Effective Date, each holder of an Allowed Class 3
Secured U.S. Lender Claim shall be entitled to receive, on or as soon as
reasonably practicable after, the Initial Distribution Date, in full
satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class 3 Secured U.S. Lender Claim against each Debtor, such holder's Pro
Rata share of (i) the New Common Stock after deducting therefrom the New Common
Stock distributed to the holders of the Canadian Lender Administrative Claims
and (ii) the New Subordinated Notes after deducting therefrom the New
Subordinated Notes distributed to the holders of the Canadian Lender
Administrative Claims. Class 3 is Impaired and the holders of Class 3 Secured
U.S. Lender Claims that are neither Disputed Claims nor Disallowed Claims are
entitled to vote on the Plan.
(b) CLASS 4: SKC GENERAL UNSECURED CLAIMS
On, or as soon as reasonably practicable after, the later of
(i) the Initial Distribution Date or (ii) subject to Article IX of the Plan, the
date on which a Class 4 SKC General Unsecured Claim becomes an Allowed Class 4
SKC General Unsecured Claim, each holder of an Allowed Class 4 SKC General
Unsecured Claim shall receive in full satisfaction, settlement, release and
discharge of and in exchange for such Allowed Class 4 SKC General Unsecured
Claim, such holder's Pro Rata share of (x) the beneficial interests in the
Safety-Kleen Creditor Trust (together with all holders of Allowed Claims in
Classes 5 through 7) and (y) the net proceeds of any recoveries on the PwC
Litigation Claim (together with all holders of Allowed Claims in Classes 5 and
6). Class 4 is Impaired and holders of Class 4 SKC General Unsecured Claims that
are neither Disputed Claims nor Disallowed Claims are entitled to vote on the
Plan.
(c) CLASS 5: 9 1/4% SENIOR NOTES CLAIMS
On, or as soon as reasonably practicable after, the later of
(i) the Initial Distribution Date or (ii) subject to Article IX of the Plan, the
date on which a Class 5 9 1/4% Senior Notes Claim becomes an Allowed Class 5 9
1/4% Senior Notes Claim, a holder of an Allowed Class 5 9 1/4% Senior Notes
Claim shall receive, in full satisfaction, settlement, release and discharge of
and in exchange for such Allowed Class 5 9 1/4% Senior Notes Claim and for SKC's
obligations under the 9 1/4% Senior Notes Indenture, such holder's Pro Rata
share of (x) the beneficial interests in the Safety-Kleen Creditor Trust
(together with all holders of Allowed Claims in Classes 4, 6 and 7) and (y) the
proceeds of any recoveries on the PwC Litigation Claim (together with all
holders of
Plan - 19
Allowed Claims in Classes 4 and 6). Class 5 is Impaired and holders of Class 5
9 1/4% Senior Notes Claims that are neither Disputed Claims nor Disallowed
Claims are entitled to vote on the Plan.
(d) CLASS 6: 9 1/4% SENIOR SUBORDINATED NOTES CLAIMS
On, or as soon as reasonably practicable after, the later of
(i) the Initial Distribution Date or (ii) subject to Article IX of the Plan, the
date on which a Class 6 9 1/4% Senior Subordinated Notes Claim becomes an
Allowed Class 6 9 1/4% Senior Subordinated Notes Claim, a holder of an Allowed
Class 6 9 1/4% Senior Subordinated Notes Claim shall receive in full
satisfaction, settlement, release and discharge of and in exchange for such
Allowed Class 6 9 1/4% Senior Subordinated Notes Claim and for the Debtors'
obligations under the 9 1/4% Senior Subordinated Notes Indenture, such holder's
Pro Rata share of (x) the beneficial interests in the Safety-Kleen Creditor
Trust (together with all holders of Allowed Claims in Classes 4, 5 and 7) and
(y) the proceeds of any recoveries on the PwC Litigation Claim (together with
all holders of Allowed Claims in Classes 4 and 5). Class 6 is Impaired and
holders of Class 6 9 1/4% Senior Subordinated Notes Claims that are neither
Disputed Claims nor Disallowed Claims are entitled to vote on the Plan.
(e) CLASS 7: GENERAL UNSECURED CLAIMS
On, or as soon as reasonably practicable after, the later of
(i) the Initial Distribution Date or (ii) subject to Article IX of the Plan, the
date on which a Class 7 General Unsecured Claim becomes an Allowed Class 7
General Unsecured Claim, a holder of an Allowed Class 7 General Unsecured Claim
shall receive in full satisfaction, settlement, release and discharge of and in
exchange for such Allowed Class 7 General Unsecured Claim, such holder's Pro
Rata share (together with all holders of Allowed Claims in Classes 4 through 6)
of the beneficial interests in the Safety-Kleen Creditor Trust. Class 7 is
Impaired and holders of Class 7 General Unsecured Claims that are neither
Disputed Claims nor Disallowed Claims are entitled to vote on the Plan.
(f) CLASS 8: SUBORDINATED CLAIMS
The holders of Subordinated Claims shall not receive or retain
any property under the Plan on account of such Subordinated Claims and all Class
8 Subordinated Claims shall be discharged as of the Effective Date. Class 8 is
Impaired and shall be deemed to have rejected the Plan and therefore is not
entitled to vote on the Plan.
4.4 IMPAIRED CLASSES OF INTERESTS
CLASS 9: INTERESTS
On the Effective Date, all Class 9 Interests shall be deemed
cancelled and extinguished. The holders of Class 9 Interests shall not receive
or retain any property under the Plan on account of their Class 9 Interests.
Class 9 is Impaired and shall be deemed to have rejected the Plan and therefore
is not entitled to vote on the Plan.
4.5 RESERVATION OF RIGHTS REGARDING UNIMPAIRED CLAIMS
Except as otherwise explicitly provided in the Plan, nothing
shall affect the Debtors' or the Reorganized Debtors' rights and defenses, both
legal and equitable, with respect to any Unimpaired Claims, including, but not
limited to, all rights with respect to legal and equitable defenses to alleged
rights of setoff or recoupment of Unimpaired Claims. Except to the extent a
Reorganized Debtor expressly assumes an obligation or liability of a Debtor or
another Reorganized Debtor, the Plan shall not operate to impose liability on
any Reorganized Debtor for the Claims against any other Debtor or the debts and
obligations of any other Debtor or Reorganized Debtor, and from and after the
Effective Date, each Reorganized Debtor, subject to the Restructuring
Transactions, shall be separately liable only for its own debts and obligations.
Plan - 20
ARTICLE V
ACCEPTANCE OR REJECTION OF THE PLAN
5.1 IMPAIRED CLASSES OF CLAIMS ENTITLED TO VOTE
Claimholders in each Impaired Class of Claims other than Class 8 are
entitled to vote as a Class to accept or reject the Plan. Accordingly, the votes
of holders of Claims that are neither Disputed Claims nor Disallowed Claims in
Classes 3 through 7 (including sub-classes) shall be solicited with respect to
the Plan. Votes will be separately tabulated by each of the Debtors with respect
to each Debtor's Plan contained in this joint Plan.
5.2 ACCEPTANCE BY THE IMPAIRED CLASS
In accordance with section 1126(c) of the Bankruptcy Code and except
as provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of
Claims shall have accepted the Plan if the Plan is accepted by the holders of at
least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number
of the Claims of such Class that have timely and properly voted to accept or
reject the Plan.
5.3 PRESUMED ACCEPTANCE BY THE UNIMPAIRED CLASSES
Classes 1 and 2 are Unimpaired under the Plan. Under section 1126(f)
of the Bankruptcy Code, such Unimpaired Classes are conclusively presumed to
have accepted the Plan, and the votes of the holders of Claims in such Classes
shall not be solicited.
5.4 CLASSES DEEMED TO REJECT PLAN
Holders of Claims and Interests in Classes 8 and 9 are not entitled to
receive or retain any property under the Plan. Under section 1126(g) of the
Bankruptcy Code, Classes 8 and 9 are deemed to have rejected the Plan, and the
votes of such Claim or Interest holders shall not be solicited.
5.5 CRAMDOWN
The Debtors shall seek confirmation of the Plan under section 1129(b)
of the Bankruptcy Code in view of the deemed rejection by Classes 8 and 9. To
the extent that any other Impaired Class rejects the Plan or is deemed to have
rejected the Plan, the Debtors shall request confirmation of the Plan, as it may
be modified from time to time, under section 1129(b) of the Bankruptcy Code with
respect to such other Impaired Class. The Debtors reserve the right to alter,
amend, modify, revoke, or withdraw the Plan, as to all Debtors, or with respect
to one or more Debtors but not all Debtors, the Plan Supplement, any Exhibit or
appendix attached to the Disclosure Statement, including to amend or modify it
to satisfy the requirements of section 1129(b) of the Bankruptcy Code, if
necessary.
5.6 CONFIRMABILITY AND SEVERABILITY OF A PLAN
The confirmation requirements of section 1129 of the Bankruptcy Code
must be satisfied separately with respect to each Debtor. Except as limited in
the Plan, if the Bankruptcy Court holds that any provision of the Plan is
invalid, void or unenforceable, the Debtors, at their option, may alter, amend,
modify, revoke or withdraw the Plan as it applies to any particular Debtor. A
determination by the Bankruptcy Court that the Plan, as it applies to one or
more Debtors, is not confirmable pursuant to section 1129 of the Bankruptcy Code
shall not limit or affect: (a) the confirmability of the Plan as it applies to
any other Debtor or (b) the Debtors' ability to modify the Plan, as it applies
to any other Debtor, to satisfy the confirmation requirements of section 1129 of
the
Plan - 21
Bankruptcy Code. The Debtors may seek to confirm the Plan, as amended or
modified, without the necessity to resolicit the Plan for voting, provided,
however, that the Plan, as amended, does not materially adversely affect the
treatment of Classes entitled to receive a distribution under the Plan, as
determined by the Bankruptcy Court at the Confirmation Hearing, or otherwise,
or such modification is consented to by any such Class.
ARTICLE VI
MEANS FOR IMPLEMENTATION OF THE PLAN
6.1 CONTINUED CORPORATE EXISTENCE FOR BRANCH SALES AND SERVICE DIVISION
Subject to the Restructuring Transactions, certain of the BSSD
Reorganized Debtors shall continue to exist after the Effective Date as separate
corporate entities, with all the powers of a corporation under applicable law in
the jurisdiction in which each is incorporated and pursuant to the certificate
of incorporation and bylaws in effect prior to the Effective Date, except to the
extent such certificate of incorporation and bylaws are amended by the Plan,
without prejudice to any right to terminate such existence (whether by merger or
otherwise) under applicable law after the Effective Date.
6.2 CORPORATE ACTION
Each of the matters provided for under the Plan involving the
corporate structure of any Debtor or Reorganized Debtor or corporate action to
be taken by or required of any Debtor or Reorganized Debtor shall, as of the
Effective Date, be deemed to have occurred and be effective as provided herein,
and shall be authorized and approved in all respects without any requirement of
further action by stockholders or directors of any of the Debtors or the
Reorganized Debtors.
(a) DISSOLUTION OF CORPORATE EXISTENCE OF CERTAIN DEBTORS
On the Effective Date, each of SKC, SK Services and each CSD
Subsidiary shall be deemed dissolved and have no continuing corporate existence,
subject only to each such Debtor's individual Plan imposed obligation to satisfy
Allowed Administrative Claims, Allowed DIP Facility Claims, Allowed Priority Tax
Claims, Allowed Other Priority Claims and Allowed DHEC Administrative Claim
against such Debtor's estate, if any. With respect to each such Debtor, upon
either (i) the final payment and satisfaction of the last of such Plan imposed
obligations or (ii) the assumption of the last of such Plan imposed obligations
by another Debtor or a Reorganized Debtor, the Debtor: (x) shall be deemed to
have been discharged as of the Effective Date and immediately thereafter deemed
to have dissolved for all purposes and withdrawn its business operations from
any state or country in which it was previously conducting, or is registered or
licensed to conduct, its business operations, and will not be required to file
any document, pay any sum or take any other action in order to effectuate such
dissolution and withdrawal; (y) shall be deemed to have had all of its Interests
cancelled pursuant to the Plan and (z) will not be liable in any manner to any
taxing authority for franchise, business, capital, license or similar taxes that
otherwise would have accrued on or after the Effective Date, all without the
necessity for any other or further actions to be taken on behalf of such Debtor;
provided, however, that the Reorganized Debtors may, if they so elect, and any
officer of a Reorganized Debtor shall be an authorized signatory for such
purpose, prepare and file all corporate resolutions, statements, notices, tax
returns or certificates of dissolution in such Debtors' jurisdiction of
incorporation or organization or other jurisdiction. The Reorganized Debtors
shall not have or incur any liability for any actions taken or not taken under
this Section 6.2(a) with respect to SKC, SK Services or any CSD Subsidiary.
Plan - 22
(b) ARTICLES OF INCORPORATION AND BYLAWS
The articles of incorporation and bylaws of each of the BSSD
Reorganized Debtors shall be amended as necessary to satisfy the provisions of
the Plan and the Bankruptcy Code. The articles of incorporation of New Holdco
shall among other things: (i) authorize the issuance of the shares of New Common
Stock and (ii) provide, pursuant to section 1123(a)(6) of the Bankruptcy Code,
for (A) a provision prohibiting the issuance of non-voting equity securities,
and, if applicable, (B) a provision as to the classes of securities issued
pursuant to the Plan or thereafter possessing voting power, for an appropriate
distribution of such power among such classes, including, in the case of any
class of equity securities having a preference over another class of equity
securities with respect to dividends, adequate provisions for the election of
directors representing such preferred class in the event of default in the
payment of such dividends.
(c) CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS
On the Effective Date, except as otherwise provided for herein
(i) the Existing Securities and any other note, bond, indenture, or other
instrument or document evidencing or creating any indebtedness or obligation of
the Debtors, except such notes or other instruments evidencing indebtedness or
obligations of the Debtors that are Reinstated under the Plan, shall be
cancelled and (ii) the obligations of, and/or Claims against, the Debtors under,
relating or pertaining to any agreements, indentures or certificates of
designations governing the Existing Securities and any other note, bond,
indenture or other instrument or document evidencing or creating any
indebtedness or obligation of the Debtors, except such notes or other
instruments evidencing indebtedness or obligations of the Debtors that are
Reinstated under the Plan, as the case may be, shall be released and discharged;
provided, however, that each indenture or other agreement that governs the
rights of the Claimholder and that is administered by an Indenture Trustee, an
agent or a servicer shall continue in effect solely for the purposes of allowing
such Indenture Trustee, agent or servicer to make the distributions to be made
on account of such Claims under the Plan as provided in Article IX of the Plan;
provided, further, that the provisions of this proviso shall not affect the
discharge of the Debtors' liabilities under the Bankruptcy Code and the
Confirmation Order or result in any expense or liability to the Reorganized
Debtors.
(d) RESTRUCTURING TRANSACTIONS
On the Effective Date, the following transactions will occur
in the following order:
(i) New Holdco will be incorporated.
(ii) New Holdco will cause New Parent to be
incorporated as a new wholly-owned subsidiary and New Holdco will
contribute the New Common Stock to New Parent.
(iii) New Parent will cause New Subsidiary to be
incorporated as a new wholly-owned subsidiary and New Parent will
contribute the New Common Stock to New Subsidiary.
(iv) New Subsidiary will cause Merger Sub to be
incorporated as a new wholly-owned subsidiary.
(v) Merger Sub will merge with and into SK
Systems pursuant to the Merger Agreement, with SK Systems surviving as
Reorganized Systems.
(vi) Pursuant to the Merger Agreement,
Reorganized Systems will cause the New Common Stock to be distributed
to the holders of the Canadian Lender Administrative Claims and the
holders of the US. Lender Claims in exchange for all or part of their
respective Claims. All distributions shall be in accordance with the
Plan.
Plan - 23
(vii) New Subsidiary will elect pursuant to
section 338(h)(10) of the Internal Revenue Code to treat the merger as
if Reorganized Systems acquired the Systems Assets at fair market
value.
(e) POST-EFFECTIVE DATE RESTRUCTURING TRANSACTIONS
On or after the Effective Date, the applicable Reorganized
Debtors may enter into such transactions and may take such actions as may be
necessary or appropriate to effect a corporate restructuring of their respective
businesses, to simplify otherwise the overall corporate structure of the
Reorganized Debtors, or to reincorporate certain of the Debtors under the laws
of jurisdictions other than the laws of which the applicable Debtors are
presently incorporated. Such restructuring is contemplated to include one or
more mergers, consolidations, restructures, dispositions, liquidations, or
dissolutions, as may be determined by the Debtors or Reorganized Debtors to be
necessary or appropriate (collectively, the "Restructuring Transactions"). The
actions to effectuate the Restructuring Transactions may include: (i) the
execution and delivery of appropriate agreements or other documents of merger,
consolidation, restructuring, disposition, liquidation or dissolution containing
terms that are consistent with the terms of the Plan and that satisfy the
applicable requirements of applicable state law and such other terms to which
the applicable entities may agree; (ii) the execution and delivery of
appropriate instruments of transfer, assignment, assumption or delegation of any
asset, property, right, liability, duty or obligation on terms consistent with
the terms of the Plan and having such other terms to which the applicable
entities may agree; (iii) the filing of appropriate certificates or articles of
merger, consolidation or dissolution pursuant to applicable state law and (iv)
all other actions that the applicable entities determine to be necessary or
appropriate, including making filings or recordings that may be required by
applicable state law in connection with such transactions. The Restructuring
Transactions may include one or more mergers, consolidations, restructurings,
dispositions, liquidations or dissolutions, as may be determined by the
Reorganized Debtors to be necessary or appropriate to result in substantially
all of the respective assets, properties, rights, liabilities, duties and
obligations of certain of the Reorganized Debtors vesting in one or more
surviving, resulting or acquiring corporations.
6.3 DIRECTORS AND OFFICERS
(a) The existing officers of SKC shall serve as officers of New Holdco in
their current capacities after the Effective Date pending the appointment of new
officers by the board of directors of New Holdco.
(b) The initial board of directors of New Holdco shall consist of nine
(9) directors to be selected by the Lenders. Directors will be classified into
three classes. One class consisting of three (3) directors shall hold office
initially for a term expiring at the 2004 annual meeting of shareholders. The
second class consisting of three (3) directors shall hold office initially for a
term expiring at the 2005 annual meeting of shareholders. Finally, the third
class consisting of three (3) directors shall hold office for a term expiring at
the 2006 annual meeting of shareholders.
6.4 MANAGEMENT INCENTIVE COMPENSATION PLAN
On or before the Exhibit Filing Date, the Debtors intend to file with the
Bankruptcy Court a copy of any Management Incentive Compensation Plan proposed
to be adopted by the Reorganized Debtors on the Effective Date.
6.5 EXIT FACILITY
(a) The Reorganized Debtors expect to enter into a $250 million Exit
Facility, with a letter of credit sub-limit of $125 million, in order to obtain
the funds necessary to repay the DIP Facility Claims, make other required
payments and conduct their post-reorganization operations. The Exit Facility is
expected to be secured by a first lien on substantially all of the assets of the
Reorganized Debtors.
Plan - 24
(b) The Debtors shall file documents evidencing the Exit Facility by the
Exhibit Filing Date. The Bankruptcy Court shall (i) approve the Exit Facility in
substantially the form filed with the Bankruptcy Court and (ii) authorize the
Debtors to execute the same together with such other documents as the Exit
Facility lenders or participants may reasonably require.
6.6 NEW COMMON STOCK
The issuance of the New Common Stock is hereby authorized without further
act or action under applicable law. The New Common Stock shall be issued and
distributed in accordance with the terms of the Plan without further act or
action under applicable law, regulation, order or rule and shall be exempt from
registration under applicable securities laws pursuant to section 1145(a) of the
Bankruptcy Code.
6.7 NEW SUBORDINATED NOTES
The issuance of $100 million in principal amount of New Subordinated PIK
Notes and $50 million in principal amount of New Subordinated Cash Pay Notes is
hereby authorized without further act or action under applicable law. The New
Subordinated PIK Notes and the New Subordinated Cash Pay Notes shall be secured
with liens on substantially all of the Reorganized Debtors' assets, subject only
to the liens of the Exit Facility. The New Subordinated Notes shall be issued
and distributed in accordance with the terms of the Plan without further act or
action under applicable law, regulation, order or rule and shall be exempt from
registration under applicable securities laws pursuant to section 1145(a) of the
Bankruptcy Code.
6.8 PRESERVATION OF CAUSES OF ACTION
(a) In accordance with section 1123(b)(3) of the Bankruptcy Code, and
except as otherwise provided in the Plan, the Confirmation Order or in any
contract, instrument, release or other agreement entered into in connection with
the Plan, the Reorganized Debtors shall retain and may enforce the Retained
Actions.
(b) The Reorganized Debtors, in their sole discretion, shall determine
whether to enforce, prosecute, settle or compromise (or decline to do any of the
foregoing) any of the Retained Actions, and the Safety-Kleen Creditor Trust, in
the exercise of its business judgment, shall determine whether to enforce,
prosecute, settle or compromise (or decline to do any of the foregoing) any of
the Trust Claims.
(c) The Reorganized Debtors and the Safety-Kleen Creditor Trust shall be
entitled to pursue their respective claims against persons allegedly liable both
to the Reorganized Debtors in respect of a Retained Action and to the
Safety-Kleen Creditor Trust in respect of a Trust Claim (any such person, a
"Common Defendant"). The Reorganized Debtors and the Safety-Kleen Creditor Trust
may, but shall be under no obligation to, enter into arrangements for the joint
prosecution of their respective claims, the sharing of litigation costs and or
recoveries and any other arrangements that are mutually acceptable to each such
party. Neither the Reorganized Debtors nor the Safety-Kleen Creditor Trust shall
have the right to release a Common Defendant (or any other entity) from the
claims of the other.
(d) The failure of the Debtors to specifically list any claim, right of
action, suit or proceeding in the Debtors' Schedules or in Exhibit I to the Plan
does not, and will not be deemed to, constitute a waiver or release by the
Debtors of such claim, right of action, suit or proceeding, and the Reorganized
Debtors will retain the right to pursue such claims, rights of action, suits or
proceedings in their sole discretion and, therefore, no preclusion doctrine,
collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial,
equitable or otherwise) or laches shall apply to such claim, right of action,
suit or proceeding upon or after the confirmation or consummation of the Plan.
Plan - 25
6.9 EXCLUSIVITY PERIOD
The Debtors shall retain the exclusive right to amend or modify the Plan
and to solicit acceptances of any amendments to or modifications of the Plan,
through and until the Effective Date.
6.10 INTERCOMPANY CLAIMS
All Claims between and among the Debtors shall, in the sole discretion of
the applicable Debtor or Reorganized Debtor, (a) be preserved and Reinstated,
(b) be released, waived and discharged as of the Effective Date or (c) be
contributed to the capital of the obligor corporation.
6.11 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS
The Chairman of the Board of Directors, the Chief Executive Officer or
any other officer of the Reorganized Debtors, shall be authorized to execute,
deliver, file or record such contracts, instruments, releases, indentures and
other agreements or documents, and take such actions as may be necessary or
desirable to effectuate and further evidence the terms and conditions of the
Plan, including any actions necessary or desirable to formally dissolve SKC, SK
Services and the CSD Subsidiaries. The Secretary or Assistant Secretary of the
Reorganized Debtors shall be authorized to certify or attest to any of the
foregoing actions.
6.12 EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers from a
Debtor to a Reorganized Debtor or any other Person or among Reorganized Debtors
pursuant to the Restructuring Transactions or the Plan in the United States
shall not be subject to any document recording tax, stamp tax, conveyance fee,
or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage
recording tax, or other similar tax or governmental assessment, and the
Confirmation Order shall direct the appropriate state or local governmental
officials or agents to forego the collection of any such tax or governmental
assessment and to accept for filing and recordation any of the foregoing
instruments or other documents without the payment of any such tax or
governmental assessment.
ARTICLE VII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.1 REJECTED CONTRACTS AND LEASES
Each executory contract and unexpired lease to which any of the Debtors
is a party shall be deemed automatically rejected as of the Effective Date,
unless such executory contract or unexpired lease (a) shall have been previously
assumed by the Debtors, (b) is the subject of a motion to assume filed on or
before the Confirmation Date or (c) is listed on the schedule of assumed
contracts and leases annexed hereto as Exhibit E to the Plan. The Debtors may
supplement or otherwise modify Exhibit E to the Plan through the Exhibit Filing
Date and may remove any contract or lease from Exhibit E to the Plan through the
later of the Effective Date or the date an order is entered determining the Cure
for any contract or lease in which Cure was disputed. The Confirmation Order
shall constitute an order of the Bankruptcy Court approving such rejections,
pursuant to section 365 of the Bankruptcy Code, as of the Effective Date. The
Debtors reserve the right to file a motion on or before the Confirmation Date to
assume and assign or reject any executory contract or unexpired lease whether or
not initially identified on Exhibit E to the Plan.
Plan - 26
7.2 REJECTION DAMAGES BAR DATE
If the rejection, pursuant to the Plan or otherwise, of an executory
contract or unexpired lease results in a Claim, then such Claim shall be forever
barred and shall not be enforceable against the Debtors or the Reorganized
Debtors or the properties of either of them unless, within thirty (30) calendar
days after service of the notice of Effective Date, a proof of claim is filed
with Trumbull Services LLC, c/o Safety-Kleen Corp., P.O. Box 267, Windsor,
Connecticut 06095-0267 (for U.S. mail) or Griffin Center, 4 Griffin Road North,
Windsor, Connecticut 06095 (for overnight delivery) and served upon (a) counsel
to the Debtors and (b) either (i) counsel to the Creditors' Committee, if prior
to the Effective Date or (ii) counsel to the Trustee to the Safety-Kleen
Creditor Trust if after the Effective Date.
7.3 ASSUMED CONTRACTS AND LEASES
Except as otherwise provided in the Plan or the Confirmation Order, all
executory contracts and unexpired leases identified in Exhibit E to the Plan
shall be deemed automatically assumed as of the Effective Date.
Each executory contract and unexpired lease that is assumed and relates
to the use, ability to acquire or occupancy of real property shall include (a)
all modifications, amendments, renewals, supplements, restatements or other
agreements made directly or indirectly by any agreement, instrument or other
document that in any manner affect such executory contract or unexpired lease
and (b) all executory contracts or unexpired leases appurtenant to the premises,
including all easements, licenses, permits, rights, privileges, immunities,
options, rights of first refusal, powers, uses, reciprocal easement agreements
and any other interests in real estate or rights in rem related to such
premises, unless any of the foregoing agreements has been rejected pursuant to a
Final Order of the Bankruptcy Court or is otherwise rejected as a part of the
Plan. To the extent the Debtor who is party to the unexpired lease or executory
contract is to be merged or liquidated as a part of a Restructuring Transaction,
the non-debtor parties to such unexpired lease or executory contract shall, upon
assumption as contemplated herein, be deemed to have consented to the assignment
of such unexpired lease or executory contract to the Reorganized Debtor set
forth on Exhibit E to the Plan.
The Confirmation Order shall constitute an order of the Bankruptcy Court
approving the assumption of such executory contracts and unexpired leases,
pursuant to section 365 of the Bankruptcy Code, as of the Effective Date.
7.4 PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES
Any monetary amounts by which each executory contract and unexpired lease
to be assumed under the Plan may be in default shall be satisfied, under section
365(b)(1) of the Bankruptcy Code by Cure. In the event of a dispute regarding
(a) the nature or the amount of any Cure, (b) the ability of the Reorganized
Debtors or any assignee to provide "adequate assurance of future performance"
(within the meaning of section 365 of the Bankruptcy Code) under the contract or
lease to be assumed or (c) any other matter pertaining to assumption, Cure shall
occur following the entry of a Final Order resolving the dispute and approving
the assumption and, as the case may be, assignment.
7.5 EMPLOYMENT, RETIREMENT, INDEMNIFICATION AND OTHER EMPLOYEE RELATED
AGREEMENTS
On the Effective Date, the Debtors shall be deemed to have rejected all
existing prepetition employment, retirement, indemnification and other employee
related plans, agreements and programs, including the SERP, except as set forth
in Section 12.7(c) of the Plan and those agreements, plans and programs
specifically set forth on Exhibit E to the Plan.
Plan - 27
ARTICLE VIII
SECURITIES TO BE ISSUED IN CONNECTION WITH THE PLAN
On the Effective Date, the New Common Stock, New Subordinated PIK Notes
and New Subordinated Cash Pay Notes shall be issued for distribution in
accordance with the provisions of the Plan. All securities to be issued will be
deemed issued as of the Effective Date regardless of the date on which they are
actually distributed. The form of the New Subordinated PIK Notes Indenture shall
be in substantially the form attached in the Plan Supplement. The form of the
New Subordinated Cash Pay Notes Indenture shall be substantially in the form the
attached in the Plan Supplement.
ARTICLE IX
PROVISIONS GOVERNING DISTRIBUTIONS
9.1 TIME OF DISTRIBUTIONS
Except as otherwise provided for herein or ordered by the Bankruptcy
Court, distributions under the Plan shall be made on the later to occur of
(a) the Effective Date (or as soon thereafter as is practicable), (b) when such
Claim becomes an Allowed Claim or (c) the Initial Distribution Date.
9.2 INTEREST ON CLAIMS
Unless otherwise specifically provided for in the Plan, the Confirmation
Order, the DIP Credit Agreement, any other Order of the Bankruptcy Court or
required by applicable bankruptcy law, postpetition interest shall not accrue or
be paid on Claims, and no Claimholder shall be entitled to interest accruing on
or after the Petition Date on any Claim. Interest shall not accrue or be paid
upon any Disputed Claim in respect of the period from the Petition Date to the
date a final distribution is made thereon if and after such Disputed Claim
becomes an Allowed Claim.
9.3 DISBURSING AGENT
The Disbursing Agent shall make all distributions required under the Plan
with respect to (a) the Unclassified Claims, (b) Classes 1 through 3 and (c)
Classes 4 through 6 with respect to any proceeds from the PwC Litigation Claim.
The Disbursing Agent shall reasonably cooperate with the Trustee and any
Indenture Trustee that will be making distributions in accordance with the Plan.
9.4 TRUSTEE
The Trustee shall make all distributions to the holders of Claims in
Classes 4 through 7 from the Safety-Kleen Creditor Trust. The Trustee shall
reasonably cooperate with the Disbursing Agent and any Indenture Trustee that
will be making distributions in accordance with the Plan.
9.5 SURRENDER OF SECURITIES OR INSTRUMENTS
On or before the date that distributions are first made by the
Safety-Kleen Creditor Trust, each holder of a Certificate shall surrender such
Certificate to the Trustee, or, with respect to indebtedness that is governed by
an indenture or other agreement, the respective Indenture Trustee, agent or
servicer, as the case may be, and such Certificate shall be cancelled. No
distribution of property hereunder shall be made to or on behalf of any such
Claimholder unless and until such Certificate is received by the Trustee or the
respective Indenture Trustee, agent or servicer, as the case may be, or the
unavailability of such Certificate is reasonably established to the
Plan - 28
satisfaction of the Trustee or the respective Indenture Trustee, agent or
servicer, as the case may be. Any such Claimholder who fails to surrender or
cause to be surrendered such Certificate or fails to execute and deliver an
affidavit of loss and indemnity reasonably satisfactory to the Trustee or the
respective Indenture Trustee, agent or servicer, as the case may be, prior to
the second (2nd) anniversary of the Effective Date, shall be deemed to have
forfeited all rights and Claims in respect of such Certificate and shall not
participate in any distribution hereunder, and all property in respect of such
forfeited distribution, including interest accrued thereon, shall revert to the
Safety-Kleen Creditor Trust notwithstanding any federal or state escheat laws to
the contrary.
9.6 INSTRUCTIONS TO INDENTURE TRUSTEES
Prior to any distribution on account of any Prepetition Notes or
Industrial Revenue Bonds, the Indenture Trustees, agents or servicers of the
Prepetition Notes or Industrial Revenue Bonds shall (a) inform the Trustee as to
the amount of properly surrendered Prepetition Notes or Industrial Revenue Bonds
and (b) inform the Trustee, in a form and manner that the Trustee reasonably
determines to be acceptable, of the names of such Allowed Claimholders that have
properly surrendered their respective Prepetition Notes or Industrial Revenue
Bonds and the denominations of such surrendered Prepetition Notes or Industrial
Revenue Bonds.
9.7 NOTIFICATION DATE FOR DISTRIBUTIONS TO HOLDERS OF PREPETITION NOTES AND
INDUSTRIAL REVENUE BONDS
At the close of business on the Distribution Notification Date, the
transfer ledgers of the Indenture Trustees, agents and servicers of the
Prepetition Notes and Industrial Revenue Bonds shall be closed, and there shall
be no further changes in the record holders of the Prepetition Notes and
Industrial Revenue Bonds. The Reorganized Debtors and the Indenture Trustees,
agents and servicers of the Prepetition Notes and Industrial Revenue Bonds and
the Trustee shall have no obligation to recognize any transfer of any of the
Prepetition Notes or Industrial Revenue Bonds occurring after the Distribution
Notification Date. The Reorganized Debtors and the Indenture Trustees, agents
and servicers for the Prepetition Notes and Industrial Revenue Bonds and the
Trustee shall be entitled instead to recognize and deal for all purposes
hereunder with only those record holders stated on the transfer ledgers as of
the close of business on the Distribution Notification Date.
9.8 CLAIMS ADMINISTRATION RESPONSIBILITY
The Disbursing Agent shall be responsible for administering, disputing,
objecting to, compromising or otherwise resolving and making distributions on
account of (a) Administrative Claims, (b) Priority Tax Claims, (c) Other
Priority Claims, (d) Secured U.S. Lender Claims, (e) Canadian Lender
Administrative Claims, (f) the DHEC Administrative Claim and (g) Miscellaneous
Secured Claims. The Trustee on behalf of the Safety-Kleen Creditor Trust shall
have responsibility for performing such functions with respect to the holders of
the Claims that are the beneficiaries of the Safety-Kleen Creditor Trust. The
Trustee shall be deemed substituted as party to any claims objections filed by
the Debtors concerning any claims in Classes 4 through 7 that are pending as of
the Effective Date and shall be authorized and empowered thereafter to prosecute
such objections and file new objections in the name of and in substitution for
the Debtors with respect to Classes 4 through 7.
9.9 OBJECTION DEADLINE
(a) As soon as practicable, but no later than the Claims Objection
Deadline, the Disbursing Agent and/or the Trustee shall file objections with the
Bankruptcy Court and serve such objections on the creditors holding the Claims
to which objections are made. Nothing contained herein, however, shall limit the
Disbursing Agent's or the Trustee's right to object to Claims, if any, filed or
amended after the Claims Objection Deadline.
(b) The Claims Objection Deadline may be extended by the Bankruptcy Court
upon motion by either the Disbursing Agent or the Trustee without notice or
hearing.
Plan - 29
9.10 CALCULATION OF DISTRIBUTION AMOUNTS
(a) NEW COMMON STOCK
No fractional shares of New Common Stock shall be issued or
distributed under the Plan. Each Person entitled to receive New Common Stock
will receive the total number of whole shares of New Common Stock to which such
Person is entitled. Whenever any distributions to a Person would otherwise call
for distribution of a fraction of a share of New Common Stock, the actual
distribution of shares of such New Common Stock shall be rounded to the next
higher or lower whole number as follows: fractions 1/2 or greater shall be
rounded to the next higher whole number, and fractions of less than 1/2 shall be
rounded to the next lower whole number. No consideration shall be provided in
lieu of fractional shares that are rounded down. The total number of shares of
New Common Stock to be distributed to each Class of Claims shall be adjusted as
necessary to account for the rounding provided for in this Section 9.10.
(b) NEW SUBORDINATED NOTES
New Subordinated Notes will be issued in denominations of
$1,000 and such fractions thereof as is necessary.
(c) CONVERSION RATE
Canadian dollar Claims will be converted to United States
dollars for purposes of distributions by applying the September 6, 2002 exchange
rate of .63610.
9.11 DELIVERY OF DISTRIBUTIONS
Distributions to Allowed Claimholders shall be made by the Trustee, the
Disbursing Agent or the appropriate Indenture Trustee, agent or servicer, as the
case may be (a) at the addresses set forth on the proofs of claim filed by such
Claimholders (or at the last known addresses of such Claimholders if no proof of
claim is filed or if the Debtors have been notified of a change of address), (b)
at the addresses set forth in any written notices of address changes delivered
to the Trustee, the Disbursing Agent or the appropriate Indenture Trustee after
the date of any related proof of claim, (c) at the addresses reflected in the
Schedules if no proof of claim has been filed and the Trustee or the Disbursing
Agent, as the case may be, has not received a written notice of a change of
address or (d) in the case of a Claimholder whose Claim is governed by an
indenture or other agreement and is administered by an Indenture Trustee, agent
or servicer, at the addresses contained in the official records of such
Indenture Trustee, agent or servicer. If any Claimholder's distribution is
returned as undeliverable, no further distributions to such Claimholder shall be
made unless and until the Trustee, the Disbursing Agent or the appropriate
Indenture Trustee, agent or servicer is notified of such Claimholder's then
current address, at which time all missed distributions shall be made to such
Claimholder without interest. Amounts in respect of undeliverable distributions
shall be returned to (x) the Safety-Kleen Creditor Trust with respect to
distributions made by the Trustee or any Indenture Trustee, agent or servicer
and (y) the Reorganized Debtors with respect to distributions made by the
Disbursing Agent, until such distributions are claimed. All claims for
undeliverable distributions shall be made on or before the second (2nd)
anniversary of the Effective Date. After such date, all unclaimed property
relating to distributions to be made from the Safety-Kleen Creditor Trust shall
revert to the Safety-Kleen Creditor Trust and all the other unclaimed property
shall revert to the Reorganized Debtors. Upon such reversion, the claim of any
Claimholder or successor to such Claimholder with respect to such property shall
be discharged and forever barred notwithstanding any federal or state escheat
laws to the contrary.
Plan - 30
9.1 2 PROCEDURES FOR TREATING AND RESOLVING DISPUTED AND CONTINGENT CLAIMS
(a) NO DISTRIBUTIONS PENDING ALLOWANCE
Except as set forth in Section 9.12(e) of the Plan, no
payments or distributions shall be made with respect to all or any portion of a
Disputed Claim unless and until all objections to such Disputed Claim have been
settled or withdrawn or have been determined by a Final Order and the Disputed
Claim has become an Allowed Claim. All objections to Claims must be filed on or
before the Claims Objection Deadline.
(b) TRUST DISTRIBUTION RESERVE
The Trustee shall establish the Trust Distribution Reserve by
withholding the Trust Distribution Reserve from the Trust Assets to be
distributed to Claimholders in Classes 4 through 7 under the Plan. The Trustee
may request estimation for any Class 4 through 7 Disputed Claim that is
contingent or unliquidated and the Trustee will withhold the Trust Distribution
Reserve based upon the estimated amount of each such Claim as estimated by the
Bankruptcy Court. If the Trustee elects not to request such an estimation from
the Bankruptcy Court with respect to a Disputed Claim that is contingent, the
Trustee will withhold the Trust Distribution Reserve based upon the Face Amount
of such Claim. In addition, the Trustee will place in the Trust Distribution
Reserve any dividends, payments or other distributions made on account of, as
well as any obligations arising from, the property withheld as the Trust
Distribution Reserve, to the extent that such property continues to be withheld
as the Trust Distribution Reserve at the time such distributions are made or
such obligations arise. If practicable, the Trustee will invest any Cash that is
withheld as the Trust Distribution Reserve in a manner that will yield a
reasonable net return, taking into account the safety of the investment. Nothing
in the Plan or Disclosure Statement will be deemed to entitle the Claimholder of
a Disputed Claim to postpetition interest on such Claim.
(c) LENDER CLAIMS RESERVE
The Disbursing Agent shall establish a Lender Claims Reserve
by withholding the New Subordinated Notes and the New Common Stock to be
distributed to the holders of the secured portion of any Claim for reimbursement
obligations related to letters of credit posted under the Prepetition Credit
Agreement and outstanding as of the Effective Date not otherwise replaced or
backstopped through letters of credit issued under the Exit Facility. To the
extent such Claim becomes noncontingent and liquidated, the holder of such Claim
shall receive its Pro Rata share of the Lender Claims Reserve. If such Claim is
withdrawn or disallowed, then the New Subordinated Notes and the New Common
Stock in the Lender Claims Reserve shall be distributed Pro Rata to the Allowed
Class 3 Claimholders and holders of Allowed Canadian Lender Administrative
Claims.
All distributions made under this Section 9.12(c) on account
of an Allowed Claim will be made together with any dividends, payments or other
distributions made on account of, as well as any obligations arising from, the
distributed property as if such Allowed Claim had been an Allowed Claim on the
dates distributions were previously made to holders of Secured U.S. Lender
Claims and Canadian Lender Administrative Claims, as appropriate.
(d) DISTRIBUTIONS AFTER ALLOWANCE
Payments and distributions from the Trust Distribution Reserve
to each Claimholder of a Disputed Claim, to the extent that such Disputed Claim
ultimately becomes an Allowed Claim, will be made in accordance with the
provisions of the Plan that govern distributions of Allowed Claims in that
Class.
Upon entry of an order or judgment of the Bankruptcy Court
allowing all or part of such Claim, and such order or judgment becomes a Final
Order, the Trustee shall distribute to the holders of Claims in Classes 4
through 7 any Cash in the Trust Distribution Reserve that would have been
distributed on any previous
Plan - 31
Distribution Dates to that Allowed Class had such Allowed Claim been an Allowed
Claim on such previous Distribution Dates. After a Final Order has been entered,
or other final resolution has been reached with respect to all Disputed Claims
in Classes 4 through 7, any remaining Cash held in the Trust Distribution
Reserve shall be distributed Pro Rata to holders of Allowed Claims in Classes 4
through 7 on the next Distribution Date. All distributions made under this
Article IX on account of an Allowed Claim will be made together with any
dividends, payments or other distributions made on account of, as well as any
obligations arising from, the distributed property as if such Allowed Claim had
been an Allowed Claim on the previous Distribution Dates on which distributions
were made to holders of Claims in Allowed Classes 4 through 7.
(e) PARTIAL DISTRIBUTIONS
Notwithstanding any other provision of the Plan or the
documents referred to by the Plan, the Trust Advisory Board may direct the
Trustee to make one or more distributions to the holders of Disputed Claims,
based on the distributions which such holders would otherwise be entitled to
receive based on the undisputed portions of such Claims if their Claims had not
been objected to, if any. This power of direction may not be used to select
individual Disputed Claims for payment. The Trust Advisory Board may only direct
the Trustee to make distributions on the undisputed portions of all Disputed
Claims, or none at all. Notwithstanding the foregoing, the Trust Advisory Board
may not authorize or direct the Trustee to pay any distribution to entities that
may be liable to the Safety-Kleen Creditor Trust with respect to a Trust Claim
unless the holder of such Claim has discharged its liability to the Safety-Kleen
Creditor Trust on account of the Trust Claim by settlement or otherwise.
(f) CLAIMS ALLOWABLE AGAINST MULTIPLE DEBTORS
Notwithstanding anything herein or in the Schedules to the
contrary, to the extent a Claim-holder in Classes 4 through 7 has an Allowed
Claim against more than one of the Debtors based upon the same ground or theory
of liability, such Claim shall only be counted once for determination of
distributions of Trust Assets to be paid to such Claimholder from the
Safety-Kleen Creditor Trust.
ARTICLE X
ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS
10.1 DIP FACILITY CLAIM
On the Effective Date, all obligations of the Debtors under the DIP
Facility shall be paid in full in Cash or otherwise satisfied in a manner
acceptable to such Claimholders in accordance with the terms of the DIP
Facility, and all liens and security interests granted to secure such
obligations shall be deemed cancelled and shall be of no further force and
effect.
10.2 PROFESSIONAL CLAIMS
(a) FINAL FEE APPLICATIONS
All final requests for payment of Professional Claims must be
filed no later than sixty (60) calendar days after the Confirmation Date. The
deadline to file final requests for payment of Professional Claims may be
extended by the Bankruptcy Court upon motion by a Professional. After notice and
a hearing in accordance with the procedures established by the Bankruptcy Code
and prior orders of the Bankruptcy Court, the allowed amounts of such
Professional Claims shall be determined by the Bankruptcy Court.
Plan - 32
(b) PAYMENT OF INTERIM AMOUNTS
Subject to the Holdback Amount, on the Effective Date, the
Debtors shall pay all undisputed amounts owing to Professionals for all
outstanding amounts relating to prior periods through the Confirmation Date.
In order to receive payment on the Effective Date for unbilled
fees and expenses incurred through the Confirmation Date, the Professionals
shall estimate fees and expenses due for periods that have not been billed as of
the Confirmation Date and shall deliver such estimate to counsel for the
Debtors, the Creditors' Committee, the Prepetition Agent and the DIP Agent.
Within thirty (30) calendar days after the Effective Date, a Professional
receiving payment for estimated fees shall submit a detailed invoice covering
such estimated amounts in the manner and providing the detail as set forth in
the Professional Fee Orders.
(c) TERMINATING FEE APPLICATION REQUIREMENTS
Upon the Confirmation Date, any requirement that Professionals
comply with sections 327 through 331 and 363 of the Bankruptcy Code in seeking
retention or compensation for services rendered after such date will terminate
and shall not apply to any services rendered after the Confirmation Date.
10.3 SUBSTANTIAL CONTRIBUTION COMPENSATION AND EXPENSES BAR DATE
Any Person that requests compensation or expense reimbursement for
making a substantial contribution in the Chapter 11 Cases pursuant to section
503(b)(3), (4) or (5) of the Bankruptcy Code must file an application with the
Clerk of the Bankruptcy Court, on or before the date that is fifteen (15)
calendar days after the Confirmation Date, and serve such application on counsel
for the Debtors, the Trustee, the DIP Agent and the Prepetition Agent and as
otherwise required by the Bankruptcy Court and the Bankruptcy Code or be forever
barred from seeking such compensation or expense reimbursement.
10.4 OTHER ADMINISTRATIVE CLAIMS
All other requests for payment of an Administrative Claim (other than
as set forth in Sections 10.2 and 10.3 of the Plan) must be filed with the
Bankruptcy Court and served on counsel for the Debtors no later than thirty (30)
calendar days after the Confirmation Date. Unless the Debtors or the Disbursing
Agent object to an Administrative Claim within ninety (90) calendar days after
such bar date, such Administrative Claim shall be deemed allowed in the amount
requested against the appropriate Debtor's Estate. In the event that the Debtors
object to an Administrative Claim, the Bankruptcy Court shall determine the
Allowed amount of such Administrative Claim. Notwithstanding the foregoing, no
request for payment of an Administrative Claim need be filed with respect to an
Administrative Claim which is paid or payable by the BSSD Debtors in the
ordinary course of business. The deadline to file an objection to an
Administrative Claim may be extended by the Bankruptcy Court upon motion by the
Debtors or the Disbursing Agent.
10.5 ADMINISTRATIVE CLAIMS ALLOWABLE AGAINST MULTIPLE DEBTORS
Notwithstanding anything herein to the contrary, if a holder of an
Administrative Claim, Canadian Lender Administrative Claim, DIP Facility Claim,
Priority Tax Claim or DHEC Administrative Claim has an Allowed Claim against
more then one of the Debtors based upon the same ground or theory of liability,
then such Claim shall only be paid once under the Plan.
Plan - 33
ARTICLE XI
SAFETY-KLEEN CREDITOR TRUST
11.1 APPOINTMENT OF TRUSTEE
(a) The Trustee for the Safety-Kleen Creditor Trust shall be designated
by the Trust Advisory Board. The Person designated as Trustee shall file an
affidavit demonstrating that such Person is disinterested. The Person so
designated by the Trust Advisory Board shall become the Trustee upon the
Bankruptcy Court entering an order approving the designation after consideration
of the same and any objections thereto at the Confirmation Hearing.
(b) The Trustee shall have and perform all of the duties,
responsibilities, rights and obligations set forth in the Trust Agreement.
11.2 ASSIGNMENT OF TRUST ASSETS TO THE SAFETY-KLEEN CREDITOR TRUST
On the Effective Date, the Debtors shall transfer and shall be deemed to
have transferred to the Safety-Kleen Creditor Trust, for and on behalf of the
beneficiaries of the Safety-Kleen Creditor Trust (a) the Initial Deposit to be
paid to Safety-Kleen Creditor Trust pursuant to Section 11.5 of the Plan and (b)
the Trust Claims.
11.3 THE SAFETY-KLEEN CREDITOR TRUST
(a) Without any further action of the directors or shareholders of the
Debtors, on the Effective Date, the Trust Agreement, substantially in the form
of Exhibit B to the Plan, shall become effective. The Trustee shall accept the
Safety-Kleen Creditor Trust and sign the Trust Agreement on that date and the
Safety-Kleen Creditor Trust then will be deemed created and effective.
(b) The Trustee shall have full authority to take any steps necessary to
administer the Trust Agreement, including, without limitation, the duty and
obligation to liquidate Trust Assets, to make distributions to the holders of
Allowed Claims in Classes 4 through 7, to review and, if appropriate and
authorized by a majority of the members of the Trust Advisory Board authorized
to vote, to pursue and compromise objections to General Unsecured Claims and, if
authorized by majority vote of those members of the Trust Advisory Board
authorized to vote, to pursue and settle any other Trust Claims. Upon the
assignment of the Trust Claims (which, as stated above, shall be transferred on
the Effective Date), the Trustee, on behalf of the Safety-Kleen Creditor Trust,
shall assume and be responsible for all of the Debtors' responsibilities, duties
and obligations with respect to the subject matter of the Trust Claims, and the
Debtors, the Disbursing Agent and the Reorganized Debtors shall have no other
further rights or obligations with respect thereto.
(c) The Trustee shall take such steps as it deems necessary (having first
obtained such approvals from the Trust Advisory Board as may be necessary, if
any) to reduce the Trust Assets to Cash to make distributions required
hereunder, provided that the Trustee's actions with respect to disposition of
the Trust Assets should be taken in such a manner so as reasonably to maximize
the value of the Trust Assets.
(d) All costs and expenses associated with the administration of the
Safety-Kleen Creditor Trust, including those rights, obligations and duties
described in Section 11.3(b) of the Plan, shall be the responsibility of and
paid by the Safety-Kleen Creditor Trust. Notwithstanding the foregoing, the
Reorganized Debtors shall cooperate with the Trustee in pursuing the Trust
Recoveries and shall afford reasonable access during normal business hours, upon
reasonable notice, to personnel and books and records of the Reorganized Debtors
to representatives of the Safety-Kleen Creditor Trust to enable the Trustee to
perform the Trustee's tasks under the Trust Agreement and the Plan; provided,
however, that the Reorganized Debtors will not be required to make expenditures
in response to such requests determined by them to be unreasonable. The
Bankruptcy Court retains
Plan - 34
jurisdiction to determine the reasonableness of any request for assistance or
related expenditure. Any requests for assistance shall not interfere with the
Reorganized Debtors' business operations.
(e) The Trustee may retain professionals, including, but not limited to,
attorneys, accountants, experts, advisors, consultants, investigators,
appraisers or auctioneers as it may deem necessary, in its sole discretion, to
aid in the performance of its responsibilities pursuant to the terms of the
Trust Agreement and the Plan including, without limitation, the liquidation and
distribution of Trust Assets. Such retained professionals shall continue to
prepare monthly statements in the same manner and in the same detail as required
pursuant to the Professional Fee Order and shall serve such statements on each
member of the Trust Advisory Board. In the event two or more members of the
Trust Advisory Board object to the reasonableness of such fees and expenses, the
matter shall be submitted to the Bankruptcy Court for approval of the
reasonableness of such fees and expenses.
(f) For federal income tax purposes, it is intended that the Safety-Kleen
Creditor Trust be classified as a liquidating trust under section 301.7701-4 of
the Treasury regulations and that such trust is owned by its beneficiaries.
Accordingly, for United States federal income tax purposes, it is intended that
the beneficiaries be treated as if they had received a distribution of an
undivided interest in the Trust Assets and then contributed such interests to
the Safety-Kleen Creditor Trust.
(g) The Trustee shall be responsible for filing all federal, state and
local tax returns for the Safety-Kleen Creditor Trust.
11.4 THE TRUST ADVISORY BOARD
(a) The Trust Advisory Board shall be comprised of five (5)members. The
Creditors' Committee and the Lenders shall each designate two (2) members and
those four members shall designate the remaining member. Such parties shall give
written notice of the identities of such members, file it of record and serve
such notice on each other and on the Debtors on a date that is not less than
five (5) Business Days prior to the Confirmation Hearing. The Trustee shall
consult regularly with the Trust Advisory Board when carrying out the purpose
and intent of the Safety-Kleen Creditor Trust. Members of the Trust Advisory
Board shall be entitled to compensation in accordance with the Trust Agreement
and to reimbursement of the reasonable and necessary expenses incurred by them
in carrying out the purpose of the Trust Advisory Board. Reimbursement of the
reasonable and necessary expenses of the members of the Trust Advisory Board and
their compensation to the extent provided for in the Trust Agreement shall be
payable by the Safety-Kleen Creditor Trust.
(b) In the case of an inability or unwillingness of any member of the
Trust Advisory Board to serve, such member shall be replaced by designation of
the remaining members of the Trust Advisory Board. If any position on the Trust
Advisory Board remains vacant for more than thirty (30) calendar days, such
vacancy shall he filled within fifteen (15) calendar days thereafter by the
designation of the Trustee without the requirement of a vote by the other
members of the Trust Advisory Board.
(c) Upon the certification by the Trustee that all Trust Assets have been
distributed, abandoned or otherwise disposed of, the members of the Trust
Advisory Board shall resign their positions, whereupon they shall be discharged
from further duties and responsibilities.
(d) The Trust Advisory Board may, by majority vote, approve all
settlements of Trust Claims which the Trustee may propose, subject to Bankruptcy
Court approval of such settlements after notice and a hearing; provided,
however, that (i) no member of the Trust Advisory Board may cast a vote with
respect to any Trust Claim to which it is a party and (ii) the Trustee may seek
Bankruptcy Court approval of a settlement of a Trust Claim if the Trust Advisory
Board fails to act on a proposed settlement of such Trust Claim within thirty
(30) calendar days of receiving notice of such proposed settlement by the
Trustee.
Plan - 35
(e) The Trust Advisory Board may, by majority vote, authorize the Trustee
to invest the corpus of the Trust in prudent investments in addition to those
described in section 345 of the Bankruptcy Code.
(f) The Trust Advisory Board may remove the Trustee in the event of gross
negligence or willful misconduct; provided, however, that such removal must be
approved by four (4) members of the Trust Advisory Board. In the event the
requisite approval is not obtained, the Trustee may be removed by the Bankruptcy
Court for cause shown. In the event of the resignation or removal of the
Trustee, the Trust Advisory Board shall, by majority vote, designate a person to
serve as successor Trustee.
(g) The Trust Advisory Board shall require a fidelity bond from the
Trustee in such reasonable amount as may be agreed to by majority vote of the
Trust Advisory Board.
(h) The Trust Advisory Board shall govern its proceedings through the
adoption of bylaws, which the Trust Advisory Board may adopt by majority vote.
No provision of such bylaws shall supersede any express provision of the Plan.
11.5 FUNDING OF THE INITIAL DEPOSIT
On the Effective Date or as soon thereafter as practicable, SKC shall
fund the Safety-Kleen Creditor Trust with the Initial Deposit to be used by the
Trustee consistent with the purpose of the Safety-Kleen Creditor Trust and
subject to the terms and conditions of the Trust Agreement and the Plan.
11.6 DISTRIBUTIONS OF TRUST ASSETS
(a) The Trust shall reimburse the Reorganized Debtors for the full amount
of the Initial Deposit from the Trust Recoveries. The Trustee shall pay the
Reorganized Debtors from the Safety-Kleen Creditor Trust one-half (1/2) of all
Trust Recoveries until the Reorganized Debtors are reimbursed for the full
amount of the Initial Deposit.
(b) Subject to Section 11.6(a) hereof and except as otherwise provided
herein, the Trustee shall distribute the remaining Trust Assets as follows:
first, to pay Trust Expenses; second, to repay amounts, if any, borrowed by the
Trustee in accordance with the Trust Agreement and, third, to pay the Pro Rata
distributions to Classes 4 through 7 as required by the Plan. Distributions to
holders of Allowed Claims in Classes 4 through 7 shall be made on a Distribution
Date; provided, however, that the Trustee shall not be required to make any such
distribution on a Distribution Date in the event that, in the Trustee's
discretion (after consultation with the Trust Advisory Board), the aggregate
proceeds and income available for distribution to such Claimholders is not
sufficient to make such a distribution. From time to time, but no less
frequently than quarterly, the Trustee, in consultation with the Trust Advisory
Board, shall estimate the amount of Trust Assets required to pay then
outstanding and reasonably anticipated Trust Expenses. The Cash portion of Trust
Assets in excess of such actual and estimated Trust Expenses shall be made
available for distribution to Classes 4 through 7 Claimholders in the amounts,
on the dates and subject to the other terms and conditions provided in the Plan.
The Trustee will make continuing efforts to dispose of the Trust Assets, make
timely distributions and not unduly prolong the duration of the Safety-Kleen
Creditor Trust.
Plan - 36
ARTICLE XII
EFFECT OF THE PLAN
12.1 REVESTING OF ASSETS
Except as otherwise provided in the Plan, on the Effective Date all
property comprising the Estates of each Debtor (other than a Dissolving Debtor)
shall revest in the respective Reorganized Debtor or its successor as a result
of a Restructuring Transaction, free and clear of all Claims, liens, charges,
encumbrances and Interests of creditors and equity security holders (other than
as expressly provided in the Plan or the Confirmation Order). On the Effective
Date, any property of Dissolving Debtors not previously distributed under the
Plan shall, at the option of the Reorganized Debtors, vest in one or more
Reorganized Debtor as set forth on Exhibit J to the Plan, free and clear of all
Claims, liens, charges, encumbrances and Interests of creditors and equity
security holders of such Dissolving Debtor (other than as expressly provided in
the Plan or the Confirmation Order). As of the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests without supervision of the Bankruptcy
Court free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other
than those restrictions expressly imposed by the Plan and Confirmation Order.
12.2 DISCHARGE OF THE DEBTORS
Pursuant to section 1141(d) of the Bankruptcy Code, except as otherwise
specifically provided in the Plan or in the Confirmation Order, the
distributions and rights that are provided for in the Plan shall be in exchange
for and in complete satisfaction, discharge and release, effective as of the
Effective Date, of Claims and Causes of Action (whether known or unknown)
against, liabilities of, liens on, obligations of and Interests in the Debtors
or the Reorganized Debtors or any of their assets or properties, regardless of
whether any property shall have been distributed or retained pursuant to the
Plan on account of such Claims, including, but not limited to, demands and
liabilities that arose on or before the Effective Date, any liability (including
withdrawal liability) to the extent such Claims relate to services performed by
employees of the Debtors prior to the Petition Date and that arise from a
termination of employment or a termination of any employee or retiree benefit
program regardless of whether such termination occurred prior to or after the
Petition Date and all debts of the kind specified in sections 502(g), 502(h) or
502(i) of the Bankruptcy Code, whether or not (a) a proof of claim based upon
such debt is filed or deemed filed under section 501 of the Bankruptcy Code, (b)
a Claim based upon such debt is Allowed under section 502 of the Bankruptcy Code
or (c) the Claimholder of such a Claim accepted the Plan. The Confirmation Order
shall be a judicial determination of the discharge of all liabilities of the
Debtors, subject to the Effective Date occurring.
12.3 COMPROMISES AND SETTLEMENTS
From and after the Confirmation Date, the Reorganized Debtors may
compromise and settle various Claims against them and claims and Causes of
Action that they have against other Persons without further Bankruptcy Court
approval. After the Effective Date, the Safety-Kleen Creditor Trust may settle
all claims and Causes of Action for which it has authority to liquidate or
affirmatively pursue without further Bankruptcy Court approval for Claims
Allowed in amounts that do not exceed $1,000,000 or for affirmative recoveries
that do not exceed $100.000.
12.4 SETOFFS
The Debtors or the Reorganized Debtors may, but shall not be required to,
set off against any Claim, and the payments or other distributions to be made
pursuant to the Plan in respect of such Claim, claims of any nature whatsoever
that the Debtors or the Reorganized Debtors may have against such Claimholder;
but neither the
Plan - 37
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release of any such claim that the Debtors or the Reorganized Debtors
may have against such Claimholder.
12.5 SATISFACTION OF SUBORDINATION RIGHTS
All Claims against the Debtors and all rights and claims between or among
Claimholders relating in any manner whatsoever to Claims against the Debtors,
based upon any claimed subordination rights (if any), shall be deemed satisfied
by the distributions under the Plan to Claimholders having such subordination
rights, and such subordination rights shall be deemed waived, released,
discharged and terminated as of the Effective Date. Distributions to the various
Classes of Claims hereunder shall not be subject to levy, garnishment,
attachment or similar legal process by any Claimholder by reason of any claimed
subordination rights or otherwise, so that each Claimholder shall have and
receive the benefit of the distributions in the manner set forth in the Plan.
Notwithstanding anything in this Section, the subordination rights between the
Lenders and the holders of the 9 1/4% Senior Subordinated Notes shall remain in
effect and be preserved.
12.6 EXCULPATION AND LIMITATION OF LIABILITY
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THE PLAN (INCLUDING SECTION
12.7(d) HEREOF, THE DEBTORS, THE REORGANIZED DEBTORS, THE CREDITORS' COMMITTEE,
THE MEMBERS OF THE CREDITORS' COMMITTEE IN THEIR REPRESENTATIVE CAPACITY, THE
LENDERS, THE PREPETITION AGENT, THE DIP LENDERS, THE DIP AGENT, ANY OF SUCH
PARTIES' RESPECTIVE PRESENT OR FORMER MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES,
ADVISORS, ATTORNEYS, REPRESENTATIVES, FINANCIAL ADVISORS, INVESTMENT BANKERS OR
AGENTS AND ANY OF SUCH PARTIES' SUCCESSORS AND ASSIGNS, SHALL NOT HAVE OR INCUR,
AND ARE HEREBY RELEASED FROM, ANY CLAIM, OBLIGATION, CAUSES OF ACTION OR
LIABILITY TO ONE ANOTHER OR TO ANY CLAIMHOLDER OR INTERESTHOLDER, OR ANY OTHER
PARTY IN INTEREST, OR ANY OF THEIR RESPECTIVE AGENTS, EMPLOYEES,
REPRESENTATIVES, FINANCIAL ADVISORS, ATTORNEYS OR AFFILIATES, OR ANY OF THEIR
SUCCESSORS OR ASSIGNS, FOR ANY POSTPETITION ACT OR OMISSION IN CONNECTION WITH,
RELATING TO OR ARISING OUT OF THE DEBTORS' CHAPTER 11 CASES, THE PURSUIT OF
CONFIRMATION OF THE PLAN, THE CONSUMMATION OF THE PLAN, THE ADMINISTRATION OF
THE PLAN OR THE PROPERTY TO BE DISTRIBUTED UNDER THE PLAN, EXCEPT FOR ANY ACT OR
OMISSION TO THE EXTENT THAT SUCH ACT OR OMISSION IS DETERMINED IN A FINAL ORDER
TO HAVE CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AND IN ALL RESPECTS
SHALL BE ENTITLED TO REASONABLY RELY UPON THE ADVICE OF COUNSEL WITH RESPECT TO
THEIR DUTIES AND RESPONSIBILITIES UNDER THE PLAN.
NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN, NO CLAIMHOLDER OR
INTERESTHOLDER, OR OTHER PARTY IN INTEREST, NONE OF THEIR RESPECTIVE AGENTS,
EMPLOYEES, REPRESENTATIVES, FINANCIAL ADVISORS, ATTORNEYS OR AFFILIATES, AND NO
SUCCESSORS OR ASSIGNS OF ANY OF THE FOREGOING, SHALL HAVE ANY RIGHT OF ACTION
AGAINST THE DEBTORS, THE REORGANIZED DEBTORS, THE CREDITORS' COMMITTEE, THE
MEMBERS OF THE CREDITORS' COMMITTEE IN THEIR REPRESENTATIVE CAPACITY, THE
LENDERS, THE PREPETITION AGENT, THE DIP LENDERS, THE DIP AGENT OR ANY OF SUCH
PARTIES' RESPECTIVE PRESENT OR FORMER MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES,
ADVISORS, ATTORNEYS, REPRESENTATIVES, FINANCIAL ADVISORS, INVESTMENT BANKERS OR
AGENTS OR SUCH PARTIES' SUCCESSORS AND ASSIGNS, FOR ANY POSTPETITION ACT OR
OMISSION IN CONNECTION WITH, RELATING TO OR ARISING OUT OF THE DEBTORS' CHAPTER
11 CASES, THE PURSUIT OF CONFIRMATION OF THE PLAN, THE CONSUMMATION OF THE PLAN,
THE ADMINISTRATION OF THE PLAN OR THE PROPERTY TO BE DISTRIBUTED UNDER THE PLAN,
EXCEPT FOR ANY ACT OR OMISSION TO THE EXTENT THAT SUCH ACT OR OMISSION IS
DETERMINED IN A FINAL ORDER TO HAVE CONSTITUTED GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
12.7 INDEMNIFICATION OBLIGATIONS
(a) Indemnification Obligations owed to any Professional or advisor of
the Debtors who actively served in such capacity as of the Confirmation Date,
including, without limitation, accountants, auditors, financial consultants,
underwriters or outside attorneys, arising under contracts that applied, in
whole or in part, to any period occurring on or after the Petition Date shall be
deemed to be, and shall be treated as though they are, executory contracts that
are assumed pursuant to section 365 of the Bankruptcy Code under the Plan.
Plan - 38
(b) Indemnification Obligations owed to any other Professional or advisor
of the Debtors, including, without limitation, accountants, auditors, financial
advisors and investment bankers and outside attorneys, including without
limitation any party set forth on Exhibit K to the Plan, shall be deemed to be,
and shall be treated as though they are, executory contracts that are rejected
pursuant to section 365 of the Bankruptcy Code under the Plan.
(c) Indemnification Obligations owed to Current Directors and Officers as
of the Confirmation Date, whether pursuant to charter, bylaws, contract or
applicable state law, shall be deemed to be, and shall be treated as though they
are, executory contracts that are assumed pursuant to section 365 of the
Bankruptcy Code under the Plan, and such obligations (subject to any defense
thereto) shall survive confirmation of the Plan and remain unaffected thereby,
irrespective of whether indemnification is owed in connection with a
pre-Petition Date or post-Petition Date occurrence; provided, however, that the
foregoing assumption shall not affect any release of such obligations given to
the Debtors before the Effective Date or the Reorganized Debtors on or after the
Effective Date.
(d) Indemnification Obligations owed to any other Person not specified
above in Section 12.7(c) shall be deemed to be, and shall be treated as though
they are, executory contracts that are rejected pursuant to section 365 of the
Bankruptcy Code under the Plan.
12.8 RELEASE BY DEBTORS AND DEBTORS-IN-POSSESSION
(a) Pursuant to section 1123(b)(3) of the Bankruptcy Code, and unless
otherwise provided herein or in the Confirmation Order effective as of the
Effective Date, the Debtors, in their individual capacities and as
debtors-in-possession, for and on behalf of the Estates, release and discharge:
(i) the Lenders, the Prepetition Agent, the DIP Lenders and the DIP Agent in
their respective capacities as such; (ii) all directors of the Debtors serving
in such capacity postpetition; (iii) all officers of the Debtors serving in such
capacity as of the Confirmation Date; (iv) attorneys, accountants, auditors,
financial advisors and investment bankers of the Debtors actively serving in
such capacities as of the Confirmation Date and (v) all members of the
Creditors' Committee in their capacity as Creditors' Committee members, agents
of or acting for the Creditors' Committee, including all professionals retained
by the Creditors' Committee (each of the Persons described in clauses (i), (ii),
(iii), (iv) and (v), a "Released Person") for and from any and all claims or
Causes of Action existing as of the Effective Date in any manner arising from,
based on or relating to, in whole or in part, the subject matter of, or the
transactions or events giving rise to, any Claim or Interest that is treated in
the Plan, the business or contractual arrangements between any Debtor or any
Released Person, the restructuring of Claims and Interests prior to or in the
Chapter 11 Cases or any act, omission, occurrence or event in any manner related
to any such Claims, Interest, restructuring or the Chapter 11 Cases.
(b) The Safety-Kleen Creditor Trust, the Reorganized Debtors and any
newly-formed entities that will be continuing the Debtors' businesses after the
Effective Date shall be bound, to the same extent the Debtors are bound, by the
releases set forth above in Section 12.8(a).
