1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LAIDLAW ENVIRONMENTAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
---------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
2
PRELIMINARY COPY -- SUBJECT TO COMPLETION
DATED JANUARY 29, 1998
[LAIDLAW ENVIRONMENTAL SERVICES INC. LOGO]
JANUARY 30, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
(the "Special Meeting") of Laidlaw Environmental Services, Inc. (the "Company"),
to be held on Tuesday, February , 1998, at 10:00 a.m. eastern time, at 1301
Gervais Street, Suite 300, Columbia, South Carolina 29201.
At the Special Meeting you will be asked to approve (i) the issuance (the
"Issuance") of up to 162,000,000 shares of the Company's common stock, par value
$1.00 per share (the "Common Stock"), in connection with an exchange offer (the
"Offer") made by the Company to the stockholders of Safety-Kleen Corp., a
Wisconsin corporation ("Safety-Kleen"); and (ii) an amendment to the Company's
certificate of incorporation to increase the number of authorized shares of
Common Stock from 350,000,000 to 750,000,000 shares (the "Amendment"). If the
Offer is successful, the Company intends to effect a merger (the "Merger")
between Safety-Kleen and a wholly-owned subsidiary of the Company (formed solely
to effect such Merger), pursuant to which the Company intends to acquire (the
"Acquisition") all of the outstanding shares of common stock, par value $.10 per
share, of Safety Kleen (the "SK Shares"). As of January 30, 1998, the Company's
directors, executive officers and their affiliates (including Laidlaw Inc.)
beneficially owned approximately 70.29% of the Company's outstanding shares of
Common Stock, with other stockholders beneficially owning approximately 29.71%.
If the transactions contemplated by the Offer are consummated, current
Safety-Kleen shareholders (other than Laidlaw Inc.) would hold between
129,471,000 shares (41.55%) and 162,000,000 shares (47.0%) of the Company's
outstanding Common Stock, depending on the Exchange Ratio (as defined in the
accompanying Proxy Statement), the Company's directors, executive officers and
their affiliates (including Laidlaw Inc.) would hold 126,908,000 shares (between
37.1% and 40.9% of the Company's outstanding Common Stock, depending on the
Exchange Ratio), and the Company's current stockholders (other than the
Company's directors, executive officers and their affiliates) would hold
53,641,000 shares (between 15.7% and 17.3% of the Company's outstanding Common
Stock, depending on the Exchange Ratio).
Approval of the Issuance requires the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Special
Meeting and entitled to vote thereon, provided that a quorum consisting of a
majority of the shares of Common Stock entitled to vote is present. Approval of
the Amendment requires the affirmative vote of a majority of the shares of
Common Stock entitled to vote on the Amendment, which vote would also require
that a quorum be present.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE ISSUANCE AND THE AMENDMENT
ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAS UNANIMOUSLY
APPROVED THE ISSUANCE AND THE AMENDMENT AND RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE ISSUANCE AND "FOR" APPROVAL OF THE AMENDMENT.
Detailed information regarding the Issuance and the Amendment is set forth
in the accompanying Proxy Statement.
In view of the importance of the actions to be taken at the Special Meeting,
we urge you to read the accompanying Proxy Statement carefully, and regardless
of the number of shares you own, we request that you complete, sign, date and
return the enclosed proxy card promptly in the accompanying prepaid envelope. A
proxy may be revoked by a later dated, properly executed proxy. You may, of
course, attend the Special Meeting and vote in person, even if you have
previously returned your proxy card.
We urge you to vote "FOR" approval of the Issuance and "FOR" approval of the
Amendment.
Sincerely,
Kenneth W. Winger
President and Chief Executive Officer
3
LAIDLAW ENVIRONMENTAL SERVICES, INC.
1301 GERVAIS STREET
COLUMBIA, SOUTH CAROLINA 29201
(803) 933-4200
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY , 1998
---------------------
TO THE STOCKHOLDERS OF LAIDLAW ENVIRONMENTAL SERVICES, INC.
Notice is hereby given that a special meeting (the "Special Meeting") of
the stockholders of Laidlaw Environmental Services, Inc. ("the Company"), will
be held on Tuesday, February , 1998, at 10:00 a.m. at 1301 Gervais Street,
Suite 300, Columbia, South Carolina 29201, for the following purposes:
1. To approve the issuance (the "Issuance") of up to 162,000,000
shares of the Company's common stock, par value $1.00 per share (the
"Common Stock"), in connection with an exchange offer (the "Offer") made by
the Company to the stockholders of Safety-Kleen Corp., a Wisconsin
corporation ("Safety-Kleen");
2. To approve an amendment to the Company's certificate of
incorporation to increase the authorized number of shares of Common Stock
of the Company from 350,000,000 to 750,000,000 shares (the "Amendment");
and
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The approval of the Issuance requires the affirmative vote of a majority of
the shares of Common Stock present in person or represented by proxy at the
Special Meeting and entitled to vote thereon, provided that a quorum consisting
of a majority of the shares of Common Stock entitled to vote is present. The
approval of the Amendment requires the affirmative vote of a majority of the
shares of Common Stock entitled to vote on the Amendment, which vote would also
require that a quorum be present.
The Board of Directors has fixed the close of business on January 30, 1998
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Special Meeting and at any adjournment or
postponement thereof. From January 30, 1998 until the date of the Special
Meeting, a list of stockholders entitled to vote at the Special Meeting will be
available for inspection by stockholders of record during business hours at the
place of the Special Meeting and also will be available at the Special Meeting.
Your attention is directed to the Proxy Statement delivered with this
Notice.
BY ORDER OF THE BOARD OF DIRECTORS,
----------------------------------
, Secretary
----------------------------------
Columbia, South Carolina
January 30, 1998
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
4
PRELIMINARY COPY -- SUBJECT TO COMPLETION
DATED JANUARY 29, 1998
PROXY STATEMENT
OF
LAIDLAW ENVIRONMENTAL SERVICES, INC.
FOR THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
FEBRUARY , 1998
This Proxy Statement is being furnished to holders (the "Stockholders") of
common stock, par value $1.00 per share (the "Common Stock"), of Laidlaw
Environmental Services, Inc. (the "Company") in connection with the solicitation
of proxies by the Board of Directors of the Company (the "Board") for use at a
special meeting of the Stockholders to be held at 1301 Gervais Street, Suite
300, Columbia, South Carolina 29201 on Tuesday, February , 1998, at 10:00
a.m., local time and at any adjournment or postponement thereof (the "Special
Meeting"). At the Special Meeting, Stockholders will be asked to consider and
vote upon proposals to approve (i) the issuance (the "Issuance") of up to
162,000,000 shares of Common Stock in connection with an exchange offer (the
"Offer") made by the Company to the shareholders of Safety-Kleen Corp., a
Wisconsin corporation ("Safety-Kleen"); and (ii) an amendment to the Company's
certificate of incorporation (the "Certificate") to increase the authorized
number of shares of Common Stock from 350,000,000 to 750,000,000 (the
"Amendment").
As of January 30, 1998, the Company's directors, executive officers and
their affiliates (including Laidlaw Inc.) beneficially owned approximately
70.29% of the Company's outstanding shares of Common Stock, with other
stockholders beneficially owning approximately 29.71%. If the transactions
contemplated by the Offer are consummated, current Safety-Kleen shareholders
(other than Laidlaw Inc.) would hold between 129,471,000 shares (41.55%) and
162,000,000 shares (47.0%) of the Company's outstanding common stock, depending
on the Exchange Ratio (as defined herein), the Company's directors, executive
officers and their affiliates (including Laidlaw Inc.) would hold 126,908,000
shares (between 37.1% and 40.9% of the Company's outstanding common stock,
depending on the Exchange Ratio), and the Company's current stockholders (other
than the Company's directors, executive officers and their affiliates) would
hold 53,641,000 shares (between 15.7% and 17.3% of the Company's outstanding
common stock, depending on the Exchange Ratio).
If the Offer is successful, the Company intends to effect a merger (the
"Merger") between Safety-Kleen and a wholly-owned subsidiary of the Company
(formed solely to effect such Merger), pursuant to which the Company intends to
acquire (the "Acquisition") all of the outstanding shares of common stock, par
value $.10 per share, of Safety Kleen (the "SK Shares") in exchange for
consideration equal to that paid in connection with the Offer.
This Proxy Statement is first being mailed or otherwise delivered to
Stockholders on or about January 30, 1998. The record date for the Special
Meeting is the close of business on January 30, 1998 (the "Record Date"). The
principal executive offices of the Company are located at 1301 Gervais Street,
Suite 300, Columbia, South Carolina 29201.
The Board of Directors did not seek or obtain a fairness opinion with
respect to the fairness of the consummation of the transactions contemplated by
the Offer to the Stockholders.
THE SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Special Meeting will be held on Tuesday, February , 1998, at 10:00
a.m., eastern time, at 1301 Gervais Street, Suite 300, Columbia, South Carolina
29201. At the Special Meeting, Stockholders will be asked to consider and vote
upon proposals to approve (i) the Issuance and (ii) the Amendment.
5
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of Common Stock at the close of business
on the Record Date, are entitled to notice of and to vote at the Special
Meeting. As of such date, there were 182,282,097 shares of Common Stock issued
and outstanding. Holders of record of Common Stock on the Record Date are
entitled to one vote per share on any matter that may properly come before the
Special Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The approval of the Issuance requires the affirmative vote of a majority of
the shares of Common Stock present in person or represented by proxy at the
Special Meeting and entitled to vote thereon, provided that a quorum consisting
of a majority of the shares of Common Stock entitled to vote is present. The
approval of the Amendment requires the affirmative vote of a majority of the
shares of outstanding Common Stock entitled to vote on the Amendment, which vote
would also constitute a quorum. Accordingly, a failure to vote or an abstention
with respect to the Amendment will have the same effect as a negative vote. All
of the executive officers and directors of the Company and Laidlaw Inc. have
advised the Company that they intend to vote their shares of Common Stock to
approve the Issuance and the Amendment.
INTEREST OF CERTAIN PERSONS IN THE OFFER
James R. Bullock, John R. Grainger and Leslie W. Haworth, all of whom are
directors of the Company, are also officers of Laidlaw Inc.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the Special Meeting is enclosed with this Proxy
Statement. All shares of Common Stock held of record as of the Record Date
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated on
such proxies.
The Board is not aware of any other matters which may be presented for
action at the Special Meeting, but if other matters do come properly before the
Special Meeting it is intended that shares of Common Stock represented by
proxies in the accompanying form will be voted by the persons named in the proxy
in accordance with their best judgment.
Abstentions will be counted as present for purposes of determining whether
a quorum is present. If a broker or nominee indicates on its proxy that it does
not have discretionary authority to vote on a particular matter as to certain
shares, those shares will be counted as present for purposes of a quorum but
will not be considered as present and entitled to vote with respect to such
matter.
Any proxy on which no direction is specified will be voted: (i) FOR the
Issuance; (ii) FOR the Amendment; and (iii) in the discretion of the proxy
holder as to any other matter which may properly come before the Special
Meeting. A Stockholder may revoke a proxy by: (i) delivering to the Company
written notice of revocation, (ii) delivering to the Company a proxy signed on a
later date or (iii) appearing at the Special Meeting and voting in person.
