<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
ROTO-ROOTER, INC.
(NAME OF SUBJECT COMPANY)
ROTO-ROOTER, INC.
(NAME OF PERSON(S) FILING STATEMENT)
------------------------
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
778786103
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
MR. BRIAN A. BRUMM
VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
ROTO-ROOTER, INC.
2500 CHEMED CENTER
CINCINNATI, OH 45202
(513) 762-6690
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE
PERSON(S) FILING STATEMENT)
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<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Roto-Rooter, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 2500 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio
45202. The title of the class of equity securities to which this statement
relates is the Company's Common Stock, par value $1.00 per share (the "Common
Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 dated August 14, 1996 and the Amendments thereto
dated August 19, 1996 and August 22, 1996 (together, the "Schedule 14D-1") of
the bidder, Chemed Corporation, a Delaware corporation (the "Bidder"), to
purchase any and all outstanding shares of Common Stock at $41.00 per share (the
"Offer Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated August 14, 1996 (the "Offer
to Purchase") and the related Letter of Transmittal (which together constitute
the "Offer"). The Schedule 14D-1 states that the principal executive offices of
the Bidder are located at 2600 Chemed Center, 255 East Fifth Street, Cincinnati,
Ohio 45202.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) (1) Information Incorporated By Reference. Certain contracts,
agreements, arrangements, and understandings, and certain actual or potential
conflicts of interest, between the Company or its affiliates and (i) the
Company's executive officers, directors or affiliates or (ii) the Bidder or its
executive officers, directors or affiliates are described in the section of the
Offer to Purchase entitled "Special Factors -- Interests of Certain Persons;
Stockholdings of Certain Officers and Directors; and Related Transactions", in
Schedule I to the Offer to Purchase, and in the sections entitled "Election of
Directors", "Executive Compensation", and "Certain Arrangements and
Transactions" of the Company's April 8, 1996 Proxy Statement, relating to its
1996 Annual Meeting of Stockholders (the "Company's Proxy Statement"). A copy of
the Offer to Purchase and of each of the sections of the Company's Proxy
Statement referred to above are filed as Exhibits 3 and 4, respectively, to this
Schedule 14D-9 and are incorporated herein by reference.
(2) Indemnification. Article IX of the Company's By-laws provides that
the Company shall indemnify any director or officer of the Company who is a
party to any threatened, pending or completed legal proceeding by reason of the
fact that he is a director or officer of the Company against expenses,
judgments, fines and amounts paid in settlement of such actions if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company. If a proceeding is brought against an indemnified
party by or in the right of the Company, however, no indemnification would be
available if the party were adjudged to be liable to the Company unless
otherwise ordered by a court. A copy of Article IX of the Company's By-laws is
filed as Exhibit 5 to this Schedule 14D-9 and is incorporated herein by
reference. The Company has entered into indemnification agreements with each of
its directors and executive officers pursuant to which the Company is obligated
to indemnify each such person to the full extent permitted by Delaware law. A
copy of the form of the Company's indemnification agreement is filed as Exhibit
6 to this Schedule 14D-9 and is incorporated herein by reference. The persons
who are directors or executive officers of the Company and of the Bidder have
similar rights to indemnification pursuant to Article IX of the Bidder's By-laws
and have similar indemnification agreements with the Bidder. A copy of Article
IX of the Bidder's By-laws is filed as Exhibit 7 to this Schedule 14D-9 and is
incorporated herein by reference. A copy of the form of the Bidder's
indemnification agreement is filed as Exhibit 8 to this Schedule 14D-9 and is
incorporated herein by reference.
2
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(3) Option and Stock Award Plans. The Company's directors and executive
officers beneficially own, directly or indirectly, Common Stock and options to
purchase Common Stock granted under the Company's 1984, 1987, 1990, 1993 and
1995 Stock Incentive Plans in the amounts set forth below:
<TABLE>
<CAPTION>
COMPANY OPTIONS COMPANY SHARES
COMPANY'S DIRECTORS BENEFICIALLY BENEFICIALLY
AND EXECUTIVE OFFICERS OWNED OWNED
- --------------------------------------------------------------- --------------- --------------
<S> <C> <C>
Edward L. Hutton............................................... 50,750 45,536
(Chairman, Director)
William R. Griffin............................................. 61,500 26,760
(President, Chief Executive Officer, Director)
Kevin J. McNamara.............................................. 5,250 2,096
(Vice Chairman, Director)
Brian A. Brumm................................................. 26,000 15,443
(Vice President, Treasurer, Chief Financial Officer, Director)
Naomi C. Dallob................................................ 2,750 982
(Secretary, General Counsel, Director)
Douglas B. Harper.............................................. 30,000 24,034
(Executive Vice President, Director)
Lawrence J. Gillis............................................. 24,750 14,722
(Vice President, Director)
Patrick L. Johnson............................................. 14,058 14,231
(Vice President, Director)
Charles H. Erhart, Jr.......................................... 0 6,666
(Director)
James A. Cunningham............................................ 0 1,000
(Director)
Neal Gilliatt.................................................. 0 6,666
(Director)
Will J. Hoekman................................................ 0 0
(Director)
Thomas C. Hutton............................................... 4,500 13,216
(Director)
Sandra E. Laney................................................ 4,250 2,859
(Director)
John M. Mount.................................................. 0 1,075
(Director)
Timothy S. O'Toole............................................. 6,000 2,151
(Director)
D. Walter Robbins, Sr.......................................... 0 1,000
(Director)
Donald E. Saunders............................................. 0 575
(Director)
George J. Walsh III............................................ 0 75
(Director)
</TABLE>
The exercise and vesting terms of the Company options granted under the
1990, 1993 and 1995 Stock Incentive Plans are not affected by the Offer;
however, the Company options granted under the 1984 and 1987 Stock Incentive
Plans will become immediately exercisable if 20% or more of the outstanding
Common Stock is acquired pursuant to the Offer. Additional compensation and
other arrangements between the Company and its directors and executive officers
are set forth in the Company's Proxy Statement in the sections entitled
3
<PAGE> 4
"Election of Directors" and "Executive Compensation." A copy of each such
section of the Company's Proxy Statement is filed as Exhibit 4 to this Schedule
14D-9 and is incorporated herein by reference.
A majority of the Company's directors and executive officers are also
directors or executive officers of the Bidder. These persons and the other
directors and executive officers of the Bidder beneficially own, directly or
indirectly, shares of stock of the Bidder and options granted under the Bidder's
1981, 1983, 1986, 1988, 1993 and 1995 Stock Incentive Plans in the amounts set
forth below:
<TABLE>
<CAPTION>
BIDDER OPTIONS BIDDER SHARES
BIDDER'S DIRECTORS BENEFICIALLY BENEFICIALLY
AND EXECUTIVE OFFICERS OWNED OWNED
- ------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Edward L. Hutton................................................... 136,000 34,597
(Chairman, Chief Executive Officer, Director)
Kevin J. McNamara.................................................. 62,500 12,777
(President, Director)
James A. Cunningham................................................ 0 1,000
(Director)
James H. Devlin.................................................... 26,750 5,974
(Vice President, Director)
Charles E. Erhart, Jr. ............................................ 0 1,500
(Director)
Joel F. Gemunder................................................... 5,000 6,451
(Director)
Patrick P. Grace................................................... 0 100
(Director)
William R. Griffin................................................. 15,000 3,010
(Executive Vice President, Director)
Thomas C. Hutton................................................... 35,500 17,023
(Vice President, Director)
Walter L. Krebs.................................................... 0 2,191
(Director)
Sandra E. Laney.................................................... 73,250 27,153
(Senior Vice President, Chief Administrative Officer, Director)
John M. Mount...................................................... 0 7,020
(Director)
Timothy S. O'Toole................................................. 48,750 12,758
(Executive Vice President, Treasurer, Director)
D. Walter Robbins, Jr. ............................................ 0 2,000
(Director)
Paul C. Voet....................................................... 13,750 24,235
(Executive Vice President, Director)
George J. Walsh III................................................ 0 1,100
(Director)
Arthur V. Tucker, Jr. ............................................. 42,000 10,570
(Vice President, Controller)
</TABLE>
Additional compensation and other arrangements between the Bidder and its
directors and executive officers are set forth in the sections entitled
"Election of Directors" and "Executive Compensation", of the Bidder's April 8,
1996 Proxy Statement, relating to its 1996 Annual Meeting of Stockholders (the
"Bidder's Proxy Statement"). A copy of each such section is filed as Exhibit 9
to this Schedule 14D-9 and is incorporated herein by reference.
(4) Affiliates and Related Transactions. Certain transactions and
arrangements involving the Company, the Bidder and their affiliates are set
forth in the section of the Offer to Purchase entitled "Special
Factors -- Interests of Certain Persons; Stockholdings of Certain Officers and
Directors; and Related Transactions", and in the section of the Company's Proxy
Statement entitled "Certain Arrangements and
4
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Transactions". A copy of the Offer to Purchase and such section of the Company's
Proxy Statement are filed as Exhibits 3 and 4, respectively to this Schedule
14D-9 and are incorporated herein by reference.
(5) The Bidder's Ownership of the Company and Interlocking Boards of
Directors. As set forth in the section of the Offer to Purchase entitled
"Special Factors -- Interests of Certain Persons; Stockholdings of Certain
Officers and Directors; and Related Transactions" and the section of the
Company's Proxy Statement entitled "Election of Directors", the Bidder owns
approximately 58% of the outstanding stock of the Company and a majority of the
members of the board of directors of the Company are also directors or officers
of the Bidder. A copy of the Offer to Purchase and such section of the Company's
Proxy Statement are filed as Exhibits 3 and 4, respectively, to this Schedule
14D-9 and are incorporated herein by reference. Because of the Bidder's
ownership interest in the Company, an actual or potential conflict of interest
could be seen to arise in connection with the Offer, which conflict could extend
to the directors and executive officers of the Bidder (some of whom, as noted
above, are also directors or executive officers of the Company) due to their
positions with and their ownership interests in the Bidder.
(6) Certain Proceedings. A putative class action complaint entitled Rand
v. Roto Rooter Inc., et al., C.A. No. 15145 (Del. Ch. filed Aug. 9, 1996) has
been filed against the Company, its directors and the Bidder by a purported
stockholder of the Company. This complaint alleges breaches of fiduciary duty by
the defendants in connection with the Offer and seeks declaratory relief,
injunctive relief and damages. The above description of the complaint is
qualified in its entirety by reference to the complaint, a copy of which is
filed as Exhibit (g) to the Schedule 14D-1 and is incorporated herein by
reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Because a majority of the members of the Company's Board of Directors are
officers and/or directors of the Bidder or its affiliates or are officers of the
Company (see "-- The Bidder's Ownership of the Company and Interlocking Boards
of Directors" above), on August 20, 1996, the Company's Board of Directors
appointed Mr. Donald E. Saunders, a director of the Company, to act as a special
committee of the Company's Board of Directors (the "Special Committee") with
full authority and responsibility to determine the Company's response to the
Offer and to prepare this Schedule 14D-9. The Special Committee hired Morris,
Nichols, Arsht & Tunnell, a Delaware law firm ("Morris Nichols"), as its legal
counsel, and J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard"), an investment
banking firm, as its financial advisor to assist it in reviewing the Offer.
Hilliard assisted the Special Committee in performing a financial review of the
Company's operations and prospects, and provided independent financial analyses
from which the Special Committee has drawn its own conclusions.
The Special Committee has determined, on behalf of the Company and on
behalf of the Company's Board of Directors, to adopt a neutral position with
respect to the Offer. This position is based upon (1) the Special Committee's
conclusions that the Offer Price is fair and (2) the fact that each stockholder
is subject to his or her own unique constraints and circumstances and therefore
is best able to determine whether it is in his or her interest to tender his or
her shares of Common Stock.
The Special Committee's conclusion that the Offer Price is fair is based
upon the following factors:
(1) The Special Committee was presented with certain preliminary
financial analyses by Hilliard, including discounted cash flow
analyses and a comparable companies analysis, from which the Special
Committee concluded that the Offer Price is within the range of
fairness implied by those analyses.
(2) The Common Stock has historically been less liquid than shares of
comparable companies. The purchase of additional shares of Common
Stock by Chemed may tend to further decrease liquidity.
(3) With assistance from Hilliard, the Special Committee has concluded
that the approach of and analysis performed by CS First Boston on
behalf of Chemed (as described in the section of the Offer to
Purchase entitled "Special Factors -- Opinion of Financial Advisor")
is reasonable. A
5
<PAGE> 6
copy of the Offer to Purchase is filed as Exhibit 3 to this Schedule
14D-9 and is incorporated herein by reference.
(4) With assistance from Hilliard, the Special Committee has concluded
that the analysis that was performed by Goldman, Sachs & Co. on
behalf of a special committee of the Company's Board of Directors in
connection with the 1995 proposed exchange offer described in the
section of the Offer to Purchase entitled "Special
Factors -- Background to the Offer" (the "1995 Proposed
Transaction"), although reasonable when performed, is less relevant
to the Special Committee's analysis because it is approximately one
year old. A copy of the Offer to Purchase is filed as Exhibit 3 to
this Schedule 14D-9 and is incorporated herein by reference.
(5) The Special Committee has concluded with the assistance of Hilliard
that the Offer Price represents a significant premium to the
unaffected market price. In particular, the Special Committee
believes that the last trade price of $36.50 on August 2, 1996, one
week prior to the announcement of the Offer, included some residual
effects of the 1995 Proposed Transaction. While this residual effect
is impossible precisely to quantify, the Special Committee has
concluded that the premium offered by the Offer is in excess of the
premium suggested by the difference between $36.50 and the Offer
Price of $41.00.
In addition to the foregoing, Hilliard is continuing its analysis, and has
been asked to and is expected to be in a position within the next several days
to formally advise the Special Committee regarding the fairness of the Offer,
and, if appropriate, to issue a written opinion as to the fairness of the Offer.
As soon as that advice is received, the Special Committee will convey any
further conclusions to the Company's stockholders.
The Special Committee reported its conclusions, described above, to the
Company's Board of Directors at a meeting held on August 26, 1996. None of the
directors of the Company other than the Special Committee has expressed any view
with respect to the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Special Committee has retained Hilliard as its financial advisor with
respect to the Offer. For its services, Hilliard has been paid a fee of $150,000
and will be paid an additional fee of $200,000 upon delivery of its opinion as
to the fairness or inadequacy of the Offer. The Special Committee has agreed to
reimburse Hilliard for its expenses up to $50,000 (including fees of counsel)
incurred in connection with the engagement and to indemnify Hilliard against any
liabilities or expenses arising from any legal proceedings in connection with
the engagement and the Offer, provided that such liabilities do not arise
primarily from Hilliard's gross negligence or bad faith. The Special Committee
has retained Morris Nichols as its legal advisor with respect to the Offer. For
its services, Morris Nichols will be paid a reasonable and customary fee.
Following the meeting of the Company's Board of Directors on August 26,
1996, the Special Committee instructed the officers of the Company to work with
Morris Nichols and employees of the Bidder and the Bidder's legal counsel to
prepare, file and distribute this Schedule 14D-9.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Common
Stock have been effected during the past 60 days by the Company or by any
executive officer, director, affiliate or subsidiary of the Company, except as
disclosed in the section of the Offer to Purchase entitled "Special
Factors -- Interests of Certain Persons; Stockholdings of Certain Officers and
Directors; and Related Transactions", and except as follows: Patrick L. Johnson,
a director and Vice President of the Company and President and CEO of Service
America Systems, Inc. has in the past month exercised options for: 1,500 shares
of Common Stock at $17.25 per share (turning in 887 shares for purchase price
and taxes), 3,749 shares of Common Stock at $25.25 per share (turning in 2,733
shares for purchase price and taxes), and 7,193 shares of Common Stock at $23.88
per share (turning in 5,074 shares for purchase price and taxes). A copy of the
Offer to Purchase is filed as Exhibit 3 to this Schedule 14D-9 and is
incorporated herein by reference.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, and subject to contractual
restrictions, if any, relating to restricted stock, each executive officer,
6
<PAGE> 7
director, affiliate and subsidiary of the Company (other than Mr. Gilliatt)
currently intends to tender to the Bidder all Shares of Common Stock which are
held of record or beneficially by such person. The Company has not been advised
by Mr. Gilliatt whether he intends to tender, sell or hold Shares of Common
Stock which are held of record or beneficially owned by him.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) The Company has undertaken no negotiations and no negotiations are
underway in response to the Offer that relate to or would result in (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) any purchase, sale or transfer of
a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Not applicable.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) Exhibit 1 -- Text of Press Release issued by the Company on August 27,
1996.
Exhibit 2 -- Text of Letter to Stockholders dated August 27, 1996.
(b) Not applicable.
(c) Exhibit 3 -- Offer to Purchase of Chemed Corporation dated August 14,
1996.
Exhibit 4 -- The "Election of Directors", "Executive Compensation" and
"Certain Arrangements and Transactions" sections of the Company's Proxy
Statement dated April 8, 1996.
Exhibit 5 -- Article IX of the Company's By-laws.
Exhibit 6 -- Form of Company's Indemnification Agreement.
Exhibit 7 -- Article IX of the Bidder's By-laws.
Exhibit 8 -- Form of Bidder's Indemnification Agreement.
Exhibit 9 -- The "Election of Directors" and "Executive Compensation"
sections of the Bidder's Proxy Statement dated April 8, 1996.
7
<PAGE> 8
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Schedule 14D-9 is true, complete
and correct.
ROTO-ROOTER, INC.
By: /s/ BRIAN A. BRUMM
------------------------------------
NAME: BRIAN A. BRUMM
TITLE: VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
DATED: August 27, 1996
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ---------------------------------------------------------------------------- ------
<C> <S> <C>
1 Text of Press Release issued by the Company on August 27, 1996. ............
2 Text of Letter to Stockholders dated August 27, 1996. ......................
3 Offer to Purchase of Chemed Corporation dated August 14, 1996. .............
4 The "Election of Directors", "Executive Compensation" and "Certain
Arrangements and Transactions" sections of the Company's Proxy Statement
dated April 8, 1996. .......................................................
5 Article IX of the Company's By-laws. .......................................
6 Form of Company's Indemnification Agreement. ...............................
7 Article IX of the Bidder's By-laws. ........................................
8 Form of Bidder's Indemnification Agreement. ................................
9 The "Election of Directors" and "Executive Compensation" sections of the
Bidder's Proxy Statement dated April 8, 1996. ..............................
</TABLE>
<PAGE> 1
EXHIBIT 1
CONTACT: Brian A. Brumm FOR IMMEDIATE RELEASE
(513) 762-6685
ROTO-ROOTER'S SPECIAL COMMITTEE TAKES NEUTRAL
POSITION ON CHEMED TENDER OFFER
CINCINNATI, August 27, 1996--Roto-Rooter, Inc. (NASDAQ:ROTO) today
announced that a Special Committee of its Board of Directors has determined to
take a neutral position with respect to the tender offer that Chemed Corporation
(NYSE:CHE) commenced on August 14, 1996 to purchase any and all of the
outstanding shares of Common Stock of Roto-Rooter for a cash price of $41.00 per
share. On August 20, 1996, Roto-Rooter's Board of Directors appointed Donald E.
Saunders, a Roto-Rooter director, to act as a Special Committee with full
authority and responsibility to determine Roto-Rooter's response to Chemed's
offer and to prepare Roto-Rooter's Solicitation/Recommendation Statement on
Schedule 14D-9. After consulting with legal and financial advisors, the Special
Committee concluded that the $41.00 offer price is fair, and that stockholders
should make a determination whether to tender based upon their own unique
circumstances. The Special Committee's conclusion is set forth in a
Solicitation/Recommendation Statement on Schedule 14D-9 which Roto-Rooter filed
today with the Securities and Exchange Commission and which is being mailed to
Roto-Rooter's stockholders.
###
<PAGE> 1
EXHIBIT 2
[LETTERHEAD OF]
Roto-Rooter, Inc.
August 27, 1996
To our stockholders:
Chemed Corporation, a Delaware corporation, has commenced a cash
tender offer to purchase any and all of the outstanding stock of Roto-Rooter,
Inc. currently not held by Chemed (approximately 2,160,000 shares, representing
approximately 42% of the outstanding shares), for a cash price of $41.00 per
share.
The Roto-Rooter Board of Directors appointed Mr. Donald E. Saunders, a
director of Roto-Rooter, to act as a special committee of the Board of Directors
(the "Special Committee") with full authority and responsibility to determine
Roto-Rooter's response to Chemed's offer and to prepare Roto-Rooter's
Solicitation/Recommendation Statement on Schedule 14D-9. The Special Committee
has determined to take a neutral position with respect to Chemed's offer.
Enclosed with this letter is a copy of Roto-Rooter's
Solicitation/Recommendation Statement on Schedule 14D-9, which contains
detailed information regarding the factors considered by the Special Committee
in its deliberations and certain other information regarding the tender offer.
We urge you to read the enclosed materials carefully before making any decision
with respect to Chemed's offer.
On behalf of the Board of Directors,
Sincerely,
/s/ Edward L. Hutton
--------------------
Edward L. Hutton
Chairman
<PAGE> 1
EXHIBIT 3
Offer To Purchase For Cash
Any And All Outstanding Shares Of Common Stock
of
ROTO-ROOTER, INC.
at
$41.00 NET PER SHARE
by
CHEMED CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 11, 1996, UNLESS THE OFFER IS EXTENDED.
