[XXX XXXX & ASSOCIATES LETTERHEAD]
March 16, 2000
Messrs. Xxxxx X. Xxxxxx, Xx.
and Xxxxxx X. Xxxxx
Members of the Board of Directors
Safety-Kleen Corp.
0000 Xxxxxxx Xxxxxx
Columbia, SC 29201
Re: Crisis Management and Interim Executive Leadership
Dear Messrs. Xxxxxx and Xxxxx:
This letter outlines the understanding between Xxx Xxxx & Associates, a Michigan
corporation ("JA&A") and Safety-Kleen Corp. (the "Company") of the objective,
tasks, work product and fees for the engagement of JA&A to provide crisis
management and interim executive leadership to the Company.
OBJECTIVE
To provide services to the Company customarily provided by an interim Chief
Financial Official of the Company and to assist management in stabilization of
the Company, as well as in the development of an operating and business plan and
development and proposal of a turnaround plan that maximizes value for the
Company's stakeholders, and to assist in the exploration of strategic
alternatives on behalf of the Company to maximize its value.
TASKS
o Assume the position of the Company's interim Chief Financial Officer ("CFO")
o Assist in the assessment of the current financial position of the Company.
o Meet with Company management to review their assessment of the current
situation and evaluate their input for the Company's turnaround.
o Assist in the development of intermediate and long-term operating plans.
o Meet with lenders and other outside parties as may be required from time to
time.
Safety-Kleen Corp.
March 16, 2000
Page 2
o Develop and lead employee teams that will be focused on integration of
mergers, rationalization of product lines, reduction of overhead spending,
realizing supply chain economies and maintaining and enhancing customer
relationships.
o Work with the Company's various outside auditors in their review of prior
financial statements and adjustments that may be required to them. Also
work with this group to make required filings of reports required by the
New York Stock Exchange and the Securities and Exchange Commission.
o Meet regularly with and report to the Company's acting CEO and attend all
meetings of the Board of Directors.
o Perform such other tasks as may normally be associated with the CFO
position or as may be mutually agreed upon.
WORK PRODUCT
Our work product will be in the form of:
o Information to be discussed with you and others, as you may direct.
o Written reports and analysis worksheets to support our suggestions as we
deem necessary or as you may request.
STAFFING
Xxxx XxXxxxxx will become the Company's Interim CFO and will be the principal
responsibly for the overall engagement. Xxx Xxxxxxx, who has previous operating
experience and provided consulting services to this industry, will advise him
with respect to transportation, recovery and disposal services for hazardous and
solid wastes. Xx Xxxx will provide oversight advice and be available to consult
with senior management. They will be assisted by a staff of consultants at
various levels, all of whom have a wide range of skills and abilities related to
this type of assignment. In addition, we have relationships with and
periodically retain independent contractors with specialized skills and
abilities to assist us.
Safety-Kleen Corp.
March 16, 2000
Page 3
TIMING, FEES AND EXPENSES
We will commence this engagement immediately upon receipt of a signed engagement
letter and retainer.
Hourly Fees. This engagement will be staffed with professionals at various
levels, as the tasks require. For purposes of semi-monthly billing, our fees
will be based on the hours charged at our hourly rates, which are:
Principals $465 to $575
Senior Associates $360 to $495
Associates $265 to $375
Accountants and Consultants $190 to $290
We review and revise our hourly billing rates effective January 1 of each year
The foregoing rates will not be changed prior to January 1, 2001.
Out-of-pocket Cash Expenses. In addition to the fees set forth above, the
Company shall pay directly or reimburse JA&A upon receipt of periodic xxxxxxxx,
for all reasonable out-of-pocket expenses incurred in connection with this
assignment such as travel, lodging, postage, telephone and facsimile charges.