The cost of soliciting proxies from Stockholders will be borne by the
Company. Proxies may be solicited by personal interview, mail and telephone by
certain of the Company's executive officers, directors and regular employees,
without additional compensation. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares of
Common Stock for their expenses in forwarding solicitation material to
beneficial owners.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents not presented
herein or delivered herewith. These documents (not including exhibits to such
documents that are not specifically incorporated by reference into such
documents) are available without charge upon request to: Legal Department,
Laidlaw Environmental Services, Inc., 1301 Gervais Street, Suite 300, Columbia,
South Carolina 29201. Telephone requests may be
2
6
directed to the corporate legal department at (803) 933-4200. In order to ensure
timely delivery of such documents, any request for documents should be submitted
not later than February 6, 1998.
The following documents filed with the Commission by the Company (File No.
1-8368) are incorporated herein by reference:
(a) the Company's Form 10-K for the fiscal year ended August 31, 1997 (the
"Company 1997 Form 10-K");
(b) the Company's Current Report on Form 8-K, dated November 5, 1997, as
amended, two Current Reports on Form 8-K, dated November 14, 1997, as amended, a
Current Report on Form 8-K, dated November 19, 1997, as amended, a Current
Report on Form 8-K, dated November 21, 1997, as amended, the Current Report on
Form 8-K dated November 25, 1997, as amended and a Current Report on Form 8-K
dated December 8, 1997 (the "Form 8-Ks");
(c) the Company's Proxy Statement, dated December 10, 1997, as amended, for
Safety-Kleen's Special Meeting held on January 9, 1998; and
(d) the Company's Preliminary Proxy Statement, dated January 6, 1998, for
Safety-Kleen's Special Meeting to be held on February 11, 1998.
(e) the Company's Form 10-Q for the period ending November 30, 1997, dated
January 13, 1998.
The following documents filed with the Commission by Safety-Kleen (File No.
1-6513) are incorporated herein by reference:
(a) Safety-Kleen Form 10-K for the fiscal year ended December 28, 1996, as
amended by Form 10-K/A filed December 23, 1997 (except for the report of
Safety-Kleen's independent auditors contained therein which is not incorporated
herein by reference because the consent of Safety-Kleen's independent auditors
has not yet been obtained);
(b) Safety-Kleen Forms 10-Q for the quarterly periods ending March 22, June
14 and September 6, 1997;
(c) Safety-Kleen Current Reports on Form 8-K, dated August 8, 1997,
November 18, 1997 and November 21, 1997; and
(d) Safety-Kleen Schedule 14D-9 Solicitation Recommendation Statement dated
December 22, 1997, as amended and restated, relating to the Offer.
All documents filed by either the Company or Safety-Kleen pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date hereof and prior to the
date of the Special Meeting shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing. See "Available
Information." Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
FORWARD-LOOKING INFORMATION
This Proxy Statement contains certain forward-looking statements (within
the meaning of the Private Securities Litigation Reform Act of 1995) that
involve substantial risks and uncertainties. When used in this Proxy Statement,
the words "believe" and "intend" and similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. A number of important factors could cause the Company's actual
results, performance or achievements for fiscal 1998 and beyond to differ
materially from those expressed in such forward-looking statements. These
factors include, without limitation, failure to achieve anticipated synergies,
charges and costs related to acquisitions, environmental liabilities, attraction
and retention of key personnel, general economic and business conditions and
enhanced competition and new competitors.
3
7
PROPOSAL 1
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
THE PROPOSED OFFER AND MERGER
GENERAL
Upon approval of the Issuance and the Amendment by the Stockholders, the
Company proposes to issue between 129,471,000 and 162,000,000 shares of Common
Stock pursuant to the Offer. If the Offer is successful, the Company intends to
effect the Merger between Safety-Kleen and a wholly-owned subsidiary of the
Company (formed solely to effect such Merger), pursuant to which the Company
intends to consummate the Merger in exchange for consideration per share equal
to the consideration paid in the Offer.
DESCRIPTION OF THE OFFER
The Company has offered, upon the terms and subject to the conditions set
forth in a Prospectus dated January 15, 1998 (the "Prospectus") and an
accompanying letter of transmittal to exchange $18.00 in cash (the "Cash
Consideration"), and a total number of shares of Common Stock equal to the
Exchange Ratio, as defined below (the "Stock Consideration"), for each
outstanding SK Share, including (unless and until the Company and LES
Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company ("LES Acquisition"), declare that the Rights Condition (as defined
below) is satisfied) the associated Safety-Kleen common share purchase rights
(each, a "Right" and collectively, the "Rights") issued pursuant to the Rights
Agreement, dated as of November 9, 1988, between Safety-Kleen and First National
Bank of Chicago, as Rights Agent, as amended by a First Amendment to Rights
Agreement, dated as of August 10, 1990, and a Second Amendment to Rights
Agreement, dated as of November 20, 1997 (the "Rights Agreement"), validly
tendered on or prior to the expiration date of the Offer (the "Expiration Date")
and not properly withdrawn. Unless the context otherwise requires and unless and
until the Rights are redeemed, all references to SK Shares herein shall include
the associated Rights. All references herein to Rights shall include all
benefits that may inure to holders of the Rights pursuant to the Rights
Agreement.
"Exchange Ratio" means the quotient (rounded to the nearest 1/100,000)
determined by dividing $12.00 by the weighted average trading prices for Common
Stock (as reported on the NYSE Composite Transactions reporting system as
published in The Wall Street Journal or, if not published therein, in another
authoritative source) for ten NYSE trading days (each a "Trading Day") selected
by lot from the twenty Trading Days ending three business days immediately prior
to the Expiration Date (the "Common Stock Average Price"), provided, that the
Exchange Ratio shall not be less than 2.24 nor greater than 2.80. Accordingly,
subject to changes in the actual market value of Common Stock on the date that
SK Shares are actually exchanged, each SK Share will be exchanged for (in
addition to the Cash Consideration) Common Stock having a market value of $12.00
if the Common Stock Average Price is between $4.28571 and $5.35714. If the
Common Stock Average Price is greater than $5.35714, each SK Share will be
exchanged for (in addition to the Cash Consideration) Common Stock having a
market value of more than $12.00, and, conversely, if the Common Stock Average
Price is less than $4.28571, each SK Share will be exchanged for (in addition to
the Cash Consideration) Common Stock having a market value of less than $12.00,
in each case subject to changes in the actual market value of Common Stock on
the date that SK Shares are actually exchanged. Cash will be paid in lieu of
fractional shares of Common Stock. On January 22, 1998, the closing price of
Common Stock on the NYSE was $4.6250. Based on such closing price, the Exchange
Ratio would be 2.59459, and each SK Share would be converted into $18.00 net in
cash and 2.59459 shares of Common Stock. The Exchange Ratio will change as the
market price of the Common Stock changes. The actual Common Stock Average Price
and Exchange Ratio will be calculated as of the third Trading Day immediately
prior to the Expiration Date, as described above, and a press release will be
issued announcing the actual Exchange Ratio prior to the opening of the second
Trading Day prior to the Expiration Date (as it may be extended from time to
time).
4
8
CONDITIONS TO OFFER
The Company's obligation to exchange the Cash Consideration and the Stock
Consideration (collectively, the "Offer Consideration") for SK Shares pursuant
to the Offer is conditioned upon, among other things, the satisfaction or, where
applicable, waiver of the following conditions: (i) there being validly tendered
and not withdrawn prior to the Expiration Date a number of SK Shares which,
together with SK Shares owned by the Company and its affiliates, constitute at
least two-thirds of the total number of outstanding SK Shares on a fully diluted
basis (as though all options or other securities convertible into or exercisable
or exchangeable for SK Shares (other than the Rights) had been so converted,
exercised or exchanged) as of the date the SK Shares are accepted for exchange
by the Company pursuant to the Offer (the "Minimum Tender Condition"), (ii)
approval of the Issuance and the Amendment by the Stockholders (the "Stockholder
Approval Condition"), (iii) the Safety-Kleen board of directors having redeemed
the Rights or amended the Rights Agreement so that the Rights are inapplicable
to the acquisition of SK Shares pursuant to the Offer, or the Company being
otherwise satisfied in its reasonable discretion that the Rights are invalid or
are not applicable to the acquisition of SK Shares pursuant to the Offer (the
"Rights Plan Condition"), (iv) the Company being satisfied, in its reasonable
discretion, either that the provisions of Section 180.1141 and Section 180.1150
of the Wisconsin Statutes (the "Wisconsin Statutes") are inapplicable to the
Company and the Offer, or that (a) full voting rights for all SK Shares to be
acquired by the Company and its subsidiaries pursuant to the Offer have been
restored by the stockholders of Safety-Kleen pursuant to the Wisconsin Statutes
and (b) the Wisconsin Statutes will not prohibit for any period of time the
consummation of the Merger or any other "business combination" (as defined in
such statutes) involving Safety-Kleen and the Company and its subsidiaries, or
any of their respective affiliates (the "Wisconsin Statutory Conditions"); and
(v) all regulatory approvals required to consummate the Offer having been
obtained and remaining in full force and effect, all statutory waiting periods
in respect thereof having expired and no such approval containing any conditions
or restrictions which the Board determines will or could be expected to
materially impair the strategic and financial benefits expected to result from
the Offer (the "Regulatory Approval Condition"). The Minimum Tender Condition,
the Stockholder Approval Condition, the Rights Plan Condition, the Wisconsin
Statutory Conditions, the Regulatory Approval Condition and the other conditions
of the Offer are referred to herein collectively as the "Offer Conditions."
DESCRIPTION OF THE MERGER
If the Offer is successful and the Offer Conditions are satisfied, the
Company and its affiliates will own not less than two-thirds of the outstanding
SK Shares, and will have sufficient voting power to approve the Merger
independently of the votes of any other Safety-Kleen shareholders. If the Offer
is successful, the Company presently intends to propose and seek to have
Safety-Kleen effect the Merger in which LES Acquisition will merge with and into
Safety-Kleen pursuant to the provisions of the Wisconsin Statutes and the
General Corporation Law of the State of Delaware (the "DGCL"). LES Acquisition
is a newly formed entity with no operations other than in connection with the
Company's efforts to acquire Safety-Kleen.
The consideration paid for SK Shares in the Merger would be identical to
the consideration paid in the Offer. Safety-Kleen has not provided the Company
with information that might be relevant in structuring the Merger, and the
Company reserves the right to change the structure of the Offer and the Merger
upon receipt of such information.
Consummation of the Merger does not require approval by the Stockholders,
and other than approval of the Issuance as requested in this Proxy Statement the
Company does not intend to seek Stockholder approval of the Merger.
SOURCE AND AMOUNT OF FUNDS
The Company estimates that the total amount of funds required pursuant to
the Offer to pay for the Cash Consideration in connection with the exchange of
all SK Shares outstanding on a fully diluted basis, to refinance the Company's
existing bank debt, to refinance Safety-Kleen's existing and outstanding
indebtedness and to pay fees and expenses related to the Offer will be
approximately $1.8 billion. The Company plans to obtain the outside funds
necessary to finance the Cash Consideration pursuant to credit facilities to be
arranged by TD
5
9
Securities (USA), Inc. ("TDSI"). The Company has received a written financing
commitment (the "Commitment Letter") from TDSI and Toronto-Dominion Bank ("TD")
to provide senior secured credit facilities in the aggregate principal amount of
up to $1.8 billion (the "Senior Credit Facilities"). The terms of the definitive
agreement for the Senior Credit Facilities (the "Loan Agreement") have not yet
been finalized. The following is a summary of the anticipated principal terms of
the Senior Credit Facilities based upon the Commitment Letter. This summary is
subject to finalization of the Loan Agreement and is qualified in its entirety
by reference to the Commitment Letter, which is filed as Exhibit (4)(p) hereto.