(c) Notwithstanding anything else contained in this Section 12.8, a
Released Person shall not include (i) a Person (other than a Debtor) that is a
party to a Retained Action with respect to that Retained Action; (ii) any
director, officer or employee who has filed and not released, settled or
withdrawn with prejudice, any Priority Claim, Administrative Claim or request
for payment of Administrative Claim and (iii) the parties set forth on Exhibit K
to the Plan.
12.9 RELEASE BY HOLDERS OF CLAIMS AND INTERESTS
A RELEASE OBLIGOR SHALL BE PRESUMED CONCLUSIVELY TO HAVE ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND FOREVER, RELEASED AND DISCHARGED EACH RELEASED
PERSON, AND ANY PERSON THAT MAY BE LIABLE DERIVATIVELY THROUGH ANY OF THE
FOREGOING, FROM ANY CLAIM OR CAUSE OF ACTION EXISTING AS OF THE EFFECTIVE DATE
ARISING
Plan - 39
FROM, BASED ON OR RELATING TO, IN WHOLE OR IN PART (A) THE SUBJECT MATTER OF; OR
THE TRANSACTION OR EVENT GIVING RISE TO, THE CLAIM OR INTEREST OF SUCH RELEASE
OBLIGOR AND (B) ANY ACT, OMISSION, OCCURRENCE OR EVENT IN ANY MANNER RELATED TO
SUCH SUBJECT MATTER, TRANSACTION OR OBLIGATION.
12.10 RELEASE BV INSURED PERSONS
(a) ANY PERSON THAT CLAIMS BENEFITS OF INSURANCE UNDER, OR THAT QUALIFIES
OR CLAIMS TO QUALIFY, OR HAS, OR MAY CLAIM TO HAVE, ANY RIGHT OR INTEREST AS AN
INSURED UNDER THE RESOLVED INSURANCE POLICIES, WHETHER AS A NAMED INSURED,
ADDITIONAL NAMED INSURED OR SUCCESSOR OR ASSIGNEE TO A NAMED AND/OR ADDITIONAL
INSURED, OR IN ANY OTHER MANNER, SHALL HAVE NO RIGHT OF ACTION OR ANY OTHER
RIGHT, INCLUDING THE RIGHT TO TENDER OR PRESENT ANY CLAIMS AGAINST THE SETTLING
INSURERS BASED UPON, RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THE RESOLVED INSURANCE POLICIES.
(b) ANY PERSON THAT CLAIMS BENEFITS OF INSURANCE UNDER, OR THAT QUALIFIES
OR CLAIMS TO QUALIFY, OR HAS, OR MAY CLAIM TO HAVE, ANY RIGHT OR INTEREST AS AN
INSURED UNDER THE RESOLVED INSURANCE POLICIES, WHETHER AS A NAMED INSURED,
ADDITIONAL NAMED INSURED OR SUCCESSOR OR ASSIGNEE TO A NAMED AND/OR ADDITIONAL
INSURED, OR IN ANY OTHER MANNER, SHALL BE PERMANENTLY RESTRAINED AND ENJOINED
FROM TAKING ANY ACTION, OR COMMENCING OR CONTINUING ANY ACTION, EMPLOYMENT OF
PROCESS OR ANY OTHER ACT TO ENFORCE, COLLECT, OFFSET OR RECOVER ANY CLAIM, CAUSE
OF ACTION OR EQUITABLE CLAIM OR RIGHT AGAINST THE SETTLING INSURERS BASED UPON,
RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE RESOLVED INSURANCE
POLICIES.
12.11 INJUNCTION
THE SATISFACTION, RELEASE AND DISCHARGE PURSUANT TO ARTICLE XII OF THE PLAN
SHALL ALSO ACT AS AN INJUNCTION AGAINST ANY PERSON COMMENCING OR CONTINUING ANY
ACTION, EMPLOYMENT OF PROCESS OR ACT TO COLLECT, OFFSET OR RECOVER ANY CLAIM OR
CAUSE OF ACTION SATISFIED, RELEASED OR DISCHARGED UNDER THE PLAN TO THE FULLEST
EXTENT AUTHORIZED OR PROVIDED BY THE BANKRUPTCY CODE, INCLUDING, WITHOUT
LIMITATION, TO THE EXTENT PROVIDED FOR OR AUTHORIZED BY SECTIONS 524 AND 1141
THEREOF.
ARTICLE XIII
CONDITIONS PRECEDENT
13.1 CONDITIONS TO CONFIRMATION
The following are conditions precedent to confirmation of the Plan, each of
which may be satisfied or waived in accordance with Section 13.3 of the Plan:
(a) The Bankruptcy Court shall have approved by Final Order a disclosure
statement with respect to the Plan in form and substance reasonably acceptable
to the Debtors.
(b) The Confirmation Order shall he in form and substance reasonably
acceptable to the Debtors.
13.2 CONDITIONS TO CONFIRMATION
The following are conditions precedent to the occurrence of the Effective
Date, each of which may be satisfied or waived in accordance with Section 13.3
of the Plan:
(a) The Bankruptcy Court shall have entered one or more orders (which may
include the Confirmation Order) authorizing the rejection of leases and
executory contracts by the Reorganized Debtors as contemplated by Section 7.1 of
the Plan.
Plan - 40
(b) The Debtors shall have entered into the Exit Facility and all
conditions precedent to the consummation thereof shall have been waived or
satisfied in accordance with the terms thereof.
(c) The Confirmation Order shall have been entered by the Bankruptcy Court
and shall be a Final Order, and no request for revocation of the Confirmation
Order under section 1144 of the Bankruptcy Code shall have been made, or, if
made, shall remain pending.
(d) The Debtors shall have received the proceeds of the Laidlaw Claim.
(e) The Confirmation Date shall have occurred and the Confirmation Order
shall, among other things, provide that:
(i) the provisions of the Confirmation Order are non-severable and
mutually dependent;
(ii) all executory contracts or unexpired leases assumed (and not
otherwise previously assigned) by the Debtors during the Chapter 11 Cases
or under the Plan shall be assigned and transferred to, and remain in full
force and effect for the benefit of, the Reorganized Debtors,
notwithstanding any provision in such contract or lease (including those
described in sections 365(b)(2) and (f) of the Bankruptcy Code) that
prohibits such assignment or transfer or that enables or requires
termination of such contract or lease;
(iii) the transfers of property by the Debtors (A) to the Reorganized
Debtors (1) are or shall be legal, valid, and effective transfers of
property, (2) vest or shall vest good title to such property in the
Reorganized Debtors free and clear of all liens, charges, claims,
encumbrances or interests, except as expressly provided in the Plan or
Confirmation Order, (3) do not and shall not constitute avoidable transfers
under the Bankruptcy Code or under applicable nonbankruptcy law and (4) do
not and shall not subject the Reorganized Debtors to any liability by
reason of such transfer under the Bankruptcy Code or under applicable
nonbankruptcy law, including, without limitation, any laws affecting
successor or transferee liability and (B) to Claimholders under the Plan
are for good consideration and value and are in the ordinary course of the
Debtors' businesses;
(iv) except as expressly provided in the Plan or the Confirmation
Order, each of the Debtors is discharged effective upon the Effective Date
from any Debt, and each of the Debtor's liability in respect thereof is
extinguished completely, whether reduced to judgment or not, liquidated or
unliquidated, contingent or noncontingent, asserted or unasserted, fixed or
unfixed, matured or unmatured, disputed or undisputed, legal or equitable,
known or unknown, or that arose from any agreement of a Debtor entered into
or obligation of a Debtor incurred before the Effective Date, or from any
conduct of a Debtor prior to the Effective Date, or that otherwise arose
before the Effective Date, including, without limitation, all interest, if
any, on any such debts, whether such interest accrued before or after the
Petition Date, and any liability (including withdrawal liability) to the
extent such liability relates to services performed by employees of the
Debtors prior to the Petition Date and that arise from a termination of
employment or a termination of any employee or retiree benefit program
regardless of whether such termination occurred prior to or after the
Petition Date;
(v) except as expressly provided in the Plan, all Interests shall be
terminated effective upon the Effective Date;
(vi) New Holdco is authorized to issue the New Common Stock and
Reorganized Systems is authorized to issue the New Subordinated Notes; and
Plan - 41
(vii) the Bankruptcy Court shall have determined that the New Common
Stock and New Subordinated Notes issued under the Plan in exchange for
Claims against the Debtors are exempt from registration under the
Securities Act of 1933 pursuant to, and to the extent provided by, section
1145 of the Bankruptcy Code.
13.3 WAIVER OF CONDITIONS TO CONFIRMATION OR CONSUMMATION
The conditions set forth in Sections 13.1 and 13.2 of the Plan may be
waived by the Debtors in their sole discretion without any notice to parties in
interest or the Bankruptcy Court and without a hearing. The failure to satisfy
or waive any condition to the Confirmation Date or the Effective Date may be
asserted by the Debtors in their sole discretion regardless of the circumstances
giving rise to the failure of such condition to be satisfied (including any
action or inaction by the Debtors in their sole discretion). The failure of the
Debtors in their sole discretion to exercise any of the foregoing rights shall
not be deemed a waiver of any other rights and each such right shall be deemed
an ongoing right, which may be asserted at any time.
ARTICLE XIV
RETENTION OF JURISDICTION
Pursuant to sections l05(a) and 1142 of the Bankruptcy Code, the Bankruptcy
Court shall have exclusive jurisdiction of all matters arising out of, and
related to, the Chapter 11 Cases and the Plan, including, among other things,
the following matters:
(a) to hear and determine pending motions for the assumption or rejection
of executory contracts or unexpired leases or the assumption and assignment, as
the case may be, of executory contracts or unexpired leases to which any of the
Debtors is a party or with respect to which any of the Debtors may be liable,
and to hear and determine the allowance of Claims resulting therefrom including
the amount of Cure, if any, required to be paid to such Claimholders;
(b) to adjudicate any and all adversary proceedings, applications and
contested matters that may be commenced or maintained pursuant to the Chapter 11
Cases or the Plan, including, without limitation, any adversary proceeding or
contested matter with respect to a Trust Claim and all controversies and issues
arising from or relating to any of the foregoing;
(c) to ensure that distributions to holders of Allowed Claims are
accomplished as provided herein,
(d) to hear and determine any and all objections to the allowance or
estimation of Claims filed, both before and after the Confirmation Date,
including any objections to the classification of any Claim or Interest, and to
allow or disallow any Claim, in whole or in part;
(e) to enter and implement such orders as may be appropriate if the
Confirmation Order is for any reason stayed, revoked, modified or vacated;
(f) to issue orders in aid of execution, implementation or consummation of
the Plan;
(g) to consider any modifications of the Plan, to cure any defect or
omission, or to reconcile any inconsistency in any order of the Bankruptcy
Court, including, without limitation, the Confirmation Order;
(h) to hear and determine all applications for compensation and
reimbursement of Professional Claims under the Plan or under sections 330, 331,
363, 503(b), 1103 and 1129(a)(4) of the Bankruptcy Code; provided. however, that
from and after the Confirmation Date, the payment of the fees and expenses of
the
Plan - 42
retained professionals of the Reorganized Debtors accruing on or after the
Confirmation Date shall be made in the ordinary course of business and shall not
be subject to the approval of the Bankruptcy Court;
(i) to determine requests for the payment of Claims entitled to priority
under section 507(a)(1) of the Bankruptcy Code, including compensation of and
reimbursement of expenses of parties entitled thereto;
(j) to hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan, including disputes
arising under agreements, documents or instruments executed in connection with
the Plan;
(k) to hear and determine all suits or adversary proceedings to recover
assets of the Debtors and property of their Estates, wherever located;
(l) to hear and determine matters concerning state, local and federal taxes
in accordance with sections 346, 505 and 1146 of the Bankruptcy Code;
(m) to hear any other matter not inconsistent with the Bankruptcy Code;
(n) to hear and determine all disputes involving the existence, nature or
scope of the Debtors' discharge, including any dispute relating to any liability
arising out of the termination of employment or the termination of any employee
or retiree benefit program, regardless of whether such termination occurred
prior to or after the Effective Date;
(o) to hear and determine disputes arising in connection with the
Safety-Kleen Creditor Trust and the interpretation, implementation or
enforcement of the Trust Agreement;
(p) to enter a final decree closing the Chapter 11 Cases; and
(q) to enforce all orders previously entered by the Bankruptcy Court.
Notwithstanding anything contained herein to the contrary and only to the extent
the Bankruptcy Court has previously ordered otherwise, the Bankruptcy Court
retains exclusive jurisdiction to hear and determine disputes concerning Claims,
Retained Actions and Trust Claims and any motions to compromise or settle such
disputes. Despite the foregoing, if the Bankruptcy Court is determined not to
have jurisdiction with respect to any of the foregoing, or if the Reorganized
Debtors or the Safety-Kleen Creditor Trust chooses to pursue any Retained Action
or Trust Claim (as applicable) in another court of competent jurisdiction, the
Reorganized Debtors or the Safety-Kleen Creditor Trust (as applicable) shall
have authority to bring such action in any other court of competent
jurisdiction.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of the Debtors, the
Reorganized Debtors, all present and former Claimholders, all present and former
Interestholders, other parties in interest and their respective successors and
assigns.
Plan - 43
15.2 MODIFICATION AND AMENDMENTS
The Debtors may alter, amend or modify the Plan or any Exhibits thereto
under section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Hearing. Following the Confirmation Date, the Debtors may make
ministerial changes as the Debtors or Reorganized Debtors deem necessary,
without notice and a hearing under section 1127(b) of the Bankruptcy Code or
disclosure or re-solicitation under section 1127(c) of the Bankruptcy Code, as
long as such changes do not materially and adversely affect the rights of any
party-in-interest without the consent of such party in interest. Additionally,
after the Confirmation Date and prior to substantial consummation of the Plan as
defined in section 1101(2) of the Bankruptcy Code, the Debtors or Reorganized
Debtors may, under section 1127(b) of the Bankruptcy Code, institute proceedings
in the Bankruptcy Court to remedy any defect or omission or reconcile any
inconsistencies in the Plan, the Disclosure Statement or the Confirmation Order,
and such matters as may be necessary to carry out the purposes and effects of
the Plan.
15.3 WITHHOLDING AND REPORTING REQUIREMENTS
In connection with the Plan and all instruments issued in connection
therewith and distributions thereon, the Debtors shall comply with all
withholding and reporting requirements imposed by any federal, state, local or
foreign taxing authority, and all distributions hereunder shall be subject to
any such withholding and reporting requirements.
15.4 COMMITTEES
Effective on the Effective Date, the Creditors' Committee shall dissolve
whereupon its members, Professionals and agents shall be released from any
further duties and responsibilities in the Chapter 11 Cases and under the
Bankruptcy Code, except with respect to filing applications for Professional
Claims.
15.5 REVOCATION, WITHDRAWAL OR NON-CONSUMMATION
(a) RIGHT TO REVOKE OR WITHDRAW
The Debtors reserve the right to revoke or withdraw the Plan as to all
Debtors, or as to one or more but less than all Debtors, at any time prior to
the Effective Date.
(b) EFFECT OF WITHDRAWAL, REVOCATION OR NON-CONSUMMATION
If the Debtors revoke or withdraw the Plan with respect to one or more
Debtors prior to the Effective Date, or if the Confirmation Date or the
Effective Date does not occur with respect to one or more Debtors (any such
Debtor, a "Non-Consummating Debtor"), then the Plan, any settlement or
compromise embodied in the Plan (including the fixing or limiting to an amount
certain any Claim or Class of Claims), the assumption or rejection of executory
contracts or unexpired leases effected by the Plan and any document or agreement
executed pursuant to the Plan shall be null and void with respect to a
Non-Consummating Debtor. In such event, nothing contained herein, and no acts
taken in preparation for consummation of the Plan, shall be deemed to constitute
a waiver or release of any claims by or against a Non-Consummating Debtor or any
other Person, to prejudice in any manner the rights of a Non-Consummating Debtor
or any Person in any further proceedings involving such Non-Consummating Debtor
or to constitute an admission of any sort by such Non-Consummating Debtor any
other Person.
Plan - 44
15.6 PAYMENT OF STATUTORY FEES
All fees payable under section 1930 of title 28 of the United States Code,
as determined by the Bankruptcy Court at the Confirmation Hearing, shall be paid
on or before the Effective Date. All such fees that arise after the Effective
Date but before the closing of the Chapter 11 Cases shall be paid by the
Reorganized Debtors.
15.7 PREPAYMENT
Except as otherwise provided in the Plan, any ancillary documents entered
into in connection herewith or the Confirmation Order, the Debtors shall have
the right to prepay, without penalty, all or any portion of an Allowed Claim at
any time; provided, however, that any such prepayment shall not be violative of,
or otherwise prejudice, the relative priorities and parities among the Classes
of Claims.
15.8 NOTICES
Any notice required or permitted to be provided to the Debtors, the
Creditors' Committee, the DIP Agent or the Prepetition Agent under the Plan
shall be in writing and served by (a) certified mail, return receipt requested,
(b) hand delivery or (c) overnight delivery service, to be addressed as follows:
If to the Debtors:
Safety-Kleen Systems, Inc.
1301 Gervais Street
Suite 300
Columbia, South Carolina 22920
Attention: General Counsel
and
Safety-Kleen Systems, Inc.
5400 Legacy Drive
Plano, Texas 75024-3015
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: D. J. Baker, Esq.
J. Gregory St. Clair, Esq.
If to the Creditors' Committee:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Luc Despins, Esq.
Susheel Kirpalani, Esq.
Plan - 45
If to the DIP Agent:
Toronto Dominion (Texas), Inc.
31 West 52nd Street
New York, New York 10019
Attention: Peter Spielman
and
Toronto Dominion
900 Fannin, Suite 1700
Houston, Texas 77010
Attention: James Birdwell
with a copy to:
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Mark Thompson, Esq.
If to the Prepetition Agent:
Toronto Dominion (Texas), Inc.
31 West 52nd Street
New York, New York 10019
Attention: Peter Spielman
and
Toronto Dominion
900 Fannin, Suite 1700
Houston, Texas 77010
Attention: James Birdwell
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Kathryn Turner, Esq.
15.9 TERM OF INJUNCTIONS OR STAYS
Unless otherwise provided herein or in the Confirmation Order, all
injunctions or stays provided for in the Chapter 11 Cases under sections 105 or
362 of the Bankruptcy Code or otherwise, and extant on the Confirmation Date,
shall remain in full force and effect until the Effective Date.
Plan - 46
15.10 GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law (including the
Bankruptcy Code and Bankruptcy Rules) or unless otherwise specifically stated,
the laws of the State of Delaware shall govern the construction and
implementation of the Plan, any agreements, documents and instruments executed
in connection with the Plan, and corporate governance matters.
15.11 NO WAIVER OR ESTOPPEL
Each Claimholder or Interestholder shall be deemed to have waived any right
to assert that its Claim or Interest should be Allowed in a certain amount, in a
certain priority, secured or not subordinated by virtue of an agreement made
with the Debtors and/or their counsel, the Creditors' Committee and/or its
counsel, or any other party, if such agreement was not disclosed in the Plan,
the Disclosure Statement or papers filed with the Bankruptcy Court.
15.12 NO SUBSTANTIVE CONSOLIDATION
The Plan does not provide for substantive consolidation of the Debtors'
Estates. The structure of the Plan shall not operate to impose liability on any
Reorganized Debtor for the Claims against any other Debtor or the debts and
obligations of any other Reorganized Debtor.
15.13 ALLOCATION OF PLAN DISTRIBUTIONS BETWEEN PRINCIPAL AND INTEREST
To the extent that any Allowed Claim entitled to a distribution under the
Plan is composed of indebtedness and accrued but unpaid interest thereon, such
distribution shall, for federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
15.14 COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, unless
otherwise expressly provided, the provisions of Bankruptcy Rule 9006(a) shall
apply.
15.15 EXHIBITS
All Exhibits referenced in the Plan are incorporated into and are a part of
the Plan as if set forth in full herein and, to the extent not annexed hereto,
shall be filed with the Bankruptcy Court on or before the Exhibit Filing Date.
After the Exhibit Filing Date, copies of Exhibits can be obtained by (a)
accessing a website, the address of which will be provided, and downloading them
at no charge or (b) requesting them by calling (i) Skadden, Arps, Slate, Meagher
& Flom LLP at (888) 358-9792 or (ii) Innisfree M&A Incorporated at (877)
750-2689.
Plan - 47
Dated: November 27, 2002
Respecfully submitted,
SAFETY-KLEEN CORP. AND CERTAIN OF ITS SUBSIDIARIES
AND AFFILIATES WHO ARE ALSO DEBTORS AND
DEBTORS-IN-POSSESSION IN THE CHAPTER 11 CASES
By: /s/ Larry W. Singleton
----------------------------
Larry W. Singleton
Their: Executive Vice President,
Chief Financial Officer
and Executive Officer.
PLAN EXHIBIT A
SCHEDULE OF PROPONENTS OF THE PLAN
AND CORRESPONDING BANKRUPTCY CASE NUMBERS
NAME OF DEBTOR BANKRUPTCY CASE NUMBER
- --------------- ----------------------
SAFETY-KLEEN CORP. 00-2303(PJW)
SAFETY-KLEEN SERVICES, INC. 00-2304(PJW)
SAFETY-KLEEN (CONSULTING), INC. 00-2305(PJW)
SAFETY-KLEEN (LONE AND GRASSY MOUNTAIN), INC. 00-2306(PJW)
SAFETY-KLEEN (TULSA), INC. 00-2307(PJW)
SAFETY-KLEEN (SAN ANTONIO), INC. 00-2308(PJW)
SAFETY-KLEEN (WICHITA), INC. 00-2309(PJW)
SAFETY-KLEEN (DELAWARE), INC 00-2310(PJW)
SK SERVICES (EAST), L.C. 00-2311(PJW)
SK SERVICES, L.C. 00-2312(PJW)
SAFETY-KLEEN (ROSEMOUNT), INC. 00-2313(PJW)
SAFETY-KLEEN (SAWYER), INC. 00-2314(PJW)
SAFETY-KLEEN (PPM), INC. 00-23l5(PJW)
NINTH STREET PROPERTIES, INC. 00-2316(PJW)
SAFETY-KLEEN (SAN JOSE), INC. 00-2317(PJW)
CHEMCLEAR, INC. OF LOS ANGELES 00-2318(PJW)
USPCI, INC. OF GEORGIA 00-2319(PJW)
SAFETY-KLEENHOLDINGS, INC. 00-2320(PJW)
SAFETY-KLEEN (WESTMORELAND), INC. 00-2321(PJW)
SAFETY-KLEEN (BUTTONWILLOW), INC. 00-2322(PJW)
SAFETY-KLEEN (NE), INC. 00-2323(PJW)
SAFETY-KLEEN (CROWLEY), INC. 00-2324(PJW)
SAFETY-KLEEN (LAPORTE), INC. 00-2325(PJW)
Plan Ex. A - 1
NAME OF DEBTOR BANKRUPTCY CASE NUMBER
- --------------- ----------------------
SAFETY-KLEEN (TG), INC. 00-2326(PJW)
SAFETY-KLEEN (ROEBUCK), INC. 00-2327(PJW)
SAFETY-KLEEN (TS), INC. 00-2328(PJW)
SAFETY-KLEEN (COLFAX), INC. 00-2329(PJW)
GSX CHEMICAL SERVICES OF OHIO, INC. 00-2330(PJW)
LEMC, INC. 00-2331(PJW)
SAFETY-KLEEN CHEMICAL SERVICES, INC. 00-2332(PJW)
SAFETY-KLEEN (ALTAIR), INC. 00-2333(PJW)
SAFETY-KLEEN (FS), INC. 00-2334(PJW)
SAFETY-KLEEN (BDT), INC. 00-2335(PJW)
SAFETY-KLEEN (GS), INC. 00-2336(PJW)
SAFETY-KLEEN (CLIVE), INC. 00-2337(PJW)
SAFETY-KLEEN (WT), INC. 00-2338(PJW)
SAFETY-KLEENOSCO HOLDINGS, INC. 00-2339(PJW)
SAFETY-KLEEN (NASHVILLE), INC. 00-2340(PJW)
SAFETY-KLEEN (BARTOW), INC. 00-2341(PJW)
SAFETY-KLEEN (CALIFORNIA), INC. 00-2342(PJW)
SAFETY-KLEEN (CHATTANOOGA), INC. 00-2343(PJW)
SAFETY-KLEEN (PECATONICA), INC. 00-2344(PJW)
SAFETY-KLEEN (PINEWOOD), INC. 00-2345(PJW)
SAFETY-KLEEN (WHITE CASTLE), INC. 00-2346(PJW)
SAFETY-KLEEN (PUERTO RICO), INC. 00-2347(PJW)
SAFETY-KLEEN (BRIDGEPORT), INC. 00-2348(PJW)
SAFETY-KLEEN (DEER PARK), INC. 00-2349(PJW)
SAFETY-KLEEN (BATON ROUGE), INC. 00-2350(PJW)
SAFETY-KLEEN (PLAQUEMINE), INC. 00-2351(PJW)
SAFETY-KLEEN (CUSTOM TRANSPORT), INC. 00-2352(PJW)
SAFETY-KLEEN (LOS ANGELES), INC. 00-2353(PJW)
Plan Ex. A - 2
NAME OF DEBTOR BANKRUPTCY CASE NUMBER
- --------------- ----------------------
SAFETY-KLEEN (TIPTON), INC. 00-2354(PJW)
SAFETY-KLEEN (GLOUCESTER), INC. 00-2355(PJW)
SAFETY-KLEEN (DEER TRAIL), INC. 00-2356(PJW)
SAFETY-KLEEN (MT. PLEASANT), INC. 00-2357(PJW)
SAFETY-KLEEN (MINNEAPOLIS), INC. 00-2358(PJW)
SAFETY-KLEEN (ARAGONITE), INC. 00-2359(PJW)
SAFETY-KLEEN (SUSSEX), INC. 00-2360(PJW)
SAFETY-KLEEN (ENCOTEC), INC. 00-2361(PJW)
SAFETY-KLEEN SYSTEMS, INC. 00-2362(PJW)
ECOGARD, INC. 00-2363(PJW)
SK EUROPE, INC. 00-2364(PJW)
DIRT MAGNET, INC 00-2365(PJW)
THE MIDWAY GAS AND OIL CO. 00-2366(PJW)
ELGINT CORP. 00-2367(PJW)
SAFETY-KLEEN ENVIROSYSTEMS COMPANY 00-2368(PJW)
SAFETY-KLEEN ENVIROSYSTEMS COMPANY OF PUERTO RICO 00-2369(PJW)
PETROCON, INC. 00-2370(PJW)
PHILLIPS ACQUISITION CORP. 00-2371(PJW)
SK REAL ESTATE INC. 00-2372(PJW)
SAFETY-KLEEN INTERNATIONAL, INC. 00-2373(PJW)
SAFETY-KLEEN OIL RECOVERY CO. 00-2374(PJW)
SAFETY-KLEEN OIL SERVICES, INC. 00-2375(PJW)
THE SOLVENTS RECOVERY SERVICE OF NEW JERSEY, INC. 00-2376(PJW)
Plan Ex. A - 3
PLAN EXHIBIT B
SAFETY-KLEEN CREDITOR TRUST AGREEMENT
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT C
RESTATED ARTICLES OF INCORPORATION
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT D
RESTATED BYLAWS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT E
SCHEDULE OF ASSUMED EXECUTORY CONTRACTS AND UNEXPIRED LEASES
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT F
SCHEDULE OF CLASS 7 GENERAL UNSECURED CLAIMS SUB-CLASSES
Class 7.01: Safety-Kleen (Encotec), Inc. General Unsecured Claims
Class 7.01 consists of all Safety-Kleen (Encotec), Inc. General Unsecured
Claims
Class 7.02: Safety-Kleen System, Inc. Claims
Class 7.02 consists of all Safety-Kleen Systems, Inc. General Unsecured
Claims.
Class 7.03: Ecogard Inc. General Unsecured Claims
Class 7.03 consists of all Ecogard Inc. General Unsecured Claims.
Class 7.04: SK Europe, Inc. General Unsecured Claims
Class 7.04 consists of all SK Europe, Inc. General Unsecured Claims.
Class 7.05: Dirt Magnet, Inc. General Unsecured Claims
Class 7.05 consists of all Dirt Magnet, Inc. General Unsecured Claims.
Class 7.06: The Midway Gas and Oil Co. General Unsecured Claims
Class 7.06 consists of all The Midway Gas and Oil Co. General Unsecured
Claims.
Class 7.07: Elgint Corp. General Unsecured Claims
Class 7.07 consists of all Elgint Carp. General Unsecured Claims.
Class 7.08: Safety-Kleen Envirosystems Company General Unsecured Claims
Class 7.08 consists of all Safety-Kleen Envirosystems Company General
Unsecured Claims.
Class 7.09: Safety-Kleen Envirosystems Company of Puerto Rico General Unsecured
Claims
Class 7.09 consists of all Safety-Kleen Envirosystems Company of Puerto
Rico General Unsecured Claims.
Class 7.10: Petrocon, Inc. General Unsecured Claims
Class 7.10 consists of all Petrocon, Inc. General Unsecured Claims.
Plan Ex. F - 1
Class 7.I I: Phillips Acquisition Corp. General Unsecured Claims
Class 7.11 consists of all Phillips Acquisition Corp. General Unsecured
Claims.
Class 7.12: SK Real Estate Inc. General Unsecured Claims
Class 7.12 consists of all SK Real Estate Inc. General Unsecured Claims.
Class 7.13: Safety-Kleen International, Inc. General Unsecured Claims
Class 7.13 consists of all Safety-Kleen International, Inc. General
Unsecured Claims
Class 7.14: Safety-Kleen Oil Recovery Co. General Unsecured Claims
Class 7.14 consists of all Safety-Kleen Oil Recovery Co. General Unsecured
Claims.
Class 7.15: Safety-Kleen Oil Services, Inc. General Unsecured Claims
Class 7.15 consists of all Safety-Kleen Oil Services, Inc. General
Unsecured Claims.
Class 7.16: The Solvents Recovery Service of New Jersey, Inc. General Unsecured
Claims
Class 7.16 consists of all The Solvents Recovery Service of New Jersey,
Inc. General Unsecured Claims.
Class 7.17: Safety-Kleen Services, Inc. General Unsecured Claims
Class 7.17 consists of all Safety-Kleen Services, Inc. General Unsecured
Claims.
Class 7.18: Safety-Kleen (Consulting), Inc. General Unsecured Claims
Class 7.18 consists of all Safety-Kleen (Consulting), Inc. General
Unsecured Claims.
Class 7.19: Safety-Kleen (Lone and Grassy Mountain), Inc. General Unsecured
Claims
Class 7.19 consists of all Safety-Kleen (Lone and Grassy Mountain), Inc.
General Unsecured Claims.
Class 7.20: Safety-Kleen (Tulsa), Inc. General Unsecured Claims
Class 7.20 consists of all Safety-Kleen (Tulsa), Inc. General Unsecured
Claims.
Class 7.21: Safety-Kleen (San Antonio), Inc. General Unsecured Claims
Class 7.21 consists of all Safety-Kleen (San Antonio), Inc. General
Unsecured Claims.
Class 7.22: Safety-Kleen (Wichita), Inc. General Unsecured Claims
Class 7.22 consists of all Safety-Kleen (Wichita), Inc. General Unsecured
Claims.
Plan Ex. F - 2
Class 7.23: Safety-Kleen (Delaware), Inc. General Unsecured Claims
Class 7.23 consists of all Safety-Kleen (Delaware), Inc. General Unsecured
Claims.
Class 7.24: SK Services (East), L. C. General Unsecured Claims
Class 7.24 consists of all SK Services (East), L.C. General Unsecured
Claims.
Class 7.25: SK Services. L.C. General Unsecured Claims
Class 7.25 consists of all SK Services, L.C. General Unsecured Claims.
Class 7.26: Safety-Kleen (Rosemount), Inc. General Unsecured Claims
Class 7.26 consists of all Safety-Kleen (Rosemount), Inc. General Unsecured
Claims.
Class 7.27: Safety-Kleen (Sawyer), Inc. General Unsecured Claims
Class 7.27 consists of all Safety-Kleen (Sawyer), Inc. General Unsecured
Claims.
Class 7.28: Safety-Kleen (PPM), Inc. General Unsecured Claims
Class 7.28 consists of all Safety-Kleen (PPM), Inc. General Unsecured
Claims.
Class 7.29: Ninth Street Properties, Inc. General Unsecured Claims
Class 7.29 consists of all Ninth Street Properties, Inc. General Unsecured
Claims.
Class 7.30: Safty-Kleen (San Jose), Inc. General Unsecured Claims
Class 7.30 consists of all Safety-Kleen (San Jose), Inc. General Unsecured
Claims.
Class 7.31: Chemclear, Inc. of Los Angeles General Unsecured Claims
Class 7.31 consists of all Chemclear, Inc. of Los Angeles General Unsecured
Claims.
Class 7.32: USPCI, Inc. of Georgia General Unsecured Claims
Class 7.32 consists of all USPCI, Inc. of Georgia General Unsecured Claims.
Class 7.33: Safety-Kleen Holdings, Inc. General Unsecured Claims
Class 7.33 consists of all Safety-Kleen Holdings, Inc. General Unsecured
Claims.
Class 7.34: Safety-Kleen (Westmorland), Inc. General Unsecured Claims
Class 7.34 consists of all Safety-Kleen (Westmorland), Inc. General
Unsecured Claims.
Class 7.35: Safety-Kleen (Buttonwillow), Inc. General Unsecured Claims
Class 7.35 consists of all Safety-Kleen (Buttonwillow), Inc. General
Unsecured Claims.
Plan Ex. F - 3
Class 7.36: Safety-Kleen (NE), Inc. General Unsecured Claims
Class 7.36 consists of all Safety-Kleen (NE), Inc. General Unsecured
Claims.
Class 7.37: Safety-Kleen (Crowley), Inc. General Unsecured Claims
Class 7.37 consists of all Safety-Kleen (Crowley), Inc. General Unsecured
Claims.
Class 7.38: Safety-Kleen (Laporte). Inc. General Unsecured Claims
Class 7.38 consists of all Safety-Kleen (Laporte), Inc. General Unsecured
Claims.
Class 7.39: Safety-Kleen (TG), Inc. General Unsecured Claims
Class 7.39 consists of all Safety-Kleen(TG), Inc. General Unsecured Claims.
Class 7.40: Safety-Kleen (Roebuck). Inc. General Unsecured Claims
Class 7.40 consists of all Safety-Kleen (Roebuck), Inc. General Unsecured
Claims.
Class 7.41: Safety-Kleen (TS). Inc. General Unsecured Claims
Class 7.41 consists of all Safety-Kleen (TS), Inc. General Unsecured
Claims.
Class 7.42: Safety-Kleen (Colfax), Inc. General Unsecured Claims
Class 7.42 consists of all Safety-Kleen (Colfax), Inc. General Unsecured
Claims.
Class 7.43: GSX Chemical Services of Ohio, Inc. General Unsecured Claims
Class 7.43 consists of all GSX Chemical Services of Ohio, Inc. General
Unsecured Claims.
Class 7.44: LEMC, Inc. General Unsecured Claims
Class 7.44 consists of all LEMC, Inc. General Unsecured Claims.
Class 7.45: Safety-Kleen Chemical Services, Inc. General Unsecured Claims
Class 7.45 consists of all Safety-Kleen Chemical Services, Inc. General
Unsecured Claims.
Class 7.46 Safety-Kleen (Altair), Inc. General Unsecured Claims
Class 7.46 consists of all Safety-Kleen (Altair), Inc. General Unsecured
Claims.
Class 7.47: Safety-Kleen (FS), Inc. General Unsecured Claims
Class 7.47 consists of all Safety-Kleen (FS), Inc. General Unsecured
Claims.
Plan Ex. F - 4
Class 7.48: Safety-Kleen (BDT), Inc. General Unsecured Claims
Class 7.48 consists of all Safety-Kleen (BDT), Inc. General Unsecured
Claims.
Class 7.49: Safety-Kleen (GS), Inc. General Unsecured Claims
Class 7.49 consists of all Safety-Kleen(GS), Inc. General Unsecured Claims.
Class 7.50: Safety-Kleen (Clive). Inc. General Unsecured Claims
Class 7.50 consists of all Safety-Kleen (Clive), Inc. General Unsecured
Claims, including the Clive Industrial Revenue Bond Claims against
Safety-Kleen (Clive), Inc.
Class 7.51: Safety-Kleen (WT), Inc. General Unsecured Claims
Class 7.51 consists of all Safety-Kleen (WT), Inc. General Unsecured
Claims.
Class 7.52: Safety-Kleen Osco Holdings, Inc. General Unsecured Claims
Class 7.52 consists of all Safety-Kleen Osco Holdings, Inc. General
Unsecured Claims.
Class 7.53: Safety-Kleen (Nashville), Inc. General Unsecured Claims
Class 7.53 consists of all Safety-Kleen (Nashville), Inc. General Unsecured
Claims, including the Osco Treatment Systems Industrial Revenue Bond Claims
against Safety-Kleen (Nashville), Inc.
Class 7.54: Safety-Kleen (Bartow), Inc. General Unsecured Claims
Class 7.54 consists of all Safety-Kleen (Bartow), Inc. General Unsecured
Claims.
Class 7.55: Safety-Kleen (California), Inc. General Unsecured Claims
Class 7.55 consists of all Safety-Kleen (California), Inc. General
Unsecured Claims.
Class 7.56: Safety-Kleen (Chattanooga), Inc. General Unsecured Claims
Class 7.56 consists of all Safety-Kleen (Chattanooga), Inc. General
Unsecured Claims.
Class 7.57: Safety-Kleen (Pecatonica), Inc. General Unsecured Claims
Class 7.57 consists of all Safety-Kleen (Pecatonica), Inc. General
Unsecured Claims.
Class 7.58: Safety-Kleen (Pinewood). Inc. General Unsecured Claims
Class 7.58 consists of all Safety-Kleen (Pinewood), Inc. General Unsecured
Claims.
Class 7.59: Safety-Kleen (White Castle), Inc. General Unsecured Claims
Class 7.59 consists of all Safety-Kleen (White Castle), Inc. General
Unsecured Claims.
Plan Ex. F - 5
Class 7.60: Safety-Kleen (Puerto Rico), Inc. General Unsecured Claims
Class 7.60 consists of all Safety-Kleen (Puerto Rico), Inc. General
Unsecured Claims.
Class 7.61: Safety-Kleen (Bridgeport), Inc. General Unsecured Claims
Class 7.61 consists of all Safety-Kleen (Bridgeport), Inc. General
Unsecured Claims.
Class 7.62: Safety-Kleen (Deer Park), Inc. General Unsecured Claims
Class 7.62 consists of all Safety-Kleen (Deer Park), Inc. General Unsecured
Claims
Class 7.63: Safety-Kleen (Baton Rouge), Inc. General Unsecured Claims
Class 7.63 consists of all Safety-Kleen (Baton Rouge), Inc. General
Unsecured Claims.
Class 7.64: Safety-Kleen (Plaquemine), Inc. General Unsecured Claims
Class 7.64: consists of all Safety-Kleen (Plaquemine), Inc. General
Unsecured Claims.
Class 7.65: Safety-Kleen (Custom Transport), Inc. General Unsecured Claims
Class 7.65 consists of all Safety-Kleen (Custom Transport), Inc. General
Unsecured Claims.
Class 7.66: Safety-Kleen (Los Angeles), Inc. General Unsecured Claims
Class 7.66 consists of all Safety-Kleen (Los Angeles), Inc. General
Unsecured Claims.
Class 7.67: Safety-Kleen (Tipton). Inc. General Unsecured Claims
Class 7.67 consists of all Safety-Kleen (Tipton), Inc. General Unsecured
Claims.
Class 7.68: Safety-Kleen (Gloucester), Inc. General Unsecured Claims
Class 7.68 consists of all Safety-Kleen (Gloucester), Inc. General
Unsecured Claims.
Class 7.69: Safety-Kleen (Deer Trail), Inc. General Unsecured Claims
Class 7.69 consists of all Safety-Kleen (Deer Trail), Inc. General
Unsecured Claims.
Class 7.70: Safety-Kleen (Mt. Pleasant), Inc. General Unsecured Claims
Class 7.70 consists of all Safety-Kleen (Mt. Pleasant), Inc. General
Unsecured Claims.
Class 7.71: Safety-Kleen (Minneapolis), Inc. General Unsecured Claims
Class 7.71 consists of all Safety-Kleen (Minneapolis), Inc. General
Unsecured Claims.
Plan Ex. F - 6
Class 7.72: Safety-Kleen (Aragonite), Inc. General Unsecured Claims
Class 7.72 consists of all Safety-Kleen (Aragonite), Inc. General Unsecured
Claims.
Class 7.73: Safety-Kleen (Sussex), Inc. General Unsecured Claims
Class 7.73 consists of all Safety-Kleen (Sussex), Inc. General Unsecured
Claims.
Plan Ex.F - 7
PLAN EXHIBIT G
SCHEDULE OF RESOLVED INSURANCE POLICIES
<Table>
<Caption>
POLICY PERIOD CARRIER POLICY NO.
- ------------- ------- ----------
11/1/78 - 8/30/79 First State Insurance Company 922238
- ----------------------------------------------------------------------------
8/30/82 - 8/30/83 First State Insurance Company 912761
- ----------------------------------------------------------------------------
8/30/83 - 8/30/84 First State Insurance Company 980370
- ----------------------------------------------------------------------------
11/10/78 - 1/1/80 First State Insurance Company 927334
- ----------------------------------------------------------------------------
1/1/84 - 1/1/85 First State Insurance Company EU936395
- ----------------------------------------------------------------------------
2/11/77 - 2/15/78 First State Insurance Company 923947
- ----------------------------------------------------------------------------
2/15/78 - 2/15/79 First State Insurance Company 924971
- ----------------------------------------------------------------------------
10/1/87 - 10/1/88 First State Insurance Company EU 005982
- ----------------------------------------------------------------------------
10/1/88 - 10/1/89 First State Insurance Company FL 0000204
- ----------------------------------------------------------------------------
10/1/89 - 10/1/90 First State Insurance Company FL 0001120
- ----------------------------------------------------------------------------
1/1/84 - 1/1/85 Hartford Insurance Company FXS 100015
- ----------------------------------------------------------------------------
3/25/73 - 3/25/74 Hartford Accident and Indemnity Company 18C839970
- ----------------------------------------------------------------------------
3/25/74 - 3/25/75 Hartford Accident and Indemnity Company 18C843592
- ----------------------------------------------------------------------------
3/25/75 - 3/25/76 Hartford Accident and Indemnity Company 18C848109
- ----------------------------------------------------------------------------
3/25/76 - 3/25/77 Hartford Accident and Indemnity Company 13C706518
- ----------------------------------------------------------------------------
3/25/77 - 3/25/78 Hartford Accident and Indemnity Company 13C711056
- ----------------------------------------------------------------------------
3/25/78 - 8/11/78 Hartford Accident and Indemnity Company 13C714344
- ----------------------------------------------------------------------------
5/25/83 - 5/25/84 Hartford Fire Insurance Company 08CJC0090
- ----------------------------------------------------------------------------
5/25/84 - 5/25/85 Hartford Fire Insurance Company 08CXJ3499
- ----------------------------------------------------------------------------
5/25/85 - 5/25/86 Hartford Fire Insurance Company 08CMB2340
- ----------------------------------------------------------------------------
1/1/83 - 1/1/84 Hartford Fire Insurance Company 10CLRC30101
- ----------------------------------------------------------------------------
1/1/84 - 1/1/85 Hartford Fire Insurance Company 10CLRC30114
- ----------------------------------------------------------------------------
1/1/83 - 1/1/84 Hartford Fire Insurance Company 10CLRC30100
- ----------------------------------------------------------------------------
2/15/78 - 5/4/78 New England Reinsurance Company 683806
- ----------------------------------------------------------------------------
8/30/82 - 8/30/83 Nutmeg Insurance Company BXS 100413
- ----------------------------------------------------------------------------
8/30/83 - 8/30/84 Nutmeg Insurance Company BXS 100413
- ----------------------------------------------------------------------------
6/30/82 - 6/30/83 Twin City Fire Insurance Company TXU 104593
- ----------------------------------------------------------------------------
6/30/83 - 6/30/84 Twin City Fire Insurance Company TXU 107529
- ----------------------------------------------------------------------------
8/30/84 - 8/30/85 American Centennial Insurance Company CC-01-60-55
- ----------------------------------------------------------------------------
1/1/79 - 1/1/80 Puritan Insurance Company ML 651560
- ----------------------------------------------------------------------------
8/30/76 - 8/30/77 Manhattan Fire & Marine Insurance Company ML 650710
- ----------------------------------------------------------------------------
1/1/70 - 1/1/71 Fidelity & Casualty Company of New York LX 1216400
- ----------------------------------------------------------------------------
6/1/71 - 6/1/72 Continental Insurance Company CBP 404464
- ----------------------------------------------------------------------------
1/1/71 - 1/1/72 Fidelity & Casualty Company of New York LX 1216400
- ----------------------------------------------------------------------------
6/1/72 - 6/1/73 Continental Insurance Company CBP 404464
- ----------------------------------------------------------------------------
1/1/72 - 1/1/73 Fidelity & Casualty Company of New York LX 1216400
- ----------------------------------------------------------------------------
6/1/73 - 6/1/74 Continental Insurance Company CBP 404464
- ----------------------------------------------------------------------------
1/1/73 - 1/1/74 Fidelity & Casualty Company of New York LX 1216437
- ----------------------------------------------------------------------------
6/1/74 - 1/1/75 Continental Insurance Company CBP 407996
- ----------------------------------------------------------------------------
1/1/74 - 1/1/75 Fidelity & Casualty Company of New York LX 1216437
- ----------------------------------------------------------------------------
1/1/75 - 1/1/76 Continental Insurance Company CBP 407996
- ----------------------------------------------------------------------------
</Table>
Plan Ex. G-1
<Table>
<Caption>
POLICY PERIOD CARRIER POLICY
- ------------- ------- ------
1/1/75 - 1/1/76 Fidelity & Casualty Company of New York LX 1216437
- --------------------------------------------------------------------------------
1/1/76 - 1/1/77 Fidelity & Casualty Company of New York L6342307
- --------------------------------------------------------------------------------
2/4/77 - 1/1/78 Columbia Casualty Company RDU 3652820
- --------------------------------------------------------------------------------
1/26/78 - 1/26/79 Continental Casualty Company RDX 1770229
- --------------------------------------------------------------------------------
1/1/79 - 1/1/80 Continental Casualty Company RDX 1779733
- --------------------------------------------------------------------------------
1/1/79 - 1/1/80 Continental Casualty Company RDX 1779727
- --------------------------------------------------------------------------------
6/1/79 - 6/1/80 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
8/30/79 - 8/30/80 Columbia Casualty Company RDX 4169838
- --------------------------------------------------------------------------------
8/30/79 - 8/30/80 Continental Insurance Company SRX 2153320
- --------------------------------------------------------------------------------
8/30/79 - 8/30/80 Harbor Insurance Company 127038
- --------------------------------------------------------------------------------
1/1/80 - 1/1/81 Continental Insurance Company CCP 005-3126-10
- --------------------------------------------------------------------------------
1/1/81 - 1/1/82 Continental Insurance Company CCP 005-3126-10
- --------------------------------------------------------------------------------
8/30/80 - 8/30/81 Continental Insurance Company SRX 3192904
- --------------------------------------------------------------------------------
8/30/80 - 8/30/81 Columbia Casualty Company RDX 4170082
- --------------------------------------------------------------------------------
6/1/80 - 6/1/81 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
6/1/81 - 6/1/82 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
8/30/81 - 8/30/82 Continental Insurance Company SRX 1591513
- --------------------------------------------------------------------------------
TBD - 2/15/82 Fidelity & Casualty Company of New York L2872505
- --------------------------------------------------------------------------------
6/1/82 - 6/1/83 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
8/30/82 - 8/30/83 Continental Insurance Company SRX 1591768
- --------------------------------------------------------------------------------
6/1/83 - 6/1/84 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
8/30/83 - 8/30/84 Continental Insurance Company SRX 1592040
- --------------------------------------------------------------------------------
6/1/84 - 6/1/85 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
8/30/84 - 8/30/85 Continental Insurance Company SRX 1592229
- --------------------------------------------------------------------------------
8/30/84 - 8/30/85 Harbor Insurance Company HI 179641
- --------------------------------------------------------------------------------
10/1/84 - 10/1/85 Harbor Insurance Company HI 180291
- --------------------------------------------------------------------------------
10/1/84 - 10/1/85 Columbia Casualty Company RDX 9176461
- --------------------------------------------------------------------------------
6/1/85 - 6/1/86 Continental Insurance Company SRL 3635842
- --------------------------------------------------------------------------------
8/30/85 - 8/30/86 Continental Insurance Company SRX 1592261
- --------------------------------------------------------------------------------
10/1/86 - 10/1/87 Harbor Insurance Company HI 211437
- --------------------------------------------------------------------------------
10/1/87 - 10/1/88 Harbor Insurance Company HI 217036
- --------------------------------------------------------------------------------
10/1/88 - 10/1/89 Harbor Insurance Company HI 238125
- --------------------------------------------------------------------------------
10/1/89 - 10/1/90 Harbor Insurance Company HI 239816
- --------------------------------------------------------------------------------
2/10/84 - 2/10/85 Hudson Insurance Company HL 01826
- --------------------------------------------------------------------------------
8/30/82 - 8/30/83 Hudson Insurance Company HN 00145
- --------------------------------------------------------------------------------
8/30/83 - 8/30/84 Hudson Insurance Company HN 01196
- --------------------------------------------------------------------------------
9/14/78 - 8/22/79 North Star Reinsurance Corporation NSX 16554
- --------------------------------------------------------------------------------
2/15/79 - 4/1/80 Federal Insurance Company (80)79226379
- --------------------------------------------------------------------------------
8/30/76 - 8/30/78 Federal Insurance Company 7932-95-85
- --------------------------------------------------------------------------------
8/30/84 - 8/30/85 Federal Insurance Company 7935-83-28
- --------------------------------------------------------------------------------
4/11/78 - 1/1/79 Federal Insurance Company 7933-26-60
- --------------------------------------------------------------------------------
3/25/72 - 3/25/73 Globe Indemnity Company LU 705256
- --------------------------------------------------------------------------------
7/1/80 - 7/1/81 Royal Globe Insurance Company PLU 583843
- --------------------------------------------------------------------------------
1/1/82 - 7/1/83 Royal Insurance Company of America PLU 625049
- --------------------------------------------------------------------------------
7/1/83 - 7/1/84 Royal Insurance Company of America PLU 625049
- --------------------------------------------------------------------------------
8/30/84 - 8/30/85 Royal Indemnity Company ED 102963
- --------------------------------------------------------------------------------
7/1/83 - 7/1/84 Newark Insurance Company NLA 151003
- --------------------------------------------------------------------------------
1/26/78 - 1/26/79 Fireman's Fund Insurance Company XLX 1363699
- --------------------------------------------------------------------------------
1/26/79 - 1/1/80 Fireman's Fund Insurance Company XLX 1364997
- --------------------------------------------------------------------------------
1/1/85 - 1/1/86 The American Insurance Company XLX 1734327
- --------------------------------------------------------------------------------
</Table>
Plan Ex. G-2
<Table>
<Caption>
POLICY PERIOD CARRIER POLICY NO.
- ------------- ------- ----------
5/25/78 - 5/25/81 The American Insurance Company MXX 3265572
- ----------------------------------------------------------------------------------------
5/25/81 - 5/25/82 National Surety Corporation MXX 66200939
- ----------------------------------------------------------------------------------------
5/25/82 - 5/25/83 National Surety Corporation MXX 4585096
- ----------------------------------------------------------------------------------------
5/25/75 - 5/25/78 The American Insurance Company MXP 2730085
- ----------------------------------------------------------------------------------------
10/1/82 - 1/22/85 Fireman's Fund Insurance Company MXX 61702184
- ----------------------------------------------------------------------------------------
8/30/84 - 8/30/85 The American Insurance Company XLX 1685319
- ----------------------------------------------------------------------------------------
1/1/84 - 1/1/85 The American Insurance Company XLX 1618303
- ----------------------------------------------------------------------------------------
10/1/82 - 10/1/83 National Surety Corporation XLX 1482671
- ----------------------------------------------------------------------------------------
10/1/83 - 10/1/84 National Surety Corporation XLX 1530294
- ----------------------------------------------------------------------------------------
10/1/84 - 10/1/85 National Surety Corporation XLX 1687439
- ----------------------------------------------------------------------------------------
10/1/84 - 10/1/85 National Surety Corporation XLX 1687437
- ----------------------------------------------------------------------------------------
8/30/84 - 8/30/85 The American Insurance Company XLX 1685318
- ----------------------------------------------------------------------------------------
4/1/73 - 4/1/1974 Protective Insurance Company X-147-73
- ----------------------------------------------------------------------------------------
7/15/73 - 7/15/1974 Protective Insurance Company U-117
- ----------------------------------------------------------------------------------------
4/1/74 - 4/1/1975 Protective Insurance Company X-147-74
- ----------------------------------------------------------------------------------------
7/15/74 - 7/15/1975 Protective Insurance Company U-1012
- ----------------------------------------------------------------------------------------
7/15/74 - 7/15/1975 Protective Insurance Company U-1013
- ----------------------------------------------------------------------------------------
4/1/75 - 4/1/1976 Protective Insurance Company X-147-75
- ----------------------------------------------------------------------------------------
7/15/75 - 8/15/1976 Protective Insurance Company U-1050
- ----------------------------------------------------------------------------------------
7/15/75 - 7/15/1976 Protective Insurance Company U-1051
- ----------------------------------------------------------------------------------------
4/1/76 - 4/1/1977 Protective Insurance Company X-147-76
- ----------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 Protective Insurance Company U-1104
- ----------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 Protective Insurance Company U-1103
- ----------------------------------------------------------------------------------------
4/1/77 - 4/1/1978 Protective Insurance Company X-147-77
- ----------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 Protective Insurance Company U-1156
- ----------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 Protective Insurance Company U-1155
- ----------------------------------------------------------------------------------------
4/1/78 - 6/1/1979 Protective Insurance Company X-147-78
- ----------------------------------------------------------------------------------------
7/15/72 - 7/15/1973 Protective Insurance Company U-107
- ----------------------------------------------------------------------------------------
TBD - TBD Protective Insurance Company X-147-79
- ----------------------------------------------------------------------------------------
1/1/76 - 1/1/1979 Liberty Mutual Insurance Company LG1-612-004135-026
- ----------------------------------------------------------------------------------------
1/1/79 - 1/1/1980 Liberty Mutual Insurance Company LG1-612-004135-029
- ----------------------------------------------------------------------------------------
8/30/84 - 8/30/1985 Evanston Insurance Company EX 11495
- ----------------------------------------------------------------------------------------
8/30/84 - 8/30/1985 Evanston Insurance Company EX 11518
- ----------------------------------------------------------------------------------------
1/1/85 - 1/1/1986 Evanston Insurance Company EX 11522
- ----------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 Associated International Insurance Company AEL 050194
- ----------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 Associated International Insurance Company AEL 050489
- ----------------------------------------------------------------------------------------
11/6/84 - 11/6/1985 Associated International Insurance Company XS 108810
- ----------------------------------------------------------------------------------------
4/1/80 - 10/1/1980 Ranger Insurance Company CGL 506375
- ----------------------------------------------------------------------------------------
10/1/80 - 10/1/1981 Ranger Insurance Company CGL 509034
- ----------------------------------------------------------------------------------------
10/1/81 - 10/1/1982 Ranger Insurance Company CGL 528111
- ----------------------------------------------------------------------------------------
10/1/82 - 10/1/1983 Ranger Insurance Company CGL 528759
- ----------------------------------------------------------------------------------------
7/15/72 - 7/15/1973 International Insurance Company XSI-1320
- ----------------------------------------------------------------------------------------
7/15/73 - 7/15/1974 International Insurance Company XSI-1741
- ----------------------------------------------------------------------------------------
7/15/74 - 7/15/1975 International Insurance Company XSI-2067
- ----------------------------------------------------------------------------------------
7/15/75 - 8/30/1976 International Insurance Company XSI-2270
- ----------------------------------------------------------------------------------------
8/30/76 - 8/30/1977 International Insurance Company XSI-2651
- ----------------------------------------------------------------------------------------
8/30/77 - 8/30/1978 International Insurance Company XSI 3966
- ----------------------------------------------------------------------------------------
8/30/82 - 8/30/1983 International Insurance Company XSI 8372
- ----------------------------------------------------------------------------------------
8/30/83 - 8/30/1984 International Insurance Company XSI 8608
- ----------------------------------------------------------------------------------------
8/30/84 - 8/30/1985 International Insurance Company XSI 8912
- ----------------------------------------------------------------------------------------
10/1/95 - 10/1/1996 TIG Insurance Company XLX 9271038
- ----------------------------------------------------------------------------------------
</Table>
Plan Ex. G-3
<Table>
<Caption>
POLICY PERIOD CARRIER POLICY NO.
- ------------- ------- ----------
10/1/96 - 10/1/1997 TIG Insurance Company XLX 9271167
- --------------------------------------------------------------------------------
10/1/97 - 10/1/1998 TIG Insurance Company XLX 9271308
- --------------------------------------------------------------------------------
5/7/75 - 5/7/1978 United States Fire Insurance Company DCL737656
- --------------------------------------------------------------------------------
5/7/78 - 5/7/1979 United States Fire Insurance Company 520-352424-9
- --------------------------------------------------------------------------------
5/7/79 - 5/7/1980 United States Fire Insurance Company 523-007918-1
- --------------------------------------------------------------------------------
5/7/80 - 5/25/1981 United States Fire Insurance Company 523-063453-5
- --------------------------------------------------------------------------------
5/25/81 - 5/25/1982 United States Fire Insurance Company 523-117324-8
- --------------------------------------------------------------------------------
5/25/82 - 5/25/1983 United States Fire Insurance Company 523-235166-3
- --------------------------------------------------------------------------------
5/25/83 - 5/25/1984 United States Fire Insurance Company 523-270487-7
- --------------------------------------------------------------------------------
5/25/84 - 5/25/1985 United States Fire Insurance Company 523-367728-2
- --------------------------------------------------------------------------------
10/1/83 - 10/1/1984 International Insurance Company (novated 5406288966
to United States Fire Insurance Company)
- --------------------------------------------------------------------------------
9/18/75 - 9/18/76 Unigard Insurance Company CL 07-2121
- --------------------------------------------------------------------------------
9/18/75 - 9/18/76 Unigard Insurance Company BC 01-2091
- --------------------------------------------------------------------------------
9/18/76 - 9/18/77 Unigard Insurance Company CL 07-2121
- --------------------------------------------------------------------------------
9/18/76 - 9/18/77 Unigard Insurance Company BC 01-2091
- --------------------------------------------------------------------------------
9/18/77 - 9/18/78 Unigard Insurance Company CL 07-2121
- --------------------------------------------------------------------------------
9/18/77 - 9/18/78 Unigard Insurance Company BC 01-2091
- --------------------------------------------------------------------------------
9/18/78 - 9/25/79 Unigard Insurance Company GL 33-1008
- --------------------------------------------------------------------------------
9/18/78 - 9/18/79 Unigard Insurance Company BC 01-2091
- --------------------------------------------------------------------------------
</Table>
Plan Ex. G-4
PLAN EXHIBIT H
SCHEDULE OF SETTLING INSURERS
American Casualty Company of Reading, Pennsylvania
American Centennial Insurance Company
American Loyalty Insurance Company
Asia Insurance Company, Ltd.
Associated International Insurance Company
Bankers and Shippers Insurance Company
Bayside Reinsurance Company, Ltd.
Boston Indemnity Insurance Company, Ltd.
Boston Marine Insurance Company
Boston Old Colony Insurance Company
Buckeye Union Insurance Company
Buffalo Reinsurance Company Casualty Insurance Company
Casualty Insurance Company
Cornerstone Insurance Company
CNA Assurance Company of Connecticut
CNA Casualty of California
CNA Casualty of Illinois
CNA Casualty of Puerto Rico
CNA Casualty Company of South Carolina
CNA Casualty Company of Texas
CNA Chile Compania De Seguros De Vida, S.A.
CNA Group Life Assurance Company
CNA International Life Company, SPC Limited
CNA Insurance Company (Europe) Ltd.
CNA Lakeview Insurance Company
CNA Life Insurance Company of Canada
CNA Lloyd's of Texas
CNA Reinsurance Company
CNA Reinsurance Company Limited
Columbia Casualty Company
Commercial Insurance Company of Newark, New Jersey
Commercial Life Insurance Company
Continental Assurance Company
Continental Casualty Company
Continental Insurance Company
Continental Insurance Company of New Jersey
Continental Insurance Company of Puerto Rico
Continental Life (International), Ltd.
Continental Lloyd's Insurance Company
Continental National Indemnity Company
Continental Pacific Insurance Company (Australia), Limited
Continental Reinsurance Company
Continental Reinsurance Corporation
Plan Ex. H - 1
Continental Reinsurance Corporation International, Ltd.
Continental Reinsurance Corporation (U.K.), Ltd.
De Montfort Insurance Company PLC
Deutsche Continental Reinsurance AG
Dominion Insurance Company
East River Indemnity Company (Barbados), Ltd.
East River Insurance Company (Bermuda), Ltd.
Equitable Fire Insurance Company
Evanston Insurance Company
Federal Insurance Company
Fidelity & Casualty Company of New York
Fireman's Fund Insurance Company
Firemen's Insurance Company of New York
Firemen's Insurance Company of Newark, New Jersey
First Fire and Casualty Insurance of Hawaii, Inc.
First Indemnity Insurance of Hawaii, Inc.
First Insurance Company of Hawaii, Ltd.
First Security Insurance of Hawaii, Inc.
First State Insurance Company
Galway Insurance Company
Glens Falls Insurance Company
Globe Indemnity Company
Hallmark Insurance Company
Harbor Insurance Company
Hartford Accident and Indemnity Company
Hartford Fire Insurance Company
Hartford Insurance Company
Hong Kong Fire Insurance Company, Ltd.
Hudson Insurance Company
Intergroup
International Insurance Company
Jersey Insurance Company of New York
Kansas City Fire and Marine Insurance Company
Liberty Mutual Insurance Company
Lombard General Insurance
Lombard Insurance Company, Limited
London Guarantee & Accident of New York
Loyalty Life Insurance Company
Manhattan Fire & Marine Insurance Company
Marine Office of America Corporation
Maritime Insurance Company Limited
Mayflower Insurance Company, Ltd.
Mid-States Insurance Company
MUI Continental Insurance
National-Ben Franklin Insurance Company of Illinois
National-Ben Franklin Life Insurance Company
National Surety Corporation
New England Reinsurance Company
Plan Ex. H - 2
Newark Insurance Company
Niagara Fire Insurance Company
North Rock Insurance Company, Limited
North Star Reinsurance Corporation
Nutmeg Insurance Company
Omega Aseguaradora de Riesgo de Trabajo
Pacific Insurance Company
Pacific Insurance Company of New York
Phoenix Assurance Company of Canada
Phoenix Assurance Company of New York
Protective Insurance Company
Puerto Rican-American Insurance Company
Puritan Insurance Company
Ranger Insurance Company
Royal Globe Insurance Company
Royal Indemnity Company
Royal Insurance Company of America
Royal Insurance Company of Canada
R.V.I. America Insurance Company
R.V.I. Guaranty Company Ltd.
Seaboard Fire & Marine
Surety Bonding Company of America
The American Insurance Company
The Century Insurance Company of Canada
The Manhattan Fire & Marine Insurance Company
TIG Insurance Company
Tokio Marine & Fire Insurance Company
Transcontinental Insurance Company
Transportation Insurance Company
Troy Fain Insurance, Inc.
Twin City Fire Insurance Company
Unigard Insurance Company
Unionamerica Insurance Company
United States Branch of Chiyoda Fire & Marine
United States Fire Insurance Company
Universal Surety of America
Valley Forge Insurance Company
Valley Forge Life Insurance Company
Washington General Insurance Corporation
Western Surety Company
Westport Insurance Company, as successor to Manhattan Fire & Marine Insurance
Company & Puritan Insurance Company
William Penn Life Insurance Company of New York
William Penn Life Assurance Company
The following Settling Insurers entered into final settlements with the
Debtors only shortly before the filing of the Plan: (a) Royal Indemnity Company,
Royal Globe Insurance Company, Globe Indemnity Company, Newark Insurance
Company, Royal Insurance Company of America and Royal Insurance Company of
Canada (collectively, "Royal"); (h) North Star Reinsurance Corporation ("North
Star"); (c) Fireman's Fund Insurance Company, The American Insurance Company and
National Surety Corporation (collectively, "Fireman's Fund"); and (d) Liberty
Mutual Insurance Company ("Liberty Mutual"). The Debtors intend to seek
Bankruptcy Court
Plan Ex. H - 3
approval of the settlement agreements with Royal, North Star, Fireman's Fund,
and Liberty Mutual. The insurance policies to be resolved with respect to these
Settling Insurers are included on Exhibit G to the Plan.
In addition, the following insurers have entered into settlements-in-
principle with the Debtors: (a) Protective Insurance Company ("Protective");
(b) Evanston Insurance Company ("Evanston"); (c) Associated International
Insurance Company ("Associated International"); (d) Ranger Insurance Company,
International Insurance Company, TIG Insurance Company, United States Fire
Insurance Company (collectively, "Fairfax"); and (e) Unigard Insurance Company
("Unigard"). The Debtors intend to seek Bankruptcy Court approval of the
settlement agreements with Protective, Evanston, Associated International,
Fairfax and Unigard upon finalizing such settlement agreements. The insurance
policies to be resolved with respect to these Settling Insurers are included on
Exhibit G to the Plan.
Plan Ex. H - 4
PLAN EXHIBIT I
SCHEDULE OF RETAINED ACTIONS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT J
SCHEDULE OF REVESTING OF ASSETS FOR DISSOLVING DEBTORS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
PLAN EXHIBIT K
SCHEDULE OF NON-RELEASED PERSONS
TO BE FILED ON OR BEFORE
THE EXHIBIT FILING DATE
APPENDIX B
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
CORPORATE STRUCTURE OF SAFETY-KLEEN CORP.