------------------
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES OF COMMON STOCK
OF ROTO-ROOTER, INC. ("SHARES") BEING TENDERED OR ON A VOTE BY THE HOLDERS
OF SHARES OTHER THAN THE PURCHASER OR ON APPROVAL OF THE ROTO-ROOTER
BOARD OR ANY COMMITTEE THEREOF. THE OFFER IS, HOWEVER, SUBJECT TO
CERTAIN CONDITIONS. SEE "THE TENDER OFFER -- CERTAIN CONDITIONS OF
THE OFFER". CHEMED CORPORATION CURRENTLY OWNS 2,990,333
SHARES, REPRESENTING APPROXIMATELY 58% OF THE OUTSTANDING
SHARES.
------------------
IMPORTANT
Any stockholder desiring to tender any and all of such stockholder's Shares
should either (i) complete and sign the Letter of Transmittal (or facsimile
thereof) in accordance with the instructions in the Letter of Transmittal, have
such stockholder's signature thereon guaranteed if required by Instruction 1 to
the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such
facsimile), or, in the case of a book-entry transfer effected pursuant to the
procedure set forth under "The Tender Offer -- Procedure for Tendering Shares",
an Agent's Message (as defined herein), and any other required documents to the
Depositary and either deliver the certificates for such Shares to the Depositary
along with the Letter of Transmittal (or facsimile thereof) or deliver such
Shares pursuant to the procedure for book-entry transfer set forth under "The
Tender Offer -- Procedure for Tendering Shares" or (ii) request such
stockholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such stockholder. A stockholder having Shares
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such stockholder desires to tender such Shares.
If a stockholder desires to tender Shares and such stockholder's
certificates for Shares are not immediately available or the procedure for
book-entry transfer cannot be completed on a timely basis, or time will not
permit all required documents to reach the Depositary prior to the expiration of
the Offer, such stockholder's tender may be effected by following the procedure
for guaranteed delivery set forth under "The Tender Offer -- Procedure for
Tendering Shares".
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent or to the Dealer Manager at
their respective addresses and telephone numbers set forth on the back cover of
this Offer to Purchase.
------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
------------------
The Dealer Manager for the Offer is:
CS FIRST BOSTON
August 14, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.......................................................................... 1
SPECIAL FACTORS....................................................................... 3
Background to the Offer............................................................. 3
Purpose and Structure of the Offer; Plans for the Company After the Offer........... 7
Interests of Certain Persons; Stockholdings of Certain Officers and Directors; and
Related Transactions............................................................. 9
Fairness of the Offer............................................................... 12
Opinion of Financial Advisor........................................................ 13
Certain Federal Income Tax Consequences............................................. 17
Appraisal Rights.................................................................... 17
THE TENDER OFFER...................................................................... 19
Terms of the Offer.................................................................. 19
Procedure for Tendering Shares...................................................... 20
Withdrawal Rights................................................................... 23
Acceptance for Payment and Payment.................................................. 23
Price Range of the Shares; Dividends................................................ 25
Certain Effects of the Offer........................................................ 25
Certain Information Concerning the Company.......................................... 27
Certain Information Concerning the Purchaser........................................ 30
Source and Amount of Funds.......................................................... 32
Dividends and Distributions......................................................... 32
Certain Conditions of the Offer..................................................... 33
Certain Legal Matters............................................................... 34
Fees and Expenses................................................................... 36
Miscellaneous....................................................................... 37
Schedule I -- Directors and Executive Officers of the Purchaser and Interests of Such
Persons in the Company
Appendix A -- Opinion dated August 8, 1996 of CS First Boston Corporation
</TABLE>
<PAGE> 3
To the Holders of Common Stock
of Roto-Rooter, Inc.:
INTRODUCTION
Chemed Corporation, a Delaware corporation (the "Purchaser" or "Chemed"),
hereby offers to purchase any and all outstanding shares of Common Stock, par
value $1.00 per share (the "Shares"), of Roto-Rooter, Inc., a Delaware
corporation (the "Company" or "Roto-Rooter"), for a purchase price of $41.00 per
share (the "Offer Price"), net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which, together with any amendments or
supplements hereto or thereto, collectively constitute the "Offer").
Chemed currently owns 2,990,333 Shares, representing approximately 58% of
the outstanding Shares. Accordingly, Chemed already has the power, subject to
any applicable duties under Delaware law, to elect the entire Board of Directors
of the Company (the "Roto-Rooter Board") or to approve a merger or other
business combination involving the Company without the affirmative vote of any
other stockholder. Such ownership, however, does not give Chemed the power to
compel any Company stockholder to accept the Offer.
The Purchaser expects the Roto-Rooter Board to declare a dividend of $0.20
per Share to be paid in September 1996 to holders of record of Shares on a date
(the "Record Date") prior to the Expiration Date (the "Third Quarter Dividend").
Holders of record of the Shares on the Record Date will be entitled to receive
the Third Quarter Dividend whether or not they tender their Shares pursuant to
the Offer, and no adjustment will be made to the Offer Price or to any other
terms of the Offer as a result of the payment of the Third Quarter Dividend to
such stockholders.
If, following consummation of the Offer, the Purchaser owns 90% or more of
the outstanding Shares, the Purchaser currently intends to have the Company
consummate a merger (the "Second Step Merger") with the Purchaser or a direct or
indirect wholly owned subsidiary of the Purchaser; however, no final decision
will be made by the Purchaser on the Second Step Merger until such time, if any,
as the Purchaser owns 90% or more of the outstanding Shares. See "Special
Factors -- Purpose and Structure of the Offer; Plans for the Company After the
Offer".
If, following consummation of the Offer, the Purchaser owns less than 90%
of the Shares, the Purchaser reserves the right to purchase from time to time
additional Shares if market conditions permit. See "Special Factors -- Purpose
and Structure of the Offer, Plans for the Company After the Offer". The
Purchaser also reserves the right to propose a merger or other business
combination with the Company in the future, although, except as described in the
preceding paragraph, it does not have any current intention to do so. The
Purchaser also reserves the right to sell or otherwise dispose of all or a
portion of its Shares although it does not have any current intention to do so.
For the reasons described below under "Special Factors -- Fairness of the
Offer", the Board of Directors of Chemed (the "Chemed Board") believes the Offer
is fair to holders of Shares other than Chemed.
The Roto-Rooter Board has not yet taken a position with respect to the
Offer.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED
OR ON A VOTE BY THE HOLDERS OF SHARES OTHER THAN THE PURCHASER OR ON APPROVAL OF
THE ROTO-ROOTER BOARD OR ANY COMMITTEE THEREOF. THE OFFER IS, HOWEVER, SUBJECT
TO CERTAIN CONDITIONS. SEE "THE TENDER OFFER -- CERTAIN CONDITIONS OF THE
OFFER".
According to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 (the "Company's June 30 Form 10-Q"), filed with the
Commission, there were 5,172,963 Shares issued and outstanding as of August 13,
1996.
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Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The
Purchaser will pay all fees and expenses of CS First Boston Corporation ("CS
First Boston"), which is acting as Dealer Manager (the "Dealer Manager"),
ChaseMellon Shareholder Services, L.L.C., which is acting as the Depositary (the
"Depositary"), and D.F. King & Co., Inc., which is acting as Information Agent
(the "Information Agent"), incurred in connection with the Offer. See "The
Tender Offer -- Fees and Expenses".
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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SPECIAL FACTORS
BACKGROUND TO THE OFFER
Roto-Rooter was incorporated in Delaware on September 28, 1983, as a wholly
owned subsidiary of Chemed, and on August 31, 1984, succeeded to the business of
Chemed's Roto-Rooter Group. See "The Tender Offer -- Certain Information
Concerning the Company" and "The Tender Offer -- Certain Information Concerning
the Purchaser". In September 1984, Roto-Rooter sold in a private placement
transaction 719,991 Shares, and in June 1985, Chemed sold in a public offering
1,100,000 Shares (the "1985 Public Offering").
Chemed has always beneficially owned over 50% of the outstanding Shares,
and therefore has always had the ability to elect the entire Roto-Rooter Board
or to approve a merger or other business combination involving the Company
without the affirmative vote of any other stockholder of the Company. Such
ownership, however, does not give Chemed the power to compel any Company
stockholder to accept the Offer. Since July 1985, Chemed has owned 2,990,333
Shares, which, based on the number of outstanding Shares reported in the
Company's June 30 Form 10-Q, represent approximately 58% of the outstanding
Shares. Currently, of the nineteen directors of Roto-Rooter, eleven are also
directors of Chemed, one is also a director emeritus of the Chemed Board and one
is an employee of Chemed. Edward L. Hutton, the Chairman of Roto-Rooter, is also
the Chairman and a director of Chemed; William R. Griffin, the President and
Chief Executive Officer of Roto-Rooter, is also an Executive Vice President and
a director of Chemed; James A. Cunningham, a director of Roto-Rooter, is also a
director of Chemed; Charles H. Erhart, Jr., a director of Roto-Rooter, is also a
director of Chemed; John M. Mount, a director of Roto-Rooter, is also a director
of Chemed; Thomas C. Hutton, a director of Roto-Rooter, is also a Vice President
and a director of Chemed; Sandra E. Laney, a director of Roto-Rooter, is also
the Chief Administrative Officer, Senior Vice President and a director of
Chemed; Kevin J. McNamara, the Vice Chairman of Roto-Rooter, is also the
President and a director of Chemed; Timothy S. O'Toole, a director of
Roto-Rooter, is also an Executive Vice President, the Treasurer and a director
of Chemed; D. Walter Robbins, Jr., a director of Roto-Rooter, is also a director
of Chemed; George J. Walsh III, a director of Roto-Rooter, is also a director of
Chemed; Neal Gilliatt, a director of Roto-Rooter, is also a director emeritus of
Chemed; and Naomi C. Dallob, the Secretary and General Counsel and a director of
Roto-Rooter, is also the Secretary and a Vice President of Chemed. In addition,
Will J. Hoekman, a director of Roto-Rooter, is also a director of National
Sanitary Supply Company (an 84% owned subsidiary of Chemed) and Donald E.
Saunders, a director of Roto-Rooter, was an employee for 25 years of DuBois
Chemicals, Inc., formerly a wholly-owned subsidiary of Chemed. Certain of
Chemed's executive officers and directors beneficially own Shares and options to
acquire Shares. Schedule I to this Offer to Purchase sets forth the amount and
nature of such beneficial ownership for each such person. For further
information concerning Chemed's interests in Roto-Rooter, see "Interests of
Certain Persons; Stockholdings of Certain Officers and Directors; and Related
Transactions" below.
On several occasions during the years following the 1985 Public Offering,
Mr. E. L. Hutton discussed with Roto-Rooter executives the possibility of Chemed
acquiring 100% of the outstanding Shares. All these discussions took place as
part of Chemed's long-term strategic planning process and were prompted by Mr.
E. L. Hutton's concern that the marketplace appreciation of the Shares had not
kept pace with the underlying growth rate of Roto-Rooter's business. None of
these discussions were intended or understood by either party to be definitive
proposals or indications of interest that required or received consideration or
action by the Roto-Rooter Board or the Chemed Board.
In January 1995, the Shares were trading at prices as low as $19.25 per
share, which was within the range of the prices per Share at which the Shares
were trading immediately following the 1985 Public Offering. Chemed's management
became concerned that the low Roto-Rooter stock price was significantly and
adversely affecting the stock market valuation of Chemed, and Chemed's
management began general consideration of various strategic alternatives with
respect to Chemed's investment in Roto-Rooter. By May, 1995, Chemed's management
had concluded that an acquisition by Chemed of the minority interest in Roto-
Rooter should be explored. Primarily because Chemed did not have sufficient
funds available at that time to purchase all the outstanding Shares for cash,
Chemed's management decided that any proposed transaction
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would have to be structured as a stock-for-stock merger whereby Shares would be
exchanged for shares of Chemed's capital stock, $1.00 par value (the "Chemed
Shares"), at a to-be-agreed upon exchange ratio. Chemed retained CS First Boston
to act as its exclusive financial advisor and Chemed's management met with CS
First Boston, as well as Chemed's legal advisers, on several occasions in early
May to discuss how to structure a proposal and to value the Shares.
On May 15, 1995, at a meeting of the Chemed Board, Mr. E. L. Hutton
proposed that Chemed actively investigate a potential transaction in which
Chemed would acquire 100% of the outstanding Shares. Mr. E. L. Hutton explained
to the Chemed Board that: (a) during the previous four years the thinly traded
Shares had not performed as well as Roto-Rooter's operating results, which was
having an adverse impact on Chemed's own market valuation; (b) such an
acquisition would enable Chemed to fully integrate Roto-Rooter, one of its most
significant assets, with Chemed's other operations; (c) Chemed would be able to
consolidate for tax purposes Roto-Rooter's results of operations; (d) such an
acquisition would reduce the administrative expense associated with operating
two public companies; and (e) if the transaction were structured as a
stock-for-stock deal, it would enhance Chemed's balance sheet and
creditworthiness. After deliberation, the Chemed Board designated John Mount,
one of its members, to work with Chemed's financial and legal advisors to
attempt to negotiate and structure a transaction with Roto-Rooter. Because a
stock-for-stock merger would require the approval of the Roto-Rooter Board and,
if voted for by Chemed, could be consummated without action of any other holder
of Shares and because of the conflicts of interest for a majority of the
Roto-Rooter directors, the Chemed Board recommended to the Roto-Rooter Board
that it consider creating a special committee to negotiate with Chemed the terms
of any transaction.
Immediately following the Chemed Board meeting described above, a meeting
of the Roto-Rooter Board was held. At that meeting, Mr. Kevin J. McNamara (who
is Vice Chairman of the Roto-Rooter Board) informed the other Roto-Rooter
directors that the Chemed Board had approved Chemed's management commencing
negotiations with Roto-Rooter with respect to a stock-for-stock merger. Mr.
McNamara also informed the Roto-Rooter Board that any proposal would be
conditioned upon the approval of a special committee of the Roto-Rooter Board
and proposed that the Roto-Rooter Board establish such a special committee.
Chemed did not propose any exchange ratio at that time. The Roto-Rooter Board
designated Messrs. Will J. Hoekman and Jerome Schnee to serve as the special
committee (the "Special Committee") and directed the Special Committee to select
and retain independent legal and financial advisors to assist it in negotiating
the terms of any transaction with Chemed. Over the next several weeks the
Special Committee retained Kirkland & Ellis as its legal advisor and Goldman
Sachs & Co. ("Goldman") as its financial advisor.
During the months of May and June, Goldman and CS First Boston conducted
several due diligence sessions with Chemed's management and Roto-Rooter's
management.
On July 6, 1995, CS First Boston, on behalf of Chemed, proposed an exchange
ratio of 0.775 to 0.825 Chemed Shares for each Share, which, based on a $34.75
closing price for Chemed Shares on July 5, 1995, would have represented a price
per Share of $26.93 to $28.67, compared to a closing bid price of $28.00 per
Share on July 5, 1995 (the "Initial Proposal"). The Initial Proposal was not
conditioned on the approval of holders of a majority of the Shares not held by
Chemed. On July 17, 1995, Goldman informed CS First Boston that the Initial
Proposal was insufficient for the Special Committee to commence discussions with
Chemed concerning the proposed transaction. On July 26, CS First Boston, after
consultation with Chemed's management, and on behalf of Chemed, proposed to
Goldman that the proposed exchange ratio be increased to 0.9 Chemed Shares for
each Share, which, based on a $33.63 closing price for Chemed Shares on July 25,
1995, would have represented a price per Share of $30.26 compared to a closing
bid price of $29.50 per Share on July 25, 1995 (the "Second Proposal"). The
Second Proposal also was not conditioned on the approval of holders of a
majority of the Shares not held by Chemed. The Special Committee was also
unwilling to meet to discuss the Second Proposal with Chemed. On July 28, 1995,
Chemed, after consultation with CS First Boston, (a) increased the proposed
exchange ratio to 0.925 Chemed Shares for each Share plus $2.50 in cash, which,
based on a $34.13 closing price for Chemed Shares on July 27, 1995, would have
represented a price per Share of $34.07 compared to a closing bid price of
$29.75 per Share on July 27, 1995, and (b) made the proposed transaction
conditioned on the approval of holders of a majority of the Shares not held by
Chemed (the "Third Proposal"). CS First Boston informed Goldman that
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if no mutually acceptable agreement was reached by 4:00 p.m. on July 31, 1995,
Chemed's management would abandon the proposed transaction.
On July 31, 1995, the Special Committee contacted Chemed and stated that
the Third Proposal was unacceptable. The Special Committee indicated that it
would approve a transaction based upon per Share consideration of one Chemed
Share plus $4.25 in cash (which, based on a $34.00 closing price for Chemed
Shares on July 28, 1995, would have represented a price per Share of $38.25
compared to a closing bid price of $29.75 per Share on July 28, 1995), if, in
addition, Chemed agreed (a) to adjust the exchange ratio (a "Collar") in the
event the Chemed Share price fell prior to the closing of the transaction, (b)
to continue to pay its dividend for an unspecified period, (c) to not sell
Roto-Rooter to a third party for a specified period and (d) to continue its
stock buy-back program (the "First Counter-Proposal"). That afternoon, Chemed's
management rejected the First Counter-Proposal, primarily because of the
presence of the Collar, and informed the Special Committee that it would
increase the proposed exchange ratio (without a Collar) to 1.05 Chemed Shares
for each Share, which, based on a $34.00 closing price for Chemed Shares on July
28, 1995, would have represented a price per Share of $35.70 compared to a
closing bid price of $29.75 per Share on July 28, 1995 (the "Final Proposal").
That evening, the Special Committee rejected the Final Proposal and proposed an
exchange ratio of one Chemed Share plus $4.00 cash for each Share, which, based
on a $33.75 closing price for Chemed Shares on July 31, 1995, would have
represented a price per Share of $37.75 compared to a closing bid price of
$30.00 per Share on July 31, 1995 (the "Second Counter-Proposal"). The Second
Counter-Proposal was also conditioned upon the existence of a Collar. Later that
evening, Chemed rejected the Second Counter-Proposal, primarily because of the
presence of the Collar, and informed the Special Committee that, because a
mutually agreeable transaction could not be accomplished at that time, Chemed
was terminating the negotiations. On August 1, 1995, Chemed issued a press
release stating that discussions with Roto-Rooter with respect to a possible
transaction had been terminated without any agreement having been reached. On
August 2, 1995, at a meeting of the Roto-Rooter Board, the Roto-Rooter Board
formally dissolved the Special Committee. At that meeting, Mr. McNamara read
through a written chronology of the events relating to the proposed transaction
(from which the above description of events was prepared) and confirmed that
none of the other Roto-Rooter directors, including the members of the Special
Committee, had any comments thereon. In connection with Roto-Rooter's 1996
annual meeting of stockholders, Mr. Schnee was not nominated for re-election as
a director of Roto-Rooter.
In December 1995, Mr. Tim Ebright at Liberty Investment Management
("Liberty"), then the third largest Roto-Rooter stockholder, telephoned Mr.
McNamara to ask whether Chemed would still be interested in acquiring Liberty's
Shares in exchange for Chemed Shares at the exchange ratio that Chemed proposed
to the Special Committee in its Final Proposal. Mr. McNamara informed Liberty
that Chemed was not interested in such a transaction.
In January 1996, at the request of Chemed's management, CS First Boston
contacted Mr. Kurt Moser at State Farm Mutual Automobile Insurance Company
("State Farm"), then the second largest Roto-Rooter stockholder, about whether
he would be willing to meet with a representative of Chemed management to
discuss a possible sale to Chemed of the Shares held by State Farm. Mr. Moser
indicated that he would consider meeting at a later date. In March 1996, Mr.
McNamara spoke with Mr. Moser to schedule a meeting with him to discuss whether
State Farm had any interest in selling its Shares. Mr. Moser said he was willing
to meet with Mr. McNamara but was not interested at that time in a
stock-for-stock transaction. No other conversations with State Farm took place
until August 1, 1996 and no proposals were made to, or commitments sought or
obtained from, State Farm.
Chemed's management did not devote significant time between December 1995
and March 1996 to consider the acquisition of the outstanding Shares, primarily
because it was involved in other business matters. However, Chemed's management
had not lost interest in acquiring additional Shares and in April 1996 began to
investigate whether a cash tender offer for the outstanding Shares would be
feasible. This was prompted in part by their belief that State Farm would be
interested in selling its Shares to Chemed in an all cash transaction. Moreover,
in contrast to 1995, by April 1996 Chemed expected to have adequate funding
available to pursue an all cash transaction.
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On August 1, 1996, Mr. McNamara telephoned Mr. Moser at State Farm to
arrange a meeting with him to discuss State Farm's possible interest in selling
its Shares. Mr. McNamara mentioned that Chemed's management was considering
increasing Chemed's ownership interest in the Company and was exploring methods
by which to do so. Mr. Moser asked whether, among other things, Chemed would
consider making a cash tender offer for the Shares. Mr. McNamara said that a
cash tender offer was among the range of possibilities being considered. No
subsequent conversations between any persons at Chemed and State Farm took place
on or prior to the date of this Offer to Purchase.
On Wednesday, August 7, 1996, at a regularly scheduled Chemed Board
meeting, Mr. McNamara proposed that Chemed make the Offer. Chemed's management
then discussed with the Chemed Board the Offer and why Chemed's management
believed that Chemed should make the Offer. Chemed's legal advisors then
discussed with the Chemed directors certain legal issues arising out of the
Offer and certain possible consequences of the Offer. Finally, CS First Boston
made a presentation to the Chemed Board with respect to its financial analysis
of Roto-Rooter and the Offer and delivered its oral opinion to the Chemed Board
that, as of August 7, 1996, the cash consideration to be received by the
stockholders of Roto-Rooter pursuant to the Offer was fair to such stockholders
other than Chemed from a financial point of view. See "-- Opinion of Financial
Advisor" below. The Chemed Board then considered the fairness of the Offer to
the Roto-Rooter stockholders other than Chemed, and concluded that the Offer was
fair to such holders. See "-- Fairness of the Offer" below for a discussion of
the factors considered by the Chemed Board in reaching its fairness decision.