The Credit Facilities will consist of four parts: (i) a $450,000,000 6-year
Senior Secured Revolving Credit Facility with a $200,000,000 letter of credit
sublimit (the "Revolving Credit Facility" or "Facility A"), (ii) a $550,000,000
6-year Senior Secured Amortizing Term Loan ("Facility B"), (iii) a $550,000,000
Minimally Amortizing 7-year Senior Secured Term Facility ("Facility C") and (iv)
a $550,000,000 Minimally Amortizing 8-year Senior Secured Term Loan ("Facility
D"); (Facility B, Facility C and Facility D, collectively, the "Term Loans").
The Credit Facilities will be secured by all of the tangible assets of the
combined companies. The Credit Facility will be syndicated to banks and other
financial institutions (collectively, the "Lenders") acceptable to the Company
and the Agent. All of the capital stock of the Company and its subsidiaries,
including the acquired Safety-Kleen subsidiaries, will be pledged as part of
such security for the Credit Facilities, and such subsidiaries will guaranty the
obligations of the Company to the Lenders. The Term Loans will be drawn in full
on the closing date. The Revolving Credit Facility will be available commencing
on the closing date at which time $200,000,000 will be available for letters of
credit and $300,000,000 will be available for loans, subject to an aggregate
maximum of $450,000,000.
Facility A will have no scheduled amortization. The Term Loans will require
aggregate principal repayments of $86 million in each of years 1 and 2, $111
million in each of years 3, 4, 5 and 6, $522 million in year 7 and $512 million
in year 8.
Borrowings under the Senior Credit Facilities will bear interest at a
floating rate based upon, at LES Acquisition's option, (i) the higher of the TD
prime rate and the federal funds rate plus 0.50% per annum, or (ii) the London
Interbank Offered Rate ("LIBOR") as determined by TD for the respective interest
period, in each case plus a margin based upon the total leverage ratio of LES
Acquisition. LES Acquisition also will pay administration fees, commitment fees,
re-syndication fees (under certain circumstances) and certain expenses and
provide certain indemnities, all of which LES Acquisition believes to be
customary for commitments of this type. The commitment fees have been paid or
will be payable, as applicable, in stages, beginning with the execution of the
Commitment Letter and ending with a final payment upon consummation of the
financing. The Commitment Letter may be extended beyond its expiration date of
March 31, 1998 upon payment of an additional fee.
The Loan Agreement will contain conditions precedent, representations and
warranties, negative, affirmative and financial covenants (including financial
covenants limiting annual capital expenditures, restricting debt, guaranties,
liens, mergers and consolidations, sales of assets 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), events of default and other provisions customary for such
financings.
TD's commitment to provide the Senior Credit Facilities is conditioned on,
among other things, the following: the negotiation, execution and delivery of
the Loan Agreement; receipt of all necessary or desirable governmental,
shareholder and third-party consents; the absence of a material adverse change
in the business assets, operations, condition (financial or otherwise), or
prospects of LES Acquisition, Safety-Kleen and their respective subsidiaries on
a consolidated basis; the execution of definitive agreements relating to the
Merger and the Offer; satisfactory completion of due diligence examinations;
prior or contemporaneous repayment in full of all existing indebtedness of each
of LES Acquisition and Safety-Kleen; and the successful syndication of $400
million of the $1.8 billion commitment; and after consummation of the
transactions at closing, either (i) the Company shall hold a sufficient number
of shares to effect the Merger or (ii) the Merger shall have been or,
concurrently with the closing, shall be, consummated, and the surviving
corporation shall be a wholly-owned subsidiary of LES Acquisition.
It is anticipated that the indebtedness incurred through borrowings under
the Senior Credit Facilities will be repaid from funds generated internally by
LES Acquisition and its subsidiaries, and from other sources. No final
6
10
decisions have been made concerning the method LES Acquisition will employ to
repay such indebtedness. Such decisions when made will be based on LES
Acquisition's review from time to time of the advisability of particular
actions, as well as on prevailing interest rates and financial and other
economic conditions.
After consummation of the Merger, the Company will be highly leveraged with
substantial debt service obligations, including principal and interest
obligations with respect to bank debt of as much as $1.8 billion. In addition,
the Company's ability to obtain additional debt financing will be limited by
restrictive covenants under the terms of its credit agreements and any other
debt instruments and those limits on financing may therefore limit the Company's
ability to service its existing debt obligations through additional debt
financing if cash flow from operations is insufficient to service such
obligations.
RISK FACTORS
Dilution of Existing Stockholders. The exchange of SK Shares for shares of
Common Stock will cause substantial dilution to the voting power and interests
of current Stockholders and, possibly, lead to a change in control of the
Company. Based upon the 182,282,097 shares of Common Stock outstanding as of
January 30, 1998, the shares of Common Stock issuable upon consummation of the
Offer and the Merger will constitute between 71.0% and 88.8% of the Common Stock
outstanding on a fully diluted basis, assuming the exercise of currently
outstanding vested options and warrants and the conversion of currently
outstanding debt securities. Assuming a Common Stock Average Price of
$ , the ownership interest of directors and executive officers of the
Company and their affiliates (including, Laidlaw Inc.) would decrease to between
% to % and the ownership interests of other Stockholders would
decrease to between % to %, in each case on the fully diluted basis
described above.
Ownership of Existing Stockholders. As of November 30, 1997, Laidlaw Inc.
owned beneficially approximately 66.8% of the outstanding Common Stock. If the
Offer is successful and the Merger consummated, Laidlaw Inc.'s beneficial
ownership of the Company (without taking into account the PIK Note) will be
reduced to 32.1% of the outstanding Common Stock. Laidlaw Inc.'s management is
currently available to provide formal and informal assistance to the Company and
its management, and Laidlaw Inc.'s majority ownership in the Company (and
accordingly its ability to control the Company's business decisions) may cause
the Company to receive favorable treatment from lenders, suppliers and other
service providers with whom both Laidlaw Inc. and the Company have business
relationships. Laidlaw Inc.'s management may be less available to the Company
after Laidlaw Inc. reduces its ownership in the Company, and it is possible that
lenders, suppliers and other service providers with whom both Laidlaw Inc. and
the Company have business relationships will view the Company less favorably if
Laidlaw Inc. ceases to have the ability to control the Company's business
decisions.
Uncertainties in Integrating Operations and Achieving Cost Savings. The
Company and Safety-Kleen and certain direct and indirect subsidiaries each are
large enterprises with operations in different markets. The success of any
business combination, including the Merger, is in part dependent on the ability
following the Merger to consolidate operations and integrate departments,
systems and procedures and thereby obtain business efficiencies, economies of
scale and related cost savings. The consolidation of operations, the integration
of departments, systems and procedures and the reallocation of staff present
significant management challenges. There can be no assurance that future
consolidated results will improve as a result of the Merger, or as to the timing
or extent to which cost savings and efficiencies anticipated by the Company will
be achieved.
Leverage. After consummation of the Merger, the Company will be highly
leveraged with substantial debt service obligations, including principal and
interest obligations with respect to bank debt of as much as $1.8 billion.
Therefore, the Company will be particularly susceptible to adverse changes in
its industry, the economy and the financial markets generally. In addition, the
Company's ability to obtain additional debt financing will be limited by
restrictive covenants under the terms of its credit agreements and any other
debt instruments and those limits on financing may therefore limit the Company's
ability to service its existing debt obligations through additional debt
financing if cash flow from operations is insufficient to service such
obligations.
7
11
REASONS FOR THE ACQUISITION
The Company believes that both Stockholders and Safety-Kleen shareholders
will benefit in several ways from the Acquisition.
Strategic Fit. The Company believes the combination with Safety-Kleen will
bring together complimentary assets that on a combined basis will be better able
to compete in the hazardous waste management marketplace. A service center
network that links the Company's customers to its treatment and disposal
facilities such as landfills and incinerators is one of the Company's primary
operational strengths. These service centers differentiate the Company from its
competitors and allow for both responsiveness and accountability in managing a
customer's hazardous waste stream. The Company believes the acquisition of
Safety-Kleen will further increase vertical integration of the Company's
business and enhance its service centers' recovery capabilities by processing
waste streams collected by Safety-Kleen. In addition, the Company believes that
its acquisition of Safety-Kleen will result in a further strengthening of the
Company's market position by:
- providing additional service center market coverage in key geographic
regions including Kentucky, Minnesota, and New Jersey:
- introducing a smaller-sized customer base to compliment the Company's
existing customer base of medium- and large-sized customers; and
- providing significant expansion into the solvent recycling market.
Synergies. Upon consummation of the Offer, the Company intends to build
upon Safety-Kleen's leading market presence and quality brand equity. The
Company's management believes that annual cost savings of approximately $100 to
$130 million would result from the combination of the two companies due to an
anticipated elimination of duplicative head office and regional office general
and administrative and other public company costs, the closure of forty (40) to
fifty (50) overlapping service center facilities, the increased utilization of
those facilities that remain open from such efficiencies as improved
transportation route density, for example, and the internalization of various
waste streams.
These estimated cost savings from synergies are described in detail below.
The Company believes these estimated savings are achievable and has fully
considered the contrary arguments asserted by Safety-Kleen in its Schedule
14D-9.
Waste internalization. The Company has estimated from publicly available
sources that Safety-Kleen spends approximately $37 million annually for outside
disposal of hazardous wastes it generates, consisting of fuel blend material, as
well as waste disposed of at hazardous waste incinerators, landfills and
wastewater treatment facilities. The Company currently receives an insignificant
amount of waste material for disposal from Safety-Kleen.
The Company would internalize the incinerable and wastewater waste
materials for disposal at Company owned facilities. The fuel blend material
would be either used as a fuel source or blended with solid waste material for
burning at the Company's three solid hazardous waste incinerator facilities.
When used as a fuel source, the Company avoids incurring the cost of purchasing
conventional fuel from third parties.
Based on the above, and taking into account an estimate for possible
incremental transportation costs, the Company estimates the cost savings from
waste internalization to be $13.5 million to $25 million.
Facility consolidation. The Company estimates that 40 to 50 processing and
service center facilities can be rationalized and closed due to the overlapping
coverage areas of Company and Safety-Kleen operations. These facility closure
estimates are based upon a thorough review of the 53 existing Company service
center and processing facilities and the 167 existing Safety-Kleen North
American branch network and recycling facilities.
The Company obtained information on the Safety-Kleen facilities from a
variety of public sources to determine each facility's geographic coverage and
permit capabilities. The Safety-Kleen facilities were then overlayed against the
existing Company facilities to determine the redundant operating locations.
Based on this analysis, the Company has estimated that 5 processing facilities
and 35 to 45 service center operations could be closed.