AND ITS SUBSIDIARY DEBTORS, AS OF JUNE 9, 2000
SAFETY-KLEEN LEGAL ENTITY ORGANIZATIONAL CHART
(As of June 9, 2000)
[LEFT HALF OF CHART]
<Table>
<Caption>
Legend: ----------- ------------- /---------/
| | = Corporation | | / /
----------- | | = Check-the-box entity / / = Partnership
| | /---------/
| |
-------------
-------------------------------
| Safety-Kleen Corp. |
-------------------------------
|
-------------------------------
| Safety-Kleen Services, Inc. |
-------------------------------
|
- ---------------------------------------------------------------------------------------------------------------------------------
| | | | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | Safety-Kleen | |
|--| (Baton Rouge), | |--| (Laporte), | |--| (GS), | |----| (Lone & Grassy | |
| | Inc. | | | Inc. | | | Inc. | | | Mountain), Inc.| |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | | | | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | |
|--| (Rosemount), | |--| (TG), | |--| (Clive), | | --| (Tulsa), | |
| | Inc. | | | Inc. | | | Inc. | | | | Inc. | |
| ------------------ | ------------------ | ------------------ | | ------------------ |
| | | | | |
| ------------------ | ------------------ | ------------------ | | ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | | | Safety-Kleen | |
|--| (Sawyer), | |--| (Roebuck), | |--| (WT), | | | | (San Antonio), | |
| | Inc. | | | Inc. | | | Inc. | | | | Inc. | |
| ------------------ | ------------------ | ------------------ | | ------------------ |
| | | | | |
| ------------------ | ------------------ | ------------------ | | ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | | | Safety-Kleen | |
|--| (San Jose), | |--| (TS), | |--| (Bartow), | | |-| (Wichita), | |
| | Inc. | | | Inc. | | | Inc. | | | Inc. | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | | | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | Chemclear Inc. | | | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | |
|--| of | |--| (Colfax), | |--| (Los Angeles), | |----| (Delaware), | |
| | Los Angeles | | | Inc. | | | Inc. | | | Inc.* | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | | | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | USPCI, Inc. | | | GSX Chemical | | | Safety-Kleen | | | Safety-Kleen | |
|--| of | |--| Services | |--| (Chattanooga), | |----| (Mississippi), | |
| | Georgia | | | of Ohio, Inc. | | | Inc. | | Inc. (50%) | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | Safety-Kleen | | | | | | Safety-Kleen | | Safety-Kleen | |
|--| Holdings | |--| LEMC, Inc. | |--| (Pocatonica), | | (PPM), |--|
| | Inc. | | | | | | Inc. | | Inc. | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | | | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | Ninth Street | |
|--| (Plaquemine), | |--| Chemical | |--| (White Castle),| | Properties, | |
| | Inc. | | | Services, Inc. | | | Inc. | | Inc. | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | Safety-Kleen | |
|--| (Deer Park), | |--| (Gloucester), | |--| (Pinewood), | |-| OSCO Holdings, | |
| | Inc. | | | Inc. | | | Inc. | | | Inc. | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | | | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | |
|--| (NE), | |--| (BDT), | |--| (Custom | | | (Nashville), | |
| | Inc. | | | Inc. | | |Transport), Inc.| | | Inc. | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | | | |
| ------------------ | ------------------ | ------------------ | ------------------ |
| | Safety-Kleen | | | Safety-Kleen | | | Safety-Kleen | | | OSCO Treatment | |
|--| (Crowley), | |--| (Deer Trail), | |--| (Bridgeport), | | | Systems of | |
| | Inc. | | | Inc. | | | Inc. | |-| Mississippi, | |
| | | | | | | | | | Inc. (50%) | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | | |
| ------------------ | ------------------ | |
| | Safety-Kleen | | | Safety-Kleen | | |
|--| (Mt. Pleasant),| |--| (Tipton), | | ------- |
| | Inc. | | | Inc. | |--| 50% | |
| ------------------ | ------------------ | ------------------ ------------------ |
| | | | Safety-Kleen | | Safety-Kleen | |
| | |--| (Westmorland), |----------| (California), | |
| ------------------ | ------------------ | Inc. | | | Inc. | |
| | Safety-Kleen | | | Safety-Kleen | ------------------ | ------------------ |
|--| (Sussex), | |--| (Altair), |--| | | |
| | Inc. | | | Inc. | |-------------------- | | |
| ------------------ | ------------------ | | 13% | | | |
| | | ------- ------- | ------- | -------
| |----------------------|-------------- | 50% | |-- | 77% | |--| 23% |
| ------------------ | ------------------ | | 87% | ------------------------ | -------
| | Safety-Kleen | | | Safety-Kleen | | ------- | Safety-Kleen | |
|--| (Encotoc), | |--| (FS), |--| | (Buttonwillow),|--|
| | Inc. | | | Inc. | | Inc. |
| ------------------ | ------------------ ------------------
</Table>
SAFETY-KLEEN LEGAL ENTITY ORGANIZATIONAL CHART
(As of June 9, 2000)
[RIGHT HALF OF CHART]
<Table>
<Caption>
Legend: ----------- ------------- /---------/
| | = Corporation | | / /
----------- | | = Check-the-box entity / / = Partnership
| | /---------/
| |
-------------
- -------------------------------
| Safety-Kleen Corp. |
- -------------------------------
|
|
- -------------------------------
| Safety-Kleen Services, Inc. |
- -------------------------------
|
|
- ---------------------------------------------------------------------------------------------------------------------------------
| | | | | |
| ------------------ | | ------------------ |
| | Safety-Kleen | | | | Safety-Kleen | |
| | (Minneapolis), | | | | Systems | |
| | Inc. | | | | Inc. | |
| ------------------ | | ------------------ |
| | | | | |
| | | | ------------|----------------------------------------| |
| | | | | | | | |
| ------------------ | | | ------------------ ------------------- | ------------------ |
| | Safety-Kleen | | | | | Dirt Magnet | | Safety-Kleen | | | Elgint | |
| | (Aragonite), | | | | | Inc. | | Envirosystems | |--| Corporation | |
| | Inc. | | | | | | | Company, Inc. | | | | |
| ------------------ | | | ------------------ ------------------- | ------------------ |
| | | | | | | |
| ------------------ | | | ------------------ ------------------- | ------------------ |
| | Safety-Kleen | | | | | The Midway | | Safety-Kleen | | | Petrocon | |
|--| (Puerto Rico), | | | | | Gas & Oil | | Envirosystems | |--| Inc. | |
| | Inc. | | | | | Co. | | Company of | | | | |
| | | | | | | | |Puerto Rico, Inc.| | | | |
| ------------------ | | | ------------------ ------------------- | ------------------ |
| | | | | |
| | | |------------------------------------ | |
| | | | | | |
| ------------------ | | ------------------ ------------------- | ------------------ |
| | Laidlaw | | | | Safety-Kleen | | SK | | | Phillips | |
| | Environmental | | | | Canada Inc. | | Europe, | |--| Acquisition | |
|--| Services de | | | | (CDN) | | Inc. | | | Co. | |
| Mexico, S.A. | | | | | | | | | | |
|de C.V. (90.2%) | | | | | | | | | | |
------------------ | | ------------------ ------------------- | ------------------ |
| | | | | |
| | | ------------------- | ------------------ |
| | | | Safety-Kleen | | | Ecogard, Inc. | |
| | | | Europe | |--| | |
| | | | Limited (44%) | | | | |
| | | ------------------- | ------------------ |
| | | |
/------------/ | ------------------ | ------------------- | ------------------ |
/ The / | | Safety-Kleen | | | Ryan & Patrick | | | Safety-Kleen | |
/ ArmsKleen /-----| | Ltd. | |-------| Holdings, Inc. | |--| International | |
/ Company / | | (CDN) | | | (CDN) | | | Inc. | |
/ (50%) / | ------------------ | ------------------- | ------------------ |
/------------/ | | | | | |
| | ----------------- | -------------------| | ------------------ |
| | | 510127 N.B. | | | ------------------- | | Safety-Kleen | |
| |--| Inc. | | | | Ardee Solvent, | |--| Oil Recovery | |
/------------/ | | ----------------- | | | Inc. (CDN) | | | Company | |
/ The / | | | | | | | ------------------ |
/ Phoenix /-----| | | | ------------------- | |
/ Project / ------------------ | | | ------------------ |
/ (80%) / | Safety-Kleen | | | ------------------- | | Safety-Kleen | |
/------------/ | Services | | | | Ardee | |--| Oil Recovery | |
| (Quebec), Ltd. | | |-- | Recycling, | | | Services, Inc. | |
| (CDN) | | | | Inc. (CDN) | | ------------------ |
------------------ | | ------------------- | |
| | | | ------------------ |
| | | ------------------- | | 3E Company | |
| ----------------- | | | Ardee Oil, Inc. | | | Environmental, | |
| | Safety-Kleen | | |-- | (CDN) | |--| Engineering | |
|--| Services | | ------------------- | | and Ecological | |
| |(Mercier), Ltd.| | | | (75.78%) | |
| | (CDN) | | ------------------- | -----------------| |
| ----------------- | | Environnement | | ------------------ |
| | | Services et | | | SK Real Estate | |
------------------ |-------| Machinerie | |--| Inc. | |
| SK | | E.S.M. Inc. | | ------------------ |
| D'Incineration,| ------------------- | |
| Inc. | | ------------------ |
| (CDN) | | | Solvents | |
------------------ | |Recovery Service| |
|--| of New Jersey, | |
| | Inc. | |
| ------------------ |
| |
------------------ | ------------------ |
| *Safety-Kleen | | | Curbside, Inc. | |
|(Delaware), Inc.| |--| (49%) | |
------------------ | ------------------ |
| | |
------------------------|------------------------ ------------ | ----------- |
| | | | 90.9091% |--| | 9.0909% |--|
| | | ------------ | ----------- |
------------- ------------- ------------- | |
| SK | | Maquilla | | SK | | |
| Services, | | Werto | | Services, | | ----------------- |
| L.C. | | Services, | | (East) | | | Safety-Kleen | |
| | | L.L.C. | | L.C. | |--| Consulting, |--|
------------- ------------- ------------- | Inc. |
-----------------
</Table>
APPENDIX C
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
ESTIMATED ALLOWED SUB-CLASS 7 CLAIMS
ESTIMATED ALLOWED SUB-CLASS 7 CLAIMS
ESTIMATED AMOUNT OF
SUB-CLASS GENERAL UNSECURED CLAIMS*
- --------- -------------------------
Class 7.01: Safety-Kleen (Encotec), Inc. General Unsecured Claims $ 977,805
Class 7.02: Safety-Kleen Systems, Inc. Claims $ 76,348,786
Class 7.03: Ecogard Inc. General Unsecured Claims $ 1,024,201
Class 7.04: SK Europe, Inc. General Unsecured Claims $ 0
Class 7.05: Dirt Magnet, Inc. General Unsecured Claims $ 0
Class 7.06: The Midway Gas and Oil Co. General Unsecured Claims $ 0
Class 7.07: Elgint Corp. General Unsecured Claims $ 24,824
Class 7.08: Safety-Kleen Envirosystems Company General Unsecured Claims $ 108,545
Class 7.09: Safety-Kleen Envirosystems Company of Puerto Rico General $ 1,708,863
Unsecured Claims
Class 7.10: Petrocon, Inc. General Unsecured Claims $ 0
Class 7.11: Phillips Acquisition Corp. General Unsecured Claims $ 0
Class 7.12: SK Real Estate Inc. General Unsecured Claims $ 0
Class 7.13: Safety-Kleen International, Inc. General Unsecured Claims $ 0
Class 7.14: Safety-Kleen Oil Recovery Co. General Unsecured Claims $ 9,734,358
Class 7.15: Safety-Kleen Oil Services, Inc. General Unsecured Claims $ 2,428,661
Class 7.16: The Solvents Recovery Service of New Jersey, Inc. General $ 1,539,025
Unsecured Claims
Class 7.17: Safety-Kleen Services, Inc. General Unsecured Claims $ 28,221,401
Class 7.18: Safety-Kleen (Consulting), Inc. General Unsecured Claims $ 77,987
Class 7.19: Safety-Kleen (Lone and Grassy Mountain), Inc. General $ 9,537,284
Unsecured Claims
Class 7.20: Safety-Kleen (Tulsa), Inc. General Unsecured Claims $ 285,426
Class 7.21: Safety-Kleen (San Antonio), Inc. General Unsecured Claims $ 7,134
Class 7.22: Safety-Kleen (Wichita), Inc. General Unsecured Claims $ 90,362
Class 7.23: Safety-Kleen (Delaware), Inc. General Unsecured Claims $ 1,323,818
- ---------------
* The estimated Allowed Claim set forth for each sub-Class in Class 7
exclude, solely for presentation purposes, the deficiency claims of the
U.S. Lenders. Estimates for such deficiency claims are included in the
estimates for Class 4 Allowed Claims.
ESTIMATED AMOUNT OF
SUB-CLASS GENERAL UNSECURED CLAIMS*
- --------- -------------------------
Class 7.24: SK Services (East), L.C. General Unsecured Claims $ 20,459,951
Class 7.25: SK Services, L.C. General Unsecured Claims $ 3,605,442
Class 7.26: Safety-Kleen (Rosemount), Inc. General Unsecured Claims $ 432,658
Class 7.27: Safety-Kleen (Sawyer), Inc. General Unsecured Claims $ 87,082
Class 7.28: Safety-Kleen (PPM), Inc. General Unsecured Claims $ 3,818,039
Class 7.29: Ninth Street Properties, Inc. General Unsecured Claims $ 0
Class 7.30: Safety-Kleen (San Jose), Inc. General Unsecured Claims $ 1,091,707
Class 7.31: Chemclear, Inc. of Los Angeles General Unsecured Claims $ 0
Class 7.32: USPCI, Inc. of Georgia General Unsecured Claims $ 10,528
Class 7.33: Safety-Kleen Holdings, Inc. General Unsecured Claims $ 0
Class 7.34: Safety-Kleen (Westmorland), Inc. General Unsecured Claims $ 487,435
Class 7.35: Safety-Kleen (Buttonwillow), Inc. General Unsecured Claims $ 1,529,014
Class 7.36: Safety-Kleen (NE), Inc. General Unsecured Claims $ 523,331
Class 7.37: Safety-Kleen (Crowley), Inc. General Unsecured Claims $ 420,618
Class 7.38: Safety-Kleen (Laporte), Inc. General Unsecured Claims $ 1,563,659
Class 7.39: Safety-Kleen (TG), Inc. General Unsecured Claims $ 308,396
Class 7.40: Safety-Kleen (Roebuck), Inc. General Unsecured Claims $ 3,231,134
Class 7.41: Safety-Kleen (TS), Inc. General Unsecured Claims $ 2,637,199
Class 7.42: Safety-Kleen (Colfax), Inc. General Unsecured Claims $ 67,989
Class 7.43: GSX Chemical Services of Ohio, Inc. General Unsecured Claims $ 16,400
Class 7.44: LEMC, Inc. General Unsecured Claims $ 1,366,257
Class 7.45: Safety-Kleen Chemical Services, Inc. General Unsecured Claims $ 1,501,107
Class 7.46: Safety-Kleen (Altair), Inc. General Unsecured Claims $ 256,544
Class 7.47: Safety-Kleen (FS), Inc. General Unsecured Claims $ 5,617,328
Class 7.48: Safety-Kleen (BDT), Inc. General Unsecured Claims $ 461,079
Class 7.49: Safety-Kleen (GS), Inc. General Unsecured Claims $ 1,679,190
Class 7.50: Safety-Kleen (Clive), Inc. General Unsecured Claims $ 9,219,231
Class 7.51: Safety-Kleen (WT), Inc. General Unsecured Claims $ 1,102,715
Class 7.52: Safety-Kleen Osco Holdings, Inc. General Unsecured Claims $ 4,721
Class 7.53: Safety-Kleen (Nashville), Inc. General Unsecured Claims $ 5,523,147
Class 7.54: Safety-Kleen (Bartow), Inc. General Unsecured Claims $ 814,613
Class 7.55: Safety-Kleen (California), Inc. General Unsecured Claims $ 1,020,511
ESTIMATED AMOUNT OF
SUB-CLASS GENERAL UNSECURED CLAIMS*
- --------- -------------------------
Class 7.56: Safety-Kleen (Chattanooga), Inc. General Unsecured Claims $ 2,303,796
Class 7.57: Safety-Kleen (Pecatonica) Inc. General Unsecured Claims $ 232,800
Class 7.58: Safety-Kleen (Pinewood), Inc. General Unsecured Claims $ 1,301,617
Class 7.59: Safety-Kleen (White Castle), Inc. General Unsecured Claims $ 545,948
Class 7.60: Safety-Kleen (Puerto Rico), Inc. General Unsecured Claims $ 27,834
Class 7.61: Safety-Kleen (Bridgeport), Inc. General Unsecured Claims $ 3,268,380
Class 7.62: Safety-Kleen (Deer Park), Inc. General Unsecured Claims $ 3,651,345
Class 7.63: Safety-Kleen (Baton Rouge), Inc. General Unsecured Claims $ 686,315
Class 7.64: Safety-Kleen (Plaquemine), Inc. General Unsecured Claims $ 142,273
Class 7.65: Safety-Kleen (Custom Transport), Inc. General Unsecured Claims $ 73
Class 7.66: Safety-Kleen (Los Angeles), Inc. General Unsecured Claims $ 6,731,096
Class 7.67: Safety-Kleen (Tipton), Inc. General Unsecured Claims $ 4,480
Class 7.68: Safety-Kleen (Gloucester), Inc. General Unsecured Claims $ 19,497
Class 7.69: Safety-Kleen (Deer Trail), Inc. General Unsecured Claims $ 231,696
Class 7.70: Safety-Kleen (Mt. Pleasant), Inc. General Unsecured Claims $ 10,858
Class 7.71: Safety-Kleen (Minneapolis), Inc. General Unsecured Claims $ 0
Class 7.72: Safety-Kleen (Aragonite), Inc. General Unsecured Claims $ 3,683,029
Class 7.73: Safety-Kleen (Sussex), Inc. General Unsecured Claims $ 0
APPENDIX D
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
REORGANIZED DEBTORS' CORPORATE STRUCTURE
REORGANIZED DEBTORS' CORPORATE STRUCTURE
<Table>
<Caption>
------------------------------
| New HoldCo |
------------------------------
|
|
------------------------------
| New Parent |
------------------------------
|
|
------------------------------
| New Subsidiary |
------------------------------
|
|
------------------------------
| Safety-Kleen Systems, Inc. |
------------------------------
|
- ---------------------------------------------------------------------------|
| | | |
| | | |
| ------------------------ ------------------------------- | ----------------------------------
| | Dirt Magnet, Inc. | | Safety-Kleen | |-----------------| Elgint Corporation |
| | | | Envirosystems Company | | ----------------------------------
| ------------------------ ------------------------------- | |
| | | | |
| | | | ----------------------------------
| ------------------------ ------------------------------- |-----------------| Petrocon Inc. |
| | The Midway Gas & | | Safety-Kleen | | ----------------------------------
| | Oil Co. | | Envirosystems Company | | |
| | | | of Puerto Rico, Inc. | | |
| ------------------------ ------------------------------- | ----------------------------------
| |-----------------| Phillips Acquisition Co. |
| | ----------------------------------
|----------------------------------------------- | |
| | | |
| | | ----------------------------------
-------------------------- ------------------------------- |-----------------| Ecogard, Inc. |
|Safety-Kleen Canada Inc.| | SK Europe, Inc. | | ----------------------------------
| (CDN) | | | | |
-------------------------- ------------------------------- | |
| | ----------------------------------
| |-----------------|Safety-Kleen International, Inc.|
| | ----------------------------------
| ------------------------------- | |
|------------------|Ryan & Patrick Holdings, Inc.| | |
| | (CDN)* | | ----------------------------------
| ------------------------------- | | Safety-Kleen Oil Recovery |
| | |-----------------| Company |
| ----------------------| | ----------------------------------
| | | | |
| | ------------------------------- | |
| | | Ardee Solvent, Inc. | | ----------------------------------
| | | (CDN)* | |-----------------| Safety-Kleen Oil Services, Inc.|
| | ------------------------------- | ----------------------------------
| | | |
| | | |
| | ------------------------------- | ----------------------------------
| | | Ardee Recycling, Inc. | | | Environmental, Ecological and |
| |--------| (CDN)* | |-----------------|Engineering Company (California)|
| | ------------------------------- | ----------------------------------
| | | |
| | | |
| | ------------------------------- | ----------------------------------
| | | Ardee Oil, Inc. | |-----------------| SK Real Estate Inc. |
| |--------| (CDN)* | | ----------------------------------
| ------------------------------- | |
| | |
| | ----------------------------------
| ------------------------------- | | Solvents Recovery Service of |
| | Environnement Services et | |-----------------| New Jersey, Inc. |
|------------------| Machinerie E.S.M. Inc. | | ----------------------------------
------------------------------- | |
| |
| ----------------------------------
|-----------------| Curbside, Inc. (49%) |
----------------------------------
</Table>
- ----------------
* Prior to or coincident with the emergence, Ardee Solvent, Inc., Ardee
Recycling, Inc. and Ardee Oil, Inc. will amalgamate into Ryan & Patrick
Holdings, Inc. and coincident with the emergence, Ryan & Patrick Holdings,
Inc. will amalgamate into Safety-Kleen Canada Inc.
APPENDIX E-1
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
SAFETY-KLEEN CORP., ET AL.'S 10-K FOR THE FISCAL YEAR ENDED AUGUST 31,2001
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 $l.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 I
"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, an administrative leave: Kenneth W. Winger, the Company's President,
Chief Executive Officer, and a Director; Michael 1. 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 I1 Bankruptcy filing on June 9,
2000, most
3
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 US. 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 DO 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
I8 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 he 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 he subject to additional penalties. In
addition, the Company could he 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 an
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 an 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 an 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.
7
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 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.
8
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 SALESAND 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 in 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 ail 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 "0 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
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 he 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 he 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, hut 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 tendency 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 million Debtor-In-Possession Credit Agreement among Safety-Kleen Services,
Inc., the several lenders from time to time parties thereto,
15
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 he 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 increased the costs associated with
establishing new facilities or expanding current facilities. A significant
judgment against the Company,
16
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 Coffeyville, Kansas and Bridgeport, New Jersey facilities due
to under-utilization. Regulatory agencies were given notification of the
17
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 branches, 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 far 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 far 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:OO-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 IS, 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 I, 1998, (ii) purchased the common stock of Safety-Kleen between
July I, 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 2O(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
August 14, 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:OO-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 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 an 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 01-300722M1, 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 US. 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 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 he 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 US. 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 May 15, 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 ("FUSRAF"). 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 an 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.
NAME, PRESENT POSITION(S) AND TERM WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST FIVE YEARS,
COMPANY AGE DIRECTORSHIPS OF PUBLIC COMPANIES
- ------------------------------------------- --- --------------------------------------------------------------
Henry B. Tippie 74 For more than five years, Mr. Tippie has been Chairman of the
Director of the Company since 1982 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 of AK Steel Corporation, a steel
Director of the Company since June 1997 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 Chairman of the Board and CEO of
Director of the Company since March 2001 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 a private investor. For more
Director of the Company since March 2001 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.
NAME, PRESENT POSITION(S) AND TERM WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST FIVE YEARS,
COMPANY AGE DIRECTORSHIPS OF PUBLIC COMPANIES
- ------------------------------------------- --- --------------------------------------------------------------
John W. Rollins, Jr. 59 From January 2000 through February 26, 2001, Mr. Rollins served
Director of the Company since 1982 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
34
Chairman from October 5, 1999 until May 30, 200l
Robert W. Luba 59 Mr. Luba has been President of Luba Financial Inc. for more than
Director of the Company since March 1999 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 non-executive Vice Chairman of the
Director of the Company since July 1997 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.
NAME, PRESENT POSITION(S) AND TERM WITH THE PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE LAST FIVE YEARS,
COMPANY AGE DIRECTORSHIPS OF PUBLIC COMPANIES
- ------------------------------------------- --- --------------------------------------------------------------
David E. Thomas 44 Mr. Thomas has served as a non-executive Vice Chairman of the
Director of the Company since June 1997 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 been a business consultant and
Director of the Company since May 4, 2000 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
35
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 Registrant" above.
Director of the Company since April 17, 2001
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 President 2000 -- -- -- --
(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 and 2000 $365,671 $ 50,000 0 $197,735
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 40l(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 $21,628,
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
Lany 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 l00,500 134,000 167,500 201,000 235,500
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 he 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 he 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
39
during the Employment Period other than in an Involuntary Termination, the
Company shall pay Mr. Rittenmeyer earned but unpaid 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
40
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 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
Rinenmeyer 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.
41
ROLLINS TRUCK LEASING CORP.
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 -- *
42
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 *
* 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 II 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
43
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 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)(1) 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)(1) 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)l to the
Company's Current Report on Form 8-K filed an 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.
(l0)(j) First Amendment to Company's Director's Stock Option Plan filed as
Exhibit (l0)(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 (l0)(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 an 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 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
53
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 or 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.
(l0)(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)($) 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 Cop. and certain of its United Slates 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
APPENDIX E-2
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
SAFETY-KLEEN CORP., ET AL.'S 10-K/A FOR THE FISCAL YEAR ENDED AUGUST 31, 2001
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
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 ___ No _X_
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation SK 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 $35,274,259 as of March 11, 2002.
The number of shares of the issuer's common stock outstanding was 100,783,596 as
of March 11, 2002.
TABLE OF CONTENTS
The following Items have been amended in their entirety:
ITEM PAGE
- ---- -----
PART II
6. Selected Consolidated Financial Data .................................................. 3
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 4
7A. Quantitative and Qualitative Disclosures About Market Risk ............................ 28
8. Financial Statements and Supplemental Data ............................................ 30
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....................... 91
Signature ............................................................................. 92
2
PART II
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto, included
elsewhere in this Annual Report ($ in thousands, except per share amounts).
YEARS ENDED AUGUST 31, 2001 2000 1999 1998 1997
- ---------------------- ----------- ----------- ----------- ----------- -----------
Revenues $ 1,514,583 $ 1,586,273 $ 1,624,038 $ 1,172,731 $ 641,945
Impairment and other charges 52,884 367,793 11,287 64,882 253,484
Operating (loss) income (168,336) (620,170) 6,876 (2,223) (294,749)
Loss before reorganization items, income taxes,
minority interest and extraordinary items (174,930) (759,073) (185,272) (123,535) (341,220)
Reorganization items (42,284) (60,923) -- -- --
Extraordinary items, net of tax 5,591 -- -- (18,783) --
Net loss (229,078) (833,191) (223,155) (103,211) (301,544)
Loss per share before extraordinary items - basic
and diluted (2.33) (8.27) (2.52) (1.35) (8.74)
Net loss per share - basic and diluted (2.27) (8.27) (2.52) (1.65) (8.74)
Dividends per common share -- -- -- -- --
Weighted average common stock outstanding - basic
and diluted 100,784 100,725 88,537 62,322 34,508
Total assets 3,013,793 3,131,868 3,635,314 3,869,475 1,513,741
Long-term debt, including current portion 62,223 65,421 2,095,016 2,340,806 938,687
Liabilities subject to compromise 2,481,274 2,500,973 -- -- --
During fiscal 2001, the Company's Chemical Services Division ceased operations
at two incinerators, a wastewater treatment facility and a transportation
facility. As a result of these closures, the Company recorded a provision for
early facility closures and post-closures of $45 million. The Company also
recorded net asset impairment charges of $8 million due primarily to a
wastewater treatment facility which lost several significant customers due to
adverse business conditions and a reduction in the estimated fair value of the
former headquarters of Old Safety-Kleen.
Extraordinary items consist of certain trade accounts payable claims that the
Company, pursuant to Bankruptcy Court approval, settled during fiscal 2001.
Under the terms of these settlements, the Company paid certain vendors less than
the amount of pre-petition liabilities to the vendors as of the Chapter 11
filing date. The consolidated extraordinary gains from these settlements
amounted to approximately $6 million in fiscal 2001. No income tax provision or
benefit with respect to these items was required.
3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the consolidated
results of operations and financial condition of Safety-Kleen Corp. (the
"Registrant" or "Safety-Kleen") (collectively referred to with its subsidiaries
as the "Company"). The following discussion and analysis should be read in
conjunction with the Company's Form 10-K for the period ended August 31, 2001,
Form 10-Q for the quarter ended November 30, 2001, and the Company's audited
Consolidated Financial Statements and related Notes thereto and other
information included elsewhere herein.
On November 29,2001, the Company filed its Form 10-K for the period ended August
31, 2001, which omitted certain information responsive to Items 6, 7, 7A, 8 and
14. As described in greater detail below "Factors That May Affect 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 Consolidated
Financial Statements for the fiscal year ended August 31, 2001, within the time
limitations imposed by federal securities laws and regulations. This amended
Form 10-K provides financial and other previously omitted information.
BUSINESS, ORGANIZATION AND BANKRUPTCY
Safety-Kleen was incorporated in Delaware in 1978 as Rollins Environmental
Services, Inc. ("Rollins"), later changed its name to Laidlaw Environmental
Services, Inc. ("LESI") and subsequently changed its name to Safety-Kleen Corp.
Through its Chemical Services and Branch Sales and Service divisions, 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, ten Canadian
provinces, Puerto Rico, Mexico and Saudi Arabia from approximately 375
collection, processing and other locations.
In May 1998, LESI completed the acquisition of the former Safety-Kleen Corp.
("Old Safety-Kleen"). Management believes that the Company experienced
substantial difficulties in the integration of the operations of Old
Safety-Kleen with those of LESI following the acquisition of Old Safety-Kleen.
The implementation of the Company's post-acquisition strategy to combine key
elements of the more decentralized LESI business structure with that of the
strongly centralized Old Safety-Kleen business, particularly in the United
States, adversely affected post-acquisition operations and cash flows and
ultimately impacted management's expectation of the long-term economic
performance of the underlying businesses. Changing the existing regionalized
LESI pricing structure to the more uniform national pricing structure of the Old
Safety-Kleen business resulted in a reduction of the overall pricing realized by
the Company. Converting several of LESl's service centers from profit centers
with one manager to cost centers with two managers during fiscal 1999 and 2000
resulted in poor cost and pricing controls. Transferring the Old Safety-Kleen
industrial waste collection business to a co-managed waste-collection business
diluted pricing and negatively impacted customer service. Requiring the use of
Company-owned waste disposal facilities, even when lower-cost, external options
were available, resulted in higher overall operating costs.
In addition, management believes that the loss of key employees of the Old
Safety-Kleen business due to post-acquisition strategies and the relocation of
Old Safety-Kleen's corporate office from Elgin, Illinois to Columbia, South
Carolina resulted in a significant loss of institutional knowledge concerning
historical business practices of the Old Safety-Kleen business. Many of the
internal accounting and operational information systems and processes that had
historically been used to monitor and manage the costs and performance of the
Old Safety-Kleen business were discontinued shortly after the acquisition and,
to date, have not been satisfactorily replaced. In addition, significant
difficulties in relocating and converting the Old Safety-Kleen's accounts
receivable and cash application functions to the LESI headquarters in Columbia,
South Carolina and, subsequently, converting to new accounts receivable software
resulted in significant problems regarding customer billing, dispute resolution,
cash application and, ultimately, cash realization. See "Factors That May Affect
Future Results -- Uncertainties Related To the Company's Internal Controls"
below.
On June 9, 2000, Safety-Kleen and 73 of its domestic subsidiaries (collectively,
the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases")
under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Sections
101-1330, as amended (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). The Chapter 11
Cases are being jointly administered, for procedural purposes only, before the
Bankruptcy Court under Case No. 00-2303(PJW). Excluded from the filings were
certain of Safety- Kleen's non-wholly-owned domestic subsidiaries and all
Safety-Kleen's indirect foreign subsidiaries.
The Company has incurred and will continue to incur significant costs associated
with the reorganization. The amount of these costs, which are being expensed as
incurred, is expected to significantly affect future results until the Company
emerges from its reorganization under the Chapter 11 proceedings.
Consummation of a plan or plans of reorganization is the principal objective of
the Chapter 11 Cases. A plan of reorganization sets forth the means for
satisfying claims against and interests in the Debtors, including the
liabilities subject to compromise. Generally, pre-petition liabilities are
subject to settlement under such a plan or plans of reorganization, which must
be voted upon by creditors and equity holders and approved by the Bankruptcy
Court. The Debtors have retained Lazard Freres & Co. LLC, an investment bank, as
corporate restructuring advisor to assist them in formulating and negotiating a
plan or plans of reorganization for the Debtors. Although the Debtors expect to
file a reorganization plan or plans as soon as reasonably possible, there can be
no assurance that a reorganization plan or plans will be proposed by the Debtors
or confirmed by the Bankruptcy Court, or that any such plan or plans will be
consummated.
4
As part of this reorganization effort, the Company prepared a marketing book for
the sale of the Chemical Services Division which has been distributed to
interested parties. On February 22, 2002, the Company entered into a definitive
agreement with Clean Harbors, Inc. ("Clean Harbors") to sell its Chemical
Services Division, excluding the Company's, landfill in Pinewood, S.C. Pursuant
to the terms of the agreement, Clean Harbors would purchase the Chemical
Services Division's net assets from the Company for $46 million in cash, subject
to defined working capital adjustments, and the assumption of certain
liabilities, which includes environmental liabilities valued at approximately
$265 million as of August 31, 2001. The book value of the net assets to be
disposed, net of the liabilities to be assumed, at August 31, 2001 was in excess
of $300 million. On March 8, 2002, the Bankruptcy Court approved the bidding and
auction procedures for the sale of the Company's Chemical Services Division.
Pursuant to the bidding procedures, all qualified bidders interested in
purchasing some or all of the Chemical Services Division must submit an
alternative qualified bid on or before May 30, 2002. There can be no assurance
that the Bankruptcy Court and/or the various regulatory agencies will approve
the sale of the Chemical Services Division to Clean Harbors or an alternative
purchaser, or that the Company will be able to complete the sale of the Chemical
Services Division.
Currently, it is not possible to predict the length of time the Debtors 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 Bankruptcy Code, post-petition liabilities and pre-petition liabilities
subject to compromise must be satisfied before shareholders can receive any
distribution. The ultimate recovery to shareholders, if any, will not be
determined until the end of the case when the fair value of the Debtors' assets
is compared to the liabilities and claims against the Debtors. There can be no
assurance as to what value, if any, will be ascribed to the common stock in the
bankruptcy proceedings. The Company does not believe the shareholders will
receive any distribution upon consummation of a plan or plans of reorganization.
The Company's Consolidated Financial Statements have been prepared on a going
concern basis which contemplates continuity of operations, realization of
assets, and payment of liabilities in the ordinary course of business and do not
reflect adjustments that might result if the Debtors are unable to continue as a
going concern. The Company's history of significant losses, stockholders'
deficit and the Debtors' Chapter 11 Cases, as well as issues related to
compliance with debt covenants and financial assurance requirements, raise
substantial doubt about the Company's ability to continue as a going concern.
Continuing as a going concern is dependent upon, among other things, the
Debtors' formulation of a plan or plans of reorganization, the success of future
business operations, and the generation of sufficient cash from operations and
financing sources to meet the Company's obligations. The Consolidated Financial
Statements do not reflect: (a) the realizable value of assets on a liquidation
basis or their availability to satisfy liabilities; (b) aggregate pre-petition
liability amounts that may be allowed for unrecorded claims or contingencies, or
their status or priority; (c) the effect of any changes to the Debtors' capital
structure or in the Debtors' business operations as the result of an approved
plan or plans of reorganization; or (d) adjustments to the carrying value of
assets (including goodwill and other intangibles) or liability amounts that may
be necessary as the result of actions by the Bankruptcy Court.
The Company's Consolidated Financial Statements as of and for the fiscal years
ended August 31, 2001 and 2000 have been presented in conformity with the
AICPA's Statement of Position 90-7, "Financial Reporting By Entities In
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The statement requires,
among other things, a segregation of liabilities subject to compromise by the
Bankruptcy Court as of the bankruptcy filing date and identification of all
transactions and events that are directly associated with the reorganization of
the Company.
OTHER MATTERS
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
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 Chairman of the Board of Directors.
In addition to Mr. Rittenmeyer, three new independent outside directors have
been named to the Board of Directors of Safety-Kleen since March 2000. Kenneth
K. Chalmers was appointed in May 2000, and Peter E. Lengyel and David W. Wallace
were each appointed in March 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 by the Board of Directors.
On October 18, 200l, the Bankruptcy Court entered an order approving employment
and indemnification agreements with Thomas W. Arnst. On November 27, 2001, Mr.
Arnst was elected Executive Vice President and Chief Administrative Officer by
the Board of Directors.
On November 27, 2001, 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 by 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.
On November 27, 2001, James K. Lehman was elected to the position of Senior Vice
President, General Counsel and Secretary of Safety-Kleen. On November 16, 2001,
Henry Taylor, who had served as Senior Vice President, General Counsel and
Secretary of Safety-Kleen, ceased to be employed by the Company.
5
INVESTIGATION OF FINANCIAL RESULTS; RESTATEMENT OF
CONSOLIDATED FINANCIAL STATEMENTS
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. This investigation followed receipt of
information by Safety-Kleen's Board of Directors, on February 24, 2000, alleging
possible accounting irregularities that may have affected the previously
reported financial results of the Company. The Company conducted a comprehensive
internal review of its accounting records for fiscal 1997 to 2000 and engaged
Arthur Andersen LLP as its new independent public accountants to, among other
things, conduct an audit of the Company's Consolidated Financial Statements for
the same periods. In addition, the Company is the subject of ongoing
investigations by the Securities and Exchange Commission and a grand jury
sitting in the United States District Court for the Southern District of New
York relating to the same matters. The Company has responded to subpoenas issued
by the Securities and Exchange Commission and the grand jury and is cooperating
with each of the investigations.
The Board appointed a special committee, consisting of four directors who were
then independent outside directors of Safety-Kleen, to conduct the internal
investigation (the "Special Committee (Investigation)"). The Special Committee
(Investigation) was later expanded to five directors, with the addition of
another independent outside director. 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 fiscal 1999,
1998 and 1997 in Form 10-K/A filed on July 9,2001.
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 manage all litigation involving the Company and any member of the
Board of Directors. The new committee 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 and is not personally
involved in such litigation (see Note 14 of Notes to Consolidated Financial
Statements).
6
RESULTS OF OPERATIONS
The Company is organized along the lines of its two primary business
activities--Chemical Services and Branch Sales and Service. The services
provided by the Chemical Services Division include the collection, treatment,
and disposal of a wide variety of hazardous and non-hazardous waste. The Company
disposes of waste primarily through its network of thermal destruction
incinerators, landfills and wastewater treatment facilities, and in certain
instances after accumulating and treating waste at Company-owned service
centers. The Branch Sales and Service Division provides parts cleaner services
and other services to automotive repair, commercial and manufacturing customers.
These other services include, but are not limited to, hazardous and
non-hazardous waste collection, treatment, recycling and disposal.
The Company eliminates material intersegment and intrasegment revenue in
presenting consolidated financial results. The majority of intersegment revenue
eliminations relate to the Chemical Services Division, which bills for the waste
streams it receives from the Branch Sales and Service Division.
The Company currently classifies as "Corporate" in its segment reporting, the
cost of certain Company-wide functions and services consisting primarily of
legal, accounting, finance and information technology. In addition, this
category includes the incremental cost of the Company's efforts related to its
internal accounting review for fiscal 1997 through 2000, the audits of these
periods and the various investigations of its financial results. Certain
intersegment eliminations are recorded in Corporate.
Set forth below are certain operating items expressed as a percentage of
revenues:
FOR THE YEARS ENDED AUGUST 31,
------------------------------
2001 2000 1999
----- ----- -----
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Expenses:
Operating 80.0 87.6 76.6
Depreciation and amortization 9.5 10.7 9.9
Selling, general and administrative 18.1 17.6 12.4
Impairment and other charges 3.5 23.2 0.7
----- ----- -----
111.1 139.1 99.6
----- ----- -----
Operating (loss) income (11.1) (39.1) 0.4
Interest expense, net (0.3) (8.9) (11.5)
Other (expense) income (0.1) 0.1 (0.4)
Equity in earnings of associated companies 0.0 0.1 0.1
----- ----- -----
Loss before reorganization items, income taxes,
minority interest and extraordinary items (11.5) (47.8) (11.4)
Reorganization items (2.8) (3.8) 0.0
----- ----- -----
Loss before income taxes, minority interest and
extraordinary items (14.3) (51.6) (11.4)
Income tax expense (1.2) (0.8) (2.4)
----- ----- -----
Loss before minority interest and extraordinary
items (15.5) (52.4) (13.8)
Minority interest 0.0 0.0 0.1
----- ----- -----
Loss before extraordinary items (15.5) (52.4) (13.7)
Extraordinary items, net of tax (early
extinguishment of debt) 0.4 0.0 0.0
----- ----- -----
Net loss (15.1)% (52.4)% (13.7)%
===== ===== =====
7
CLOSED FACILITIES
Closed facilities represent certain facilities that have ceased operations or
been sold. Ceased operations at a facility indicates that the facility has
stopped accepting and disposing of waste or has significantly reduced the amount
of waste acceptance and disposal to levels that typically precede a facility
closure. A facility closure indicates that a facility has ceased operations,
completed the decontamination process and the appropriate regulatory agencies
have certified the decontamination. Also included in closed facilities are
certain business activities that the Company no longer performs.
The following is a summary of facilities in the Chemical Services Division which
ceased operations or were sold ("closed facilities") in fiscal 2001 and 2000:
2001
Line of Business Location Status Fiscal Quarter
- ---------------- -------- ------ --------------
Transportation Burton, MI Ceased operations 1st
Incinerator Coffeyville, KS Ceased operations 1st
Incinerator Bridgeport, NJ Ceased operations 2nd
Wastewater Treatment Hilliard, OH Ceased operations 2nd
Additional Services-(Consulting) Boulder, CO Sold 4th
2000
Line of Business Location Status Fiscal Quarter
- ---------------- -------- ------ --------------
Landfill Pinewood, SC Ceased operations 4th
Landfill Rosemount, MN Sold 4th
Additional Services--(Harbor Dredging) Northeastern US Ceased operations 4th
Effective December 1, 2001, the Burton, Michigan facility was reopened as a
transportation rail hub. The Pinewood, South Carolina facility stopped accepting
waste in the first quarter of fiscal 2001. However, due to pending litigation
against Pinewood, waste disposal was significantly reduced in the fourth quarter
of fiscal 2000 and Pinewood was treated as if it had ceased operations in that
quarter. The Pinewood landfill continued to operate as a transportation center
until December 2001.
FISCAL 2001 OPERATIONS
The Company's operating loss of $168 million in fiscal 2001 includes the effect
of several significant expenses resulting from a number of unusual events.
During fiscal 2001, the Chemical Services Division ceased operations at two
incinerators, a wastewater treatment facility and a transportation facility. As
a result of these closures, the Company recorded a provision for early facility
closures and post-closures of approximately $45 million. The Company also
recorded net asset impairment charges of approximately $8 million due primarily
to a wastewater treatment facility which lost several significant customers due
to adverse business conditions and a reduction in the estimated fair value of
the former headquarters of Old Safety-Kleen.
The Company incurred approximately $55 million in fiscal 2001 of auditing,
non-audit assistance, consulting, legal and other professional fees associated
primarily with (i) the investigation and restatement of its Consolidated
Financial Statements for fiscal 1997 through 1999; (ii) the preparation of its
Consolidated Financial Statements for fiscal 2000; (iii) a comprehensive review
of all the Company's major fiscal 2001 general ledger accounts; (iv) the
preparation of its unaudited Consolidated Financial Statements for the first
nine months of fiscal 2001 and related Form 10-Q/A; (v) other finance and
accounting services; and (vi) litigation and compliance matters and expenses
related to the various investigations concerning the Company's previously
reported financial results. These costs are classified as "Selling, general and
administrative" expenses in the Company's consolidated statements of operations.
The Company expects (i) the legal costs described above to decrease when the
aforementioned matters are resolved, and (ii) the cost of auditing and non-audit
assistance to continue in fiscal 2002 and for an indefinite period thereafter,
although at a somewhat lower level, since the restatement and audit for fiscal
years 1997 through 1999 and audit for fiscal 2000 was completed by July 2001.
The Company expects the auditing and non-audit costs to be further reduced when
its internal controls and processes are satisfactorily improved. See "Factors
That May Affect Future Results -- Uncertainties Relating to the Company's
Internal Controls" below.
8
FISCAL 2001 COMPARED TO FISCAL 2000
REVENUES
Consolidated revenues decreased 4.5% ($71 million) to approximately $1,515
million in fiscal 2001, compared to approximately $1,586 million in fiscal 2000,
with the following increase or decrease by business segment: Chemical Services
decreased 15.3% ($100 million); and Branch Sales and Service increased 2.1% ($21
million). Intersegment revenue decreased by approximately $8 million in fiscal
2001 compared to 2000.
Chemical Services combined external and intersegment revenues in fiscal 2001
were approximately $555 million compared to approximately $655 million in fiscal
2000. Approximately $56 million of the decline was due primarily to closed,
ceased or sold facilities (see "Results of Operation - Closed Facilities"
paragraph above) which included closures at its Bridgeport, Coffeyville,
Hilliard and Burton facilities ($41 million) in fiscal 2001 and its Pinewood and
Harbor Dredging operations ($15 million) in fiscal 2000. Excluding closed
facilities, Chemical Services fiscal 2001 revenues decreased $44 million
compared to fiscal 2000 due primarily to: (i) waste streams brokered by Chemical
Services for Branch Sales and Service and reported as revenue by Chemical
Services in fiscal 2000 ($13 million) but disposed of directly by Branch Sales
and Service in fiscal 2001; (ii) a 40% waste stream volume reduction at a
Canadian landfill facility ($20 million) due to, among other things, lower event
business, price increases and management of remaining permitted capacity against
the new permit process; and (iii) other Chemical Services facilities, primarily
service centers, experienced $11 million of net decreases. Included in the
revenue items discussed above are intersegment revenues of approximately $49
million and $56 million for fiscal 2001 and 2000, respectively.
The Branch Sales and Service combined external and intersegment revenues in
fiscal 2001, were approximately $1,020 million compared to approximately $999
million in fiscal 2000 due to revenue increases in the following lines of
business: oil re-refining 12.6% ($17 million), industrial waste collection
services 4.9% ($11 million), vacuum truck services 21.0% ($10 million) and
integrated customer compliance services 43.8% ($6 million); which were somewhat
offset by decreases in parts cleaner services 4.2% ($14 million), oil collection
services 9.2% ($7 million) and $2 million of other net decreases in the
remaining lines of business.
The increase in oil re-refining revenue was due to a shift to a higher priced
product mix and higher crude oil prices. Selling prices in oil re-refining
products have a high correlation to the price of crude oil. The higher crude oil
prices also negatively impact revenue in oil collection services as competition
for oil increases during times of high oil prices. The increase in industrial
waste collection services revenue is the result of changes in waste routing
which accelerated processing and reduced waste on hand, as well as, refinements
to estimates of disposal cycle times. The increase in vacuum truck services
revenue was due to improved marketing and sales efforts in that market. The
increase in customer compliance services was a result of the Company's on-line
service offering and an increased sales focus in this area. The decline in
revenue from parts cleaner services reflects a continuing trend that the Company
believes results from sales to a relatively mature and slow growth solvent-based
parts cleaner market. Branch Sales and Service intersegment revenue is generated
primarily by waste streams from Chemical Services processed by Branch Sales and
Service recycling centers. Included in the revenue items discussed above are
intersegment revenues of approximately $11 million and $12 million for fiscal
2001 and 2000, respectively.
OPERATING EXPENSES
Consolidated operating expenses in fiscal 2001 were approximately $1,212 million
compared to $1,389 million in fiscal 2000 with the following decrease by
business segment: Chemical Services decreased 23.2% ($134 million); Branch Sales
and Service decreased 4.2% ($35 million); Corporate decreased 53.6% ($16
million); and intersegment expense decreased by approximately $8 million.
Chemical Services combined external and intersegment operating expenses were
approximately $441 million (79.5% of revenues) in fiscal 2001 compared to $575
million (87.7% of revenues) in fiscal 2000. The decrease in operating expenses
is due primarily to closed facilities, ceased operations and other expense
reductions related to revenue declines. Excluding closed facilities, fiscal 2001
operating expenses decreased $59 million. Also excluding closed facilities,
operating expenses as a percentage of revenues were 74.8% and 78.1% for fiscal
2001 and 2000, respectively.
Branch Sales and Service combined external and intersegment operating expenses
were approximately $817 million (80.2% of revenues) in fiscal 2001 compared to
$852 million (85.4% of revenues) in fiscal 2000. The relative improvement is due
to the following: (i) fiscal 2000 included approximately $25 million of
unusually large charges for amounts related to its parts cleaner service
machines and the effect of increasing its reserve for obsolete inventory while
fiscal 2001 includes approximately $7 million of such charges; (ii) disposal
charges were down $13 million partially due to a shift towards lower cost
external options; (iii) environmental charges were down $6 million due to
charges for changes in estimates for environmental reserves in fiscal 2000; and
(iv) other cost decreases of $5 million. These improvements were somewhat offset
by $7 million of higher utility costs in fiscal 2001 due to natural gas price
increases.
Corporate operating expenses were approximately $14 million in fiscal 2001
compared to $30 million in fiscal 2000. The decrease is due primarily to the
loss on the final sale of the Company's European operations and the charge for
certain uncollectible accounts which were included in fiscal 2000 operating
expense and did not recur in fiscal 2001.
9
DEPRECIATION AND AMORTIZATION EXPENSE
Consolidated depreciation and amortization expense was approximately $144
million and $170 million in fiscal 2001 and 2000, respectively. The decrease of
$26 million was due primarily to the write-down of impaired assets in fiscal
2000 (see Note 17 of Notes to Consolidated Financial Statements).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses of approximately $274
million for 2001 were essentially unchanged compared to approximately $279
million in fiscal 2000. However, fiscal 2001 includes an increase of $48 million
in professional fees relating to the investigation, restatement and audit of the
fiscal 1997 through 1999 Consolidated Financial Statements and for the fiscal
2000 audit, as well as other items discussed in greater detail above. In fiscal
2001, the Company also recorded a charge of $14 million for uncollectible
accounts, while fiscal 2000 included a charge of $74 million, a decrease of $60
million. The charge in fiscal 2000 was higher principally due to business system
and integration difficulties, which began in fiscal 1999 and continued
throughout fiscal 2000. Improvements have been made in accounts receivable due
to expanded collection efforts and certain system and process changes, including
cash application procedures. The Company is continuing to develop and implement
strategies for further improvements.
IMPAIRMENT AND OTHER CHARGES
Impairment and other charges were approximately $53 million in fiscal 2001. As
described above, the Company decided to cease operations at several locations
during 2001, which resulted in a provision for early facility closures and
post-closures of $45 million. The Company also recorded $8 million of net
impairment charges primarily related to a wastewater treatment facility and the
former headquarters of Old Safety-Kleen. The fiscal 2000 impairment charges of
approximately $368 million (see Note 17 of Notes to Consolidated Financial
Statements) were primarily related to the Debtors' Chapter 11 Cases in June
2000.
The components of fiscal 2001 impairment and other charges consist of the
following ($ in millions):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ -----
Provision for early facility closure:
Bridgeport incinerator $34 $-- $34
Coffeyville incinerator 9 -- 9
Hilliard wastewater treatment facility 1 -- 1
Burton transportation facility 1 -- 1
--- --- ---
45 -- 45
Asset impairment and other charges 1 7 8
--- --- ---
Total $46 $ 7 $53
=== === ===
The components of fiscal 2000 impairment and other charges consist of the
following ($ in millions):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ -----
Service centers and landfills related to western operations $118 $-- $118
Other landfills and incinerators 119 -- 119
Harbor facility - closed 22 -- 22
Pinewood landfill 16 -- 16
Former headquarters of Old Safety-Kleen -- 19 19
Other facilities 74 -- 74
---- --- ----
Total $349 $19 $368
==== === ====
INTEREST EXPENSE, NET
Consolidated net interest expense was approximately $5 million and $142 million
in fiscal 2001 and 2000, respectively. Fiscal 2001 interest expense principally
represents the interest on the Canadian portion of the outstanding balance of
the Company's Senior Credit Facility, (see Note 10 of Notes to Consolidated
Financial Statements) for which the interest rate is based on the Canadian Prime
or Canadian Bankers Acceptance, both being variable in nature. In accordance
with SOP 90-7, contractual interest on the domestic pre-petition debt of $245
million
10
in fiscal 2001 and $61 million in fiscal 2000 has not been accrued for in the
accompanying Consolidated Financial Statements since the date of the Chapter 11
Cases. No interest payments have been made on either Canadian or domestic debt
in fiscal 2001.
OTHER (EXPENSE) INCOME
Other expense in fiscal 2001 was approximately $1 million compared to other
income of approximately $1 million in fiscal 2000
DERIVATIVE (LOSSES) GAINS
The Company incurred a decline of approximately $1 million in the market value
of a stock purchase warrant in fiscal 2001 compared to an approximate $1 million
gain on unrelated derivative contracts in fiscal 2000.
EQUITY IN EARNINGS OF ASSOCIATED COMPANIES
On August 11, 2000, the Company completed the sale of its remaining 44%
interest in its European operations. Accordingly, there was no earnings of
associated companies in fiscal 2001 compared to approximately $2 million in
fiscal 2000.
REORGANIZATION ITEMS
Consolidated reorganization items, as reported in the accompanying consolidated
statements of operations, are comprised of income and expense items that were
realized or incurred by the Debtors as a direct result of the Company's decision
to reorganize under Chapter 11 (see Note 18 of Notes to Consolidated Financial
Statements). Reorganization items were approximately $42 million in fiscal 2001
compared to $61 million in fiscal 2000. The change was due primarily to the
write-off of $42 million in deferred financing costs related to pre-petition
debt in fiscal 2000 partially offset by an increase in professional services
directly related to the Chapter 11 Cases and accrued employee retention plan
costs as approved by the Bankruptcy Court in fiscal 2001.
INCOME TAXES
At August 31, 2001, the Company had net operating loss carryforwards for U.S.
federal income tax purposes of approximately $1.2 billion expiring in the years
2006 through 2021. The Company cannot currently conclude that it will likely
realize all the benefits of these loss carryforwards and an appropriate
valuation allowance has been established. The income tax provision reflects
state and foreign taxes payable of approximately $15 million, plus other net
deferred tax expenses of approximately $3 million. Implementation of a plan or
plans of reorganization will likely reduce the availability of some or all of
these net operating loss carryforwards.
EXTRAORDINARY ITEMS (EARLY EXTINGUISHMENT OF DEBT)
The Company, pursuant to Bankruptcy Court approval, has settled certain
pre-petition trade accounts payable claims during fiscal 2001. Under the terms
of these settlements, the Company paid certain vendors less than the amount
recorded in the Company's financial records as being owed to the vendors as of
the date of the Chapter 11 Cases. The Company has reported the resulting gain
from the early extinguishment of this debt as an extraordinary item. The
consolidated gains from these settlements amounted to approximately $6 million
in fiscal 2001. No income tax provision or benefit with respect to these items
is required.
11
FISCAL 2000 COMPARED TO FISCAL 1999
REVENUES
Consolidated revenues decreased $38 million to approximately $1,586 million in
fiscal 2000 compared to $1,624 million in fiscal 1999, with the following
increase or decrease by business segment: Chemical Services decreased 9.2% ($66
million); and Branch Sales and Service increased 4.5% ($44 million).
Intersegment revenue and other revenue increased $16 million in fiscal 2000
compared to fiscal 1999.
Chemical Services combined external and intersegment revenues in fiscal 2000
were approximately $655 million compared to $721 million in fiscal 1999. This
decline of approximately $66 million was mainly attributable to the following:
(i) approximately $20 million less revenue in fiscal 2000 from the curtailment
of the Division's harbor dredging operations; (ii) approximately $20 million of
lower landfill revenues, almost half of which is related to the Pinewood
Facility which significantly reduced waste disposal while certain litigation is
pending; (iii) approximately $18 million less revenue in fiscal 2000 due to
curtailments in the operation of seven other transportation and specialty
facilities; and (iv) approximately $8 million in other revenue reductions.
Included in the revenue items above are intersegment revenues of $56 million and
$50 million for fiscal 2000 and 1999, respectively.
Branch Sales and Service combined external and intersegment revenues in fiscal
2000 were approximately $999 million compared to $955 million in fiscal 1999.
The Branch Sales and Service increase of approximately $44 million was primarily
comprised of an increase in the Division's North American operations of $81
million partially offset by a decrease in its European operations of
approximately $40 million (on December 23, 1998, the Company announced the
recapitalization of its European operations resulting in the sale of 56% of the
Company's equity interest in those operation (See equity in earnings of
associated company below)) and other net increases of $3 million. The increase
of $81 million for the North American operations is primarily due to increases
in the oil collection, re-refining and automobile recovery business which
benefited from (i) approximately $27 million of higher sales attributable to the
acquisition of the First Recovery business on September 1, 1999 (the "First
Recovery Acquisition"); (ii) approximately $37 million of higher revenue at its
used oil re-refineries, resulting primarily from higher prices attributable to
an increase in crude oil commodity pricing and from an increase in sales volumes
from the East Chicago, Indiana site, which was temporarily idled during
approximately six weeks of fiscal 1999 while it corrected a remediation issue;
and (iii) approximately $17 million greater net revenue in certain other lines
of business. Revenues from the parts cleaner services line of business declined,
continuing a trend, which the Company believes results from sales to a
relatively mature and slow growth solvent-based parts cleaner market. Revenues
in other lines of business had relatively unchanged results. Included in the
revenue items discussed above are intersegment revenues of $12 million and $1
million for fiscal 2000 and 1999, respectively.
OPERATING EXPENSES
Consolidated operating expenses were approximately $1,389 million in fiscal 2000
compared to $1,243 million in fiscal 1999 with the following increase by
business segment: Chemical Services increased 4.4% ($24 million); Branch Sales
and Service increased 18.0% ($129 million); and Corporate increased by 50.0%
($10 million) and intersegment expense increased by approximately $17 million.
Chemical Services combined external and intersegment operating expenses were
approximately $575 million (87.7% of revenues) in fiscal 2000, compared to $551
million (76.4% of revenue) in fiscal 1999. Chemical Services operating expenses
increased substantially as a percentage of revenue in fiscal 2000. This increase
was largely due to (i) lower operating margins at the Pinewood Facility which
accrued for all of its remaining site closure and post-closure cost targets in
view of the assumption that there will probably not be significant additional
waste disposal activity at the facility and (ii) lower margins at the harbor
dredging operations as a result of declining revenues while many operating
expenses continued.
Branch Sales and Service combined external and intersegment operating expenses
were approximately $852 million (85.4% of revenues) in fiscal 2000 compared to
$723 million (75.6% of revenues) in fiscal 1999 due to (i) approximately $25
million of charges related to its parts cleaner service machines and the effect
of increasing its reserve for obsolete inventory; (ii) approximately $20 million
of higher costs associated with the oil re-refinery business consistent with the
higher commodity pricing and volumes discussed above; (iii) approximately $20
million of higher costs due to the First Recovery Acquisition; (iv) other
increases such as disposal costs resulting from the requirement to use internal
waste disposal facilities during part of fiscal 2000, even when lower-cost
external options were available; (v) higher fuel and maintenance costs due to
the age of the transportation fleet and increased fuel prices; and (vi) higher
labor and fringe benefit costs. These increases were reduced by approximately
$25 million related to the European operations, which were no longer
consolidated in fiscal 2000.
Corporate operating expenses were approximately $30 million in fiscal 2000
compared to $20 million in fiscal 1999. These expenses consist primarily of
taxes, (other than taxes on earnings), rental payments and other operating
expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Consolidated depreciation and amortization expense increased in fiscal 2000 by
approximately $9 million to $170 million compared to $161 million in fiscal
1999. The increase was primarily due to a change in the estimated lives in
fiscal 2000 of parts cleaner service machines at customers in the Branch Sales
and Service Division.
12
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses were approximately
$279 million in fiscal 2000 compared to $202 million in fiscal 1999. This
increase of $77 million resulted primarily from an increase in professional
services fees and a $61 million increase in the provision for uncollectible
accounts during fiscal 2000.
IMPAIRMENT AND OTHER CHARGES
The components of fiscal 2000 impairment and other charges consist of the
following ($ in millions):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ -----
Service centers and landfills related to western operations $118 $-- $118
Other landfills and incinerators 119 -- 119
Harbor facility- closed 22 -- 22
Pinewood landfill 16 -- 16
Former headquarters of Old Safety Kleen -- 19 19
Other facilities 74 -- 14
---- --- ----
Total $349 $19 $368
==== === ====
The components of fiscal 1999 impairment and other charges consist of the
following ($ in millions):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ -----
Writedown of non-landfill permits $ 9 $ -- $ 9
Property, plant and equipment 2 -- 2
--- ---- ---
Total $11 $ -- $11
=== ==== ===
The amounts shown as related to western operations pertain to facilities that
are located in the western area of the United States. Their markets have been
adversely affected by competitive conditions, including an oversupply of
available services, which have limited the Company's ability to increase prices
to recover increased costs, including those related to new environmental
regulations.
Included in other landfills and incinerators is an incinerator constructed to
burn contaminated soils. Although significant revenue resulted from unusual
events in fiscal 1999 and 2000, the general level of demand for these services
has and is expected to continue to decline. In addition, new environmental
regulations are projected to significantly increase capital expenditures and
operating costs in the future. Also included in other landfills and incinerators
is a landfill which has been the primary disposal site for the soil burned at
the Company owned incinerator. The projected declines in volumes generated at
the incinerator are projected to have an adverse effect on volumes at the
landfill.
As discussed in Note 14 of Notes to Consolidated Financial Statements, the
Safety-Kleen (Pinewood), Inc. facility ("the Pinewood Facility") has been the
subject of lengthy, complex and protracted legal proceedings. The Company
recorded an impairment charge related to the Pinewood Facility in fiscal 1997 as
a result of the projected effects of adverse legal developments in that year. On
the basis of the additional adverse outcomes of these proceedings, the Company
has concluded that it would be imprudent to assume that this facility will be
able to generate any significant future revenue. Accordingly, an additional
charge has been recorded for the impairment of the remaining net book value of
fixed assets at the Pinewood Facility. Appropriate reserves for closure and
post-closure costs at the Pinewood Facility have been fully provided and
included in operating costs.
INTEREST EXPENSE, NET
Consolidated interest expense was approximately $142 million and $186 million in
fiscal 2000 and 1999, respectively. Interest expense decreased primarily because
contractual interest expense of approximately $61 million on pre-petition
domestic funded debt attributable to the period from the date of the Debtors'
Chapter 11 Cases to August 31, 2000, has not been accrued in the Consolidated
Financial Statements in accordance with SOP 90-7. Prior to the date of the
Debtors' Chapter 11 Cases, the additional borrowings incurred under the Senior
Credit Facility needed to fund the Company's negative cash flow from operations
through that date resulted in additional interest expense over fiscal 1999.
13
DERIVATIVE GAINS (LOSSES)
The net market value of certain derivative contracts used for trading purposes
increased $1 million during fiscal 2000 compared to a decline of $6 million
during fiscal 1999. There were no outstanding derivative contracts as of August
31, 2000.
EQUITY IN EARNINGS OF ASSOCIATED COMPANIES
On August 11, 2000, the Company completed the sale of its remaining 44% interest
in its European operations. The Company received approximately $34 million in
cash and, subject to contingencies, approximately $1 million in deferred
payments. From these proceeds and the proceeds of the sale of the Company's
Rosemount facility, approximately $19 million was paid to the Company's
pre-petition lenders of the Senior Credit Facilities as an adequate protection
payment related to the security interest in both of these assets held by such
lenders. These payments are classified as a reduction in the "Liabilities
Subject to Compromise" associated with these lenders in the Consolidated
Financial Statements at August 31,2000.
Equity in earnings of associated companies during fiscal 2000 primarily reflects
the Company's share of the results of operations attributable to the Company's
44% interest in its European operations from September 1, 1999 to August 11,
2000, the date of sale of the Company's remaining interest.
On December 23, 1998, the Company announced the recapitalization of its European
operations resulting in the sale of 56% of the Company's equity interest in
those operations. Equity in associated companies during fiscal 1999 reflect the
Company's share attributable to the Company's remaining 44% interest in the
results of its European operations.
REORGANIZATION ITEMS
Consolidated reorganization items as reported in the accompanying consolidated
statement of operations are comprised of income, expense and loss items that
were realized or incurred by the Debtors as a direct result of the Company's
decision to reorganize under Chapter 11 (see Note 18 of Notes to Consolidated
Financial Statements). Reorganization items were as follows ($ in millions):
Write-off of deferred financing costs related to pre-petition
domestic borrowings $ 42
Professional fees directly related to the filings 15
Losses on early termination of qualifying hedge contracts 3
Other 1
----
$61
====
INCOME TAXES
At August 31, 2000, the Company had net operating loss carryforwards for U.S.
federal income tax purposes of approximately $802 million expiring in the years
2006 through 2020. The Company cannot currently conclude that it will likely
realize all the benefits of these loss carryforwards and an appropriate
valuation allowance has been established. The income tax provision reflects
state and foreign taxes payable of approximately $5 million, plus other net
deferred tax expenses of approximately $8 million. Implementation of a plan or
plans of reorganization will likely reduce the availability of some or all of
these net operating loss carryforwards.
14
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company considers critical accounting policies and estimates as matters that
materially effect the Company's operating results and financial position, which
require management's judgement and are inherently uncertain. The Company has
determined that the following accounting policies and estimates are critical to
the understanding of the Company's Consolidated Financial Statements:
BASIS OF PRESENTATION
The Company's Consolidated Financial Statements have been prepared on a going
concern basis which contemplates continuity of operations, realization of
assets, and payment of liabilities in the ordinary course of business and do not
reflect adjustments that might result if the Debtors are unable to continue as a
going concern. The Company's history of significant losses, deficit in
stockholders' equity and the Debtors' Chapter 11 Cases, as well as issues
related to compliance with debt covenants and financial assurance requirements
raise substantial doubt about the Company's ability to continue as a going
concern. Continuing as a going concern is dependent upon, among other things,
the Debtors' formulation of a plan or plans of reorganization, the success of
future business operations, and the generation of sufficient cash from
operations and financing sources to meet the Company's obligations. The
Consolidated Financial Statements do not reflect: (i) the realizable value of
assets on a liquidation basis or their availability to satisfy liabilities; (ii)
aggregate pre-petition liability amounts that may be allowed for unrecorded
claims or contingencies, or their status or priority; (iii) the effect of any
changes to the Debtors' capital structure or in the Debtors' business operations
as the result of an approved plan or plans of reorganization; or (iv)
adjustments to the carrying value of assets (including goodwill and other
intangibles) or liability amounts that may be necessary as the result of actions
by the Bankruptcy Court.
The Company's Consolidated Financial Statements as of and for the fiscal years
ended August 31, 2001 and 2000 have been presented in conformity with SOP 90-7.
This statement requires, among other things, a segregation of liabilities
subject to compromise by the Bankruptcy Court as of the bankruptcy filing date
and identification of all transactions and events that are directly associated
with the reorganization of the Company. In recording liabilities subject to
compromise, the Company must make certain estimates relating to the amounts it
expects to eventually pay to settle certain liabilities. The actual amounts
required to settle these claims could significantly differ from the amounts
currently recorded.
LANDFILL ACCOUNTING AND ENVIRONMENTAL LIABILITIES
The Company has material financial commitments for the costs associated with (i)
the final closure and post-closure activities at its landfill facilities and
(ii) remedial liabilities at sites that it owns or operates and at sites to
which it has transported or disposed of waste, including 55 Superfund sites as
of February 28, 2002. Estimates for the costs of these activities are developed
by the Company's engineers, accountants and external consultants. These
estimates are based on an evaluation of site specific facts and circumstances,
including the Company's interpretation of current regulatory requirements and
proposed regulatory changes, as well as its estimate of its participation level.
These estimates are subject to change due to various circumstances including,
but not limited to, (i) permit modifications; (ii) changes in legislation or
regulations; (iii) technological changes; and (iv) results of environmental
studies. The Company's extensive experience in the environmental services
business, as well as its involvement with a large number of sites, provides a
reasonable basis for estimating its aggregate liability. The Company believes
that a significant change to the cost estimates used in determining its
environmental liabilities could have a material impact on the Consolidated
Financial Statements.
Landfill capacity, which is the basis for the amortization of site costs and for
the accrual of final closure and post-closure obligations, represents total
airspace that management believes is probable of ultimately being permitted
based on established criteria. The Company applies a comprehensive set of
criteria for evaluating the probability of obtaining a permit for future
expansion airspace at existing sites, which provides management a sufficient
basis to evaluate the likelihood of success of unpermitted expansions. Remaining
landfill capacity divided by annual usage estimates is used to calculate
estimated remaining site lives. Changes in estimates of remaining landfill site
lives, as well as, inflation and discount rate assumptions used to record the
landfill closure and post-closure liabilities, could also have a material impact
on the Consolidated Financial Statements.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 will require, upon adoption, that the
Company recognize as a component of asset cost, the fair value of a liability
for an asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. Under this statement, the
liability is discounted and accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. SFAS No. 143 is effective for Consolidated Financial
Statements issued for fiscal years beginning after June 15,2002. The Company
will be required to adopt SFAS No. 143 at the earlier of its emergence from
bankruptcy or September 1, 2002. The Company is currently in the process of
evaluating the impact of SFAS No. 143; however, the adoption of this standard is
expected to result in the recognition of additional assets and liabilities, and
may result in a significant charge to operations in the period of adoption.
ASSET IMPAIRMENTS OTHER THAN GOODWILL
The Company periodically evaluates whether events and circumstances have
occurred that indicate that the remaining useful life of any of its tangible and
intangible long-lived assets (other than goodwill) may warrant revision or that
the remaining balance might not be recoverable.
15
When factors indicate that the tangible and intangible assets should be
evaluated for possible impairment, the Company uses an estimate of the future
undiscounted cash flows generated by the underlying assets to determine if an
impairment is indicated. As required by SFAS No. 121, the asset balances used in
this test include an allocation of any goodwill which was recorded in connection
with their acquisition. If an impairment is indicated by this test, the Company
adjusts the book value of the allocated goodwill, if any, and then the book
value of the impaired long-lived assets to their estimated fair values and
records a provision for impairment in the income statement. The Company believes
that a significant change to the estimates of undiscounted cash flows could have
a material adverse impact on the Consolidated Financial Statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" for the disposal of a segment of a business (as
previously defined in that opinion). SFAS No. 144 is effective for Consolidated
Financial Statements issued for fiscal years beginning after December 15, 2001.