After deliberation, the Chemed Board, with one abstention, approved going
forward with the Offer. Mr. Griffin abstained from voting with respect to the
approval by the Chemed Board of the Offer because of potential conflicts arising
out of his position as President and Chief Executive Officer of Roto-Rooter.
Immediately following the conclusion of the Chemed Board meeting, the
Roto-Rooter Board commenced a regularly scheduled meeting. Mr. McNamara informed
the Roto-Rooter Board that the Chemed Board had just approved going forward with
the Offer. A copy of the press release that Chemed intended to issue the next
day was distributed to the Roto-Rooter directors. Mr. McNamara informed the
Roto-Rooter Board that, because of the conflict of interest that exists for
himself and the other members of the Roto-Rooter Board who are also directors or
employees of Chemed, the fact that the Offer would not be conditioned upon the
approval of the Roto-Rooter Board (or any committee thereof) and the fact that
Chemed's intention to make the Offer would not be disclosed publicly until the
next day, they did not wish at that time to answer any questions that the other
Roto-Rooter directors may have had concerning the Offer, beyond what was in
Chemed's press release. For that reason, and in light of the fact that the
Roto-Rooter Board was not required to take any position regarding the Offer
until ten business days after Chemed officially commenced the Offer, Mr.
McNamara suggested that the Roto-Rooter Board not discuss the Offer at that
meeting. Although the Offer assumes that the Third Quarter Dividend will be paid
to Roto-Rooter stockholders, Mr. McNamara also suggested that the Roto-Rooter
Board defer consideration of the Third Quarter Dividend to avoid the need to
issue a Roto-Rooter press release describing the Roto-Rooter Board's reaction to
the Offer. The Roto-Rooter Board, by the unanimous vote of all Roto-Rooter
directors present, adjourned consideration of the Offer and the Third Quarter
Dividend until later in August 1996.
Prior to the opening of business on August 8, 1996, Chemed issued a press
release announcing its intention to commence the Offer.
On August 8, 1996, Mr. Ebright at Liberty informed Mr. McNamara that
Liberty had sold all its Shares in open market transactions.
On August 8, 1996, Mr. Griffin approached Mr. McNamara and indicated that
he thought it would be appropriate for the Roto-Rooter Board to retain legal
counsel to advise it in responding to the Offer and also requested Mr.
McNamara's assistance in retaining an appropriate law firm to provide such
advice. On August 12, 1996, Mr. Griffin asked Mr. McNamara to convene a
Roto-Rooter Board meeting during the following week to discuss retaining legal
counsel to represent the Roto-Rooter Board in connection with the Offer and to
discuss the response of the Roto-Rooter Board to the Offer. Mr. McNamara said
that he would arrange such a meeting for Tuesday, August 20, 1996.
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PURPOSE AND STRUCTURE OF THE OFFER; PLANS FOR THE COMPANY AFTER THE OFFER
Purpose. The purpose of the Offer is to increase the Purchaser's ownership
interest in the Company for the following reasons:
(1) As a result of recent financial performance, the Purchaser has
surplus cash available to invest in its business. The Purchaser believes
that the Shares represent a good investment because the Purchaser is very
familiar with the operations of the Company and that the Company is an
attractive asset to own in the long term. The Purchaser therefore views any
increase in its ownership interest in the Company as a worthwhile
investment.
(2) The Purchaser wants to ensure that its ownership interest in the
Company remains at a sufficient level above 50% so that it is able to
consolidate the Company's financial statements with its financial
statements (which the Purchaser can only do if it owns more than 50% of the
outstanding Shares and controls the Company). Since the 1985 Public
Offering, the Purchaser's ownership interest in the Company has decreased
from approximately 62% to the current 58% level due to Company employees
exercising their stock options over the past years. Although the Purchaser
is currently able to meet the financial consolidation requirements, it
would prefer having a larger ownership interest in the Company in order to
ensure that it will be able to meet such requirements in the future as more
employee stock options are exercised.
(3) Over the past few years, the Purchaser's management has been
spending more time on Company-related matters because the Company
represents a substantial portion of the Purchaser's total business
operations. Currently, the amount of time that Purchaser's management is
spending on Company-related matters is disproportionate to the size of its
investment. Therefore, the Purchaser would like to increase its investment
in the Company to more appropriately reflect such management involvement.
In addition to the foregoing factors, if sufficient Shares are properly
tendered and purchased in accordance with the terms of the Offer, the Purchaser
will be able to include the Company in the consolidated Federal income tax
return of the Purchaser as a member of the Purchaser's affiliated group. Section
1504(a)(2) of the Internal Revenue Code of 1986, as amended (the "Code"),
requires generally that 80% or more of both the total voting power and the total
value of the stock of a corporation (other than certain preferred stock) be
owned by one or more of the members of an "affiliated group" in order for such
corporation to be included within such group and thereby join in the filing of
consolidated Federal income tax returns of such group. See "The Tender
Offer -- Certain Effects of the Offer" with respect to the Federal income tax
sharing agreement that the Purchaser intends to seek to enter into with the
Company in such event.
Structure. The Offer is structured so that no approval of the unaffiliated
stockholders of the Company or of a special committee of the Roto-Rooter Board
is required or being sought. The Purchaser will, subject to the conditions of
the Offer, accept for payment tendered Shares regardless of the amount tendered.
In August 1996, the Purchaser again considered whether to propose a transaction
in which holders of Shares would receive Chemed Shares, as had been proposed in
May 1995 (see "-- Background to the Offer" above). The Purchaser concluded,
based in part upon discussions with State Farm, that an all-cash transaction
would be more likely to be attractive to the holders of Shares than a
transaction in which Chemed Shares were offered in consideration. The Purchaser
also concluded that a cash tender offer could be consummated more quickly than a
transaction involving consideration in the form of securities. The Purchaser
evaluated proposing a merger transaction for cash, which would have required
approval by the Roto-Rooter Board and a vote of the Company's stockholders and
would have resulted in either none of or all the holders of Shares other than
the Purchaser selling for cash. The Purchaser decided to proceed with a tender
offer, rather than a merger transaction, primarily because the Purchaser wished
to allow each holder of Shares to be free to make his or her own decision with
respect to whether or not to accept the price offered by the Purchaser, because
a cash tender offer could be consummated more quickly than a merger transaction
requiring a vote of the Company's stockholders and due to the conflicts of
interest that would be raised if the Roto-Rooter Board acted on a merger
agreement.
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Plans for the Company After the Offer. If, following consummation of the
Offer, the Purchaser owns 90% or more of the outstanding Shares, the Purchaser
currently intends to have the Company consummate the Second Step Merger, which
would not require the approval of any holder of Shares or of the Roto-Rooter
Board; however, no final decision will be made by the Purchaser on the Second
Step Merger until such time, if any, as the Purchaser owns 90% or more of the
outstanding Shares. The purpose of the Second Step Merger would be to acquire
all Shares not tendered and purchased pursuant to the Offer or otherwise.
Pursuant to the Second Step Merger, each then outstanding Share (other than
Shares owned by the Purchaser, Shares held in the treasury of the Company and
Shares owned by stockholders who perfect any available appraisal rights under
the Delaware General Corporation Law (the "DGCL")) would be converted into the
right to receive an amount in cash equal to the highest price per Share paid
pursuant to the Offer. See "-- Appraisal Rights" below. The Purchaser will need
to purchase approximately 1,665,334 Shares pursuant to the Offer to reach the
90% ownership level necessary to effect the Second Step Merger. This represents
approximately 32% of the outstanding Shares and approximately 76% of the
outstanding Shares not currently owned by the Purchaser.
If the Second Step Merger is consummated, the Purchaser will (i) have the
Shares delisted from the Nasdaq National Market System (the "Nasdaq National
Market") operated by the National Association of Security Dealers, Inc. (the
"NASD") and (ii) terminate the registration of the Shares under the Securities
Exchange Act of 1934 (the "Exchange Act").
If, following consummation of the Offer, the Purchaser owns less than 90%
of the outstanding Shares, the Purchaser reserves the right to purchase from
time to time additional Shares, if market conditions permit and subject to the
availability of funds and other investment opportunities. Such purchases may be
made through the open market, privately negotiated purchases, another tender
offer, an exchange offer or otherwise, subject, in each case, to market
conditions, at prices which may be greater or less than the Offer Price. There
can be no assurance that the Purchaser will acquire such additional Shares in
such circumstances or over what period of time such additional Shares, if any,
might be acquired. Any acquisition of Shares by the Purchaser would have to be
made in accordance with applicable legal requirements, including those of
Regulation 13D-G and Rules 10b-18 and 13e-3 under the Exchange Act. The
Purchaser also reserves the right to propose a merger or other business
combination with the Company in the future, although, except as described in the
second preceding paragraph, it does not have any current intention to do so.
After completion or termination of the Offer, the Purchaser also reserves the
right, but has no current intention, to sell Shares in open market or negotiated
transactions.
Unless the Second Step Merger is consummated, the Purchaser currently does
not intend to propose or seek to have the Shares delisted from the Nasdaq
National Market or to terminate the registration of the Shares under the
Exchange Act. However, delisting of the Shares may still occur at the
instigation of the NASD due to the reduced number of Shares or holders thereof
then outstanding. If the Shares cease to be registered under the Exchange Act,
the Company, among other things, would no longer have to comply with the
Exchange Act's proxy rules. See "The Tender Offer -- Certain Effects of the
Offer".
Except as otherwise described in this Offer to Purchase, the Purchaser has
no current plans or proposals which relate to or would result in: (a) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company or any of its subsidiaries; (b) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries; (c) any change in the present board of directors or management of
the Company, including, but not limited to, any plan or proposal to change the
number or term of directors, to fill any existing vacancy on the Roto-Rooter
Board or to change any material term of the employment contract of any executive
officer; (d) any material change in the present dividend rate or policy or
indebtedness or capitalization of the Company; (e) any other material change in
the Company's corporate structure or business; (f) a class of equity securities
of the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act; or (g) the suspension of the Company's
obligation to file reports pursuant to Section 15(d) of the Exchange Act.
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INTERESTS OF CERTAIN PERSONS; STOCKHOLDINGS OF CERTAIN OFFICERS AND DIRECTORS;
AND RELATED TRANSACTIONS
Directors and Officers. As described under "-- Background to the Offer"
above, currently, of the nineteen directors of the Company, eleven are also
directors of Chemed, one is also a director emeritus of the Chemed Board and one
is an employee of Chemed. Edward L. Hutton, the Chairman of Roto-Rooter, is also
the Chairman, Chief Executive Officer and a director of Chemed; William R.
Griffin, the President and Chief Executive of Roto-Rooter, is also an Executive
Vice President and a director of Chemed; James A. Cunningham, a director of
Roto-Rooter, is also a director of Chemed; Charles H. Erhart, Jr., a director of
Roto-Rooter, is also a director of Chemed; John M. Mount, a director of
Roto-Rooter, is also a director of Chemed; Thomas C. Hutton, a director of
Roto-Rooter, is also a Vice President and a director of Chemed; Sandra E. Laney,
a director of Roto-Rooter, is also the Chief Administrative Officer, Senior Vice
President, and a director of Chemed; Kevin J. McNamara, the Vice Chairman of
Roto-Rooter, is also the President and a director of Chemed; Timothy S. O'Toole,
a director of Roto-Rooter, is also an Executive Vice President, Treasurer and a
director of Chemed; D. Walter Robbins, Jr., a director of Roto-Rooter, is also a
director of Chemed; George J. Walsh III, a director of Roto-Rooter, is also a
director of Chemed; Neal Gilliatt, a director of Roto-Rooter, is also a director
emeritus of Chemed; and Naomi C. Dallob, the Secretary and General Counsel and a
director of Roto-Rooter, is also the Secretary and a Vice President of Chemed.
In addition, Will J. Hoekman, a director of Roto-Rooter, is also a director of
National Sanitary Supply Company (an 84% owned subsidiary of Chemed) and Donald
E. Saunders, a director of Roto-Rooter, was an employee for 25 years of DuBois
Chemicals, Inc., formerly a wholly-owned subsidiary of Chemed. Certain of the
Purchaser's executive officers and directors beneficially own Shares and options
to acquire Shares. Schedule I to this Offer to Purchase sets forth the amount
and nature of such beneficial ownership.
Throughout 1995 each member of the Roto-Rooter Board who was not a regular
employee of the Company or a wholly owned subsidiary of the Company was entitled
to be paid directors' fees. Accordingly, executive employees of the Purchaser
who are directors of the Company (other than Mr. E. L. Hutton) are entitled to
receive directors' fees for attending Roto-Rooter Board and committee meetings.
Each member of the Roto-Rooter Board entitled to receive directors' fees was
paid $1,000 for his attendance at each meeting of the Roto-Rooter Board and $550
for each meeting of a committee he attended. The chairman of each committee was
paid $600. Effective February 7, 1996, the directors' fees were increased and
each member of the Roto-Rooter Board who is not a regular employee of the
Company or of a wholly owned subsidiary of the Company (other than Mr. E. L.
Hutton) is now paid $1,075 for his attendance at each meeting of the Roto-Rooter
Board and $600 for each meeting of a committee of the Roto-Rooter Board he
attended. The chairman of each committee is paid $675. The following directors
who are members of the Incentive Committee of either the Company or an
affiliated company also receive an additional annual fee of $4,700: Messrs.
Cunningham, Erhart, Gilliatt, Hoekman and Robbins. Members of the Roto-Rooter
Board are reimbursed for reasonable travel expenses incurred in connection with
such meetings. On May 15, 1995, and May 20, 1996, each then member of the
Roto-Rooter Board (other than those serving on the Incentive Committee of either
the Company or an affiliated company) was granted an unrestricted stock award
covering 75 Shares under the Company's stock incentive plans. Those directors
who are members of the Incentive Committee of either the Company or an
affiliated company were paid the cash equivalent of the 75 Share stock award
($2,050 in 1995 and $2,512 in 1996). Mr. Cunningham received an aggregate of
$7,100 for his attendance at six Roto-Rooter Board meetings and four committee
meetings in 1993, $5,725 for his attendance at five Roto-Rooter Board meetings
and two committee meetings in 1994, $5,600 for his attendance at five
Roto-Rooter Board meetings and one committee meeting in 1995, and $4,975 for his
attendance at four Roto-Rooter Board meetings and one committee meeting in 1996;
Ms. Dallob received an aggregate of $2,550 for her attendance at three
Roto-Rooter Board meetings in 1993, $4,625 for her attendance at five
Roto-Rooter Board meetings in 1994, $5,000 for her attendance at five
Roto-Rooter Board meetings in 1995, and $4,300 for her attendance at four
Roto-Rooter Board meetings in 1996; Mr. Erhart received an aggregate of $8,900
for his attendance at six Roto-Rooter Board meetings and eight committee
meetings in 1993, $6,725 for his attendance at five Roto-Rooter Board meetings
and four committee meetings in 1994, $7,950 for his attendance at five
Roto-Rooter Board meetings and five committee meetings in 1995, and $6,925 for
his attendance at four Roto-Rooter Board meetings and four committee meetings in
1996; Mr. Gilliatt received an aggregate of $6,950 for his attendance at five
Roto-Rooter Board meetings and six
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<PAGE> 12
committee meetings in 1993, $5,200 for his attendance at four Roto-Rooter Board
meetings and three committee meetings in 1994, $8,300 for his attendance at five
Roto-Rooter Board meetings and six committee meetings in 1995, and $7,300 for
his attendance at four Roto-Rooter Board meetings and five committee meetings in
1996; Mr. Hoekman received an aggregate of $7,900 for his attendance at six
Roto-Rooter Board meetings and six committee meetings in 1993, $6,725 for his
attendance at five Roto-Rooter Board meetings and four committee meetings in
1994, $5,750 for his attendance at four Roto-Rooter Board meetings and three
committee meetings in 1995, and $6,250 for his attendance at four Roto-Rooter
Board meetings and three committee meetings in 1996; Mr. T.C. Hutton received an
aggregate of $6,900 for his attendance at six Roto-Rooter Board meetings and
four committee meetings in 1993, $5,625 for his attendance at five Roto-Rooter
Board meetings and two committee meetings in 1994, $7,200 for his attendance at
five Roto-Rooter board meetings and four committee meetings in 1995, and $6,100
for his attendance at four Roto-Rooter Board meetings and three committee
meetings in 1996; Ms. Laney received an aggregate of $6,900 for her attendance
at six Roto-Rooter Board meetings and four committee meetings in 1993, $5,625
for her attendance at five Roto-Rooter Board meetings and two committee meetings
in 1994, $7,200 for her attendance at five Roto-Rooter Board meetings and four
committee meetings in 1995, and $6,100 for her attendance at four Roto-Rooter
Board meetings and three committee meetings in 1996; Mr. McNamara received an
aggregate of $6,000 for his attendance at six Roto-Rooter Board meetings and two
committee meetings in 1993, $5,625 for his attendance at five Roto-Rooter Board
meetings and two committee meetings in 1994, $6,100 for his attendance at five
Roto-Rooter Board meetings and two committee meetings in 1995, and $5,500 for
his attendance at four Roto-Rooter Board meetings and two committee meetings in
1996; Mr. Mount received an aggregate of $2,150 for his attendance at two
Roto-Rooter Board meetings in 1996; Mr. O'Toole received an aggregate of $5,100
for his attendance at six Roto-Rooter Board meetings in 1993, $4,625 for his
attendance at five Roto-Rooter Board meetings in 1994, $5,000 for his attendance
at five Roto-Rooter Board meetings in 1995, and $4,300 for his attendance at
four Roto-Rooter Board meetings in 1996; Mr. Robbins received an aggregate of
$6,000 for his attendance at six Roto-Rooter Board meetings and two committee
meetings in 1993, $5,625 for his attendance at five Roto-Rooter Board meetings
and two committee meetings in 1994, $6,100 for his attendance at five
Roto-Rooter Board meetings and two committee meetings in 1995, and $5,500 for
his attendance at four Roto-Rooter Board meetings and two committee meetings in
1996; Mr. Saunders received an aggregate of $2,150 for his attendance at two
Roto-Rooter Board meetings in 1996; Mr. Walsh received an aggregate of $2,150
for his attendance at two Roto-Rooter Board meetings.
Security Ownership. The Purchaser currently owns 2,990,333 Shares,
representing approximately 58% of the outstanding Shares. See "-- Background to
the Offer" above. According to the Company's April 8, 1996 Proxy Statement (the
"1996 Proxy Statement"), the only holder of 5% or more of the Shares, other than
the Purchaser, was State Farm, which, as of April 8, 1996, owned, 453,066
Shares, or approximately 9% of the outstanding Shares on May 7, 1996. Under the
Company's Retirement and Savings Plan (the "Retirement and Savings Plan"), as of
June 30, 1996, NationsBank, as trustee under the Retirement and Savings Plan
(the "Plan Trustee"), held 152,848 Shares on behalf of the 1,304 to 1,092 active
participants and 212 terminated participants with vested interests in the
Retirement and Savings Plan. Employees of Roto-Rooter Management Company and
Roto-Rooter Services Company and its subsidiaries are eligible to participate in
the Retirement and Savings Plan. Under the Retirement and Savings Plan, the
Shares held by the Plan Trustee are allocated to each participant's account
based upon the dollar amounts held in such participant's account. Each
Participant has the right under the Retirement and Savings Plan to direct the
Plan Trustee whether or not to tender pursuant to the Offer the Shares allocated
to his or her account.
As of the date hereof, no executive officer or director of the Purchaser,
or to the knowledge of Purchaser, any of their associates, beneficially owns, or
has the right to acquire, directly or indirectly, any Shares, except as set
forth in Schedule I to this Offer to Purchase. Each of the executive officers
and directors of the Purchaser listed in Schedule I to this Offer to Purchase
who beneficially owns, or has a right to acquire, directly or indirectly, any
Shares, has indicated to the Purchaser that he or she presently intends to
tender his or her Shares pursuant to the Offer, subject to the requirements of
Section 16(b) of the Exchange Act and, in the cases of Messrs. E. L. Hutton and
Griffin, to the contractual restrictions applicable to restricted stock.
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<PAGE> 13
Neither the Purchaser, nor, to the knowledge of the Purchaser, any of the
executive officers and directors of the Purchaser, has engaged in any
transaction in the Shares in the past 60 days, except that in May 1996: (i)
Edward L. Hutton, Kevin J. McNamara, William R. Griffin, Thomas C. Hutton,
Sandra E. Laney, John M. Mount, Timothy S. O'Toole, Donald E. Saunders and
George J. Walsh III each received unrestricted stock awards covering 75 Shares
at $33.50 per Share under a Company stock incentive plan; (ii) Edward L. Hutton
exercised options for 10,000 Shares at $23.88 per Share and disposed of 7,243
Shares to offset taxes and the purchase price for exercising such options; (iii)
Kevin J. McNamara (a) exercised options for 500 Shares at $25.25 per Share and
disposed of 385 Shares to offset taxes and the purchase price for exercising
such options, (b) exercised options for 250 Shares at $23.88 per Share and
disposed of 187 Shares to offset taxes and the purchase price for exercising
such options and (c) exercised options for 500 Shares at $27.00 per Share and
disposed of 398 Shares to offset taxes and the purchase price for exercising
such options; (iv) William R. Griffin exercised options for 5,000 Shares at
$23.88 per Share and disposed of 3,596 Shares to offset taxes and the purchase
price for exercising such options; and (v) Sandra E. Laney exercised options for
250 Shares at 23.88 and exercised options for 500 Shares at $25.25 per Share and
disposed of 572 Shares to offset taxes and the purchase price for exercising all
such options.