8
12
The Company estimates that the cost savings from these facility closings
would be approximately $2.0 to $2.5 million per processing facility and $1.0 to
$1.5 million per service center facility based on its historical experience in
cost savings achieved by the Company following the acquisition of Rollins
Environmental Services, Inc. ("Rollins") and other cost studies.
The cost savings per location are based on the concept that waste
collection and routing efficiencies would be achieved by combining the
transportation resources of the overlapping operating locations and reducing the
total number of vehicles and drivers required to service the existing combined
customer base. The closure of redundant facilities would also result in cost
savings related to the personnel and property costs associated with such
facilities.
Selling, general and administrative cost savings. The Company estimates
that selling, general and administrative cost savings of approximately $45
million to $60 million would be achieved through the elimination of duplicative
regional and head office costs. The Company intends to incorporate the
Safety-Kleen operations directly into the Company's existing operational
organization, which will result in the elimination of all duplicate
administrative support functions. These estimates are based on the reduction of
600 to 800 personnel at annualized savings of $75,000 each.
Based on the estimated cost savings identified by Company management, the
Company believes that it can achieve annualized benefits of approximately $100
to $130 million. The Company expects to begin achieving cost savings within
three months of the Merger, and to fully implement the cost savings within the
first year after consummation of the Merger. The Company will also consider the
sale of Safety-Kleen's European operations and its oil recovery business. This
rationalization is expected to strengthen the Company's market position, improve
the overall industry fundamentals through capacity reduction and result in
immediate cost savings. The Company management estimates that the Company will
incur one time costs of not more than $100 million relating to facilities
closure and severance expenses incurred in connection with achieving these
synergies. Through the successful merger with Rollins, which took place in May
of 1997, the Company has demonstrated its ability to manage the integration of
an acquisition and capitalize on the benefits that can accrue to merged
companies in its industry. To date, the Company believes synergies achieved in
the Rollins merger, on an annualized basis, total approximately $90 million.
There can be no assurance, however, that after consummation of the Merger the
projected cost savings will be achieved or will be equal to those achieved in
the Rollins acquisition.
CONSIDERATIONS OF THE COMPANY'S BOARD OF DIRECTORS
The Company's Board of Directors believes that the Merger is fair and in
the best interests of the Stockholders because, for the reasons discussed under
"Reasons for the Acquisition" above and as set forth below, it will permit the
Stockholders to participate in a diversified, cost efficient, and more
competitive combined company.
Upon learning that Safety-Kleen had retained William Blair in August 1997,
the Company's Board of Directors considered whether to pursue a strategic
business combination with Safety-Kleen. In deciding to pursue the acquisition,
the Company reviewed the historical financial condition and results of
operations of the Company and its subsidiaries, the profitability of various
lines of business, the current competitive environment, the Company's strategic
goals, and Safety-Kleen's historical financial condition and results of
operations.
In reaching its decision to approve and adopt the Offer, the Company's
Board of Directors consulted with the Company's senior management and its
financial and legal advisers and considered many factors, including but not
limited to, those listed above and the following:
(i) confidence in the Company's ability to achieve anticipated
synergies based on the Company's historical record of achieving expected
post-acquisition synergies, as evidenced by the Company's post-acquisition
historical results of operations and cash flows after the Rollins
Acquisition (as defined herein) and the acquisition of National Electric,
Inc.;
(ii) the belief that the Company can meet the debt service
requirements created by consummation of the Merger, as evidenced by the
Company's historical debt service coverage ratios;
(iii) the fact that the Merger allows the Company to significantly
expand its revenues and the scope and geographic base of its operations;
9
13
(iv) the belief that a combined Company/Safety-Kleen entity will have
enhanced liquidity because of greatly increased public share holdings;
(v) the current economic and competitive operating environment and the
opportunities for growth and diversification that are more readily
available to a combined Company/Safety-Kleen entity than to the Company on
a stand-alone basis; and
(vi) the opportunity for Stockholders to participate in the combined
company resulting from the Merger, which is expected to have a greater
potential for profits and growth and future increase in shareholder value
than the Company would have alone.
After a discussion of the factors described above, including asking
questions of the Company's management and its legal and financial advisers, the
Board of Directors reached a general consensus that the Merger was in the best
interests of Company and the Stockholders. The foregoing discussion of the
information and factors considered by the Board of Directors in determining that
the Offer and the Merger are fair and in the best interests of the Stockholders
is not intended to be exhaustive, but is believed to include the material
factors considered by the Board of Directors in connection with its evaluation
of the Offer and the Merger. In view of the wide variety of factors considered
and the complexity of such matters, the Board of Directors did not attempt to
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision.
THE COMPANY AND SAFETY-KLEEN COMPARATIVE PER SHARE DATA
The following table sets forth comparative per share data of the Company
and Safety-Kleen on both a historical and pro forma combined basis. This table
should be read in conjunction with each entity's historical financial statements
and notes thereto as set forth in the filings incorporated by reference herein
(but which in the case of Safety-Kleen are not covered by the report of
Safety-Kleen's independent accountants for purposes of this Proxy Statement),
and in conjunction with the unaudited pro forma combined financial information
appearing elsewhere in this Proxy Statement. See "Company and Safety-Kleen
Unaudited Pro Forma Combined Financial Information."
The pro forma information set forth below gives effect to (a) the
acquisition of Rollins, and (b) the Rollins acquisition, the Offer, the Merger
and the other transactions described herein under the heading "The Company,
Rollins and Safety-Kleen Unaudited Pro Forma Combined Financial Information", as
if each had occurred as of September 1, 1996. Both the Rollins acquisition and
the Merger and pending acquisitions have been presented using the purchase
method of accounting. This information does not reflect the estimated cost
savings of the Rollins acquisition, nor the cost savings of approximately $100
to $130 million that the Company's management believes may result from the
Merger. The pro forma combined per share data is not necessarily indicative of
actual results of operations of the Company, Rollins, and Safety-Kleen had the
transactions assumed therein occurred on the dates specified, nor are they
indicative of future expected results.
LAIDLAW
ENVIRONMENTAL/
LAIDLAW SAFETY-KLEEN SAFETY-KLEEN
ENVIRONMENTAL SAFETY-KLEEN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED(1) EQUIVALENT(2)
------------- ------------ -------------- -------------
Book value per common share:
August 31, 1997............................ $ 1.82 $8.49 $ 3.04 $ 8.18
November 30, 1997.......................... 1.90 8.49 3.08 8.29
Year ended August 31, 1997:
Primary Income (loss) per common share from
continuing operations(4)................ (1.33) 1.04 (0.71) (1.91)
Cash dividends(3).......................... -- 0.36 -- --
Three months ended November 30, 1997:
Primary income per share................... 0.056 1.04 0.013 0.035
Fully diluted income per share(4).......... 0.047 -- -- --
- ---------------
(1) See "Company, Rollins and Safety-Kleen Selected Unaudited Pro Forma
Financial Information."
(2) The Safety-Kleen pro forma equivalent represents the Company/Safety-Kleen
pro forma combined book value, dividends and income (loss) per common share
multiplied by an Exchange Ratio of 2.69, which assumes a Company share price
of $4.459375.
10
14
(3) The Company has not paid cash dividends during the past two fiscal years and
does not presently anticipate paying any cash dividends in the future. In
addition, the Company's existing credit facility, and its proposed credit
facility to be arranged through TD Securities (USA), Inc., preclude the
payment of cash dividends.
(4) Fully diluted earnings per share, which include the dilutive effect of the
subordinated convertible debenture, have not been included for the
historical year ended August 31, 1997, nor for the pro forma three months
ended November 30, 1997, as the effect of such inclusion would be to
increase earnings per share, and thus be anti-dilutive.
RELATIONSHIPS WITH SAFETY-KLEEN
Except as to the transactions described below effected on the NYSE by a
wholly owned subsidiary of the Company, neither the Company nor any of its
subsidiaries, nor to the best of its knowledge, any of its or their directors or
executive officers nor any associate of any of such persons, beneficially owns
or has a right to acquire any equity securities of Safety-Kleen nor to the best
knowledge of the Company have any of such persons effected any transaction in
such equity securities during the last 60 days.
NUMBER OF
SK
DATE PURCHASED SHARES BOUGHT PRICE PER SHARE
-------------- ------------- ---------------
10/02/97................................................... 100 $23.8750
10/28/97................................................... 78,000 $20.5000
10/28/97................................................... 85,000 $20.7500
10/28/97................................................... 43,000 $21.5000
10/28/97................................................... 23,000 $19.7500
10/28/97................................................... 10,000 $20.2600
10/28/97................................................... 2,000 $19.5000
10/29/97................................................... 191,000 $22.0000
10/29/97................................................... 91,000 $21.9375
10/29/97................................................... 25,100 $21.8750
10/29/97................................................... 38,200 $21.8125
10/29/97................................................... 9,700 $21.7500
10/29/97................................................... 5,000 $21.6250
Neither the Company nor, to the best of its knowledge, any of its directors
or executive officers has (i) any contract, arrangement, understanding or
relationship with any other person with respect to any securities of
Safety-Kleen, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies; (ii) had any contacts or negotiations with Safety-Kleen or its
affiliates concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets, except as described herein; or (iii)
has had any transaction with Safety-Kleen or any of its executive officers,
directors or affiliates that would require disclosure under the rules and
regulations of the Commission applicable to the Offer except existing and
present business relationships (e.g., providing services to each other or
considering the purchase or sale of discrete assets or operations or alliances)
in the ordinary course of business none of which are material, the sale of
certain assets of a Company subsidiary to Safety-Kleen in February 1996 and the
accompanying cooperative services agreement which is in the process of being
terminated.
ACCOUNTING TREATMENT
The Company will account for the Merger using the purchase method of
accounting. Accordingly, the purchase price will be allocated to assets acquired
and liabilities assumed based on their estimated fair values at the Merger date.
Safety-Kleen's financial position and results of operations will not be included
in the Company's consolidated accounts prior to the consummation date of the
Merger.
11
15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of all the material anticipated federal
income tax consequences of the Offer and the Merger. It does not address any tax
consequences of the Offer and the Merger to persons who exercise appraisal
rights, if any, to the Merger. This discussion may not apply to certain classes
of persons subject to special tax treatment, such as foreign persons, insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities, persons who acquired SK Shares pursuant to the exercise of employee
stock options or rights or otherwise as compensation and persons who hold SK
Shares as part of a straddle or conversion transaction. This discussion is based
upon laws, regulations, rulings and decisions, all of which are subject to
change (possibly with retroactive effect), and no ruling has been or will be
requested from the Internal Revenue Service (the "Service") on the tax
consequences of the Offer and the Merger.
The exchange of SK Shares for Common Stock and cash pursuant to the Offer
and Merger will be a taxable transaction to the holders of SK Shares for U.S.
federal income tax purposes and may also be taxable under applicable state,
local and foreign tax laws. In general, for U.S. federal income purposes, each
Safety-Kleen shareholder will realize gain or loss equal to the difference
between (x) the amount of cash and the fair market value of the shares of Common
Stock received and (y) the Safety-Kleen shareholder's adjusted tax basis in the
SK Shares exchanged therefor. Such gain or loss will be capital gain or loss if
the Safety-Kleen shareholder holds the SK Shares as a capital asset and will be
long-term gain or loss if the Safety-Kleen shareholder's holding period for the
SK Shares is more than eighteen months. The Safety-Kleen shareholder will have a
tax basis in the Common Stock received equal to the fair market value thereof
and the shareholder's holding period for the Common Stock will begin on the day
following the date of the exchange.