The Company will be required to adopt SFAS No. 144 at the earlier of its
emergence from bankruptcy or September 1, 2002. In addition, the statement (i)
changes the criteria for classifying an asset as held-for-sale; and (ii)
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing operating losses
on such operations prior to their discontinuance. The Company is currently in
the process of evaluating the potential impact that the adoption of SFAS No 144
will have on its consolidated financial position and results of operations.
BUSINESS COMBINATIONS AND GOODWILL
Goodwill resulting from business combinations accounted for as purchases is
tested for impairment using undiscounted estimated future cash flows, excluding
interest, when facts and circumstances indicate that an impairment may have
occurred. The Company believes that the Chapter 11 Cases and the events that led
up to it meet this criteria. As discussed above, a portion of goodwill may also
be tested as part of an impairment test of related long-lived assets.
In July 2001, the FASB issued SFAS No 141, "Business Combinations", and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 141 also specifies criteria for
intangible assets acquired in a business combination to be recognized and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of the
statement. SFAS No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed of." The Company is required to
adopt the provisions of SFAS No. 141 immediately for new transactions and SFAS
No. 142 at the earlier of its emergence from bankruptcy or September 1, 2002.
Early adoption of SFAS No. 142 is permitted.
The Company's existing goodwill and intangible assets will continue to be
amortized prior to the adoption of SFAS No. 142. Upon adoption of SFAS No. 142,
the Company must evaluate its existing intangible assets and goodwill. The
Company will be required to reassess the useful lives and residual values of all
recorded intangible assets, and make any necessary amortization period
adjustments by the end of the second fiscal quarter following adoption.
Additionally, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of SFAS No. 142 by the
end of the second fiscal quarter following adoption. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle.
As of September 1, 2002, the Company expects to have unamortized goodwill of
approximately $1.2 billion ($96 million related to Chemical Services Division
and $1.1 billion related to the Branch Sales and Service Division), which will
be subject to the transition provisions of SFAS No. 142. Amortization expense
related to goodwill and other intangible assets was $71 million, $73 million and
$74 million for each of the three years ended August 31, 2001, 2000 and 1999,
respectively. The Company believes it will likely incur a significant write-down
in the value of its intangible assets at the earlier of its emergence from
bankruptcy, as provided by SOP 90-7, or the adoption of SFAS No. 142.
LITIGATION CONTINGENCIES
Legal proceedings covering a wide range of matters are pending or threatened in
the United States and foreign jurisdictions against the Company and/or former
and/or current officers, directors and employees. Various types of claims are
raised in these proceedings, including shareholder class action and derivative
lawsuits, product liability, environmental, antitrust, tax, and breach of
contract. Management consults with legal counsel in estimating reserves and
developing estimates of ranges of potential loss.
The Company has claims where management has assessed that an unfavorable outcome
is probable As of August 31, 2001, the aggregate estimated potential loss on
these claims range from approximately $19 million to approximately $71 million
and the Company has recorded reserves of approximately $26 million, including
$19 million subject to compromise, representing its best estimate of losses to
be incurred.
16
Additionally, the Company has substantial claims where management has assessed
that an unfavorable outcome is probable or, at least, reasonably possible and
which, if incurred, may have a material adverse effect on the Company's
financial condition. The Company, however, has not recorded reserves related to
these claims as management believes the potential loss is not currently
estimable.
The actual outcomes from these claims could differ from these estimates. These
estimates do not include the impact, if any, that the Debtors' bankruptcy
proceedings may have on the treatment of these claims.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Consolidated Financial Statements." SAB
No. 101 requires that four basic criteria must be met before revenue can be
recognized (i) persuasive evidence of an arrangement exists; (ii) delivery has
occurred or services rendered; (iii) the fee is fixed and determinable; and (iv)
collectibility is reasonably assured.
The Company recognizes revenue upon disposal for its waste collection and
disposal activities, and over the applicable service intervals for its parts
cleaner and related businesses. Consulting and oil collection services revenue
is recognized when services are performed. Revenue from product sales is
recognized upon delivery to the customers. Unearned revenue has been recorded
for services billed but not earned in the accompanying consolidated balance
sheets. Direct costs associated with the handling and transportation of waste
prior to disposal and other variable direct costs associated with the Company's
parts cleaner and related businesses are capitalized as a component of other
current assets in the accompanying consolidated balance sheets and expensed when
the related revenue is recognized. Deferral periods related to unearned revenue
and the related direct costs typically range from one to six months. Although
changes in the volume of activity would create changes in recognized revenues,
the generally short time interval required to earn revenue decreases the impact
of such variations.
SAFETY-KLEEN (PINEWOOD), INC.
As further discussed in Note 14 of Notes to Consolidated Financial Statements,
by an order from the South Carolina Department of Health and Environmental
Control dated May 19, 1994, the Company was ordered to establish and maintain an
environmental impairment fund ("EIF") in the amount of $133 million in 1994
dollars ($151 million in 2001 dollars) by July 1, 2004, as financial assurance
for potential environmental clean up and potential restoration of environmental
impairment at the Safety-Kleen (Pinewood), Inc. facility ("the Pinewood
Facility"). The EIF has two components: (i) the GSX Contribution Fund, which was
to be funded by Safety-Kleen (Pinewood), Inc. in annual cash payments over a ten
year period; and (ii) the State Permitted Sites Fund, a legislatively created
fund derived from fees on waste disposal at the Pinewood Facility. Under the
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 Safety-Kleen (Pinewood), Inc. As of August 31,2001, there was
approximately $20 million in the GSX Contribution Fund and approximately $15
million in the State Permitted Sites Fund, Subject to the automatic stay
provisions of the Debtors' Chapter 11 Cases, the Company would be required to
fund, in 2001 dollars, approximately $110 million and $6 million to the GSX
Contribution Fund in fiscal 2002 and 2003, respectively, to comply with
financial assurance provisions of the Order.
The Company has recorded a restricted asset of $20 million related to the GSX
Contribution Fund. Additionally, the $15 million in the State Permitted Sites
Fund is not considered an asset of the Company. The obligation to contribute the
remaining $116 million to the GSX Contribution Fund has been treated as a
commitment to restrict additional assets and no liability related to the
obligation has been recorded in the Consolidated Financial Statements.
17
LIQUIDITY AND CAPITAL RESOURCES
BANKRUPTCY
The matters described under this caption "Liquidity and Capital Resources", to
the extent that they relate to future events or expectations, may be
significantly affected by the Chapter 11 proceedings. These proceedings will
involve, or result in, (i) various restrictions on the Company's activities:
(ii) limitations on financing; (iii) the need to obtain Bankruptcy Court
approval for various matters; (iv) uncertainty as to relationships with vendors,
suppliers, customers and others with whom the Company may conduct or seek to
conduct business; and (v) uncertainty as to the sale of the Company's Chemical
Services Division.
CASH AND CASH EQUIVALENTS
The Company's primary sources of liquidity are cash flows from operations,
existing cash, proceeds from the sale of non-core assets and businesses and the
Second DIP Facility (as hereinafter defined).
As of August 31, 2001, cash and cash equivalents at the Company's domestic and
Canadian facilities was approximately $75 million and $41 million, respectively.
As of January 31, 2002, cash and cash equivalents at the Company's domestic and
Canadian facilities was approximately $61 million and $27 million, respectively.
The Company's ability to utilize the cash at the Canadian facilities for
domestic operating, capital expenditure, financial assurance and environmental
liability requirements is limited as a result of the bankrupt status of the
Debtors, the requirements of the Senior Credit Facility, and tax consequences.
As of March 3, 2002, no amounts had been drawn on the First DIP Facility (as
hereinafter defined) and approximately $75 million of letters of credit had been
issued. In addition, the Company had approximately $9 million of additional
availability under the First DIP Facility as of that date. The Company is using
its existing cash and cash from operations to meet its operating, capital
expenditure, financial assurance and environmental liability requirements.
CASH FLOWS FROM OPERATING ACTIVITIES
The Company generated approximately $100 million from operations during fiscal
2001 compared to cash used in operations of $59 million in fiscal 2000. This
increase is attributed primarily to (i) improvements in accounts receivable
collections; (ii) the timing of payments on certain accrued liabilities such as
professional fees, payroll and related costs, property taxes and other operating
items; and (iii) continued suspension of interest payments on pre-petition and
Canadian debt.
Consolidated net cash flow from operation subsequent to August 31, 2001 (i) will
need to accommodate substantially increased costs to replace certain financial
assurance programs; (ii) will need to fund the payment of the accrued
liabilities noted above as they become due; (iii) could be affected by the
potential loss of "event-based" business in the Chemical Services Division; and
(iv) will need to fund the cash requirements far the deactivation and closure of
certain facilities.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company operates in an industry that requires a high level of capital
investment. The Company's capital investment requirements primarily relate to
(i) trucks and other vehicles; (ii) parts cleaner service machines placed at
customer locations; (iii) computer related technology; (iv) equipment at waste
collection and disposal facilities; and (v) construction and expansion of its
landfill sites. Capital expenditures in fiscal 2001 totaled $71 million. During
fiscal 2001, the Company deferred certain non-essential capital expenditures
and expects to continue to defer capital spending in fiscal 2002. However, in
fiscal 2003 and beyond, the Company expects capital expenditure requirements to
significantly increase over the spending levels of fiscal 2002, primarily due to
a return to more normal operating requirements and the need to comply with new
regulatory requirements for incinerators. In addition, the Company expects to
upgrade certain of the Company's Branch Sales and Service transportation fleet
and oil re-refining facilities in fiscal 2002 and beyond.
CASH FLOWS FROM FINANCING ACTIVITIES
The change in net cash flow from financing activities has decreased due to
payments on the Company's industrial revenue bonds, the Debtors' Chapter 11
Cases and the Company's default on the Canadian debt. The Company has been able
to meet current liquidity needs with cash provided by operating activities and
letters of credit issued under the First DIP Facility. As of August 31, 2001, no
amounts had been borrowed against the First DIP Facility and approximately $48
million of letters of credit had been issued.
18
CONTRACTUAL COMMITMENTS AND COMMERCIAL OBLIGATIONS
As described more fully in Notes 10, 11 and 14 of the Notes to Consolidated
Financial Statements and Item 7A, at August 31, 2001, the Company had certain
cash obligations associated with contractual commitments and commercial
obligations. Based on original contractual terms, these commitments and
obligations are due as follows ($ in millions):
CONTRACTUAL COMMITMENTS
LESS THAN AFTER
TOTAL 1 YEAR 1-3 YEARS 4 -5 YEARS 5 YEARS
------ --------- --------- ---------- -------
Subject to compromise:
Long-term debt (variable rate)(1) $1,538 $1,538 $-- $-- $--
Long-term debt (fixed rate)(1) 634 634 -- -- --
Accrued interest 67 67 -- -- --
Derivative contracts 69 69 -- -- --
Environmental liabilities 11 2 8 1 --
Pinewood-EIF funding 116 110 6 -- --
Other 5 5 -- -- --
------ ------ ---- ---- ----
Subtotal contractual commitments
subject to compromise 2,440 2,425 14 1
Not subject to compromise:
Current portion of long-term debt (variable 62 62 -- -- --
rate)
Environmental liabilities(2) 596 41 94 45 416
Operating leases 112 37 41 21 13
Unconditional purchase obligations 171 48 80 43 --
Other 33 19 14 -- --
------ ------ ---- ---- ----
Subtotal contractual commitments
not subject to compromise 974 207 229 109 429
------ ------ ---- ---- ----
Total contractual cash obligations $3,414 $2,632 $243 $110 $429
====== ====== ==== ==== ====
OTHER COMMERCIAL COMMITMENTS
LESS THAN AFTER
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
------ --------- --------- --------- -------
First DIP Facility letters of credit $ 48 $ 48 $ -- $ -- $ --
Letters of credit 92 92 -- --
Guarantees(3) 6 6 -- -- --
------ ------ ---- ---- ----
Total commercial commitments $ 146 $ 146 $ -- $ -- $ --
====== ====== ==== ==== ====
1) All fixed and variable rate long-term debt subject to compromise are
classified above as "Less than 1 year" due to default provisions. Amounts
subject to compromise may be subject to future adjustments and settled at
amounts substantially less than contract values. See (Notes 10 and 11 of
the Notes to Consolidated Financial Statements.
2) Anticipated payments of environmental liabilities (based on current
estimated costs) and anticipated timing of necessarily regulatory approvals
to commence work of closure, post-closure and remediation activities are
presented on a consolidated basis. Certain environmental liabilities are
discounted in the consolidated balance sheet primarily for certain of the
Company's landfill related reserves. See Notes 3 and 9 of the Notes to
Consolidated Financial Statements.
3) Subject to compromise.
Contractual commitments and other commercial commitments included as subject to
compromise may be settled in amounts and terms that differ from the above
schedule. Settlements and maturities are dependent on a plan or plans of
reorganization to be filed with the Bankruptcy Court (see "Factors That May
Affect Future Results - Uncertainties Relating to Bankruptcy Proceedings").
Other commercial commitments are contingent obligations of the Company.
19
EBITDA ANALYSIS
Management evaluates the Company's performance using several factors, of which
the primary financial measure is operating (loss) income before depreciation and
amortization and impairment and other charges ("EBITDA") (see Note 25 of Notes
to Consolidated Financial Statements). In addition, the Company uses Adjusted
EBITDA, which is calculated by adding back to EBITDA certain other non-cash
charges which management believes are similar to depreciation and amortization.
This Adjusted EBITDA measure is used by the Company to plan for its
environmental, capital expenditure and other requirements. Further adjustments
are made for significant items that, in management's opinion, are unusual and
affect the applicable period.
A summary of annual EBITDA reflecting management adjustments is as follows (in
thousands):
YEAR ENDED AUGUST 31,
-------------------------------------------
2001 2000 1999
--------- --------- ---------
Operating (loss) income $(168,336) $(620,170) $ 6,876
Add
Depreciation and amortization 143,710 169,902 161,314
Impairment and other charges 52,884 367,793 11,287
--------- --------- ---------
EBITDA $ 28,258 $ (82,475) $ 179,477
Loss on disposal of equipment (non-cash) 2,910 43,813 27,921
--------- --------- ---------
Adjusted EBITDA $ 31,168 $ (38,662) $ 207,398
Unusual items:
Accounting, legal, consulting and other costs 55,342 7,400 --
--------- --------- ---------
Adjusted EBITDA after unusual items $ 86,510 $ (31,262) $ 207,398
========= ========= =========
Capital expenditures were $71 million, $53 million and $72 million in fiscal
2001, 2000 and 1999, respectively. Environmental spending totaled $23 million in
fiscal 2001. Due to the accounting issues surrounding the restatement of the
Company's Consolidated Financial Statements in the fiscal 2000 10-K/A, the
Company is unable to determine the environmental cash spending amounts for
fiscal 2000 and 1999. In reaching this conclusion, the Company has considered
(i) the significant volume of transactions involved; (ii) the risk that other
environmental related cash expenditures could have been incurred but recorded in
other accounts; and (iii) the lack of historical systems and controls which
provided for the tracking and administering of all of the costs by one
department.
In determining Adjusted EBITDA, the Company also normally adds back any non-cash
provision for environmental liabilities. Due to the accounting issues
surrounding the restatement of the Company's Consolidated Financial Statements
in the fiscal 2000 10-K/A, the Company is unable to determine the provision for
environmental liabilities (non-cash) amounts for fiscal 2000 and 1999.
Accordingly, the amount for fiscal 2001 of $35 million has not been reflected in
the calculation of Adjusted EBITDA above.
DIP FACILITY
On July 19, 2000, the Bankruptcy Court granted final approval of a one-year $100
million Revolving Credit Agreement underwritten by Toronto Dominion (Texas),
Inc. as general administrative agent and CIT Group/Business Credit, Inc. as
collateral agent (the "First DIP Facility") with an aggregate sublimit for
letters of credit of $35 million. The actual amount available under the First
DIP Facility was subject to a borrowing base computation. The First DIP Facility
was amended on eleven occasions through March 15, 2002, which amendments have,
among other things, extended the maturity date, increased the aggregate limit
for letters of credit to $95 million, increased the sublimits for letters of
credit for certain uses and waived the Debtors' non-compliance with certain
affirmative covenants under the First DIP Facility.
On March 20, 2002, the Bankruptcy Court approved a $200 million Second Amended
and Restated Debtor-in-Possession Credit Facility (the "Second DIP Facility").
The Second DIP Facility extends the maturity date of the First DIP Facility
until the earlier of March 22, 2003, or the effective date of a plan or plans of
reorganization. In addition, it reduces the aggregate amount of borrowings
available from $100 million to $75 million, which continues to be subject to
borrowing base limitations ("Tranche A"). The Second DIP Facility also creates a
new tranche under the credit facility in the amount of $125 million ("Tranche
B"). Tranche B is available for cash borrowings and letters of credit, and has
the same maturity date as Tranche A.
Proceeds from Tranche A or Tranche B may be used for general corporate purposes.
Tranche A is available for letters of credit or cash borrowings, with a
sub-limit of $45 million available for environmental letters of credit. The
letter of credit sub-limit under Tranche B is $50
20
million, and there is a further sub-limit of $40 million available for
environmental letters of credit, including the replacement of certain existing
cash collateral pledged to support financial assurance with respect to certain
facilities.
Tranche A letters of credit are priced at 3% per annum (plus a fronting fee of
0.25% to the Agent) on the outstanding face amount of each letter of credit. In
addition, the Debtors pay a commitment fee of 0.50% per annum on the unused
amount of Tranche A, payable monthly in arrears. Tranche B letters of credit are
priced at 12% per annum (plus a fronting fee of 0.25% to the Agent) on the
outstanding face amount of each letter of credit, payable monthly in arrears. In
addition, the Debtors pay a commitment fee of 2.5% on the unused amount of
Tranche B letters of credit.
Interest charged for cash borrowings under Tranche A is the greater of Prime
Rate plus 1% per annum and the Fed Funds Rate plus 0.5% per annum, or LIBOR plus
3% per annum, depending on the nature of the borrowings. Interest charged for
cash borrowings under Tranche B is the greater of Prime Rate plus an applicable
margin of 7.25%, or 12% per annum. Beginning September 1, 2002, the applicable
margin on Tranche B cash borrowings increases monthly by 0.5% per annum. The
Debtors are also required to pay as additional interest, paid in kind, a fee
equal to 3% of the average daily outstanding Tranche B cash borrowings,
compounded and accrued monthly, and fully payable upon the termination of the
Second DIP Facility, provided that, if the termination does not occur prior to
September 1, 2002, the amount of such fee increases each month by 1% per annum.
The commitment fee on Tranche B is calculated at a rate equal to 4% per annum on
the average daily unused cash portion of Tranche B, payable monthly in arrears.
In addition, the Debtors are required to pay an extension fee on the Tranche B
commitments, payable as follows, if the Second DIP Facility remains outstanding
at such dates: 1.2% on September 1, 2002; 1.2% on December 1, 2002 and 1.2% on
March 22, 2003.
On the closing date, March 22, 2002, the Debtors were required to establish a $5
million interest escrow account. Tranche A and Tranche B fees and interest will
be paid from this account. On the earlier of depletion of the escrowed funds or
six months after the closing date of the Second DIP Facility, additional funds
must be deposited in the escrow account in order to assure that $5 million will
be escrowed for this same purpose.
In the event of the sale of the Company's Chemical Services Division, the net
proceeds, after reserves for certain selling expenses, interest and fees on the
Second DIP facility, shall be applied to prepay the Tranche B loans and the
availability under Tranche B will be reduced by $17 million. Net proceeds of
certain other asset sales, after reserves for certain selling expenses, interest
and fees on the Second DIP facility, are to be used to repay Tranche A and then
Tranche B.
The Second DIP Facility benefits from superpriority claim status as provided for
under the Bankruptcy Code. Under the Bankruptcy Code, a superpriority claim is
senior to unsecured pre-petition claims and all other administrative expenses
incurred in a Chapter 11 case. As security, the Second DIP Facility lenders
were granted certain priority, perfected liens on certain of the Debtors'
assets. Pursuant to the final order approving the Second DIP Facility, such
liens are not subordinate to or pari passu with any other lien or security
interest (other than (a) liens for certain administrative expenses and (b) liens
in favor of Safety-Kleen's Chief Executive Officer).
As of March 22, 2002, no cash borrowings have been made under the First DIP
Facility (as amended, the Tranche A facility) and approximately $75 million of
letters of credit have been issued. As of March 22, 2002, no cash borrowings
have been made under the Tranche B facility and no amounts have been issued for
letters of credit. The Debtors are jointly and severally liable under the Second
DIP Facility.
FINANCIAL ASSURANCE MATTERS
As described in greater detail in Note 14 of Notes to Consolidated Financial
Statements, on August 7, 2001, the Company obtained the collateral necessary to
enable it to replace Frontier Insurance Company ("Frontier") surety bonds at
approximately 114 facilities, pursuant to Bankruptcy Court approval obtained on
July 11, 2001. 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 and December 31, 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 January 1, 2002, the Company was in a position to provide replacement
financial assurance coverage at all but approximately 18 inactive facilities
(actual replacement is dependent upon acceptance by regulators of replacement
policies). There is no guarantee that the Company will be able to provide the
required financial assurances at these inactive facilities.
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. Because Frontier continues to provide
substantial amounts of financial assurance coverage at various facilities that
the Company owns and operates, the Company is investigating the extent to which,
if at all, the New York rehabilitation proceeding will impact the rights of the
Company or the states or the EPA with respect to these financial assurance
surety bonds. The Company has not been notified of any change in the validity of
such bonds.
21
The Company is currently subject to a Consent Agreement and Final Order with the
EPA (and similar agreements in certain other states) requiring the replacement
of Frontier at its facilities. The Company is in a position to replace Frontier
at all its active facilities, subject to approval by state and/or federal
regulators of the replacement policies. The current EPA deadline for the
replacement of Frontier at inactive facilities in the Branch Sales and Service
Division is March 31, 2002. The deadline for replacement of Frontier at inactive
facilities in the Chemical Services Division is July 31, 2002. Most, but not
all, states are likely to accept this July 31, 2002 deadline. 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 Company
could be assessed additional penalties.
INFLATION AND COMMODITY PRICE RISKS
During the periods presented herein, the Company's business has not been and is
not expected to be significantly affected by inflation in the near future.
The Company operates a large fleet of vehicles in order to transport products
and waste streams. The Company also purchases petroleum and petroleum waste
products for processing in its oil re-refining operations. As a result, the
Company is exposed to fluctuations in both revenues and expenses as a result of
potential changes in the price of petroleum products. The Company believes that
its oil business creates a partial hedge against the risk of increased fuel
expense that might result from an increase in petroleum prices. While the
Company does not use derivative contracts to hedge its petroleum price risk, it
does enter into volume discount arrangements to purchase fuel for its fleet and
natural gas for certain of its re-refineries.
22
FACTORS THAT MAY AFFECT FUTURE 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/A in order to do so. Statements
that are not historical facts, including statements about management's
expectations in fiscal 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:
BUSINESS AND MARKET RISKS
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
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.
PROFIT IMPROVEMENT INITIATIVES
The Company has embarked on several initiatives to improve profitability in the
future. In fiscal 2002, the Company began to institute a new pricing structure,
as well as a modified compensation structure to better reward exceptional
performance. The Company continues to evaluate and implement other profit
improvements such as improved route logistics and energy cost savings
arrangements. The Company anticipates a significant cost savings from reductions
in headcount. Since September 1, 2001, the Company has reduced its headcount by
over 1,000 employees through planned reductions and normal attrition. In fiscal
2002, the Company intends to begin to upgrade its information technology systems
through the implementation of an enterprise resource planning system and hand
held electronic devices in the field operations. While the Company believes
these initiatives will increase revenue, reduce costs and improve operating
efficiencies, there can be no guarantee such results will be achieved. In
addition, the new technology and system upgrades may initially cause problems
that could adversely affect the Company's operations or financial systems until
resolved.
The Company has retained a consulting firm to evaluate the Company's current
operations and recommend business options for the Company following the Debtors'
confirmation of a plan or plans of reorganization. The Company is uncertain as
to each business option that may be recommended by the consulting firm and what
steps, if any, the Company may take as a result of such recommendations.
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. The
Company has identified material deficiencies in many of its financial systems,
processes and related internal controls and has 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.
The Company contracted with outside accountants, including those 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 quarterly and annual Consolidated
Financial Statements for fiscal 2001. The Company has been taking steps to
develop a comprehensive program that, over time, will establish a satisfactory
system of internal
23
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, evaluating, 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 and in January 2002 the
Company began negotiations with a third party consultant to assist with the
design and implementation of new operational and financial information systems
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 believes that its revenue since the date of the Chapter 11 filings
is being adversely impacted by the Chapter 11 Cases, particularly with respect
to "event-based" business in the Chemical Services Division. The Company's
future results are dependent upon the Company's successfully confirming and
implementing a plan or plans of reorganization. The Company has not yet
submitted a plan or plans of reorganization to the Bankruptcy Court for approval
and cannot make any assurance that it will be able to obtain such approval in a
timely manner. Failure to obtain this approval in a timely manner could
adversely affect the Company's operating results, its ability to obtain
financing to fund its operations and its relations with its customers.
Furthermore, the Company cannot predict the ultimate amount of all settlement
terms for the liabilities of the Company that will be subject to compromise
under a plan or plans of reorganization.
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 security holders. The Company is in the process of
reviewing the proofs of claim and once this process is complete, will file
appropriate objections to the claims in the Bankruptcy Court. As of August 31,
2001, the Company believes it has identified approximately $171 billion of such
claims that are duplicative or without merit. The Company believes that the
amount of these claims that are in excess of the $2.5 billion recorded as
"Liabilities subject to compromise" in the accompanying Consolidated Financial
Statements as of August 31, 2001 are: (i) duplicative or without merit; (ii) do
not meet the criteria to be recorded as a liability under generally accepted
accounting principles; and (iii) will not have a material effect on the
Consolidated Financial Statements, but there can be no assurance that the
Company is correct and these claims may have a material effect on the
Consolidated Financial Statements.
Once a plan or plans of reorganization is approved and implemented, the
Company's operating results may be adversely affected by the possible reluctance
of prospective lenders and customers to do business with a company that recently
emerged from bankruptcy proceedings.
On February 22, 2002, the Company entered into a definitive agreement with Clean
Harbors, Inc. ("Clean Harbors") to sell its Chemical Services Division,
excluding the Company's landfill in Pinewood, S.C. Pursuant to the terms of the
agreement, Clean Harbors would purchase the Chemical Services Division's net
assets from the Company for $46 million in cash, subject to defined working
capital adjustments, and the assumption of certain liabilities, which includes
environmental liabilities valued at approximately $265 million as of August 31,
2001. The book value of the net assets to be disposed, net of the liabilities to
be assumed, at August 31, 2001 was in excess of $300 million. On March 8, 2002,
the Bankruptcy Court approved the bidding and auction procedures for the sale of
the Company's Chemical Services Division. Pursuant to the bidding procedures,
all qualified bidders interested in purchasing some or all of the Chemical
Services Division must submit an alternative qualified bid on or before May 30,
2002. There can be no assurance that the Bankruptcy Court and/or the various
regulatory agencies will approve the sale of the Chemical Services Division to
Clean Harbors or an alternative purchaser, or that the Company will be able to
complete the sale of the Chemical Services Division.
EFFECT OF LAIDLAW'S FINANCIAL SITUATION ON THE COMPANY
On June 28, 2001, Laidlaw Inc. ("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, "Laidlaw Debtors") 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 against the Company under the Canada Companies'
Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice in
Toronto, Ontario. In an effort to resolve these claims, the parties will
participate in a mediation which is presently anticipated to be held in April
2002. As a result of the Laidlaw Debtors' filings, claims and causes of action
the Company may have against the Laidlaw Debtors may be subject to compromise in
Laidlaw Debtors' Chapter 11 or CCAA proceedings.
The Company is unable to predict the outcome or impact of these matters and
there can be no assurance that they will not have a material adverse effect on
the Company and its operations.
24
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 $200 million in such debt financing through the Second
DIP Facility discussed above. To date, there have been no cash borrowings
against this $200 million Second DIP Facility. As of March 3, 2002, letters of
credit in the aggregate amount of approximately $75 million had been issued
under the First DIP Facility. In addition, the Company had approximately $9
million of additional availability under the First DIP Facility as of that date.
Depending on the resolution of its bankruptcy proceedings and the plan or plans
of reorganization adopted, the Company could emerge from bankruptcy highly
leveraged with substantial debt service obligations, including, as discussed
above, obligations or commitments regarding financial assurance requirements.
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 restrict the Company's ability to service its debt obligations
through additional debt financing if cash flow from operations is insufficient
to service such obligations. The Second DIP Facility matures on the earlier of
March 22, 2003 or the effective date of a plan or plans of reorganization or the
earlier termination of the Revolving Credit Commitments as defined therein.
ENVIRONMENTAL REGULATION AND LEGAL PROCEEDINGS
The Company's operations are subject to certain federal, state, 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. Although the Company believes that its
facilities meet federal, state and local requirements in all material respects
(except for financial assurance matters described below) and have all the
required operating and other permits, it may be necessary to expend considerable
time, effort and money to keep existing or acquired facilities in compliance
with applicable requirements, including new regulations, and to maintain
existing permits and approvals and to obtain the permits and approvals necessary
to increase their capacity.
The Company is required to provide certain financial assurances with respect to
certain statutorily required closure, post-closure and corrective action
obligations related to various operating facilities. These financial assurances
may take the form of insurance, guarantees, bonds, letters of credit or deposits
of cash, to the extent acceptable to the United States, Canadian or other
foreign, state, territorial, federal, provincial or local courts, executive
offices, legislatures, governmental agencies or ministries, commissions or
administrative, regulatory or self-regulatory authorities or instrumentality's
requiring such assurances. As of January 1, 2002, the Company was in a position
to provide replacement financial assurance coverage at all but approximately 18
inactive facilities (actual replacement is dependent upon acceptance by
regulators of the replacement policies). There is no guarantee that the Company
will be able to provide the required financial assurances at these inactive
facilities.
The Company is a party to environmental and other litigation, claims and
administrative proceedings arising from its operations. The Company is unable to
predict the outcome or impact of these matters and there can be no assurance
that they will not have a material adverse effect on the Company and its
operations.
The Company believes that many of the claims and litigation matters described
above are subject to resolution in its bankruptcy proceedings. The outcomes of
such proceedings are unknown and subject to a number of uncertainties as
described above.
SAFETY-KLEEN (PINEWOOD), INC.
As further discussed in Note 14 of Notes to Consolidated Financial Statements,
by an Order dated May 19, 1994 the Company was ordered to establish and maintain
an environmental impairment fund in the amount of $133 million in 1994 dollars
by July 1, 2004, as financial assurance for potential environmental clean up and
restoration of environmental impairment at the Pinewood Facility. Subject to the
automatic stay provisions of the Debtors' bankruptcy proceedings, the Company
would be required to fund, in 2001 dollars, approximately $110 million and $6
million in fiscal 2002 and 2003, respectively, in order to comply with the
financial assurance provisions of the Order. The Company is unable to predict
the outcome or impact of this matter and there can be no assurance that it will
not have a material adverse effect on the Company and its operations. The
funding obligation does not impact the Company's accounting for the landfill and
environmental liabilities recorded for Pinewood of approximately $54 million as
of August 31, 2001.
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
Former and/or current officers, directors and employees of the Company and/or
Laidlaw are parties to various claims filed by shareholders and bondholders on
behalf of various alleged classes of Company shareholders and bondholders,
asserting federal securities law claims.
The Company is the subject of ongoing investigations by the SEC and a grand jury
sitting in the United States District Court for the Southern District of New
York relating to the same matters. The Company has responded to subpoenas issued
by the SEC and the grand jury and is cooperating with each of the
investigations.
25
In addition to the above, two shareholder derivative lawsuits were filed on
behalf of the Company against certain of its directors and former directors
alleging breach of state law fiduciary duties by the defendants. These claims
seek to recover damages on behalf of the Company against the director defendants
in an unspecified amount as well as related relief. These actions arc subject to
an automatic stay under the Bankruptcy Code during the pendency of the Company's
bankruptcy proceedings.
On December 13, 2000, thirteen lenders to Safety-Kleen Services, Inc., sued
PricewaterhouseCoopers LLP, in the State Court of Fulton County Georgia,
alleging negligent misrepresentation by PricewaterhouseCoopers LLP, in
connection with the Consolidated Financial Statements of Safety-Kleen and its
subsidiaries for fiscal years 1997, 1998 and 1999. The case is captioned Toronto
Dominion (Texas), Inc., et al. v. PricewaterhouseCoopers LLP, Civil Action No.
00 VS 02679 F. The complaint has been amended twice, and the plaintiffs now
number over 90 lenders to Safety-Kleen Services, Inc. On October 23, 2001,
PricewaterhouseCoopers LLP, filed a motion for leave to file a third-party
complaint naming Safety-Kleen and former Safety-Kleen officers Kenneth W.
Winger, Michael J. Bragagnolo, and Paul B. Humphreys as third party defendants
in a third party claim for indemnity or contribution. The Georgia state court
granted leave and PricewaterhouseCoopers, LLP has now served a third party
complaint against the Company. The Company is moving to enjoin the third party
complaint and argues that it contravenes the automatic stay provisions of
federal bankruptcy law.
The Company is unable to predict the outcome or impact of these matters and
there can be no assurance that they will not have a material adverse effect on
the Company and its operations.
INDEPENDENT PUBLIC ACCOUNTANTS
AUDIT FEES
Beginning on August 2,2000, Arthur Andersen LLP, was engaged by the Company as
its new independent accountant to audit the Company's Consolidated Financial
Statements. The aggregate fees billed for professional services rendered by
Arthur Andersen LLP for the restatement audit of the Company's annual
Consolidated Financial Statements for fiscal 1997 through 1999 and the audit of
fiscal 2000 were approximately $21 million. The aggregate fees expected to be
billed for the audit of the Company's annual Consolidated Financial Statements
for fiscal 2001 are approximately $5 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Arthur Andersen LLP did not provide financial system design and implementation
support for fiscal 2001 and 2000.
ALL OTHER FEES
All other fees for professional services rendered by Arthur Andersen LLP totaled
approximately $17 million and $1 million for fiscal 2001 and 2000, respectively.
These services were comprised of audit-related fees of approximately $16 million
in fiscal 2001 relating primarily to assistance to the Company's accounting
staff during the restatement of fiscal years 1997 to 1999 and audit of fiscal
2000.
The remaining fees billed for professional services, which were rendered in
connection with the investigation by the Special Committee of the Company's
Board of Directors, tax preparation, and other assistance and consulting,
aggregated approximately $1 million and $1 million in fiscal 2001 and 2000,
respectively.
The Company has engaged Arthur Andersen LLP, among others, to assist the Company
in correcting identified internal control deficiencies beginning in fiscal 2002.
Accordingly, the Company expects to be billed by Arthur Andersen LLP for
professional fees related to these services in fiscal 2002.
MATTERS PERTAINING TO ARTHUR ANDERSEN LLP
The Company's independent public accountant, Arthur Andersen LLP, has informed
the Company that on March 14, 2002, it was indicted on federal obstruction of
justice charges arising from the government's investigation of Enron
Corporation. Arthur Andersen LLP has indicated that it intends to contest
vigorously the indictment.
The Company's management and Audit Committee have been carefully monitoring this
situation. As a public company, the Company is required to file with the SEC
periodic financial statements audited or reviewed by an independent, certified
public accountant.
The SEC has said that it will continue accepting financial statements audited by
Arthur Andersen LLP, and interim financial statements reviewed by it, so long as
Arthur Andersen LLP is able to represent to the Company that it has applied its
normal quality control procedures in the manner required to render its opinion
or perform audit related services. The Company received such representations
from Arthur Andersen LLP for its fiscal 2001 audit.
26
The Company does not know the scope or impact of the indictment, or whether
additional indictments may be made by the Department of Justice. The result of
the indictment or other lawsuits against Arthur Andersen LLP, among other
things, may cause the Company to select another independent auditor and select
other resources to assist the Company in correcting its internal control
deficiencies. In that case, the Company may incur significant expense in
familiarizing the new auditors with the Company's accounting and the Company may
incur additional expense in familiarizing the new resources with its internal
control deficiencies.
27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk
including changes in interest rate risk and currency exchange rates.
Interest Rate Risk -- At August 31, 2001, the Company had fixed and variable
rate debt denominated in U.S. dollars, and variable rate debt denominated in
Canadian dollars. Due to the uncertainty resulting from the Chapter 11 Cases,
the fair value of the Company's long-term debt as of August 31, 2001 is not
determinable. The following table details the original maturities (at book
value) and interest rate indices (including the default rate on the Senior
Credit Facility) for all variable rate debt as of August 31, 2001, segregated
between debt subject to compromise and debt not subject to compromise ($ in
millions):
VARIABLE RATE DEBT 2002 2003 2004 2005 2006 THEREAFTER TOTAL
- ------------------ ---- ---- ---- ---- ---- ---------- ------
Subject to compromise
Senior Credit Facility dated April 3, 1998
Tranche A (Prime + 3.375%) $204 $ 84 $ 64 $ -- $ -- $ -- $ 352
Tranche B (Prime + 3.75%) 10 4 97 282 -- -- 393
Tranche C (Prime + 5.00%) 10 4 4 96 279 -- 393
Revolving credit (Prime + 3.375%) -- -- 340 -- -- -- 340
---- ---- ---- ---- ---- ---- ------
Subtotal domestic credit facility 224 92 505 378 279 -- 1,478
Promissory note dated May 15, 1997 (6 month LIBOR) 20 40 -- -- -- -- 60
---- ---- ---- ---- ---- ---- ------
Subtotal variable rate indebtedness subject to compromise(1) 244 132 505 378 279 -- 1,538
---- ---- ---- ---- ---- ---- ------
Not subject to compromise
Canadian tranche of April 3, 1998, senior credit 46 -- -- -- -- -- 46
facility(2),(3)
Canadian demand note(2) 16 -- -- -- -- -- 16
---- ---- ---- ---- ---- ---- ------
Subtotal Canadian denominated variable rate debt 62 -- -- -- -- -- 62
---- ---- ---- ---- ---- ---- ------
Consolidated variable rate debt $306 $132 $505 $378 $279 $ -- $1,600
==== ==== ==== ==== ==== ==== ======
1) All debt subject to compromise is classified as such in the
consolidated balance sheet. See Note 11 of Notes to Consolidated Financial
Statements.
2) The floating interest on these borrowings is based on Canadian Prime plus
1.375% or the Canadian Bankers Acceptance rate plus 2.375%. The interest
rate applied is at the Company's discretion.
3) The Canadian tranche of the Senior Credit Facility, while not subject to
compromise, was in default at August 31, 2001,and is classified as current
debt in the consolidated balance sheet.
In accordance with the provisions of default under the Canadian Senior Credit
Facility, the floating interest rate will increase an additional 2% if all or a
portion of any principal of any loan, any interest payable thereon, any
commitment fee or any Reimbursement Obligation or Acceptance Reimbursement
Obligation or other amount payable hereunder shall not be paid when due. Due to
continuing defaults, the outstanding loan balance is classified as a current
liability as of August 31, 2001 and 2000, and interest continues to accrue at
Prime plus 3.375%.
The following table details the rates and maturities for all fixed rate debt,
all of which is subject to compromise as of August 31, 2001 ($ in millions):
FIXED RATE DEBT 2002 2003 2004 2005 2006 THEREAFTER TOTAL
- --------------- ---- ---- ---- ---- ---- ---------- ------
9.25% Senior Subordinated Notes due 2008 $ -- $ -- $ -- $ -- $ -- $ 325 $ 325
9.25% Senior Notes due 2009 -- -- -- -- -- 225 225
Industrial revenue bonds with rates ranging from
6.0% to 7.75% -- 6 2 2 2 69 81
Other 3 -- -- -- -- -- 3
---- ---- ---- ---- ---- ----- -----
Total fixed rate debt $ 3 $ 6 $ 2 $ 2 $ 2 $ 619 $ 634
==== ==== ==== ==== ==== ===== =====
The Company's Senior Credit Facility dated April 3, 1998, included provisions,
which expired March 31, 2000, requiring the Company to obtain interest rate
protection for a notional amount equal to at least 40% of Consolidated Total
Funded Debt bearing variable interest. The Company entered into pay fixed swaps,
in part, to satisfy this provision of the agreement. As discussed in Note 19
of Notes to Consolidated Financial Statements, the Company entered into a number
of other derivative transactions including interest rate swaps, swaptions, bond
indexed equity swaps, and forward start swaps which were used for trading
purposes. As of August 31, 1999, the Company had derivative contracts
outstanding with notional amounts of approximately $2 billion. In March 2000,
the Company's existing derivative contracts, including those entered into to
satisfy interest rate protection requirements, were involuntarily terminated as
a result of cross-default provisions between the Company's Senior Credit
Facility and its International Swap Dealers Association Master Agreements. The
notional amount of
28
these contracts was $2 billion. See Note 19 of Notes to Consolidated Financial
Statements for detail of the Company's fiscal 2001, 2000 and 1999 derivative
activity.
In June 2000, the Company entered into a $40 million debtor-in-possession credit
agreement. In July 2000, the Company increased the amount that could be borrowed
under that arrangement, including letters of credit, to $100 million. As of
March 3, 2002, no amounts had been drawn under the First DIP Facility and $75
million of letters of credit had been issued. Any borrowings under the First DIP
Facility will bear interest at the greater of Prime Rate plus 1% per annum and
the Fed Funds Rate plus 0.5% per annum or LIBOR plus 3% per annum, depending on
the nature of the borrowings. On March 20, 2002, the company obtained an
additional $100 million of credit under the terms of the Second DIP Facility.
See Notes 10 and 29 of Notes to Consolidated Financial Statements for further
discussion of the First DIP Facility and the Second DIP facility.
Currency Exchange Rate Risk -- The Canadian operations expose the Company to
currency exchange rate risks. However, that risk is mitigated by the fact that
approximately 11% of the Company's revenues are generated in Canada. In
addition, the Canadian assets are partially hedged through Canadian denominated
debt. Currently, the Company does not enter into any hedging arrangements to
reduce this exposure. The Company is not aware of any facts or circumstances
that would significantly impact such exposures in the near-term. If, however,
there was a sustained decline of the Canadian dollar versus the U.S. dollar,
then the Consolidated Financial Statements could be adversely affected.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PAGE
NUMBER
------
Report of Independent Public Accountants ................................................................. 31
Consolidated Statements of Operations for the Years Ended August 31, 2001, 2000 and 1999.................. 32
Consolidated Balance Sheets as of August 31, 2001 and 2000 ............................................... 33
Consolidated Statements of Cash Flows for the Years Ended August 31, 2001, 2000 and 1999 ................. 34
Consolidated Statements of Changes in Stockholders' Equity (Deficit) and Other Comprehensive Income (Loss)
for the Years Ended August 31, 2001, 2000 and 1999 ................................................. 35
Notes to Consolidated Financial Statements ............................................................... 36
Report of Independent Public Accountants on Financial Statement Schedule ................................. 90
Schedule II -- Valuation and Qualifying Accounts for the Years Ended
August 31, 2001, 2000 and 1999 ..................................................................... 91
All other schedules have been omitted since they are inapplicable or not
required, or the information has been included in the Consolidated Financial
Statements or the notes thereto.
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Safety-Kleen Corp.:
We have audited the accompanying consolidated balance sheets of Safety-Kleen
Corp., a Delaware corporation, and subsidiaries (the "Company"), as of August
31, 2001 and 2000, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and other comprehensive income (loss)
and cash flows for the three years ended August 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 28, the Company has not presented quarterly financial data
for the fiscal year ended August 31, 2000 that the Securities and Exchange
Commission requires to supplement, although not required to be part of, the
basic financial statements.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Safety-Kleen Corp.
and subsidiaries as of August 31, 2001 and 2000, and the results of their
operations and their cash flows for the three years ended August 31, 2001, in
conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has experienced
significant losses in the last five fiscal years and has a stockholders' deficit
of $345.7 million at August 31, 2001. In addition, as discussed in Notes 1 and 3
to the financial statements, on June 9, 2000, Safety-Kleen Corp. and certain of
its subsidiaries each filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code and continue to operate their respective
businesses as debtors-in-possession. Management's plans in regard to these
matters, including its intent to file a plan of reorganization acceptable to the
Bankruptcy Court and the Company's creditors, are also described in Notes 1 and
3. These matters, among others, raise substantial doubt about the Company's
ability to continue as a going concern. In the event a plan of reorganization is
accepted, continuation of the business thereafter is dependent on the Company's
ability to achieve successful future operations. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
February 28, 2002,
except with respect
to the matters discussed
in Note 29, as to which
the date is March 20, 2002
31
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenues $ 1,514,583 $ 1,586,273 $ 1,624,038
----------- ----------- -----------
Expenses:
Operating 1,212,350 1,389,362 1,242,594
Depreciation and amortization 143,710 169,902 161,314
Selling, general and administrative 273,975 279,386 201,967
Impairment and other charges 52,884 367,793 11,287
----------- ----------- -----------
1,682,919 2,206,443 1,617,162
----------- ----------- -----------
Operating (loss) income (168,336) (620,170) 6,876
Interest expense, net (excluding contractual interest of $245,436
in fiscal 2001 and $60,756 in fiscal 2000) (5,036) (141,879) (186,180)
Other (expense) income (1,000) 494 (1,308)
Derivative (losses) gains (558) 713 (5,923)
Equity in earnings of associated companies -- 1,769 1,263
----------- ----------- -----------
Loss before reorganization items, income taxes, minority
interest and extraordinary items (174,930) (759,073) (185,272)
Reorganization items (42,284) (60,923) --
----------- ----------- -----------
Loss before income taxes, minority interest and extraordinary
items (217,214) (819,996) (185,272)
Income tax expense (17,874) (13,023) (39,094)
----------- ----------- -----------
Loss before minority interest and extraordinary items (235,088) (833,019) (224,366)
Minority interest 419 (172) 1,211
----------- ----------- -----------
Loss before extraordinary items (234,669) (833,191) (223,155)
Extraordinary items, net of tax (early extinguishment of debt) 5,591 -- --
----------- ----------- -----------
Net loss $ (229,078) $ (833,191) $ (223,155)
=========== =========== ===========
Basic and diluted loss per share:
Loss before extraordinary items $ (2.33) $ (8.27) $ (2.52)
Extraordinary items 0.06 -- --
----------- ----------- -----------
Net loss $ (2.27) $ (8.27) $ (2.52)
=========== =========== ===========
Weighted average common stock outstanding -- basic and
diluted 100,784 100,725 88,537
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
32
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUE AMOUNT)
AUGUST 31,
---------------------------
2001 2000
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 116,057 $ 84,282
Accounts receivable, net 259,024 307,342
Inventories and supplies 43,564 51,914
Deferred income taxes 38,729 28,554
Other current assets 36,042 49,731
----------- -----------
Total current assets 493,416 521,823
----------- -----------
Property, plant and equipment, net 763,603 772,875
Intangible assets, net 1,727,984 1,798,285
Other assets 28,790 38,885
----------- -----------
Total assets $ 3,013,793 $ 3,131,868
=========== ===========
LIABILITIES:
Current liabilities:
Accounts payable $ 49,575 $ 65,838
Current portion of environmental liabilities 41,218 41,122
Income taxes payable 28,107 24,534
Unearned revenue 70,380 90,953
Accrued other liabilities 154,824 69,211
Current portion of long-term debt 62,223 65,421
----------- -----------
Total current liabilities 406,327 357,079
----------- -----------
Environmental liabilities 340,442 285,634
Deferred income taxes 100,500 92,659
Other long-term liabilities 29,985 9,197
Liabilities subject to compromise 2,481,274 2,500,973
Minority interests 947 1,296
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, par value $1.00 per share; 250,000 shares authorized;
100,784 shares issued and outstanding in 2001 and 2000 100,784 100,784
Additional paid-in capital 1,359,972 1,359,972
Accumulated other comprehensive loss (8,300) (6,666)
Accumulated deficit (1,798,138) (1,569,060)
----------- -----------
Total stockholders' equity (deficit) (345,682) (114,970)
=========== ===========
Total liabilities and stockholders' equity (deficit) $ 3,013,793 $ 3,131,868
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
33
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED AUGUST 31,
-------------------------------------------
2001 2000 1999
----------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (229,078) $(833,191) $(223,155)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary items (5,591) -- --
Non-cash reorganization items 8,272 45,963 --
Equity in undistributed earnings of associated companies -- (1,769) (1,263)
Impairment and other charges 52,884 367,793 11,287
Depreciation and amortization 143,710 169,902 161,314
Provision for uncollectible accounts 13,505 74,337 14,177
Derivative losses (gains) 558 (713) 5,923
Loss on sale of investment -- 4,969 --
Loss on disposal of equipment 2,910 43,813 27,921
Deferred income taxes (17) 8,252 28,448
Change in accounts receivable 33,331 (84,250) (51,500)
Change in accounts payable (14,785) 55,452 45,099
Change in income taxes payable 3,655 (8,840) 61,163
Change in accrued other liabilities 81,453 70,377 (29,056)
Change in environmental liabilities 11,359 31,408 (2,197)
Change in unearned revenue (20,363) (1,914) 4,778
Change in liabilities subject to compromise (1,406) -- --
Change in other, net 19,528 (476) (34,405)
--------- --------- ---------
Net cash provided by (used in) operating activities 99,925 (58,887) 18,534
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash expended on acquisition of businesses -- (27,072) (14,904)
Proceeds from sales of property, plant & equipment 5,209 9,998 5,982
Purchases of property, plant & equipment (71,332) (53,098) (71,827)
Decrease in long-term investments 8,846 11,783 1,783
Proceeds from sale of business -- 31,581 129,124
--------- --------- ---------
Net cash provided by (used in) investing activities (57,277) (26,808) 50,158
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock on exercise of options -- 26 212
Borrowings of long-term debt -- 252,697 236,910
Repayments of long-term debt (l0,080) (67,154) (377,425)
Bank financing fees -- (4,047) (10,303)
Bank overdraft -- (45,244) 39,773
Change in derivative liabilities -- 21,759 40,454
Change in other, net -- 146 --
--------- --------- ---------
Net cash provided by (used in) financing activities (10,080) 158,183 (70,379)
--------- --------- ---------
Effect of exchange rate changes on cash (793) 1,722 (3,564)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 31,775 74,210 (5,251)
Cash and cash equivalents at:
Beginning of year 84,282 10,072 15,323
--------- --------- ---------
End of year $ 116,057 $ 84,282 $ 10,072
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
34
SAFETY-KLEEN CORP.
DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
AND OTHER COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE ACCUMULATED
STOCK CAPITAL INCOME DEFICIT TOTAL
---------- ------------ -------------- ---------- ----------
BALANCE AT AUGUST 31, 1998 $ 87,746 $1,200,047 $ (9,511) $ (512,714) $ 765,568
========== ========== ========== ========== ==========
Comprehensive loss:
Net loss -- -- -- (223,155) (223,155)
Other comprehensive income
(loss):
Foreign currency translation
adjustments -- -- 582 -- 582
Unrealized gain (loss) on
marketable securities -- -- (285) -- (285)
----------
Total comprehensive loss (222,858)
----------
Issuance of shares in payment for
directors' fees 6 87 -- -- 93
Issuance of shares for repurchase
of subordinated convertible
debenture 11,321 138,679 -- -- 150,000
Issuance of shares in payment for
interest on subordinated convertible
debenture 1,545 20,941 -- -- 22,486
Exercise of stock options 18 194 -- -- 212
---------- ---------- ---------- ----------- ----------
BALANCE AT AUGUST 31, 1999 $ 100,636 $1,359,948 $ (9,214) $ (735,869) $ 715,501
========== ========== ========== =========== ==========
Comprehensive loss:
Net loss -- -- -- (833,191) (833,191)
Other comprehensive income
(loss):
Foreign currency translation
adjustments -- -- 2,571 -- 2,571
Unrealized gain (loss) on
marketable securities -- -- (23) -- (23)
----------
Total comprehensive loss (830,643)
----------
Issuance of shares to "non-employees 146 -- -- -- 146
Exercise of stock options 2 24 -- -- 26
---------- ---------- ---------- ----------- ----------
BALANCE AT AUGUST 31, 2000 $ 100,784 $1,359,972 $ (6,666) $(1,569,060) $ (114,970)
========== ========== ========== =========== ==========
Comprehensive loss:
Net loss -- -- -- (229,078) (229,078)
Other comprehensive income
(loss):
Foreign currency translation
adjustments -- -- (2,131) -- (2,131)
Unrealized gain on
marketable securities -- -- 497 -- 497
----------
Total comprehensive loss (230,712)
---------- ---------- ---------- ----------- ----------
BALANCE AT AUGUST 31, 2001 $ 100,784 $1,359,972 $ (8,300) $(1,798,138) $ (345,682)
========== ========== ========== =========== ==========
See accompanying Notes to Consolidated Financial Statements
35
SAFETY-KLEEN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BANKRUPTCY
BUSINESS AND ORGANIZATION
Safety-Kleen Corp. (the "Registrant" or "Safety-Kleen") (collectively referred
to with its subsidiaries as the "Company"), was incorporated in Delaware in 1978
as Rollins Environmental Services, Inc. ("Rollins"), later changed its name to
Laidlaw Environmental Services, Inc. ("LESI") and subsequently changed its name
to Safety-Kleen Corp. Through its Chemical Services and Branch Sales and Service
divisions, 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,
ten Canadian provinces, Puerto Rico, Mexico and Saudi Arabia from approximately
375 collection, processing and other locations.
On May 15, 1997, pursuant to a stock purchase agreement among Rollins, Laidlaw
Inc., a Canadian corporation ("Laidlaw"), and its subsidiary, Laidlaw
Transportation Inc. ("LTI"), Rollins acquired the hazardous and industrial waste
operations of Laidlaw (the "Rollins Acquisition"). As a result of the Rollins
Acquisition, Laidlaw owned 67% of the issued common shares of LESI. Accordingly,
the business combination was accounted for as a reverse acquisition using the
purchase method of accounting, with Rollins being treated as the acquired
company. Coincident with the closing of the Rollins Acquisition, the continuing
legal entity changed its name from Rollins Environmental Services, Inc. to
Laidlaw Environmental Services, Inc.
On May 26, 1998, LESI completed the acquisition of the former Safety-Kleen Corp.
("Old Safety-Kleen"). The acquisition of Old Safety-Kleen has been accounted for
under the purchase method. Effective July 1, 1998, LESI began doing business as
Safety-Kleen Corp. and its stock began trading on the New York Stock Exchange
("NYSE") and the Pacific Exchange, Inc. ("PCX") under the name Safety-Kleen
Corp. and the ticker symbol SK. The stock was suspended from trading on the NYSE
and the PCX on June 12, 2000 and was removed from listing and registration on
the NYSE on July 20, 2000, and the PCX on September 29, 2000. The stock now
trades over the counter as SKLNQ.
BANKRUPTCY
On June 9, 2000, Safety-Kleen and 73 of its domestic subsidiaries (collectively,
the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases")
under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Sub Sections
101-1330, as amended (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). The Chapter 11
Cases are being jointly administered for procedural purposes only, before the
Bankruptcy Court under Case No. 00-2303 (PJW). Excluded from the filing were
certain of Safety- Kleen's non wholly-owned domestic subsidiaries and all
Safety-Kleen's indirect foreign subsidiaries.
The Debtors remain in possession of their properties and assets, and the
management of the Debtors continues to operate their respective businesses as
debtors-in-possession under Sections 1107 and 1108 of the Bankruptcy Code. As
debtors-in-possession, the Debtors are authorized to manage their properties and
operate their businesses, but may not engage in transactions outside the
ordinary course of business without the approval of the Bankruptcy Court.
Under Section 365 of the Bankruptcy Code, subject to the approval of the
Bankruptcy Court, the Debtors may assume or reject executory contracts and
unexpired leases. Parties affected by these rejections may file proofs of claim
with the Bankruptcy Court in accordance with the reorganization process. Claims
for damages resulting from the rejection of executory contracts or unexpired
leases will be subject to separate bar dates, generally thirty days after entry
of the order approving the rejection. At various times since the commencement of
the Chapter 11 Cases, the Bankruptcy Court has approved the Debtors' requests to
reject certain contracts or leases that were deemed burdensome or of no further
value to the Company. As of February 27, 2002, the Debtors had not yet completed
their review of all contracts and leases for assumption or rejection, but
ultimately will assume or reject all such contracts and leases. The Debtors have
until the confirmation of a plan or plans of reorganization to assume or reject
executory contracts, nonresidential real property leases, and certain other
leases. The Debtors cannot presently determine or reasonably predict the
ultimate liability that may result from rejecting such contracts or leases or
from the filings of rejection damage claims, but such rejections could result in
additional liabilities subject to compromise (see Note 11).
Consummation of a plan or plans of reorganization is the principal objective of
the Chapter 11 Cases. A plan of reorganization sets forth the means for
satisfying claims against and interests in the Debtors, including the
liabilities subject to compromise. Generally, pre-petition liabilities are
subject to settlement under such a plan or plans of reorganization, which must
be voted upon by creditors and equity holders and approved by the Bankruptcy
Court. The Debtors have retained Lazard Freres & Co. LLC, an investment bank, as
corporate restructuring advisor to assist them in formulating and negotiating a
plan or plans of reorganization for the Debtors. Although the Debtors expect to
file a reorganization plan or plans as soon as reasonably possible, there can be
no assurance that a reorganization plan or plans will be proposed by the Debtors
or confirmed by the Bankruptcy Court, or that any such plan or plans will be
consummated.
As provided by the Bankruptcy Code, the Debtors initially had the exclusive
right to submit a plan or plans of reorganization for 120 days from the date the
petitions were filed. On October 17, 2000, the Debtors received Bankruptcy Court
approval to extend the exclusive period to file a plan or plans of
reorganization in the Chapter 11 Cases from October 7, 2000, to April 30, 2001,
and extended the Debtors' exclusive right to solicit acceptances of such plan or
plans from December 6, 2000, to June 29, 2001. On May 16, 2001, the Debtors
received
36
Bankruptcy Court approval to further extend the exclusive period to file a plan
or plans of reorganization in the Chapter 11 Cases to September 19, 2001, and
extended the Debtors' exclusive right to solicit acceptances of such plan or
plans to November 19, 2001. On February 11, 2002, the Debtors received
Bankruptcy Court approval to further extend the exclusive period to file a plan
or plans of reorganization in the Chapter 11 Cases to April 30, 2002 and
extended the Debtors' exclusive right to solicit acceptances of the plan or
plans to June 30, 2002.
Currently, it is not possible to predict the length of time the Debtors 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 Bankruptcy Code, post-petition liabilities and pre-petition liabilities
subject to compromise must be satisfied before shareholders can receive any
distribution. The ultimate recovery to shareholders, if any, will not be
determined until the end of the case when the fair value of the Debtors' assets
is compared to the liabilities and claims against the Debtors. There can be no
assurance as to what value, if any, will be ascribed to the common stock in the
bankruptcy proceedings. The Company does not believe the common shareholders
will receive any distribution upon consummation of a plan or plans of
reorganization.
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
As more fully discussed in Note 14, on March 6, 2000, Safety-Kleen announced
that it had initiated an internal investigation ("the Company Investigation") of
its previously reported financial results and certain of its accounting policies
and practices. This investigation followed receipt by Safety-Kleen's Board of
Directors of information alleging possible accounting irregularities that may
have affected the previously reported financial results of the Company.
Following this announcement, PricewaterhouseCoopers LLP, the Company's
independent accountants at that time, notified the Company that it was
withdrawing its previously issued reports of independent public accountants on
the fiscal years 1999, 1998 and 1997 Consolidated Financial Statements. On
September 14, 2000, the Bankruptcy Court approved the Company's motion to engage
Arthur Andersen LLP (i) to act as its independent public accountants; (ii) to
conduct an audit of the Company's Consolidated Financial Statements with respect
to fiscal years 2000, 1999, 1998, and 1997; (iii) to continue assisting with the
Company Investigation; and (iv) to provide other services. The Company restated
its previously reported Consolidated Financial Statements for each of the three
years ended August 31, 1999, 1998 and 1997 in the Company's Form 10-K/A for the
year ended August 31, 2000 filed with the SEC on July 9, 2001.
Numerous class action lawsuits, and two derivative lawsuits were filed against
the Company, certain officers, former directors, and others asserting various
claims under the federal securities laws and certain state statutory and common
laws. The complaints that did name the Company were subsequently amended
eliminating the Company as a defendant and adding certain other defendants,
including Directors of the Company. As discussed in Note 14, the Company is
aware that the SEC and a grand jury convened by the United States Attorney for
the Southern District of New York have undertaken formal investigations with
respect to alleged irregularities relative to the Company's previously issued
Consolidated Financial Statements. The Company is cooperating with each of the
investigations. These investigations have not been completed, and the Company is
currently unable to predict the outcome of these investigations.
The Company incurred approximately $55.3 million and $7.4 million in fiscal 2001
and 2000, respectively, of auditing, non-audit assistance, consulting, legal and
other professional costs associated primarily with (i) the investigation and
restatement of its Consolidated Financial Statements in fiscal 1997 through
1999; (ii) the preparation of its Consolidated Financial Statements for fiscal
2000; (iii) a comprehensive review of the Company's major fiscal 2001 general
ledger accounts; (iv) the preparation of its unaudited Consolidated Financial
Statements for the first nine months of fiscal 2001 and related Form 10-Q/A; (v)
other finance and accounting services; and (vi) litigation and compliance
matters and expenses related to the various investigations concerning the
Company's previously reported financial results. These costs are classified as
"Selling, general and administrative" expenses in the Company's consolidated
statements of operations.
3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the basis of presentation and the significant accounting policies
followed in the preparation of these consolidated Financial Statements is as
follows:
BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets, and payment of liabilities in the ordinary course of business, and do
not reflect adjustments that might result if the Debtors are unable to continue
as a going concern. The Debtors' history of significant losses, stockholders'
deficit and their Chapter 11 Cases, as well as issues related to compliance
with debt covenants and financial assurance requirements discussed in Notes 10
and 14, raise substantial doubt about the Company's ability to continue as a
going concern. The Debtors intend to file a plan or plans of reorganization with
the Bankruptcy Court. Continuing as a going concern is dependent upon, among
other things, the Debtors' formulation of a plan or plans of reorganization, the
success of future business operations, and the generation of sufficient cash
from operations and financing sources to meet the Company's obligations. The
Consolidated Financial Statements do not reflect: (i) the realizable value of
assets on a liquidation basis or their availability to satisfy liabilities; (ii)
aggregate pre-petition liability amounts that may be allowed for unrecorded
claims or contingencies, or their status or priority; (iii) the effect of any
changes to the Debtors' capital structure or in the Debtors' business operations
as the result of an approved plan or plans of reorganization; or (iv)
adjustments to the carrying value of assets (including goodwill and other
intangibles) or liability amounts that may be necessary as a result of actions
by the Bankruptcy Court.
37
The Company's Consolidated Financial Statements as of and for the fiscal years
ended August 31, 2001 and 2000 have been presented in conformity with SOP 90-7.
This statement requires, among other things, a segregation of liabilities
subject to compromise by the Bankruptcy Court as of the bankruptcy filing date
and identification of all transactions and events that are directly associated
with the reorganization of the Company. In recording liabilities subject to
compromise, the Company must make certain estimates relating to the amounts it
expects to be allowed in the bankruptcy proceeding. The actual amounts required
to settle these claims could significantly differ from the amounts currently
recorded.
CONSOLIDATION
The accompanying Consolidated Financial Statements include the accounts of
Safety-Kleen and all of its majority-owned subsidiary companies. All significant
intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and term deposits in
investments with initial maturities of three months or less. These investments
are stated at cost, which approximates market value.
RESTRICTED FUNDS HELD BY TRUSTEES
Restricted funds held by trustees are included in other assets and consist
principally of financial assurance funds deposited in connection with landfill
final closure and post-closure obligations, amounts held for landfill and other
construction arising from industrial revenue financings, and amounts held to
establish a GSX Contribution Fund for the Safety-Kleen (Pinewood), Inc. facility
("Pinewood Facility") (see Note 14). These amounts are principally invested in
fixed income securities of federal, state and local governmental entities and
financial institutions. Realized investment earnings and trust expenses are
recorded currently in the consolidated statements of operations.
The Company considers its landfill closure, post-closure, construction and
escrow investments totaling $4.1 million and $12.4 million at August 31, 2001
and 2000, respectively, to be held to maturity. The Company has the ability and
management has the intent to hold investment securities to maturity. Reductions
in market value considered by management to be other than temporary are reported
as a realized loss and reduction in the cost basis of the security. At August
31, 2001 and 2000, the aggregate fair value of these investments approximate
their net book value and substantially all of these investments mature within
one year. The GSX Contribution Fund for the Pinewood Facility totaling $20.2
million and $19.1 million at August 31, 2001 and 2000, respectively, has been
treated as if it were available for sale (see Note 14). Accordingly, unrealized
gains and losses resulting from changes between the cost basis and fair value of
the securities, in this fund, are recorded in the consolidated statements of
changes in stockholders equity (deficit) as adjustments to other comprehensive
income (loss).
Additionally, $15.0 million of the cash proceeds resulting from the Company's
fiscal 2000 disposition of its 44% interest in Safety-Kleen Europe Limited (see
Note 13) and its Rosemount facility had been restricted by order of the
Bankruptcy Court, for use in securing certain insurance coverages previously
provided by Laidlaw, as well as reimbursing certain costs of the agent for the
pre-petition lenders. As a result of these restrictions, the proceeds have been
included in other current assets in the accompanying consolidated balance sheet
as of August 31, 2000. During fiscal 2001, the entire amount of the proceeds
were used to pay certain pre-petition debt and to pay insurance and other
professional fees related to bankruptcy.
INVENTORIES AND SUPPLIES
Inventories consist primarily of solvent, oil and oil products, drums,
associated products for resale, supplies and repair parts, which are valued at
the lower of cost or market as determined on a first-in, first-out basis.
Inventories also include precious metals which are recorded at market value. The
Company periodically reviews its inventories for obsolete or unsaleable items
and adjusts its carrying value to reflect estimated realizable values.
INVESTMENTS IN AFFILIATES
Investments in affiliates over which the Company has significant influence are
accounted for by the equity method and included in other assets in the
accompanying consolidated balance sheets. Equity earnings are recorded to the
extent that any increase in the carrying value is determined to be realizable.
The Company held no significant investment interests in equity method investees
at August 31, 200l and 2000.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Expenditures for major
renewals and improvements, which extend the life or usefulness of the asset, are
capitalized. Items of an ordinary repair or maintenance nature, as well as major
maintenance activities at incinerators, are charged directly to operating
expense as incurred. The Company capitalizes environmentally related
expenditures which extend the life of the related property or mitigate or
prevent future environmental contamination.
During the construction and development period of an asset, the costs incurred,
including applicable interest costs, are classified as construction-in-process.
Once an asset has been completed and placed in service, it is transferred to the
appropriate category and depreciation
38
commences. In addition, the Company capitalizes applicable interest costs
associated with partially developed landfill sites, which are included in land,
landfill sites and improvements (see Note 6).
Depreciation and amortization of other property, plant and equipment is provided
on a straight-line basis over their estimated useful lives, with the exception
of landfill assets, which is provided on a units of production or capacity
basis. Leasehold improvements are capitalized and amortized over the shorter of
the improvement life or the remaining term of the lease plus renewal period.
INTANGIBLE ASSETS
The Company evaluates the excess of the purchase price over the amounts assigned
to tangible assets and liabilities (excess purchase price) associated with each
of its acquisitions to value the identifiable intangible assets. Any portion of
the excess purchase price that cannot be separately identified represents
goodwill. The Company evaluates the estimated economic lives of each intangible
asset, including goodwill, and amortizes the asset over that life.
Customer list -- The Company has evaluated the value associated with the
customer lists of acquired companies. The value is based on a number of
significant assumptions, including category of customer, estimated duration of
customer relationship and projected margins from existing customers. Based on
its evaluation, the Company believes the acquired customer lists have estimated
lives, ranging from 11 to 30 years, which it uses to amortize these assets.
Software -- The Company has evaluated the value associated with the software of
acquired companies. The value is based on a number of significant assumptions,
primarily the cost to replace the existing software. The Company believes the
acquired software has an estimated life of 5 years, which it has used to
amortize these assets.
Permits -- The Company has reflected the excess of the fair value of
non-landfill facilities over the tangible assets acquired as permits. The
Company has determined the value of acquired permits based on either a
discounted cash flow or other appraisal method. The Company has evaluated and
determined that the acquired non-landfill permits have estimated economic lives
in excess of 40 years, but believes 40 years is an appropriate period for
amortization of these assets. Accordingly, the Company is amortizing the value
of permits over a period of 40 years.