Related Transactions. The Company and the Purchaser are involved in the
following related transactions:
The Company regularly deposits funds in excess of its working capital
requirements with the Purchaser for short-term investment and the Purchaser, on
occasion, may make short-term loans to the Company for working capital needs.
These unsecured deposits and loans bear interest at the rate equal to fifty
basis points above 2-year United States Treasury Notes for balances up to $5
million and fifty basis points above three year United States Treasury Notes for
balances above $5 million. At January 31, 1996, the Company had $16,392,000 on
deposit with the Purchaser. During the period January 1, 1995 through January
31, 1996, the largest amount on deposit with the Purchaser was $26,266,000. The
Purchaser paid the Company $540,000, $618,000 and $1,424,000, respectively,
during 1993, 1994 and 1995 as interest on amounts deposited by the Company with
the Purchaser.
During 1991, the Purchaser loaned to the Company $4,200,000 to partially
finance the acquisition of Convenient Home Services, Inc. which changed its name
to Service America Systems, Inc. in July 1994 ("Service America"). This loan
bears interest at the rate determined on the basis of United States Treasury
Notes. In addition, during 1993, the Purchaser loaned to the Company $4,224,000
to partially finance the acquisition of Encore Services Systems, Inc., a
subsidiary of Service America. This loan bears interest at the fixed rate of
8.15%. At January 31, 1996, the Company had $8,424,000 on loan from the
Purchaser, which was the largest amount on loan from the Purchaser at any time
during the period January 1, 1993 through January 31, 1996. The Company paid the
Purchaser $351,000, $603,000 and $631,000, respectively, during 1993, 1994 and
1995 as interest on amounts loaned to the Company from the Purchaser.
As a subsidiary of the Purchaser and pursuant to an agreement with the
Purchaser, the Company has used various financial, insurance, tax, audit, legal
and other services provided by the Purchaser. The Company pays fees for these
services based on the Purchaser's costs. The Company paid the Purchaser $305,000
for such services in 1995; $227,686 for such services in 1994; and $213,129 for
such services in 1993. In addition, the Company has entered into a sublease
agreement with the Purchaser pursuant to which the Company leases approximately
23,500 square feet of office space from the Purchaser on the 25th and 30th
floors of Chemed Center, 2255 East Fifth Street, Cincinnati, Ohio, at a rental
equal to that paid by the Purchaser under its lease and for a term coterminous
with the Purchaser's lease term which expires in 2006. For 1993, 1994 and 1995,
the Company paid the Purchaser lease payments under the sublease aggregating
$359,000, $413,000 and $491,000, respectively.
The Company owns 70% of the outstanding capital stock of Service America
and the Purchaser owns the remaining outstanding 30%. As mentioned above, the
Purchaser also loaned the Company $4,200,000 to partially fund the Company's
acquisition of its 70% interest. None of the executive officers or directors of
the Purchaser are officers or directors of Service America; however, the
Purchaser, indirectly through its representation on the Company Board, could
exercise control over Service America. See "-- Background to
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<PAGE> 14
the Offer" above. Service America is engaged primarily in the air conditioning
and appliance maintenance and repair business in Florida primarily through the
sale of service contracts which generally cover a one-year period. In July 1993,
Service America completed the acquisition of all the outstanding shares of
Common Stock of Encore Services, Inc. ("Encore"), which is also primarily
engaged in the air conditioning and appliance maintenance and repair business
through service contracts in Florida and Arizona. Service America had net income
of $1,380,000, $812,000 and $1,253,000 in fiscal years 1993, 1994 and 1995,
respectively.
Should any state or locality impose, or should the Purchaser and the
Company elect to pay, an income or franchise tax by combining or consolidating
all or part of the income, losses, properties, payrolls, sales or other
attributes of the Purchaser and the Company or one or more of their respective
subsidiaries, the Company has agreed to reimburse the Purchaser for the
Company's and its subsidiaries' share of such franchise or income tax. The
amount to be reimbursed is equal to the tax that would have been required to be
paid had the Company or any of its subsidiaries included in such combined or
consolidated return filed a separate return without the inclusion of any income,
losses, properties, payrolls, sales or other attributes of any related parent or
subsidiary corporation.
The Company has a program under which three nominations for membership on
the Company Board are made each year from a rotating group of senior officers of
the Company, senior executives of its operating divisions and subsidiaries and
senior executives of the Purchaser. The persons currently considered to be in
the rotating group are Ms. Naomi C. Dallob and Messrs. Richard L. Arquilla,
Brian A. Brumm, Gary C. Burger, Spencer S. Lee, and Timothy S. O'Toole. Ms.
Dallob and Messrs. Brumm and O'Toole were nominated in 1996.
The Company has entered into an employment agreement with Mr. William R.
Griffin, who is the President and Chief Executive Officer of the Company and an
Executive Vice President of the Purchaser. The employment agreement provides for
Mr. Griffin's continued employment as an executive employee of the Company
through October 31, 2000, subject to earlier termination under certain
circumstances, at a base salary of $310,000 per annum or such higher amounts as
the Roto-Rooter Board may determine, as well as participation in incentive
compensation plans, stock incentive plans and other employee benefit plans. In
the event of termination without cause or a material reduction in authority or
responsibility, the agreement provides that Mr. Griffin will receive severance
payments equal to 150 percent of his then current base salary plus the amount of
incentive compensation most recently paid or approved in respect of the previous
year, and the fair market value of all stock awards which have vested during the
twelve months prior to termination, for the balance of the term of the
agreement.
FAIRNESS OF THE OFFER
At its meeting on August 7, 1996, the Chemed Board (with Mr. Griffin
abstaining) resolved that the Offer is fair to the holders of Shares other than
the Purchaser. In forming such belief, the Chemed Board considered the following
factors, which are listed in their relative order of importance to the Chemed
Board's decision:
Opinion of CS First Boston. The Chemed Board gave significant weight to
the presentation made by CS First Boston to the Chemed Board at its meeting on
August 7, 1996, and the oral opinion delivered by CS First Boston to the Chemed
Board at that meeting (and subsequently confirmed in writing on August 8, 1996),
that, as of the date of such opinion and based upon and subject to the factors
and assumptions reviewed with the Chemed Board, the cash consideration to be
received by the stockholders of the Company pursuant to the Offer was fair to
such stockholders other than the Purchaser from a financial point of view. See
"-- Opinion of Financial Advisor" below.
Prior Discussions. The Chemed Board considered the discussions in July
1995 relating to the then proposed transaction between the Purchaser and the
Company. The Chemed Board noted that the Offer was at a higher price than the
Second Counter-Proposal. See "-- Background to the Offer" above. The Chemed
Board also noted that, unlike the stock-for-stock proposed transaction in 1995,
the Offer was for cash, which the Chemed Board believed was a more attractive
form of consideration.
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<PAGE> 15
Company Financial Performance. Because the Company represents a
significant investment for Chemed, all the members of the Chemed Board are
familiar with the Company's financial information and historical performance and
are able to make informed judgments regarding the positive and negative aspects
of the Company in assessing whether or not the Offer was fair to the Company's
stockholders other than the Purchaser. In particular, Chemed Board considered
the fact that the Offer Price of $41.00 represented a multiple of 17.8 times
Roto-Rooter's estimated 1996 earnings.
Historic Illiquidity of the Shares. The Chemed Board considered the fact
that historically, the Shares have traded thinly. The Chemed Board reviewed
statistics showing that the median daily trading volume for the Shares during
the period since January 1994 ranged from 200 to 900 Shares per day and that the
median bid/ask spread on the Shares during such period ranged from $2.00 to
$2.50. The Chemed Board viewed the Offer as giving stockholders, particularly
those holding a large number of Shares, an opportunity to immediately realize
value for their Shares at a fixed price.
Historical Trading Prices. The Chemed Board considered the fact that the
Offer price of $41.00 represented a premium of approximately 20% over the
closing bid price of $34.00 per Share on August 7, 1996. The Chemed Board
reviewed trading information relating to the Shares since January 1995, which
showed that the trading prices for the Shares since that time had generally been
at a significant discount to the Offer price. The Chemed Board did not attach
significant weight to this factor, as the historical illiquidity of the Shares
(as described above) reduces the usefulness of historic trading prices for the
Shares as an indicator of the value of the Company at any moment in time.
OPINION OF FINANCIAL ADVISOR
Chemed retained CS First Boston to act as its exclusive financial advisor
and as Dealer Manager in connection with the Offer. On August 7, 1996, CS First
Boston rendered to the Chemed Board its oral opinion, subsequently confirmed on
August 8, 1996 by delivery of a written opinion (the "CS First Boston Opinion"),
that, as of such date and based upon and subject to the factors and assumptions
set forth in such written opinion, the cash consideration to be received by the
stockholders of Roto-Rooter pursuant to the Offer was fair to such stockholders
other than Chemed from a financial point of view. No limitations were imposed by
the Chemed Board upon CS First Boston with respect to investigations made or
procedures followed by CS First Boston in rendering the CS First Boston Opinion.
CS First Boston was not requested to opine as to the fairness of the Offer to
Chemed.
The full text of the CS First Boston Opinion, which sets forth the
assumptions made, matters considered, qualifications and limitations on the
review undertaken by CS First Boston, is attached as Appendix A to this Offer to
Purchase and is incorporated herein by reference. The CS First Boston Opinion
was requested by the Chemed Board for its information and is directed only to
the fairness from a financial point of view of the cash consideration to be
received by the stockholders of Roto-Rooter other than Chemed pursuant to the
Offer. The CS First Boston Opinion does not constitute a recommendation to any
stockholder as to whether such stockholder should tender Shares pursuant to the
Offer. The CS First Boston Opinion is based upon financial, economic, market,
and other conditions as they existed and could be evaluated as of the date of
the CS First Boston Opinion. The summary of the CS First Boston Opinion set
forth in this Offer to Purchase is qualified in its entirety by reference to the
full text of the opinion set forth in Appendix A and incorporated herein by
reference.
The summary set forth below does not purport to be a complete description
of the analyses underlying the CS First Boston Opinion or the presentation made
by CS First Boston to the Chemed Board. The preparation of a fairness opinion is
a complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, CS First Boston did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, CS
First Boston believes that its analyses must be considered as a whole and
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<PAGE> 16
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion.
In performing its analyses, CS First Boston made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Chemed or Roto-Rooter. Any estimates contained in the analyses performed by CS
First Boston are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which such businesses
or securities might actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. In addition, as described
above, CS First Boston's opinion of August 7, 1996 and its presentation to the
Chemed Board were among several factors taken into consideration by the Chemed
Board in making its determination to commence the Offer. Consequently, the CS
First Boston analyses described below should not be viewed as, and was not,
determinative of the decision of the Chemed Board with respect to the cash
consideration to be received by the stockholders of Roto-Rooter other than
Chemed pursuant to the Offer.
In arriving at its opinion, CS First Boston reviewed certain publicly
available business and financial information relating to Roto-Rooter, as well as
a draft dated August 6, 1996 of this Offer to Purchase. CS First Boston also
reviewed certain other information, including financial forecasts, provided to
it by Roto-Rooter and Chemed, and met with the management of Chemed to discuss
the business and prospects of Roto-Rooter. The material aspects of the financial
forecasts reviewed by CS First Boston are summarized below. SEE "THE TENDER
OFFER -- CERTAIN INFORMATION CONCERNING THE COMPANY" FOR A DISCUSSION OF CERTAIN
IMPORTANT FACTORS THAT MAY RESULT IN THE COMPANY'S ACTUAL FINANCIAL PERFORMANCE
DIFFERING FROM THESE FORECASTS.
CS First Boston also considered certain financial and stock market data of
Roto-Rooter, and compared that data with similar data for other publicly held
companies in businesses similar to that of Roto-Rooter. In addition, CS First
Boston considered the financial terms of certain other acquisitions and business
combinations that have recently been effected. CS First Boston also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant.
In connection with its review, CS First Boston did not assume any
responsibility for independent verification of any of the foregoing information
and relied on such information being complete and accurate in all material
respects. With respect to the financial forecasts, CS First Boston assumed that,
at the time they were prepared, they were reasonably prepared on bases
reflecting the best available estimates and judgments at the time of
Roto-Rooter's management as to the future financial performance of Roto-Rooter,
and, as currently updated and adjusted, reflect the best currently available
estimates and judgments of Chemed's management as to the future financial
performance of Roto-Rooter. In addition, CS First Boston did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Roto-Rooter, nor was it furnished with any such evaluations or
appraisals. The CS First Boston Opinion is necessarily based upon financial,
economic, market and other conditions as they existed and could be evaluated as
of the date of the CS First Boston Opinion. CS First Boston was not requested
to, and did not, solicit third party indications of interest in acquiring all or
any part of Roto-Rooter.
The following is a summary of the analyses performed by CS First Boston and
presented to the Chemed Board in connection with the preparation of the CS First
Boston Opinion.
Trading History.
CS First Boston reviewed the daily recorded last trading, bid and ask
prices, as well as daily trading volume for the Shares for the period from
January 1, 1994 through August 2, 1996 and calculated certain median statistics,
based on such daily trading information, for each of the periods beginning on
January 1, 1994, January 1, 1995, July 1, 1995, January 1, 1996 and July 1, 1996
and ending, in each case, on August 2, 1996. CS First Boston noted that the low
median daily trading volume of 200 to 900 Shares per day and the wide median
bid/ask spread of $2.00 to $2.50 reflected in such trading information
demonstrated the illiquidity of the Shares.
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<PAGE> 17
Comparable Companies Analysis.
CS First Boston performed a comparable companies analysis in which it
compared certain publicly available historical financial and operating data,
projections of future financial performance (reflecting equity research
analysts' estimates) and market statistics (calculated based upon closing stock
prices on August 2, 1996) of selected publicly traded companies considered by CS
First Boston to be reasonably comparable to Roto-Rooter with similar historical
financial and operating data, projections of future financial performance
(reflecting the Roto-Rooter Projections (as defined below)) and market
statistics (also calculated based upon closing stock prices on August 2, 1996)
of Roto-Rooter. The comparable companies were ABM Industries Incorporated,
Barefoot, Inc., The Dwyer Group, Inc., Rollins, Inc., ServiceMaster LP and York
International Corporation (collectively, the "Comparable Companies"). CS First
Boston compared the Market Value and the Adjusted Market Value (both as defined
below) as a multiple of operating results for each of the Comparable Companies
with those of Roto-Rooter. For purposes of this analysis, CS First Boston
defined Market Value as a company's share price multiplied by fully diluted
shares outstanding less exercisable stock option proceeds and defined Adjusted
Market Value as the Market Value plus net debt. CS First Boston also calculated,
for Roto-Rooter and each of the Comparable Companies, the current market price
per share as a multiple (the "P/E Ratio") of 1996 estimated earnings per share
("EPS"), reflecting a composite of equity research analysts' estimates. The P/E
Ratio calculated by CS First Boston for Roto-Rooter was 16.0x, as compared with
a range of 11.3x to 16.7x for the Comparable Companies.
Based on its comparable companies analysis, CS First Boston derived an
equity value reference range for Roto-Rooter of $134.0 to $198.1 million, or
$26.01 to $38.44 per Share. CS First Boston also used this analysis, among other
things, to derive the terminal value multiples utilized in its discounted cash
flow analysis described below.
Comparable Acquisitions Analysis.
CS First Boston's comparable acquisitions analysis consisted of a minority
buy-out analysis and an industry comparables analysis.
Minority Buy-Out Analysis. CS First Boston reviewed publicly available
information regarding 39 cash minority buy-outs completed over the period from
January 1990 to July 1996 (the "Minority Buy-Out Comparables") and calculated
the high, low, mean and median percentage premiums of the cash consideration
paid over the stock price of each of the targets one day, one week and one month
prior to the announcement of such buy-outs. CS First Boston calculated median
and mean premiums of (i) 19.4% and 23.2%, respectively, over the target's stock
price one day prior to announcement; (ii) 20.7% and 25.7%, respectively, over
the target's stock price one week prior to announcement; and (iii) 23.9% and
27.6%, respectively, over the target's stock price one month prior to
announcement.
CS First Boston then calculated implied values for the Shares by
application of the median and mean percentage premiums offered to the target
stockholders in the Minority Buy-Out Comparables to the closing bid price of the
Shares one day, one week and one month prior to August 2, 1996. Based on the
median premiums, the analysis yielded: (i) implied values for the Shares one
day, one week and one month prior to announcement of $40.60, $40.43 and $42.75,
respectively; (ii) a one week mean of $40.79; and (iii) a one month mean of
$42.11. Based on the mean premiums, the analysis yielded (i) implied values for
the Shares one day, one week and one month prior to announcement of $41.89,
$42.11 and $44.02, respectively; (ii) a one week mean of $42.48; and (iii) a one
month mean of $43.36. Based on its minority buy-out analysis, CS First Boston
derived an implied equity value reference range for Roto-Rooter of $208.3 to
$226.8 million, or $40.43 to $44.02 per Share.
Industry Comparables Analysis. CS First Boston reviewed certain publicly
available information regarding 11 business combinations involving companies in
the service industry consummated since June 1988 (the "Acquisition
Comparables"). The Acquisition Comparables were: (i) American Eco Corporation's
acquisition of EIF Holdings, Inc., (ii) Hudson Technologies, Inc.'s acquisition
of Refrigerant Reclaimation Industries Inc., (iii) Wall Street Financial
Corporation's acquisition of Honolulu Roofing Co. Ltd., (iv) Air-Cure
Environmental, Inc.'s acquisition of Amerex USA, (v) ABM Industries
Incorporated's acquisition of
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General Maintenance Service Co., (vi) Rust International Inc.'s acquisition of
EnClean, Inc., (vii) ISS-International Service Systems A/S' acquisition of
Commercial Services Division (Electrolux AB), (viii) Lyonaise des Eaux's
acquisition of Dumez S.A., (ix) American International Group Inc.'s acquisition
of Fischbach Corporation, (x) York International Corporation's acquisition of
RECO International and (xi) Citicorp Capital Investors Ltd.'s acquisition of
York International Corporation.
CS First Boston compared the Adjusted Market Value of each Acquisition
Comparable as a multiple of the publicly available latest twelve months' ("LTM")
sales of the acquired companies. The multiples derived using this analysis
ranged from 0.9x to 1.0x. Based on its industry comparables analysis, CS First
Boston derived an equity value reference range for Roto-Rooter of $177.3 to
$195.8 million, or $34.40 to $38.00 per Share.
CS First Boston also considered the fact that in 1995 the Special Committee
had indicated that it would approve an exchange of one Chemed Share and $4.00 in
cash for each Share (implying a value of $37.75 per Share based on the
then-current Chemed market value). Using that implied value, CS First Boston
calculated implied multiples for sales; earnings before interest, taxes,
depreciation and amortization ("EBITDA"); earnings before interest and taxes
("EBIT"); net income; and book value of Roto-Rooter based on Roto-Rooter
operating results available at the time the Second Counter-Proposal was made.
Based on such analysis, CS First Boston calculated an equity value reference
range for Roto-Rooter, based on current operating results, of $205.0 to $221.3
million, or $39.78 to $42.94 per Share.
Based on the two components of its comparable acquisitions analysis, CS
First Boston derived an equity value reference range for Roto-Rooter of $177.3
to $221.3 million, or $34.40 to $42.94 per Share.
Discounted Cash Flow Analysis.
CS First Boston performed a discounted cash flow analysis of the projected
cash flows of Roto-Rooter for the fiscal years 1996 through 2000, based upon
projections for Roto-Rooter Corp. (the "Franchise Company"), Roto-Rooter Service
Company (the "Service Company") and Service America, developed by Roto-Rooter's
management for 1996 and 1997 in connection with its business planning in late
1995. The 1996 projections were updated by Roto-Rooter management in mid-1996 to
reflect recent operating results and were provided to CS First Boston by the
management of Chemed. Based on conversations with Chemed management, the
Roto-Rooter Projections were further updated and adjusted for the period from
1996 through 2000 (the "Roto-Rooter Projections").
In performing its discounted cash flow analysis, CS First Boston valued the
Franchise Company and the Service Company separately from the 70%-owned Service
America.
For the Franchise Company, the Roto-Rooter Projections assumed (i) sales
growth of 5.2% for each of the years 1996 through 2000 and (ii) EBIT Margin
(defined for purposes of this analysis as EBIT before intangible amortization)
of 35.9% in 1996, with an increase of 1% per year for each year thereafter
through 2000. For the Service Company, the Roto-Rooter Projections assumed (i)
sales growth of 17% in 1996 and 12% for each year thereafter through 2000 and
(ii) EBIT Margin of 12.1% in 1996 and for each year thereafter through 2000. For
Service America, the Roto-Rooter Projections assumed (i) sales growth of 7.1% in
1996 and 10.5% for each year thereafter through 2000 and (ii) EBIT Margin of
6.6% in 1996 and 7.5% for each year thereafter through 2000.
On an adjusted consolidated basis, the Roto-Rooter Projections indicated
(i) revenue growth of 13.3% in 1996 and 11.2% for each year thereafter through
2000; (ii) EBIT Margin of 10.8% in 1996 and 11.0% thereafter through 2000 and
(iii) EBITDA Margin (defined for purposes of this analysis as EBITDA after
intangible amortization) of 13.5% in 1996 and 13.7% in each year thereafter
through 2000.