If the Board of Directors of Safety-Kleen agrees to the Offer, the Merger
may be restructured as a partially tax-free merger for U.S. federal income tax
purposes. Neither the Offer nor the Merger will have any federal income tax
consequences on present Stockholders.
MARKET PRICES
The Common Stock is listed and principally traded on the NYSE under the
symbol "LLE" and is also traded on the Pacific Exchange, Inc. The SK Shares are
listed and traded on the NYSE under the Symbol "SK." The following table sets
forth the range of high and low sales prices as reported on the NYSE Composite
Tape.
COMMON STOCK SK SHARES
PRICE RANGE PRICE RANGE
------------------- -------------------
HIGH LOW HIGH LOW
-------- ------- -------- -------
1995
First Quarter........................................ $ 5 1/2 $ 4 $17 7/8 $14 1/2
Second Quarter....................................... 5 4 1/8 18 1/8 15
Third Quarter........................................ 5 1/4 4 1/4 18 12 7/8
Fourth Quarter....................................... 4 1/2 2 3/4 15 3/4 13 3/4
1996
First Quarter........................................ 3 1/8 2 15 7/8 13 3/8
Second Quarter....................................... 4 1/2 2 1/4 17 1/2 14 1/2
Third Quarter........................................ 4 1/2 2 5/8 18 5/8 15 1/8
Fourth Quarter....................................... 2 7/8 1 5/8 17 1/4 14 3/4
1997
First Quarter........................................ 3 3/8 1 3/4 18 3/8 14 1/2
Second Quarter....................................... 3 1/4 2 5/8 17 11/16 14 1/8
Third Quarter........................................ 5 15/16 2 7/8 26 16
Fourth Quarter (through December 31, 1997)........... 5 3/4 4 1/8 29 18 1/8
On August 7, 1997, the date prior to the date Safety-Kleen announced its
retention of William Blair, the closing price per SK Share, as reported on the
NYSE Composite Tape, was $17.8125, and the closing price per share of Common
Stock, as reported on the NYSE Composite Tape, was $3.1875. On November 3, 1997,
the date
12
16
prior to the date of the public announcement of the Company's intention to
acquire Safety-Kleen, the closing price per SK Share, as reported on the NYSE
Composite Tape, was $21.9375, and the closing price per share of Common Stock,
as reported on the NYSE Composite Tape, was $4.9375.
On November 19, 1997, the last trading day prior to the public announcement
of the Buyout Proposal and the Company's Offer, the closing sales price per
share of Common Stock was $4.875 and the closing sales price per SK Share was
$26.0625. On January 28, 1998, the closing price per share of Common Stock was
$ , and the closing price per share of an SK Share was $ .
Past price performance is not necessarily indicative of likely future price
performance. Stockholders are urged to obtain current market quotations for SK
Shares and for shares of Common Stock.
The Company has not paid cash dividends during the past two fiscal years
and does not presently anticipate paying any cash dividends in the future. The
Company's existing credit facility precludes the payment of cash dividends.
According to the Safety-Kleen 1996 Form 10-K, there were, as of December
28, 1996, 8,042 holders of record of SK Shares. As of October 7, 1997, there
were 6,234 holders of record of shares of Common Stock.
DESCRIPTION OF COMPANY CAPITAL STOCK
The authorized capital stock of the Company consists of 350,000,000 shares
of Common Stock and 1,000,000 shares of Company Preferred Stock, par value $1.00
per share ("Preferred Stock").
Company Common Stock. As of January 30, 1998, there were 182,282,097
shares of Common Stock issued and outstanding. In connection with the Offer, the
Company is seeking approval from its Stockholders to increase the amount of
authorized shares of Common Stock to 750,000,000 shares. The Stockholders are
entitled to one vote per share on all matters requiring stockholder action. The
Stockholders participate ratably in liquidation, subject to the payment to the
holders of any outstanding class of Preferred Stock of the preferential amounts
to which they are entitled.
Dividends on the Common Stock may be declared and paid only out of surplus
or net profits legally available for the payment of dividends. The Company has
not paid cash dividends during the past two fiscal years and does not presently
anticipate paying any cash dividends in the future. The Company's existing
credit facility precludes the payment of cash dividends.
Company Preferred Stock. The Company is authorized to issue 1,000,000
shares of Preferred Stock, which may be issued from time to time in one or more
series, each such series to have such distinctive designation or title as may be
fixed by the Company's Board of Directors prior to the issuance of any shares
thereof. Each series may differ from each other series already outstanding as
may be declared from time to time by the Company's Board of Directors in the
following respects: (i) the rate of dividend; (ii) the amount per share, if any,
which the Preferred Stock shall be entitled to receive upon redemption,
liquidation, distribution or sale of assets, dissolution or winding up of the
Company; (iii) terms and conditions of conversions, if any; and (iv) terms of
sinking fund, redemption or purchase account, if any. As of January 30, 1998,
the Company had no Preferred Stock outstanding.
SELECTED FINANCIAL DATA
The summary below sets forth selected historical financial data and
selected unaudited pro forma combined financial data. This financial data should
be read in conjunction with the historical financial statements and notes
thereto contained in the filings incorporated by reference herein (but which, in
the case of Safety-Kleen, are not covered by the report of Safety-Kleen's
independent accountants for purposes of this Proxy Statement), and in
conjunction with the unaudited pro forma combined financial information and
notes thereto appearing elsewhere in this Proxy Statement.
13
17
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The selected historical financial data of the Company set forth below has
been derived from financial statements of the Company as they appeared in the
Company's Form 10-K for the year ended August 31, 1997, and in the Company's
Form 10-Q for the three months ended November 30, 1997.
THREE MONTHS YEAR ENDED AUGUST 31,
ENDED ----------------------------------------------------------
NOVEMBER 30, 1997 1997 1996 1995 1994 1993
----------------- ---------- ---------- ---------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Statement of Income Data:
Revenues............... $ 211,552 $ 678,619 $ 652,973 $ 599,241 $517,804 $511,554
Income (loss) from
continuing
operations(1)....... $ 10,144 $ (183,452) $ 6,714 $ 16,765 $ 22,531 $ 11,654
Primary income (loss)
per share from
continuing
operations(1)....... $ 0.056 $ (1.329) $ 0.056 $ 0.140 $ 0.188 $ 0.097
Fully diluted income
per share(2)........ $ 0.047
Cash dividends per
common share........ -- -- -- -- -- --
Balance Sheet Data:
Working capital........ $ 74,525 $ 76,095 $ 40,677 $ 60,075 $ 90,831 $119,522
Total assets........... $1,590,200 $1,610,878 $1,491,294 $1,367,411 $974,053 $947,976
Long-term debt......... $ 495,339 $ 540,096 $ 55,838 $ 64,256 $ 18,454 $ 24,253
Stockholders'
equity(3)........... $ 346,513 $ 327,965 $1,094,777 $1,056,266 $798,597 $795,887
Primary weighted
average common and
common stock
equivalents
outstanding
(000's)............. 180,822 138,033 120,000 120,000 120,000 120,000
Fully diluted weighted
average common and
common stock
equivalents
outstanding
(000's)............. 274,156 -- -- -- -- --
- ---------------
(1) Fiscal year 1997 includes restructuring charge, net of tax benefit, of $200
million ($332 million pre-tax) or $1.45 per share.
(2) Inclusion of fully-diluted per share components would have been
anti-dilutive in 1997. No dilutive components existed prior to 1997.
(3) For fiscal years 1993 to 1996 inclusive, stockholders' equity represents the
net investment of Laidlaw Inc. in the Company.
14
18
SELECTED HISTORICAL FINANCIAL DATA OF SAFETY-KLEEN
The selected historical financial data of Safety-Kleen set forth below has
been derived from financial statements of Safety-Kleen as they appeared in
Safety-Kleen's Form 10-K filed with the Commission for each of the five fiscal
years in the period ended December 28, 1996 and the Safety-Kleen Form 10-Q for
the period ended September 6, 1997, the latest publicly-filed financial
statements available. The Safety-Kleen 1996 Form 10-K should also be read in
conjunction with Safety-Kleen's selected historical financial data.
36 WEEKS ENDED
--------------------------- FISCAL YEAR
SEPTEMBER 6, SEPTEMBER 7, -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992(3)
------------ ------------ ---------- ---------- -------- --------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Statement of Income Data:
Revenues.................. $ 680,172 $626,176 $ 923,126 $ 859,251 $791,267 $ 795,508 $ 794,542
Income (loss) from
continuing operations... $ 40,297 $ 40,685 $ 61,109 $ 53,303 $ 50,094 $(101,346)(1) $ 45,637(2)
Net income (loss) per
share from continuing
operations.............. $ 0.69 $ 0.70 $ 1.05 $ 0.92 $ 0.87 $ (1.76)(1) $ 0.79(2)
Cash dividends per common
share................... $ 0.27 $ 0.27 $ 0.36 $ 0.36 $ 0.36 $ 0.36 $ 0.34
Balance Sheet Data:
Working capital........... $ 74,795 $ 72,340 $ 43,532 $ 31,766 $ 53,472 $ 47,729
Total assets.............. $1,037,192 $1,044,823 $1,009,050 $973,444 $ 950,664 $1,006,446
Long-term debt............ $ 246,080 $ 276,954 $ 283,715 $284,125 $ 288,633 $ 300,724
Stockholders' equity...... $ 495,718 $ 480,290 $ 433,435 $396,336 $ 362,664 $ 492,095
Weighted average common
and common stock
equivalents (000's)..... 58,490 58,078 58,152 57,857 57,541 57,679 57,768
- ---------------
(1) Includes restructuring and special charges, net of tax benefit, of $136
million ($229 million pre-tax) or $2.36 per share.
(2) Includes $300,000 ($.01 per share) increase in net earnings from cumulative
effect of prior years effect of adopting Statement of Financial Accounting
Standards (SFAS) No. 106 on accounting for post-retirement benefits and SFAS
No. 109 on accounting for income taxes.
(3) Fiscal year 1992 was a fifty-three week year. All other years presented were
fifty-two weeks.
COMPANY, ROLLINS AND SAFETY-KLEEN SELECTED UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated income statements of the Company and Rollins, and the
consolidated balance sheets and income statements of the Company and
Safety-Kleen as if the acquisition of Rollins by the Company on May 15, 1997
(the "Rollins Acquisition"), the Offer, the Merger and the other transactions
described herein had occurred for all periods presented. These statements are
prepared on the basis of accounting for the Rollins Acquisition and the Merger
as a purchase and are based on the assumptions set forth in the notes thereto.
These statements and the pro forma information presented below do not reflect
the estimated cost savings of approximately $100 to $130 million the Company
believes will result from the Merger or the estimated cost savings of the
Rollins Acquisition. The following information is not necessarily indicative of
the financial position or the actual results of operation that would have
occurred had the transactions assumed herein occurred on such dates or of
expected future results. This information should be read in conjunction with and
is qualified in its entirety by the consolidated financial statements and
accompanying notes of the Company and Safety-Kleen included in the documents
described under "Incorporation of Certain Documents by Reference" (but which, in
the case of Safety-Kleen, are not covered by the reports of Safety-Kleen's
independent accountants for purposes of this Proxy Statement), the consolidated
financial statements and accompanying notes of Rollins, and the pro forma
combined financial
15
19
statements and accompanying discussion and notes set forth under "Unaudited Pro
Forma Combined Financial Information."