Goodwill -- The remaining excess purchase price of acquired companies, after
allocation to permits and the identified intangible assets discussed above, has
been classified as goodwill. The Company considers legal, contractual,
regulatory, obsolescence and competitive factors in determining the useful life
and amortization period of this intangible asset. The Company believes the
goodwill associated with the acquired companies has estimated lives ranging from
40 years to an undeterminable life. As such, the Company has amortized the
goodwill over 40 years.
Goodwill is reviewed for impairment when events or circumstances indicate it may
not be recoverable. If it is determined that goodwill may be impaired and the
estimated undiscounted future cash flows, excluding interest, of the underlying
business are less than the carrying amount of the goodwill, then an impairment
loss is recognized. The impairment loss is based on the difference between the
fair value of the underlying business and the carrying amount. The method of
determining fair value differs based on the nature of the underlying business.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of", the Company periodically
evaluates whether events and circumstances have occurred that indicate that the
remaining useful life of any of its tangible and intangible assets may warrant
revision or that the carrying amounts might not be recoverable. When factors
indicate that the tangible and intangible assets should be evaluated for
possible impairment, the Company uses an estimate of the future undiscounted
cash flows generated by the underlying assets to determine if a write-down is
required. If a write-down is required, the Company adjusts the book value of the
underlying goodwill and then the book value of the impaired long-lived assets to
their estimated fair values. The related charges are recorded in impairment and
other charges in the accompanying consolidated statements of operations (see
Note 17).
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the life of the related debt
instrument and are included in other assets in the accompanying consolidated
balance sheets as of August 31, 2001 and 2000. Related amortization expense was
$3.6 million, $4.3 million and $48.4 million in fiscal 2001, 2000, and 1999
respectively. As a result of the Chapter 11 Cases discussed in Note 1, financing
costs of $41.5 million related to pre-petition debt were expensed in fiscal 2000
as reorganization items.
LANDFILL ACCOUNTING AND ENVIRONMENTAL LIABILITIES
Environmental liabilities include accruals for the estimates of the Company's
obligations associated with:
o Regulatory mandated landfill cell closure, final closure and post-closure
activities. The Company accrues cell closure costs over the life of the
cell, and accrues final closure and post-closure costs over the life of the
landfill, as capacity is consumed.
39
o Regulatory mandated closure and post-closure activities for facilities
other than landfills, such as incinerators. The Company accrues these costs
when management commits to a definitive plan of closure with respect to the
facility.
o Costs associated with remedial environmental matters at the Company's
facilities. The Company accrues for these costs on a site-by-site basis,
when management deems such obligations to be probable and reasonably
estimable.
o Sites named on the United States Environmental Protection Agency's National
Priorities List ("Superfund") with which the Company is allegedly
connected. The Company typically accrues its estimate of its obligations
related to these sites no later than the completion of a remedial
investigation and/or feasibility study.
Accruals are adjusted if, and as, further information relative to the underlying
obligations develop or circumstances change. Changes in estimated landfill cell
closure, final closure and post-closure liabilities are recognized
prospectively. Changes in the Company's estimates of its obligations relative to
non-landfill closure and post-closure activities, remedial situations and
Superfund sites are recorded in the period in which the estimates change.
In conjunction with the acquisitions of certain facilities, the Company has
obtained varying amounts and types of indemnification from potential
environmental liabilities existing at the time of acquisition. Such indemnities
typically cover all or a portion of the costs associated with the remediation of
such pre-existing environmental liabilities, and may be for a limited period of
time. No liabilities are recorded at the acquisition date if it is probable that
the indemnifying party has the intent and financial ability to perform under
those indemnities. Indemnifications contractually required of Laidlaw have not
been considered in the determination of the Company's environmental liabilities
(see Note 23).
Site costs -- Site costs include the costs of landfill site acquisition,
permitting, preparation and improvement. These amounts are recorded at cost,
which includes capitalized interest, as applicable. Site costs, net of
amortization, are combined with management's estimate of the costs required to
complete construction of the landfill to determine the amount to be amortized
over the remaining estimated useful economic life of a site. Amortization of
site costs is recorded on a units-of-consumption basis, such that the site costs
should be completely amortized at the date the landfill ceases accepting waste.
Final closure and post-closure obligations for landfills -- Final closure costs
include the costs required to cap the final cell of the landfill and the costs
required to dismantle certain structures for landfills and other landfill
improvements. In addition, final closure costs include regulatory mandated
groundwater monitoring, leachate management, financial assurance and other costs
incurred in the closure process. Post-closure costs include substantially all
costs that are required to be incurred subsequent to the closure of the
landfill, including, among others, groundwater monitoring, leachate management,
and financial assurance. Regulatory post-closure periods are generally 30 years
after landfill closure, but may be as long as 100 years after landfill closure.
Final closure and post-closure obligations are discounted. Final closure and
post-closure obligations are accrued on a units-of-consumption basis, such that
the present value of the final closure and post-closure obligations is accrued
at the date the landfill discontinues accepting waste.
Landfill capacity -- Landfill capacity, which is the basis for the amortization
of site costs and for the accrual of final closure and post-closure obligations,
represents total permitted airspace, plus unpermitted airspace that management
believes is probable of ultimately being permitted based on established
criteria. The Company applies a comprehensive set of criteria for evaluating the
probability of obtaining a permit for future expansion airspace at existing
sites, which provides management a sufficient basis to evaluate the likelihood
of success of unpermitted expansions. Those criteria are as follows:
40
o Personnel are actively working to obtain the permit or permit modifications
(land use, state and federal) necessary for expansion of an existing
landfill,and progress is being made on the project.
o At the time the expansion is included in the Company's estimate of the
landfill's useful economic life, it is probable that the required approvals
will be received within the normal application and processing time periods
for approvals in the jurisdiction in which the landfill is located. The
Company expects to submit the application within the next year and expects
to receive all necessary approvals to accept waste within the next five
years.
o The owner of the landfill or the Company has a legal right to use or obtain
land associated with the expansion plan.
o There are no significant known political, technical, legal, or business
restrictions or issues that could impair the success of such expansion.
o A financial feasibility analysis has been completed, and the results
demonstrate that the expansion has a positive financial and operational
impact such that management is committed to pursuing the expansion.
o Additional airspace and related additional costs, including permitting,
final closure and post-closure costs, have been estimated based on the
conceptual design of the proposed expansion.
Exceptions to the criteria set forth above may be approved through a
landfill-specific approval process that includes prompt approval from
Safety-Kleen's Chief Financial Officer and review by the Audit Committee of the
Board of Directors. As of August 31, 2001 and 2000, there were two unpermitted
expansions included in the Company's landfill accounting model, which together
represented approximately 1% of the Company's remaining airspace at these dates.
Neither of these expansions represented exceptions to the Company's established
criteria.
As of August 31, 2001, the Company has 10 active landfill sites (including the
Company's non-commercial landfill), which have estimated remaining lives (based
on anticipated waste volumes) and property, plant and equipment, net, as follows
($ in thousands):
REMAINING NUMBER OF PROPERTY, PLANT
LIVES (YEARS) SITES AND EQUIPMENT, NET
- ------------- ---------- ------------------
0-5 3 $19,984
6-10 - -
11-20 4 40,803
21-40 - -
40 + 3 16,862
--- -------
10 $77,649
=== =======
Amortization of cell construction costs and accrual of cell closure obligations
- -- Landfills are typically comprised of a number of cells, which are constructed
within a defined acreage (or footprint). The cells are typically discrete units,
which require both separate construction and separate capping and closure
procedures. Cell construction costs are the costs required to excavate and
construct the landfill cell. These costs are typically amortized on a
units-of-consumption basis, such that they are completely amortized when the
specific cell ceases accepting waste. Cell closure costs, which are the costs
required to construct the cell cap, are accrued over the life of the cell. Those
costs are typically accrued on a units-of-consumption basis, such that the total
amount required to cap the cell is accrued when that specific cell ceases
accepting waste. In some instances, the Company has landfills that are
engineered and constructed as "progressive trenches." In progressive trench
landfills, a number of contiguous cells form a progressive trench. In those
instances, the Company amortizes cell construction costs, and accrues cell
closure obligations, over the airspace within the entire trench, such that the
cell construction costs will be fully amortized, and the cell closure costs will
be fully accrued, when that specific progressive trench ceases accepting waste.
Final closure and post-closure obligations for facilities other than landfills
- -- Final closure costs include costs required to dismantle and decontaminate
certain structures, financial assurance and other costs incurred during the
closure process. Post-closure costs, if required, include associated maintenance
and monitoring costs and financial assurance costs as required by the closure
permit. Post-closure periods are performance based and are not generally
specified in terms of years in the closure permit, but may generally range from
10 to 30 years or more. These obligations generally are not discounted.
Remedial liabilities, including Superfund liabilities -- Remedial liabilities
include the costs of removal or containment of contaminated material, the
treatment of potentially contaminated groundwater and maintenance and monitoring
costs necessary to comply with regulatory requirements.
Discounting of long-term environmental related liabilities -- Costs of future
expenditures for landfill final closure and post-closure are discounted based on
management's expectations of when it will incur the expenditure. Generally,
remediation obligations are not discounted. However, in limited instances,
certain remediation obligations are discounted if they are closely connected to
the regulatory post-closure
41
obligations and/or the amount and timing of the cash payments are fixed and
reliably determinable. The interest accretion relative to these discounted
liabilities is reflected in operating expenses.
CREDIT CONCENTRATION
Concentration of credit risks in accounts receivable is limited due to the large
number of customers comprising the Company's customer base throughout North
America. The Company performs periodic credit evaluations of its customers. The
Company establishes an allowance for uncollectible accounts based on the credit
risk applicable to particular customers, historical trends and other relevant
information.
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Prior to fiscal 2001, certain of the Company's debt agreements required the use
of interest rate swap agreements to minimize the impact of interest rate
fluctuations on floating interest rate long-term borrowings. As such, the
Company entered into pay-fixed swap agreements which hedged the exposures from
floating-rate interest cash flows on debt, with terms to ten years through the
termination of the swap. These swaps were accounted for as qualifying hedges as
described below. In addition, the Company also utilized a receive-fixed swap as
a hedge against fair value changes of fixed-rate long-term debt. The Company
also entered into derivative contracts for trading purposes (mark-to-market
contracts), certain of which produced immediate cash flows. The following is a
summary of the derivatives that the Company has used and the related accounting
treatment:
Qualifying hedges -- Instruments used as hedges must be effective at managing
the risk associated with the exposure being hedged and must be designated as a
hedge at the inception of the contract. Accordingly, changes in fair values or
cash flows of these hedge instruments must have a high degree of offsetting
effect on changes in fair values or cash flows of the underlying hedged items.
Interest rate swaps that meet these criteria are accounted for under the
deferral or accrual method. If a derivative does not meet these criteria, or if
the designated hedged item ceases to exist, then the Company subsequently
accounts for the derivative at its fair value, with gains or losses on
derivative contracts recognized through earnings. During fiscal years 1997
through 2000, it was not always possible to obtain documentation to support
hedge accounting. Therefore, the following criteria were used to identify those
derivative instruments to which hedge accounting (i.e. accrual accounting) would
be applied:
o The derivative's notional amount must not exceed the aggregate principal of
hedged debt outstanding.
o At-market interest rate swaps are accounted for as an individual contract
such that the swap is entirely treated as a hedge or entirely marked to
fair value.
o At-market swap maturities (plus extensions) must be no greater than ten
years.
o The floating rate on the hedged debt and floating leg of the at-market
interest rate swap must reset to market at least every six months based on
a LIBOR index.
Swap termination/amortization -- If a terminated interest rate swap received
hedge accounting before termination, the fair value at the termination date is
deferred as a component of the hedged item and amortized over the remaining swap
life if either the debt remains outstanding or it is probable that the existing
debt will be replaced. Otherwise, the fair value at the termination date will be
reported in earnings at that date. If the terminated swap was already being
reported at fair value, then the change in fair value of the terminated swap
since the previous reporting period is recorded in earnings.
Swap modification -- A modification of an existing interest rate swap is
considered a termination of the existing swap and the execution of a new
interest rate swap.
Mark-to-market contracts -- All noninterest rate swap derivatives (e.g.,futures,
forwards and options primarily based on interest rates, but that include other
underlyings), as well as interest rate swaps not meeting the qualifying hedge
requirements discussed above, are measured at fair value through earnings from
inception to maturity.
Written options other than termination/extension clauses -- All interest rate
swaps with written option components attributable to terms other than permanent
terminations or extensions are considered written options in their entirety and
are measured at fair value through earnings from inception to maturity.
Off-market swaps -- Certain interest rate swaps had terms at inception that
deviated from market, which caused their fair value to not equal zero at the
inception of the contracts. For these instruments, the Company segregated the
contract between a fixed-rate borrowing and an at-market swap. The borrowing is
repaid through allocating a portion of the settlement payments under the actual
swap. The portion of the contract settlements that generates the cash flows
arising from the off-market terms is recorded as interest expense and a
reduction of the fixed-rate borrowing using the effective interest method. The
remaining cash flows are reported as an at-market swap, which is treated as a
qualifying hedge if it meets the criteria described above or as a mark-to-market
contract if it does not meet the criteria.
42
Financial statement presentation -- Prior to their involuntary termination, the
fair value of derivative instruments accounted for as mark-to-market contracts
were included in other current assets for those with a positive fair value, or
in derivative liabilities for those with a negative fair value. The net book
values of amortizing fixed-rate borrowings that result from off-market swaps are
included in derivative liabilities. At August 31, 2001 and 2000, all derivative
liabilities are included in liabilities subject to compromise. Interest income
and expense that resulted from the settlement of all interest rate swap
transactions, as well as interest expense on any segregated fixed-rate
borrowings, were recorded in the applicable interest income or expense caption
in the consolidated statements of operations. Gains and losses on transactions
not receiving hedge accounting were recorded in derivative (losses) gains.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133", which delayed the original effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which amends SFAS No. 133. SFAS No.
138 addresses a limited number of issues related to the implementation of SFAS
No. 133. On September 1, 2001, the Company adopted the provisions of SFAS No.
133, as amended. The adoption of SFAS No. 133 had no impact on the previously
terminated interest rate derivatives or related derivative liabilities reported
as liabilities subject to compromise.
On December 15, 2000, the Bankruptcy Court approved a multi-year marketing and
distribution agreement between the Company and SystemOne Technologies, Inc.
("SystemOne"). A warrant received in conjunction with this agreement is being
accounted for as a derivative under SFAS No. 133. The warrant does not qualify
for hedge accounting treatment, and as such, changes in the fair value of the
warrant are reported in earnings.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Consolidated Financial Statements." SAB
No. 101 requires that four basic criteria must be met before revenue can be
recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has
occurred or services have been rendered; (iii) the fee is fixed and
determinable; and (iv) collectibility is reasonably assured.
The Company recognizes revenue upon disposal for its waste collection and
disposal activities, and over the applicable service intervals for its parts
cleaner and related businesses. Consulting and oil collection services revenue
is recognized when services are performed. Revenue from product sales is
recognized upon delivery to the customers. Unearned revenue has been recorded
for services billed but not earned in the accompanying consolidated balance
sheets. Direct costs associated with the handling and transportation of waste
prior to disposal and other variable direct costs associated with the Company's
parts cleaner and related businesses are capitalized as a component of other
current assets in the accompanying consolidated balance sheets and expensed when
the related revenue is recognized. Deferral periods related to unearned revenue
and the related direct costs typically range from one to six months.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company has elected to apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees", in accounting for its stack option plans. Accordingly, no
compensation cost has been recognized because the option exercise price of all
options granted was equal to the market price of the underlying stock on the
date of the grant. The Company has provided the pro forma disclosure of the fair
value of options granted as required by SFAS No. 123 (see Note 20).
INCOME TAXES
Income taxes are calculated in accordance with SFAS No, 109, "Accounting for
Income Taxes". Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts. Future tax benefits, such as net operating loss
carryforwards, are recognized to the extent that realization of such benefits is
more likely than not.
FOREIGN CURRENCY
Foreign subsidiary balances are translated according to the provisions of SFAS
No. 52, "Foreign Currency Translation". The functional currency of each foreign
subsidiary is in its respective local currency. Assets and liabilities are
translated to U.S. Dollars at the exchange rate in effect at the balance sheet
date and revenue and expenses at the average exchange rate for the year. Gains
and losses from the translation of the Consolidated Financial Statements of the
foreign subsidiaries into U.S. dollars are included in stockholders' deficit as
a component of other comprehensive income (loss).
43
Gains and losses resulting from foreign currency transactions are recognized in
other (expense) income in the accompanying consolidated statements of
operations. The Company recognized a loss from foreign currency transactions of
$1.0 million in fiscal 2001, a gain of $0.5 million in fiscal 2000 and a loss of
$1.3 million in fiscal 1999. Recorded balances, that are denominated in a
currency other than the functional currency, are adjusted to the functional
currency using the exchange rate at the balance sheet date.
LOSS PER SHARE
Basic and diluted loss per share are calculated according to the provisions of
SFAS No. 128, "Earnings per Share". Basic loss per share excludes any dilutive
effects of options and convertible securities. Basic loss per share is computed
using the weighted average number of common shares outstanding during the year.
Diluted loss per share is computed using the weighted average number of common
and common stock equivalent shares outstanding during the period. Common stock
equivalent shares are excluded from the computation if their effect is
antidilutive. For all periods presented, the effect of the Company's common
stock options and subordinated convertible debenture are excluded from the
dilutive loss per share calculation since inclusion of such items would be
antidilutive. At August 31, 2001, 2000, and 1999 there were 584,650, 1,046,863
and 1,200,988 options to purchase shares of common stock at a weighted average
exercise price of $13.90, $13.84 and $13.90 per share, respectively.
USE OF ESTIMATES
The preparation of the Consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the Consolidated Financial Statements and the reported amounts of
revenue and expenses during the reporting period. Certain estimates require
management's judgement, and when applied, materially effect the Company's
Consolidated Financial Statements. The Company considers the "Basis of
Presentation" (see above), environmental liabilities, asset impairments,
litigation contingencies, Safety-Kleen (Pinewood), Inc. and recent accounting
developments to include estimates that required or will require management's
judgement. These estimates involve matters that are inherently uncertain in
nature and have a material effect on the Consolidated Financial Statements.
Actual results could differ materially from those estimates.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 141 also specifies criteria for
intangible assets acquired in a business combination to be recognized and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company is required to adopt the provisions of
SFAS No. 141 immediately for new transactions and SFAS No. 142 at the earlier of
its emergence from bankruptcy or September 1, 2002. Early adoption of SFAS No.
142 is permitted.
The Company's existing goodwill and intangible assets will continue to be
amortized prior to the adoption of SFAS No. 142. Upon adoption of SFAS No. 142,
the Company must evaluate its existing intangible assets and goodwill. Upon
adoption of SFAS No. 142, the Company will be required to reassess the useful
lives and residual values of all recorded intangible assets, and make any
necessary amortization period adjustments by the end of the second fiscal
quarter following adoption. Additionally, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS No. 142 by the end of the second fiscal quarter following adoption. Any
impairment loss will be measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle.
As of September 1, 2002, the Company expects to have unamortized goodwill of
approximately $1.2 billion, which will be subject to the transition provisions
of SFAS No. 142. Amortization expense related to goodwill and other intangible
assets was $71.4 million, $73.4 million and $74.3 million for each of the three
fiscal years ended August 31, 2001, 2000 and 1999, respectively. The Company
believes it will likely incur a significant writedown in the value of its
intangible assets at the earlier of its emergence from bankruptcy, as provided
by SOP 90-7, or the adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 will require, upon adoption, that the Company
recognize as a component of asset cost, the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. Under this statement, the
liability is discounted and accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. SFAS No. 143 is effective for Consolidated Financial
Statements issued for fiscal years beginning after June 15, 2002. The Company
will be required to adopt SFAS No. 143 at the earlier of its emergence from
bankruptcy or September 1, 2002. The Company is currently in the process of
evaluating the impact of SFAS No. 143; however, the adoption of this standard is
expected to result in the recognition of additional assets and liabilities, and
may result in a significant charge to operations in the period of adoption.
44
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supersedes FASB statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to he Disposed Of" and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" for the disposal of a segment of a business
(as previously defined in that opinion). SFAS No. 144 is effective for
Consolidated Financial Statements issued for fiscal years beginning after
December 15, 2001. The Company will be required to adopt SFAS No. 144 at the
earlier of its emergence from bankruptcy or September 1, 2002. The new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. The Company is currently in the process of evaluating the potential
impact that the adoption of SFAS No. 144 will have on its consolidated financial
position and results of operations.
OTHER MATTERS
Certain prior year amounts have been reclassified to conform to current year
presentation.
4. RESTRICTIONS ON CASH AND CASH EQUIVALENTS
Cash and cash equivalents of approximately $41 million and $8 million were held
by the Company's Canadian operations as of August 31, 2001 and 2000,
respectively. The Company's ability to utilize cash held by Canadian operations
for domestic operating, capital expenditure, financial assurance and
environmental liability requirements is limited as a result of the bankrupt
status of the Debtors, the requirements of the Senior Credit Facility and tax
consequences.
5. ACCOUNTS RECEIVABLE
Accounts receivable at August 31, 2001, and 2000 consist of the following ($ in
thousands):
2001 2000
------- --------
Trade accounts receivable $298,946 $361,078
Accrued revenue 20,293 15,345
Other receivables 9,735 16,172
Allowance for uncollectible accounts (69,950) (85,253)
-------- --------
$259,024 $307,342
======== ========
6. PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment at August 31, 2001 and 2000 consist of the
following ($ in thousands):
RANGE OF
ESTIMATED USEFUL
2001 2000 LIVES
---------- ---------- -----------------
Land $ 76,413 $ 80,007 N/A
Landfill sites and improvements 194,309 191,607 0-126 years
Buildings 229,763 238,599 20-40 years
Machinery and equipment 581,945 530,482 3-40 years
Lesser of useful
Leasehold improvements 19,977 19,437 life or lease term
Construction in process 18,242 11,551 N/A
---------- ----------
Total property, plant and equipment 1,120,649 1,071,683
Less: Accumulated depreciation and amortization (357,046) (298,808)
---------- ----------
Property, plant and equipment, net $ 763,603 $ 772,875
========== ==========
Machinery and equipment includes the cost of Company-owned parts cleaner service
machines placed at customers' locations as part of the Company's parts cleaner
service offering, as well as such machines and replacement parts on-hand for
future placement at customers' locations. Depreciation commences when a unit is
placed in service at a customer location. The combined net book value of such
machines was $94.7 million and $77.4 million at August 31, 2001 and 2000,
respectively.
Depreciation and amortization expense related to property, plant and equipment
was $72.4 million, $96.5 million and $87.0 million in fiscal 2001, 2000 and
1999, respectively.
45
Included within property, plant and equipment is an administrative office
building held for sale, which was the former headquarters of Old Safety-Kleen in
Elgin, Illinois. The building, including land and related improvements, has been
recorded at its estimated fair value, less estimated costs to sell, of
approximately $9.6 million and $17.0 million, as of August 31, 2001 and 2000,
respectively.
During fiscal 2001, the Company had no capitalized interest costs, as
contractually required interest payments have been stayed by bankruptcy. During
fiscal 2000 and 1999, the Company capitalized total interest costs of $1.2
million and $2.4 million, respectively.
7. INTANGIBLE ASSETS
Intangible assets at August 31, 2001 and 2000 consist of the following ($ in
thousands):
2001 2000
----------- ------------
Customer lists $ 220,000 $ 220,000
Software 50,000 50,000
Permits, non-landfill 384,590 384,010
Goodwill 1,35l,373 1,352,993
----------- ------------
Total intangible assets 2,005,963 2,007,003
Less: accumulated amortization (277,979) (208,718)
----------- ------------
Intangible assets, net $ 1,727,984 $ 1,798,285
=========== ============
The amortization expense associated with customer lists was $12.7 million in
each of fiscal 2001, 2000 and 1999. The amortization expense associated with
software was $10.0 million in each of fiscal 2001, 2000 and 1999. The
amortization expense associated with non-landfill permits was $12.5 million in
fiscal 2001 and $12.2 million in each of fiscal 2000 and 1999. The amortization
expense associated with goodwill was $36.1 million, $38.5 million, and $39.4
million in fiscal 2001,2000 and 1999, respectively.
8. ACCRUED OTHER LIABILITIES
Accrued other liabilities at August 31, 2001 and 2000 consist of the following
($ in thousands):
2001 2000
----------- ------------
$ 9,614 $ 2,062
39,491 28,387
42,658 1,540
16,061 7,408
15,648 10,963
31,352 18,851
----------- ------------
$ 154,824 $ 69,211
=========== ============
Included in accrued other is the current portion of capital lease obligations of
$4,641; the long-term portion of capital lease obligations is classified in
other long-term liabilities in the accompanying consolidated balance sheets.
9. CLOSURE, POST-CLOSURE AND ENVIRONMENTAL REMEDIATION LIABILITIES
The Company records environmentally related accruals for both its landfill and
non-landfill operations. See Note 3 for further discussion of the Company's
methodology for estimating and recording these accruals.
Final closure and post-closure liabilities -- The Company has material financial
commitments for the costs associated with requirements of the United States
Environmental Protection Agency (the "EPA"), and the comparable regulatory
agency in Canada for the final closure and post-closure activities at the
majority of its facilities. In the United States, the final closure and
post-closure requirements are established under the standards of the EPA, and
are implemented and applied on a state-by-state basis. Estimates for the cost of
these activities are developed by the Company's engineers, accountants and
external consultants, based on an evaluation of site-specific facts and
circumstances, including the Company's interpretation of current regulatory
requirements and proposed regulatory changes. Such estimates may change in the
future due to various circumstances including, but not limited to, permit
modifications, changes in legislation or regulations, technological changes and
results of environmental studies. Final closure and post-closure plans are
established in accordance with the individual site permit requirements. Landfill
post-closure periods are generally expected to be for a period of 30 years after
closure, but may extend to a period of 100 years. See Note 14 for a discussion
of the Pinewood Facility.
46
For purchased landfills, the Company assesses and records the present value of
the estimated closure and post-closure liability based upon the estimated final
closure and post-closure costs and the percentage of airspace consumed as of the
purchase date. Thereafter, the difference between the liability recorded at the
time of acquisition and the present value of total estimated final closure and
post-closure costs to be incurred is accrued prospectively on a units of
consumption basis over the estimated useful economic life of the landfill.
Remedial liabilities including Superfund liabilities -- The Company periodically
evaluates potential remedial liabilities at sites that it owns or operates and
at sites to which it has transported or disposed of waste, including 55
Superfund sites as of February 28, 2002. The majority of the issues at Superfund
sites relate to allegations that the Company, or its predecessors, transported
waste to the facilities in question, often prior to the acquisition of the
alleged potentially responsible party ("PRP") by Safety-Kleen. The Company
periodically reviews and evaluates sites requiring remediation, including
Superfund sites, giving consideration to the nature (i.e., owner, operator,
transporter or generator) and the extent (i.e., amount and nature of waste
hauled to the location, number of years of site operations or other relevant
factors) of the Company's alleged connection with the site, the regulatory
context surrounding the site, the accuracy and strength of evidence connecting
the Company to the location, the number, connection and financial ability of
other named and unnamed PRPs and the nature and estimated cost of the likely
remedy. Where the Company concludes that it is probable that a liability has
been incurred, provision is made in the Consolidated Financial Statements, based
upon management's judgment and prior experience, for the Company's best estimate
of the liability. Such estimates, which are inherently subject to change, are
subsequently revised if and when additional information becomes available.
Revisions to remediation reserve requirements may result in upward or downward
adjustments to income from operations in any given period. The Company believes
that its extensive experience in the environmental services business, as well as
its involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. It is reasonably possible that
technological, regulatory or enforcement developments, the results of
environmental studies or other factors could necessitate the recording of
additional liabilities and/or the revision of currently recorded liabilities
that could be material. The impact of such future events cannot be estimated at
the current time.
Discounted environmental liabilities -- When the Company believes that both the
amount of a particular environmental liability and the timing of the payments
are fixed or reliably determinable, its cost in current dollars is inflated
using estimates of future inflation rates (2.9% at each of August 31, 2001 and
2000) until the expected time of payment, then discounted to its present value
using a risk-free discount rate (5.8% at each if August 31, 2001 and 2000). The
portion of the Company's recorded environmental liabilities (including closure,
post-closure and remedial obligations) that is not inflated or discounted was
approximately $278.0 million and $236.0 million at August 31, 2001 and 2000,
respectively. Had the Company not discounted any portion of its liability, the
amount recorded would have been increased by approximately $122.9 million and
$132.1 million at August 31, 2001 and 2000, respectively. The Company estimates
it will provide $213.9 million in additional environmental reserves (including
the inflation and discount factors referred to above) over the remaining site
lives of its facilities based on current estimated costs.
The Company has recorded liabilities for closure, post-closure and remediation
obligations as of August 31, 2001 and 2000 as follows ($ in thousands):
<Table>
<Caption>
2001 2002
-------- --------
Current portion of environmental liabilities $ 41,218 $ 41,122
Non-current portion of environmental liabilities 340,442 285,634
Balances included in liabilities subject to compromise
(see Note 11) 11,096 9,579
-------- --------
Total $392,756 $336,335
======== ========
</Table>
In the following table, reserves for environmental matters are classified as of
each balance sheet date based on their classification at August 31, 2001.
Reserves for closure, post-closure and remediation as of August 31, 2001 and
2000, respectively, are as follows ($ in thousands):
<Table>
<Caption>
2001 2002
-------- --------
Landfill facilities:
Cell closure $ 24,926 $ 26,028
Final closure 22,222 17,732
Post-closure 67,356 59,198
Remediation 23,490 21,562
-------- --------
137,994 124,520
-------- --------
Non-landfill facilities:
Remediation, closure and post-closure for closes sites 174,085 130,896
Remediation (including Superfund) for open sites 80,677 80,919
-------- --------
254,762 211,815
-------- --------
Total $392,756 $336,335
======== ========
</Table> 47
All of the landfill facilities included in the table above are active as of
August 31, 2001, except the Pinewood Facility. Total closure and post-closure
reserves related to the Pinewood Facility were $51.0 million and $44.6 million
as of August 31, 2001 and 2000, respectively. Total environmental remediation
reserves related to the Pinewood Facility were $2.9 million and $0.4 million as
of August 31, 2001 and 2000, respectively. The South Carolina Department of
Health and Environmental Control has required that an environmental impairment
fund ("EIF") be established for any potential environmental clean-up and
restoration of environmental impairment at the Pinewood Facility. The obligation
to contribute to the EIF has been treated as a commitment to restrict assets and
no liability related to the obligation has been recorded as of August 31, 2001
and 2000 (see Notes 3 and 14).
The changes to environmental liabilities for the year ended August 31, 2001 are
as follows ($ in thousands):
CHARGES RECLASSI-
AUGUST 31, TO FICATIONS AUGUST 31,
2000 EXPENSE AND OTHER PAYMENTS 2001
---------- -------- --------- ---------- ----------
Landfill facilities $124,520 $ 20,956 $ (887) $ (6,595) $137,994
Non-landfill Facilities:
Remediation, closure and post-closure
for closed sites 130,896 54,143 1,549 (12,503) 174,085
Remediation (including Superfund)
for open sites 80,919 4,406 (718) (3,930) 80,677
-------- -------- -------- -------- --------
Total $336,335 $ 79,505 $ (56) $(23,028) $392,756
======== ======== ======== ======== ========
Approximately $44.8 million of the charges to expense in the table above
represent the provision for early facilities closures and post-closures and are
included in "Impairment and other charges" in the consolidated statements
of operations for the year ended August 31, 2001 (see Note 17); the remainder is
included in "Operating" expenses.
Anticipated payments (based on current estimated costs) and anticipated timing
of necessary regulatory approvals to commence work on closure, post-closure and
remediation activities for each of the next five years and thereafter are as
follows ($ in thousands):
Year ending August 31,
2002 $ 42,946
2003 55,380
2004 47,114
2005 24,210
2006 21,444
Thereafter 415,533
----------
Subtotal 606,627
Less:
Reserves to be provided (net of discount of
$122.9 million) over remaining site lives (213,871)
---------
Total $ 392,756
=========
48
10. LONG-TERM DEBT AND OTHER FINANCING
Long-term debt and other financing at August 31, 2001 and 2000 consisted of the
following ($ in thousands):
2001 2000
----------- -----------
First DIP Facility $ -- $ --
Domestic Borrowings and other financing subject to compromise:
Senior Credit Facility:
Term Loans 1,137,750 1,137,750
Revolver 340,000 340,000
Senior Subordinated Notes, due June 1, 2008 325,000 325,000
Senior Notes, due May 15, 2009 225,000 225,000
Promissory note, due May 2003 60,000 60,000
Industrial revenue bonds, due 2003-2027 80,603 90,900
Other 3,237 11,425
----------- -----------
2,171,590 2,190,075
----------- -----------
Canadian Borrowings:
Senior Credit Facility 45,910 48,269
Operating Facility 16,313 17,152
----------- -----------
62,223 65,421
----------- -----------
Total debt 2,233,813 2,255,496
Less: Current portion not subject to compromise (62,223) (65,421)
Less: Liabilities subject to compromise (see Note 11) (2,171,590) (2,190,075)
----------- -----------
Long-term debt $ -- $ --
=========== ===========
DIP FACILITY
On July 19, 2000, the Bankruptcy Court granted final approval of a one-year $100
million Revolving Credit Agreement underwritten by Toronto Dominion (Texas),
Inc. as general administrative agent and CIT Group/Business Credit, Inc. as
collateral agent (the "First DIP Facility") with an aggregate sublimit for
letters of credit of $35 million. The actual amount available under the First
DIP Facility was subject to a borrowing base computation. The First DIP Facility
was amended on ten occasions through February 28, 2002, which amendments have,
among other things, extended the maturity date, increased the aggregate limit
for letters of credit to $95 million, increased the sublimits for letters of
credit for certain uses and waived the Debtors' non-compliance with certain
affirmative covenants under the First DIP Facility. The Debtors are jointly and
severally liable under the First DIP Facility. As of August 31, 2001, no amounts
have been drawn on the First DIP Facility and approximately $48 million of
letters of credit have been issued.
See Note 29 regarding the eleventh amendment to the First DIP Facility and the
Second Amended and Restated DIP Facility.
OTHER DOMESTIC BORROWINGS
Senior Credit Facility -- In April 1998, the Company repaid its then existing
bank credit facility and established a $2.2 billion Senior Credit Facility (the
"Senior Credit Facility") pursuant to a credit agreement between the Company and
a syndicate of banks and other financial institutions. In June 1998, the
availability of the Senior Credit Facility was permanently reduced by $325
million to $1.875 billion by the subsequent issuance of the Senior Subordinated
Notes described below. The Senior Credit Facility consists of five parts: (i) a
$550 million six-year Senior Secured Revolving Credit Facility with a $200
million letter of credit sublimit and $400 million sublimit for loans (the
"Revolver"); (ii) a $455 million six-year senior secured amortizing term loan;
(iii) a $70 million six-year senior secured amortizing term loan; (iv) a $400
million minimally amortizing seven-year senior secured term loan; and (v) a $400
million minimally amortizing eight-year senior secured term loan. The term loans
referred to in clauses (ii), (iii), (iv) and (v) are collectively referred to
herein as the "Term Loans."
Interest costs on the Senior Credit Facility are reset periodically, at least
annually, and vary depending on the particular facility and whether the Company
chooses to borrow under Eurodollar or non-Eurodollar loans. Interest rates
applicable to the Senior Credit Facility ranged from 7.56% to 12.88%, including
a 2% default premium, effective June 1, 2000.
As of August 31, 2001, the Term Loans have been drawn in full and borrowings
outstanding under the Revolver totaled $340 million. In addition, there were
approximately $83.0 million of letters of credit issued under the terms of the
Revolver. As a result of the Debtors' Chapter 11 Cases, all additional
availability under the Revolver has been terminated, although the letters of
credit remain outstanding.
Domestic borrowings of Safety-Kleen Services, Inc. (formerly known as LES, Inc.)
(the "Domestic Borrower") under the Senior Credit Facility are collateralized by
substantially all of the non-hazardous tangible and intangible assets of the
domestic subsidiaries of the Domestic Borrower, plus 65% of the capital stock of
Safety-Kleen's foreign wholly-owned subsidiaries, including, but not limited to,
Safety-Kleen's primary Canadian subsidiaries, Safety-Kleen Canada Inc. and
Safety-Kleen Ltd. (the "Canadian Borrower"). In addition, substantially all of
49
the capital stock of the Domestic Borrower and its wholly-owned or
majority-owned domestic subsidiaries is pledged to the Domestic Senior Credit
Facility lenders (the "Domestic Lenders") and such domestic subsidiaries
guarantee the obligations of the Domestic Borrower to the Domestic Lenders.
Senior Subordinated Notes -- On May 29, 1998, the Domestic Borrower, a
wholly-owned subsidiary of Safety-Kleen, issued $325 million 9.25% Senior
Subordinated Notes due 2008 in a Rule 144A offering. In accordance with an
Exchange and Registration Rights Agreement entered at the time of the issuance
of the aforementioned notes, the Company filed a registration statement with the
SEC on June 24, 1998, pursuant to which the Company exchanged the 9.25% Senior
Subordinated Notes due 2008 for substantially identical notes of the Company
(the "1998 Notes"). Net proceeds from the sale of the 1998 Notes, after the
underwriting fees and other expenses, were approximately $316.8 million. The
proceeds were used to repay a portion of the borrowings outstanding under the
Senior Credit Facility.
The 1998 Notes mature on June 1, 2008. Interest is payable semiannually, on
December 1 and June 1. The 1998 Notes will be redeemable, in whole or in part,
at the option of the Company, at any time and from time to time at a redemption
price as defined in the indenture. Upon a change in control of the Company, each
holder of the 1998 Notes may require the Company to repurchase all or a portion
of the holder's 1998 Notes at 101% of the principal amount, plus accrued
interest.
The 1998 Notes are general unsecured obligations of the Domestic Borrower,
subordinated in right of payment to all existing and future senior indebtedness,
as defined, of the Domestic Borrower. The 1998 Notes will rank senior in right
of payment to all existing and future subordinated indebtedness of the Domestic
Borrower, if any. The payment of the 1998 Notes are guaranteed on a senior
subordinated basis by Safety-Kleen and are jointly and severally guaranteed on a
senior subordinated basis by the Domestic Borrower's wholly-owned domestic
subsidiaries. No foreign direct or indirect subsidiary or non wholly-owned
domestic subsidiary is an obligor or guarantor on the financing (see Note 27).
Senior Notes -- On May 17, 1999, Safety-Kleen issued $225 million 9.25% Senior
Notes due 2009 in a Rule 144A offering which were subsequently exchanged for
substantially identical notes of Safety-Kleen in an offering registered with the
SEC in September 1999 (the "1999 Notes"). Net proceeds, after the underwriting
fees and other expenses, were approximately $219 million and were used to
finance the cash portion of the purchase price for the repurchase of the
pay-in-kind debenture ("PIK Debenture"), for expenses relating to the repurchase
and for general corporate purposes.
The 1999 Notes mature on May 15, 2009, with interest payable semi-annually on
May 15 and November 15. The 1999 Notes will be redeemable, in whole or in part,
at the option of Safety-Kleen, at any time and from time to time at a redemption
price as defined in the indenture. Upon a change in control of Safety-Kleen,
each holder of the 1999 Notes may require Safety-Kleen to repurchase all or a
portion of such holder's 1999 Notes at 101% of the principal amount thereof,
plus accrued interest.
The 1999 Notes are unsecured and rank equally with all existing and future
senior indebtedness and are senior to all existing and future subordinated
indebtedness. The 1999 Notes are not guaranteed by Safety-Kleen's subsidiaries.
The Senior Credit Facility, the 1998 Notes and the 1999 Notes contain negative,
affirmative and financial covenants including covenants restricting debt,
guarantees, liens, mergers and consolidations, sales of assets, transactions
with affiliates, the issuance of stock to third parties and payment of dividends
and establishing a total leverage ratio test, a fixed charge coverage test, an
interest coverage ratio test and a maximum contingent obligation to operating
cash flow ratio test. As a result of the Chapter 11 Cases, Safety-Kleen, which
was not in compliance with the covenants at the time of the Chapter 11 Cases,
classified the entire portion of domestic borrowings as liabilities subject to
compromise.
Other Borrowings -- The $60.0 million promissory note and $25.7 million of the
Industrial revenue bonds are guaranteed by Laidlaw (see Notes 14 and 23) and the
bonds are secured by the properties financed.
CANADIAN BORROWINGS
Senior Credit Facility -- The Canadian Borrower and Safety-Kleen's Canadian
subsidiaries participated in the Senior Credit Facility under which it
established and initially borrowed $70.0 million (USD) from a syndicate of five
banks. The term loan has a floating interest rate based on Canadian prime plus
1.375% or Canadian Bankers Acceptance, ("CB/A") plus 2.375%, at the Company's
discretion. As a result of the Debtors' filing for Chapter 11 bankruptcy
protection, its Canadian subsidiaries are in default of the loan conditions and
a notice of default has been issued by the banks making the loan payable on
demand. In accordance with the provisions of default under the Senior Credit
Facility, the floating interest rate will increase an additional 2% if all or a
portion of any principal of any Loan, any interest payable thereon, any
commitment fee or any Reimbursement Obligation or Acceptance Reimbursement
Obligation or other amount payable hereunder shall not be paid when due.
Accordingly, the outstanding loan balance is classified as a current liability
as of August 31, 2001 and 2000, and interest continues to accrue at the Canadian
prime plus 3.375%.
Canadian Operating Facility -- On April 3, 1998, the Canadian Borrower entered
into a letter agreement with the Toronto Dominion Bank providing an operating
line of credit of up to $35.0 million (CDN). The letter agreement has a floating
interest rate based on Canadian prime plus 1.375% or CB/A plus 2.375% for
Canadian borrowings and prime plus 1.375% or LIBOR plus 2.375% for U.S.
borrowings, at the Company's discretion. On March 4, 2000, Toronto Dominion Bank
cancelled this letter agreement at which time the Canadian Borrower had
50
borrowings of $17.2 million and letters of credit totaling $3.6 million. The
full amount borrowed was in default at August 31, 2001 and 2000, due to breaches
of loan covenants by the local subsidiary. Accordingly, the outstanding loan
balance is classified as a current liability as of August 31, 2001 and 2000.
Borrowings by the Canadian Borrower under the Senior Credit Facility and the
Canadian Operating Facility are collateralized by substantially all of the
tangible personal property of Safety-Kleen's Canadian subsidiaries and by the
guarantees of the Domestic Borrower's domestic, wholly-owned and majority-owned
subsidiaries. Additionally, 35% of the common stock of Safety-Kleen Canada Inc.
and of the Canadian Borrower is pledged in favor of the Canadian Senior Credit
Facility Lenders and the Canadian Operating Facility Lenders.
SUBORDINATED CONVERTIBLE DEBENTURE
On May 15, 1997, the Company issued a $350 million 5% subordinated convertible
PIK Debenture due May 15, 2009, to Laidlaw, in partial payment for the Rollins
Acquisition described in Note 1.
Interest on the PIK Debenture was payable semiannually, on November 15 and May
15 until maturity. Interest payments due during the first two years after
issuance of the PIK Debenture were required to be satisfied by the issuance of
Safety-Kleen's common stock, based on the market price of the common shares at
the time the interest payments were due. At the Company's option, any other
interest or principal payments, other than optional early redemption, could have
been satisfied by issuing common stock, based on the market price of the stock
at the time such payments are due. During the fiscal year ended August 31,1999,
the Company issued 1,545,399 of common shares to Laidlaw, in satisfaction of
interest payments due.
On August 27, 1999, the Company repurchased the PIK Debenture for an aggregate
purchase price comprised of (i) $200 million in cash; (ii) 11,320,755 shares of
common stock; and (iii) 376,858 shares of common stock in satisfaction of
accrued and unpaid interest on the PIK Debenture to the date of purchase. The
cash portion of the purchase price was financed with the issuance of the
1999 Notes.
As discussed in Note 14, the Company filed an action against Laidlaw and its
affiliate companies LTI and Laidlaw International Finance Corporation ("LIFC")
to recover funds of over $200 million related to the repurchase of the PIK
Debenture.
INTEREST EXPENSE
During fiscal 2001, the Company did not enter into any interest rate swap
agreements to hedge interest rate exposures as all of the Company's
variable-rate debt is currently classified as liabilities subject to compromise
and accrued interest on pre-petition debt is usually disallowed by the
Bankruptcy Court. However, during fiscal 2000 and 1999, the Company did enter
into interest rate swap agreements (see Note 19). Interest expense incurred
under the Company's credit facilities and other borrowings was $5.0 million,
$141.9 million and $186.2 million (net of interest income of $3.7 million, $3.6
million and $7.6 million) for fiscal years ended August 31, 2001, 2000 and 1999,
respectively (excluding contractual interest on domestic borrowings of $245.4
million for fiscal 2001 and $60.8 million for fiscal 2000, after the June 9,
2000 bankruptcy filing (see Note 11).
11. LIABILITIES SUBJECT TO COMPROMISE
The principal categories of claims classified as liabilities subject to
compromise under bankruptcy reorganization proceedings are identified below. All
amounts below may be subject to future adjustment depending on Bankruptcy Court
action, further developments with respect to disputed claims, or other events,
including the reconciliation of claims filed with the Bankruptcy Court to
amounts included in the Company's records (See Note 1). Additional pre-petition
claims may arise from rejection of additional executory contracts or unexpired
leases by the Debtors. Under a confirmed plan or plans of reorganization, all
pre-petition claims may be paid and discharged at amounts substantially less
than their allowed amounts.
51
Recorded liabilities - On a consolidated basis, recorded liabilities subject to
compromise under Chapter 11 proceedings as of August 31, 2001 and 2000,
consisted of the following ($ in thousands):
2001 2000
----------- -----------
Accrued litigation $ 18,880 $ 19,891
Derivative liabilities 69,461 69,461
Trade accounts payable 112,052 126,454
Accrued insurance liabilities 15,583 18,019
Environmental liabilities 11,096 9,579
Accrued interest 67,147 67,147
Senior Credit Facility:
Term loans 1,137,750 1,137,750
Revolver 340,000 340,000
Adequate protection payments (18,088) (18,950)
Senior Subordinated Notes 325,000 325,000
Senior Notes 225,000 225,000
Promissory note 60,OOO 60,000
Industrial revenue bonds 80,603 90,900
Other 36,790 30,722
----------- -----------
$ 2,481,274 $ 2,500,973
=========== ===========
During fiscal 2001, the Debtors entered into Bankruptcy Court approved
settlements to pay approximately $12.6 million in settlement of approximately
$18.2 million of pre-petition liabilities related to certain critical vendors.
Extraordinary gains of $5.6 million have been reported in the accompanying
statements of operations as a result of these settlements in fiscal 2001.
As a result of the Chapter 11 Cases, principal and interest payments may not be
made on pre-petition debt without Bankruptcy Court approval or until a plan or
plans of reorganization defining the repayment terms has been confirmed. The
total interest on pre-petition debt that was not paid or charged to earnings for
the period from June 9, 2000 to August 31, 2001 was $306.2 million. Such
interest is not being accrued since it is not probable that it will be treated
as an allowed claim. The Bankruptcy Code generally disallows the payment of
interest that accrues post-petition with respect to unsecured or undersecured
pre-petition liabilities.
Contingent liabilities - Contingent liabilities as of the Chapter 11 filing date
are also subject to compromise. At August 31, 2001, the Company was contingently
liable to banks, financial institutions and others for approximately $88.1
million for outstanding letters of credit, which included $0.8 million of
performance bonds securing performance of sales contracts and other guarantees
in the ordinary course of business.
The Company is a party to litigation matters and claims that are normal in the
course of its operations. Generally, litigation related to "claims", as defined
by the Bankruptcy Code, is stayed. Also, as a normal part of their operations,
the Company undertakes certain contractual obligations, warranties and
guarantees in connection with the sale of products or services. The outcome of
the bankruptcy process on these matters cannot be predicted with certainty.
Adequate protection payments - On August 11, 2000, the Company completed the
sale of its remaining 44% interest in its European operations. The Company
received approximately $34 million in cash and subject to contingencies,
approximately $1 million in deferred payments. From these proceeds and the
proceeds of the sale of the Company's Rosemount facility, approximately $19
million was paid to the Company's pre-petition lenders of the Senior Credit
Facility as an adequate protection payment related to the security interest in
both of these assets held by such lenders. These payments are classified as a
reduction in the "Liabilities Subject to Compromise" associated with these
lenders in the Consolidated Financial Statements at August 31, 2000.
52
12. ACQUISITIONS
During the third quarter of fiscal 1999, the Company recorded adjustments to the
initially allocated fair values from the acquisition of Old Safety-Kleen,
primarily related to legal, environmental, and tax exposures and adjustments
related to the carrying value of certain assets, resulting in a net increase to
goodwill of $52.2 million. In fiscal 2000, additional goodwill of $19.0 million
was recorded related to the recognition of tax contingencies existing at the
date of acquisition.
During fiscal 2000 and 1999, the Company completed various acquisitions, all of
which were paid for in cash. All of these acquisitions have been accounted for
under the purchase method of accounting. The Company has included the results of
operations for each of these acquired companies from the date of acquisition.
The following table summarizes these acquisitions ($ in thousands):
2000 1999
--------- ---------
Number of acquisitions 3 7
========= =========
Total purchase price paid $ 27,072 $ 14,904
Less: fair value of net
(assets) liabilities acquired (20,476) 2,124
--------- ---------
Goodwill recorded $ 6,596 $ 17,028
========= =========
No acquisitions occurred during fiscal 2001.
13. SALE OF EUROPEAN OPERATIONS
On December 23, 1998, the Company announced the recapitalization of its European
operations and the formation of a new entity, Safety-Kleen Europe, Limited. The
recapitalization was based on a total enterprise value of $190.0 million,
including investments in Safety-Kleen Europe, Limited by Electra Fleming and the
senior management group of Safety-Kleen Europe, Limited. In exchange for the
contribution of the European operations of Old Safety-Kleen, Safety-Kleen
received a 44% equity interest in Safety-Kleen Europe, Limited and $154.0
million in gross cash proceeds, including $22.0 million related to dividends
previously declared. Electra Fleming, a third party, purchased a 44% equity
interest, and the senior management group acquired a 12% equity interest (on a
fully-diluted basis). The proceeds from the sale were used to pay down
borrowings under the revolver tranche of the Senior Credit Facility. The
allocation of fair value of net assets assumed in the acquisition of Old
Safety-Kleen was revised to reflect the enterprise value of the recapitalization
based on the sale price of the Company's 56% equity interest in Safety-Kleen
Europe, Limited, resulting in no gain or loss on the transaction.
As a result of this recapitalization, the Company removed approximately $117.9
million of goodwill from the consolidated balance sheet, ceased to consolidate
the results of the European operations and began to account for the investment
by the equity method.
On August 11, 2000, SK Europe, Inc., an indirect subsidiary of Safety-Kleen,
sold its remaining 44% interest in Safety-Kleen Europe, Limited to Electra
European Fund LP. The Company received $34.4 million in cash and, subject to
certain contingencies, an additional $1.3 million in deferred payments. The
transaction resulted in a loss before income taxes of $5.3 million, including
the recognition of $4.0 million of cumulative foreign currency losses.
14. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company enters into operating and capital leases primarily for real property
and vehicles under various terms and conditions. As discussed in Note 11,
commitments related to certain operating and capital leases are subject to
compromise and additional claims may arise from the rejection of unexpired
leases. Rent expense for all operating leases amounted to $51.3 million, $51.2
million and $57.9 million in fiscal 2001, 2000 and 1999, respectively.
53
The following table presents the contractually stated minimum future lease
payments ($ in thousands):
CAPITAL OPERATING
LEASES LEASES
--------- ---------
Year ending August 31,
2002 $ 5,528 $ 36,464
2003 4,644 24,254
2004 10,727 17,110
2005 -- 12,181
2006 -- 8,530
Thereafter -- 13,209
-------- --------
Total minimum payments 20,899 $111,748
========
Less: amount representing interest (1,750)
--------
Obligations under capital leases $ 19,149
========
Assets recorded under capitalized lease agreements included in property, plant
and equipment consist of the following as of August 31, 2001, and 2000
($ in thousands):
2001 2000
-------- --------
Property under capital leases $ 33,983 $ 8,450
Accumulated amortization (14,834) (1,444)
-------- --------
Net property under capital leases $ 19,149 $ 7,006
======== ========
A significant portion of the assets recorded under capital leases at August 31,
2000 related to an aircraft which was returned to the lessor in September 2000.
PURCHASE COMMITMENTS
On December 15, 2000, the Bankruptcy Court approved a multi-year marketing and
distribution agreement between Safety-Kleen Systems, Inc., a subsidiary of
Safety-Kleen, and SystemOne. The agreement, which includes a five-year minimum
purchase commitment, appointed the Company as the exclusive North American
marketer of, distributor of, and service provider for, the line of parts
cleaning equipment manufactured by SystemOne. Under the terms of the agreement,
the purchase price for each unit of equipment shall consist of a "standard
price" plus a "deferred price." The Company shall pay to SystemOne the standard
price at the time of purchase and the deferred price for each unit of equipment
purchased in 36 equal monthly payments. The Company may terminate the agreement
as of December 15, 2002, by providing written notice to SystemOne of such
termination on or before June 18, 2002. The Company's obligation to pay the
deferred portion of the purchase price for equipment purchased prior to the
termination date shall survive any termination of the marketing and distribution
agreement with SystemOne. In connection with the agreement, the Company received
a warrant to purchase SystemOne stock (see Notes 3 and 19). The following table
presents the contractually stated minimum purchase commitments and deferred
price, assuming no early termination of the agreement ($ in thousands):
STANDARD DEFERRED TOTAL
PRICE PRICE COMMITMENT
--------- --------- ----------
Year ending August 31,
2002 $ 14,847 $ 805 $ 15,652
2003 17,523 1,667 19,190
2004 21,278 2,621 23,899
2005 25,534 3,159 28,693
2006 9,012 3,615 12,627
Thereafter -- 4,553 4,553
--------- --------- ---------
Total minimum commitments $ 88,194 $ 16,420 $ 104,614
Less: Amount representing interest -- (1,536) (1,536)
--------- --------- ---------
Obligations under SystemOne agreement $ 88,194 $ 14,884 $ 103,078
========= ========= =========
Effective July 2000, the Company entered into an outsourcing arrangement with
Acxiom Corporation to outsource certain information technology operations and
support previously performed at the former headquarters of Old Safety-Kleen. The
term of the agreement is five years from the date of integration, which
commenced in September 2001, and the cost is approximately $0.6 million per
month for a total commitment of approximately $35 million over the five-year
period.
54
Effective July 2001, the Company entered into an agreement with Unisys
Corporation and certain of its affiliates to provide outsourced information
technology support functions related to personal computer and related network
needs. The agreement provides for a monthly fee estimated at approximately $0.5
million based on, among other things, the actual number of workstations, laptops
and servers used. The term of the agreement is for five years.
LIABILITY INSURANCE
The Company, through premiums paid to Laidlaw (see Note 23), carried general
liability, vehicle liability, employment practices liability, pollution
liability, directors and officers liability, worker's compensation and
employer's liability coverage, as well as umbrella liability policies to provide
excess coverage over the underlying limits contained in these primary policies.
Effective September 1, 2000, the Company obtained its insurance requirements
from a third-party insurance company.
The Company's directors and officers liability insurance is due to expire on
April 3, 2002. The Company is working to obtain new coverage. There can be no
assurance that the Company will be able to obtain directors and officers
liability insurance coverage to replace this expiring coverage. If the Company
does not obtain such coverage there can be no assurance that it will not have a
material adverse effect on the Company and its operations.
The Company's insurance programs for certain worker's compensation, general
liability (including product liability) and vehicle liability are self-insured
up to certain limits. Claims in excess of these self-insurance limits are fully
insured. For self-insured worker's compensation, general liability (including
product liability), property, and vehicle liability, the Company estimates these
liabilities based on actuarially determined estimates of the incurred but not
reported claims plus any portion of incurred but not paid claims and premiums.
These estimates are generally within a range of potential ultimate outcomes. All
employee-related health care benefits are fully self-insured and the Company's
liabilities include both an accrual for an estimate of the incurred but not
reported claims that is calculated using historical claims data and an accrual
for the incurred but not paid claims and premiums.
The Company's liabilities for unpaid and incurred but not reported claims as of
August 31, 2001 and 2000 were $42.2 million and $35.1 million, respectively,
under its current risk management program. Certain product and worker's
compensation liabilities have been classified as long-term liabilities based
upon actuarial projections of future claims payments. These liabilities as of
August 31, 2001 and 2000 were $10.6 million and $9.2 million, respectively. In
addition, $15.6 million and $18.0 million of the self-insured liabilities as of
August 31, 2001 and 2000, respectively, are subject to compromise. While the
ultimate amount of claims incurred are dependent on future developments, in
management's opinion, recorded reserves are adequate to cover the future payment
of claims. However, it is reasonably possible that recorded reserves may not be
adequate to cover the future payment of claims and there is no guarantee that
the Company will have the cash or funds available to pay any or all claims.
Adjustments, if any, to estimates recorded resulting from ultimate claim
payments will be reflected in results of operations in the periods in which such
adjustments are known.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with certain executives, which
provide for compensation and certain other benefits. The agreements also provide
for severance payments under certain circumstances.
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. Safety-Kleen and certain of its subsidiaries as owners and
operators of RCRA and TSCA waste management facilities are 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, starting in 1997, 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% 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, effective May 31, 2000, the Company
and its affiliates no longer had compliant financial assurance for many of its
facilities. Under applicable regulations, Safety-Kleen and its affected
subsidiaries were required to obtain compliant financial assurance within sixty
days, and in some states, more quickly (although the surety bonds issued by
Frontier no longer qualify as acceptable federal bonds, they remain in place and
effective until replaced). Immediately following this U.S. Treasury
announcement, the Company notified the EPA of its lack of audited Consolidated
Financial Statements for fiscal 1999, 1998 and 1997 and the difficulties that
certain alleged accounting irregularities would cause the Company in attempting
to obtain compliant financial assurance for its
55
facilities 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.
Some states referred their enforcement authority to the EPA for purposes of this
CAFO and thus are, in effect, parties to the CAFO. Other states entered
separate, but similar, consent agreements with the Company. Some states have
never entered separate written agreements, but have allowed the Company to
continue operating while it obtains coverage to replace the Frontier bonds.
The main component of the EPA CAFO (and of the consent agreements in various
states) is a compliance schedule for Safety-Kleen and its affected subsidiaries
to obtain compliant financial assurance for the facilities covered by the
Frontier bonds. That schedule has been modified on several occasions since the
CAFO was entered and as the Company has replaced Frontier at various facilities.
The Company believes that most, but not all, states that have retained primary
jurisdiction on this issue and which have facilities where Frontier has not yet
been replaced will accept the March 31, 2002 and July 31, 2002 deadlines
described above. However, the Company has not concluded agreements with all such
states. South Carolina has not followed the EPA schedule, as discussed below.
The Company may seek further extensions 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 Company could be assessed penalties in
addition to those discussed in the next paragraph.
The CAFO 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 penalties, if asserted, would total
approximately $1.0 million through January 31, 2002.
The State of South Carolina has not entered any consent agreement with the
Company that would extend any financial assurance regulatory deadline with
respect to facilities owned or operated by Safety-Kleen (Pinewood), Inc.
Moreover, South Carolina has not agreed to the July 31, 2002 deadline for the
replacement of Frontier at inactive facilities and has notified the Company that
it is assessing daily penalties that escalate to a maximum of $6,000 per day at
an inactive facility in that state that does not yet have coverage to replace
Frontier. In the EPA CAFO and in some state consent agreements, the Company
agreed to a schedule by which the EPA and certain states may monitor the
Company's efforts to obtain compliant financial assurance. Among other things,
the schedule required the Company to provide audited restated Consolidated
Financial Statements for fiscal years 1997-1999 and the audited Consolidated
Financial Statements for fiscal 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 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; however, there can be no guarantee that the
remaining Frontier bonds at the Company facilities will continue to be valid.
As of January 1, 2002, the Company was in a position to replace Frontier at all
its active facilities (actual replacement occurs as regulators review and accept
the replacement policies the Company has little or no control over the timing of
this process). The current EPA deadlines for replacement of Frontier at inactive
facilities are March 31, 2002 for such facilities in the Branch Sales and
Service Division and July 31, 2002 for such facilities in the Chemical Services
Division.
As of August 31, 2001, the Company had provided financial assurances in the form
of insurance policies and performance bonds to the applicable regulatory
authorities totaling approximately $500.0 million, in connection with closure,
post-closure and corrective action requirements of certain facility operating
permits. Letters of credit of approximately $73.0 million are held to meet
various financial assurance requirements. Restricted assets of $24.3 million are
held in trust for landfill closure, post-closure and environmental impairment
(see Note 3). Insurance policies with limits of approximately $92.0 million are
held to cover any bodily injury or property damage to third parties caused by
accidental occurrences at certain of the Company's facilities.
56
CHAPTER 11 PROCEEDINGS
As described in Note 1, the Debtors filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code on June 9, 2000. Management continues to
operate the business of the Debtors as debtors-in-possession under Sections 1107
and 1108 of the Bankruptcy Code. In this proceeding, the Debtors intend to
propose and seek confirmation of a plan or plans of reorganization. Pursuant to
the automatic stay provision of Section 362 of the Bankruptcy Code, virtually
all pending pre-petition litigation against the Debtors is currently stayed.
As of August 31, 2001, proofs of claim in the approximate amount of $174.0
billion have been filed against the Debtors by, among others, secured creditors,
unsecured creditors and security holders. The Company is in the process of
reviewing the proofs of claim and once this process is complete, will file
appropriate objections to the claims in the Bankruptcy Court. As of August 31,
2001, the Company believes it has identified approximately $170.8 billion of
such claims that are duplicative or without merit. The Company believes that the
amount of these claims that are in excess of the $2.5 billion recorded as
"Liabilities subject to compromise" in the accompanying Consolidated Financial
Statements as of August 31, 2001 are: (i) duplicative or without merit; (ii) do
not meet the criteria to be recorded as a liability under generally accepted
accounting principles; and (iii) will not have a material effect on the
Consolidated Financial Statements, but there can be no assurance that the
Company is correct and these claims may have a material effect on the
Consolidated Financial Statements.
As a result of the Chapter 11 Cases, the Company has not paid certain real
estate taxes and certain taxing authorities have asserted liens against the real
estate.
Currently, it is not possible to predict the length of time the Debtors 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 Bankruptcy Code, post-petition liabilities and pre-petition liabilities
subject to compromise must be satisfied before shareholders can receive any
distribution. The ultimate recovery to shareholders, if any, will not be
determined until the end of the case when the fair value of the Debtors' assets
is compared to the liabilities and claims against the Debtors. There can be no
assurance as to what value, if any, will be ascribed to the common stock in the
bankruptcy proceedings. The Company does not believe the shareholders will
receive any distribution upon the consummation of a plan or plans of
reorganization.
ACTIONS INVOLVING LAIDLAW INC.
Laidlaw owns 43.6% of the outstanding common stock of Safety-Kleen and has
various other arrangements and relationships with the Company. On November 7,
2000, Laidlaw, on behalf of itself and its direct and indirect subsidiaries
(collectively referred to as the "Laidlaw Group"), 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 Laidlaw Group claims 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, Safety-Kleen, on behalf
of itself and its direct and indirect subsidiaries, filed with the Bankruptcy
Court an objection to the proof of claim filed by Laidlaw Group.
On April 19, 2001, the Company filed an action against Laidlaw and its
affiliates, LTI and LIFC (collectively the "Laidlaw Defendants") in the Debtors'
Chapter 11 Cases, Adv. Pro. No. 01-01086 (PJW). This action seeks to recover a
transfer of over $200 million in August 1999 (the "Transfer") made to or for the
benefit of the Laidlaw Defendants, holders of 43.6% of Safety-Kleen's common
stock. The Company asserts that the transfer is recoverable either 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.
On June 28, 2001, Laidlaw and five of its subsidiary holding companies, Laidlaw
Investments Ltd., LIFC, Laidlaw One, Inc., LTI and Laidlaw USA, Inc.
(collectively, "Laidlaw Debtors") 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 Case Nos. 01-14099K through 01-1404K. 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. 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 Laidlaw Debtors in the
above-referenced Chapter 11 cases. The claims against Laidlaw Debtors 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. Laidlaw Debtors have 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 Debtors. 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. As
a result of Laidlaw Debtors' filings, claims and causes of action the Company
may have against Laidlaw Debtors may be subject to compromise in the Laidlaw
Debtors' Chapter 11 or CCAA proceedings.
In December 2001, pursuant to the Safety-Kleen/Laidlaw Mediation Discovery
Protocol, the Debtors, the Debtors' secured lenders, the Debtors' Official
Committee of Unsecured Creditors, certain of the Debtors' directors, Laidlaw
Debtors and the Laidlaw Debtors creditors' committee and subcommittees agreed to
undertake, on an expedited and consolidated basis, limited preliminary discovery
to obtain
57
information to assist in presenting submissions to a mediator in an effort to
resolve certain outstanding claims between and among the parties in the Debtors'
and Laidlaw Debtors bankruptcy cases. A mediation is presently anticipated to be
held in April 2002. The resolution of these matters could have a material
adverse effect on the Company's financial condition.
LEGAL PROCEEDINGS
Legal proceedings covering a wide range of matters are pending or threatened in
the United States and foreign jurisdictions against the Company and/or former
and/or current officers, directors and employees. Various types of claims are
raised in these proceedings, including shareholder class action and derivative
lawsuits, product liability, environmental, antitrust, tax, and breach of
contract. Management consults with legal counsel in estimating reserves and
developing estimates of ranges of potential loss.
The Company has claims where management has assessed that an unfavorable outcome
is probable. As of August 31, 2001, the aggregate estimated potential loss on
these claims range from approximately $19.4 million to approximately $71.1
million and the Company has recorded reserves of approximately $25.9 million,
including $18.9 million subject to compromise, representing its best estimate of
losses to be incurred.
Additionally, the Company also has substantial claims where management has
assessed that an unfavorable outcome is probable or, at least, reasonably
possible and which, if incurred, may have a material adverse effect on the
Company's financial condition. The Company, however, has not recorded reserves
related to these claims as management believes the potential loss is not
currently estimable.
The actual outcomes from these claims, the most significant of which are
discussed below, could differ from these estimates.
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
As previously reported 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 following receipt by
Safety-Kleen's Board of Directors of information alleging possible accounting
irregularities that may have affected the previously reported financial results
of the Company since fiscal 1998. The internal investigation was subsequently
expanded to include fiscal years 1998 and 1997. The Board 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
Shaw Pittman, and Shaw Pittman engaged the accounting firm Arthur Andersen LLP,
to assist with the comprehensive investigation of these matters. The Board
placed Kenneth W. Winger, Safety-Kleen's President and 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, on administrative leave on March 5, 2000. 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. 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 manage all litigation involving the Company and any member of the
Board of Directors. The new committee 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 and is not personally
involved in such litigation.
Beginning in March 2000, a number of lawsuits were filed, on behalf of various
classes of investors, including bondholders and shareholders, against the
Company, certain officers, former directors, and others. The complaints that did
name the Company were subsequently amended eliminating the Company as a
defendant and adding certain other defendants, including certain Directors of
Safety-Kleen. The complaints allege, among other things, that the defendants
made false and misleading statements and violated certain federal securities
laws. Generally, the actions seek to recover damages in unspecified amounts that
the plaintiffs allegedly sustained by acquiring shares of Safety-Kleen's common
stock or purchasing debt of the Company. Although the Company is not a party to
these actions, certain of the individual defendants who are present or former
officers or directors of the Company have made demands to be indemnified by the
Company in connection with the action.
Shortly after the Company's March 6, 2000, announcement, Company representatives
met with officials of the SEC and advised the SEC 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 SEC had
initiated a formal investigation of the Company.
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 documents sought by the SEC in its
investigation. The Company has responded to the subpoena. The Company is
cooperating with each of the investigations.
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. 3:0l-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 Consolidated Financial
Statements and in the negligent and reckless failure to detect
58
and/or report material misstatements in those Consolidated 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 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. 0lCP404813 (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 also 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.
On December 13, 2000, thirteen lenders to Safety-Kleen Services, Inc., sued
PricewaterhouseCoopers, LLP, in the State Court of Fulton County Georgia,
alleging negligent misrepresentation by PricewaterhouseCoopers, LLP, in
connection with the Consolidated Financial Statements of Safety-Kleen and its
subsidiaries for fiscal years 1997, 1998 and 1999. The case is captioned Toronto
Dominion (Texas), Inc., et al. v. PricewaterhouseCoopers LLP, Civil Action No.