Contingent Success Fees. In addition to hourly fees, the Company agrees that
JA&A is expected to materially assist in helping to restructure the operations
and capital structure of the Company and that in so doing, it will significantly
add to the Company's value for its stakeholders. Accordingly, the Company agrees
that it will pay JA&A one of the following contingent success fees:
(1) A plan confirmation bonus in the amount of $2 million if the Company
obtains confirmation of its Plan of Reorganization under the U.S.
Bankruptcy Code within three months after the filing of a Chapter 11
proceeding.
(2) A plan confirmation bonus in the amount of $1.5 million if the Company
obtains confirmation of its Plan of Reorganization under the U.S.
Bankruptcy Code within 6 months after the filing of a Chapter 11
proceeding.
Safety-Kleen Corp.
March 16, 2000
Page 4
(3) A plan confirmation bonus of $1 million if the Company obtains confirmation
of its Plan of Reorganization under the U.S. Bankruptcy Code within twelve
months of its Chapter 11 filing. The plan confirmation bonus will be
decreased by $100,000 per month for each month that the confirmation of the
Plan of Reorganization exceeds twelve months following the initial filing
until the bonus has been reduced to $500,000, after which it shall not be
further reduced.
(4) The Company agrees to pay a bonus of $1 million in the event that a
substantial portion of the business is sold pursuant to Section 363 of the
U.S. Bankruptcy Code and such sale is followed by a conversion to a Chapter
7 proceeding.
The amounts payable above shall be reduced by any termination fee payable
pursuant to the Termination and Survival provisions of this agreement.
Retainer. We will require a retainer of $150,000 to be applied against the time
charges, excluding expenses, specific to the engagement. We will submit
semi-monthly invoices for services rendered and expenses incurred as described
above, and we will offset such invoices against the retainer. Payment will be
due upon receipt of the invoices to replenish the retainer to the agreed upon
amount. Any unearned portion of the retainer will be returned to you at the
termination of the engagement.
RELATIONSHIP OF THE PARTIES
The parties intend that an independent contractor relationship will be created
by this agreement. The employees of JA&A are not entitled to any of the benefits
that the Company provides for the Company's employees.
The Company also agrees not to solicit, recruit or hire any employees or agents
of JA&A for a period of two years subsequent to the completion and/or
termination of this agreement.
Safety-Kleen Corp.
March 16, 2000
Page 5
CONFIDENTIALITY
JA&A agrees to keep confidential all information obtained from the Company JA&A
agrees that neither it nor its directors, officers, principals, employees,
agents or attorneys will disclose to any other person or entity, or use for any
purpose other than specified herein, any information pertaining to the Company
or any affiliate thereof which is either non-public, confidential or proprietary
in nature ("Information") which it obtains or is given access to during the
performance of the services provided hereunder. JA&A may make reasonable
disclosures of Information to third parties in connection with their performance
of their obligations and assignments hereunder. In addition, JA&A will have the
right to disclose to others in the normal course of business its involvement
with the Company.
Information includes data, plans, reports, schedules, drawings, accounts,
records, calculations, specifications, flow sheets, computer programs, source of
object codes, results, models, or any work product relating to the business of
the Company, its subsidiaries, distributors, affiliates, vendors, customers,
employees, contractors and consultants.
The Company acknowledges that all advice (written or oral) given by JA&A to the
Company in connection with JA&A's engagement is intended solely for the benefit
and use of the Company (limited to its management) in considering the
transactions to which it relates. The Company agrees that no such advice shall
be used for any other purpose or reproduced, disseminated, quoted or referred to
at any time in any manner or for any purpose other than accomplishing the tasks
and programs referred to herein or in discussions with the Company's lenders or
debt holders, without JA&A's prior approval (which shall not be unreasonably
withheld) except as required by law. This agreement will survive the termination
of the engagement.
FRAMEWORK OF THE ENGAGEMENT
The Company acknowledges that it is hiring JA&A purely to assist and advise the
Company in business planning and restructuring and to provide crisis management
and interim executive leadership to the Company. JA&A's engagement shall not
constitute and audit, review or compilation, or any other type of financial
statement reporting or consulting engagement that is subject to
Safety-Kleen Corp.