Based on the Roto-Rooter Projections, CS First Boston derived equity value
reference ranges for (i) the Franchise Company and the Service Company and (ii)
70% of Service America and added them to determine an equity value reference
range for Roto-Rooter on a consolidated basis. For purposes of this analysis, CS
First Boston utilized discount rates reflecting a weighted average cost of
capital of 11.5% and 12.5% and terminal value multiples of 2000 EBITDA (derived
from the comparable companies analysis) of 6.0x and 7.0x. Based
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on this analysis, CS First Boston calculated the following equity value
reference ranges: (i) $179.2 to $204.7 million for the Franchise Company and the
Service Company, (ii) $11.9 to $17.4 million for Roto-Rooter's 70% interest in
Service America and (iii) $191.1 to $222.0 million, or $37.09 to $43.09 per
Share, for Roto-Rooter.
Summary Valuation.
Based upon the above valuation analyses, CS First Boston derived an equity
value reference range for Roto-Rooter of $180.0 to $220.0 million, or $34.93 to
$42.70 per Share.
Pursuant to a letter agreement dated as of August 6, 1996 between Chemed
and CS First Boston, Chemed agreed to pay CS First Boston an aggregate fee of
$900,000 for services thereunder, of which $50,000 became payable upon CS First
Boston's engagement and the balance became payable upon approval by the Chemed
Board of the commencement of the Offer. None of CS First Boston's fees are
contingent upon the acquisition of any Shares pursuant to the Offer. Chemed also
has agreed to reimburse CS First Boston for all out-of-pocket expenses,
including the fees and expenses of its legal counsel and other advisors. Chemed
has further agreed to indemnify CS First Boston and certain related persons and
entities for certain losses, claims, damages or liabilities (including action or
proceedings in respect thereof) related to or arising out of, among other
things, its engagement as financial advisor.
Chemed retained CS First Boston based upon CS First Boston's experience and
expertise. Since 1986, CS First Boston has provided financial advisory and
investment banking services to Chemed, and acted as Chemed's exclusive financial
advisor in connection with its proposed stock-for-stock merger with Roto-Rooter
in 1995. See "--Background to the Offer" above. CS First Boston is an
internationally recognized investment banking and advisory firm. CS First
Boston, as part of its investment banking business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. In the ordinary course of its
business, CS First Boston and its affiliates may actively trade the debt and
equity securities of Chemed and the equity securities of Roto-Rooter for their
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Offer (or pursuant to the
Second Step Merger, if consummated) will be taxable for Federal income tax
purposes under the Code, and also may be taxable under applicable state, local,
foreign and other tax laws. In general, for Federal income tax purposes, a
stockholder will receive gain or loss equal to the difference between the amount
of cash received and such holder's tax basis for the Shares sold. Such gain or
loss will be a capital gain or loss provided the Shares are a capital asset in
the hands of the stockholders and will be a long-term capital gain or loss if
the Shares have been held for more than 12 months.
The foregoing discussion may not be applicable to stockholders who acquired
their Shares pursuant to the exercise of employee stock options or otherwise as
compensation, who are not citizens or residents of the United States or who are
otherwise subject to special tax treatment under the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE OFFER (AND THE
SECOND STEP MERGER, IF CONSUMMATED), INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
APPRAISAL RIGHTS
UNDER THE DGCL, HOLDERS OF SHARES NOT PURCHASED BY THE PURCHASER ARE NOT
ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE OFFER. However, if following
consummation of the Offer, the Purchaser owns 90% or
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more of the outstanding Shares and the Purchaser consummates the Second Step
Merger, holders of Shares not purchased by the Purchaser will be entitled to
appraisal rights under the DGCL as follows.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 of the DGCL ("Section 262"). All references in Section 262
and in this summary to a "stockholder" or "holders" are to the record holder of
the Shares as to which appraisal rights are asserted.
Under the DGCL, holders of Shares ("Appraisal Shares") who follow the
procedures set forth in Section 262 will be entitled to have their Appraisal
Shares appraised by the Delaware Chancery Court and to receive payment in cash
of the "fair value" of such Appraisal Shares, exclusive of any element of value
arising from the accomplishment or expectation of the Second Step Merger,
together with a fair rate of interest, if any, as determined by such court.
Under Section 262, the Purchaser, either before the effective date of the
Second Step Merger or within ten days thereafter, must notify each of its
stockholders entitled to appraisal rights of the effective date of the Second
Step Merger and that appraisal rights are available, and must include in such
notice a copy of Section 262.
A holder of Appraisal Shares wishing to exercise such holder's appraisal
rights must deliver to the Purchaser within 20 days after the date of mailing of
the notice described in the preceding paragraph a written demand for appraisal
of such holder's Appraisal Shares. A holder of Appraisal Shares wishing to
exercise such holder's appraisal rights must be the record holder of such
Appraisal Shares on the date the written demand for appraisal (as described
below) is made and must continue to hold such Appraisal Shares of record through
the effective date of the Second Step Merger. Accordingly, a holder of Appraisal
Shares who is the record holder of Appraisal Shares on the date the written
demand for appraisal is made (if such demand is made prior to the effectiveness
of the Second Step Merger), but who thereafter transfers such Appraisal Shares
prior to the consummation of the Second Step Merger, will lose any right to
appraisal in respect of such Appraisal Shares.
Within 120 days after the effective date of the Second Step Merger, but not
thereafter, the Purchaser or any stockholder who has complied with the statutory
requirements summarized above and who is otherwise entitled to appraisal rights
may file a petition in the Delaware Chancery Court demanding a determination of
the fair value of the Appraisal Shares. The Purchaser is under no obligation to
file a petition with respect to the appraisal of the fair value of the Appraisal
Shares and does not intend to do so. Accordingly, it is the obligation of the
stockholders seeking appraisal rights to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262.
Within 120 days after the effective date of the Second Step Merger, any
stockholder who has complied with the statutory requirements summarized above
will be entitled, upon written request, to receive from the Purchaser a
statement setting forth the aggregate number of Appraisal Shares with respect to
which demands for appraisal have been received and the aggregate number of
holders of such Appraisal Shares. Such statements must be mailed within ten days
after a written request therefor has been received by the Purchaser or within
ten days after expiration of the period for delivery of demands for appraisal,
whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the "fair value" of their Appraisal
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Second Step Merger, together with a fair rate of interest, if
any, to be paid upon the amount determined to be the fair value.
The costs of the proceeding may be determined by the Delaware Chancery
Court and taxed upon the parties as the Delaware Chancery Court deems equitable
in the circumstances. Upon application of a stockholder, the Delaware Chancery
Court may also order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, to
be charged pro rata against the value of all of the Appraisal Shares entitled to
appraisal.
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Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 will not, from and after the effective date of the
Second Step Merger, be entitled to vote the Appraisal Shares subject to such
demand for any purpose or to receive payment of dividends or other distributions
on those Appraisal Shares (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
Second Step Merger).
If any stockholder who properly demands appraisal of his Appraisal Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his right
to appraisal, as provided in the DGCL, the Appraisal Shares of such stockholder
will be converted into the right to receive the consideration receivable with
respect to such Appraisal Shares pursuant to the Second Step Merger. A
stockholder will fail to perfect, or effectively lose or withdraw, his right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the consummation of the Second Step Merger, or if the stockholder
delivers to the Purchaser a written withdrawal of his demand for appraisal. Any
such attempt to withdraw an appraisal demand more than 60 days after the
consummation of the Second Step Merger will require the written approval of the
Purchaser.
THE TENDER OFFER
TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for any and all Shares validly tendered prior to
the Expiration Date and not theretofore withdrawn in accordance with the
provisions set forth under "-- Withdrawal Rights" below. The term "Expiration
Date" means 12:00 Midnight, New York City time, on Wednesday, September 11,
1996, unless and until the Purchaser shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
Subject to the applicable rules and regulations of the Commission, the
Purchaser expressly reserves the right, in its sole discretion, at any time and
from time to time, and regardless of whether or not any of the events set forth
in "-- Certain Conditions of the Offer" below shall have occurred or shall have
been determined by the Purchaser to have occurred, to (a) extend the period of
time during which the Offer is open, and thereby delay acceptance for payment
of, and payment for, any Shares, by giving oral or written notice of such
extension to the Depositary and (b) amend the Offer in any other respect by
giving oral or written notice of such amendment to the Depositary. UNDER NO
CIRCUMSTANCES WILL ANY INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED SHARES,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
If by 12:00 Midnight, New York City time, on Wednesday, September 11, 1996
(or at any date or time then set as the Expiration Date), any or all conditions
to the Offer have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the applicable rules and regulations of
the Commission, to (a) terminate the Offer and not accept for payment any Shares
and return all tendered Shares to tendering stockholders, (b) waive all the
unsatisfied conditions and, subject to complying with the applicable rules and
regulations of the Commission, accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not theretofore withdrawn, (c) extend
the Offer and, subject to the right of stockholders to withdraw Shares until the
Expiration Date, retain the Shares that have been tendered during the period or
periods for which the Offer is extended or (d) amend the Offer. The rights
reserved by the Purchaser in this paragraph are in addition to the Purchaser's
right to terminate the Offer set forth under "-- Certain Conditions of the
Offer" below.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any extension, waiver, amendment or termination will be
followed as promptly as practicable by public announcement. In the case of an
extension, Rule 14e-1(d) under the Exchange Act requires that the announcement
be issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require
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that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser is delayed in its
acceptance for payment of or payment for Shares (whether before or after its
acceptance for payment of Shares) or it is unable to pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described under "-- Withdrawal
Rights" below. However, the ability of the Purchaser to delay the payment for
Shares that the Purchaser has accepted for payment is limited by Rule 14e-1(c)
under the Exchange Act, which requires that a bidder pay the consideration
offered or return the securities deposited by or on behalf of holders of
securities promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in the percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. With
respect to a change in price or a change in the percentage of securities sought,
a minimum period of 10 business days is generally required to allow for adequate
dissemination to stockholders.
This Offer to Purchase and related Letter of Transmittal and other relevant
materials are being mailed by Purchaser to record holders of Shares, and will be
furnished to brokers, dealers, banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the stockholder lists, or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
PROCEDURE FOR TENDERING SHARES
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (a) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantee (or, in
the case of a book-entry transfer, an Agent's Message (as defined below)) and
any other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either certificates for tendered Shares must be received by
the Depositary at one of such addresses or such Shares must be delivered
pursuant to the procedure for book-entry transfer set forth below (and a
Book-Entry Confirmation (as defined below) received by the Depositary), in each
case prior to the Expiration Date, or (b) the tendering stockholder must comply
with the guaranteed delivery procedure set forth below.
The Depositary will establish accounts with respect to the Shares at The
Depository Trust Company, Midwest Securities Trust Company and Philadelphia
Depository Trust Company (the "Book-Entry Transfer Facilities") for purposes of
the Offer within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with such Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message, and any other required documents, must, in any case, be transmitted to,
and received by, the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date, or the tendering
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stockholder must comply with the guaranteed delivery procedure described below.
The confirmation of a book-entry transfer of Shares into the Depositary's
account at a Book-Entry Transfer Facility as described above is referred to
herein as a "Book-Entry Confirmation". DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgement from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (a) the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this section, includes any participant in
any of the Book-Entry Transfer Facilities' systems whose name appears on a
security position listing as the owner of the Shares) of the Shares tendered
therewith and such registered holder(s) has not completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (b) such Shares are tendered for
the account of a financial institution (including most commercial banks, savings
and loan associations and brokerage houses) that is a participant in the
Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(an "Eligible Institution"). In all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution. See Instructions 1
and 5 to the Letter of Transmittal. If the certificates for Shares are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for Shares not tendered
or not accepted for payment are to be returned to a person other than the
registered holder of the certificates surrendered, the tendered certificates
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name or names of the registered holders or owners appear
on the certificates, with the signatures on the certificates or stock powers
guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser is received
by the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an Agent's Message, and any other documents
required by the Letter of Transmittal are received by the Depositary within
three trading days after the date of execution of such Notice of Guaranteed
Delivery. A "trading day" is any day on which the Nasdaq National Market is
open for business.
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The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by facsimile transmission or mailed to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of book-entry transfer, an Agent's
Message, and (c) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations with respect to
such Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL
ANY INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED SHARES, REGARDLESS OF ANY
EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
the Purchaser upon the terms and subject to the conditions of the Offer.
Appointment. By executing a Letter of Transmittal as set forth above, the
tendering stockholder will irrevocably appoint designees of the Purchaser as
such stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full extent
of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser and with respect to any
and all other Shares or other securities or rights issued or issuable in respect
of such Shares on or after August 8, 1996. All such proxies shall be considered
coupled with an interest in the tendered Shares. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts for payment
Shares tendered by such stockholder as provided herein. Upon such appointment,
all prior powers of attorney and proxies given by such stockholder with respect
to such Shares or other securities or rights will, without further action, be
revoked and no subsequent powers of attorney and proxies may be given (and, if
given, will be deemed not effective). The designees of the Purchaser will
thereby be empowered to exercise all voting and other rights with respect to
such Shares or other securities or rights in respect of any annual, special or
adjourned meeting of the Company's stockholders, actions by written consent in
lieu of any such meeting or otherwise, as they in their sole discretion deem
proper. The Purchaser reserves the right to require that, in order for Shares to
be deemed validly tendered, immediately upon the Purchaser's acceptance for
payment of such Shares, the Purchaser must be able to exercise full voting,
consent and other rights with respect to such Shares and other securities or
rights, including voting at any meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Purchaser in its sole discretion, which determination
will be final and binding. The Purchaser reserves the absolute right to reject
any or all tenders determined by it not to be in proper form or the acceptance
for payment of or payment for which may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any defect or irregularity in any tender of Shares of any particular
stockholder, whether or not similar defects or irregularities are waived in the
case of other stockholders. No tender of Shares will be deemed to have been
validly made until all defects or irregularities relating thereto have been
cured or waived. None of the Purchaser, the Depositary, the Information Agent,
the Dealer Manager or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Backup Withholding. In order to avoid "backup withholding" of Federal
income tax on payments of cash pursuant to the Offer (or pursuant to the Second
Step Merger, if consummated), a stockholder surrendering Shares in the Offer (or
pursuant to the Second Step Merger, if consummated) must, unless an exemption
applies, provide the Depositary with such stockholder's correct taxpayer
identification number ("TIN") on a Substitute Form W-9 and certify under
penalties of perjury that such TIN is correct and that
22
<PAGE> 25
such stockholder is not subject to backup withholding. If a stockholder does not
provide its correct TIN or fails to provide the certifications described above,
the Internal Revenue Service ("IRS") may impose a penalty on such stockholder
and payment of cash to such stockholder pursuant to the Offer (or pursuant to
the Second Step Merger, if consummated) may be subject to backup withholding at
a rate of 31%. All stockholders surrendering Shares pursuant to the Offer (or
pursuant to the Second Step Merger, if consummated) should complete and sign the
Substitute Form W-9 included as part of the Letter of Transmittal to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to the
Purchaser and the Depositary). Certain stockholders (including, among others,
all corporations and certain foreign individuals and entities) are not subject
to backup withholding. Noncorporate foreign stockholders should complete and
sign a Form W-8, Certificate of Foreign Status, a copy of which may be obtained
from the Depositary, in order to avoid backup withholding. See Instruction 9 to
the Letter of Transmittal. For other Federal income tax consequences, see
"Special Factors -- Certain Federal Income Tax Consequences".
WITHDRAWAL RIGHTS
Except as otherwise provided below, tenders of Shares will be irrevocable.
Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedures set forth below at any time prior to the Expiration Date and, unless
theretofore accepted for payment and paid for by the Purchaser pursuant to the
Offer, may also be withdrawn at any time after Friday, October 11, 1996.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must specify
the name of the person having tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and the name of the registered holder of the Shares to be
withdrawn, if different from the name of the person who tendered the Shares. If
certificates for Shares have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such certificates, the serial
numbers shown on such certificates must be submitted to the Depositary and,
unless such Shares have been tendered by an Eligible Institution, the signatures
on the notice of withdrawal must be guaranteed by an Eligible Institution. If
Shares have been delivered pursuant to the procedures for book-entry transfer as
set forth under "-- Procedure for Tendering Shares" above, any notice of
withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for any purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described under "-- Procedure for Tendering Shares" above at any time
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, the Depositary, the Information Agent, the Dealer Manager, or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for all Shares
validly tendered prior to the Expiration Date, and not properly withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights" above,
promptly after the Expiration Date. Any determination concerning the
satisfaction of such terms and conditions will be within the sole discretion of
the Purchaser and such determination will be final and binding on all tendering
stockholders. See "-- Terms of the Offer" above and "-- Certain Conditions of
the Offer" below. The Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of or payment for Shares in order to
comply in whole or in part with any applicable law. Any such delays will be
effected in compliance with Rule 14e-1(c) under the
23
<PAGE> 26
Exchange Act, which requires that a bidder pay the consideration offered or
return tendered Shares promptly after the termination or withdrawal of the
Offer.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of book-entry transfer, an Agent's
Message, and (c) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations are actually
received by the Depositary. The per Share consideration paid to any stockholder
pursuant to the Offer will be the highest per Share consideration paid to any
other stockholder pursuant to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares properly tendered to the Purchaser
and not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares. Payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the Offer Price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL
ANY INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED SHARES, REGARDLESS OF ANY
EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act,
which requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after termination or withdrawal of a tender offer),
the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered
Shares, and any such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to exercise, and duly exercise, withdrawal rights as
described under "-- Withdrawal Rights" above.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, certificates for any such Shares will be returned, at the expense of the
Purchaser, to the tendering stockholder (or, in the case of Shares delivered by
book-entry transfer of such Shares into the Depositary's account at a Book-Entry
Transfer Facility pursuant to the procedure set forth under "-- Procedure for
Tendering Shares" above, such Shares will be credited to an account maintained
at the appropriate Book-Entry Transfer Facility), as promptly as practicable
after the expiration or termination of the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, the right to purchase Shares tendered pursuant to the
Offer, but any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer and will in no way prejudice the rights of tendering
stockholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
24
<PAGE> 27
PRICE RANGE OF THE SHARES; DIVIDENDS
The Shares are included in the Nasdaq National Market and are traded under
the symbol ROTO. The range of the high and low market prices for the Shares and
dividends paid per Share for each quarter of 1994 and of 1995 and for the first
three quarters of 1996 is set forth below.
<TABLE>
<CAPTION>
DIVIDEND PAID
HIGH LOW PER SHARE
----- ----- -------------
<S> <C> <C> <C>
1994
First Quarter...................................... $32 $28 $0.14
Second Quarter..................................... 32 24 0.14
Third Quarter...................................... 26 1/2 22 1/2 0.15
Fourth Quarter..................................... 25 3/4 19 1/2 0.15
1995
First Quarter...................................... $28 $19 1/2 $0.15
Second Quarter..................................... 28 1/2 24 1/2 0.15
Third Quarter...................................... 37 28 0.17
Fourth Quarter..................................... 37 3/4 30 1/2 0.17
1996
First Quarter...................................... $33 3/4 $30 $0.17
Second Quarter..................................... 41 1/2 30 3/4 0.17
Third Quarter through August 12, 1996.............. 42 33 1/2 0.00
</TABLE>
On August 7, 1996, the last full trading day before the first public
announcement of the Offer, the last reported sale price of the Shares on the
Nasdaq National Market was $36.50 per Share. The last reported bid price for the
Shares on August 7, 1996 was $34.00 per Share. The Purchaser expects the
Roto-Rooter Board to declare a dividend of $0.20 per Share to be paid in
September 1996 to holders of Shares on the Record Date.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
CERTAIN EFFECTS OF THE OFFER
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public.
Stock Quotation. Depending upon the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the requirements of the NASD for
continued inclusion in the Nasdaq National Market, which among other things
requires that an issuer have at least 200,000 publicly held shares, held by at
least 400 stockholders or 300 stockholders of round lots, with a market value of
at least $1,000,000. If these standards are not met, the Shares might
nevertheless continue to be included in the Nasdaq National Market with
quotations published in the Nasdaq "additional list" or in one of the "local
lists", but if the number of holders of the Shares were to fall below 300, or if
the number of publicly held Shares were to fall below 100,000 or there were not
at least two registered and active market makers for the Shares, the NASD's
rules provide that the Shares would no longer be "qualified" for Nasdaq National
Market reporting and the Nasdaq National Market would cease to provide any
quotations. Shares held directly or indirectly by directors, officers or
beneficial owners of more than 10% of the Shares are not considered as being
publicly held for this purpose. According to the Company's June 30 Form 10-Q,
there were 5,172,963 Shares issued and outstanding as of August 13, 1996. If, as
a result of the purchase of Shares pursuant to the Offer or otherwise, the
Shares no longer meet the requirements of the NASD for continued inclusion in
the Nasdaq National Market or in any other tier of the Nasdaq National Market
and the Shares are no longer included in the Nasdaq Stock Market or in any other
tier of the Nasdaq Stock Market, as the case may be, the market for Shares could
be adversely affected.
25
<PAGE> 28
In the event that the Shares no longer meet the requirements of the NASD
for continued inclusion in any tier of the Nasdaq Stock Market, it is possible
that the Shares would continue to trade in the over-the-counter market and that
price quotations would be reported by other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend upon the number of holders of Shares remaining at such time, the
interests in maintaining a market in Shares on the part of securities firms, the
possible termination of registration of the Shares under the Exchange Act, as
described below, and other factors.
Exchange Act Registration. The Shares are currently registered under
Section 12(g) of the Exchange Act. Registration of the Shares under the Exchange
Act may be terminated upon application of the Company to the Commission if the
Shares are not listed on a national securities exchange, quoted on an automated
inter-dealer quotation system or held by 300 or more holders of record.