00 VS 02679 F. The complaint has been amended twice, and the plaintiffs now
number over 90 lenders to Safety-Kleen Services, Inc. On October 23, 2001,
PricewaterhouseCoopers LLP, filed a motion for leave to file a third-party
complaint naming Safety-Kleen and former Safety-Kleen officers Kenneth W.
Winger, Michael J. Bragagnolo, and Paul B. Humphreys as third party defendants
in a third party claim for indemnity or contribution. The Georgia state court
granted leave and PricewaterhouseCoopers, LLP has now served a third party
complaint against the Company. The Company is moving to enjoin the third party
complaint and argues that it contravenes the automatic stay provisions of
federal bankruptcy law.
PRODUCTS LIABILITY CASES
From time to time, the Company is named as a defendant in 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
and the safety of its products against any and all such claims.
GENERAL ENVIRONMENTAL
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 February 28, 2002, subsidiaries of
Safety-Kleen were involved in eight 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.
The most significant environmental and regulatory proceedings are discussed
below:
i. Safety-Kleen (Pinewood), Inc.
A subsidiary of Safety-Kleen, Safety-Kleen (Pinewood), Inc. ("Pinewood"), owns
and operated a hazardous waste landfill (the "Pinewood Facility") near the Town
of Pinewood in Sumter County, South Carolina. By an order dated May 19, 1994
("Order"), the South Carolina Board of Health and Environmental Control
("Board") approved the issuance by the Department of Health and Environmental
Control ("DHEC") of a RCRA Part B permit (the "Permit") for operation of the
Pinewood Facility. The Permit included provisions governing financial assurance
and capacity for the facility.
The 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 Order required Pinewood to establish and maintain the EIF in the
amount of $133 million in 1994 dollars ($151 million in 2001 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: (i) the GSX Contribution Fund, which was to be funded by
Pinewood in annual cash payments over a ten year period; and (ii) the State
Permitted Sites Fund, a legislatively created fund derived from fees on waste
disposal
59
at the Pinewood Facility. Under the 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 $20.2 million as of August 31, 2001.
In June 1995, the South Carolina legislature approved regulations (the
"Regulations") governing financial assurance for environmental cleanup and
restoration. The Regulations gave owner/operators of hazardous waste facilities
the right to choose from among six options for providing financial assurance.
The options included insurance, a 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 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 Regulations were applicable to the financial assurance
requirements for Pinewood.
Pinewood appealed the May 19, 1994, DHEC order and the opposing parties appealed
the May 19, 1994, DHEC 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
Leventy, 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 (i) the 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 (ii) 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 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 Regulations and, therefore, Pinewood has the sole responsibility to
provide cash funding into the EIF in accordance with the May 19, 1994 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 August 31, 2001, there was approximately $20.2 million
in the GSX Contribution Fund and approximately $14.7 million in the State
Permitted Sites Fund. In 2001 dollars, the total EIF funding requirement is
approximately $151.3 million. To comply with the financial assurance provisions
of the Order, Pinewood would have to contribute the following payments (in 2001
dollars) as follows, subject to the automatic stay provisions discussed below ($
in thousands):
<Table>
Amount due during fiscal year:
2002 $109,811
2003 6,625
--------
Total $116,436
========
</Table>
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.
60
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 (i) 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; (ii) held
that the June 9, 2000 Emergency Order was subject to the automatic stay
provisions of Section 362 of the Bankruptcy Code; and (iii) 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.
On December 19, 2001, the United States Court of Appeals for the Fourth Circuit
issued its decision on the appeals from Pinewood and DHEC. The Fourth Circuit
(i) affirmed the District Court's ruling that Pinewood's action was not barred
for failing to state a claim, or on other jurisdictional grounds, (ii) reversed
the District's Court's ruling as to the automatic stay, holding that the
automatic stay does not apply to DHEC's efforts to enforce the financial
assurance requirements, and (iii) affirmed the District Court's denial of
Pinewood's motion for a preliminary injunction. On January 22, 2002, DHEC issued
a letter to Pinewood directing that various investigative and other actions be
taken with respect to the landfill and current Pinewood operating procedures. On
January 29, 2002, DHEC issued a letter to Pinewood requiring that it submit a
closure plan within 30 days. Pinewood has appealed both the January 22 and
January 29 directives while at the same time continuing discussions with DHEC to
resolve all open issues. On February 28,2002, the Company submitted a conceptual
closure plan that it believes meets the intent of DHEC's January 29, 2002
letter. There can be no assurance that these matters will be resolved in favor
of the Company and there can be no assurance as to whether the outcome may have
a material adverse effect on the Company's financial position or results of
operations.
ii. Vine Mercier Facility
On January 12, 1993, Safety-Kleen Services (Mercier) Ltd. ("the 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 Company's Ville Mercier
property. The Subsidiary asserts that it has no responsibility for the
contamination on the site. The Minister filed a Defense and Counterclaim in
which it asserts that the Subsidiary is responsible for the contamination,
should reimburse the Province of Quebec for past costs incurred in the amount of
$17.4 million (CDN), and should be responsible for future remediation costs. The
legal proceedings are in the discovery stage.
The contamination on the Ville Mercier facility dates back to 1968, when the
property was owned by an unrelated company. In 1968, the Quebec government
issued two permits to the unrelated company to dump organic liquids into lagoons
on the Ville Mercier 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 Safety-Kleen 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 Subsidiary is not the party responsible for the
lagoon and groundwater contamination and the Subsidiary has denied any
responsibility for the decontamination and restoration of the site. In November
1992, the Minister of the Environment ordered the Subsidiary to take all the
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 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 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 $1.6 million (CDN) 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
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.
61
iii. Marine Shale Processors
Beginning in the mid-1980's and continuing until July 1996, 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 U.S. 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 facility. Moreover, as a result of past operations, soil and
groundwater contamination may exist an the Marine Shale site.
In November 1996, an option to buy Marine Shale was obtained by Earthlock
Technologies, Inc. ("Earthlock") formerly known as GTX, Inc. with the intent to
operate the facility as a permitted Hazardous Waste Incinerator. Subsequently,
Marine Shale, Earthlock 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 Earthlock for operation of the
Marine Shale facility as a RCRA-permitted Hazardous Waste Incinerator. Appeals
were filed by opposition parties and in October 1999, a Louisiana State Court
Judge ruled that the draft permit was improperly issued. Earthlock 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 it
is uncertain whether or when Earthlock will exercise its purchase option and
begin operation of the Marine Shale facility.
The Company was one of the largest customers of Marine Shale. In the event
Marine Shale does not operate, the potential exists for an EPA action 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 under CERCLA.
iv. RayGar Environmental Systems International Litigation
On August 7, 2000, RayGar Environmental Systems International, Inc. filed its
First Amended Complaint in the United States District for the Southem District
of Mississippi, Hattiesburg Division, Civil Action No. 2:9CV376PG, against
Laidlaw, Laidlaw Investments, Ltd., LTI, LESI, LES, Inc. (a wholly-owned
subsidiary of Safety-Kleen now known as Safety-Kleen Services, Inc.), Laidlaw
Environmental Services (U.S.), Inc. (an indirect wholly-owned subsidiary of
Safety-Kleen and predecessor to Safety-Kleen Services, Inc.), Laidlaw OSCO
Holdings, Inc. (a wholly-owned subsidiary of Safety-Kleen now known as
Safety-Kleen OSCO Holdings, Inc.), Laidlaw International, and Safety-Kleen
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 the Company, to obtain RCRA and related permits for the operation of
a wastewater treatment facility in Pascagoula, Mississippi. The action has not
proceeded against the Company due to the Chapter 11 Cases.
v. 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.,
Laidlaw OSCO Holdings, Inc., Laidlaw International, and Safety-Kleen 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. The
action has not proceeded against the Company due to the Chapter 11 Cases.
vi. 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
62
East had been using the site pursuant to an Agreement and Lease dated as of
February 2, 1997 (the "Agreement and Lease") 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 approximately $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 the 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 protection 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 post-petition 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 contractual obligations under the
Agreement and Lease. The Superior Court held oral argument on this matter in
September 2001 and advised the parties that the Court wanted the parties to make
good faith efforts to reach an agreement as to the remaining obligations before
the Court issues a decision. Representatives of all the parties involved in the
remediation development activities at the Kearny, NJ site met on December 5,
2001 for preliminary discussions of a final resolution of all open issues. The
Company has recorded its expected remaining liability related to the rejected
lease as a component of liabilities subject to compromise in the accompanying
consolidated balance sheet as of August 31, 2001.
vii. 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
Company sold its interest in ECDC to an affiliate of Allied Waste Industries,
Inc. Pursuant to the sale, ECDC, Safety-Kleen 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.
The Debtors including those subsidiaries of Safety-Kleen which were parties to
the 4070 Contract and the WDA, 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 additional, and unspecified
damages for the Company's breach of the 4070 Contract and WDA. Subsequently, the
Bankruptcy Court granted the motion by Safety-Kleen and certain of its
subsidiaries, which were parties to the 4070 Contract and the WDA, to reject
both the 4070 Contract and the WDA, effective December 1, 2000.
viii. 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.
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 subsidiaries due to the filing
of their Chapter 11 Bankruptcy petition on June 9, 2000.
63
ix. 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 facility
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 site 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 facility 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.
15. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK SHARES
Safety-Kleen is authorized to issue 250 million shares of its $1 par value
common stock and one million shares of its $1 par value preferred stock. The
Board of Directors determines the terms and conditions of each issue of
preferred stock. No preferred stock has been issue.
COMMON STOCK
SHARES
OUTSTANDING
(in thousands)
--------------
Balance at August 31, 1999 100,636
=======
Issuance of shares to non-employees 146
Exercise of stock options 2
-------
Balance at August 31, 2000 and 2001 100,784
=======
There was no issuance of shares or exercise of stock options in fiscal 2001.
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) for all periods presented consists of net
(loss) income, foreign currency translation adjustments and unrealized gains and
losses on investments classified as available for sale under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Accumulated other comprehensive income (loss) consists of the following
components ($ in thousands):
FOREIGN UNREALIZED ACCUMULATED
CURRENCY (LOSS)/GAIN ON OTHER
TRANSLATION MARKETABLE COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME (LOSS)
----------- -------------- -------------
Balance at August 31, 1998 $(9,505) $ (6) $(9,511)
Other comprehensive income (loss) 582 (285) 297
------- ------- -------
Balance at August 31, 1999 (8,923) (291) (9,214)
Other comprehensive income (loss) 2,571 (23) 2,548
------- ------- -------
Balance at August 31, 2000 (6,352) (314) (6,666)
Other comprehensive income (loss) (2,131) 497 (1,634)
------- ------- -------
Balance at August 31, 2001 $(8,483) $ 183 $(8,300)
======= ======= =======
64
16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts reported in the consolidated balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and accrued other liabilities
approximate fair value due to the short-term nature of these instruments.
Long-term investments -- The fair value of the restricted funds held by trustees
approximates carrying value (see Note 3).
Long-term debt -- Due to the uncertainty resulting from the Chapter 11 Cases
discussed in Note 1, the fair value of the Company's long-term debt as of August
31, 2001 and 2000 is not determinable.
Fair value estimates are made at a specific point in time based on relevant
market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
17. IMPAIRMENT AND OTHER CHARGES
The accompanying consolidated statements of operations reflect an element of
operating expenses described as "Impairments and other charges". Included in
this caption are provisions for impairments of assets determined in accordance
with SFAS No. 121 and related provisions for closure, post-closure, and other
liabilities for facilities to be closed, where appropriate.
SFAS No. 121 requires the assessment of long-lived assets for impairment
whenever events ("triggering events") occur which may indicate that those assets
have become impaired. Triggering events may be events, which directly cause
impairment (e.g., decisions to close facilities or the effects of new government
regulations) or may be indicators of the existence of other direct causes of
impairment (e.g., continuing or increasing losses, declining customer demand,
etc.).
The Company believes that the Chapter 11 Cases and the events that led up to it
constitute triggering events. In connection with its comprehensive review of its
operations, the Company evaluated the recoverability of long-lived assets at
August 31, 2001 and 2000 by reference to estimated future cash flows. As a
result, the Company identified certain impairments that have been recorded in
fiscal 2001, 2000 and 1999.
Fair values for impaired assets were determined for landfills, incinerators,
wastewater treatment and other facilities, primarily based on future cash flow
projections discounted using rates appropriate for the risks involved with the
identified assets. For those facilities that were to be sold, management based
fair value on their best estimate of sales value less cost to sell.
2001
The components of fiscal 2001 impairment and other charges consisted of the
following ($ in thousands):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ -------
Provision for early facility closure:
Bridgeport incinerator $34,123 $ -- $34,123
Coffeyville incinerator 9,017 -- 9,017
Hilliard wastewater treatment facility 1,174 -- 1,174
Burton transportation facility 459 -- 459
------- ------- -------
44,773 -- 44,773
Asset impairment and other charges 935 7,176 8,111
------- ------- -------
Total $45,708 $ 7,176 $52,884
======= ======= =======
During fiscal 2001 the Company ceased operations at two incinerators, a
wastewater treatment facility and a transportation facility. As a result of
these closures, the Company recorded a provision for early facility closures and
post-closures of approximately $44.8 million. Certain post-closure costs are
expected to be incurred over a period approximating 30 years. The Company also
recorded $8.1 million of net impairment charges primarily related to a
wastewater treatment facility and the former headquarters of Old Safety-Kleen.
65
2000
The components of fiscal 2000 impairment and other charges consisted of the
following ($ in thousands):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ --------
Asset impairments:
Service centers and landfills related to
western operations $118,336 $ -- $118,336
Other landfills and incinerators 118,622 -- 118,622
Harbor facility -- closed 22,600 -- 22,600
Pinewood landfill 15,724 -- 15,724
Former headquarters of Old Safety-Kleen -- 18,688 18,688
Other facilities 73,823 -- 73,823
-------- -------- --------
Total $349,105 $ 18,688 $367,793
======== ======== ========
The amounts shown, as related to western operations, relate to facilities which
are located in the western area of the United States. Their markets have been
adversely affected by competitive conditions, including over supply of available
services, which have limited the Company's ability to increase prices to recover
increased costs, including those related to new environmental regulations.
Included in other landfills and incinerators is an incinerator constructed to
burn contaminated soils. Although significant revenue resulted from unusual
events in 1999 and 2000, the general level of demand for these services has and
is expected to continue to decline. In addition, new environmental regulations
are projected to significantly increase capital expenditures and operating costs
in the future. Also included in this amount is a landfill which has been the
primary disposal site for the soil burned at this Company owned incinerator. The
projected declines in volumes generated at the incinerator are projected to have
a continuing adverse effect on volumes at the landfill.
As discussed in Note 14, the Pinewood Facility has been the subject of lengthy,
complex and protracted legal proceedings. The results of the proceedings have
been adverse to the Company, accordingly, the Company has concluded that it
would be imprudent to assume that this facility will generate any significant
future revenue. an additional charge was recorded for the impairment of the
remaining net book value of fixed assets at the Pinewood Facility. Appropriate
reserves for closure and post-closure costs at Pinewood have been fully provided
and included in operating costs.
1999
The components of fiscal 1999 impairment charges consisted of the following
($ in thousands):
CHEMICAL BRANCH SALES
SERVICES AND SERVICE TOTAL
-------- ------------ -------
Write-down of non-landfill permits $ 9,195 $ -- $ 9,195
Property, plant and equipment 2,092 -- 2,092
------- ---------- -------
Total $11,287 $ -- $11,287
======= ========== =======
Impairment and other charges in fiscal 1999 were primarily due to factors
relating to decisions made by management as a result of changes in business
conditions or legal issues. These charges represent the write-down of certain
property, plant and equipment and intangibles.
66
18. REORGANIZATION ITEMS
Reorganization items as reported in the accompanying fiscal 2001 and 2000
statement of operations are comprised of income, expense and loss items that
were realized or incurred by the Debtors as a direct result of the Company's
decision to reorganize under Chapter 11. During fiscal 2001 and 2000,
reorganization items were as follows ($ in thousands):
2001 2000
-------- --------
Professional fees directly related to the filing $ 28,161 $ 15,297
Write off of deferred financing costs related to
pre-petition domestic borrowings -- 41,533
First DIP Facility commitment fees and
amortization of financing costs 4,908 498
Losses on early termination of qualifying hedge
contracts -- 3,400
Rejected operating leases 4,384 532
Interest earned on cash accumulated during
Chapter 11 (4,408) (337)
Accrued employee retention plan costs 8,104 --
Other 1,135 --
-------- --------
$ 42,284 $ 60,923
======== ========
Professional fees included within reorganization items exclude professional fees
incurred in conjunction with the Company's investigation and restatement of its
Consolidated Financial Statements described in Note 2.
The net cash payments made during fiscal 2001 and 2000 with respect to the
reorganization items listed above were approximately $16.5 million and $6.7
million, respectively.
19. DERIVATIVES AND RISK MANAGEMENT
INTEREST RATE DERIVATIVES
From time to time during fiscal 2000 and fiscal 1999, the Company entered into
derivative contracts, which include swaps, option contracts, and forward
agreements or combinations thereof. Derivatives which were not designated as
hedges or were ineffective throughout the hedge period did not qualify for hedge
accounting treatment. These transactions often took the form of financing
arrangements whereby the Company received cash proceeds at the outset of the
contract in exchange for an obligation to exchange swap settlements in the
future at off-market terms. The fair market value of such instruments which fail
to qualify for hedge accounting treatment are reflected as assets or
liabilities, with the periodic change in market value recognized in earnings in
the Company's Consolidated Financial Statements. During March 2000, the
Company's existing derivative contracts were involuntarily terminated from
cross-default provisions between the Company's Senior Credit Facility, and its
International Swap Dealers Association Master Agreements. As a consequence of
these terminations, the Company has a net derivative liability of $69.5 million
at August 31, 2001 and 2000, which is reflected in the accompanying Consolidated
Financial Statements as a liability subject to compromise (see Note 11) and
ranks pari passu with amounts due under the Senior Credit Facility.
The Company also entered into a variety of derivatives in prior years, including
interest rate swaps, options, swaptions and forward agreements, which were not
designated as hedges or were ineffective throughout the hedge period. Such
instruments do not qualify for hedge accounting treatment. These transactions
often took the form of financing arrangements whereby the Company received cash
proceeds at the outset of the contract in exchange for an obligation to exchange
swap settlements in the future at off-market terms. The fair market value of
such instruments, which fail to qualify for hedge accounting treatment, are
reflected as assets or liabilities, with the periodic change in market value
recognized in earnings in the Company's Consolidated Financial Statements.
Credit risk related to the Company's interest rate derivatives arose from the
possible inability of counterparties to meet the terms of their contracts on a
net basis. All of the Company's interest rate swap agreements as a result, were
entered into with major financial institutions, which were expected to fully
perform under the terms of the agreements. The Company's credit exposure on
swaps was related not to the notional balances of the interest rate swaps, but
to the current and potential replacement costs of all profitable contracts at
fiscal year end. Credit exposure varied with the market value of the swaps.
As of the bankruptcy filing date (June 9, 2000), the Company had $3.4 million in
deferred losses associated with the early termination of qualifying hedge
contracts, all of which were charged to reorganization items in the fiscal year
ended August 31, 2000.
67
The following table summarizes the net gains and (losses) on the Company's
derivative contracts used for trading purposes in fiscal 2000 and fiscal 1999
($ in thousands):
FOR THE YEARS ENDED
AUGUST 31,
-------------------------
2000 1999
------- -------
Interest rate swaps $(4,697) $ 5,855
Interest rate swaptions 7,235 (8,578)
Bond forward agreements (1,407) (921)
Bond indexed equity swaps (418) (2,279)
------- -------
Total $ 713 $(5,923)
======= =======
The following table summarizes the fair value of the Company's derivative
contracts used for trading purposes for the fiscal year ended August 31, 2000
and August 31, 1999 ($ in thousands):
2000 1999
------------------------------------ ------------------------------------
GROSS GROSS GROSS GROSS
AVERAGE POSITIVE NEGATIVE AVERAGE POSITIVE NEGATIVE
FAIR VALUE FAIR VALUE FAIR VALUE FAIR VALUE FAIR VALUE FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
Interest rate swaps $ (1,311) $ -- $ -- $ (345) $ 3,020 $(13,893)
Interest rate swaptions (2,967) -- -- (2,802) -- (25,904)
Bond forward agreements -- -- -- -- -- --
Bond indexed equity swaps (1,102) -- -- (599) -- (1,819)
Forward start swaps (2,716) -- -- (196) -- (1,331)
-------- -------- -------- -------- -------- --------
Total $ (8,096) $ -- $ -- $ (3,942) $ 3,020 $(42,947)
======== ======== ======== ======== ======== ========
Derivative financial instrument fair values represent an approximation of
amounts the Company would have paid to or received from counterparties to
terminate its positions prior to maturity, and are based on capital market rates
prevailing at August 31, 2000 and 1999.
In addition to the derivatives used for qualifying hedges and for trading
purposes described above, the Company has segregated from derivative contracts
entered into or modified at off-market terms, $16.1 million of amortizing
fixed-rate borrowings as of August 31, 2000. These amounts are included in
liabilities subject to compromise as of August 31, 2000. The Company also
classified $53.4 million in terminated derivatives as liabilities subject to
compromise as of August 31, 2001 and 2000 (see Note 11).
OTHER DERIVATIVES
On December 15, 2000, the Bankruptcy Court approved a multi-year marketing and
distribution agreement between the Company and SystemOne. In connection with the
agreement, the Company received a warrant with a five-year term to purchase
1,134,615 shares of SystemOne at a price of $3.50 per share. The warrant has
been recorded as a derivative asset at its estimated fair market value of $1.1
million at August 31, 2001. Changes in the fair value from the date of inception
are charged to earnings, resulting in a derivative loss of $0.6 million being
recorded during the fiscal year ended August 31, 2001.
20. STOCK OPTION PLANS
The Company has the following stock option plans:
The 1993 Stock Option Plan of the former Rollins Environmental Services, Inc.
The 1997 Directors Stock Option Plan
The 1997 Stock Option Plan
All outstanding employee stock options granted by Rollins were fully vested on
May 15, 1997, in accordance with the terms of the acquisition of Old
Safety-Kleen referred to in Note 1.
68
Option activity for the fiscal years ended August 31 is as follows:
2001 2000
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- ---------- ----------------
Outstanding at beginning of year 1,046,863 $13.844 1,200,988 $13.901
Exercised -- -- (2,000) $12.750
Expired or canceled (462,213) $13.772 (152,125) $14.307
--------- ---------
Outstanding at end of year 584,650 $13.901 1,046,863 $13.844
========= =========
Options available for grant 2,549,640 2,087,427
Options exercisable 327,225 $14.001 388,200 $13.953
1999
-----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
Outstanding at beginning of year 754,250 $14.844
Granted 538,625 $13.250
Exercised (18,250) $11.613
Expired or canceled (73,637) $19.125
---------
Outstanding at end of year 1,200,988 $13.901
=========
Options available for grant 635,302
Options exercisable 202,113 $14.439
2001 2000
------------------------------------ ------------------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE WEIGHTED
REMAINING AVERAGE REMAINING AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS CONTRACTUAL EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING LIFE PRICE
- -------------- ----------- ----------- -------- ----------- ----------- --------
$10.50-$11.50 6,750 2.26 years $11.500 6,750 3.26 years $11.500
$12.75-$15.75 565,750 6.94 years $13.794 1,027,063 5.23 years $13.773
$16.50-$23.00 12,150 0.73 years $20.480 13,050 1.69 years $20.665
--------- ---------
510.50-$23.00 584,650 6.76 years $13.901 1,046,863 5.17 years $13.844
========= =========
1999
------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE
- -------------- ----------- ----------- --------
$10.50-$11.50 6,750 4.26 years $11.500
$12.75-$15.75 1,178,688 8.51 years $13.794
$16.50-$23.00 13,050 2.69 years $20.665
$30.00-$35.50 2,500 0.25 years $35.500
---------
$10.50-$35.50 1,200,988 8.41 years $13.901
=========
Effective July 9, 1997, the directors of Safety-Kleen set aside 1.5 million
shares of its $1 par value common stock for issuance under the 1997 Stock Option
Plan. Effective October 5, 1999, the number of shares set aside was increased by
10 million shares. All options under this plan are for a term of ten years from
the date of grant and become exercisable with respect to 20% of the total number
of shares subject to the option, approximately one year after the date of grant,
and with respect to an additional 20% at the end of each 12-month period
thereafter on a cumulative basis during the succeeding four years. The plan
provides for the granting of stock options to certain senior employees and
officers of the Company at the discretion of the Board of Directors. All options
are subject to certain conditions of service. Options for 471,125 shares were
granted during fiscal 1999 at an exercise price of $13.25. No options were
granted during each of fiscal 2001 and 2000.
Effective July 9, 1997, the directors of the Safety-Kleen set aside 135,000
shares of its $1 par value common stock for issuance under the 1997 Directors
Stock Option Plan. Effective October 5, 1999, the number of shares set aside was
increased by 300,000 shares. All options under
69
this plan are for a term of ten years from the date of grant and become
exercisable with respect to 20% of the total number of shares subject to the
option, approximately one year after the date of grant, and with respect to an
additional 20% at the end of each 12-month period thereafter on a cumulative
basis during the succeeding four years. All options are subject to certain
conditions of service. Options for 67,500 shares were granted during fiscal 1999
at an exercise price of $13.25. No options were granted during fiscal 2001 and
2000.
In accordance with the disclosure requirements of SFAS No. 123, the fair value
of each option grant during fiscal 1999, has been estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
AUGUST 31,1999
--------------
Risk-free interest rate 5.3%
Expected life 7.0 years
Dividend rate 0.0%
Expected volatility 60.8%
As required by SFAS No. 123,. the Company has determined that the weighted
average estimated fair values of options granted during fiscal 1999, were $8.22
per share. Had compensation cost for these plans been determined based on the
Black-Scholes value at the grant dates for awards as prescribed by SFAS No. 123,
pro forma net income and earnings per share would have been as follows ($ in
thousands, except per share data):
YEAR ENDED AUGUST 31,
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
Net loss:
As reported $(229,078) $(833,191) $(223,155)
Pro forma (231,044) (835,157) (225,121)
Net loss per share
As reported $ (2.27) $ (8.27) $ (2.52)
Pro forma (2.29) (8.29) (2.54)
21. EMPLOYEE BENEFIT PLANS
Defined benefit plans
As of August 31, 2001, the Company did not sponsor any significant active
defined benefit pension plans. For plans terminated during fiscal 2000, all
accumulated benefits have been distributed to plan participants.
In January 1998, certain union organizations granted their permission to
terminate the LES Union Pension Plan and, during July 1998, the Application for
Determination Upon Termination was filed with the Internal Revenue Service. The
final settlement payout for the LES Union Pension Plan was in May 1999. All
remaining participants represented by union organizations not granting
termination permission were transferred to another "mirror image" plan, the Deer
Park Union Pension Plan, effective February 1, 1998. In March 1999, management
obtained the remaining union organizations' permission to terminate the Deer
Park Union Pension Plan. Plan assets were distributed to participants in March
2000.
As a result of the acquisition of Old Safety-Kleen, the Company acquired three
defined benefit plans. The Safety-Kleen Corp. Sales Employees' Pension Plan (the
"Sales Plan") is a noncontributory defined benefit pension plan that originally
covered certain U.S. employees of Old Safety-Kleen, including branch managers
and sales representatives. Other salaried employees, excluding branch managers
and sales representatives, were covered under the Salaried Employee's Pension
Plan (the "Salaried Plan"). Hourly-paid employees were covered under the
Hourly-Paid Employees' Pension Plan (the "Hourly Plan"). On July 10, 1998, the
Company announced its intention to discontinue benefit accrual and to terminate
all three plans. Effective September 30, 1998, the Salaried Plan and the Hourly
Plan, (collectively the "Transferring Plans"), were merged into the Sales Plan.
Upon merging of the Transferring Plans, the Sales Plan received the interest in
the assets of the trust fund of the Transferring Plans and assumed the
accumulated benefit obligation of the Transferring Plans. After the merger, the
Transferring Plans ceased to exist. The Sales Plan was subsequently terminated
December 24, 1999 and accumulated benefits were distributed to participants on
March 31, 2000.
70
Changes in the projected benefit obligations and pension plan assets relating to
the Company's defined benefit pension plans as of August 31, 2001 and 2000, are
set forth in the following table ($ in thousands):
2001 2000
-------- --------
Change in benefit obligation
Net benefit obligation at beginning of year $ -- $ 90,641
Settlement loss -- 3,415
Benefits paid -- (94,056)
-------- --------
Net benefit obligation at end of year $ -- $ --
======== ========
Change in plan assets
Fair value of plan assets at beginning of year $ 387 $ 92,635
Net plan assets acquired -- --
Actual return on plan assets 26 1,808
Contributions 17 --
Benefits paid (44) (94,056)
Commissions, fees and expenses (44) --
-------- --------
Fair value of plan assets at end of year $ 342 $ 387
-------- --------
Accrued benefit surplus $ 342 $ 387
======== ========
There was no periodic pension costs for the Company's defined benefit pension
plans for the years ended August 31, 2001 and 2000. Effective as of October 14,
1997, the Company adopted a Supplemental Executive Retirement Plan (SERP) for
certain eligible employees. The SERP is an unfunded plan that provides for
benefit payments in addition to those payable under a qualified retirement plan.
As of August 31, 2001, a liability of approximately $1.8 million related to the
SERP plan is recorded in other long-term liabilities.
Defined contribution plan
The Company offers to all eligible employees the opportunity to participate in
the Company's defined contribution employee benefit plan (the "Safety-Kleen
401(k) Plan"). Employees are allowed to contribute up to 15% of their annual
salary to the Safety-Kleen 401(k) Plan, and during fiscal 2001, the Company made
matching contributions limited to 75% of the first 6% of an employee's eligible
compensation. Employer contribution expense for fiscal years ended August 31,
2001, 2000, and 1999 was $10.6 million, $11.8 million, and $11.8 million,
respectively. In fiscal 2002, the Board of Directors has determined to suspend
matching contributions indefinitely.
Other
The Company provides medical benefits to approximately 70 former employees of
Old Safety-Kleen. At the date of the acquisition of Old Safety-Kleen, the plan
was frozen and subsequently terminated. The Company currently provides benefits
to those remaining participants as required by the provisions of COBRA.
Effective September 8, 2000, the Company implemented the Senior Executive
Retention Plan to provide a financial incentive to certain employees to remain
with the Company during the turnaround and restructuring process. Under the
terms of this plan, participants must be actively employed by the Company
through the retention period, which ended on December 31, 2001. In addition, the
Company has entered into retention bonus agreements for certain key executives
whereby bonuses are payable upon the occurrence of certain defined events, such
as filing of a plan of reorganization or the consummation of the sale of
substantially all of the assets of the Company. The Company recognized $8.1
million of expense related to these arrangements as a reorganization item in the
accompanying fiscal 2001 statement of operations.
71
22. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes and
extraordinary items, showing domestic and foreign sources, was as follows
($ in thousands):
YEAR ENDED AUGUST 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Domestic $(238,992) $(814,878) $(197,253)
Foreign 22,197 (5,290) 13,192
--------- --------- ---------
Loss before income taxes and
extraordinary items $(216,795) $(820,168) $(184,061)
========= ========= =========
The income tax expense before extraordinary items is as follows
($ in thousands):
YEAR ENDED AUGUST 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Current:
Federal $ -- $ -- $ --
State 8,494 594 915
Foreign 6,475 4,177 9,731
Deferred
Federal -- 6,029 24,274
State -- 689 2,774
Foreign 2,905 1,534 1,400
--------- --------- ---------
Income tax expense $ 17,874 $ 13,023 $ 39,094
========= ========= =========
A reconciliation of the income tax expense calculated by applying the domestic
statutory federal income tax rate to the loss before income taxes is as follows
($ in thousands):
YEAR ENDED AUGUST 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Federal income tax expense (benefit)
at statutory rate (35.0)% (35.0)% (35.0)%
State income tax expense (benefit) (1.9)% (3.6)% (0.3)%
Change in valuation allowance 39.6% 36.2% 39.3%
Foreign country rate differential 1.0% 0.1% 0.5%
Goodwill 5.6% 4.5% 7.6%
Other (1.1)% (0.6)% 9.1%
--------- --------- ---------
Income tax expense 8.2% 1.6% 21.2%
========= ========= =========
Deferred tax assets and liabilities consisted of the following ($ in thousands):
YEAR ENDED AUGUST 31,
-------------------------
2001 2000
--------- ---------
Deferred tax assets:
Allowance for uncollectible invoices $ 31,592 $ 34,010
Deferred revenue 20,964 47,180
Accrued liabilities 178,958 161,255
Tax attribute carryovers 496,883 330,194
Deferred financing costs 12,543 16,710
Other 7,496 4,862
--------- ---------
Total gross deferred tax assets 748,436 594,211
Less -- Valuation allowance (458,207) (386,095)
--------- ---------
Net deferred tax assets 290,229 208,116
--------- ---------
Deferred tax liabilities:
Excess of tax over book depreciation (180,665) (213,172)
Interest (119,415) (23,695)
Other (51,920) (35,354)
--------- ---------
Total gross deferred tax liabilities (352,000) (272,221)
--------- ---------
Net deferred tax liabilities $ (61,771) $ (64,105)
========= =========
72
As of August 31, 2001, the Company has net operating loss ("NOL") carryforwards
for U.S. federal income taxes of approximately $1.2 billion expiring in the
years 2006 through 2021 and capital loss carryforwards of $24 million expiring
in 2005. Such NOLs are subject to limitations of both Treasury Regulation
1.1502-21 and Internal Revenue Code "IRC" Section 382. At August 31, 2001,
interest carryovers of approximately $15 million limited by IRC Section 163(j)
are available against U.S. federal tax without expiration. The carryovers are
based on tax returns as currently filed and are subject to change based on the
Company's detailed review and analysis of all restatement adjustments for tax
purposes, as it is not practicable to determine the impact or related interest
and penalties, if any, of the restatement adjustments on amended returns at this
time. The Company's tax returns are subject to periodic audit by the various
jurisdictions in which it operates. These audits, including those currently
underway, can result in adjustments of taxes due or adjustments of the NOLs,
which are available to offset future taxable income. Implementation of a plan or
plans of reorganization will likely reduce the availability of some or all of
these NOL carryforwards.
Valuation allowances have been established for uncertainties in realizing the
benefit of certain tax loss carryforwards and other deferred tax assets. In
assessing the realizability of carryforwards and other deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will be realized. The Company adjusts the valuation
allowance in the period management determines it is more likely than not that
deferred tax assets will or will not be realized.
Until May 1997, the Company was included in the consolidated U.S. tax returns
filed by Laidlaw. As such, the Company is jointly and severally liable for any
taxes due with respect to those returns. Accordingly, the Company could be
responsible for taxes relating to adjustments to the 1997 and prior consolidated
tax returns of Laidlaw.
23. RELATED PARTY TRANSACTIONS
LAIDLAW INC.
Insurance premiums paid to Laidlaw, including those related to workers
compensation, general and auto liability, totaled approximately $0.1 million,
$14.8 million and $21.5 million in fiscal 2001, 2000 and 1999, respectively.
Rates paid under insurance contracts were determined on a similar basis as those
charged under similar contracts with third-party insurers.
On May 15, 1997, in connection with the Rollins Acquisition, the Company issued
a $350 million 5% subordinated convertible PIK Debenture due May 15,2009, and
paid $349.1 million in cash to Laidlaw. On August 27, 1999, the Company
repurchased the PIK Debenture for (i) $200 million in cash, (ii) 11,320,755
shares of common stock and (iii) 376,858 shares of common stock in satisfaction
of accrued and unpaid interest on the PIK Debenture to the date of purchase.
During the fiscal year ended August 31, 1999, the Company issued a total of
1,545,399 common shares to Laidlaw in satisfaction of interest payments due
under the PIK Debenture.
Pursuant to the Rollins Acquisition, Laidlaw and LTI and indirect wholly-owned
subsidiaries of Laidlaw, agreed to jointly and severally indemnify the Company
for certain obligations and liabilities. Also pursuant to the Rollins
Acquisition, the Company agreed to jointly and severally indemnify Laidlaw and
LTI, for certain obligations and liabilities. Additionally, certain other
guaranties have been entered into by Laidlaw on behalf of the Company (See Notes
3 and 14).
Certain former directors or officers of the Company also served as directors or
officers of Laidlaw during fiscal 2000 and 1999. As of August 31,2001, no
directors or officers of the Company served as directors or officers of Laidlaw.
Currently, there are substantial claims and counterclaims between the Company,
Laidlaw and its affiliates (see Note 14).
SAFETY-KLEEN EUROPE
During portions of fiscal 2000 and 1999, the Company accounted for its
investment in Safety-Kleen Europe, Limited under the equity method. During this
period, the Company provided Safety-Kleen Europe, Limited with information
technology services, inventory and reimbursement of certain building rents. In
fiscal 2000 and 1999, the Company invoiced Safety-Kleen Europe, Limited $1.9
million and $1.3 million, respectively, for information technology services and
inventory. Also during this period, the Company reimbursed Safety-Kleen Europe,
Limited $1.1 million and $0.1 million in fiscal 2000 and 1999, respectively, for
building rents and software.
RAYMOND JAMES & ASSOCIATES
David E. Thomas, Jr., Safety-Kleen's former Chairman and CEO and a member of
Safety-Kleen's Board of Directors since 1997, was previously Senior Managing
Director and Head of the Investment Banking Group of Raymond James & Associates,
Inc. ("Raymond James"). In December 2001, he returned to Raymond James as a
managing director. Raymond James has acted as financial advisor and in other
capacities to the Company for various matters, including acquisitions,
divestitures and securities offerings. The Company paid approximately $2.8
million to Raymond James for these services in fiscal 1999 and accrued
approximately $350,000 in fiscal 2000 for consulting services performed. As of
August 31, 2001 and February 28, 2002, Safety-Kleen has not paid Raymond James
the fiscal 2000 accrued amount.
73
ROLLINS TRUCK LEASING CORP.
Until February 26, 2001, Mr. Tippie, a director of Safety-Kleen, was Chairman
of the Board, Chairman of the Executive Committee, President and CEO of Rollins
Truck Leasing Corp. During fiscal 2001, 2000 and 1999, the Company paid Rollins
Truck Leasing Corp. approximately $0.4 million, $1.2 million and $2.7 million,
respectively, on account of truck rentals. Rollins Truck Leasing Corp. also
purchased certain supplies from the Company. During fiscal 2001 and 2000,
Rollins Truck Leasing Corp. paid approximately $0.1 million and $0.3 million,
respectively, 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 an unsecured claim against the Company in its Chapter
11 Cases based upon the Company's guarantee.
AK STEEL CORPORATION
Mr. Wareham, a director of Safety-Kleen, was the President of AK Steel
Corporation until his retirement on March 1, 2002. During fiscal 2001, the
Company provided parts cleaner and other services to AK Steel Corporation, and
received approximately $0.2 million in payments for such services.
MATLACK SYSTEMS, INC.
Mr. Tippie is a director and shareholder of Matlack Systems, Inc. Mr. Rollins,
Jr., who is a member of the Safety-Kleen's Board of Directors, is Chairman of
the Board and a shareholder of Matlack Systems, Inc. During fiscal 2001 and
2000, the Company paid Matlack Systems, Inc. approximately $0.3 million and $0.4
million, respectively, for transportation services. During fiscal 2001 and 2000,
Matlack Systems, Inc. also purchased supplies and services from the Company of
less than $0.1 million and $0.6 million, respectively.
OTHER
In September 2000, the Company transferred ownership of a residential property
in Oakville, Ontario, to the spouse of Kenneth W. Winger, the former President
and Chief Executive Officer of Safety-Kleen and a former director of
Safety-Kleen, for $444,000. Laidlaw had originally purchased this property in
1995 from Mr. Winger's spouse for the same amount pursuant to an agreement with
Mr. Winger in connection with his relocation to the Company's South Carolina
offices. The property had been held by Safety-Kleen Ltd., a successor in
interest to Laidlaw Environmental Services Ltd. Based on a broker's opinion of
value, the Company believes that the price paid by Mr. Winger's spouse was fair
to the Company, taking into account the additional expense that the Company
would have had to incur to sell the property to a third party. Mr. Winger and
his spouse released the Company from further obligations and liability arising
under an agreement executed in March 2000 between the Company and Mr. Winger
concerning the transfer of the property and the payment by the Company of
certain relocation expenses.
The above related party transactions which involve certain current or former
directors or officers of the Company were conducted on terms similar to those of
third parties.
74
24. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
The supplemental cash flow disclosures and non-cash transactions are as follows
($ in thousands):
FISCAL YEARS ENDED AUGUST 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Supplemental cash flow information:
Cash paid during the year for:
Interest $ -- $ 90,370 $ 186,517
========= ========= =========
Income taxes paid (refunded) $ 11,427 $ 10,525 $ (22,529)
========= ========= =========
Non-cash investing and financing activities:
Business combinations:
Fair value of assets acquired $ -- $ 48,990 $ 46,132
Less, cash paid, net -- (27,072) (14,904)
Fair value of liabilities assumed -- (21,918) (31,228)
--------- --------- ---------
Issuance of common stock to satisfy
interest payment due on subordinated
convertible debenture $ -- $ -- $ 22,486
========= ========= =========
Issuance of common stock as consideration
for repurchase of subordinated
convertible debenture $ -- $ -- $ 150,000
========= ========= =========
Non-cash transactions arising from sale
of business:
Equity investment recorded as
long-term investment $ -- $ -- $ 37,782
========= ========= =========
25. SEGMENT AND GEOGRAPHIC INFORMATION
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Performance of the segments is
evaluated on several factors, of which the primary financial measure is
operating income before depreciation, amortization and impairment and other
charges ("EBITDA"). Transactions between the segments are accounted for at the
Company's estimate of fair value based on similar transactions with outside
customers. In general, SFAS No. 131 requires that business entities report
selected information about operating segments in a manner consistent with that
used for internal management reporting.
The Company is organized along its two primary business activities -- Chemical
Services and Branch Sales and Service. Chemical Services involves the treatment,
recycling and destruction of hazardous and non-hazardous waste at Company owned
and operated facilities. The Company operates thermal destruction incinerators,
landfills and wastewater treatment facilities. Branch Sales and Service involves
providing various services to both industrial and commercial customers and
government entities. These services include, but are not limited to, parts
cleaner services and hazardous and non-hazardous waste collection, treatment,
recycling and disposal. Each segment is managed independently from the other and
reports separately to senior management.
The Company currently classifies as "Corporate" in its segment reporting the
cost of certain Company-wide functions and services consisting primarily of
legal, accounting, finance and information technology. In addition, this
category includes the incremental cost of the Company's efforts related to its
internal accounting review for fiscal 1997 through 2000, the audits of these
periods and the various investigations of its financial results. Certain
intersegment eliminations are recorded in Corporate. As discussed in Note 1,
other components of income, expense and loss directly attributable to the
Chapter 11 Cases are classified as "Reorganization items" in the consolidated
statement of operations.
In 1999, the Company's general ledger and system of internal financial reporting
was aligned to report the financial results of its various segments and lines of
business based on the operational organization then in place. The Company
changed its system of internal financial reporting as a result of the
reorganization of its operations in the third quarter of fiscal 2000.
Substantial efforts were made to conform the prior year's reporting to the
fiscal 2000 organization and new reporting structure. In connection with these
efforts, management restated segment results to reflect service centers'
operations as profit centers. In addition, management reviewed certain
Company-wide selling, general and administrative expenses and attempted to
allocate these expenses consistently from year to year among the segments.
Management believes that the financial results for segment reporting purposes
during fiscal 1999 through fiscal 2001 are reasonable and in accordance with
SFAS No. 131.
75
The table below reflects certain information relating to the Company's
operations ($ in thousands):
BRANCH
SALES AND CHEMICAL
SERVICE SERVICES CORPORATE TOTAL
----------- ----------- ----------- -----------
FISCAL 2001:
Outside revenue $ 1,008,903 $ 505,631 $ 49 $ 1,514,583
Intersegment revenue 10,964 49,056 (60,020) --
Depreciation and amortization 112,198 29,344 2,168 143,710
Impairment and other charges 7,176 45,708 -- 52,884
EBITDA 51,818 36,832 (60,392) 28,258
Intangible assets, net 1,395,075 332,909 -- 1,727,984
Total assets 2,177,651 710,351 125,791 3,013,793
FISCAL 2000:
Outside revenue $ 986,627 $ 599,022 $ 624 $ 1,586,273
Intersegment revenue 12,353 55,964 (68,317) --
Depreciation and amortization 110,207 57,552 2,143 169,902
Impairment and other charges 18,688 349,105 -- 367,793
EBITDA (29,044) (12,836) (40,595) (82,475)
Intangible assets, net 1,450,581 347,704 -- 1,798,285
Total assets 2,242,270 754,135 135,463 3,131,868
FISCAL 1999:
Outside revenue $ 954,421 $ 671,436 $ (1,819) $ 1,624,038
Intersegment revenue 1,540 49,722 (51,262) --
Depreciation and amortization 104,574 55,212 1,528 161,314
Impairment and other charges -- 11,287 -- 11,287
EBITDA 115,754 106,933 (43,210) 179,477
Intangible assets, net 1,462,163 460,044 -- 1,922,207
Total assets 2,270,243 1,197,106 167,965 3,635,314
Outside revenue and intersegment revenue related to products and services within
the Branch Sales and Service segment is shown in the table below ($ in
thousands):
FISCAL YEARS ENDED AUGUST 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Parts Cleaner Service $ 327,071 $ 341,303 $ 370,028
Paint Refinishing Services 58,287 60,629 66,281
Imaging Services 40,968 42,984 43,509
Dry Cleaner Services 19,723 20,038 19,940
Vacuum Truck Services 56,404 46,603 36,411
Integrated Customer Compliance Services 18,934 13,163 9,305
Industrial Waste Collection Services 234,127 223,156 224,144
Oil Collection Services 63,327 69,771 57,162
Oil Re-Refining 152,083 135,068 90,884
Automotive Recovery Services 27,617 25,017 18,937
Additional services 21,326 21,248 19,360
---------- ---------- ----------
Total outside and intersegment revenue $1,019,867 $ 998,980 $ 955,961
========== ========== ==========
76
Outside revenue and intersegment revenue related to products and services within
the Chemical Services segment is shown in the table below ($ in thousands):
FISCAL YEARS ENDED AUGUST 31,
-------------------------------------
2001 2000 1999
--------- --------- ---------
Incineration $ 119,396 $ 120,196 $ 116,538
Landfill 87,140 101,748 111,666
Wastewater Treatment 39,126 54,786 46,049
Service Center 262,149 262,931 304,575
Additional services 97,212 103,569 81,864
Transportation 25,076 32,293 46,149
Closed Facilities and Ceased Operations 48,203 112,032 158,472
--------- --------- ---------
678,302 787,555 865,313
Less: Intrasegment revenue (123,615) (132,569) (144,155)
--------- --------- ---------
Total outside and intersegment revenue $ 554,687 $ 654,986 $ 721,158
========= ========= =========
The table below provides a reconciliation of EBITDA to operating (loss) income
($ in thousands):
FISCAL YEARS ENDED AUGUST 31,
-----------------------------------------
2001 2000 1999
--------- --------- ---------
EBITDA $ 28,258 $ (82,475) $ 179,477
Depreciation and amortization (143,710) (169,902) (161,314)
Impairment and other charges (52,884) (367,793) (11,287)
--------- --------- ---------
Operating (loss) income $(168,336) $(620,170) $ 6,876
========= ========= =========
Information concerning principal geographic areas is as follows
($ in thousands):
UNITED
STATES CANADA EUROPE TOTAL
---------- ---------- ---------- ----------
FISCAL 2001:
Outside revenue $1,350,983 $ 163,600 -- $1,514,583
Net property, plant and equipment 669,482 94,121 -- 763,603
FISCAL 2000:
Outside revenue $1,410,394 $ 175,879 -- $1,586,273
Net property, plant and equipment 665,756 107,119 -- 772,875
FISCAL 1999:
Outside revenue $1,419,921 $ 163,887 $ 40,230 $1,624,038
Net property, plant and equipment 1,016,889 118,239 -- 1,135,128
77
26. CONDENSED COMBINED FINANCIAL STATEMENTS OF ENTITIES IN BANKRUPTCY
The following condensed combined financial statements are presented in
accordance with SOP 90-7:
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2001
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
- ------------ -------------- --------------- ------------ ------------
Revenues $1,394,828 $ 208,279 $ (88,524) $1,514,583
Operating expenses 1,589,855 181,588 (88,524) 1,682,919
---------- ---------- ---------- ----------
Operating loss (195,027) 26,691 -- (168,336)
Interest expense, net (1) 1,707 (6,743) -- (5,036)
Other (expense) income (1,044) (514) -- (1,558)
Equity in earnings of associated companies 10,435 -- (10,435) --
---------- ---------- ---------- ----------
Loss before reorganization items, income
taxes and minority interest (183,929) 19,434 (10,435) (174,930)
Reorganization items (42,284) -- -- (42,284)
Income tax expense (8,456) (9,418) -- (17,874)
---------- ---------- ---------- ----------
Loss before minority interest (234,669) 10,016 (10,435) (235,088)
Minority interest -- 419 -- 419
---------- ---------- ---------- ----------
Loss before extraordinary items (234,669) 10,435 (10,435) (234,669)
Extraordinary items 5,591 -- -- 5,591
---------- ---------- ---------- ----------
Net loss $ (229,078) $ 10,435 $ (10,435) $ (229,078)
========== ========== ========== ==========
- ---------------
(1) Excluding contractual interest of $245,436 for Entities in Reorganization
Proceedings.
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2001
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
- ------------ -------------- --------------- ------------ ------------
ASSETS:
Current assets $ 400,870 $ 92,546 $ -- $ 493,416
Intercompany receivables 56,995 -- (56,995) --
Property, plant & equipment, net 668,141 95,462 -- 763,603
Investment in subsidiaries 29,534 -- (29,534) --
Intangibles assets, net 1,653,188 74,796 -- 1,727,984
Other assets 27,270 1,520 -- 28,790
---------- ---------- ---------- ----------
$2,835,998 $ 264,324 $ (86,529) $3,013,793
========== ========== ========== ==========
LIABILITIES:
Current liabilities $ 311,344 $ 94,983 -- 406,327
Intercompany payables -- 56,995 (56,995) --
Non-current liabilities 387,824 83,103 -- 470,927
Liabilities subject to compromise 2,481,274 -- -- 2,481,274
Minority interest 1,238 (291) -- 947
STOCKHOLDERS' EQUITY (DEFICIT) (345,682) 29,534 (29,534) (345,682)
---------- ---------- ---------- ----------
$2,835,998 $ 264,324 $ (86,529) $3,013,793
========== ========== ========== ==========
78
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 2001
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS TOTALS
- ------------ -------------- --------------- ------------
Net cash provided by (used in) operating activities $ 77,655 $ 22,270 $ 99,925
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 4,766 443 5,209
Purchases of property, plant and equipment (65,496) (5,836) (71,332)
Decrease (increase) in long-term investments 8,533 313 8,846
---------- ---------- ----------
Net cash provided by (used in) investing activities (52,197) (5,080) (57,277)
---------- ---------- ----------
Cash flows from financing activities:
Repayments of long-term debt (l0,080) -- (l0,080)
Change in intercompany accounts (14,419) 14,419 --
---------- ---------- ----------
Net cash provided by (used in) financing activities (24,499) 14,419 (l0,080)
Effect of exchange rate changes on cash (2,131) 1,338 (793)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,172) 32,947 31,775
Cash and cash equivalents at:
Beginning of year 74,234 10,048 84,282
---------- ---------- ----------
End of year $ 73,062 $ 42,995 $ 116,057
========== ========== ==========
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
- ------------ -------------- --------------- ------------ ------------
Revenues $1,521,435 $ 241,971 $ (177,133) $1,586,273
Operating expenses 2,133,134 250,442 (177,133) 2,206,443
---------- ---------- ---------- ----------
Operating loss (611,699) (8,471) -- (620,170)
Interest expense, net(1) (136,425) (5,454) -- (141,879)
Other income (expense) 1,286 (79) -- 1,207
Equity in earnings of associated companies (18,152) -- 19,921 1,769
---------- ---------- ---------- ----------
Loss before reorganization items, income
taxes and minority interest (764,990) (14,004) 19,921 (759,073)
Reorganization items (60,923) -- -- (60,923)
Income tax expense (7,279) (5,744) -- (13,023)
---------- ---------- ---------- ----------
Loss before minority interest (833,192) (19,748) 19,921 (833,019)
Minority interest 1 (173) -- (172)
---------- ---------- ---------- ----------
Net loss $ (833,191) $ (19,921) $ 19,921 $ (833,191)
========== ========== ========== ==========
- ---------------
(1) Excluding contractual interest of $60,756 for Entities in Reorganization
Proceedings
79
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2000
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
- ------------ -------------- --------------- ------------ ------------
ASSETS:
Current assets $ 443,563 $ 78,260 $ -- $ 521,823
Intercompany receivables 57,370 -- (57,370) --
Property, plant and equipment, net 662,288 110,587 -- 772,875
Investment in subsidiaries 8,954 -- (8,954) --
Intangible assets, net 1,735,390 62,895 -- 1,798,285
Other assets 36,698 2,187 -- 38,885
---------- ---------- ---------- ----------
$2,944,263 $ 253,929 $ (66,324) $3,131,868
========== ========== ========== ==========
LIABILITIES:
Current liabilities $ 257,499 $ 99,580 $ -- $ 357,079
Intercompany payables -- 57,370 (57,370) --
Non-current liabilities 299,617 87,873 -- 387,490
Liabilities subject to compromise 2,500,973 -- -- 2,500,973
Minority interest 1,144 152 -- 1,296
STOCKHOLDERS' EQUITY (DEFICIT) (114,970) 8,954 (8,954) (114,970)
---------- ---------- ---------- ----------
$2,944,263 $ 253,929 $ (66,324) $3,131,868
========== ========== ========== ==========
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 2000
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS TOTALS
- ------------ -------------- --------------- ------------
Net cash provided by (used in) operating activities $ (61,419) $ 2,532 $ (58,887)
Cash flows from investing activities:
Cash expended on acquisition of businesses (15,152) (11,920) (27,072)
Proceeds from sales of property, plant and equipment 9,794 204 9,998
Purchases of property, plant and equipment (43,692) (9,406) (53,098)
Decrease (increase) in long-term investments 16,758 (4,975) 11,783
Proceeds from sale of business 31,581 -- 31,581
---------- ---------- ----------
Net cash provided by (used in) investing activities (711) (26,097) (26,808)
---------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock upon exercise of stock options 26 -- 26
Borrowings of long-term debt 235,545 17,152 252,697
Repayments of long-term debt (60,933) (6,221) (67,154)
Bank financing fees and expenses (4,047) -- (4,047)
Bank overdraft (24,739) (20,505) (45,244)
Change in derivative liabilities 21,759 -- 21,759
Change in intercompany accounts (39,054) 39,054 --
Change in other, net 146 -- 146
---------- ---------- ----------
Net cash provided by (used in) financing activities 128,703 29,480 158,183
---------- ---------- ----------
Effect of exchange rate changes on cash -- 1,722 1,722
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 66,573 7,637 74,210
Cash and cash equivalents at:
Beginning of year 7,661 2,411 10,072
---------- ---------- ----------
End of year $ 74,234 $ 10,048 $ 84,282
========== ========== ==========
80
27. SUMMARIZED FINANCIAL INFORMATION OF GUARANTOR/NON-GUARANTOR
In connection with the acquisition of Old Safety-Kleen, Safety-Kleen Services,
Inc. issued the 1998 Notes (see Note 10). The 1998 Notes are jointly and
severally guaranteed by Safety-Kleen and all wholly-owned domestic subsidiaries
on a full and unconditional basis. No foreign direct or indirect subsidiary or
non-wholly-owned domestic subsidiary is an obligor or guarantor on the
financing. Separate financial statements and other disclosures concerning each
of Safety-Kleen Services, Inc. and the subsidiary guarantors are not presented
because management believes they are not material to investors. Summarized
financial information for the Company on a combined basis is set forth below.
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2001
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------ ------------
Revenues $ -- $ 50 $ 1,394,778 $ 208,279 $ (88,524) $ 1,514,583
Operating expenses 234 26,309 1,560,332 184,568 (88,524) 1,682,919
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) (234) (126,259) (165,554) 23,711 -- (168,376)
Interest (expense) income, net(1) 156 (399) 1,950 (6,743) -- (5,036)
Other income -- -- (1,044) (514) -- (1,558)
Equity in earnings of associated
companies (229,539) (169,124) -- -- 398,663 --
----------- ----------- ----------- ----------- ----------- -----------
Loss before reorganization
items, income taxes and
minority interest (229,617) (195,782) (164,648) 16,454 398,663 (174,930)
Reorganization items (33) (40,639) (1,612) -- -- (42,284)
Income TAX (expense) benefit 572 7,207 (16,472) (9,181) -- (17,874)
----------- ----------- ----------- ----------- ----------- -----------
Loss before minority interest (229,078) (229,214) (182,732) 7,273 398,663 (235,088)
Minority interest -- -- -- 419 -- 419
----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary items (229,078) (229,214) (182,732) 7,692 398,663 (234,669)
Extraordinary (loss) gain -- (325) 5,916 -- -- 5,591
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ (229,078) $ (229,539) $ (176,816) $ 7,692 $ 398,663 $ (229,078)
=========== =========== =========== =========== =========== ===========
(1) Excluding combined contractual interest of $245,436 for Safety-Kleen
Corp., Safety-Kleen Services, Inc. and Subsidiary Guarantors.
81
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2001
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------ ------------
ASSETS:
Current assets $ 165 $ 60,066 $ 338,665 $ 94,520 $ -- $ 493,416
Intercompany receivables 338,727 2,653,522 -- -- (2,992,249) --
Property, plant and equipment, net -- 16,720 653,123 93,760 -- 763,603
Investment in subsidiaries (318,614) (982,969) -- -- 1,301,583 --
Intangible assets, net -- 37 1,646,669 81,278 -- 1,727,984
Other assets -- 608 26,662 1,520 -- 28,790
----------- ----------- ----------- ----------- ----------- -----------
20,278 1,747,984 2,665,119 271,078 (1,690,666) 3,013,793
=========== =========== =========== =========== =========== ===========
LIABILITIES:
Current liabilities 2 78,886 232,479 94,960 -- 406,327
Intercompany payables -- -- 2,938,941 53,308 (2,992,249) --
Non-current liabilities -- 56,299 331,525 83,103 -- 470,927
Liabilities subject to compromise 365,958 1,930,792 181,313 3,211 -- 2,481,274
Minority interests -- 621 617 (291) -- 947
STOCKHOLDERS' EQUITY (DEFICIT) (345,682) (318,614) (1,019,756) 36,787 1,301,583 (345,682)
----------- ----------- ----------- ----------- ----------- -----------
$ 20,278 $ 1,747,984 $ 2,665,119 $ 271,078 $(1,690,666) $ 3,013,793
=========== =========== =========== =========== =========== ===========
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 2001
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------
Net cash provided by (used in) operating activities $ (6,766) $ 52,276 $ 28,970 $ 25,445 $ 99,925
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of property, plant and
equipment -- -- 4,766 443 5,209
Purchases of property, plant and equipment -- (1,420) (63,988) (5,924) (71,332)
Proceeds from sale of investments 497 -- 8,036 313 8,846
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities 497 (1,420) (51,186) (5,168) (57,277)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments of long-term debt -- -- (l0,080) -- (l0,080)
Change in intercompany accounts 6,375 (44,374) 26,667 11,332 --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 6,375 (44,374) 16,587 11,332 (l0,080)
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash (2,131) -- -- 1,338 (793)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (2,025) 6,482 (5,629) 32,947 31,775
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at:
Beginning of year 2,153 63,880 8,201 10,048 84,282
----------- ----------- ----------- ----------- -----------
End of year $ 128 $ 70,362 $ 2,572 $ 42,995 $ 116,057
=========== =========== =========== =========== ===========
82
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2000
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------ ------------
Revenues $ -- $ 5,233 $ 1,516,202 $ 241,971 $ (177,133) $ 1,586,273
Operating expenses (323) 107,990 2,014,995 260,914 (177,133) 2,206,443
----------- ----------- ----------- ----------- ---------- -----------
Operating income (loss) 323 (102,757) (498,793) (18,943) -- (620,170)
Interest (expense) income, net(1) (28,110) 126,346 (235,129) (4,986) -- (141,879)
Other income -- 713 573 (79) -- 1,207
Equity in earnings of
associated companies (805,146) (831,906) -- -- 1,638,821 1,769
----------- ----------- ----------- ----------- ---------- -----------
Loss before reorganization items,
income taxes and minority interest (832,933) (807,604) (733,349) (24,008) 1,638,821 (759,073)
Reorganization items -- -- (60,923) -- -- (60,923)
Income tax (expense) benefit (258) 2,458 (9,479) (5,744) -- (13,023)
----------- ----------- ----------- ----------- ---------- -----------
Loss before minority interest (833,191) (805,146) (803,751) (29,752) 1,638,821 (833,019)
Minority interest -- -- 1 (173) -- (172)
----------- ----------- ----------- ----------- ---------- -----------
Net loss $ (833,191) $ (805,146) $ (803,750) $ (29,925) $1,638,821 $ (833,191)
=========== =========== =========== =========== ========== ===========
- ---------------
(1) Excluding combined contractual interest of $60,756 for Safety-Kleen Corp.,
Safety-Kleen Services, Inc. and Subsidiary Guarantors.
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2000
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------ ------------
ASSETS:
Current assets $ 42,657 $ 30,555 $ 368,903 $ 79,708 $ -- $ 521,823
Intercompany receivables 280,765 2,752,517 -- -- (3,033,282) --
Property, plant and equipment, net -- 27,730 634,918 110,227 -- 772,875
Investment in subsidiaries (87,323) (812,211) 4,356 -- 895,178 --
Intangible assets, net -- 58,565 1,669,182 70,538 -- 1,798,285
Other assets -- 3,107 33,591 2,187 -- 38,885
----------- ----------- ----------- ----------- ----------- -----------
$ 236,099 .$ 2,060,263 $ 2,710,950 $ 262,660 $(2,138,104) $ 3,131,868
=========== =========== =========== =========== =========== ===========
LIABILITIES:
Current liabilities $ 22,946 $ 27,803 $ 208,120 $ 98,210 $ -- $ 357,079
Intercompany payables -- -- 2,976,112 57,170 (3,033,282) --
Non-current liabilities (22,081) 258,314 63,784 87,473 -- 387,490
Liabilities subject to compromise 350,204 1,860,848 289,216 705 -- 2,500,973
Minority interest -- 621 523 152 -- 1,296
STOCKHOLDERS' EQUITY (DEFICIT) (114,970) (87,323) (826,805) 18,950 895,178 (114,970)
----------- ----------- ----------- ----------- ----------- -----------
$ 236.099 $ 2,060,263 $ 2,710,950 $ 262,660 $(2,138,104) $ 3,131,868
=========== =========== =========== =========== =========== ===========
83
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 2000
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------
Net cash provided by (used in) operating activities $ 14,313 $ 143,263 $ (214,846) $ (1,617) $ (58,887)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Cash expended on acquisition of businesses -- -- (15,152) (11,920) (27,072)
Proceeds from sales of property, plant and equipment -- 106 9,688 204 9,998
Purchases of property, plant and equipment -- (9,314) (34,377) (9,407) (53,098)
Decrease (increase) in long-term investments -- 10,460 6,298 (4,975) 11,783
Proceeds from sale of business -- -- 31,581 -- 31,581
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities -- 1,252 (1,962) (26,098) (26,808)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock on exercise of options 26 -- -- -- 26
Borrowings of long-term debt -- 227,000 8,545 17,152 252,697
Repayments of long-term debt -- (54,129) (6,804) (6,221) (67,154)
Bank financing fees (222) -- (3,825) -- (4,047)
Bank overdraft -- (24,739) -- (20,505) (45,244)
Change in derivative liabilities -- 21,759 -- -- 21,759
Change in other, net 146 -- -- -- 146
Change in intercompany accounts (34,605) (223,339) 214,741 43,203 --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (34,655) (53,448) 212,657 33,629 158,183
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash -- -- -- 1,722 1,722
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (20,342) 91,067 (4,151) 1,636 74,210
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at:
Beginning of year 22,495 (27,187) 12,352 2,412 10,072
----------- ----------- ----------- ----------- -----------
End of year $ 2,153 $ 63,880 $ 8,201 $ 10,048 $ 84,282
=========== =========== =========== =========== ===========
84
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1999
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------ ------------
Revenues $ -- $ 403 $ 1,524,512 $ 243,339 $ (144,216) $ 1,624,038
Operating expenses 14,677 47,750 1,474,720 224,231 (144,216) 1,617,162
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) (14,677) (47,347) 49,792 19,108 -- 6,876
Interest (expense) income, net (19,604) 81,224 (243,986) (3,814) -- (186,180)
Other income (expense) -- (5,923) 9 (1,317) -- (7,231)
Equity in earnings of associated
companies (181,962) (222,247) 1,263 -- 404,209 1,263
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes
and minority interest (216,243) (194,293) (192,922) 13,977 404,209 (185,272)
Income tax (expense) benefit (6,912) 12,331 (33,382) (11,131) -- (39,094)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest (223,155) (181,962) (226,304) 2,846 404,209 (224,366)
Minority interest -- -- 1,197 14 1,211
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ (223,155) $ (181,962) $ (225,107) $ 2,860 $ 404,209 $ (223,155)
=========== =========== =========== =========== =========== ===========
85
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 1999
SUBSIDIARY
SAFETY-KLEEN SAFETY-KLEEN SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. SERVICES, INC. GUARANTORS GUARANTORS TOTALS
- ------------ ------------ -------------- ------------ ------------ ------------
Net cash provided by (used in) operating activities $ 28,982 $ 277,722 $ (341,114) $ 52,944 $ 18,534
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Cash expended on acquisition of businesses -- -- (14,904) -- (14,904)
Proceeds from sales of property, plant and equipment -- 725 5,051 206 5,982
Purchases of property, plant and equipment -- (17,965) (40,263) (13,599) (71,827)
Decrease (increase) in long-term investments -- (10,460) (25,823) 38,066 1,783
Proceeds from sale of business -- -- 129,124 -- 129,124
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities -- (27,700) 53,185 24,673 50,158
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock on exercise of options 212 -- -- -- 212
Borrowings of long-term debt 225,000 1,460 10,450 -- 236,910
Repayment of long-term debt (200,000) (164,678) (2,128) (10,619) (377,425)
Bank financing fees (5,936) (4,367) -- -- (10,303)
Bank overdraft -- 20,767 -- 19,006 39,773
Change in derivative liabilities -- 42,492 (2,038) -- 40,454
Change in intercompany accounts (25,763) (172,883) 291,266 (92,620) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (6,487) (277,209) 297,550 (84,233) (70,379)
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash -- -- -- (3,564) (3,564)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 22,495 (27,187) 9,621 (10,180) (5,251)
Cash and cash equivalents at:
Beginning of year -- -- 2,731 12,592 15,323
----------- ----------- ----------- ----------- -----------
End of year $ 22,495 $ (27,187) $ 12,352 $ 2,412 $ 10,072
=========== =========== =========== =========== ===========
86
28. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
As discussed in Note 2, the Company contracted with outside accountants,
including those 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 necessary to prepare the Company's fiscal 2000
Consolidated Financial Statements, related disclosures and other information
requirements of the Form 10-K/A for fiscal 2000. This effort included a
comprehensive review of substantially all of the accounts and resulted in a
large number of adjustments affecting each of the respective periods. While the
Company believes the adjustments have been reflected in the appropriate annual
fiscal period, the Company has not undertaken the extraordinary effort and
additional time and cost required to apply all of the adjustments to the
appropriate interim fiscal quarter. Therefore, the quarterly financial
information required by Item 302 of Regulation S-K relating to fiscal 2000
periods has not been included in this filing.