PRO FORMA COMBINED
--------------------------------------------
YEAR ENDED THREE MONTHS ENDED
AUGUST 31, 1997 NOVEMBER 30, 1997
----------------------- ------------------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Statement of Income Data:
Revenue................................................ $1,802,627 $441,566
Income (loss) from continuing operations............... (241,810) 4,187
Income (loss) from discontinued operations............. 20 --
---------- --------
Net income (loss).............................. $ (241,790) $ 4,187
========== ========
Per share data(1):
Primary:
Income (loss) from continuing operations............... $ (0.711) $ 0.012
Income (loss) from discontinued operations............. .000 --
---------- --------
Net income (loss).............................. $ (0.711) $ 0.012
========== ========
Weighted average common and common stock equivalents
(000's)............................................. 339,980 338,631
========== ========
Fully diluted:
Net income............................................. -- $ 0.010
Weighted average common and common stock equivalents
(000's)............................................. -- 446,510
PRO FORMA COMBINED
AS OF NOVEMBER 30, 1997
-----------------------
(UNAUDITED)
($ IN THOUSANDS)
Balance Sheet Data:
Assets
Total current assets................................ $ 500,276
Total assets................................... 4,454,385
Liabilities
Total current liabilities........................... 422,870
Long term debt...................................... 1,764,809
Subordinated convertible debenture.................. 350,000
Total liabilities.............................. 3,414,277
Stockholders' Equity................................... 1,040,108
- ---------------
(1) Assumes an Exchange Ratio of 2.69.
16
20
THE COMPANY, ROLLINS AND SAFETY-KLEEN
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
combines the consolidated income statements of the Company and Rollins and the
consolidated balance sheets and income statements of the Company and
Safety-Kleen as if the Rollins Acquisition, the Offer, the Merger and the other
transactions described herein had occurred for all periods presented. These
statements are prepared on the basis of accounting for the Acquisition and the
Merger as a purchase and are based on the assumptions set forth in the notes
thereto. These statements do not reflect the estimated cost savings of the
Rollins Acquisition, nor the cost savings of approximately $100 to $130 million
the Company believes will result from the Merger. This information should be
read in conjunction with and is qualified in its entirety by the consolidated
financial statements and accompanying notes of the Company and Safety-Kleen
included in the documents described under "Incorporation of Certain Documents by
Reference" (but which, in the case of Safety-Kleen, are not covered by the
reports of Safety-Kleen's independent accountants for purposes of this Proxy
Statement), the Rollins financial statements included herein and the pro forma
accompanying discussion and notes set forth under this section.
The following information is being presented for illustrative purposes only
and is not necessarily indicative of the financial position or operating results
that would have occurred had the transactions assumed herein been consummated at
the beginning of the periods for which the transactions are being given effect,
nor is it necessarily indicative of future operating results or financial
position.
THE COMPANY, ROLLINS AND SAFETY-KLEEN
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31, 1997
HISTORICAL PRO FORMA
HISTORICAL LAIDLAW ADJUSTMENTS
ROLLINS ENVIRONMENTAL DR/(CR)
---------- ------------- -----------
(UNAUDITED $ IN THOUSANDS, EXCEPT PER SH
Revenues....................... $150,985 $ 678,619 $ 4,099(Da)
Expenses:
Operating.................... 149,791 485,062 (4,099)(Da)
Depreciation and
amortization............... 22,606 53,506 (6,345)(Db)
Selling, general and
administrative............. 22,371 73,068
Restructuring charge......... -- 331,697
-------- --------- --------
Total expenses......... 194,768 943,333 (10,444)
-------- --------- --------
Operating income (loss)........ (43,783) (264,714) (6,345)
Allocated interest expense..... -- 24,030
Interest expense............... 5,856 20,243 9,625(Dc)
Other income................... -- 2,865
-------- --------- --------
Income (loss) from continuing
operations before income
tax.......................... (49,639) (306,122) 3,280
Income tax expense (benefit)... (17,460) (122,789) 3,251(Dd)
-------- --------- --------
Income (loss) from continuing
operations before minority
interest..................... (32,179) (183,333) 6,531
Minority interest (net of
tax)......................... -- (119) --
-------- --------- --------
Income (loss) from continuing
operations................... $(32,179) $(183,452) $ 6,531
======== ========= ========
Loss per share from continuing
operations (Note D5)......... $ (1.329)
Weighted average common and
common stock equivalents
outstanding (000s)........... 138,033
PRO FORMA HISTORICAL PRO FORMA
LAIDLAW SAFETY- ADJUSTMENTS PRO FORMA
ENVIRONMENTAL KLEEN DR/(CR) COMBINED
------------- ---------- ----------- ----------
(UNAUDITED $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues....................... $ 825,505 $977,122 -- $1,802,627
Expenses:
Operating.................... 630,754 645,488 33,722(D1) 1,276,242
Depreciation and
amortization............... 69,767 77,741 -- 181,230
Selling, general and
administrative............. 95,439 137,961 -- 233,400
Restructuring charge......... 331,697 -- 331,697
---------- -------- -------- ----------
Total expenses......... 1,127,657 861,190 33,722 2,022,569
---------- -------- -------- ----------
Operating income (loss)........ (302,152) 115,932 33,722 (219,942)
Allocated interest expense..... 24,030 -- -- 24,030
Interest expense............... 35,724 18,504 100,226(D2) 154,454
Other income................... 2,865 1,587 -- 4,452
---------- -------- -------- ----------
Income (loss) from continuing
operations before income
tax.......................... (359,041) 99,015 133,948 (393,974)
Income tax expense (benefit)... (136,998) 38,294 (53,579)(D3) (153,283)
---------- -------- -------- ----------
Income (loss) from continuing
operations before minority
interest..................... (222,043) 60,721 80,369 (241,691)
Minority interest (net of
tax)......................... (119) -- -- (119)
---------- -------- -------- ----------
Income (loss) from continuing
operations................... $ (222,162) $ 60,721 $ 80,369 $ (241,810)
========== ======== ======== ==========
Loss per share from continuing
operations (Note D5)......... $ (0.711)
Weighted average common and
common stock equivalents
outstanding (000s)........... 339,980(D4)
See Accompanying Notes to Unaudited Pro Forma Combined Financial Information.
17
21
THE COMPANY AND SAFETY-KLEEN
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997
HISTORICAL HISTORICAL PRO FORMA ADJUSTMENTS
LAIDLAW SAFETY-KLEEN ---------------------- PRO FORMA
ENVIRONMENTAL (SEE NOTE C) DR CR COMBINED
------------- ------------ -------- -------- ---------
(UNAUDITED $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues.................................... $211,552 $230,014 $ -- $ -- $441,566
Expenses:
Operating................................. 145,325 153,412 -- -- 298,737
Depreciation and amortization............. 13,895 17,940 8,729(D1) -- 40,564
Selling, general and administrative....... 20,401 31,274 -- -- 51,675
-------- -------- ------- ------- --------
Total expenses..................... 179,621 202,626 8,729 -- 390,976
-------- -------- ------- ------- --------
Operating income (loss)..................... 31,931 27,388 8,729 -- 50,590
Allocated interest expense.................. -- -- -- -- --
Interest expense............................ 15,139 3,707 25,976(D2) -- 44,822
Other income................................ 500 299 -- -- 799
-------- -------- ------- ------- --------
Income before income tax.................... 17,292 23,980 34,705 -- 6,567
Income tax expense.......................... 7,227 8,862 -- 13,630(D3) 2,459
-------- -------- ------- ------- --------
Income before minority interest............. 10,065 15,118 34,705 13,630 4,108
Minority interest (net of tax).............. 79 -- -- -- 79
-------- -------- ------- ------- --------
Net income......................... $ 10,144 $ 15,118 $34,705 $13,630 $ 4,187
======== ======== ======= ======= ========
Primary income per share (Note D4):
Net income per share...................... $ 0.056 $ 0.012
Weighted average common and common stock
equivalents outstanding (000's)......... 180,822 338,631
Fully diluted income per share (Note D4,
Note D5):
Net income per share...................... $ 0.047
Weighted average common and common stock
equivalents outstanding (000's)......... 274,156
See Accompanying Notes to Unaudited Pro Forma Combined Financial Information.
18
22
THE COMPANY AND SAFETY-KLEEN
PRO FORMA COMBINED BALANCE SHEET
HISTORICAL LAIDLAW HISTORICAL
ENVIRONMENTAL SAFETY-KLEEN PRO FORMA ADJUSTMENTS
AS OF NOVEMBER 30, AS OF SEPTEMBER 30, ------------------------- PRO FORMA
1997 1997 (SEE NOTE C) DR CR COMBINED
------------------ ------------------- ---------- ---------- ----------
(UNAUDITED $ IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents............ $ 9,843 $ 13,273 $ $ $ 23,116
Trade and other accounts
receivable............. 218,534 141,597 -- -- 360,131
Inventories.............. 7,281 48,853 -- -- 56,134
Other current assets..... 24,237 36,658 -- -- 60,895
---------- ---------- ---------- ---------- ----------
Total current
assets.......... 259,895 240,381 -- -- 500,276
Property, plant and
equipment, net........... 1,151,923 629,561 1,295,644(D6) -- 3,077,128
Goodwill................... 69,407 136,479 537,965(D7) -- 743,851
Other assets............... 108,995 30,771 -- 6,636(D8) 133,130
---------- ---------- ---------- ---------- ----------
Total assets...... $1,590,220 $1,037,192 $1,833,609 $ 6,636 $4,454,385
========== ========== ========== ========== ==========
LIABILITIES
Current liabilities:
Accounts payable......... $ 67,504 $ 63,563 $ -- $ -- $ 131,067
Accrued liabilities...... 102,332 102,023 -- -- 204,355
Current portion of
long-term debt......... 15,534 -- -- 71,914(D10) 87,448
---------- ---------- ---------- ---------- ----------
Total current
liabilities..... 185,370 165,586 -- 71,914 422,870
Deferred items:
Income taxes............. 57,472 57,361 -- 518,258(D14) 633,091
Other.................... 171,060 72,447 -- -- 243,507
Long-term debt............. 479,805 246,080 -- 1,038,924(D10) 1,764,809
Subordinated convertible
debenture................ 350,000 -- -- -- 350,000
---------- ---------- ---------- ---------- ----------
Total
liabilities..... 1,243,707 541,474 -- 1,629,096 3,414,277
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
Common stock............. 182,272 5,839 -- 149,697(D11) 337,808
Additional paid-in
capital................ 392,641 194,977 -- 343,082(D12) 930,700
Cumulative foreign
currency translation
adj.................... (3,083) -- -- -- (3,083)
Net unrealized gain on
securities available... 2,209 -- -- -- 2,209
Retained earnings
(accumulated
deficit)............... (227,526) 294,902 294,902(D13) -- (227,526)
---------- ---------- ---------- ---------- ----------
Total
stockholders'
equity.......... 346,513 495,718 294,902 492,779 1,040,108
---------- ---------- ---------- ---------- ----------
Total liabilities
and
stockholders'
equity.......... $1,590,220 $1,037,192 $ 294,902 $2,121,875 $4,454,385
========== ========== ========== ========== ==========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Information.