Termination of registration of the Shares under the Exchange Act would
substantially reduce the information required to be furnished by the Company to
its stockholders and to the Commission and would make certain provisions of the
Exchange Act no longer applicable to the Company, such as the short-swing profit
recovery provisions of Section 16(b) of the Exchange Act, the requirement of
furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in
connection with stockholders' meetings and the related requirement of furnishing
an annual report to stockholders and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144 or
144A promulgated under the Securities Act of 1933, may be impaired or
eliminated.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding listing and market quotations, it is
possible that, following the Offer, the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans made
by brokers. In any event, the Shares will cease to be "margin securities" if
registration of the Shares under the Exchange Act is terminated.
Unless the Second Step Merger is consummated, the Purchaser currently does
not intend to propose or seek to have the Shares delisted from the Nasdaq
National Market or to terminate the registration of the Shares under the
Exchange Act. However, delisting of the Shares may still occur at the
instigation of the NASD due to the reduced number of Shares or holders thereof
then outstanding. See "Special Factors -- Purpose and Structure of the Offer;
Plans for the Company After the Offer" above.
Increased Interest in Net Book Value and Net Earnings of the Company. In
the event that the Offer is consummated, the interest of the Purchaser in the
net book value and net earnings of the Company, in terms of both percentages and
dollar amounts, will increase in direct proportion to the increase in the
percentage of outstanding Shares owned by the Purchaser resulting from the Share
acquisitions pursuant to the Offer. If all of the outstanding Shares are
purchased pursuant to the Offer, the Purchaser's beneficial interest in the net
book value at June 30, 1996 and net earnings of the Company for the six months
ended June 30, 1996, as reflected in the Company's June 30 Form 10-Q would
increase to 100%, or $79,106,000 and $5,344,000, respectively.
Tax Sharing Agreement. In the event the Offer is consummated and the
Purchaser owns 80% or more (but less than 100%) of the outstanding Shares, the
Purchaser intends to enter into a Federal income tax sharing agreement with the
Company and the Company's subsidiaries on customary terms. Such agreement is
expected to provide for the filing of consolidated Federal income tax returns
and would require the Company and its subsidiaries to make payments to the
Purchaser in amounts equal to their tax liabilities computed on a separate
basis. If the Company and its subsidiaries generate losses or credits which
actually reduce the Purchaser's consolidated Federal income tax liability or
which would have resulted in a refund on a separate company basis during the
period the Company and its subsidiaries are members of the affiliated group,
such agreement would generally require the Purchaser to pay to the Company and
its subsidiaries the amount of
26
<PAGE> 29
such reduction or refund. Such agreements would also address the timing of such
payments, the resolution of tax disputes and other similar matters.
CERTAIN INFORMATION CONCERNING THE COMPANY
The Company was incorporated in Delaware on September 28, 1983 as a wholly
owned subsidiary of the Purchaser, and on August 31, 1984, succeeded to the
business of the Purchaser's Roto-Rooter Group, the substantial portion of which
business the Purchaser acquired in 1980. In September 1984, the Company sold in
a private placement 719,991 Shares, and in June 1985, the Purchaser sold in a
public offering 1,100,000 Shares. As of the date hereof, the Purchaser owned
2,990,333 Shares, which Shares represent approximately 58% of the outstanding
Shares.
The Company conducts its business in one business segment. All significant
revenues relate to providing repair and maintenance services to residential,
commercial, industrial and municipal customers through both company-owned and
franchised operations.
The Company is the largest provider of sewer and drain cleaning services in
the United States. The Company provides sewer and drain cleaning and plumbing
repair and maintenance services through company-owned operations and franchised
operations located in all 50 states, Canada and Japan. The Company also
manufactures and purchases for resale sewer and drain cleaning equipment, cable,
and other products and accessories for its company-owned operations and for sale
to its independent franchisees. The Company is one of the oldest franchising
businesses in the United States, having established its first franchise in 1936.
In August 1991, the Company and the Purchaser, respectively, purchased 70% and
30% of Service America. See "Special Factors -- Interests of Certain Persons;
Stockholdings of Certain Officers and Directors; and Related Transactions". As a
percent of total operating revenue, sewer and drain cleaning repair and
maintenance services represent 32%, plumbing repair and maintenance services
represent 24%, air conditioning and appliance repair and maintenance services
represent 32%, and all other classes represent 12%.
The Company's principal offices are located at 2500 Chemed Center, 255 E.
Fifth Street, Cincinnati, Ohio 45202.
Set forth below is a summary of certain selected financial information with
respect to the Company for the six months ended June 30, 1996 and June 30, 1995,
and for the years ended December 31, 1995 and 1994. The June 30, 1996
information was excerpted from the Company's June 30 Form 10-Q. The June 30,
1995 information was excerpted from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and the December 31, 1995 and 1994
information was excerpted from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "Company's 1995 Form 10-K"). More
comprehensive financial information is included in the Company's June 30 Form
10-Q, the Company's 1995 Form 10-K and such other financial information
(including any related notes) contained therein. The Company's June 30 Form 10-Q
and the Company's 1995 Form 10-K may be inspected and copies may be obtained in
the manner set forth below.
27
<PAGE> 30
ROTO-ROOTER, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------- ---------------------
1996 1995 1995 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Income Statement Data:
Sales and Operating Revenues.......... $ 97,821 $ 86,998 $179,772 $171,930
Net Income............................ 5,344 4,476 9,677(a) 8,771
Earnings Per Share.................... $ 1.04 $ 0.88 $ 1.90(a) $ 1.73
Balance Sheet Data:
Total Assets.......................... $ 154,083 $ 143,489 $149,869 $137,383
Total Liabilities..................... 74,977 72,321 74,883 69,636
Stockholders' Equity.................. 79,106 71,168 74,986 67,747
</TABLE>
- ---------------
(a) Excludes nonrecurring expense of $538,000 pretax ($355,000 after tax or $.07
per Share) of legal, investment banking and other expenses relating to the
Purchaser's attempted acquisition of the outstanding Shares in 1995.
The book value per Share as of June 30, 1996 was $15.29 and as of December
31, 1995 was $14.60.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS:
CERTAIN MATTERS DISCUSSED HEREIN ARE FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. Forward-looking statements include the
information set forth above under "Special Factors -- Opinion of Financial
Advisor" concerning the Roto-Rooter Projections and the information set forth
below concerning the Company's 1996 Mid-Year Estimate (the "MYE") and the
Company's 1996 Business Plan (the "1996 Business Plan"). To that extent, the
Purchaser claims the protection of the disclosure liability safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Such information has been included in this Offer to Purchase for
the limited purpose of giving Roto-Rooter stockholders access to financial
projections on Roto-Rooter that were made available to Chemed directors. Such
information was prepared by Roto-Rooter management for internal use and not with
a view to publication. Readers are cautioned that the following factors may
cause the Company's actual financial performance to differ materially from those
expressed in such forward-looking statements: a deterioration in general
economic conditions, which may result in reduced demand for the Company's
services; unexpected increases in operating expenses; an increase in
competition, which may result in reduced revenue or increased promotional
expenses; the Company's need to improve its relationships with its franchisees;
and the general interest rate environment, because the Company is expected to
realize significant interest income from its holdings of cash and
interest-bearing securities.
The MYE for 1996 and comparison of such estimate with the Company's 1995
performance and 1996 budget was prepared for and provided to members of the
Roto-Rooter Board at its August 7, 1996 meeting.
28
<PAGE> 31
ROTO-ROOTER, INC.
1996 MID-YEAR ESTIMATE
FINANCIAL SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1996
(ACTUAL) (BUDGET) (MYE)
-------- -------- ---------
<S> <C> <C> <C>
(1) Net Sales...................................... $179,722 $199,181 $ 202,685
(2) Operating Profit............................... 18,851(a) 21,974 21,888
(3) Pretax Profit.................................. 17,375(a) 20,691 20,757
(4) Net Income..................................... 10,032(a) 11,620 11,862
-------- -------- --------
(5) Earnings Per Share............................. 1.97(a) 2.27 2.30
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
MARGINS
-----------------------------------
<S> <C> <C> <C>
(6) Operating Profit............................... 10.5% 11.0% 10.8%
(7) Pretax Profit.................................. 9.7 10.4 10.2
(8) Net Income..................................... 5.6 5.8 5.9
</TABLE>
- ---------------
(a) Excludes nonrecurring expenses of $538,000 pretax ($355,000 after tax and
seven cents per share) related to the Purchaser's attempted acquisition of
the outstanding Shares in 1995.
The MYE contained the following commentary regarding the estimates:
(1) The Company is projecting 1996 net sales of $202,685,000 or 12.5%
above 1995 net sales.
(2) Operating profit in 1996 is projected by the Company's management
to increase to $21,888,000, which would be $3,037,000 or 16.1% above full
year 1995 and $86,000 or 0.4% below budget. The operating profit margin for
1996 is expected by the Company's management to reach 10.8%, or 0.3
percentage points above prior year and 0.2 percentage points below budget.
(3) As a result of higher interest income, pretax profit is expected
by the Company's management to reach $20,757,000 in 1996, which would be
19.5% above full year 1995 and 0.3% above budget. Net income for 1996 is
expected by the Company's management to be $11,862,000 or 18.2% above prior
year and 2.1% above budget. Earnings per share are expected by the
Company's management to reach $2.30 for 1996 or 16.8% above prior year and
1.3% above budget.
(4) According to the Company's management, the key issues for
achieving the full year 1996 forecast are continued sewer/drain cleaning
and plumbing revenue growth, higher levels of new service contract sales
and renewal rates of existing contracts, a successful resolution of
outstanding issues related to the lawsuit with the Roto-Rooter Franchise
Association (which lawsuit is described on pages 4 and 5 of the Company's
1995 Form 10-K), continued cost control in all business units and continued
generation of excess cash from operations.
The following information was excerpted or derived from the 1996 Business
Plan. The 1996 Business Plan was prepared for and presented to members of the
Roto-Rooter Board in December 1995. The 1996 Business Plan has not been updated
by the Company since that time and therefore the information set forth below may
no longer reflect the Company's financial position or prospects and has been
included herein solely for informational purposes.
29
<PAGE> 32
ROTO-ROOTER, INC.
1996 BUSINESS PLAN
FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999 2000
(FORECAST) (FORECAST) (FORECAST) (FORECAST)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(1) Net Sales......................................... $ 221,416 $ 247,763 $ 277,690 $ 311,616
(2) Operating Profits................................. 24,958 27,898 30,982 34,329
(3) Pretax Profit..................................... 24,260 28,075 32,651 37,933
(4) Net Income........................................ 13,507 15,723 18,394 21,495
(5) Earnings Per Share................................ 2.62 3.03 3.53 4.10
</TABLE>
<TABLE>
<CAPTION>
MARGINS
-------------------------------------------------
<S> <C> <C> <C> <C>
(6) Operating Profit.................................. 11.0% 11.3% 11.3% 11.2%
(7) Pretax Profit..................................... 10.4 11.0 11.3 11.8
(8) Net Income........................................ 5.8 6.1 6.3 6.6
</TABLE>
The Company is subject to the information reporting requirements of the
Exchange Act and, in accordance therewith, is required to file reports relating
to its business, financial condition and other matters. Information as of
particular dates concerning the Company's directors and officers, their
remuneration, stock options and other matters, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company is required to be disclosed in proxy statements distributed to
the Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information at the public reference facilities are
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and should also be available for inspection and copying at the regional offices
of the Commission located in Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60601 and 7 World Trade Center, 13th Floor, New
York, NY 10048. Copies of such material may also be obtained from the Public
Reference Room of the Commission in Washington, D.C. at prescribed rates. Such
material should also be available for inspection at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, DC 20006.
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a Delaware corporation that was incorporated on March 26,
1970. Its principal executive offices are located at 2600 Chemed Center, 255 E.
Fifth Street, Cincinnati, OH 45202. The Purchaser is a diversified public
corporation with strategic positions in sanitary-maintenance-product
distribution services (National Sanitary Supply); plumbing, drain cleaning, and
residential appliance and air-conditioning repair (Roto-Rooter); medical and
dental disposable-product supply for the alternate-care and hospital markets
(Omnia); and home healthcare services (Patient Care). Relative contributions to
operating profit are 31%, 41%, 15% and 13%, respectively. The Purchaser's
business segments are defined as follows:
(a) the National Sanitary Supply segment includes the consolidated
operations of National Sanitary Supply Company, an 84%-owned subsidiary,
which sells and distributes sanitary maintenance and paper supplies
including cleaners, floor finishes, hand soaps, paper towels and tissues,
cleaning equipment, packaging supplies, business paper and general
maintenance products used by commercial, institutional and industrial
businesses;
(b) the Roto-Rooter segment includes the consolidated operations of
the Company, which provides repair and maintenance services to residential
and commercial accounts. Such services include sewer, drain and pipe
cleaning, plumbing services and appliance repair and maintenance and are
delivered through company-owned and franchised locations. The Company also
manufactures and sells certain products and equipment used to provide such
services;
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<PAGE> 33
(c) the Omnia segment (formerly Veratex) includes the combined
operations of the 100%-owned businesses comprising the Purchaser's Omnia
Group, which manufactures medical and dental supplies and distributes them
to dealers throughout the United States. Products include disposable paper,
cotton and gauze proprietary products and various other dental and medical
supplies; and
(d) the Patient Care segment includes the consolidated operations of
the 100%-owned businesses comprising the Purchaser's Patient Care Group,
which offers complete, professional home-healthcare services in the New
York-New Jersey-Connecticut area. Services provided to patients at home
include skilled nursing; home health aides; physical, speech, respiratory
and occupational therapies; medical social work, nutrition; and other
specialized services.
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of the Purchaser is set forth in Schedule I hereto and
incorporated herein by reference.
During the last five years, neither the Purchaser nor, to the Purchaser's
knowledge, any person named in Schedule I hereto has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) nor
has been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, Federal or state securities laws or finding
any violation of such laws.
Set forth below is a summary of certain selected financial information with
respect to the Purchaser for the six months ended June 30, 1996 and June 30,
1995, and for the years ended December 31, 1995 and 1994. The June 30, 1996
information was excerpted from the Purchaser's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996 (the "Purchaser's June 30 Form 10-Q"), the June
30, 1995 information was excerpted from the Purchaser's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, and the December 31, 1995 and 1994
information was excerpted from the Purchaser's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (the "Purchaser's 1995 Form 10-K"). More
comprehensive financial information is included in the Purchaser's June 30 Form
10-Q, the Purchaser's 1995 Form 10-K and such other financial information
(including any related notes) contained therein. The Purchaser's June 30 Form
10-Q and the Purchaser's 1995 Form 10-K can be inspected and copies may be
obtained in the manner set forth below.
CHEMED CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------- ----------------------
1996 1995 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income Statement Data:
Sales and Service Revenues............ $ 337,932 $ 347,202 $ 699,165 $ 645,027
Income From Continuing
Operations....................... 17,885 10,690 20,439 14,532
Income From Discontinued
Operations....................... -- 901 2,743 29,390
Net Income......................... 17,885 11,591 23,182 43,922
Earnings Per Share
Income from Continuing
Operations.................. $ 1.82 $ 1.08 $ 2.07 $ 1.47
Net Income.................... $ 1.82 $ 1.17 $ 2.35 $ 4.46
Balance Sheet Data:
Total Assets.......................... $ 519,908 $ 512,573 $ 531,868 $ 505,483
Total Liabilities..................... 308,655 318,648 323,211 319,163
Stockholders' Equity.................. 211,253 193,925 208,657 186,320
</TABLE>
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<PAGE> 34
The Purchaser is subject to the information reporting requirements of the
Exchange Act and, in accordance therewith, is required to file reports relating
to its business, financial condition and other matters. Information as of
particular dates concerning the Purchaser's directors and officers, their
renumeration, stock options and other matters, the principal holders of the
Purchaser's securities and any material interest of such persons in transactions
with the Purchaser is disclosed in proxy statements distributed to the
Purchaser's stockholders and filed with the Commission. Such reports, proxy
statements and other information may be examined, and copies may be obtained
from the Commission, in the manner set forth under "-- Certain Information
Concerning the Company" above. Such information should also be available for
inspection at the New York Stock Exchange, 20 Broad Street, New York, NY 10005.
SOURCE AND AMOUNT OF FUNDS
The Purchaser estimates that the total amount of funds required to (a)
purchase pursuant to the Offer the number of Shares that are outstanding on a
fully diluted basis (excluding Shares held by the Purchaser) and (b) pay fees
and expenses related to the Offer will be approximately $91,048,562. All funds
needed for the Offer will be obtained either from the Purchaser's cash on hand
or from borrowings under the Purchaser's $85,000,000 revolving credit facility
with Bank of America National Trust and Savings Association, as agent, along
with certain participating other banks, which was entered into on June 20, 1996
and replaced the Purchaser's then outstanding credit facilities (the "Credit
Facility").
The Credit Facility allows borrowings of up to $85,000,000, with an
interest rate based on quoted market rates plus a margin and continues in place
up to June 20, 2001. The Purchaser is currently borrowing $25,000,000 under the
Credit Facility at an interest rate of 5.6975%. Borrowings under the Credit
Facility are subject to maintaining certain financial covenants. The Purchaser
is currently in compliance with such covenants. The Credit Facility contains a
negative pledge pursuant to which the Purchaser has agreed not to create, incur,
assume or permit to exist certain liens on its assets, including the 2,990,333
Shares that it owns. The Purchaser plans to repay borrowings under the Credit
Facility with cash flows from its operations.
DIVIDENDS AND DISTRIBUTIONS
As discussed in "Introduction", the Purchaser expects the Roto-Rooter Board
to declare the Third Quarter Dividend. Holders of record of the Shares on the
Record Date will be entitled to receive the Third Quarter Dividend whether or
not they tender their Shares pursuant to the Offer, and no adjustment will be
made to the Offer Price or to any other terms of the Offer as a result of the
payment of such Third Quarter Dividend to such stockholders.
If, on or after August 8, 1996, the Company should (a) split, combine or
otherwise change the Shares or its capitalization, (b) acquire or otherwise
cause a reduction in the number of outstanding Shares or other securities or (c)
issue or sell additional Shares, shares of any other class of capital stock,
other voting securities or any securities convertible into or exchangeable for,
or rights, warrants or options, conditional or otherwise, to acquire, any of the
foregoing, then subject to the provisions set forth in "-- Certain Conditions to
the Offer" below, the Purchaser, in its sole discretion, may make such
adjustments as it deems appropriate in the Offer Price and other terms of the
Offer, including, without limitation, the number or type of securities offered
to be purchased.
If, on or after August 8, 1996, the Company should declare or pay any cash
dividend on the Shares or other distribution on the Shares (other than the Third
Quarter Dividend), or issue with respect to the Shares any additional Shares,
shares of any other class of capital stock, other voting securities or any
securities convertible into, or rights, warrants or options, conditional or
otherwise, to acquire, any of the foregoing, payable or distributable to
stockholders of record on a date prior to the transfer of the Shares purchased
pursuant to the Offer to the Purchaser or its nominee or transferee on the
Company's stock transfer records, then, subject to the provisions set forth in
"-- Certain Conditions to the Offer" below, (a) the Offer Price may, in the sole
discretion of the Purchaser, be reduced by the amount of any such cash dividend
or cash distribution and (b) the whole of any such noncash dividend,
distribution or issuance to be received by the tendering stockholders will (i)
be received and held by the tendering stockholders for the account of the
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<PAGE> 35
Purchaser and will be required to be promptly remitted and transferred by each
tendering stockholder to the Depositary for the account of the Purchaser,
accompanied by appropriate documentation of transfer, or (ii) at the direction
of the Purchaser, be exercised for the benefit of the Purchaser, in which case
the proceeds of such exercise will promptly be remitted to the Purchaser.
Pending such remittance and subject to applicable law, the Purchaser will be
entitled to all rights and privileges as owner of any such noncash dividend,
distribution, issuance or proceeds and may withhold the entire Offer Price or
deduct from the Offer Price the amount of value thereof, as determined by the
Purchaser in its sole discretion.