March 16, 2000
Page 6
The rules of the AICPA, the SSCS. or other such state and national professional
bodies.
INDEMNIFICATON OF JA&A
In engagements of this nature where we act as crisis managers, it is our
practice to receive indemnification. Accordingly, in consideration of our
agreement to act on your behalf in connection with this engagement, you agree to
indemnify, hold harmless, and defend us (including our principals, employees and
agents) from and against all claims, liabilities, losses, damages and reasonable
expenses as they are incurred, including reasonable legal fees and disbursements
of counsel, and the costs of our professional time (our professional time will
be reimbursed at our rates in effect when such future time is required),
relating to or arising out of the engagement, including any legal proceeding in
which we may be required or agree to participate but in which we are not a
party. We, our principals, employees and agents may, but are not required to,
engage a single firm of separate counsel of our choice in connection with any of
the matters to which this indemnification agreement relates. This
indemnification agreement does not apply to actions taken or omitted to be taken
by us in bad faith.
INDEMNIFICATION OF OFFICERS
In addition to the foregoing indemnification, Xxxx XxXxxxxx shall be deemed to
be an officer of the Company and shall, along with other JA&A personnel who
serve as officers of the Company, be individually covered by the same
indemnification and directors' and officers' liability insurance as is
applicable to other officers of the Company.
The Company agrees that it will use its best efforts to specifically include and
cover any JA&A appointees under the Company's policy for directors' and
officers' insurance. In the event that the Company is unable to include JA&A
appointees under the Company's policy or does not have first dollar coverage as
outlined in the proceeding paragraph in effect for at least $10 million (e.g.,
such policy is not reserved based on actions that have been or are expected to
be filed against Officers and Directors alleging prior acts that may give use to
a claim), it is agreed that JA&A will have the right to terminate this
agreement.
Safety-Kleen Corp.
March 16, 2000
Page 7
TERMINATION AND SURVIVAL
The agreement may be terminated at any time by written notice by one party to
the other, provided, however, that notwithstanding such termination by the
Company, JA&A will be entitled to any fees and expenses due under the provisions
of the agreement. Such payment obligation shall insure to the benefit of any
successor or assignee of JA&A.
In the event that the Company terminates the agreement prior to September 15,
2000 other than for cause (as defined in the next paragraph) it shall pay JA&A a
termination fee of $500,000 in addition to reimbursing cash expenses. The
termination fee shall be reduced by 50% of any fees previously paid.
Additionally, unless JA&A is terminated by the Company for cause (as defined
below) or if JA&A terminates this agreement for any reason, in which case the
contingent success fee shall not be paid, JA&A shall remain entitled to the
contingent success fee that otherwise would be payable to it for any Plan
confirmation that occurs within 12 months following the termination of JA&A's
agreement. Cause shall mean a JA&A representative acting on behalf of the
Company is convicted of a felony or it is determined in good faith by the Board
of Directors of the Company, and after 30 days notice and opportunity to cure
either: (i) a JA&A representative willfully engages in misconduct injurious to
the Company, (ii) a JA&A representative breaches any of his or its material
obligations under this Agreement; or; (iii) a JA&A representative willfully
disobeys a lawful direction of the Board of Directors of the Company.
The obligations of the parties under the Indemnification of JA&A,
Indemnification of Officers, Confidentiality and Termination and Survival
sections of this agreement shall survive the termination of the agreement as
well as the other sections of this agreement that expressly provide that they
shall survive termination of this agreement.
GOVERNING LAW
This letter agreement is governed by and construed in accordance with the laws
of the State of Michigan with respect to contracts made and to be performed
entirely therein and without regard to choice of law or principles thereof.
Safety-Kleen Corp.