19
23
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
A. SUMMARY OF OFFER
The Company has offered to exchange the Offer Consideration for each
outstanding SK Share validly tendered on or prior to the Expiration Date and not
properly withdrawn. The Offer Consideration per SK Share consists of $18.00 net
in cash and that number of shares of Common Stock equal to the Exchange Ratio.
"Exchange Ratio" means the quotient (rounded to the nearest 1/100,000)
determined by dividing $12.00 by the weighted average trading prices for Common
Stock (as reported on the NYSE Composite Transactions reporting system as
published in The Wall Street Journal or, if not published therein, in another
authoritative source) (the "Common Stock Average Price") for ten NYSE Trading
Days selected by lot from the twenty trading days ending three business days
immediately prior to the Expiration Date, provided, that the Exchange Ratio
shall not be less than 2.24 nor greater than 2.80. Accordingly, subject to
changes in the actual market value of Common Stock on the date that SK Shares
are actually exchanged, each SK Share will be exchanged for (in addition to the
Cash Consideration) Common Stock having a market value of $12.00 if the Common
Stock Average Price is between $4.28571 and $5.35714. If the Common Stock
Average Price is greater than $5.35714, each SK Share will be exchanged for (in
addition to the Cash Consideration) Common Stock having a market value of more
than $15.00, and, conversely, if the Common Stock Average Price is less than
$4.28571, each SK Share will be exchanged for (in addition to $18.00 net in
cash) Common Stock having a market value of less than $12.00, in each case
subject to changes in the actual market value of Common Stock on the date that
SK Shares are actually exchanged. Cash will be paid in lieu of any fractional
shares of Common Stock.
According to the Safety-Kleen Form 10-Q for the period ended September 6,
1997, as of September 6, 1997, there were 58,400,729 SK Shares outstanding. The
Company beneficially owns 601,100 SK Shares, or approximately 1.03% of the
outstanding SK Shares.
In contemplation of the Acquisition, the Company has received a commitment
letter from TD to provide the Senior Credit Facilities. The Senior Credit
Facilities will consist of four parts: (i) a $450 million 6-year Senior Secured
Revolving Credit Facility with a $200 million letter of credit sublimit (the
"Revolving Credit Facility" or "Facility A"), (ii) a $550 million 6-year Senior
Secured Amortizing Term Loan ("Facility B"), (iii) a $550 million Minimally
Amortizing 7-year Senior Secured Term Loan ("Facility C") and (iv) a $550
million Minimally Amortizing 8-year Senior Secured Term Loan ("Facility D");
(Facility B, Facility C and Facility D, collectively, the "Term Loans"). The
Senior Credit Facilities will be secured by all of the tangible assets of the
combined companies. The Credit Facilities will be syndicated to banks and other
financial institutions (collectively, the "Lenders") acceptable to the Company
and the Agent. All of the capital stock of the Company's subsidiaries, including
the acquired Safety-Kleen subsidiaries, will be pledged as part of such security
for the Senior Credit Facilities, and such subsidiaries will guaranty the
obligations of the Company to the Lenders. The Term Loans will be drawn in full
on the closing date. The Revolving Credit Facility will be available commencing
on the closing date at which time $200 million will be available for letters of
credit and $300 million will be available for loans, subject to an aggregate
maximum of $450 million. Interest per annum on the Senior Credit Facilities will
vary depending on the particular facility, whether the Company chooses to borrow
under LIBOR or non-LIBOR loans and, with respect to Facilities A and B the
current total leverage ratio. Under the terms of the Senior Credit Facilities,
the Company will be required to use interest rate swaps to manage the risk of
interest rate fluctuations. The terms of such interest rate swaps have not been
established.
B. ACCOUNTING TREATMENT ($ IN THOUSANDS)
If the Merger is consummated, it will be accounted for using the purchase
method of accounting applied in accordance with generally accepted accounting
principles. Accordingly, the assets and liabilities of Safety-Kleen will be
recorded at their estimated fair value, with any difference between the amount
of such fair value and the purchase price being recorded as goodwill. The
operating results of the combined company will include the results of operations
of Safety-Kleen from and after the closing date of the Merger. (The following
assumes no Buyout Proposal Expenses are paid by Safety-Kleen.)
20
24
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The aggregate purchase price totals $1,804,443 and is comprised as follows:
SK Shares outstanding at September 6, 1997 according to
Safety-Kleen's September 6, 1997 Form 10-Q................ 58,400,729
SK Shares previously acquired by the Company................ (601,100)
------------
SK Shares remaining to be acquired.......................... 57,799,629
------------
Cash cost at $18.00 per SK Share (Note 1)................... $ 1,040,393
Cost of additional shares of Common Stock to be issued:
Number of shares of Common Stock to be issued (Note 2).... 155,536,370
Price per share........................................... $ 4.459375
Total cost........................................ 693,595
------------
1,733,988
Cost of SK Shares previously acquired by the Company........ 13,000
Cost of "in-the-money" Safety-Kleen stock options that are
assumed to fully vest..................................... 57,445
------------
Total purchase price.............................. $ 1,804,433
============
- ---------------
Note 1: If the Buyout Proposal Expenses are paid by Safety-Kleen, and an
additional item titled "Cost of Buyout Proposal Expenses" will be
included in the table. Payment of the Buyout Proposal Expenses will
increase the Total Merger Purchase Price by a maximum of $50 million,
when determined on an after-tax basis.
Note 2: Range of possible Exchange Ratios between 2.24 and 2.80 could result in
the number of shares of Common Stock ranging between 129,471,169 and
161,838,961.
The price per share of the additional Company shares to be issued of
$4.459375 is the average of the closing NYSE market price for the 20 trading
days before January 23, 1998, the trading day before the public announcement of
the Company's intention to revise the Offer.
The purchase price has been allocated to the assets acquired and
liabilities assumed based on estimated fair values at November 30, 1997, as
follows:
Current assets.............................................. $ 240,381
Property, plant and equipment............................... 1,925,205
Goodwill.................................................... 674,444
Other assets................................................ 24,135
Current liabilities......................................... (165,586)
Deferred income taxes....................................... (575,619)
Other deferred items........................................ (72,447)
Long-term debt.............................................. (246,080)
----------
Total purchase price.............................. $1,804,433
==========
C. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined balance sheet gives effect to
the Offer, the Merger and the other transactions described herein as if they had
occurred on November 30, 1997. The unaudited pro forma combined statement of
income for the year ended August 31, 1997 gives effect to (a) the Rollins
Acquisition under the heading "Pro Forma Laidlaw Environmental," and (b) the
Rollins Acquisition, the Offer, the Merger and the other transactions described
herein as if each had occurred as of September 1, 1997. The unaudited pro forma
combined statement of income for the three months ended November 30, 1997 gives
effect to the Rollins Acquisition, the Offer, the Merger and the other
transactions described herein as if each had occurred as of September 1, 1997.
21
25
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The unaudited pro forma combined balance sheet at November 30, 1997
includes the balance sheet of the Company at November 30, 1997 and the balance
sheet of Safety-Kleen at September 6, 1997, the latest publicly available
financial statement. Since the November 30, 1997 balance sheet of the Company
reflects the acquisition of Rollins on May 15, 1997, no pro forma disclosure is
required. The unaudited pro forma combined statement of income for the year
ended August 31, 1997 includes the Company for the year ended August 31, 1997,
Rollins for the period September 1, 1996 to May 15, 1997, and for Safety-Kleen,
the aggregate of the 16 weeks ended December 28, 1996 plus the 36 weeks ended
September 6, 1997. The unaudited pro forma combined statement of income for the
three months ended November 30, 1997 includes the Company for the three months
ended November 30, 1997, and Safety-Kleen for the 12 weeks ended September 6,
1997, the latest publicly available interim financial statements. Because
Safety-Kleen does not report depreciation and amortization expense in its
unaudited interim financial statements, the Company's management has estimated
Safety-Kleen's historical depreciation and amortization expense for this period
on the basis that it is the same as that reported for the year ended December
31, 1996.
Both the recent and pending acquisitions have been presented using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon management's best
preliminary estimate of their fair values, based upon publicly available
documents and information. The preliminary allocation of the purchase price with
respect to Safety-Kleen will be subject to further adjustments as the Company
finalizes the allocation of the purchase price in accordance with generally
accepted accounting principles. Management does not anticipate that the final
allocation of the purchase price will result in a material change to income. The
goodwill acquired is being amortized over 40 years on a straight-line basis.
During the report periods there were no material transactions between the
Company and Safety-Kleen.
The unaudited combined pro forma financial information does not purport to
be indicative of the combined financial position or combined results of
operations of the Company, Rollins and Safety-Kleen had the transactions assumed
therein occurred on the dates specified, nor are they indicative of future
financial position or results of operations. The unaudited pro forma financial
information does not give effect to potential cost savings of the Rollins
Acquisition, nor the cost savings of approximately $100 to $130 million that the
Company management believes may be realized as a result of the Merger. There can
be no assurances that such cost savings, if any, will be achieved.
The unaudited pro forma financial information should be read in conjunction
with the historical consolidated financial statements of the Company, Rollins
and Safety-Kleen and the notes thereto included elsewhere herein.
D. PRO FORMA ADJUSTMENTS ($ AND SHARES IN THOUSANDS)
The following adjustments and elimination entries have been made to the
unaudited pro forma combined statement of income to reflect the Rollins
Acquisition, as of the beginning of fiscal year 1997 using the purchase method
of accounting:
(a) To eliminate transactions between combined companies.
(b) To eliminate depreciation to reflect the fair value adjustment of
property and equipment and to reflect the effects of the Rollins
Acquisition upon goodwill amortization.
(c) To adjust expense to reflect financing costs associated with the
Rollins Acquisition.
(d) To adjust income taxes (benefit) to record the pro forma income
taxes (benefits) as computed under Statement of Financial Accounting
Standard No. 109 on pro forma pre-tax income (loss).
22
26
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The following adjustments and elimination entries have been made to the
unaudited pro forma combined statement of income to reflect the acquisition of
Safety-Kleen by the Company using the purchase method of accounting for the
Merger:
1. To adjust depreciation and amortization expense to reflect the fair
value adjustment of property, plant and equipment and the effect of the
Merger on goodwill amortization, as follows:
THREE
MONTHS
YEAR ENDED ENDED
AUGUST 31, NOVEMBER 30,
1997 1997
---------- ------------
To eliminate Safety-Kleen's estimated historical
intangible and other asset amortization
expense......................................... $(15,531) $(3,584)
To record amortization expense related to goodwill
arising as a result of the Merger............... 16,861 4,215
To record depreciation expense related to certain
Safety-Kleen property, plant and equipment
(primarily buildings, land, improvements and
processing equipment) written up to estimated
fair value...................................... 32,392 8,098
-------- -------
Total adjustment........................ $ 33,722 $ 8,729
======== =======
2. To adjust interest expense for the impact of the additional
long-term debt associated with the Merger, as follows:
THREE
MONTHS
YEAR ENDED ENDED
AUGUST 31, NOVEMBER 30,
1997 1997
---------- ------------
To eliminate historical Safety-Kleen interest
expense......................................... $(18,504) $(3,707)
To record interest expense on $1,356,918(1) of
borrowings at 8.75%(2) under the Senior Credit
Facilities...................................... 118,730 29,683
-------- -------
Total adjustment........................ $100,226 $25,976
======== =======
- ---------------
(1) Includes additional long-term debt associated with Merger (Note D10) and
anticipated refinancing of Safety-Kleen historical long-term debt of
$246,080.