The quarterly financial results for fiscal 2001 are summarized as follows (in
thousands, except for per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
Revenues $ 376,917 $ 369,875 $ 374,615 $ 393,176
Impairments and other charges 9,476 35,297 -- 8,111
Operating loss (47,087) (66,997) (45,887) (8,365)
Other income (expenses), net (230) (329) 448 (889)
Reorganization items (9,400) (9,814) (5,467) (17,603)
Loss before income taxes, minority interest and
extraordinary items (58,977) (78,430) (51,781) (28,026)
Income tax (expense) benefit 670 (1,048) (2,041) (15,455)
Minority interest (45) (53) (20) 537
Extraordinary items 685 1,793 3,309 (196)
Net loss (57,667) (77,738) (50,533) (43,140)
Net loss per share - basic and diluted $ (0.57) $ (0.77) $ (0.50) $ (0.43)
The Company recorded certain adjustments in fiscal 2001, which related to
periods prior to fiscal 2001. Theses adjustments, which decreased the fiscal
2001 annual net loss by approximately $3.2 million, related primarily to
environmental, severance, and benefit related liabilities, the elimination of
certain intercompany transactions, adjustments to reported amounts related to
the Company's parts cleaner service machines, and the correction of certain
asset impairment charges recorded in fiscal 2000. The effect of these
adjustments to the Company's quarterly financial results summarized above was to
increase the net loss reported in the first, second and third quarters by $8.0
million, $2.8 million and $0.6 million, respectively; and to decrease the fourth
quarter net loss by $14.6 million.
The Company does not believe these adjustments are material to the annual
financial results in fiscal 2001 or fiscal 2000.
87
29. SUBSEQUENT EVENTS
AGREEMENT TO SELL THE CHEMICAL SERVICES DIVISION
On February 22, 2002, the Company entered into a definitive agreement with Clean
Harbors, Inc. ("Clean Harbors") to sell its Chemical Services Division,
excluding the Company's landfill in Pinewood, S.C. Pursuant to the terms of the
agreement, Clean Harbors would purchase the Chemical Services Division's net
assets from the Company for $46 million in cash, subject to defined working
capital adjustments, and the assumption of certain liabilities, which includes
environmental liabilities valued at approximately $265 million as of August 31,
2001. The book value of the net assets to be sold, net of the liabilities to be
assumed, at August 31, 2001 was in excess of $300 million. On March 8, 2002, the
Bankruptcy Court approved the bidding and auction procedures for the sale of the
Company's Chemical Services Division. Pursuant to the bidding procedures, all
qualified bidders interested in purchasing some or all of the Chemical Services
Division must submit an alternative qualified bid on or before May 30, 2002.
There can be no assurance that the Bankruptcy Court and/or the various
regulatory agencies will approve the sale of the Chemical Services Division to
Clean Harbors or an alternative purchaser, or that the Company will be able to
complete the sale of the Chemical Services Division.
DIP FACILITY
On March 20, 2002, the Bankruptcy Court approved a $200 million Second Amended
and Restated Debtor-in-Possession Credit Facility (the "Second DIP Facility").
The Second DIP Facility extends the maturity date of the First DIP Facility
until the earlier of March 22, 2003, or the effective date of a plan or plans of
reorganization. In addition, it reduces the aggregate amount of borrowings
available from $100 million to $75 million, which continues to be subject to
borrowing base limitations ("Tranche A"). The Second DIP Facility also creates a
new tranche under the credit facility in the amount of $125 million ("Tranche
B"). Tranche B is available for cash borrowings and letters of credit, and has
the same maturity date as Tranche A.
Proceeds from Tranche A or Tranche B may be used for general corporate purposes.
Tranche A is available for letters of credit or cash borrowings, with a
sub-limit of $45 million available for environmental letters of credit. The
letter of credit sub-limit under Tranche B is $50 million, and there is a
further sub-limit of $40 million available for environmental letters of credit,
including the replacement of certain existing cash collateral pledged to support
financial assurance with respect to certain facilities.
Tranche A letters of credit are priced at 3% per annum (plus a fronting fee of
0.25% to the Agent) on the outstanding face amount of each letter of credit. In
addition, the Debtors pay a commitment fee of 0.50% per annum on the unused
amount of Tranche A, payable monthly in arrears. Tranche B letters of credit are
priced at 12% per annum (plus a fronting fee of 0.25% to the Agent) on the
outstanding face amount of each letter of credit, payable monthly in arrears. In
addition, the Debtors pay a commitment fee of 2.5% on the unused amount of
Tranche B letters of credit.
Interest charged for cash borrowings under Tranche A is the greater of Prime
Rate plus 1% per annum and the Fed Funds Rate plus 0.5% per annum, or LIBOR plus
3% per annum, depending on the nature of the borrowings. Interest charged for
cash borrowings under Tranche B is the greater of Prime Rate plus an applicable
margin of 7.25%, or 12% per annum. Beginning September 1, 2002, the applicable
margin on Tranche B cash borrowings increases monthly by 0.5% per annum. The
Debtors are also required to pay as additional interest, paid in kind, a fee
equal to 3% of the average daily outstanding Tranche B cash borrowings,
compounded and accrued monthly, and fully payable upon the termination of the
Second DIP Facility, provided that, if the termination does not occur prior to
September 1, 2002, the amount of such fee increases each month by 1% per annum.
The commitment fee on Tranche B is calculated at a rate equal to 4% per annum on
the average daily unused cash portion of Tranche B, payable monthly in arrears.
In addition, the Debtors are required to pay an extension fee on the Tranche B
commitments, payable as follows, if the Second DIP Facility remains outstanding
at such dates: 1.2% on September 1, 2002; 1.2% on December 1, 2002 and 1.2% on
March 22, 2003.
Under the provisions of the Second DIP Facility, the Debtors are required to
establish a $5 million interest escrow account. Tranche A and Tranche B fees and
interest will be paid from this account. On the earlier of depletion of the
escrowed funds or six months after the closing date of the Second DIP Facility,
additional funds must be deposited in the escrow account in order to assure that
$5 million will be escrowed for this same purpose.
In the event of the sale of the Company's Chemical Services Division, the net
proceeds, after reserves for certain selling expenses, interest and fees on the
Second DIP facility, shall be applied to prepay the Tranche B loans and the
availability under Tranche B will be reduced by $17 million. Net proceeds of
certain other asset sales, after reserves for certain selling expenses, interest
and fees on the Second DIP facility, are to be used to prepay Tranche A and then
Tranche B.
The Second DIP Facility benefits from superpriority claim status as provided for
under the Bankruptcy Code. Under the Bankruptcy Code, a superpriority claim is
senior to unsecured pre-petition claims and all other administrative expenses
incurred in a Chapter 11 case. As security, the Second DIP Facility lenders were
granted certain priority, perfected liens on certain of the Debtors' assets.
Pursuant to the final order approving the Second DIP Facility, such liens are
not subordinate to pari passu with any other lien or security interest (other
than (a) liens for certain administrative expenses and (b) liens in favor of
Safety-Kleen's Chief Executive Officer). The Debtors are jointly and severally
liable under the Second DIP Facility.
88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To Safety-Kleen Corp.:
We have audited, in accordance with auditing standards generally accepted in the
United States, the Consolidated Financial Statements of Safety-Kleen Corp. and
subsidiaries included in this Form 10-K/A, and have issued our report thereon
dated February 28, 2002, except with respect to the matters discussed in Note
29, as to which the date is March 20, 2002. Our audits were made for the purpose
of forming an opinion on those statements taken as a whole. The schedule listed
in Item 14 of this Form 10-K/A is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
February 28, 2002
89
SAFETY-KLEEN CORP.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
CHARGE TO
BALANCE AT COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION (IN THOUSANDS) OF YEAR EXPENSES ACCOUNTS (a) DEDUCTIONS (b) OF YEAR
- ------------------------- ---------- -------- ------------ -------------- -------
Fiscal year ended August 31, 2001:
Allowance for uncollectible accounts $ 85,253 $ 13,505 $ (896) $(27,912) $ 69,950
Fiscal year ended August 31, 2000
Allowance for uncollectible accounts $ 20,074 $ 74,337 $ (855) $ (8,303) $ 85,253
Fiscal year ended August 31, 1999
Allowance for uncollectible accounts $ 10,940 $ 14,177 $ 4,151 $ (9,194) $ 20,074
(a) Reclassifications to/from other accounts
(b) Uncollectible amounts written off
90
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
See Index to Consolidated Financial Statements and Supplementary Data on
page 30.
EXHIBITS FILED
Exhibits required to be filed with this Annual Report on Form 10-K/A are
listed in the following Exhibit Index.
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 the audited fiscal year 2000 Consolidated Financial Statements and
restatement and audit of fiscal years 1997 - 1999 Consolidated Financial
Statements.
ii. The Company filed a Current Report on Form 8-K on August 13, 2001, which
contained Item 5 related to the status of 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
91
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATE: March 27, 2002 SAFETY-KLEEN CORP.
---------------------------
(REGISTRANT)
/s/ Larry W. Singleton
---------------------------
Larry W. Singleton
Chief Financial Officer
92
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
(4)(l) to the Registrant's Form S-4 Registration Statement No.
333-82689 filed July 12, 1999 and incorporated herein by reference.
93
(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) Second Amended and Restated $200 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, Goldman Sachs Credit
Partners, L.P., as Co-Arranger and Underwriter, and The CIT
Group/Business Credit, Inc., as Collateral Agent and Underwriter dated
as of March 22, 2002.
(4)(n) 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)(o) 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)(p) 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)(q) 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)(r) 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)(s) 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)(t) Promissory Note dated May 15, 1997 for $60 million 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)(u) 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)(v) 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)(w) Rights Agreement dated as of October 15, 1999 between the Company and
EquiServe Trust Company, N.A., as Rights Agent, filed as Exhibit (c)l
to the Company's Current Report on Form 8-K filed on October 15, 1999
and incorporated herein by reference.
(4)(x) 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)(y) 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.
94
(4)(z) 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 SEC 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, lnc. 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 three months 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 three months
ended May 31, 2001, filed on September 26, 2001 and incorporated herein
by reference.
95
(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 three months 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 three months 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 filed as Exhibit (10)(u) to the
Registrant's Form 10-K for the year ended August 31, 2001, filed on
November 29, 2001 and incorporated herein by reference.
(10)(v) Agreement among Safety-Kleen Corp., Safety-Kleen Services, Inc. and
David M. Sprinkle dated October 17, 2001 filed as Exhibit (10)(v) to
the Registrant's Form 10-K for the year ended August 31, 2001, filed
on November 29, 2001 and incorporated herein by reference.
(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 October 3, 2001 between JA&A Services, LLC and
the Company, filed as Exhibit (10)(dd) to Registrant's Form 10-Q for
the three months ended November 30, 2001 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 lnc. 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.
(10)(ff) Letter Agreement dated as of September 27, 2001 between Jefferson Wells
International and Safety-Kleen Services, lnc., filed as Exhibit
(10)(ff) to Registrant's Form 10-Q for the three months ended November
30,2001 and incorporated herein by reference.
(10)(gg) Letter Agreement dated February 1, 2001 between Arthur Andersen LLP and
the Company relating to services to the Company for Company process
improvement initiatives, filed as Exhibit (10)(gg) to Registrant's Form
10-Q for the three months ended November 30, 2001 and incorporated
herein by reference.
(10)(hh) Rider #1 dated December 5, 2001, to Letter Agreement dated February 1,
2001 between Arthur Andersen LLP and the Company relating to services
to the Company for Company process improvement initiatives, filed as
Exhibit (10)(hh) to Registrant's Form 10-Q for the three months ended
November 30, 2001 and incorporated herein by reference.
(10)(ii) Letter Agreement dated March 23, 2001 between Arthur Andersen LLP and
the Company relating to services to the Company for loan staff, filed
as Exhibit (10)(ii) to Registrant's Form 10-Q for the three months
ended November 30, 2001 and incorporated herein by reference.
96
(10)(jj) Rider dated December 5, 2001, to Letter Agreement dated March 23, 2001
between Arthur Andersen LLP and the Company relating to services to the
Company for loan staff filed as Exhibit (10)(jj) to Registrant's Form
10-Q for the three months ended November 30, 2001 and incorporated
herein by reference.
(10)(kk) Acquisition Agreement by and between Safety-Kleen Services, Inc. as
Seller and Clean Harbors, Inc. as Purchaser dated February 22, 2002
filed as Exhibit 10(a) to Registrant's Form 8-K filed February 26, 2002
and included herein by reference.
(10)(ll) First Amendment to Acquisition Agreement by and between Safety-Kleen
Services, Inc. as Seller and Clean Harbors, Inc. as Purchaser dated
March 8, 2002.
(21) Subsidiaries of Registrant, filed as Exhibit (21) to Registrant's Form
10-K for the year ended August 31, 2001 and incorporated herein by
reference.
(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.
(99.3) Letter from the Company to the SEC with respect to representations
received from Arthur Andersen LLP.
97
APPENDIX E-3
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
SAFETY-KLEEN CORP., ET AL.'S UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2002
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED AUGUST 31, 2002
TABLE OF CONTENTS
PAGE
NUMBER
------
Unaudited Consolidated Statement of Operations for the year ended August 31, 2002 ........................... 1
Unaudited Consolidated Balance Sheet as of August 31, 2002 ................................................... 2
Unaudited Consolidated Statement of Cash Flow for the year ended August 31, 2002 ............................. 3
Unaudited Consolidated Statement of Changes in Stockholders' Deficit and Other Comprehensive Loss for the year
ended August 31, 2002 ...................................................................................... 4
Notes to Unaudited Consolidated Financial Statements ......................................................... 5
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2002
(DOLLARS IN THOUSANDS)
UNAUDITED
-----------
Revenues $ 872,033
Expenses:
Operating 645,211
Depreciation and amortization 121,946
Selling, general and administrative 247,405
Impairment 17,708
-----------
1,032,270
-----------
Operating loss (160,237)
Interest expense, net (excluding contractual interest of $194,342) (3,838)
Other expense, net (1,267)
-----------
Loss before reorganization items, income taxes, minority interest
and extraordinary items (165,342)
Reorganization items (52,932)
-----------
Loss before income taxes, minority interest and extraordinary items (218,274)
Minority interest (826)
-----------
Loss from continuing operations before income taxes (219,100)
Income tax expense --
-----------
Loss from continuing operations (219,100)
Discontinued operations, net of tax:
Income from operations of Chemical Services Division 5,027
Loss on disposal of Chemical Services Division (283,030)
-----------
Loss before extraordinary items (497,103)
Extraordinary items, net of tax (early extinguishment of debt) 105
-----------
Net loss $ (496,998)
===========
See accompanying notes to unaudited consolidated financial statements.
1
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9,2000)
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 2002
(AMOUNTS IN THOUSANDS, EXCEPT FOR PAR VALUE AMOUNT)
ASSETS
Current assets:
Cash and cash equivalents $ 40,475
Accounts receivable, net 129,018
Inventories and supplies 24,100
Deferred income taxes 37,620
Other current assets 62,267
Current assets of discontinued operations of Chemical Services
Division, net (Note 18) 25,000
-----------
Total current assets 318,480
Property, plant and equipment, net 480,839
Intangible assets, net (Note 3) 1,339,048
Other assets 31,561
-----------
Total assets $ 2,169,928
===========
LIABILITIES
Current liabilities:
Accounts payable $ 27,191
Current portion of environmental liabilities 11,967
Income taxes payable 19,837
Unearned revenue 53,739
Accrued other liabilities 146,903
Current portion of long-term debt 76,076
-----------
Total current liabilities 335,713
Environmental liabilities 117,009
Deferred income taxes 58,829
Other long-term liabilities 19,665
Liabilities subject to compromise 2,474,772
-----------
Total liabilities 3,005,988
Commitments and contingencies (Note 11)
Minority interests 960
STOCKHOLDERS' DEFICIT
Common stock, par value $1.00 per share; 250,000 shares authorized;
100,784 shares issued and outstanding 100,784
Additional paid-in capital 1,359,972
Accumulated other comprehensive loss (2,640)
Accumulated deficit (2,295,136)
-----------
Total stockholders' deficit (837,020)
-----------
Total liabilities and stockholders' deficit $ 2,169,928
===========
See accompanying notes to unaudited consolidated financial statements.
2
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED AUGUST 31, 2002
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(496,998)
Adjustments to reconcile net loss to net cash used in operating activities:
Extraordinary items 105
Non-cash reorganization items 986
Impairment and other charges 17,708
Depreciation and amortization 121,946
Provision for uncollectible accounts 4,316
Derivative losses 505
Loss on sale of Chemical Services Division 283,030
Loss on sale of property and equipment 7,806
Change in accounts receivable 19,162
Change in accounts payable (6,116)
Change in income taxes payable (4,091)
Change in accrued other liabilities 25,867
Change in environmental liabilities 2,320
Change in unearned revenue (7,448)
Change in liabilities subject to compromise (65,510)
Change in other, net (23,250)
---------
Net cash used in operating activities of continuing operations (60,662)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 2,615
Purchases of property, plant & equipment (51,489)
Decrease in long-term investments (1,380)
---------
Net cash used in investing activities of continuing operations (50,254)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (5,297)
---------
Net cash used in financing activities of continuing operations (5,297)
---------
Net cash provided by discontinued operations 40,631
---------
Net decrease in cash and cash equivalents (75,582)
Cash and cash equivalents at:
Beginning of year 116,057
---------
End of year $ 40,475
=========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ --
=========
Income taxes paid $ 7,980
=========
See accompanying notes to unaudited consolidated financial statements.
3
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT AND OTHER COMPREHENSIVE LOSS
FOR THE YEAR ENDED AUGUST 31, 2002
(DOLLARS AND SHARES IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE ACCUMULATED
COMMON STOCK CAPITAL INCOME DEFICIT TOTAL
---------------------- ---------- ------------- ----------- --------
SHARES DOLLARS
------- --------
BALANCE AT AUGUST 31, 2001 100,784 $100,784 $1,359,972 $(8,300) $(1,798,138) $(345,682)
Comprehensive loss:
Net loss -- -- -- -- (496,998) (496,998)
Other comprehensive
income (loss):
Foreign currency translation
adjustments -- -- -- (491) -- (491)
Disposal of Chemical
Services Division -- -- -- 5,723 -- 5,723
Unrealized gain on
marketable Securities -- -- -- 428 -- 428
---------
Total comprehensive loss -- -- -- -- -- (491,919)
------- -------- ---------- ------- ----------- ---------
BALANCE AT AUGUST 31, 2002 100,784 $100,784 $1,359,972 $(2,640) $(2,295,136) $(837,020)
======= ======== ========== ======= =========== =========
See accompanying notes to unaudited consolidated financial statements
4
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2002
1. BASIS OF PRESENTATION
Safety-Kleen Corp. ("Safety-Kleen") (collectively referred to with its
subsidiaries as the "Company") has identified material deficiencies in many of
its financial systems, processes and related internal controls. The Company has
been taking steps that, over time, will establish a satisfactory system of
internal controls and a timely, reliable financial reporting process. The
Company continues the process of correcting these deficiencies by filling key
financial accounting and reporting positions within the organization. In
addition, a comprehensive review has recently been completed of the processes,
procedures and related controls surrounding several major transaction cycles
starting with the transaction's origination at both field and corporate
locations. As a result of the review the Company implemented numerous new
processes, policies and procedures that will assist in the elimination of the
identified material deficiencies. In addition, effective November 4, 2002 the
Company implemented a comprehensive information technology system. These
improvements and initiatives, however, were not effective during the period
included in the accompanying unaudited consolidated financial statements.
Company history suggests that adjustments may be identified in months subsequent
to August 31, 2002 and during the course of the audit to be conducted by the
Company's external accountants some of which may be material. Actual audited
results will likely differ from the amounts reported herein. In addition, the
notes to the unaudited consolidated financial statements do not include all
disclosures required by generally accepted accounting principles or the
Securities and Exchange Commission.
The accompanying unaudited consolidated financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
realization of assets, and payment of liabilities in the ordinary course of
business, and do not reflect adjustments that might result if Safety-Kleen is
unable to continue as a going concern. Safety-Kleen's history of significant
losses, stockholders' deficit and their Chapter 11 Cases, as well as issues
related to compliance with debt covenants and financial assurance requirements
discussed in Notes 9 and 11, raise substantial doubt about the Company's ability
to continue as a going concern. Safety-Kleen intends to file a plan or plans of
reorganization with the Bankruptcy Court. Continuing as a going concern is
dependent upon, among other things, Safety-Kleen's formulation of a plan or
plans of reorganization, the success of future business operations, and the
generation of sufficient cash from operations and financing sources to meet the
Company's obligations. The unaudited consolidated financial statements do not
reflect: (i) the realizable value of assets on a liquidation basis or their
availability to satisfy liabilities; (ii) aggregate pre-petition liability
amounts that may be allowed for unrecorded claims or contingencies, or their
status or priority; (iii) the effect of any changes to the Debtors' capital
structure or in the Safety-Kleen's business operations as the result of an
approved plan or plans of reorganization; or (iv) adjustments to the carrying
value of assets (including goodwill and other intangibles) or liability amounts
that may be necessary as a result of actions by the Bankruptcy Court.
The Company's unaudited consolidated financial statements as of and for the year
ended August 31, 2002 have been presented in conformity with SOP 90-7. This
statement requires, among other things, a segregation of liabilities subject to
compromise by the Bankruptcy Court as of the bankruptcy filing date and
identification of all transactions and events that are directly associated with
the reorganization of the Company. In recording liabilities subject to
compromise, the Company must make certain estimates relating to the amounts it
expects to be allowed in the bankruptcy proceeding. The actual amounts required
to settle these claims could significantly differ from the amounts currently
recorded.
On June 18, 2002, the Bankruptcy Court approved a definitive agreement to sell
the Chemical Services Division ("CSD") (see Note 18). The results of operations
have been classified as discontinued operations as a separate component of net
loss in the accompanying unaudited consolidated financial statements. The assets
and liabilities of discontinued operations have been reclassified in the
unaudited consolidated balance sheet to segregate the assets held for sale of
its discontinued operations.
5
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS, ORGANIZATION AND BANKRUPTCY
BUSINESS AND ORGANIZATION
Safety-Kleen was incorporated in Delaware in 1978 as Rollins Environmental
Services, Inc. ("Rollins"), later changed its name to Laidlaw Environmental
Services, Inc. ("LESI") and subsequently changed its name to Safety-Kleen Corp.
Through its operating subsidiaries, 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. Prior to the sale of the
Company's CSD (as described in Note 18), the Company provided these services in
50 states, ten Canadian provinces, and Puerto Rico from approximately 375
collection, processing and other locations.
On May 15, 1997, pursuant to a stock purchase agreement among Rollins, Laidlaw
Inc., a Canadian corporation ("Laidlaw"), and its subsidiary, Laidlaw
Transportation Inc. ("LTI"), Rollins acquired the hazardous and industrial waste
operations of Laidlaw (the "Rollins Acquisition"). As a result of the Rollins
Acquisition, Laidlaw owned 67% of the issued common shares of LESI. Accordingly,
the business combination was accounted for as a reverse acquisition using the
purchase method of accounting, with Rollins being treated as the acquired
company. Coincident with the closing of the Rollins Acquisition, the continuing
legal entity changed its name from Rollins Environmental Services, Inc. to
Laidlaw Environmental Services, Inc.
On May 26, 1998, LESI completed the acquisition of the former Safety-Kleen
Corp., a Wisconsin corporation ("Old Safety-Kleen"). The acquisition of Old
Safety-Kleen has been accounted for under the purchase method. LESI changed its
name effective July 1, 1998, and began doing business as Safety-Kleen Corp. and
its stock began trading on the New York Stock Exchange ("NYSE") and the Pacific
Exchange, Inc. ("PCX") under the name Safety-Kleen Corp. and the ticker symbol
SK. The stock was suspended from trading on the NYSE and the PCX on June 12,
2000 and was removed from listing and registration on the NYSE on July 20, 2000,
and the PCX on September 29, 2000.
The Company includes part cleaner services and other specialized services to
automotive repair, commercial and manufacturing customers. The Company provides
its services in the United States, Canada and Puerto Rico primarily through a
network of branches supported by accumulation centers, solvent recycling plants,
distribution facilities, refuel blending facilities, oil terminals, oil-refining
plants and other miscellaneous and satellite locations. The Company's primary
processing options are various recycling processes, oil-refining and
waste-derived fuels blending for reuse as fuel in cement kilns. Operationally,
the Company is divided into branch operations; oil and recycle operations;
logistics and supply chain; and administration/other. The Company provides
services to customers in the vehicle repair, manufacturing, photo processing,
medical and dry cleaning markets.
The largest service component of the Company is its parts cleaner service. Other
service offerings of the Company 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.
BANKRUPTCY
On June 9, 2000, Safety-Kleen and 73 of its domestic subsidiaries (collectively,
the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases")
under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. ss 101-1330, as
amended (the "Bankruptcy Code") in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). The Chapter 11 Cases are being
jointly administered for procedural purposes only, before the Bankruptcy Court
under Case No. 00-2303 (PJW). Excluded from the filing were certain of
Safety-Kleen's non wholly-owned domestic subsidiaries and all Safety-Kleen's
indirect foreign subsidiaries.
The Debtors remain in possession of their properties and assets, and the
management of the Debtors continues to operate their respective businesses as
debtors-in-possession under Sections 1107 and 1108 of the Bankruptcy Code. As
debtors-in-possession, the Debtors are authorized to manage their properties
and operate their businesses, but may not engage in transactions outside the
ordinary course of business without the approval of the Bankruptcy Court.
6
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS, ORGANIZATION AND BANKRUPTCY - CONTINUED
Under Section 365 of the Bankruptcy Code, subject to the approval of the
Bankruptcy Court, the Debtors may assume or reject executory contracts and
unexpired leases. Parties affected by these rejections may file proofs of claim
with the Bankruptcy Court in accordance with the reorganization process. Claims
for damages resulting from the rejection of executory contracts or unexpired
leases will he subject to separate bar dates, generally thirty days after entry
of the order approving the rejection. At various times since the commencement of
the Chapter 11 Cases, the Bankruptcy Court has approved the Debtors' requests to
reject certain contracts or leases that were deemed burdensome or of no further
value to the Company. As of November 6, 2002, the Debtors had not yet completed
their review of all contracts and leases for assumption or rejection, but
ultimately will assume or reject all such contracts and leases. The Debtors have
until the confirmation of a plan or plans of reorganization to assume or reject
executory contracts, nonresidential real property leases, and certain other
leases. The Debtors cannot presently determine or reasonably predict the
ultimate liability that may result from rejecting such contracts or leases or
from the filings of rejection damage claims, but such rejections could result in
additional liabilities subject to compromise.
Consummation of a plan or plans of reorganization is the principal objective of
the Chapter 11 Cases. A plan of reorganization sets forth the means for
satisfying claims against and interests in the Debtors, including the
liabilities subject to compromise. Generally, pre-petition liabilities are
subject to settlement under such a plan or plans of reorganization, which must
be voted upon by creditors and equity holders and approved by the Bankruptcy
Court. The Debtors have retained Lazard Freres & Co. LLC, an investment bank, as
corporate restructuring advisor to assist them in formulating and negotiating a
plan or plans of reorganization for the Debtors. Although the Debtors expect to
file a reorganization plan or plans as soon as reasonably possible, there can be
no assurance that a reorganization plan or plans will be proposed by the Debtors
or confirmed by the Bankruptcy Court, or that any such plan or plans will be
consummated.
As provided by the Bankruptcy Code, the Debtors initially had the exclusive
right to submit a plan or plans of reorganization for 120 days from the date the
petitions were filed. By orders dated on October 17, 2000, May 16, 2001, October
18, 2001, February 11, 2002 and finally on May 9, 2002, the Bankruptcy Court
allowed for additional time during which the Debtors would retain the exclusive
right to file a plan of reorganization and solicit acceptances of such plan
through October 31, 2002 and December 31, 2002, respectively. On October 31,
2002, the Debtors filed a motion requesting additional time to file a plan of
reorganization until November 29, 2002, and until February 28, 2003 to solicit
acceptance of the plan.
Currently, it is not possible to predict the length of time the Debtors 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 Bankruptcy Code, post-petition liabilities and pre-petition liabilities
subject to compromise must be satisfied before shareholders can receive any
distribution. The ultimate recovery to shareholders, if any, will not be
determined until the end of the case when the fair value of the Debtors' assets
is compared to the liabilities and claims against the Debtors. There can be no
assurance as to what value, if any, will be ascribed to the common stock in the
bankruptcy proceedings. The Company does not believe the common shareholders
will receive any distribution upon consummation of a plan or plans of
reorganization.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Safety-Kleen and all of its majority-owned subsidiary companies.
All significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and term deposits in
investments with initial maturities of three months or less. These investments
are stated at cost, which approximates market value.
7
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
RESTRICTED FUNDS HELD BY TRUSTEES
Restricted funds held by trustees are included in other assets and consist
principally of financial assurance funds deposited in connection with landfill
final closure and post-closure obligations, amounts held for landfill and other
construction arising from industrial revenue financings, and amounts held to
establish a GSX Contribution Fund for the Safety-Kleen (Pinewood), Inc. facility
("Pinewood Facility") (see Note 11). These amounts are principally invested in
fixed income securities of federal, state and local governmental entities and
financial institutions. Realized investment earnings and trust expenses are
recorded currently in the accompanying unaudited consolidated statement of
operations.
The Company considers its landfill closure, post-closure, construction and
escrow investments, totaling $3.9 million at August 31,2002, to be held to
maturity. The Company has the ability, and management has the intent, to hold
investment securities to maturity. Reductions in market value considered by
management to be other than temporary are reported as a realized loss and
reduction in the cost basis of the security. At August 31,2002, the aggregate
fair value of these investments approximate their net book value and
substantially all of these investments mature within one year. The GSX
Contribution Fund for the Pinewood Facility, totaling $20.9 million at August
31, 2002, has been treated as if it were available for sale (see Note 11).
Accordingly, unrealized gains and losses resulting from changes between the cost
basis and fair value of the securities, in this fund, are recorded in the
accompanying unaudited consolidated statement of changes in stockholders'
deficit as adjustments to other comprehensive income (loss).
INVENTORIES AND SUPPLIES
Inventories consist primarily of solvent, oil and oil products, drums,
associated products for resale, supplies and repair parts, which are valued at
the lower of cost or market as determined on a first-in, first-out basis.
Inventories also include precious metals, which are recorded at market value.
The Company periodically reviews its inventories for obsolete or unsaleable
items and adjusts its carrying value to reflect estimated realizable values.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Expenditures for major
renewals and improvements, which extend the life or usefulness of the asset, are
capitalized. Items of an ordinary repair or maintenance nature, as well as major
maintenance activities at incinerators, are charged directly to operating
expense as incurred. The Company capitalizes environmentally related
expenditures, which extend the life of the related property or mitigate or
prevent future environmental contamination.
During the construction and development period of an asset, the costs incurred,
including applicable interest costs, are classified as construction-in-process.
Once an asset has been completed and placed in service, it is transferred to the
appropriate category and depreciation commences.
Buildings are depreciated on a straight-line basis using estimated useful lives
of 20 to 40 years. Machinery and equipment are depreciated on a straight-line
basis using estimated useful lives of 3 to 40 years. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of the
improvement.
INTANGIBLE ASSETS
The Company evaluates the excess of the purchase price over the amounts assigned
to tangible assets and liabilities (excess purchase price) associated with each
of its acquisitions to value the identifiable intangible assets. Any portion of
the excess purchase price that cannot be separately identified represents
goodwill. The Company evaluates the estimated economic lives of each intangible
asset, including goodwill, and amortizes the asset over that life.
Customer list - The Company has evaluated the value associated with the customer
lists of acquired companies. The value is based on a number of significant
assumptions, including category of customer, estimated duration of customer
relationship and projected margins from existing customers. Based on its
evaluation, the Company believes the acquired customer lists have estimated
lives, ranging from 11 to 30 years, which it uses to amortize these assets.
Software - The Company has evaluated the value associated with the software of
acquired companies. The value is based on a number of significant assumptions,
primarily the cost to replace the existing software. The Company believes the
acquired software has an estimated life of 5 years, which it has used to
amortize these assets.
8
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Permits -- The Company has reflected the excess of the fair value of
non-landfill facilities over the tangible assets acquired as permits. The
Company has determined the value of acquired permits based on either a
discounted cash flow or other appraisal method. The Company has evaluated and
determined that the acquired non-landfill permits have estimated economic lives
in excess of 40 years, but believes 40 years is an appropriate period for
amortization of these assets. Accordingly, the Company is amortizing the value
of permits over a period of 40 years.
Goodwill -- The remaining excess purchase price of acquired companies, after
allocation to permits and the identified intangible assets discussed above, has
been classified as goodwill. The Company considers legal, contractual,
regulatory, obsolescence and competitive factors in determining the useful life
and amortization period of this intangible asset. The Company believes the
goodwill associated with the acquired companies has estimated lives ranging from
40 years to an undeterminable life. As such, the Company has amortized the
goodwill over 40 years.
Goodwill is reviewed for impairment when events or circumstances indicate it may
not be recoverable. If it is determined that goodwill may be impaired and the
estimated undiscounted future cash flows, excluding interest, of the underlying
business are less than the carrying amount of the goodwill, then an impairment
loss is recognized. The impairment loss is based on the difference between the
fair value of the underlying business and the carrying amount. The method of
determining fair value differs based on the nature of the underlying business.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically evaluates whether events and circumstances have
occurred that indicate that the remaining useful life of any of its tangible and
intangible assets may warrant revision or that the carrying amounts might not he
recoverable. When factors indicate that the tangible and intangible assets
should he evaluated for possible impairment, the Company uses an estimate of the
future undiscounted cash flows generated by the underlying assets to determine
if a write-down is required. If a write-down is required, the Company adjusts
the book value of the underlying goodwill and then the book value of the
impaired long-lived assets to their estimated fair values. The related charges
are recorded in impairment in the accompanying unaudited consolidated statement
of operations (see Note 14).
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the life of the related debt
instrument and are included in other assets in the accompanying unaudited
consolidated balance sheet as of August 31, 2002. Related amortization expense
was $4.9 million for the year ended August 31, 2002.
CREDIT CONCENTRATION
Concentration of credit risks in accounts receivable is limited due to the large
number of customers comprising the Company's customer base throughout North
America. The Company performs periodic credit evaluations of its customers. The
Company establishes an allowance for uncollectible accounts based on the credit
risk applicable to particular customers, historical trends and other relevant
information.
REVENUE RECOGNITION
The Company recognizes revenue upon disposal for its waste collection and
disposal activities, and over the applicable service intervals for its parts
cleaner and related businesses. Consulting and oil collection services revenue
is recognized when services are performed. Revenue from product sales is
recognized upon delivery to the customers. Unearned revenue has been recorded
for services billed but not earned in the accompanying unaudited consolidated
balance sheet. Direct costs associated with the handling and transportation of
waste prior to disposal and other variable direct costs associated with the
Company's parts cleaner and related businesses are capitalized as a component of
other current assets in the accompanying unaudited consolidated balance sheet
and expensed when the related revenue is recognized. Deferral periods related to
unearned revenue and the related direct costs typically range from one to six
months.
9
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
INCOME TAXES
Income taxes are calculated in accordance with SFAS No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts. Future tax benefits, such as net operating loss
carryforwards, are recognized to the extent that realization of such benefits is
more likely than not.
FOREIGN CURRENCY
Foreign subsidiary balances are translated according to the provisions of SFAS
No. 52, "Foreign Currency Translation." The functional currency of each foreign
subsidiary is in its respective local currency. Assets and liabilities are
translated to U.S. Dollars at the exchange rate in effect at the balance sheet
date and revenue and expenses at the average exchange rate for the year. Gains
and losses from the translation of the unaudited consolidated financial
statements of the foreign subsidiaries into U.S. dollars are included in
stockholders' deficit as a component of other comprehensive income (loss).
Gains and losses resulting from foreign currency transactions are recognized in
other expense income in the accompanying unaudited consolidated statement of
operations. The Company recognized a loss from foreign currency transactions of
$0.7 million in the year ended August 31, 2002. Recorded balances that are
denominated in a currency other than the functional currency are adjusted to the
functional currency using the exchange rate at the balance sheet date.
USE OF ESTIMATES
The preparation of the unaudited consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the unaudited consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period. Certain estimates
require management's judgment, and when applied, materially affect the Company's
consolidated financial statements. The Company considers the "Basis of
Presentation" (see above), environmental liabilities, asset impairments,
litigation contingencies, Safety-Kleen (Pinewood), Inc. ("Pinewood") and recent
accounting developments to include estimates that required or will require
management's judgment. These estimates involve matters that are inherently
uncertain in nature and have a material effect on the unaudited consolidated
financial statements. Actual results could differ materially from those
estimates.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 141 also specifies criteria for
intangible assets acquired in a business combination to be recognized and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company is required to adopt the provisions of
SFAS No. 141 immediately for new transactions and SFAS No. 142 on September 1,
2002. Upon adoption of SFAS No. 142, the Company will discontinue the
amortization of goodwill and anticipates an impairment of goodwill for
approximately $1.1 billion.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 will require, upon adoption, that the Company
recognize as a component of asset cost, the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. Under this statement, the
liability is discounted and accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. The Company will be required to adopt SFAS No. 143 on
September 1, 2002. The Company is currently in the process of evaluating the
impact of SFAS No. 143. However, the adoption of this standard is expected to
result in the recognition of additional assets and liabilities, and may result
in a significant charge to operations as the cumulative effect of a change in
accounting principle in the period of adoption.
10
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The new rules change the criteria for
classifying an asset as held-for-sale. The standard also broadens the scope of
businesses to be disposed of that qualify for reporting as discontinued
operations, and changes the timing of recognizing losses on such operations. The
Company will be required to adopt SFAS No. 144 on September 1, 2002. The Company
is currently in the process of evaluating the potential impact that the adoption
of SFAS No. 144 will have on its consolidated financial position and results of
operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
SFAS No. 145 rescinds previous accounting guidance, which required all gains and
losses from extinguishment of debt be classified as an extraordinary item. Under
SFAS No. 145, classification of debt extinguishment depends on the facts and
circumstances of the transaction. The Company will be required to adopt SFAS No.
145 on September 1,2002. The Company is currently in the process of evaluating
the impact of SFAS No. 145. However, the adoption of this standard is not
expected to have a material effect on the unaudited consolidated financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires recognition of costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employees'
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a
material effect on the unaudited consolidated financial statements.
4. ACCOUNTS RECEIVABLE
Accounts receivable at August 31, 2002 consist of the following (dollars in
thousands):
Trade accounts receivable $ 143,179
Other receivables 9,191
Allowance for uncollectible accounts (23,352)
---------
$ 129,018
=========
5. PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment at August 31,2002 consist of the following
(dollars in thousands):
Land $ 73,597
Buildings 167,063
Machinery and equipment 392,538
Leasehold improvements 20,612
Construction in process 24,931
---------
Total property, plant and equipment 678,741
Less: Accumulated depreciation and amortization (197,902)
---------
Property, plant and equipment, net $ 480,839
=========
Machinery and equipment includes the cost of Company-owned parts cleaner service
machines placed at customers' locations as part of the Company's parts cleaner
service offering, as well as such machines and replacement parts on-hand for
future placement at customers' locations. Depreciation commences when a unit is
placed in service at a customer location. The combined net book value of such
machines was $78.6 million at August 31,2002.
11
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY, PLANT AND EQUIPMENT -- CONTINUED
Depreciation and amortization expense related to property, plant and equipment
was $65.8 million in year ended August 31, 2002.
Included within property, plant and equipment is an administrative office
building held for sale, which was the former headquarters of Old Safety-Kleen in
Elgin, Illinois. The building, including land and related improvements, has been
recorded at its estimated fair value, less estimated costs to sell, of
approximately $9.0 million as of August 31, 2002.
During year ended August 31, 2002, the Company had no capitalized interest
costs, as contractually required interest payments have been stayed by
bankruptcy.
Assets recorded under capitalized lease agreements included in property, plant
and equipment consist of the following as of August 31, 2002 (dollars in
thousands):
<Table>
Equipment $ 10,426
Vehicles 23,231
--------
Total property under capital leases 33,657
Accumulated amortization (14,508)
--------
Net property under capital leases $ 19,149
========
</Table>
6. INTANGIBLE ASSETS
Intangible assets at August 31, 2002 consist of the following (dollars in
thousands):
<Table>
Customer lists $ 220,000
Software 50,000
Permits 76,261
Goodwill 1,240,777
-----------
Total intangible assets 1,587,038
Less: accumulated amortization (247,990)
-----------
Intangible assets, net $ 1,339,048
===========
</Table>
The amortization expense associated with customer lists was $12.7 million in
year ended August 31, 2002. The amortization expense associated with software
was $10.0 million in year ended August 31, 2002. The amortization expense
associated with non-landfill permits was $2.0 million in year ended August 31,
2002. The amortization expense associated with goodwill was $31.4 million in
year ended August 31, 2002.
7. ACCRUED OTHER LIABILITIES
Accrued other liabilities at August 31, 2002 consist of the following (dollars
in thousands):
<Table>
Employee salaries and benefits $ 34,737
Professional fees 72,024
Insurance 5,331
Interest 14,331
Taxes 13,399
Other 7,081
--------
Total $146,903
========
</Table>
12
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. CLOSURE, POST-CLOSURE AND ENVIRONMENTAL REMEDIATION LIABILITIES
Remedial liabilities, including Superfund liabilities -- The Company
periodically evaluates potential remedial liabilities at sites that it owns or
operates and at sites to which it has transported or disposed of waste,
including 55 Superfund sites as of February 28, 2002. The majority of the issues
at Superfund sites relate to allegations that the Company, or its predecessors,
transported waste to the facilities in question, often prior to the acquisition
of the alleged potentially responsible party ("PRP") by Safety-Kleen. The
Company periodically reviews and evaluates sites requiring remediation,
including Superfund sites, giving consideration to the nature (i.e., owner,
operator, transporter or generator) and the extent (i.e., amount and nature of
waste hauled to the location, number of years of site operations or other
relevant factors) of the Company's alleged connection with the site, the
regulatory context surrounding the site, the accuracy and strength of evidence
connecting the Company to the location, the number, connection and financial
ability of other named and unnamed PRPs and the nature and estimated cost of the
likely remedy. Where the Company concludes that it is probable that a liability
has been incurred, provision is made in the unaudited consolidated financial
statements, based upon management's judgment and prior experience, for the
Company's best estimate of the liability. Such estimates, which are inherently
subject to change, are subsequently revised if and when additional information
becomes available.
Revisions to remediation reserve requirements may result in upward or downward
adjustments to income from operations in any given period. The Company believes
that its extensive experience in the environmental services business, as well as
its involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. It is reasonably possible that
technological, regulatory or enforcement developments, the results of
environmental studies or other factors could necessitate the recording of
additional liabilities and/or the revision of currently recorded liabilities
that could be material. The impact of such future events cannot be estimated at
the current time.
Discounted environmental liabilities -- When the Company believes that both the
amount of a particular environmental liability and the timing of the payments
are fixed nor reliably determinable, its cost in current dollars is inflated
using estimates of future inflation rates (2.9% of August 31, 2002) until the
expected time of payment, then discounted to its present value using a risk-free
discount rate (5.8% of August 31, 2002). The portion of the Company's recorded
environmental liabilities (including closure, post-closure and remedial
obligations) that is not inflated or discounted was approximately $96.1 million
at August 31, 2002. Had the Company not discounted any portion of its liability,
the amount recorded would have been increased by approximately $54.8 million at
August 31, 2002. The Company estimates it will provide $54.8 million in
additional environmental reserves (including the inflation and discount factors
referred to above) over the remaining site lives of its facilities based on
current estimated costs.
The Company has recorded liabilities for closure, post-closure and remediation
obligations as of August 31, 2002 as follows (dollars in thousands):
<Table>
Current portion of environmental liabilities $ 11,967
Non-current portion of environmental liabilities 117,009
Balances included in liabilities subject to compromise (see Note 10) 16,906
--------
Total $145,882
========
</Table>
Reserves for closure, post-closure and remediation as of August 31, 2002 are as
follows (dollars in thousands):
<Table>
Remediation $ 49,835
Superfund liabilities 13,052
Closed sites (excluding Pinewood) 24,763
Pinewood landfill 58,232
--------
145,882
Less: Current portion of environmental liabilities 11,967
--------
Long term environmental liabilities $133,915
========
</Table>
Total closure and post-closure reserves related to the Pinewood Facility was
$55.2 million as of August 31, 2002. Total environmental remediation reserves
related to the Pinewood Facility were $3.0 million as of August 31, 2002. The
South Carolina Department of Health and Environmental Control has required that
an environmental impairment fund ("EIF") be established for any potential
environmental clean-up and restoration of environmental impairment at the
Pinewood Facility (see Notes 3 and 11).
13
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT AND OTHER FINANCING
Long-term debt and other financing at August 31, 2002 consist of the following
(dollars in thousands):
<Table>
Domestic Borrowings and other financing subject to
compromise:
Senior Credit Facility:
Term Loans $ 1,137,750
Revolver 340,000
Senior Subordinated Notes, due June 1, 2008 325,000
Senior Notes, due May 15, 2009 225,000
Promissory note, due May 2003 60,000
Industrial revenue bonds, due 2003-2027 80,603
Other 2,971
-----------
2,171,324
Domestic Borrowings and other financing not subject to
compromise:
Capital lease obligations 13,762
-----------
Canadian Borrowings:
Senior Credit Facility 46,123
Operating Facility 16,191
-----------
62,314
-----------
Total debt not subject to compromise 76,076
-----------
Total debt 2,247,400
Less: Current portion not subject to compromise (76,076)
Less: Long-term debt subject to compromise (see Note 10) (2,171,324)
-----------
Long-term debt $ --
===========
</Table>
DIP FACILITY
On July 19, 2000, the Bankruptcy Court granted final approval of a one-year $100
million Revolving Credit Agreement underwritten by Toronto Dominion (Texas),
Inc. as general administrative agent and CIT Group/Business Credit, Inc. as
collateral agent (the "First DIP Facility") with an aggregate sublimit for
letters of credit of $35 million. The actual amount available under the First
DIP Facility was subject to a borrowing base computation. The First DIP Facility
was amended on eleven occasions through March 15, 2002, which amendments have,
among other things, extended the maturity date, increased the aggregate limit
for letters of credit to $95 million, increased the sublimits for letters of
credit for certain uses and waived the Debtors' non-compliance with certain
affirmative covenants under the First DIP Facility. The Debtors are jointly and
severally liable under the First DIP Facility. As of August 31, 2002, no amounts
have been drawn on the First DIP Facility and approximately $48 million of
letters of credit have been issued.
On March 20, 2002, the Bankruptcy Court approved a $200 million Second Amended
and Restated Debtor-in-Possession Credit Facility (the "Second DIP Facility").
The Second DIP Facility extends the maturity date of the First DIP Facility
until the earlier of March 22, 2003, or the effective date of a plan or plans of
reorganization. In addition, it reduces the aggregate amount of borrowings
available from $100 million to $75 million, which continues to be subject to
borrowing base limitations ("Tranche A"). The Second DIP Facility also creates a
new tranche under the credit facility in the amount of $125 million ("Tranche
B"). Tranche B is available for cash borrowings and letters of credit, and has
the same maturity date as Tranche A. As of August 31, 2002, no amounts have been
drawn on the Second DIP Facility and approximately $7 million of letters of
credit have been issued.
Proceeds from Tranche A or Tranche B may be used for general corporate purposes.
Tranche A is available for letters of credit or cash borrowings, with a
sub-limit of $45 million available for environmental letters of credit. The
letter of credit sub-limit under Tranche B is $50 million, and there is a
further sub-limit of $40 million available for environmental letters of credit,
including the replacement of certain existing cash collateral pledged to support
financial assurance with respect to certain facilities.
14
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT AND OTHER FINANCING - CONTINUED
The Second DIP Facility was amended on three occasions through October 24, 2002,
which amendments have, among other things, changed the definition of a material
adverse effect, allowed the transfer of letters of credit from the First DIP
Facility to the Second DIP Facility, extended the date for return of certain
letters of credit and changed certain negative covenants under the First and
Second DIP Facilities.
The interest rate under Tranche A of the DIP Facility is base rate plus 1% per
annum or LIBOR plus 3% per annum, depending on the nature of the borrowings. The
interest rate under Tranche B of the DIP Facility is LIBOR or base rate plus a
margin of 7.25%, but in any case not lower than 12%. In addition, beginning on
September 1, 2002, the margin under Tranche B started to increase by .5% on the
first calendar day of each month. On top of the cash interest due with respect
to Tranche B, an additional 3% per annum is added to the Tranche B principal
each month, such rate increasing by 1% each month commencing on September 1,
2002. A fee of 3% per annum is charged on the outstanding face amount of Tranche
A letters of credit and a fee of 12% per annum is charged on the outstanding
face amount of Tranche B letters of credit (plus, in each case, a fronting fee
of 0.25%). The DIP Facility matures on the earlier of March 21, 2003, or the
effective date of a plan of reorganization.
Under the provisions of the Second DIP Facility, the Debtors are required to
establish a $5 million interest escrow account. Tranche A and Tranche B fees and
interest will he paid from this account. On the earlier of depletion of the
escrowed funds or six months after the closing date of the Second DIP Facility,
additional funds must be deposited in the escrow account in order to assure that
$5 million will he escrowed for this same purpose.
Upon the sale of the CSD (see Note 18), the net proceeds, after reserves for
certain selling expenses, interest and fees on the Second DIP facility, shall be
applied to prepay the Tranche B loans and the availability under Tranche B will
be reduced by $17 million. Net proceeds of certain other asset sales, after
reserves for certain selling expenses, interest and fees on the Second DIP
facility, are to be used to prepay Tranche A and then Tranche B.
The Second DIP Facility benefits from superpriority claim status as provided for
under the Bankruptcy Code. Under the Bankruptcy Code, a superpriority claim is
senior to unsecured pre-petition claims and all other administrative expenses
incurred in a Chapter 11 case. As security, the Second DIP Facility lenders were
granted certain priority, perfected liens on certain of the Debtors' assets.
Pursuant to the final order approving the Second DIP Facility, such liens are
not subordinate to or pari passu with any other lien or security interest (other
than (a) liens for certain administrative expenses and (b) liens in favor of
Safety-Kleen's Chief Executive Officer). The Debtors are jointly and severally
liable under the Second DIP Facility.
OTHER DOMESTIC BORROWINGS
Senior Credit Facility -- In April 1998, the Company repaid its then existing
bank credit facility and established a $2.2 billion Senior Credit Facility (the
"Senior Credit Facility") pursuant to a credit agreement between the Company and
a syndicate of banks and other financial institutions. In June 1998, the
availability of the Senior Credit Facility was permanently reduced by $325
million to $1.875 billion by the subsequent issuance of the Senior Subordinated
Notes described below. The Senior Credit Facility consists of five parts: (i) a
$550 million six-year Senior Secured Revolving Credit Facility with a $200
million letter of credit sublimit and $400 million sublimit for loans (the
"Revolver"); (ii) a $455 million six-year senior secured amortizing term loan;
(iii) a $70 million six-year senior secured amortizing term loan; (iv) a $400
million minimally amortizing seven-year senior secured term loan; and (v) a $400
million minimally amortizing eight-year senior secured term loan. The term loans
referred to in clauses (ii), (iii), (iv) and (v) are collectively referred to
herein as the "Term Loans."
15
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT AND OTHER FINANCING - CONTINUED
Interest costs on the Senior Credit Facility are reset periodically, at least
annually, and vary depending on the particular facility and whether the Company
chooses to borrow under Eurodollar or non-Eurodollar loans. Interest rates
applicable to the Senior Credit Facility ranged from 7.56% to 12.88%, including
a 2% default premium, effective June 1, 2000.
As of August 31, 2002, the Term Loans have been drawn in full and borrowings
outstanding under the Revolver totaled $340 million. In addition, there were
approximately $83.0 million of letters of credit issued under the terms of the
Revolver. As a result of the Debtors' Chapter 11 Cases, all additional
availability under the Revolver has been terminated, although the letters of
credit remain outstanding.
Domestic borrowings of Safety-Kleen Services, Inc. (formerly known as LES, Inc.)
("Domestic Borrower") under the Senior Credit Facility are collateralized by
substantially all of the non-hazardous tangible and intangible assets of the
domestic subsidiaries of the Domestic Borrower, plus 65% of the capital stock of
Safety-Kleen's then wholly-owned foreign subsidiaries, including, but not
limited to, Safety-Kleen's then primary Canadian subsidiaries, Safety-Kleen
Canada Inc. and Safety-Kleen Ltd. ("Canadian Borrower"). In addition,
substantially all of the capital stock of the Domestic Borrower and its
wholly-or majority-owned domestic subsidiaries is pledged to the Domestic Senior
Credit Facility lenders (the "Domestic Lenders") and such domestic subsidiaries
guaranteed the obligations of the Domestic Borrower to the Domestic Lenders.
Senior Subordinated Notes -- On May 29, 1998, the Domestic Borrower, a
wholly-owned subsidiary of Safety-Kleen, issued $325 million 9.25% Senior
Subordinated Notes due 2008 in a Rule 144A offering. In accordance with an
Exchange and Registration Rights Agreement entered at the time of the issuance
of the aforementioned notes, the Company filed a registration statement with the
SEC on June 24, 1998, pursuant to which the Company exchanged the 9.25% Senior
Subordinated Notes due 2008 for substantially identical notes of the Company
(the "1998 Notes"). Net proceeds from the sale of the 1998 Notes, after the
underwriting fees and other expenses, were approximately $316.8 million. The
proceeds were used to repay a portion of the borrowings outstanding under the
Senior Credit Facility.
The 1998 Notes mature on June 1,2008. Interest is payable semiannually, on
December 1 and June 1. The 1998 Notes will he redeemable, in whole or in part,
at the option of the Company, at any time and from time to time at a redemption
price as defined in the indenture. Upon a change in control of the Company, each
holder of the 1998 Notes may require the Company to repurchase all or a portion
of the holder's 1998 Notes at 101% of the principal amount, plus accrued
interest.
The 1998 Notes are general unsecured obligations of the Domestic Borrower,
subordinated in right of payment to all existing and future senior indebtedness,
as defined, of the Domestic Borrower. The 1998 Notes will rank senior in right
of payment to all existing and future subordinated indebtedness of the Domestic
Borrower, if any. The payment of the 1998 Notes are guaranteed on a senior
subordinated basis by Safety-Kleen and are jointly and severally guaranteed on a
senior subordinated basis by the Domestic Borrower's wholly-owned domestic
subsidiaries. No foreign direct or indirect subsidiary or non wholly-owned
domestic subsidiary is an obligor or guarantor on the financing.
Senior Notes -- On May 17, 1999, Safety-Kleen issued $225 million 9.25% Senior
Notes due 2009 in a Rule 144A offering which were subsequently exchanged for
substantially identical notes of Safety-Kleen in an offering registered with the
SEC in September 1999 (the "1999 Notes"). Net proceeds, after the underwriting
fees and other expenses, were approximately $219 million and were used to
finance the cash portion of the purchase price for the repurchase of the
pay-in-kind debenture ("PIK Debenture"), for expenses relating to the repurchase
and for general corporate purposes.
The 1999 Notes mature on May 15,2009, with interest payable semi-annually on May
15 and November 15. The 1999 Notes will be redeemable, in whole or in part, at
the option of Safety-Kleen, at any time and from time to time at a redemption
price as defined in the indenture. Upon a change in control of Safety-Kleen,
each holder of the 1999 Notes may require Safety-Kleen to repurchase all or a
portion of such holder's 1999 Notes at 101% of the principal amount thereof,
plus accrued interest.
The 1999 Notes are unsecured and rank equally with all existing and future
senior indebtedness and are senior to all existing and future subordinated
indebtedness. The 1999 Notes are not guaranteed by Safety-Kleen's subsidiaries.
The Senior Credit Facility, the 1998 Notes and the 1999 Notes contain negative,
affirmative and financial covenants including covenants restricting debt,
guarantees, liens, mergers and consolidations, sales of assets, transactions
with affiliates, the issuance of stock to third parties and payment of dividends
and establishing a total leverage ratio test, a fixed charge coverage test, an
16
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT AND OTHER FINANCING -- CONTINUED
interest coverage ratio test and a maximum contingent obligation to operating
cash flow ratio test. As a result of the Chapter 11 Cases, Safety-Kleen, which
was not in compliance with the covenants at the time of the Chapter 11 Cases,
classified the entire portion of domestic borrowings as liabilities subject to
compromise.
Other Borrowings -- The $60.0 million promissory note and $25.7 million of the
Industrial revenue bonds are guaranteed by Laidlaw, which will be resolved
pursuant to the settlement described in Note 11.
CAPITAL LEASES
The Company leases equipment and vehicles over periods generally ranging from 3
to 5 years. Following is a summary of the future minimum lease payments under
capital leases (dollars in thousands):
<Table>
<Caption>
Year ending August 31,
2003 $ 4,644
2004 9,981
--------
Total minimum payments 14,625
Less: amount representing interest (863)
--------
Obligations under capital leases $ 13,762
========
</Table>
CANADIAN BORROWINGS
Senior Credit Facility -- The Canadian Borrower and Safety-Kleen's Canadian
subsidiaries participated in the Senior Credit Facility under which it
established and initially borrowed $70.0 million (USD) from a syndicate of five
banks. The term loan has a floating interest rate based on Canadian prime plus
1.375% or Canadian Bankers Acceptance, ("CB/A") plus 2.375%, at the Company's
discretion. As a result of the Debtors' filing for Chapter 11 bankruptcy
protection, its Canadian subsidiaries were in default of the loan conditions and
a notice of default has been issued by the banks making the loan payable on
demand. In accordance with the provisions of default under the Senior Credit
Facility, the floating interest rate will increase an additional 2% if all or a
portion of any principal of any Loan, any interest payable thereon, any
commitment fee or any Reimbursement Obligation or Acceptance Reimbursement
Obligation or other amount payable hereunder shall not be paid when due.
Accordingly, the outstanding loan balance is classified as a current liability
as of August 31, 2002, and interest continues to accrue at the Canadian prime
plus 3.375%.
Operating Facility -- On April 3, 1998, the Canadian Borrower entered into a
letter agreement with the Toronto Dominion Bank providing an operating line of
credit of up to $35.0 million (CDN). The letter agreement has a floating
interest rate based on Canadian prime plus 1.375% or CB/A plus 2.375% for
Canadian borrowings and prime plus 1.375% or LIBOR plus 2.375% for U.S.
borrowings, at the Company's discretion. On March 4, 2000, Toronto Dominion Bank
cancelled this letter agreement at which time the Canadian Borrower had
borrowings of $17.2 million and letters of credit totaling $3.6 million. The
full amount borrowed was in default at August 31, 2002 due to breaches of loan
covenants by the local subsidiary. Accordingly, the outstanding loan balance is
classified as a current liability as of August 31, 2002.
Borrowings by the Canadian Borrower under the Senior Credit Facility and the
Canadian Operating Facility (collectively referred to as the "Canadian Debt")
were collateralized by substantially all of the tangible personal property of
Safety-Kleen's Canadian subsidiaries and by the guarantees of the Domestic
Borrower's domestic, wholly-owned and majority-owned subsidiaries. Additionally,
35% of the common stock of Safety-Kleen Canada Inc. and of the Canadian Borrower
was pledged in favor of the Canadian Senior Credit Facility Lenders and the
Canadian Operating Facility Lenders.
As a result of the divestiture of the CSD to Clean Harbors, Inc. ("Clean
Harbors") (see Note 18), the asset purchase agreement provided that the equity
interests of the Canadian Borrower would be transferred to Clean Harbors and
thus, as part of the sale of the CSD, the Domestic Borrower was to cause, on or
before closing of the sale: (i) the release of the Canadian Borrower for its
primary obligation under the Canadian Debt; (ii) the release of each direct and
indirect subsidiary of the Canadian Borrower (the "Canadian Subsidiaries") from
their respective guarantee obligation under the Canadian Debt; and (iii) the
release of all security granted by the Canadian Borrower and each of the
Canadian Subsidiaries to collateralize payment of the Canadian Facility
(collectively, the "Canadian Release Condition").
17
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT AND OTHER FINANCING - CONTINUED
As a requirement to consummate the sale of the CSD, and to satisfy the Canadian
Release Condition, the Debtors sought the Bankruptcy Court's authority to
restructure the obligations under the Canadian Debt so that the Domestic
Borrower would become the primary obligor under the Canadian Debt in
substitution for the Canadian Borrower obligations for which the Domestic
Borrower was already liable and such obligations would be allowed as an
administrative expense claim of the Domestic Borrower, provided that such
administrative expense claim would be satisfied solely through a distribution to
the Canadian Lenders under the Canadian Debt of the same form of consideration
that would be distributed to the U.S. Lenders. By order dated September 6, 2002,
the Bankruptcy Court approved the restructure and reclassification of the
Domestic Borrower's secured obligations under the Canadian Debt in aid of the
consummation of the sale of the CSD to Clean Harbors.
SUBORDINATED CONVERTIBLE DEBENTURE
On May 15, 1997, the Company issued a $350 million 5% subordinated convertible
PIK Debenture due May 15, 2009, to Laidlaw, in partial payment for the Rollins
Acquisition described in Note 2.
Interest on the PIK Debenture was payable semiannually, on November 15 and May
15 until maturity. Interest payments due during the first two years after
issuance of the PIK Debenture were required to be satisfied by the issuance of
Safety-Kleen's common stock, based on the market price of the common shares at
the time the interest payments were due. At the Company's option, any other
interest or principal payments, other than optional early redemption, could have
been satisfied by issuing common stock, based on the market price of the stock
at the time such payments are due. During the year ended August 31, 1999, the
Company issued 1,545,399 of common shares to Laidlaw, in satisfaction of
interest payments due.
On August 27, 1999, the Company repurchased the PIK Debenture for an aggregate
purchase price comprised of (i) $200 million in cash; (ii) 11,320,755 shares of
common stock; and (iii) 376,858 shares of common stock in satisfaction of
accrued and unpaid interest on the PIK Debenture to the date of purchase. The
cash portion of the purchase price was financed with the issuance of the 1999
Notes.
As discussed in Note 11, the Company filed an action against Laidlaw and its
affiliate companies LTI and Laidlaw International Finance Corporation ("LIFC")
to recover funds of over $200 million related to the repurchase of the PIK
Debenture.
INTEREST EXPENSE
Interest expense incurred under the Company's credit facilities and other
borrowings was $5.3 million (net of interest income of $1.5 million) for the
year ended August 31, 2002 (excluding contractual interest on domestic
borrowings of $194.3 million for the year ended August 31, 2002 after the June
9, 2000 bankruptcy filing (see Note 10).
18
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. LIABILITIES SUBJECT TO COMPROMISE
The principal categories of claims classified as liabilities subject to
compromise under bankruptcy reorganization proceedings are identified below. All
amounts below may be subject to future adjustment depending on Bankruptcy Court
action, further developments with respect to disputed claims, or other events,
including the reconciliation of claims filed with the Bankruptcy Court to
amounts included in the Company's records (see Note 2). Additional pre-petition
claims may arise from rejection of additional executory contracts or unexpired
leases by the Debtors. Under a confirmed plan or plans of reorganization, all
pre-petition claims may be paid and discharged at amounts substantially less
than their allowed amounts.
Recorded liabilities -- On a consolidated basis, recorded liabilities subject to
compromise under Chapter 11 proceedings as of August 31, 2002 consist of the
following (dollars in thousands):
Accrued litigation $ 17,917
Derivative liabilities 69,461
Trade accounts payable 111,070
Accrued insurance liabilities 10,373
Environmental liabilities 16,906
Accrued interest 67,170
Senior Credit Facility:
Term loans 1,137,750
Revolver 340,000
Adequate protection payments (18,088)
Senior Subordinated Notes 325,000
Senior Notes 225,000
Promissory note 60,000
Industrial revenue bonds 80,603
Other 31,610
-----------
$ 2,474,772
===========
As a result of the Chapter 11 Cases, principal and interest payments may not be
made on pre-petition debt without Bankruptcy Court approval or until a plan or
plans of reorganization defining the repayment terms has been confirmed. The
total interest on pre-petition debt that was not paid or charged to earnings for
the period from June 9, 2000 to August 31, 2002 was $194.3 million. Such
interest is not being accrued since it is not probable that it will be treated
as an allowed claim. The Bankruptcy Code generally disallows the payment of
interest that accrues post-petition with respect to unsecured or undersecured
pre-petition liabilities.
Contingent liabilities -- Contingent liabilities as of the Chapter 11 filing
date are also subject to compromise. At August 31, 2002, the Company was
contingently liable to banks, financial institutions and others for
approximately $82.7 million for outstanding letters of credit, which included
$0.8 million of performance bonds securing performance of sales contracts and
other guarantees in the ordinary course of business.
The Company is a party to litigation matters and claims that are normal in the
course of its operations. Generally, litigation related to "claims", as defined
by the Bankruptcy Code, is stayed. Also, as a normal part of their operations,
the Company undertakes certain contractual obligations, warranties and
guarantees in connection with the sale of products or services. The outcome of
the bankruptcy process on these matters cannot be predicted with certainty.
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company enters into operating and capital leases primarily for real property
and vehicles under various terms and conditions. As discussed in Note 10,
commitments related to certain operating and capital leases are subject to
compromise and additional claims may arise from the rejection of unexpired
leases. Rent expense for all operating leases amounted to $27.9 million in the
year ended August 31, 2002.
19
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
The following table presents the contractually stated minimum future lease
payments (dollars in thousands):
OPERATING
LEASES
---------
Year ending August 31,
2003 $ 24,254
2004 17,110
2005 12,181
2006 8,530
2007 131,209
---------
Total minimum payments $ 75,284
=========
</Table>
PURCHASE COMMITMENTS
On December 15, 2000, the Bankruptcy Court approved a multi-year marketing and
distribution agreement between Safety-Kleen Systems, Inc., a subsidiary of
Safety-Kleen, and SystemOne. The agreement, which includes a five-year minimum
purchase commitment, appointed the Company as the exclusive North American
marketer of, distributor of, and service provider for, the line of parts
cleaning equipment manufactured by SystemOne. Under the terms of the agreement,
the purchase price for each unit of equipment shall consist of a "standard
price" plus a "deferred price." The Company shall pay to SystemOne the standard
price at the time of purchase and the deferred price for each unit of equipment
purchased in 36 equal monthly payments. The Company's obligation to pay the
deferred portion of the purchase price for equipment purchased prior to the
termination date shall survive any termination of the marketing and distribution
agreement with SystemOne. In connection with the agreement, the Company received
a warrant to purchase SystemOne stock (see Notes 16).
The following table presents the contractually stated minimum purchase
commitments and deferred price (dollars in thousands):
STANDARD DEFERRED TOTAL
PRICE PRICE COMMITMENT
-------- -------- ----------
Year ending August 31,
2003 $17,523 $ 1,667 $19,190
2004 21,278 2,621 23,899
2005 25,534 3,159 28,693
2006 9,012 3,615 12,627
2007 -- 2,794 2,794
Thereafter -- 1,759 1,759
------- ------- -------
Total minimum commitments $73,347 $15.615 $88,962
Less: Amount representing interest -- (1,284) (1,284)
------- ------- -------
Obligations under SystemOne agreement $73,347 $14,331 $87,678
======= ======= =======
Effective July 2000, the Company entered into an outsourcing arrangement with
Acxiom Corporation to outsource certain information technology operations and
support previously performed at the former headquarters of Old Safety-Kleen. The
term of the agreement is five years from the date of integration, which
commenced in September 2001, and the cost is approximately $0.6 million per
month for a total commitment of approximately $29 million over the remaining
term of the contract as of August 31, 2002.
LIABILITY INSURANCE
The Company's insurance programs for certain workers' compensation, general
liability (including product liability) and automobile liability carry
self-insured retentions up to certain limits. Claims in excess of these
self-insurance retentions are fully insured. For claims within the workers'
compensation, general liability (including product liability), property, and
automobile liability self-insured retentions, the Company estimates these
liabilities based on actuarially determined estimates of the incurred but not
reported claims plus any portion of incurred but not paid claims and premiums.
These estimates are generally within a range of potential ultimate outcomes. All
employee-related health care benefits are fully insured and the Company's
liabilities
20
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
include both an accrual for an estimate of the incurred but not reported claims
that is calculated using historical claims data and an accrual for the incurred
but not paid claims and premiums.
The Company's liabilities for unpaid and incurred but not reported claims as of
August 31, 2002 were $33.5 million under its current risk management program.