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term or provision of the Offer, the Purchaser
will not be required to accept for payment or, subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) under the Exchange
Act (relating to the Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for and may delay
the acceptance for payment of or, subject to the restriction referred to above,
the payment for any tendered Shares and may terminate the Offer as to any Shares
not then paid for, if at any time on or after August 8, 1996 and prior to the
time of acceptance for payment of or payment for any such Shares, any of the
following conditions exist:
(a) there shall be threatened, instituted or pending any action,
proceeding, application or counterclaim by any government or governmental,
regulatory or administrative authority or agency, domestic, foreign or
supranational (each, a "Government Entity"), or by any other person,
domestic or foreign, before any court or Governmental Entity, (i)
challenging or seeking to, or which is reasonably likely to, make illegal,
delay or otherwise directly or indirectly restrain or prohibit, or seeking
to, or which is reasonably likely to, impose voting, procedural, price or
other requirements, in connection with, the making of the Offer, the
acceptance for payment of, or payment for, some of or all the Shares by the
Purchaser or any affiliate of the Purchaser, (ii) seeking to prohibit or
limit the ownership or operation by the Purchaser or any affiliate of the
Purchaser of any portion of the business or assets of the Company and its
subsidiaries or of the Purchaser or any affiliate of the Purchaser or to
compel the Purchaser or any affiliate of the Purchaser to dispose of or
hold separate all or any portion of the business or assets of the Company
or any of its subsidiaries or of the Purchaser or any affiliate of the
Purchaser or seeking to impose any limitation on the ability of the
Purchaser or any affiliate of the Purchaser to conduct such business or own
such assets, (iii) seeking to impose or confirm limitations on the ability
of the Purchaser or any affiliate of the Purchaser effectively to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote any Shares acquired or owned by the Purchaser or any
affiliate of the Purchaser on all matters properly presented to the
Company's stockholders, (iv) seeking to require divestiture by the
Purchaser or any affiliate of the Purchaser of any Shares, (v) seeking any
material diminution in the benefits expected to be derived by the Purchaser
or any affiliate of the Purchaser as a result of the transactions
contemplated by the Offer, (vi) otherwise directly or indirectly relating
to the Offer or which otherwise, in the reasonable judgment of the
Purchaser, might materially adversely affect the Company or any of its
subsidiaries or the Purchaser or any affiliate of the Purchaser or the
value of the Shares or (vii) in the reasonable judgment of the Purchaser,
materially adversely affecting the business, properties, assets,
liabilities, capitalization, stockholders' equity, condition (financial or
otherwise), operations, licenses or franchises, results of operations or
prospects of the Company or any of its subsidiaries;
(b) there shall be any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
proposed, enacted, enforced, promulgated, amended, issued or deemed
applicable to (i) the Purchaser or any affiliate of the Purchaser or the
Company or any of its subsidiaries or (ii) the Offer or any merger or other
similar business combination by the Purchaser or any affiliate of the
Purchaser with the Company, by any government, legislative body or court,
domestic, foreign or supranational, or Governmental Entity, that, in the
reasonable judgment of the Purchaser, might, directly or indirectly, result
in any of the consequences referred to in clauses (i) through (vii) of
paragraph (a) above;
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<PAGE> 36
(c) any change shall have occurred or been threatened (or any
condition, event or development shall have occurred or been threatened
involving a prospective change) in the business, properties, assets,
liabilities, capitalization, stockholders' equity, condition (financial or
otherwise), operations, licenses or franchises, results of operations or
prospects of the Company or any of its subsidiaries that, in the reasonable
judgment of the Purchaser, is or may be materially adverse to the Company
or any of its subsidiaries or to the value of the Shares to the Purchaser
or any affiliate of the Purchaser, or the Purchaser shall have become aware
of any facts that, in the reasonable judgment of the Purchaser, have or may
have material adverse significance with respect to either the value of the
Company or any of its subsidiaries or the value of the Shares to the
Purchaser or any affiliate of the Purchaser;
(d) there shall have occurred or been threatened (i) any general
suspension of trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in the
United States, (ii) any extraordinary or material adverse change in the
financial markets or major stock exchange indices in the United States or
abroad or in the market price of Shares, (iii) any change in the general
political, market, economic or financial conditions in the United States or
abroad that could, in the sole judgment of the Purchaser, have a material
adverse effect upon the business, properties, assets, liabilities,
capitalization, stockholders' equity, condition (financial or otherwise),
operations, licenses or franchises, results of operations or prospects of
the Company or any of its subsidiaries or the trading in, or value of, the
Shares, (iv) any material change in United States currency exchange rates
or any other currency exchange rates or a suspension of, or limitation on,
the markets therefor, (v) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (vi) any
limitation (whether or not mandatory) by any government, domestic, foreign
or supranational, or Governmental Entity on, or other event that, in the
reasonable judgment of the Purchaser, might affect, the extension of credit
by banks or other lending institutions, (vii) a commencement of a war or
armed hostilities or other national or international calamity directly or
indirectly involving the United States or (viii) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof; or
(e) any consent or approval required to be obtained from any Federal
or state governmental agency, authority or instrumentality in connection
with the Offer is not obtained, or the Purchaser is advised, or otherwise
has reason to believe, that any such consent or approval will be denied or
substantially delayed, or will not be given other than upon terms or
conditions that would, in the Purchaser's reasonable judgment, make it
impracticable to proceed with the Offer;
which, in the reasonable judgment of the Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by the
Purchaser or any affiliate of the Purchaser) giving rise to any such condition
makes it inadvisable to proceed with the Offer and/or with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to any
such condition or may be waived by the Purchaser in whole or in part at any time
and from time to time in its sole discretion. The failure by the Purchaser at
any time to exercise any of the foregoing rights will not be deemed a waiver of
any such right, and the waiver of any such right with respect to particular
facts and circumstances will not be deemed a waiver with respect to any other
facts and circumstances and each such right will be deemed an ongoing right that
may be asserted at any time and from time to time. Any determination by the
Purchaser concerning the events described above will be final and binding upon
all parties.
CERTAIN LEGAL MATTERS
The Offer constitutes a "Going Private" transaction under Rule 13e-3 under
the Exchange Act. Consequently, the Purchaser has filed with the Commission a
Transaction Statement on Schedule 13E-3, together with exhibits, in addition to
filing with the Commission a Tender Offer Statement on Schedule 14D-1. Pursuant
to Rule 13e-3, this Offer to Purchase contains information relating to, among
other matters, the fairness of the Offer to the Company's stockholders.
34
<PAGE> 37
Based on a review of publicly available filings made by the Company with
the Commission, other publicly available information concerning the Company, the
review of certain information furnished by the Company to the Purchaser and
discussions of representatives of the Purchaser with representatives of the
Company during the Purchaser's investigation of the Company, except as otherwise
described below, the Purchaser is not aware of any license or regulatory permit
that appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the Purchaser's
acquisition of Shares as contemplated herein or of any approval or other action
by any Governmental Entity that would be required for the acquisition or
ownership of Shares by the Purchaser as contemplated herein. Should any such
approval or other action be required, the Purchaser currently contemplates that
such approval or other action will be sought, except as described below under
"State Takeover Laws". While, except as otherwise expressly described in this
section, the Purchaser does not presently intend to delay the acceptance for
payment of or payment for Shares tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that failure to obtain any such approval or other
action might not result in consequences adverse to the Company's business or
that certain parts of the Company's business might not have to be disposed of if
such approvals were not obtained or such other actions were not taken or in
order to obtain any such approval or other action. If certain types of adverse
action are taken with respect to the matters discussed below, the Purchaser
could decline to accept for payment or pay for any Shares tendered. See
"-- Certain Conditions of the Offer" above for certain conditions of the Offer.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states. In
Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS Corp.
v. Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions. Subsequently, a number of Federal courts ruled
that various state takeover statutes were unconstitutional insofar as they apply
to corporations incorporated outside the state of enactment.
Except as described herein, the Purchaser has not attempted to comply with
any state takeover statutes in connection with the Offer. The Purchaser reserves
the right to challenge the validity or applicability of any state law allegedly
applicable to the Offer and nothing in this Offer to Purchase nor any action
taken in connection herewith is intended as a waiver of that right. In the event
that any state takeover statute is found applicable to the Offer, the Purchaser
might be unable to accept for payment or pay for Shares tendered pursuant to the
Offer or be delayed in continuing or consummating the Offer. In such case, the
Purchaser may not be obligated to accept for payment or pay for any Shares
tendered. See "-- Certain Conditions of the Offer" above.
Ohio Statute. Section 1707.041 of the Ohio Revised Code Annotated
(Anderson) ("Section 1707.041") provides, in general that in the event of a
control bid (as defined below) for the securities of a subject company (as
defined below), the offeror must file with The Ohio Division of Securities
certain information concerning the Offer, including a copy of this Offer to
Purchase. The Ohio Division of Securities may by order suspend the continuation
of the Offer if it determines that all of the information required to be
provided to it has not been so provided or that the bid materials provided to
offerees do not provide full disclosure to offerees of all material information
concerning the Offer.
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<PAGE> 38
As used in Section 1707.041:
"control bid" means the purchase of or offer to purchase any equity
security of a subject company from a resident of Ohio if either of the following
applies:
(a) After the purchase of that security, the offeror would be directly
or indirectly the beneficial owner of more than ten percent of any class of
the issued and outstanding equity securities of the issuer.
(b) The offeror is the subject company, there is a pending control bid
by a person other than the issuer, and the number of the issued and
outstanding shares of the subject company would be reduced by more than ten
percent.
"Subject company" means an issuer that satisfies both of the following:
(a) Its principal place of business or its principal executive office
is located in Ohio, or it owns or controls assets located within Ohio that
have a fair market value of at least one million dollars.
(b) More than ten per cent of its beneficial or record equity security
holders are resident in Ohio, more than ten% of its equity securities are
owned beneficially or of record by residents in Ohio, or more than one
thousand of its beneficial or record equity security holders are residents
in Ohio.
In compliance with its obligations under Section 1707.041, the Purchaser
has filed Form 041 with the Ohio Division of Securities, together with certain
exhibits thereto. Offerees who are Ohio residents may obtain copies of Form 041,
together with all exhibits thereto, at no charge, from the State of Ohio,
Division of Securities, 77 South High Street, 22nd Floor, Columbus, Ohio
43266-0548, or alternatively, directly from Purchaser, Chemed Corporation 2600
Chemed Center, 255 East Fifth Street, Cincinnati, Ohio, 45202, Attention:
Secretary.
FEES AND EXPENSES
The Purchaser has retained CS First Boston as its exclusive financial
advisor and as Dealer Manager in connection with the Offer. The Purchaser has
retained D.F. King & Co., Inc. to act as Information Agent and ChaseMellon
Shareholder Securities, L.L.C. to act as Depositary, in connection with the
Offer. The Information Agent may respond to inquiries of the Company's
stockholders and may request brokers, dealers, banks, trust companies and other
nominees to forward the Offer material to beneficial owners, but it will not
solicit tenders of Shares. The Dealer Manager, the Information Agent and the
Depositary will each receive reasonable and customary compensation for their
services, will be reimbursed for certain reasonable out-of-pocket expenses and
will be indemnified against certain liabilities and expenses in connection
therewith, including certain liabilities under the Federal securities laws. See
"Special Factors -- Opinion of Financial Advisor" for a description of the fees
and expenses that the Purchaser has agreed to pay CS First Boston to act as
financial advisor and as Dealer Manager in connection with the Offer.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Dealer Manager and the Information Agent) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
Brokers, dealers, banks and trust companies will be reimbursed by the Purchaser
upon request for customary mailing and handling expenses incurred by them in
forwarding offering materials to their customers.
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<PAGE> 39
Expenses estimated to be incurred by the Purchaser in connection with the
Offer are as follows:
<TABLE>
<S> <C>
Financial Advisor Fees and Expenses.................................... $ 950,000
Depositary............................................................. $ 10,000
Information Agent...................................................... $ 15,000
Legal fees............................................................. $ 500,000
Printing, mailing and distribution expenses............................ $ 50,000
SEC filing fee......................................................... $ 17,732
Miscellaneous fees and expenses........................................ $ 18,000
Total........................................................ $1,560,732
</TABLE>
MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. The Purchaser is not aware of any jurisdiction in which the making
of the Offer or the tender of Shares in connection therewith would not be in
compliance with the laws of such jurisdiction. To the extent the Purchaser
becomes aware of any state law that would limit the class of offerees in the
Offer, the Purchaser will amend the Offer and, depending on the timing of such
amendment, if any, will extend the Offer to provide adequate dissemination of
such information to holders of Shares prior to the expiration of the Offer. In
any jurisdiction the securities, blue sky or other laws of which require the
Offer to made by a licensed broker or dealer, the Offer is being made on behalf
of the Purchaser by the Dealer Manager or one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER
OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1 and a Transaction Statement on Schedule 13E-3, together with
exhibits, pursuant to Rules 14d-1 and 13e-3, respectively, under the Exchange
Act, together with exhibits furnishing certain additional information with
respect to the Offer, and may file amendments thereto. A copy of such documents,
and any amendments thereto, may be examined at, and copies may be obtained from
the Commission (but not the regional offices of the Commission) in the manner
set forth under "-- Certain Information Concerning the Purchaser" above.
Chemed Corporation
August 14, 1996
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The following table sets forth the name, age and present principal
occupation or employment and five-year employment history of the directors and
executive officers of the Purchaser and the number of Shares and options to
acquire Shares beneficially owned, directly or indirectly, by such persons as of
the date hereof. All such directors and executive officers are United States
citizens and, except as set forth below, the principal business address of each
such director and executive officer is the address of the Purchaser, 2600 Chemed
Center, 255 E. Fifth Street, Cincinnati, OH 45202.
<TABLE>
<CAPTION>
ROTO-ROOTER, INC.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT SHARES AND OPTIONS
NAME AND AGE AND FIVE-YEAR EMPLOYMENT HISTORY BENEFICIALLY OWNED
- ----------------------- ------------------------------------------- ---------------------
<S> <C> <C>
EDWARD L. HUTTON Mr. Hutton is Chairman and Chief Executive 45,536 Shares(1)(4)
Age: 77 Officer of the Purchaser and has held these 50,750 options(2)
positions since November 1993. Previously,
from 1970 to November 1993, he served the
Purchaser as President and Chief Executive
Officer. Mr. Hutton is also Chairman of
Omnicare, Inc., Cincinnati, Ohio
(healthcare products and services), a
public corporation in which the Purchaser
holds a 2.8% ownership interest
(hereinafter "Omnicare"), Chairman of the
Company, and Chairman of National Sanitary
Supply Company, Cincinnati, Ohio (sanitary
and maintenance supplies distributor), an
84%-owned subsidiary of the Purchaser
(hereinafter "National"). Mr. Hutton is a
director of the Purchaser, National,
Omnicare and the Company. Mr. Hutton is the
father of Thomas C. Hutton, a Vice
President and a director of the Purchaser.
KEVIN J. MCNAMARA Mr. McNamara is President of the Purchaser 2,096 Shares
Age: 43 and has held this position since August 5,250 options(2)
1994. Previously, he served as Executive
Vice President, Secretary and General
Counsel from November 1993, August 1986 and
August 1986, respectively, to August 1994.
From May 1992 to November 1993, he was a
Vice Chairman of the Purchaser and from
August 1986 to May 1992 he was a Vice
President of the Purchaser. He is also Vice
Chairman of the Company and National. He is
a director of the Purchaser, National,
Omnicare and the Company.
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
ROTO-ROOTER, INC.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT SHARES AND OPTIONS
NAME AND AGE AND FIVE-YEAR EMPLOYMENT HISTORY BENEFICIALLY OWNED
- ----------------------- ------------------------------------------- ---------------------
<S> <C> <C>
JAMES A. CUNNINGHAM Mr. Cunningham is a Senior Chemical Adviser 1,000 Shares
Age: 51 with Schroder Wertheim & Co. Incorporated, No options
New York, New York (an investment banking,
asset management and securities firm), and
has held this position since March 1992.
Previously, he was a Managing Director of
Furman Selz Incorporated, New York, New
York (an institutional investment company),
and held this position from October 1990 to
March 1992. Mr. Cunningham is a director of
the Purchaser, National and the Company.
JAMES H. DEVLIN Mr. Devlin is a Vice President of the No Shares
Age: 49 Purchaser and Group Executive of the No options
The Omnia Group Purchaser's Omnia Group (formerly known as
50 Big Beaver Road the "Veratex Group") and has held these
Suite 350 positions since December 1992. Previously,
Troy, MI 48084 Mr. Devlin was an Executive Vice President
of Omnicare from May 1989 to December 1992
and held the same position with the Veratex
Group since May 1987 when it was owned and
operated by Omnicare. Mr. Devlin is a
director of the Purchaser.
CHARLES H. ERHART, JR. Mr. Erhart retired as President of W.R. 6,666 Shares
Age: 71 Grace and Co. (hereinafter "Grace"), Boca No options
Raton, Florida (international specialty
chemicals and healthcare) in August 1990,
having held that position since July 1989.
Previously, he was Chairman of the
Executive Committee of Grace and held that
position from November 1986 to July 1989.
He is a director of the Purchaser,
National, Omnicare and the Company.
JOEL F. GEMUNDER Mr. Gemunder is President of Omnicare and 1,100 Shares
Age: 57 has held this position since May 1981. He No options
Omnicare, Inc. is a director of the Purchaser and
2800 Chemed Center Omnicare.
Cincinnati, Ohio
PATRICK P. GRACE Mr. Grace is a consultant and investment No Shares
Age: 40 adviser. Previously, from February 1991 to No options
October 1995, he was President of Grace
Logistics Services, Inc., Greenville, South
Carolina (a full service provider of
logistical support), a subsidiary of Grace.
From March 1988 to February 1991, he served
as Chief Financial Officer at Kascho GmbH,
Berlin, Germany (manufacturer of chocolate
products), a subsidiary of Grace. Mr. Grace
is a director of the Purchaser.
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
ROTO-ROOTER, INC.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT SHARES AND OPTIONS
NAME AND AGE AND FIVE-YEAR EMPLOYMENT HISTORY BENEFICIALLY OWNED
- ----------------------- ------------------------------------------- ---------------------
<S> <C> <C>
WILLIAM R. GRIFFIN Mr. Griffin is President and Chief 26,760 Shares(3)
Age: 52 Executive Officer and a director of the 61,500 options(2)
Roto-Rooter, Inc. Company and has held these positions since
2500 Chemed Center May 1985. Mr. Griffin is also an Executive
Cincinnati, OH 45202 Vice President of the Purchaser and has
held this position since May 1991. Mr.
Griffin is a director of the Purchaser,
Barefoot Inc., and Globe Business
Resources.
THOMAS C. HUTTON Mr. Hutton is a Vice President of the 12,416 Shares(4)
Age: 45 Purchaser and has held this position since 4,500 options(2)
Chemed Corporation February 1988. Mr. Hutton is a director of
Suite 1510 the Purchaser, National, Omnicare and the
One Rockefeller Plaza Company. He is a son of Edward L. Hutton,
New York, NY 10020 the Chairman and Chief Executive Officer
and a director of the Purchaser.
WALTER L. KREBS Mr. Krebs retired as Director-Financial No Shares
Age: 63 Services of Diversey Corporation, Detroit, No options
Michigan (specialty chemicals) ("Diversey")
on April 30, 1996. Mr. Krebs had held that
position since April 1991. Previously, from
January 1990 to April 1991, he was a Senior
Vice President and the Chief Financial
Officer of the Purchaser's then wholly
owned subsidiary, DuBois Chemicals, Inc.
("DuBois"). Mr. Krebs is a director of the
Purchaser.
SANDRA E. LANEY Ms. Laney is Senior Vice President and the 2,859 Shares
Age: 52 Chief Administrative Officer of the 4,250 options (2)
Purchaser and has held these positions
since November 1993 and May 1991,
respectively. Previously, from May 1984 to
November 1993, she was a Vice President of
the Purchaser. Ms. Laney is a director of
the Purchaser, National, Omnicare and the
Company.
JOHN M. MOUNT Mr. Mount is a Principal of Lynch-Mount 1,075 Shares
Age: 54 Associates, Cincinnati, Ohio (management No options
6685 Miralake Drive consulting), and has held this position
Cincinnati, OH 45243 since November 1993. From April 1991 to
November 1993, Mr. Mount was Senior Vice
President of Diversey and President of
Diversey's DuBois Industrial division.
Previously, from May 1989 to April 1991,
Mr. Mount was an Executive Vice President
of the Purchaser and President of DuBois.
He held the latter position from September
1986 to April 1991. He is a director of the
Purchaser, National, Omnicare and the
Company.
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
ROTO-ROOTER, INC.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT SHARES AND OPTIONS
NAME AND AGE AND FIVE-YEAR EMPLOYMENT HISTORY BENEFICIALLY OWNED
- ----------------------- ------------------------------------------- ---------------------
<S> <C> <C>
TIMOTHY S. O'TOOLE Mr. O'Toole is an Executive Vice President 2,151 Shares
Age: 40 and the Treasurer of the Purchaser and has 6,000 options (2)
held these positions since May 1992. He is
also the Chairman and Chief Executive
Officer of Patient Care, Inc., a 100%-owned
subsidiary of the Purchaser. From February
1989 to May 1992, he was a Vice President
and Treasurer of the Purchaser. He is a
director of the Purchaser, Vitas Healthcare
Corporation, National, Omnicare and the
Company.
D. WALTER ROBBINS, JR. Mr. Robbins retired as Vice Chairman of 1,000 Shares
Age: 76 Grace in January 1987 and thereafter became No options
a consultant to Grace until July 1995. He
is a director of the Purchaser, National,
Omnicare and the Company.
PAUL C. VOET Mr. Voet is an Executive Vice President of 2,024 Shares
Age: 50 the Purchaser and has held this position No options
since May 1991. Previously, from May 1988
to November 1993, he also served the
Purchaser as a Vice Chairman. Mr. Voet is
President and Chief Executive Officer and a
director of National. Mr. Voet is a
director of the Purchaser.
GEORGE J. WALSH III Mr. Walsh is a partner with the law firm of 75 Shares
Age: 51 Gould & Wilkie, New York, New York, and has No options
Gould & Wilkie held this position since January 1978. He
One Chase Manhattan is a director of the Purchaser, National
Plaza and the Company.
New York, NY 10005
ARTHUR V. TUCKER, JR. Mr. Tucker is a Vice President and No Shares
Age: 47 Controller of the Purchaser and has held No options
these positions since February 1989.
</TABLE>
- ---------------
(1) Included in the 45,536 Shares, Mr. E.L. Hutton owns restricted stock awards
that were granted under stock incentive plans of the Company, for (a) 1,333
Shares, all of which are unvested and which will vest on February 8, 1997,
(b) 3,232 Shares, all of which are unvested and which will vest in equal
amounts on each of February 1, 1997, 1998, 1999 and 2000 and (c) 3,650
Shares, all of which are unvested and which will vest in equal amounts on
each of February 7, 1997, 1998 and 1999.
(2) Each of the options listed above was granted pursuant to one of the
Company's stock incentive plans. All of such options are subject to
restrictions on transfer.
(3) Included in the 23,933 Shares, Mr. Griffin owns restricted stock awards that
were granted under stock incentive plans of the Company, for (a) 1,333
Shares, all of which are unvested and which will vest on February 8, 1997,
(b) 3,232 Shares, all of which are unvested and which will vest in equal
amounts on each of February 1, 1997, 1998, 1999 and 2000 and (c) 3,650
Shares, all of which are unvested and which will vest in equal amounts on
each of February 7, 1997, 1998 and 1999.