(2) At current rates pursuant to the terms of the Senior Credit Facilities.
3. To adjust income taxes (benefits) to record the pro forma income
taxes (benefits) as computed under SFAS 109 on pro forma pre-tax income
(loss).
4. Pro forma weighted average common and common stock equivalents
outstanding comprise:
YEAR ENDED THREE MONTHS ENDED
AUGUST 31, 1997 NOVEMBER 30, 1997
--------------------------- ---------------------------
EXCHANGE RATIO
---------------------------------------------------------
2.24 2.69 2.8 2.24 2.69 2.8
------- ------- ------- ------- ------- -------
Laidlaw Environmental weighted average
historical............................. 138,033 138,033 138,033 180,822 180,822 180,822
Adjustment for Rollins Acquisition....... 46,411 46,411 46,411 -- -- --
Additional Laidlaw Environmental Common
Stock to be issued in connection with
the Merger (see Note B)................ 129,471 155,536 161,839 129,471 155,536 161,839
------- ------- ------- ------- ------- -------
23
27
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
YEAR ENDED THREE MONTHS ENDED
AUGUST 31, 1997 NOVEMBER 30, 1997
--------------------------- ---------------------------
EXCHANGE RATIO
---------------------------------------------------------
Percentage of Laidlaw Environmental
Shares held by former Safety-Kleen
Shareholders after the Merger....... 41.5% 46.0% 47.0%
Laidlaw Environmental Shares
outstanding at November 30, 1997.... 182,282 182,282 182,282
Additional Laidlaw Environmental Shares
to be issued in connection with the
Merger (See Note B)................. 129,471 155,536 161,839
Pro forma Laidlaw Environmental Shares
at November 30, 1997................ 311,753 337,818 344,121
Primary:
Pro forma weighted average
total........................ 313,915 339,980 346,283 345,084 361,334 386,150
======= ======= ======= ======= ======= =======
Pro forma income (loss) per
share........................ $(0.770) $(0.711) $(0.698) $ 0.019 $ 0.018 $ 0.017
------- ------- ------- ------- ------- -------
5. Fully diluted earnings per share amounts, which would include the
dilutive effect of the subordinated convertible debenture, have not been
included for the year ended August 31, 1997 nor the three months ended
November 30, 1997 as the effect of such inclusion would be to increase
earnings per share, and thus be anti-dilutive.
The following adjustments and elimination have been made to the unaudited
pro forma combined balance sheet to reflect the Acquisition using the purchase
method of accounting for the Merger:
6. To write up certain Safety-Kleen property, plant and equipment to
fair value.
7. To eliminate the historical book value of Safety-Kleen's intangible
assets and record the goodwill resulting from the Merger as follows:
Eliminate historical Safety-Kleen intangible assets......... $(136,479)
Record goodwill arising from the Acquisition (See Note A)... 674,444
---------
Net goodwill adjustment..................................... $ 537,965
=========
8. To write-off the estimated book value of Safety-Kleen's other
assets.
9. The Company's management estimates that approximately $100,000 of
costs related to facility closures, severance costs and other direct
acquisition costs would be incurred in connection with the Merger; these
estimates of costs are not yet based on sufficient factual information so
as to be included as pro forma adjustments and are subject to change as
additional information becomes available.
10. To record the additional long-term debt associated with the Merger
(see Note B), as follows:
Cash component of acquiring outstanding Safety-Kleen
Shares.................................................... $1,040,393
Cost of SK Shares previously acquired....................... 13,000
Cost of stock options....................................... 57,445
----------
Total long-term debt adjustment............................. $1,110,838
Less: current portion adjustment............................ (71,914)
----------
Net long-term debt adjustment............................. $1,038,924
==========
24
28
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
11. To record the additional common stock associated with the Merger,
as follows:
Eliminate historical SK common stock........................ $ (5,839)
Issuance of additional shares of Common Stock (Note B)...... 155,536
--------
Total Common Stock adjustment............................. $149,697
========
12. To record the impact on additional paid-in capital associated with
the Merger, as follows:
Eliminate historical Safety-Kleen additional paid-in
capital................................................... $(194,977)
Issuance of additional shares of Common Stock (Note B)...... 538,059
---------
Total additional historical paid-in capital adjustment.... $ 343,082
=========
13. To eliminate historical Safety-Kleen retained earnings.
14. To record the incremental change in the Company's tax liability
and benefit which results from the adjustment of certain assets and the
recording of certain liabilities utilizing the Federal statutory rate of
35% plus an effective state rate of 5%.
25
29
RECOMMENDATION OF THE BOARD
The Board has determined that the Issuance is in the best interests of the
Company and the Stockholders, has approved the Issuance and recommends that the
Stockholders vote "FOR" the proposal to approve the Issuance.
PROPOSAL 2
AMENDMENT OF CERTIFICATE
GENERAL
The Company is currently authorized to issue 350,000,000 shares of Common
Stock. The Amendment, if approved, would increase the number of authorized
shares of Common Stock to 750,000,000 shares. Assuming that the Amendment is
approved and adopted and the Acquisition is consummated, as of ,
199 , between and shares of authorized Common Stock would
remain available for future issuance. The Company currently does not have a
sufficient number of authorized but unissued shares of Common Stock to
consummate the Acquisition. If the proposed Amendment is approved, the newly
authorized shares of Common Stock will have voting and other rights identical to
the currently authorized shares of Common Stock.
The Board believes that it is in the Company's best interests to have the
flexibility to issue additional shares of Common Stock. At present, the Company
has no agreements, understandings or plans for the issuance or use of the
additional shares of Common Stock proposed to be authorized. However, the Board
of Directors believes that the current number of authorized and unreserved
shares of Common Stock may be insufficient to meet the Company's future needs.
The availability of additional shares will enhance the Company's flexibility in
connection with possible future acquisition opportunities, financing needs and
other business opportunities, to effect stock dividends or stock splits and to
provide appropriate equity-based compensation. Except as otherwise required by
applicable law, the Certificate, the Bylaws or any stock exchange or market on
which the Company's securities may then be listed or traded, such additional
shares of Common Stock could be issued at such time, for such purposes, and for
such consideration as the Board may determine, without further authorization by
the Stockholders.
If the Stockholders approve the Amendment, it will be adopted regardless of
whether the Acquisition is consummated.
Although the Board will authorize the issuance of additional shares of
Common Stock only when it considers doing so to be in the best interests of
Stockholders, the issuance of additional shares of Common Stock may, among other
things, have a dilutive effect on the earnings per share of Common Stock and on
the equity and voting rights of holders of shares of Common Stock. The issuance
of additional shares, or the perception in the future that additional shares may
be issued, may also adversely effect the market price of the Common Stock. The
increase in the availability for issuance of additional shares of Common Stock
pursuant to the Amendment also could be viewed as having antitakeover effects by
rendering more difficult or discouraging an attempt to obtain control of the
Company. Although the Board has no current plans to do so, shares of Common
Stock could be issued in various transactions that would make a change in
control of the Company more difficult or costly and therefore less likely. For
example, shares of Common Stock could be privately sold to purchasers favorable
to the Board in opposing a change in control or to dilute the stock ownership of
a person seeking to obtain control. The Company has no present intention to use
the increased shares of authorized Common Stock for anti-takeover purposes and
is not aware of any efforts to obtain control of the Company.
A copy of the proposed Amendment to the Company's Certificate is attached
to this Proxy Statement as Annex B. Stockholders are urged to read the proposed
Amendment in its entirety.
26
30
RECOMMENDATION OF THE BOARD
The Board has declared the Amendment advisable and determined that it is in
the best interests of the Company and its Stockholders, has unanimously approved
and adopted the Amendment and recommends that Stockholders vote "FOR" the
Amendment.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERS OF FIVE PERCENT OR MORE OF THE COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company by the only person who is known to
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock as of December 15, 1997, based on copies of reports filed on Schedule 13D
with the Commission.
NUMBER OF
NAME SHARES PERCENT OF CLASS
- ---- ----------- ----------------
Laidlaw Inc.(1)............................................. 121,647,834 66.74%
3221 North Service Road
Burlington, Ontario,
Canada L7R3Y8
- ---------------
(1) The shares of Common Stock shown as owned by Laidlaw Inc. are held of record
by Laidlaw Transportation, Inc., its wholly owned subsidiary.
STOCK OWNERSHIP OF THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of , 1998, information
regarding the beneficial ownership of the Common Stock of the Company by (i)
each of the Company's directors, (ii) the Chief Executive Officer of the
Company, (iii) each of the Company's other executive officers and (iv) all of
the Company's directors and executive officers as a group.
NUMBER OF PERCENT OF
NAME SHARES CLASS
---- --------- -------------
Kenneth W. Winger........................................... -0- N/A
James R. Bullock(1)......................................... -0- N/A
John R. Grainger(1)......................................... -0- N/A
Leslie W. Haworth(1)........................................ -0- N/A
John W. Rollins, Sr.(2)..................................... 3,697,576 2.05%
John W. Rollins, Jr.(3)..................................... 357,862 *
David E. Thomas, Jr......................................... -0- N/A
Henry B. Tippie(4).......................................... 2,294,689 1.27%
James L. Wareham............................................ -0- N/A
Grover D. Wrenn............................................. -0- N/A
Michael J. Bragagnolo....................................... -0- N/A
Henry H. Taylor............................................. -0- N/A
Paul R. Humphreys........................................... -0- N/A
All directors and executive officers as a group (13
persons).................................................. 6,350,127 3.52%
- ---------------
* Signifies less than 1%
(1) Messrs. Bullock, Grainger and Haworth are officers of Laidlaw Inc.
(2) Includes 191,737 shares held by Mr. Rollins as co-trustee. Does not include
6,191 shares owned by Mr. Rollins' wife, as to which shares Mr. Rollins
disclaims any beneficial ownership.
(3) Does not include 182,749 shares owned by Mr. Rollins' wife and 101,975
shares held by his wife as custodian for his minor children, as to which Mr.
Rollins disclaims any beneficial ownership.
27
31
(4) Includes 968,689 shares held by Mr. Tippie as co-trustee; 26,000 shares held
by him as trustee; and 30,000 shares owned by a partnership over which he
has sole voting power. Does not include 23,000 shares owned by Mr. Tippie's
wife and 21,000 shares held by his wife as trustee for his children, as to
which shares Mr. Tippie disclaims any beneficial ownership.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company incorporated in this
Proxy Statement by reference to the Company's Annual Report on Form 10-K for the
year ended August 31, 1997, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their report, which is also incorporated
herein by reference. The Company anticipates that the representatives of Coopers
& Lybrand will attend the Special Meeting, may make a statement if they desire
to do so and also will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Stockholder proposals intended to be presented at the 1998 Annual Meeting
of Stockholders must be received by the Company no later than July 2, 1998.
Proposals may be mailed to the Company, to the attention of the Secretary, 1301
Gervais Street, Suite 300, Columbia, South Carolina 29201.
28