Certain product and workers' compensation liabilities have been classified as
long-term liabilities based upon actuarial projections of future claims
payments. These liabilities as of August 31, 2002 were $23.4 million. In
addition, $10.4 million of the self-insured liabilities as of August 31, 2002
are subject to compromise. While the ultimate amount of claims incurred are
dependent on future developments, in management's opinion, recorded reserves are
adequate to cover the future payment of claims. However, it is reasonably
possible that recorded reserves may not be adequate to cover the future payment
of claims and there is no guarantee that the Company will have the cash or funds
available to pay any or all claims. Adjustments, if any, to estimates recorded
resulting from ultimate claim payments will be reflected in results of
operations in the periods in which such adjustments are known.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with certain executives, which
provide for compensation and certain other benefits. The agreements also provide
for severance payments under certain circumstances.
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. Safety-Kleen and certain of its subsidiaries as owners and
operators of RCRA and TSCA waste management facilities are 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, starting in 1997, many of the Debtors 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 half was 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, effective May 31, 2000, the Debtors
no longer had compliant financial assurance for many of its facilities. Under
applicable regulations, these Debtors were required to obtain compliant
financial assurance within sixty days, and in some states, more quickly
(although the surety bonds issued by Frontier no longer qualified as acceptable
federal bonds, they remained in place and effective until replaced). Immediately
following this U.S. Treasury announcement, the Company notified the EPA of its
lack of audited Consolidated financial statements for the years ended 1999, 1998
and 1997 and the difficulties that certain alleged accounting irregularities
would cause the Company in attempting to obtain compliant financial assurance
for its facilities 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.
Some states referred their enforcement authority to EPA for purposes of this
CAFO and thus are, in effect, parties to the CAFO. Other states entered
separate, but similar, consent agreements with certain Debtors. Some states did
not enter separate written agreements, but have allowed the Company to continue
operating while it obtained coverage to replace the Frontier bonds.
21
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
The main component of the CAFO (and of the consent agreements in various states)
was a compliance schedule for Safety-Kleen and its affected subsidiaries to
obtain compliant financial assurance for the facilities covered by the Frontier
bonds. That schedule was modified on several occasions after the CAFO was
entered and as the Company replaced Frontier at various facilities. Over the
course of the Chapter 11 Cases, the Debtors have been able to replace Frontier
coverage with compliant financial assurance coverage by other providers at all
but a handful of facilities.
Except for the Pinewood Facility, those remaining noncompliant facilities were
among the assets that Debtors sold to Clean Harbors, Inc. (see Note 18) as of
September 7, 2002. Clean Harbors, Inc. has since provided compliant replacement
financial assurance at those facilities. The Debtors have separately resolved
the Frontier coverage issues and other issues at the Pinewood Facility in a
global settlement (the "Pinewood Settlement") with the South Carolina Department
of Health and Environmental Control (see Safety-Kleen (Pinewood), Inc. below).
In the CAFO, the Debtors were required to waive certain arguments they otherwise
could have asserted under the Bankruptcy Code with respect to their financial
assurance and certain other obligations under environmental laws, including with
respect to discharge of claims. The Debtors' lenders and the unsecured creditors
committee have reserved their right to assert certain of such arguments.
The CAFO also imposed a penalty of about $1.6 million on certain Debtors,
including Safety-Kleen Services, Inc. Some states have imposed financial
assurance penalties in addition to this amount. In several instances, the
penalties are co-mingled with penalties associated with unrelated violations,
making it difficult to attribute specific penalty amounts to financial
assurance. The Company believes such additional financial assurance penalties
(except those set forth and resolved in the Pinewood Settlement), would total
approximately $500,000 through December 31, 2002. However, more states may
choose to assert penalties. In most cases, the financial assurance penalties
are, by agreement, entitled to administrative priority.
The Debtors had posted a $28.5 million letter of credit in 1997 with Frontier as
collateral for the Frontier coverage. Under the CAFO, debtors were not permitted
to seek the return of this collateral while Frontier coverage remained
outstanding. Upon the completion of the Frontier replacement program, the
Debtors expect to seek return of this collateral. There can be no assurance that
the Company will he able to secure return of this collateral.
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.
As of August 31, 2002, the Company had provided financial assurances in the form
of insurance policies and performance bonds to the applicable regulatory
authorities totaling approximately $500.0 million, in connection with closure,
post-closure and corrective action requirements of certain facility operating
permits. Letters of credit and cash deposits of approximately $119.0 million
are held to meet various financial assurance requirements. Restricted assets of
$24.8 million are held in trust for landfill closure, post-closure and
environmental impairment. Insurance policies with limits of approximately $92.0
million are held to cover any bodily injury or property damage to third parties
caused by accidental occurrences at certain of the Company's facilities.
CHAPTER 11 PROCEEDINGS
As described in Note 2, the Debtors filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code on June 9, 2000. Management has continued to
operate the business of the Debtors as debtors-in-possession under Sections 1107
and 1108 of the Bankruptcy Code. Pursuant to the automatic stay provision of
Section 362 of the Bankruptcy Code virtually all pending pre-petition litigation
against the Debtors is currently stayed.
22
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
As of August 31, 2002, proofs of claim in the approximate amount of $187.0
billion have been filed against the Debtors by, among others, secured creditors,
unsecured creditors and security holders. The Company is in the process of
reviewing the proofs of claim and once this process is complete, will file
appropriate objections to the claims in the Bankruptcy Court. As of August 31,
2002, the Company believes it has identified approximately $184.0 billion of
such claims that are duplicative or without merit. The Company believes that the
amount of these claims that are in excess of the $2.5 billion recorded as
"Liabilities subject to compromise" in the accompanying unaudited consolidated
financial statements as of August 31, 2002 are: (i) duplicative or without
merit; (ii) do not meet the criteria to be recorded as a liability under
generally accepted accounting principles; and (iii) will not have a material
effect on the unaudited consolidated financial statements, but there can be no
assurance that the Company is correct and these claims may have a material
effect on the unaudited consolidated financial statements.
As a result of the Chapter 11 Cases, the Company has not paid certain real
estate taxes and certain taxing authorities have asserted liens against the real
estate.
Currently, it is not possible to predict the length of time the Debtors 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 Bankruptcy Code, post-petition liabilities and pre-petition liabilities
subject to compromise must be satisfied before shareholders can receive any
distribution. The ultimate recovery to shareholders, if any, will not be
determined until the end of the case when the fair value of the Debtors' assets
is compared to the liabilities and claims against the Debtors. There can be no
assurance as to what value, if any, will be ascribed to the common stock in the
bankruptcy proceedings. The Company does not believe the shareholders will
receive any distribution upon the consummation of a plan or plans of
reorganization.
ACTIONS INVOLVING LAIDLAW INC.
Laidlaw directly or indirectly owns 43.6% of the outstanding common stock of
Safety-Kleen and had various other arrangements and relationships with the
Company. On November 7, 2000, Laidlaw, on behalf of itself and its direct and
indirect subsidiaries (collectively referred to as the "Laidlaw Group"), 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 Laidlaw Group claims 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, Safety-Kleen, on behalf of itself and its direct and indirect
subsidiaries, filed with the Bankruptcy Court an objection to the proof of claim
filed by Laidlaw Group.
On April 19, 2001, the Company filed an action against Laidlaw and its
affiliates, LTI and LIFC (collectively the "Laidlaw Defendants") in the Debtors'
Chapter 11 Cases, Adv. Pro. No. 01-01086 (PJW). This action seeks to recover a
transfer of over $200 million in August 1999 (the "Transfer") made to or for the
benefit of the Laidlaw Defendants, holders of 43.6% of Safety-Kleen's common
stock. The Company asserts that the transfer is recoverable either 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.
On June 28, 2001, Laidlaw and five of its subsidiary holding companies, Laidlaw
Investments Ltd., LIFC, Laidlaw One, Inc., LTI and Laidlaw USA, Inc.
(collectively, "Laidlaw Debtors") 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 Case Nos. 01-14099K through 01-1404K. 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. 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 Laidlaw Debtors in the
above-referenced Chapter 11 cases. The claims against Laidlaw Debtors 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
23
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
claims. Laidlaw Debtors have 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 Debtors.
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. As a result of Laidlaw
Debtors' filings, claims and causes of action the Company may have against
Laidlaw Debtors may be subject to compromise in the Laidlaw Debtors' Chapter 11
or CCAA proceedings.
In December 2001, pursuant to the Safety-Kleen/Laidlaw Mediation Discovery
Protocol, the Debtors, the Debtors' secured lenders, the Debtors' Official
Committee of Unsecured Creditors, certain of the Debtors' directors, Laidlaw
Debtors and the Laidlaw Debtors creditors' committee and subcommittees agreed to
undertake, on an expedited and consolidated basis, limited preliminary discovery
to obtain information to assist in presenting submissions to a mediator in an
effort to resolve certain outstanding claims between and among the parties in
the Debtors' and Laidlaw Debtors bankruptcy cases. A mediation proceeding began
in early April 2002.
On August 16, 2002 and on August 30, 2002, the Bankruptcy Court for the District
of Delaware and the Bankruptcy Court for the Western District of New York,
respectively, approved a settlement resolving Laidlaw's $6.5 billion claim
against Safety-Kleen and Safety-Kleen's claims against Laidlaw, claims by the
Debtors secured lenders of $6.3 billion against Laidlaw, and claims by certain
officers and directors of each company against the other company. The central
component of the settlement between the two companies was the agreement by
Laidlaw and its major creditor groups to provide in the Laidlaw Debtor's plan of
reorganization for an allowed general unsecured claim of $225 million in favor
of Safety-Kleen, to be classified as a Class 6 claim with other general
unsecured claims under the Laidlaw Debtors' reorganization plan.
In addition, the settlement provided that: (i) upon effectiveness of agreement,
the Laidlaw Parties will assign to Toronto Dominion (Texas), Inc., on behalf of
itself and as administrative agent for the Debtors' lenders under the
Prepetition Credit Facility, any and all rights the Laidlaw parties may have to
the funds, which aggregate approximately $2.6 million (as of August 31, 2002)
plus accrued interest thereafter, maintained at Bank One, and Safety-Kleen will
promptly release such funds to the Debtors' Lenders on the Effective Date, (ii)
Laidlaw would not make further draws upon the Dai-Ichi Kangyo Bank Letter of
Credit issued at the request of the Debtors, and (iii) Laidlaw agreed to waive
any rights it may have against Safety-Kleen for payments of amounts due under or
to seek reimbursement for any amounts that have been or may in the future be
paid by Laidlaw under the SKC Insurance & Claims Handling Program 4/1/98 to
8/31/99 dated August 10, 1999, or the Addendum to the Insurance Claims Handling
Program, which extended the Insurance Claims Handling Program through August 31,
2000. The result of this settlement has not been reflected in the unaudited
results of operations. The Company has not determined the impact this settlement
will have on the financial position and results of operations of the Company.
LEGAL PROCEEDINGS
Legal proceedings covering a wide range of matters are pending or threatened in
the United States and foreign jurisdictions against the Company and/or former
and/or current officers, directors and employees. Various types of claims are
raised in these proceedings, including shareholder class action and derivative
lawsuits, product liability, environmental, antitrust, tax, and breach of
contract. Management consults with legal counsel in estimating reserves and
developing estimates of ranges of potential loss.
The Company has claims where management has assessed that an unfavorable outcome
is probable and has accrued for such claims in the amount of $25.0 million,
including $17.9 million subject to compromise.
Additionally, the Company also has substantial claims where management has
assessed that an unfavorable outcome is probable or, at least, reasonably
possible and which, if incurred, may have a material adverse effect on the
Company's financial condition. The Company, however, has not recorded reserves
related to these claims, as management believes the potential loss is not
currently estimable.
The actual outcomes from these claims, the most significant of which are
discussed below, could differ from these estimates.
24
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES -- CONTINUED
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
As previously reported 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 following receipt by
Safety-Kleen's Board of Directors of information alleging possible accounting
irregularities that may have affected the previously reported financial results
of the Company since the year ended 1998. The internal investigation was
subsequently expanded to include the years ended 1998 and 1997. The Board
appointed a special committee to conduct the internal investigation (the
"Special Committee (Investigation)"). The Special Committee (Investigation)
engaged the law firm Shaw Pittman, and Shaw Pittman engaged the accounting firm
Arthur Andersen LLP, to assist with the comprehensive investigation of these
matters. The Board placed Kenneth W. Winger, then Safety-Kleen's President and
Chief Executive Officer and a director, Michael J. Bragagnolo, then Executive
Vice President and Chief Operating Officer, and Paul R. Humphreys, then Senior
Vice President of Finance and Chief Financial Officer, on administrative leave
on March 5, 2000. 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.
Beginning in March 2000, a number of lawsuits were filed, on behalf of various
classes of investors, including bondholders and shareholders, against the
Company, certain officers, former directors, and others. The complaints that did
name the Company were subsequently amended eliminating the Company as a
defendant and adding certain other defendants, including certain former
Directors of Safety-Kleen. The complaints allege, among other things, that the
defendants made false and misleading statements and violated certain federal
securities laws. Generally, the actions seek to recover damages in unspecified
amounts that the plaintiffs allegedly sustained by acquiring shares of
Safety-Kleen's common stock or purchasing debt of the Company. Certain of the
individual defendants who are former officers or directors of the Company had
made demands to be indemnified by the Company in connection with the action.
Safety-Kleen recently entered into a settlement with certain of the former
directors whereby Safety-Kleen would pay up to $5 million of their attorney's
fees in connection with these actions, from the summer of 2002 forward. To the
extent Safety-Kleen has any liability or additional liability, such liability
will be treated as either a general unsecured claim or be subordinated.
Shortly after the Company's March 6, 2000, announcement, Company representatives
met with officials of the SEC and advised the SEC 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 SEC had
initiated a formal investigation of the Company. Also on March 10, 2000, the
Commission issued a subpoena to the Debtors requiring the production of certain
financial and corporate documents relating to the preparation of the Debtors'
financial statements, reports and audits for the years ended 1998, 1999 and
portions of the years ended 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 Debtors requiring additional
documents relating to the preparation of the Debtors' financial statements,
reports and audits for the years ended 1998, 1999 and portions of the years
ended 1997 and 2000. On October 7, 2002, the Commission issued a third subpoena
for deposition transcripts of certain parties and witnesses in the Lenders
Action Against PwC. The Debtors have responded to the subpoenas and cooperated
with the investigation.
Safety-Kleen has consented to the entry of an injunction permanently enjoining
Safety-Kleen, its agents, servants, employees, attorneys-in-fact, and all other
persons in active concert or participation with them who receive actual notice
of the injunction from violating the books and records, reporting and anti-fraud
provisions of the Exchange Act of 1934 and certain rules promulgated thereunder.
Safety-Kleen consented to the injunction without admitting or denying any
allegations against it, except that Safety-Kleen admitted that a court would
have jurisdiction to enter the injunction.
In addition, the Debtors are subject to an investigation in the Southern
District of New York. 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 documents sought by the
SEC in its investigation. The Company has responded to the subpoena. The Debtors
have responded to the subpoenas and cooperated with the investigation.
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 ("PwC") and
PricewaterhouseCoopers LLP (Canada) ("PwC-Canada"), Civil No. 3:Ol-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
25
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
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. PwC and
PwC-Canada have filed counterclaims for contribution and indemnity. Furthermore,
PwC has filed counterclaims alleging fraud, deceit, negligent misrepresentation
and violations of the federal Racketeer Influenced and Corrupt Organizations
Act. Each of these counterclaims are for setoff purposes only and pursuant to a
stipulation and order entered by the Bankruptcy Court on August 13, 2002,
neither PwC nor PwC-Canada is seeking affirmative relief from Safety-Kleen.
Safety-Kleen has filed a motion to dismiss all of the counterclaims. The PwC
Action is pending in state court. The court has not ruled on Safety-Kleen's
motion to dismiss the counterclaim.
On December 13, 2000, thirteen lenders to Safety-Kleen sued PwC in the State
Court of Fulton County, Georgia, alleging negligent misrepresentation by
PricewaterhouseCoopers LLP in connection with the financial statements of the
Debtors for the years ended 1997, 1998 and 1999. The case was captioned Toronto
Dominion (Texas), Inc., et. al. v. PricewaterhouseCoopers LLP Civil Action
No. 00 VS 02679 F ("the Lenders Action Against PwC"). The complaint has been
amended three times, and the plaintiffs now number over 90 lenders to Safety-
Kleen. On October 23, 2001, PwC filed a motion for leave to file a third-party
complaint naming the Debtors and their former officers Kenneth W. Winger,
Michael J. Bragagnolo, and Paul R. Humphreys as third party defendants in a
third party claim for indemnity or contribution. The Georgia state court granted
the motion and PwC served a third-party complaint for indemnity and Contribution
against, inter alia, the Debtors. The Debtors then filed a motion in Bankruptcy
Court alleging that PwC had violated the automatic stay provisions of federal
bankruptcy law and seeking to enforce the automatic stay. The Bankruptcy Court
granted Safety-Kleen's motion and declared PwC's third party complaint against
the Debtors void ab initio. PwC then filed a motion in Bankruptcy Court seeking
to lift the automatic stay for the limited purpose of allowing the trier of fact
to allocate a percentage of the plaintiffs' harm to the Debtors. PwC does not
seek affirmative recovery from the Debtors, though it does seek the right to
set-off any judgment the Debtors obtain from PwC. A stipulation and order was
entered by the Bankruptcy Court on August 13, 2002 for the purpose of permitting
(a) PwC to pursue, for allocation purposes only, its contribution and indemnity
claims in the Georgia Litigation, and (b) PwC and PwC-Canada to pursue, by way
of set-off only, their counterclaims in the litigation brought against PwC and
PwC-Canada by the Debtors in the PwC Action pending in South Carolina. Safety-
Kleen has filed a motion to dismiss PwC's third party claim for contribution.
The court has not ruled on Safety-Kleen's motion to dismiss.
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. 0lCP404813 (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 mentioned above. The Complaint
alleges causes of action for declaratory judgment and breach of contract. The
Complaint also seeks insurance coverage for plaintiffs' for costs associated
with defending the securities actions and for any liability plaintiffs may
ultimately incur. Discovery is ongoing and the parties are participating in
mediation. The Company intends to pursue this claim vigorously.
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 Debtors believe that these claims are not meritorious and intend to
vigorously defend themselves against any and all such claims. 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.
26
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
Nevertheless, certain insurers have disputed and continue to dispute whether or
to what extent the insurance policies provide coverage for third party claims
arising from solvent recovery and product liability claims. As a result, the
Debtors initiated the following action asserting contractual claims and seeking
declaratory relief Safety-Kleen v. Continental, Case No. BC 216723, pending in
the Superior Court of California, County of Los Angeles (the "California
Coverage Action").
In the California Coverage Action, the Debtors seek coverage under certain other
historical comprehensive general liability policies for bodily injury and other
claims arising out of product liability toxic tort suits and claims and similar
or related claims, losses and liabilities asserted against the Debtors arising
out of the Debtors' manufacture, distribution, sale or use of solvent products.
GENERAL ENVIRONMENTAL
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 August 31, 2002, subsidiaries
of Safety-Kleen were involved in eight 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.
The most significant environmental and regulatory proceedings are discussed
below:
i. Safety-Kleen (Pinewood), Inc.
Pinewood owns and operated the Pinewood Facility, a hazardous waste landfill
near the Town of Pinewood in Sumter County, South Carolina. By an order dated
May 19, 1994 ("Order"), the South Carolina Board of Health and Environmental
Control ("Board") approved the issuance by the Department of Health and
Environmental Control ("DHEC") of a RCRA Part B permit (the "Permit") for
operation of the Pinewood Facility. The Permit included provisions governing
financial assurance and capacity for the facility.
The Order required Pinewood to establish and maintain an EIF in the amount of
$133 million in 1994 dollars ($152.6 million in 2002 dollars) by July 1, 2004 as
financial assurance for potential environmental cleanup and restoration of
environmental impairment at the Pinewood Facility. The EIF has two components:
(i) the GSX Contribution Fund, which was to be funded by Pinewood in annual cash
payments over a ten year period; and (ii) the State Permitted Sites Fund, a
legislatively created fund derived from fees on waste disposal at the Pinewood
Facility. Under the 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 would determine what level of funding, if any, was
still required. Pinewood was 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 $20.9 million as of August 31, 2002.
In June 1995, the South Carolina legislature approved regulations (the
"Regulations") governing financial assurance for environmental cleanup and
restoration. The Regulations gave owner/operators of hazardous waste facilities
the right to choose from among alternative 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.
Following extensive litigation, the South Carolina Court of Appeals issued a
decision on April 4, 2000 (which became final on June 14, 2000). The Court of
Appeals ruled that (1) the S.C. Regulations were invalid due to insufficient
public notice during the promulgation procedure and Pinewood was required to
immediately comply with the cash financial assurance requirements of the May 19,
1994 Order; and (2) both non-hazardous and hazardous waste disposed of at the
landfill from the beginning of waste disposal needed to be counted against the
Pinewood Facility's permitted capacity, thereby leaving the Pinewood Facility
with no unused permitted capacity.
27
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
On June 9, 2000, 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
December 19, 2001, the United States Court of Appeals for the Fourth Circuit
determined that DHEC's June 9, 2000 Emergency Order was not subject to the
automatic bankruptcy stay.
On June 14, 2000, when the Court of Appeals decision became final, DHEC sent
notice by letter to the Pinewood facility directing that Pinewood cease
accepting waste for disposal in 30 days and commence steps to affect the
permanent closure of the Pinewood Facility.
On June 22, 2000, DHEC notified Pinewood that the Court of Appeals' decision
vacated the Regulations and, therefore, Pinewood had the sole responsibility to
provide cash funding into the EIF in accordance with the Order. The DHEC notice
also directed Pinewood to provide information to DHEC with 15 days on how
Pinewood would comply with the Order including payment into the GSX Contribution
Fund. As of August 31, 2002, there was approximately $20.9 million in the GSX
Contribution Fund and approximately $14.7 million in the State Permitted Sites
Fund. In 2002 dollars, the total EIF funding requirement is approximately $152.6
million. To comply with the financial assurance provisions of the Order,
Pinewood would have to contribute $117.0 million in (2002 dollars) by July 1,
2003, subject to the automatic stay provisions discussed below.
On September 26, 2000, the Pinewood Facility ceased accepting waste for
disposal.
On December 4, 2000, DHEC filed proofs of claim against each of (i)
Safety-Kleen, (ii) Safety-Kleen Services, Inc., (iii) Pinewood and (iv)
Safety-Kleen Systems, Inc. with respect to the EIF. Each proof of claim was
filed in the amount of approximately $118.5 million (in 1994 dollars).
On December 4, 2000, the South Carolina Public Service Authority (also known as
Santee Cooper) also filed proofs of claim against each of (i) Safety-Kleen, (ii)
Safety-Kleen Services, Inc., (iii) Pinewood and (iv) Safety-Kleen Systems, Inc.
(collectively, the "Santee Cooper Claims"). The Santee Cooper Claims did not set
forth an identifiable amount or basis supporting such claims.
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. DHEC and
Pinewood resolved these matters by entering into a Consent Order on October 11,
2002, giving DHEC an allowed, general unsecured claim in the amount of $24,600.
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
$111.0 million against Pinewood, reserving all rights to file additional
administrative expense claim motions against other Debtors. 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.
On October 15, 2002, the Debtors entered into a Settlement Agreement with DHEC
to resolve pending claims relating to the Pinewood Landfill and certain other
claims. The settlement is subject to Bankruptcy Court approval and a number of
other contingencies explained in more detail below.
The principal terms of the settlement are as follows:
1. The Pinewood Facility presently owned by Pinewood will be transferred on the
effective date of the Plan of Reorganization (the "Effective Date") to a trust
to be created to own and manage the Pinewood Facility through the closure and
post-closure period. This trust (called the "Site Trust") will have
responsibility for completing closure of the Pinewood Facility over the next two
years and then undertaking post-closure care over the next 100 years. Pinewood
will transfer to the Site Trust: (a) real property, including improvements
thereto, owned by Pinewood and previously utilized in the operation of the
Pinewood Facility; (b) personal property, including vehicles, machines,
equipment and supplies, owned by Pinewood and located at the Pinewood Facility
as of the Effective Date; (c) leasehold interests of Pinewood, subject to the
terms of applicable leases, previously utilized in the operation of the Pinewood
Facility; and (d) permits for the Pinewood Facility issued by DHEC.
28
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
2. Pinewood will provide specified funding to the Site Trust. It will pay to the
Site Trust approximately $13.2 million (subject to downward adjustment for work
by Pinewood in the interim) on the Effective Date, to cover closure, and will
transfer to the Site Trust ownership of a single-payment, fully guaranteed
annuity to be paid for by Pinewood, which will pay out $133 million over the
next 100 years. The cost of the annuity will depend on interest rates at the
time it is purchased. If it were purchased presently, it is estimated that the
cost would be approximately $21 million.
3. Pinewood will propose, subject to DHEC's approval, a person or firm to serve
as trustee for the Site Trust. The funding to be provided by Pinewood to the
Trust will be increased to include compensation for the Trustee and certain
other costs to be determined.
4. A second trust, called the New Environmental Impairment Trust Fund, will be
created to provide funds to be used by DHEC in the event of environmental
impairment at Pinewood. The funds presently in the GSX Contribution Trust Fund
will be transferred to this new trust, and Pinewood will pay another $14.5
million into it. This trust fund can he utilized by DHEC for any environmental
needs at the Pinewood Facility.
5. The two trusts, the Site Trust and the New Environmental Impairment Trust
Fund, will stay in existence for the next one hundred years. Any funds or
property remaining in the Trusts when they terminate will be transferred to new
trusts if necessary to address continuing risks at the Pinewood Facility, and
otherwise to DHEC or its designees to be used for environmentally beneficial
purposes.
6. In exchange for the foregoing, DHEC will release all Debtors, including any
reorganized companies, from any further responsibility for the Pinewood Facility
(except for any new violations arising between October 15, 2002 and the
Effective Date). Once the required payments are made to the two trusts, no
Debtor will have any further liability to those trusts.
7. The settlement also resolves, with one exception, the many proofs of claim
filed by DHEC including some proofs of claim involving South Carolina facilities
other than Pinewood. Many of the proofs of claim filed by DHEC will be withdrawn
with prejudice as part of the settlement. A number of other proofs of claim
filed by DHEC are resolved by the allowance of general unsecured claims totaling
approximately $1.9 million, as specified in the Settlement Agreement and Exhibit
G thereto. Some of these claims had been asserted as administrative expense
claims. DHEC also releases Debtors from any other known claims that it has, and
the parties agree to dismiss pending litigation between them. The Settlement
Agreement does not resolve DHEC's claims for response costs incurred at the
Hollis Road site, more extensively detailed in the case, entitled, South
Carolina Department of Health and Environmental Control v. Western Atlas, Inc.,
f/k/a/ Litton Industrial Automation Systems, Inc. and successor-in-interest to
Litton Business Systems, Inc., David Bright, individually and d/b/a Superior
Container Service, Safety-Kleen (TG), Inc., Safety-Kleen Systems, Inc., and
Hoover Building Systems, Inc., Case No. 3-00-17 60, currently pending before the
United States District Court for the District of South Carolina.
8. DHEC will assign and transfer to Pinewood or its designee any and all claims
that DHEC may have against Laidlaw or any of its subsidiaries or affiliates.
9. The settlement is contingent on a number of things still to occur. First, it
only becomes effective when a plan of reorganization is effective. Second, it is
contingent on the Debtors obtaining releases for claims related to the Pinewood
Facility by October 29, 2002 from four other parties previously involved in
litigation over Pinewood: the South Carolina Department of Natural Resources,
Santee Cooper, Sierra Club, and State Senator Phil Leventis. The releases from
the South Carolina Department of Natural Resources, Santee Cooper, and Senator
Leventis have already been received. If any of these releases are not received,
the Debtors can decide whether to go forward with the settlement. Third, the
settlement is contingent on finding trustees acceptable to DHEC for the two
trusts. And fourth, it is contingent on receiving a private letter ruling from
the Internal Revenue Service that the income on the annuity in the Site Trust
will not be taxable to the Trust because the Trust is a Qualified Settlement
Fund within the meaning of Section 468B of the Internal Revenue Code and the
Treasury regulations promulgated thereunder and because the State of South
Carolina, the sole beneficiary of the trust, is not a taxable entity.
The Debtors believe that the settlements and compromises are in the best
interests of the Debtors. As set forth above, DHEC and the Debtors have been
involved in significant litigation that the Settlement Agreement will resolve
including, among other things, (i) closure and post-closure care of the Pinewood
Facility, (ii) the proofs of claim filed by DHEC and Santee Cooper, and (iii)
the administrative expense claims filed by DHEC. The Company has not determined
the impact this settlement will have on the financial position and results of
operations of the Company.
29
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
ii. Marine Shale Processors
Beginning in the mid 1980's and continuing until July 1996, one of the Debtors
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.
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 facility.
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 U.S. Fifth Circuit Court of Appeals.
Various unsuccessful attempts have been made by third parties to update and
renew operations at the facility. The Debtors were, collectively, one of the
largest customers of Marine Shale. As a result of past operations, soil and
groundwater contamination may exist at the Marine Shale site and in the event
Marine Shale does not operate in the future, the potential exists that the EPA
will require cleanup of the Marine Shale site and the stockpiled aggregate under
CERCLA. In this event, the Company could be exposed to potential financial
liability for remediation costs as a potentially responsible party.
iii. RayGar Environmental System International Litigation
On August 7, 2000, RayGar Environmental Systems International, Inc. ("RayGar")
filed its First Amended Complaint in the United States District Court for the
Southern District of Mississippi, Hattiesburg Division, Civil Action No.
2:9CV376PG, against Laidlaw, Laidlaw Investments, Ltd., LTI, LESI (now known as
Safety-Kleen), LES, Inc. (a wholly-owned subsidiary of Safety-Kleen now known as
Safety-Kleen Services, Inc.), Laidlaw Environmental Services (U.S.), Inc. (an
indirect wholly-owned subsidiary of Safety-Kleen and predecessor to
Safety-Kleen Services, Inc.), Laidlaw OSCO Holdings, Inc. (a wholly-owned
subsidiary of Safety-Kleen 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 $900 million for punitive damages.
The dispute arises from an unsuccessful effort pursuant to an agreement between
RayGar and the Company, to obtain RCRA and related permits for the operation of
a wastewater treatment facility in Pascagoula, Mississippi. This lawsuit is in
the every early stages of discovery. Laidlaw, Laidlaw Investments, Ltd., LTI and
Laidlaw International filed motions to dismiss the Complaint for lack of
personal jurisdiction and for failure to state a claim upon which relief can be
granted. The Court issued an order dismissing the motions as moot because the
cases are stayed. This is not a determination on the merits of the motions. The
action has not proceeded against the Company due to the filing of the Chapter 11
Cases. RayGar filed a motion to lift the automatic stay in the action. The
motion was denied by the Bankruptcy Court.
iv. 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.,
Laidlaw OSCO Holdings, Inc., Laidlaw International, and Safety-Kleen 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.
30
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
The dispute arises from matters related to an 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. The
lawsuit is in the very early stages of discovery. Laidlaw, Laidlaw Investments,
Ltd., LTI and Laidlaw International filed motions to dismiss the Complaint for
lack of personal jurisdiction and for failure to state a claim upon which relief
can he granted. The action has not proceeded against the Company due to the
filing of the Chapter 11 Cases.
v. 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
(the "Agreement and Lease") 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 approximately $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 the 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 Cases was 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 post-petition 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 contract termination 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 and ordered SK
Services East and HCIA to 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 Superior Court for decision. The Superior Court has
scheduled a trial for December 2, 2002 on the termination obligation issue if
the parties are unable to reach an agreement.
vi. 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. Plaintiff's counsel has advised the court that they represent 1,100
plaintiffs. The Debtors have been informed that the total number of plaintiffs
now exceeds 2,500.
A Safety-Kleen subsidiary, which owned and operated 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 (however, as a result of the CSD sale,
the subsidiary no longer operates the injection well). 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.
31
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES - CONTINUED
The action was removed to the United States District Court for the Western
District of Louisiana, where it bears the caption Bryson Adams, et al. V.
Environmental Purification Advancement Corporation, et al., Civil Action No.
99-1998, U.S.D.C., Western District of Louisiana, Lafayette-Opelonsas Division.
No substantive discovery commenced prior to the Debtors filing the Chapter 11
Cases. On March 13, 2001, a status conference was held in the consolidated
matters.
Both plaintiffs and defendants were ordered to produce any evidence in their
possession of migration from the disposal facilities by July 13, 2001, and a
trial date was set for November 3, 2003. On June 15, 2001, the plaintiffs filed
a motion to lift the automatic stay. On June 18, 2001, the Debtors filed a
verified complaint and motion for temporary restraining order against the
plaintiffs and on July 3, 2001 filed an objection to the lift stay motion. On
September 13, 2001, the Bankruptcy Court approved a stipulation and agreed order
with respect to Bryson Adams, et al. v. Safety-Kleen (Plaquemine), Inc.
modifying the automatic stay solely to permit the Debtors to participate in a
limited discovery in connection with the District Court Action.
vii. FUSRAP Waste Disposal at Safety-Kleen (Buttonwillow), Inc.
Safety-Kleen (Buttonwillow), Inc., a subsidiary of Safety-Kleen, owned and
operated 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 Debtors' Chapter 11 Cases
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.
12. STOCKHOLDERS' DEFICIT
COMMON STOCK SHARES
Safety-Kleen is authorized to issue 250 million shares of its $1 par value
common stock and one million shares of its $1 par value preferred stock. The
Board of Directors determines the terms and conditions of each issue of
preferred stock. No preferred stock bas been issued. There was no issuance of
shares or exercise of stock options in the year ended August 31, 2002.
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) for all periods presented consists of foreign
currency translation adjustments and unrealized gains and losses on investments
classified as available for sale under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Accumulated other comprehensive income (loss) consists of the following
components (dollars in thousands):
FOREIGN UNREALIZED ACCUMULATED
CURRENCY (LOSS)/GAIN ON OTHER
TRANSLATION MARKETABLE COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME (LOSS)
----------- ------------- --------------
Balance at August 31, 2001 $(8,483) $ 183 $(8,300)
Other comprehensive income (loss) (308) 245 (63)
Disposal of Chemical Services Division 5,723 -- 5,723
------- ------ -------
Balance at August 31, 2002 $(3,068) $ 428 $(2,640)
======= ====== =======
32
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts reported in the unaudited consolidated balance sheet for cash
and cash equivalents, accounts receivable, accounts payable and accrued other
liabilities approximate fair value due to the short-term nature of these
instruments.
Long-term investments - The fair value of the restricted funds held by trustees
approximates carrying value (see Note 3).
Long-term debt - Due to the uncertainty resulting from the Chapter 11 Cases
discussed in Note 2, the fair value of the Company's long-term debt as of August
31, 2002 is not determinable.
Fair value estimates are made at a specific point in time based on relevant
market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot he determined with precision. Changes in
assumptions could significantly affect these estimates.
14. IMPAIRMENT
The accompanying unaudited consolidated statement of operations reflects an
element of operating expenses described as "Impairments." Included in this
caption are provisions for impairments of assets determined in accordance with
SFAS No. 121 and related provisions for closure, post-closure and other
liabilities for facilities to be closed, where appropriate.
SFAS No. 121 requires the assessment of long-lived assets for impairment
whenever events ("triggering events") occur which may indicate that those assets
have become impaired. Triggering events may be events, which directly cause
impairment (e.g., decisions to close facilities or the effects of new government
regulations) or may be indicators of the existence of other direct causes of
impairment (e.g., continuing or increasing losses, declining customer demand,
etc.).
In connection with its comprehensive review of its operations, the Company
evaluated recoverability of long-lived assets at August 31, 2002 by reference to
estimated future cash flows. The impairment and other charges of $17.7 million
in the accompanying statement of operations principally relates to the
write-down to fair market value of certain facilities which have been closed
during the year. Management based fair value on their best estimate of sales
value less cost to sell.
These impairment charges primarily relate to the following:
Software relating to the implementation of a new accounting system $ 9.1
Tech center closure 3.9
Branch closures 2.7
Other 2.0
-----
$17.7
=====
15. REORGANIZATION ITEMS
Reorganization items as reported in the accompanying unaudited statement of
operations are comprised of income, expense and loss items that were realized or
incurred by the Debtors as a direct result of the Company's decision to
reorganize under Chapter 11. During the year ended August 31, 2002,
reorganization items were as follows (dollars in thousands):
Professional fees directly related to the Chapter 11 filing $34,417
First DIP Facility commitment fees and amortization of financing costs 9,604
Rejected operating leases 976
Interest earned on cash accumulated during Chapter 11 (782)
Accrued employee retention plan costs 5,760
Other 2,957
-------
$52,932
=======
The net cash payments made during the year ended August 31, 2002 with respect to
the reorganization items listed above were approximately $8.5 million.
33
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
16. DERIVATIVES AND RISK MANAGEMENT
During March 2000, the Company's existing derivative contracts were
involuntarily terminated from cross-default provisions between the Company's
Senior Credit Facility, and its International Swap Dealers Association Master
Agreements. As a consequence of these terminations, the Company has a net
derivative liability of $65 million at August 31, 2002, which is reflected in
the accompanying Consolidated financial statements as a liability subject to
compromise (see Note 10) and ranks pari passu with amounts due under the Senior
Credit Facility.
On December 15, 2000, the Bankruptcy Court approved a multi-year marketing and
distribution agreement between the Company and SystemOne. In connection with the
agreement, the Company received a warrant with a five-year term to purchase
1,134,615 shares of SystemOne at a price of $3.50 per share. In accordance with
SFAS No. 133, the warrant has been recorded as a derivative asset at its
estimated fair market value of $0.6 million at August 31, 2002. The warrant
received does not qualify for hedge accounting, and as such, changes in the fair
value from the date of inception are charged to earnings, resulting in a
derivative loss of $0.5 million being recorded during the year ended August 31,
2002.
17. EMPLOYEE BENEFIT PLANS
Defined benefit plans
As of August 31, 2002, the Company did not sponsor any significant active
defined benefit pension plans. For plans terminated during the year ended August
31, 2000, all accumulated benefits have been distributed to plan participants.
Effective as of October 14, 1997, the Company adopted a Supplemental Executive
Retirement Plan (SERP) for certain eligible employees. The SERP is an unfunded
plan that provides for benefit payments in addition to those payable under a
qualified retirement plan. As of August 31, 2002, a liability of approximately
$2.2 million related to the SERP plan is recorded in other long-term
liabilities.
Defined contribution plan
The Company offers to all eligible employees the opportunity to participate in
the Company's defined contribution employee benefit plan (the "Safety-Kleen
401(k) Plan"). Employees are allowed to contribute up to 50% of their annual
salary subject to the IRS annual maximum to the Safety-Kleen 401(k) Plan, and
during the year ended August 31, 2002, the Company made matching contributions
limited to 75% of the first 6% of an employee's eligible compensation. Employer
contribution expense for the year ended August 31, 2002 was $2.1 million. On
February 10, 2002, the Board of Directors suspended matching contributions
indefinitely.
Other
The Company provides medical benefits to approximately 70 former employees of
Old Safety-Kleen. At the date of the acquisition of Old Safety-Kleen, the plan
was frozen and subsequently terminated. The Company currently provides benefits
to those remaining participants as required by the provisions of COBRA.
Effective September 8, 2000, the Company implemented the Senior Executive
Retention Plan to provide a financial incentive to certain employees to remain
with the Company during the turnaround and restructuring process. Under the
terms of this plan, participants must be actively employed by the Company
through the retention period, which ended on December 31, 2001. In addition, the
Company has entered into retention bonus agreements for certain key executives
whereby bonuses are payable upon the occurrence of certain defined events, such
as filing of a plan of reorganization or the consummation of the sale of
substantially all of the assets of the Company. The Company recognized $5.8
million of expense related to these arrangements as a reorganization item in the
accompanying unaudited consolidated statement of operations.
34
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
18. DISCONTINUED OPERATIONS
On June 18, 2002, the Bankruptcy Court approved the Company's definitive
agreement to sell the CSD, excluding the Pinewood Facility. Accordingly, the
unaudited results of operations have been classified as discontinued operations.
On September 6, 2002, the Company completed the sale of the CSD's net assets for
approximately $25 million in cash, subject to defined working capital
adjustments, and the assumption of certain liabilities, which includes
environmental liabilities valued at approximately $250 million as of August 31,
2002. The Company has 120 days after the closing date to finalize the working
capital statement. After the working capital statement is final, Clean Harbors
has 45 days to object to the basis in which the items in the working capital
statement were prepared. The impact of these working capital adjustments, if
any, have not been included in the accompanying unaudited consolidated financial
statements.
Revenues and unaudited results of operations from this discontinued operation
for the year ended August 31, 2002 are as follows:
<Table>
Revenues $432,312
Expenses 427,285
Income from operations of CSD 5,027
Loss on disposal of CSD 283,030
</Table>
19. CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS OF ENTITIES IN BANKRUPTCY
The following condensed combined unaudited financial statements are presented in
accordance with SOP 90-7:
CONDENSED COMBINED UNAUDITED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2002
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
- ------------ -------------- ---------------- ------------ ------------
Revenues $ 810,017 $ 67,923 $(5,907) $ 872,033
Operating expenses 964,001 74,176 (5,907) 1,032,270
--------- -------- ------- ---------
Operating loss (153,984) (6,253) -- (160,237)
Interest expense, net (1) (5,480) 1,642 -- (3,838)
Other (expense) income (411) (856) -- (1,267)
--------- -------- ------- ---------
Loss before reorganization items, income
taxes and minority interest (159,875) (5,467) -- (165,342)
Reorganization items (52,932) -- -- (52,932)
--------- -------- ------- ---------
Loss before minority interest (212,807) (5,467) -- (218,274)
Minority interest (465) (361) -- (826)
--------- -------- ------- ---------
Loss from continuing operations (213,272) (5,828) -- (219,100)
Discontinued operations, net of tax:
Income from Operations of Chemical
Services Division (14,849) 19,876 -- 5,027
Loss on Disposal (272,448) (10,582) -- (283,030)
--------- -------- ------- ---------
Loss before extraordinary items (500,569) 3,466 -- (497,103)
Extraordinary items 105 -- -- 105
--------- -------- ------- ---------
Net loss $(500,464) $ 3,466 $ -- $(496,998)
========= ======== ======= =========
(1) Excluding contractual interest of $194,342 for Entities in Reorganization
Proceedings.
35
SAFETY-KLEEN CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
19. CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS OF ENTITIES IN BANKRUPTCY
- CONTINUED
CONDENSED COMBINED UNAUDITED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 31, 2002
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
- ------------ -------------- --------------- ------------ ------------
ASSETS:
Current assets $ 299,782 $ 18,698 $ -- $ 318,480
Intercompany receivables 8,675 -- (8,675) --
Property, plant & equipment, net 446,840 33,999 -- 480,839
Investment in subsidiaries 984,635 (1,828,259) 843,624 --
Intangibles assets, net 1,337,011 2,037 -- 1,339,048
Other assets 31,561 -- -- 31,561
---------- ----------- -------- ----------
$3,108,504 $(1,773,525) $834,949 $2,169,928
========== =========== ======== ==========
LIABILITIES:
Current liabilities $ 270,026 $ 65,687 $ -- $ 335,713
Intercompany payables 8,675 -- (8,675) --
Non-current liabilities 172,381 23,122 -- 195,503
Liabilities subject to compromise 2,474,772 -- -- 2,474,772
Minority interest 960 -- -- 960
STOCKHOLDERS' EQUITY (DEFICIT) 181,690 (1,862,334) 843,624 (837,020)
---------- ----------- -------- ----------
$3,108,504 $(1,773,525) $834,949 $2,169,928
========== =========== ======== ==========
20. SUBSEQUENT EVENTS
On September 21, 2002, the 3E Company Environmental, Ecological and Engineering
("3E"), an indirect majority owned subsidiary of the Safety-Kleen, completed the
sale of substantially all of its assets to New 3E Company Acquisition
Corporation ("New 3E"). New 3E was formed and capitalized by the minority
shareholders of 3E, Messrs. Jess F. Kraus, IV, Robert M. Ward, Christopher
Kraus, Jeremy Kisner and Ms. Linda Allen (collectively the "Minority
Shareholders"). 3E was engaged in providing hazardous materials information
management and emergency response services for environmental health and safety
managers. Coincident with the sale of assets, Safety-Kleen Systems, Inc
("Systems"), an indirect wholly owned subsidiary of Safety-Kleen, completed the
acquisition of 24.22% of 3E stock which it did not already own (all of the
issued and outstanding shares owned by the Minority Shareholders) for
approximately $0.6 million cash, becoming the sole owner of the stock of 3E.
Pursuant to the terms of the Asset Purchase Agreement dated as of August 27,
2002 by and among 3E, New 3E, the Minority Shareholders, and Systems, as
amended, New 3E purchased substantially all of the assets of 3E for
approximately $12.6 million, of which $3.25 million is a promissory note due to
3E. 3E anticipates realizing a gain on the sale of assets in excess of $5
million.
36
APPENDIX F
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
LIQUIDATION ANALYSIS
TO BE FILED ON OR BEFORE THE EXHIBIT FILING DATE
APPENDIX G
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
PROJECTED FINANCIAL INFORMATION
PRO FORMA FINANCIAL PROJECTIONS
The Debtors believe that the Plan meets the Bankruptcy Code's feasibility
requirement that Plan confirmation is not likely to be followed by liquidation,
or the need for further financial reorganization of the Debtors or any successor
under the Plan unless such liquidation is proposed in the Plan. In connection
with the development of the Plan, and for the purposes of determining whether
the Plan satisfies this feasibility standard, the Debtors analyzed their ability
to satisfy their financial obligations while maintaining sufficient liquidity
and capital resources. In this regard, management developed and refined the
Business Plan and prepared financial projections (the "Projections") for the
four-month period ending December 31, 2002 (the "Stub Year") and for the
calendar years ending December 31, 2003 through 2007 (the "Projection Period").
The Debtors do not, as a matter of course, publish their business plans and
strategies or projections, anticipated financial position or results of
operations. Accordingly, the Debtors do not anticipate that they will, and
disclaim any obligation to, furnish updated business plans or projections to
holders of Claims or Interests after the Confirmation Date, or to include such
information in documents required to be filed with the SEC (if any) or otherwise
make such information public.
In connection with the planning and development of the Plan, the Projections
were prepared by the Debtors to present the anticipated impact of the Plan. The
Projections assume that the Plan will be implemented in accordance with its
stated terms. The projections are based on forecasts of key economic variables,
such as the demand for solvent and aqueous-based-parts washing, estimated
hazardous waste generation, the Debtors' ability to relocate the headquarters in
an efficient manner, and the Debtors' ability to acquire and implement new
technology tools to drive improved performance. Accordingly, the estimates and
assumptions underlying the Projections are inherently uncertain and are subject
to significant business, economic and competitive uncertainties. Therefore, such
projections, estimates and assumptions are not necessarily indicative of current
values or future performance, which may be significantly less favorable or more
favorable than as set forth. The Projections were substantially completed in
October 2002.
ALTHOUGH EVERY REASONABLE EFFORT WAS MADE TO BE ACCURATE, THE PROJECTIONS ARE
ONLY AN ESTIMATE, AND ACTUAL RESULTS MAY VARY CONSIDERABLY FROM THE PROJECTIONS.
IN ADDITION, THE UNCERTAINTIES WHICH ARE INHERENT IN THE PROJECTIONS INCREASE
FOR LATER YEARS IN THE PROJECTION PERIOD, DUE TO INCREASED DIFFICULTY ASSOCIATED
WITH FORECASTING LEVELS OF ECONOMIC ACTIVITY AND PERFORMANCE AT MORE DISTANT
POINTS IN THE FUTURE. CONSEQUENTLY, THE PROJECTED INFORMATION INCLUDED HEREIN
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE DEBTORS, THE DEBTORS'
ADVISORS, OR ANY OTHER PERSON THAT THE DEBTORS' WILL ACHIEVE THE PROJECTED
RESULTS. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS PUBLIC DISCLOSURE
OR COMPLIANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, THE PUBLISHED
GUIDELINES OF THE SECURITIES AND EXCHANGE COMMISSION OR THE AMERICAN INSTITUTE
OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR FORECASTS. THE
PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY THE DEBTORS' INDEPENDENT
CERTIFIED ACCOUNTANTS. CREDITORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THE FOLLOWING PROJECTIONS IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT THE
PLAN.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: The Projections contain statements which constitute "forward-looking
statements" within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act
of 1995. "Forward-looking statements" in the Projections include the intent,
belief or current expectations of the Debtors and members of their management
team with respect to the timing of, completion of and scope of the current
restructuring, reorganization plan, strategic business plan, bank financing, and
debt and equity market conditions and the Debtors' future liquidity, as well as
the assumptions upon which such statements are based. While the Debtors believe
that the expectations are based on reasonable assumptions within the bounds of
their knowledge of their business and operations, parties in interest are
cautioned that any such forward-looking statements are not guarantees of future
performance, and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those contemplated by the forward-looking statements
in the Projections include, but are not limited to, further adverse developments
with respect to the Debtors' liquidity position or operations of the Debtors'
various businesses, adverse developments in the Debtors' efforts to renegotiate
their funding and adverse developments in the bank financing or public or
private markets for debt or equity securities, or adverse developments in the
timing or results of the Debtors' strategic business plan (including the time
line to emerge from
chapter 11), the difficulty in controlling industry costs and the ability of
the Debtors to realize the anticipated general and administrative expense
savings and overhead reductions presently contemplated, the ability of the
Debtors to return the Debtors' operations to profitability, the level and nature
of any restructuring and other one-time charges, the difficulty in estimating
costs relating to exiting certain markets and consolidating and closing certain
operations, and the possible negative effects of a change in applicable
legislation.
SUMMARY OF SIGNIFICANT ASSUMPTIONS
The Debtors' management developed the Projections based on, among other things:
(1) current and projected market conditions in each of the Debtors' respective
markets, (2) no material change occurring to existing customer and supplier
contracts, (3) the ability of the Debtors to maintain sufficient working capital
to self-fund operations or to have access to financing sources to fund any
deficiencies, and (4) confirmation of the Plan.
The Projections assume that the Debtors emerge from chapter 11 on January 1,
2003. All costs presented in the restructuring columns of the Projections are
assumed to be incurred and paid if applicable on January 1, 2003. However, not
all of the costs presented in that column will be paid immediately and may he
paid when approved by the Bankruptcy Court, when negotiated or in the ordinary
course of the Debtors' business.
The Plan contemplates the conversion of Secured U.S. Lender Claims, and Canadian
Lender Administrative Claims into the new equity and the new subordinated debt
of the Reorganized Debtors. The Debtors contemplate entering into a $250 million
Exit Facility. The Projections reflect this proposed capital structure.
The Projections also contemplate settlements with DHEC and the Laidlaw Debtors.
For more detailed information on the proposed settlements, please see Sections
XII.C and XII.B.19 to the Disclosure Statement, entitled "Chapter 11 Cases --
Settlement and Compromise under the Plan" and "Chapter 11 Cases --
Post-Petition Operations and Liquidity," respectively. For purposes of the
Projections, it is assumed that the Debtors will consummate the settlement
reached with DHEC requiring the Debtors to pay approximately $50 million to fund
the management of the closure and post-closure activities at the Pinewood
Facility.
The Projections also reflect the Debtors' receipt of approximately $140 million
of value as a result of a settlement reached with the Laidlaw Debtors. The
Projections further assume that the Debtors will be able to convert $90 million
of the value into cash and utilize the cash to pay certain costs related to the
confirmation of the Plan.
The Projections incorporate "Fresh Start Reporting" principles, which the
Debtors will be required to adopt upon emergence from bankruptcy. Fresh Start
Reporting requires, among other things, that the Debtors' assets and liabilities
be recorded at fair value on the Effective Date. As a result, the Debtors'
Projections reflect reductions in the fixed assets, intangibles and deferred tax
accounts to reflect Fresh Start Reporting.
BALANCE SHEET ASSUMPTIONS
Short Term Debt: Short-term debt consists of the Exit Facility. For purposes of
the Projections, the $250 million Exit Facility is assumed to be a revolving
credit facility.
Accrued Other Liabilities: Projected accrued other liabilities are comprised of
accrued interest, accrued salaries, accrued consulting fees and other operating
accruals. The Projections assume that approximately $54 million of consulting
fees representing current accrued balances, accrued holdbacks and bonuses will
be paid in cash on the Effective Date.
Current Portion of Long-Term Debt: Current portion of long-term debt consists of
capital lease obligations and the Canadian Prepetition Credit Facility. The
Projections assume that principal on the Canadian Prepetition Credit Facility is
approximately $62 million (USD) is restructured consistent with the treatment
of Class 3 Secured U.S. Lender Claims.
Short and Long-Term Environmental Liabilities: Short and long-term environmental
liabilities represent accrued expenses relating to remediation, closure and
post-closure obligations. The forecasted decrease over the Projection Period
represents the Debtors' expectations of cash expenditures to occur during the
Projection Period.
Other Lone-Term Liabilities: Other long-term liabilities are mainly comprised of
$100 million of New Subordinated PIK Notes and $50 million of New Subordinated
Cash Pay Notes that are issued in conjunction with the implementation of the
Plan.
INCOME STATEMENT ASSUMPTIONS
Revenues: Revenues per day, pricing and product/service mix approximate the
daily run rate of fiscal 3rd quarter 2002 for the Stub Year. Revenue is
forecasted to increase throughout the Projection Period with the following
growth rates:
<Table>
<Caption>
STUB YEAR 2003 2004 2005 2006 2007
- --------- ---- ---- ---- ---- ----
0% 2% 4% 5% 4% 3%
</Table>
Product mix is assumed to remain constant from the current year through 2007.
The revenue growth projection is predicated on a complete transformation of the
field sales and service organization which includes the following: (1) a new
organizational structure; (2) improved sales force effectiveness; (3)
customer-retention related initiatives; (4) enhanced sales and service training;
(5) improved marketing support and (6) technology enablement through hand-held
devices, sales-force automation and order entry/billing enhancements.
Operating Expenses: Operating expenses are primarily comprised of disposal
costs, labor costs, transportation costs, facility costs and material costs.
Most categories are expected to increase throughout the Projection Period
corresponding with increases in sales. Increases in operating expenses are
forecasted to be less than increases in sales due to cost saving initiatives
such as implementation of new handheld computers and enterprise resource
planning technology, outsourcing of certain maintenance and logistics costs,
renegotiation of transportation leases and right-sizing of the transportation
fleet.
Impairments and Other Charges: Impairment and Other Charges represent the write
down of intangible assets during the Stub Year to reflect the requirements of
FAS 142 regarding impairment of goodwill and intangibles.
Other Income and Expenses: Other income and expenses primarily consist of
additional losses incurred on the sale of the Debtors' Chemical Services
Division related to post-closing working capital adjustments and recognition of
the settlements with DHEC and the Laidlaw Debtors.
Reorganization Items: Reorganization items consist of DIP Facility fees and
professional fees related to the Debtors' Chapter 11 Cases. Professional fees
are forecasted to continue beyond January 1, 2003, the assumed Effective Date.
SAFETY-KLEEN CORP.
PROJECTED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
PROJECTED PROJECTED PROJECTED
BALANCE SHEETS, UNAJUSTED REORGANISATION ADJUSTED PROJECTED PROJECTED PROJECTED PROJECTED PROJECTED
AS OF DECEMBER 31, STUB 2002 ADJUSTMENTS STUB 2002 2003 2004 2005 2006 2007
- ------------------ ----------- -------------- --------- --------- --------- --------- --------- ---------
Current Assets:
Cash and Deposits $ 32,927 $ (22,927) $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 49,026
Accounts Receivable 122,677 -- 122,677 114,790 113,461 111,000 109,943 113,394
Inventory and Supplies 22,914 -- 22,914 23,575 25,104 26,293 27,328 28,186
Deferred Income Taxes Assets 35,551 (35,551) -- -- -- -- -- --
Other Current Assets 58,759 (19,962) 38,797 37,957 34,915 33,698 35,021 36,116
----------- ----------- -------- -------- -------- -------- -------- --------
Total Current Assets 272,828 (78,440) 194,388 186,322 183,480 180,991 182,293 226,722
----------- ----------- --------- --------- --------- --------- --------- ---------
Property, Plant and
Equipment, net 483,112 (9,429) 473,683 556,574 595,195 613,328 611,798 592,178
Intangible Assets 339,040 (214,040) 125,000 116,917 109,079 101,241 93,403 85,565
Other Assets 6,773 52,535 59,308 57,808 56,308 54,808 53,308 51,808
----------- ----------- --------- --------- --------- --------- --------- ---------
Total Assets $ 1,101,753 $ (249,374) $852,379 $917,621 $944,062 $950,368 $940,801 $956,273
=========== =========== ========= ========= ========= ========= ========= =========
Current Liabilities:
Short Term Debt $ -- $ 32,040 $ 32,040 $120,658 $107,818 $64,110 $20,040 $ --
Accounts Payable 27,119 -- 27,119 27,043 28,537 29,617 30,558 31,341
Unearned Revenue 53,739 -- 53,739 53,739 55,853 58,496 60,799 62,706
Current Portion of
Environmental Liabilities 10,368 (3,165) 7,203 10,378 9,778 6,924 5,646 5,262
Income Taxes Payable 16,172 -- 16,172 16,172 16,172 16,172 16,172 16,172
Accrued Other Liabilities 156,487 (68,639) 87,848 78,082 81,097 84,868 88,153 90,874
Current Portion of
Long Term Debt 76,076 (65,029) 11,047 11,047 11,047 11,047 11,047 11,047
----------- ----------- --------- --------- --------- --------- --------- ---------
Total Current Liabilities 339,961 (104,793) 235,168 317,118 310,302 271,234 232,415 217,402
----------- ----------- --------- --------- --------- --------- --------- ---------
Environmental Liabilities 114,653 (55,067) 59,586 49,208 40,030 35,960 31,592 26,714
Deferred Income Taxes 62,442 (62,442) -- -- -- -- -- --
Other Long Term Liabilities 19,665 150,000 169,665 178,606 188,139 198,505 186,005 173,505
Liabilities Subject to
Compromise 2,474,772 (2,474,772) -- -- -- -- -- --
----------- ----------- --------- --------- --------- --------- --------- ---------
Total Liabilities 3,011,493 (2,547,074) 464,419 544,932 538,471 505,700 450,013 417,621
----------- ----------- --------- --------- --------- --------- --------- ---------
Minority Interest -- -- -- -- -- -- -- --
Stockholders' Equity (1,909,740) 2,297,700 387,960 372,688 405,591 444,668 490,788 538,652
----------- ----------- --------- --------- --------- --------- --------- ---------
Total Liabilities and
Stockholders' Equity $ 1,101,753 $ (249,374) $852,379 $917,621 $944,062 $950,368 $940,801 $956,273
=========== =========== ========= ========= ========= ========= ========= =========
</Table>
SAFETY-KLEEN CORP.
PROJECTED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
PROJECTED PROJECTED PROJECTED
STATEMENTS OF CASH FLOWS FOR UNADJUSTED REORGANIZATION ADJUSTED PROJECTED PROJECTED PROJECTED PROJECTED PROJECTED
PERIOD ENDING DECEMBER 31, STUB 2002 ADJUSTMENTS STUB 2002 2003 2004 2005 2006 2007
---------- -------------- --------- --------- --------- --------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (Loss) $(1,061,946) $ 127,270 $(934,675) $ (15,272) $ 32,902 $ 39,077 $ 46,121 $ 47,864
Adjustments to Reconcile Net Income
(Loss) to Cash Flow from Operations
Impairment and other charges 1,000,008 -- 1,000,008 -- -- -- -- --
Depreciation and Amortization 20,303 -- 20,303 54,356 69,130 82,926 95,755 107,653
(Gain) Loss on Sales of Investment (335) -- (335) -- -- -- -- --
Loss on Disposal of Equipment -- 12,730 12,730 -- -- -- -- --
Change in Accounts Receivable, net 18,752 -- 18,752 7,887 1,329 2,461 1,056 (3,451)
Change in Accounts Payable (51) -- (51) (76) 1,495 1,079 941 783
Change in Inventories and Supplies 1,186 -- 1,186 (661) (1,530) (1,189) (1,035) (858)
Change in Accrued other Liabilities 9,981 -- 9,981 (9,767) 3,015 3,771 3,285 2,721
Change in Environmental Liabilities (4,305) -- (4,305) (7,203) (9,778) (6,924) (5,646) (5,262)
Change in Unearned Revenue -- -- -- -- 2,114 2,643 2,303 1,907
Change in other assets 22,739 -- 22,739 2,340 4,542 2,717 177 405
--------------------------------------- ---------------------------------------------------
Net Cash provided by (used in)
operating activities 6,333 140,000 146,333 31,605 103,220 126,562 142,956 151,762
--------------------------------------- ---------------------------------------------------
Cash Flows for Investing Activities
Cash Expended on Property, Plant
and Equipment (36,195) -- (36,195) (129,164) (99,913) (93,221) (86,386) (80,196)
Proceeds from Sales of Assets 20,917 -- 20,917 -- -- -- -- --
--------------------------------------- ---------------------------------------------------
Net Cash Provided by (used in)
investing activities (15,278) -- (15,278) (129,164) (99,913) (93,221) (86,386) (80,196)
--------------------------------------- ---------------------------------------------------
Cash Flows from Financing Activities
Bank Financing Fees -- (7,500) (7,500) -- -- -- -- --
Change in order, net (625) (50,000) (50,625) 8,941 9,532 10,366 (12,500) (12,500)
Restructuring Costs -- (137,467) (137,467) -- -- -- -- --
--------------------------------------- ---------------------------------------------------
Net Cash provided by (used in)
financing activities (625) (194,967) (195,592) 8,941 9,532 10,366 (12,500) (12,500)
--------------------------------------- ---------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (9,570) (54,967) (64,537) (88,618) 12,839 43,708 44,070 59,066
Revolver Activity -- 32,040 32,040 88,618 (12,839) (43,708) (44,070) (20,040)
Cash and Cash Equivalents at:
Beginning of Period 42,497 32,927 42,497 10,000 10,000 10,000 10,000 10,000
--------------------------------------- ---------------------------------------------------
End of Period $ 32,927 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 49,026
======================================= ===================================================
</Table>
SAFETY-KLEEN CORP.
PROJECTED INCOME STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
PROJECTED PROJECTED PROJECTED
UNADJUSTED REORGANIZATION ADJUSTED PROJECTED PROJECTED PROJECTED PROJECTED PROJECTED
INCOME STATEMENT STUB 2002 ADJUSTMENTS STUB 2002 2003 2004 2005 2006 2007
- ---------------- ----------- -------------- ----------- --------- --------- --------- --------- ----------
Revenues $ 283,577 $ -- $ 283,577 $875,490 $909,941 $953,022 $990,553 $1,021,644
Expenses:
Operating 188,732 -- 188,732 557,361 545,775 564,016 581,719 597,704
Depreciation and
Amortization 20,303 -- 20,303 54,356 69,130 82,926 95,755 107,653
Selling, General
& Administrative 92,385 -- 92,385 233,447 209,946 211,611 211,096 215,460
Impairments and
Other Charges 1,000,008 -- 1,000,008 -- -- -- -- --
----------- -------- ----------- -------- -------- -------- -------- ---------
Operating Income (1,017,851) -- (1,017,851) 30,326 85,089 94,469 101,984 100,826
Interest Income
(Expense) (2,204) -- (2,204) (27,448) (30,261) (29,360) (24,932) (20,865)
Other (Expense)
Income (13,721) 127,270 113,549 (168) (173) (178) (184) (189)
Reorganization
Items (28,169) -- (28,169) (17,000) -- -- -- --
----------- -------- ----------- -------- -------- -------- -------- ---------
Income before
Taxes (1,061,945) 127,270 (934,675) (14,290) 54,656 64,931 76,868 79,773
Income Taxes -- -- -- 982 21,753 25,854 30,747 31,909
----------- -------- ----------- -------- -------- -------- -------- ---------
Net Income $(1,061,945) $127,270 $ (934,675) $(15,272) $ 32,902 $ 39,077 $ 46,121 $ 47,864
=========== ======== =========== ======== ======== ======== ======== ==========
EBITDA $ 2,460 $ -- $ 2,460 $ 84,682 $154,220 $177,395 $197,738 $ 208,480
</Table>
APPENDIX H
TO
DISCLOSURE STATEMENT WITH RESPECT TO JOINT PLAN
OF REORGANIZATION OF SAFETY-KLEEN CORP.
AND CERTAIN OF ITS SUBSIDIARIES AND AFFILIATES.
CSD SELLING SUBSIDIARIES
CSD SELLING SUBSIDIARIES
<Table>
<Caption>
LEGAL ENTITY CASE NO. EID. #
- ------------ -------- ------
Safety-Kleen (Consulting), Inc. 00-2305 36-3772680
Safety-Kleen (Lone and Grassy Mountain), Inc. 00-2306 73-0774247
Safety-Kleen (Tulsa), Inc. 00-2307 73-1072214
Safety-Kleen (San Antonio), Inc. 00-2308 74-1670248
Safety-Kleen (Wichita), Inc. 00-2309 48-1025760
Safety-Kleen (Delaware), Inc. 00-2310 57-1036619
SK Services (East), L.C. 00-2311 58-2356954
SK Services, L.C. 00-2312 58-2356951
Safety-Kleen (Rosemount), Inc. 00-2313 36-3645772
Safety-Kleen (Sawyer), Inc. 00-2314 76-0306990
Safety-Kleen (PPM), Inc. 00-2315 48-0926641
Ninth Street Properties, Inc. 00-2316 48-1009630
Safety-Kleen (San Jose), Inc. 00-2317 94-2685637
Chemclear, Inc. of Los Angeles 00-2318 76-0292745
USPCI, Inc. of Georgia 00-2319 76-0299932
Safety-Kleen Holdings, Inc. 00-2320 76-0289923
Safety-Kleen (Westmorland), Inc. 00-2321 57-0891474
Safety-Kleen (Buttonwillow), Inc. 00-2322 57-0891472
Safety-Kleen (NE), Inc. 00-2323 02-0335983
Safety-Kleen (Crowley), Inc. 00-2324 72-0989782
Safety-Kleen (LaPorte), Inc. 00-2325 76-0209879
Safety-Kleen (TG), Inc. 00-2326 57-0600257
Safety-Kleen (Roebuck), Inc. 00-2327 57-0811015
Safety-Kleen (TS), Inc. 00-2328 57-0784795
Safety-Kleen (Colfax), Inc. 00-2329 86-0713567
GSX Chemical Services of Ohio, Inc. 00-2330 34-1210390
LEMC, Inc. 00-2331 57-0987727
Safety-Kleen Chemical Services, Inc. 00-2332 04-2308230
Safety-Kleen (Altair), Inc. 00-2333 76-0187429
Safety-Kleen (BDT), Inc. 00-2335 16-1153020
Safety-Kleen (GS), Inc. 00-2336 62-1261102
</Table>
<Table>
<Caption>
LEGAL ENTITY CASE NO. EID. #
- ------------ -------- ------
Safety-Kleen (Clive), Inc. 00-2337 73-1311262
Safety-Kleen (WT), Inc. 00-2338 31-0747129
Safety-Kleen OSCO Holdings, Inc. 00-2339 62-1478930
Safety-Kleen (Nashville), Inc. 00-2340 62-1268344
Safety-Kleen (Bartow), Inc. 00-2341 59-2692187
Safety-Kleen (Chattanooga), Inc. 00-2343 57-0853102
Safety-Kleen (Pecatonica), Inc. 00-2344 36-3337048
Safety-Kleen (White Castle), Inc. 00-2346 84-0619137
Safety-Kleen (Puerto Rico), Inc. 00-2347 35-1283524
Safety-Kleen (Bridgeport), Inc. 00-2348 23-1704900
Safety-Kleen (Deer Park), Inc. 00-2349 51-0228884
Safety-Kleen (Baton Rouge), Inc. 00-2350 51-0228882
Safety-Kleen (Plaquemine), Inc. 00-2351 51-1126035
Safety-Kleen (Custom Transport), Inc. 00-2352 51-0277687
Safety-Kleen (Tipton), Inc. 00-2354 43-1495372
Safety-Kleen (Gloucester), Inc. 00-2355 51-0336950
Safety-Kleen (Deer Trail), Inc. 00-2356 76-0167186
Safety-Kleen (Mt. Pleasant), Inc. 00-2357 58-1735252
Safety-Kleen (Minneapolis), Inc. 00-2358 41-1392441
Safety-Kleen (Aragonite), Inc. 00-2359 25-1563807
Safety-Kleen (Sussex), Inc. 00-2360 51-0262487
Safety-Kleen (Encotec), Inc. 00-2361 51-0290240
Safety-Kleen (FS), Inc. 00-2334 51-0268319
Safety-Kleen (California), Inc. 00-2340 62-1268344
Safety-Kleen (Los Angeles), Inc. 00-2353 95-3562319
</Table>