March 16, 2000
Page 8
If we have any dispute arising between us, including any dispute with respect to
this agreement, its interpretation, performance or breach, and are unable to
agree on a mutually satisfactory resolution with 30 days, either party may
require the matter to be settled by binding arbitration. If such arbitration
shall occur, it shall be in the city of Detroit, Michigan. We shall attempt for
two weeks to agree on a single arbitrator. If that effort shall fail, each party
shall appoint one arbitrator. The two arbitrators so chosen shall attempt for
two weeks to select a third. If they are unable to agree, the American
Arbitration Association in New York City shall choose the third. The arbitration
shall occur, using the rules and procedures of the American Arbitration
Association. The decision of the arbitrator(s) shall be final, binding and
non-appealable.
CONFLICTS AND DISCLOSURE
We know of no fact or situation that would represent a conflict of interest for
us with regard to the Company.
We do wish to make the following disclosures:
o Xxx Xxxx, a principal of JA&A is also the Managing Principal of Questor
Partners Fund, L.P. ("QPF") and Questor Partners Fund II, L.P. ("QPF II"),
a $300 million fund and an $860 million fund, respectively, each one
investing in special situations and underperforming companies;
o All of the principals of JA&A, including Xx. XxXxxxxx, own general and/or
limited partnership interests in one or more of the following related
entities: QPF, QPF II, Questor Side-by-Side Partners, L.P., Questor
Side-by-Side Partners II, L.P., and Questor Side-by-Side Partners II 3(c)
(1), L.P.;
o We have in the past, however, represented one or more of the Company's
lending banks in certain of their credit matters. Of these, we currently
have a number of situations that are active with Bank One in matters
unrelated to the Company, none of which is being handled by the staff
assigned to this engagement;
o JA&A has in the past and is presently representing a number of entities
that are borrowers of certain of the Company's major lending banks.
Although a number of those situations are presently active, none is to the
best of our knowledge, related in any way to the Company.
Safety-Kleen Corp.
March 16, 2000
Page 9
While we are not currently aware of any other relationships that connect us to
any party in interest, because JA&A is a consulting firm that serves clients on
a national basis in numerous cases, both in and out of court, it is possible
that JA&A may have rendered services to or have business associations with other
entities which had or have relationships with the Company, including creditors
of the Company. JA&A has not and will not represent the interests of any of
these aforementioned entities in this case, involving the Company.
SEVERABILITY
If any portion of the letter agreement shall be determined to be invalid or
unenforceable, we each agree that the remainder shall be valid and enforceable
to the maximum extent possible.
ENTIRE AGREEMENT
All of the above contains the entire understanding of the parties relating to
the services to be rendered by JA&A and may not be amended or modified in any
respect except in writing signed by the parties. JA&A will not be responsible
for performing any services not specifically described in this letter or in a
subsequent writing signed by the parties.
NOTICES
All notices required or permitted to be delivered under this letter agreement
shall be sent, if to us, to the address set forth in the head of this letter, to
the attention of Xx. Xxxxxx X. Xxxxxxxxxxxx, and if to you, to the address for
you set forth above, to the attention of your General Counsel, or to such other
name or address as may be given in writing to the other party. All notices under
the agreement shall be sufficient if delivered by facsimile or overnight mail.
Any notice shall be deemed to be given only upon actual receipt.
Should the Company seek protection under Chapter 11 of the Bankruptcy Code, it
agrees to affirm this agreement as part of its first day motions.
Safety-Kleen Corp.
March 16, 2000
Page 10
If these terms meet with your approval, please sign and return the enclosed copy
of this proposal and wire transfer the amount to establish the retainer.
We look forward to working with you.
Sincerely yours,
Xxx Xxxx & Associates
/s/ Xxxx X. XxXxxxxx
Xxxx X. XxXxxxxx
Principal
Acknowledged and Agreed to:
Safety-Kleen Corp.
By: /s/ Xxxxx X. Xxxxxx
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Chairman of the Executive Committee
Xxxxx X. Xxxxxx, Director
Dated: 3/21/00
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