(4) 7,372 of these Shares are owned by the Edward L. Hutton Foundation, over
which Mr. E.L. Hutton and Mr. T.C. Hutton hold beneficial ownership.
41
<PAGE> 44
APPENDIX A
[LETTERHEAD OF CS FIRST BOSTON CORPORATION]
August 8, 1996
Board of Directors
Chemed Corporation
2600 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202-4726
Members of the Board:
You have asked us to advise you with respect to the fairness from a
financial point of view to the stockholders of Roto-Rooter, Inc. (the "Company")
other than Chemed Corporation (the "Acquiror") of the cash consideration to be
received by such stockholders pursuant to the tender offer to be made by the
Acquiror (the "Tender Offer"). Pursuant to the Tender Offer, the Acquiror will
offer to purchase any and all shares of common stock, par value $1.00 per share
(the "Shares"), of the Company (other than Shares currently held by the
Acquiror) for $41.00 per share in cash.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as a draft
dated August 6, 1996 of the offer to purchase to be distributed to the
stockholders of the Company in connection with the Tender Offer. We have also
reviewed certain other information, including financial forecasts, provided to
us by the Company and the Acquiror and have met with the management of the
Acquiror to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and we have
considered the financial terms of certain other acquisitions and business
combinations that have recently been effected. We have also considered such
other information, financial studies, analyses and investigations and financial,
economic and market criteria that we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that, at the time they were prepared, they
were reasonably prepared on bases reflecting the best available estimates and
judgments at the time of the Company's management as to the future financial
performance of the Company and, as currently updated and adjusted, reflect the
best currently available estimates and judgments of the Acquiror's management as
to the future financial performance of the Company. In addition, we have not
made an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor have we been furnished with any
such evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on the
date hereof. We were not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
We have acted as financial advisor to the Acquiror in connection with the
Tender Offer and will receive a fee for our services.
We have in the past performed, and are currently performing, certain
investment banking services for the Acquiror and its affiliated companies other
than the Company, and have received customary fees for such services.
<PAGE> 45
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and the
Acquiror for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror in connection with the Tender Offer and does not
constitute a recommendation to any stockholder of the Company as to whether such
stockholder should tender Shares pursuant to the Tender Offer.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the cash consideration to be received by the stockholders of the
Company pursuant to the Tender Offer is fair to such stockholders other than the
Acquiror from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
<PAGE> 46
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Overnight Delivery: By Mail: By Hand:
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
85 Challenger Road P.O. Box 396 120 Broadway, 13th Floor
Ridgefield Park, NJ 07660 Bowling Green Station New York, NY
Attn: Reorganization Department New York, NY 10274
</TABLE>
For Information, Call:
(800) 777-3674
Questions and requests for assistance or for additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be
directed to the Information Agent or the Dealer Manager at their respective
telephone numbers and locations listed below. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
Call Toll Free: (800) 848-3374
The Dealer Manager for the Offer is:
CS FIRST BOSTON
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
Call Toll Free: (800) 881-8320
<PAGE> 1
EXHIBIT 4
ROTO-ROOTER, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Roto-Rooter, Inc. (hereinafter called the "Company")
of proxies to be used at the Annual Meeting of Stockholders ("Annual Meeting")
of the Company to be held on May 20, 1996 and any adjournments thereof. The
Company's mailing address is 2500 Chemed Center, 255 East Fifth Street,
Cincinnati, Ohio 45202.The approximate date on which this Proxy Statement and
the enclosed proxy are being sent to stockholders is April 8, 1996.Each valid
proxy received in time will be voted at the meeting and, if a choice is
specified on the proxy, the shares represented thereby will be voted
accordingly.The proxy may be revoked by the stockholder at any time before the
Annual Meeting by providing notice to the Secretary.
Only stockholders of record as of the close of business on March 25, 1996
will be entitled to vote at the Annual Meeting or any adjournments thereof.On
such date, the Company had outstanding 5,151,660 shares of common stock, par
value $1 per share ("Common Stock"), entitled to one vote per share.
ELECTION OF DIRECTORS
Nineteen directors are to be elected at the Annual Meeting to serve until
the following annual meeting of stockholders and until their successors are duly
elected and qualified.Set forth below are the names of the persons to be
nominated by the Board of Directors, together with a description of each
person's principal occupation during the past five years and other pertinent
information.The Company has a program under which three nominations for
membership on the Board of Directors are rotated each year among senior officers
of the Company, senior executives of its operating divisions and subsidiaries
and senior executives of Chemed Corporation, a Delaware corporation and the
majority (58 percent) owner of the Company's outstanding Common Stock
("Chemed").The persons considered to be in the rotating group are Ms. Naomi C.
Dallob and Messrs. Richard L. Arquilla, Brian A. Brumm, Gary C. Burger, Spencer
S. Lee, and Timothy S. O'Toole. Ms. Dallob and Messrs. Brumm and O'Toole are
being nominated from the group this year.It is anticipated that additional
executives of Chemed and the Company will be included in this rotating group in
future years.
Unless authority is withheld or names are stricken, it is intended that the
shares covered by each proxy will be voted for the nominees listed.Votes that
are withheld will be excluded entirely from the vote and will have no effect.The
Company anticipates that all nominees listed in this Proxy Statement will be
candidates when the election is held.However, if for any reason any nominee is
not a candidate at that time, proxies will be voted for any substitute nominee
designated by the Board of Directors (except where a proxy withholds authority
with respect to the election of directors).The affirmative vote of a plurality
of the votes cast will be necessary to elect each of the nominees for director.
NOMINEES
<TABLE>
<CAPTION>
<S> <C>
EDWARD L. HUTTON Mr. Hutton is Chairman of the Company and, from 1970 to November 1993,
Director since 1984 has served as President, Chief Executive Officer, and a director of
Age: 76 Chemed, Cincinnati, Ohio (a diversified public corporation with
interests in residential and commercial plumbing and sewer and drain
cleaning services; janitorial supply products and services; medical
and dental supply distribution for private practice; and home health
care services).Since November 1993, Mr. Hutton has served as Chairman
and Chief Executive Officer of Chemed.He is Chairman and a director of
Omnicare, Inc., Cincinnati, Ohio (health care products and services)
("Omnicare"), a public corporation in which Chemed holds a 2.8 percent
ownership interest.He is also Chairman and a director of National
Sanitary Supply Company, Cincinnati, Ohio (janitorial supplies)
("National"), a public corporation in which Chemed holds an 84 percent
ownership interest.Mr. Hutton is the father of Thomas C. Hutton, a
director of the Company.
</TABLE>
1
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
WILLIAM R. GRIFFIN Mr. Griffin is President and Chief Executive Officer of the Company
Director since 1984 and has held these positions since May 1985.Mr. Griffin is also an
Age: 52 Executive Vice President of Chemed and has held this position since
May 1991.Mr. Griffin is a director of Barefoot, Inc., Globe Business
Resources, and Chemed.
BRIAN A. BRUMM Mr. Brumm is a Vice President, Treasurer and the Chief Financial
Director since 1985 Officer of the Company and has held these positions since
Age: 41 August 1984.
JAMES A. CUNNINGHAM Mr. Cunningham is a Senior Chemical Adviser with Schroder
Director since 1990 Wertheim & Co. Incorporated, New York, New York (an investment
Age: 51 banking, asset management and securities firm) and has held this
position since March 1992.Previously, he was a Managing Director
of Furman Selz Incorporated, New York, New York (an institutional
investment company), and held this position from October 1990 to
March 1992. Mr. Cunningham is a director of Chemed and National.
NAOMI C. DALLOB Ms. Dallob is Secretary and General Counsel of the Company and has
Director since 1992 held these positions since August 1994.Previously, from September
Age: 42 1984, she was Assistant Secretary of the Company.Ms. Dallob
is also a Vice President and the Secretary of Chemed and has held these
positions since February 1987 and August 1994, respectively.She is a
director of National.
CHARLES H. ERHART, JR. Mr. Erhart retired as President of W. R. Grace & Co., Boca Raton,
Director since 1985 Florida (international specialty chemicals and health care) ("Grace"),
Age: 70 in August 1990, having previously held this position since
July 1989. Previously, he was Chairman of the Executive Committee
of Grace and held that position from November 1986 to July 1989.He is a
director of Chemed, National and Omnicare.
NEAL GILLIATT Mr. Gilliatt is President of Neal Gilliatt/Stuart Watson, Inc., New York,
Director since 1985 New York (management consulting), and has held this position since
Age: 78 April 1982.On April 1, 1982 he retired as Chairman of the Executive
Committee of the Interpublic Group of Companies, Inc., New York, New York
(advertising and related communications), having held that position since
February 1980. Mr. Gilliatt is a director of Consolidated Products, Inc.
and National.
LAWRENCE J. GILLIS Mr. Gillis is a Vice President of the Company and has held this
Director from April 1985 position since May 1992.Mr. Gillis is also President and Chief
to May 1986 and May 1989 Operating Officer of Roto-Rooter Services Company and has held
to May 1990 and since these positions since October 1994.Previously, he was Senior Vice
May 1991 President-Operations of Roto-Rooter Services Company, from
Age: 61 February 1991 to October 1994.From November 1983 to February
1991, he was a Regional Vice President of Roto-Rooter Services Company.
DOUGLAS B. HARPER Mr. Harper is the Executive Vice President of the Company and has
Director since 1984 held this position since May 1992.Previously, from May 1984 to May
Age: 52 1992, he was a Vice President of the Company.Since October 1980, he has also
served as President of Roto-Rooter Corporation, a subsidiary of the Company.
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
WILL J. HOEKMAN Mr. Hoekman is an Executive Vice President of Firstar Bank,
Director since 1985 Des Moines, Iowa, and has held this position since May, 1995.
Age: 50 Previously, he held the position of Senior Vice President
since November 1980. Mr. Hoekman is a director of National.
THOMAS C. HUTTON Mr. Hutton is a Vice President of Chemed and has held this position
Director since 1985 since February 1988. Mr. Hutton is a director of Chemed, National and
Age: 45 Omnicare. He is a son of Edward L. Hutton, Chairman and a director
of the Company.
PATRICK L. JOHNSON Mr. Johnson is a Vice President of the Company and President and
Director since 1984 Chief Executive Officer of Service America Systems, Inc., a subsidiary
Age: 42 of the Company ("Service America"), and has held these positions
since December 1983 and August 1991, respectively. From August 1991
to April 1993, he was Vice Chairman and Chief Executive Officer of
Service America. He also served as a Senior Vice President of
Roto-Rooter Services Company from September 1986 to September 1993.
SANDRA E. LANEY Ms. Laney is Senior Vice President and the Chief Administrative
Director since 1985 Officer of Chemed and has held these positions since November 1993
Age: 52 and May 1991, respectively. Previously, from May 1984 to November
1993, she was a Vice President of Chemed. Ms. Laney is a director of
Chemed, National and Omnicare.
KEVIN J. MCNAMARA Mr. McNamara is Vice Chairman of the Company and has held this
Director since 1986 position since August 1994.Previously, he served as Secretary and
Age: 42 General Counsel of the Company from August 1986 to August 1994. He is
also President of Chemed and has held this position since August
1994.Previously, November 1993 to August 1994, he held the position of
Executive Vice President of Chemed, and, from May 1992 to November
1993, he held the position of Vice Chairman of Chemed and, from August
1986 to May 1992, held the position of Vice President of Chemed. He
also held the positions of General Counsel and Secretary of Chemed
from August 1986 to August 1994.He is a director of Chemed, National
and Omnicare.
JOHN M. MOUNT Mr. Mount is a Principal of Lynch-Mount Associates, Cincinnati, Ohio
Previously a director (management consulting), and has held this position since
from August 1987 to November 1993.From April 1991 to November 1993, Mr. Mount was
April 1991 Senior Vice President of Diversey Corporation, Detroit, Michigan
Age: 54 (specialty chemicals) ("Diversey") and President of Diversey's
DuBois Industrial Division.Previously, from May 1989 to April
1991, Mr. Mount was an Executive Vice President of Chemed and
President of DuBois Chemicals, Inc., then a 100 percent-owned
subsidiary of Chemed ("DuBois"). He held the latter position from
September 1986 to April 1991. He is a director of Chemed and
Omnicare.
TIMOTHY S. O'TOOLE Mr. O'Toole is an Executive Vice President and the Treasurer
Director since 1991 of Chemed and has held these positions since May 1992. He is
Age: 40 also the Chairman and Chief Executive Officer of Patient
Care, Inc., a 100 percent-owned subsidiary of
Chemed. Previously, from February 1989 to May 1992, he held
the positions of Vice President and Treasurer of Chemed. He
is a director of Chemed, Vitas Healthcare Corporation,
National and Omnicare.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
DONALD E. SAUNDERS Mr. Saunders is President of Diversey's DuBois Division and has held
Not previously a director this position since November 1993. From April 1991 to October 1993,
Age: 52 he was Executive Vice President of Diversey and, from January 1991 to March
1991, he was Executive Vice President of DuBois.
D. WALTER ROBBINS, JR. Mr. Robbins retired as Vice Chairman of Grace in January 1987 and
Director since 1985 thereafter became a consultant to Grace until July 1995.He is a
Age: 76 director of Chemed, National and Omnicare.
GEORGE J. WALSH III Mr. Walsh is a partner with the law firm of Gould & Wilkie, New York,
Not previously a director New York, and has held this position since January 1978.He is a
Age: 50 director of Chemed.
</TABLE>
COMPENSATION OF DIRECTORS
Throughout 1995 each member of the Board of Directors who was not a regular
employee of the Company or of a wholly owned subsidiary of the Company was
entitled to be paid directors' fees.Accordingly, executives of Chemed who are
directors of the Company (other than Mr. E. L. Hutton who is the Company's
Chairman) are entitled to receive directors' fees for attending Board and
Committee meetings.Each member of the Board of Directors of the Company was paid
$1,000 for his attendance at each meeting of the Board and $550 for each meeting
of a Committee he attended.The chairman of each Committee was paid
$600.Effective February 7, 1996, the directors' fees were increased and each
member of the Board of Directors who is not a regular employee of the Company or
of a wholly owned subsidiary of the Company (other than Mr. E. L. Hutton) is now
paid $1,075 for his attendance at each meeting of the Board and $600 for each
meeting of a Committee of the Board he attended.The Chairman of each Committee
is paid $675.The following directors who are members of the Incentive Committee
of either the Company or an affiliated company also receive an additional annual
fee of $4,700:Messrs. Cunningham, Erhart, Gilliatt, Hoekman and Robbins.Messrs.
Hoekman and Schnee received $29,800 and $28,600, respectively, for serving on a
special committee which considered Chemed's offer to acquire the shares of the
Company's Common Stock it did not already own.Members of the Board of Directors
are reimbursed for reasonable travel expenses incurred in connection with such
meetings.
On May 15, 1995, each member of the Board of Directors (other than those
serving on the Incentive Committee of either the Company or an affiliated
company) was granted an unrestricted stock award covering 75 shares of the
Company's Common Stock under the Company's 1993 Stock Incentive Plan.Those
directors who are members of the Incentive Committee of either the Company or an
affiliated company were paid the cash equivalent of the 75 share stock award or
$2,050.
COMMITTEES AND MEETINGS OF THE BOARD
The Company has the following Committees of the Board of Directors: Audit
Committee; Compensation Committee; and Incentive Committee.It does not have a
nominating committee of the Board of Directors.
The Audit Committee (a) recommends to the Board of Directors a firm of
independent accountants to audit the Company and its consolidated subsidiaries,
(b) reviews and reports to the Board of Directors on the Company's annual
financial statements and the independent accountants' report on such financial
statements and (c) meets with the Company's senior financial officers, internal
auditors and independent accountants to review audit plans and work and other
matters regarding the Company's accounting, financial reporting and internal
control systems.The Audit Committee consists of Messrs. Gilliatt, Hoekman,
McNamara and Robbins.The Audit Committee met on two occasions in 1995.
The Compensation Committee makes recommendations to the Board of Directors
concerning (a) salary and incentive compensation payable to officers and certain
other key employees of the Company, (b) establishment of incentive compensation
plans and programs generally and (c) adoption and administration of certain
employee benefit plans and programs.The Compensation Committee consists of
Messrs. Erhart, Gilliatt, and T. C. Hutton and Ms. Laney.During 1995, the
Compensation Committee met on four occasions.
4
<PAGE> 5
The Incentive Committee administers the Company's 1984, 1987, 1990, 1993 and
1995 Stock Incentive Plans. In addition, the Incentive Committee makes (a)
grants of stock options and stock awards to key employees of the Company and (b)
recommendations to the Board of Directors concerning additional year-end
contributions by the Company under the Company's Retirement and Savings Plan.The
Incentive Committee consists of Messrs. Hoekman, Erhart, and Cunningham. The
Incentive Committee met on one occasion during 1995.
During 1995, there were five meetings of the Board of Directors.Each
incumbent director attended at least 75 percent of the aggregate of (a) the
total number of meetings held by the Board of Directors and (b) the total number
of meetings held by all Committees of the Board of Directors on which he served
which were held during the period for which he was a director or member of any
such Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Laney is the Chief Administrative Officer and Senior Vice President of
Chemed and Mr. T. C. Hutton is a Vice President of Chemed.Both are directors of
Chemed, of which Mr. Griffin is also an Executive Vice President and a
director.See "Certain Arrangements and Transactions-Transactions with Chemed" on
page 14.
EXECUTIVE COMPENSATION
JOINT REPORT OF THE COMPENSATION COMMITTEE AND INCENTIVE COMMITTEE ON EXECUTIVE
COMPENSATION
The Company believes that executive compensation must align executive
officers' interests with those of the Company's stockholders and that such are
best served by having compensation directly and materially linked to financial
and operating performance criteria which when successfully achieved will enhance
stockholder value.
The Company attempts to achieve this objective with an executive compensation
package for its senior executives which combines base salary, annual cash
incentive compensation, long-term incentive compensation in the form of stock
options and restricted stock awards along with various benefit plans, including
pension plans, savings plans and medical benefits generally available to the
employees of the Company.
The executive compensation program is administered through the coordinated
efforts of the Compensation Committee and the Incentive Committee of the Board
of Directors.The membership of both committees is comprised of outside directors
(i.e. non-employees of the Company), although the Compensation Committee
includes two officers of Chemed (see "Compensation Committee Interlocks and
Insider Participation" above). The Compensation Committee is responsible for the
review, approval and recommendation to the Board of Directors of matters
concerning base salary and annual cash incentive compensation for key executives
of the Company.The recommendations of the Compensation Committee on such matters
must be approved by the full Board of Directors.The Incentive Committee
administers the Company's stock incentive plans under which it reviews and
approves grants of stock options and restricted stock awards.Both the
Compensation and Incentive Committees may use their discretion to set executive
compensation where, in their collective judgement, external, internal or
individual circumstances warrant.
Following is a discussion of the components of the executive officer
compensation program.
In determining base salary levels, the Compensation Committee takes into
account the magnitude of responsibility of the position, individual experience
and performance and specific issues particular to the Company.In general, base
salaries are set at levels believed by this Compensation Committee to be
sufficient to attract and retain qualified executives when considered with the
other components of the Company's compensation structure.
5
<PAGE> 6
The Compensation Committee believes that a significant portion of total cash
compensation should be linked to annual performance criteria.Consequently, the
purpose of annual incentive compensation for senior executives and key managers
is to provide a direct financial incentive in the form of an annual cash bonus
to these executives to achieve their business unit's and the Company's annual
goals.Operational and financial goals are established at the beginning of each
fiscal year and generally take into account such measures of performance as
sales and earnings growth, profitability, cash flow and return on
investment.Other non-financial measures of performance relate to organizational
development, product or service expansion and strategic positioning of the
Company's assets.
Individual performance is also taken into account in determining individual
bonuses.It is the Company's belief that bonuses as a percent of a senior
executive's salary should be sufficiently high to provide a major incentive for
achieving annual performance targets.Bonuses for senior executives of the
Company generally range from 25-50 percent of base salary.
The stock option and restricted stock award program forms the basis of the
Company's long-term incentive plans for executive officers and key managers.The
objective of these plans is to align executive and long-term stockholder
interests by creating a strong and direct link between executive pay and
stockholder return.
Stock options and restricted stock awards generally are granted annually and
are generally regarded as the primary incentive for long-term performance as
they are granted at fair market value and have vesting restrictions which
generally lapse over three or four year periods.The Committee considers each
grantee's current option and award holdings in making grants.Both the amounts of
restricted stock awards and proportion of stock options increase as a function
of higher salary and position of responsibility within the Company.
The Compensation and Incentive Committees have considered, and are continuing
to review, the qualifying compensation regulations issued by the Internal
Revenue Service in December 1993.As compensation for any individual is not
currently expected to exceed the $1 million base, the Company is not presently
affected by these regulations.
The base salary of Mr. Griffin, the President and Chief Executive Officer of
the Company, was increased at an annualized rate of 6.5 percent in 1995 to a
base rate of $310,000.His cash bonus in respect of 1995 services was $154,000,
which represented an increase of $20,000 over 1994 and 50 percent of his base
salary.Restricted stock awards were granted to Mr. Griffin in respect of 1995
services having a value of $115,000.Factors considered in establishing the
compensation levels in 1995 for Mr. Griffin included Company sales growth of 4.5
percent and, excluding expenses related to Chemed's offer to acquire the shares
of the minority stockholders, net income growth of 14.4 percent.The Compensation
Committee and the Incentive Committee believe that Mr. Griffin's base salary,
the increases in his cash bonus and the restricted stock awards granted to Mr.
Griffin in respect of 1995 services are consistent with his performance as
measured by these factors and the criteria discussed above.
<TABLE>
<CAPTION>
Compensation Committee Incentive Committee
--------------------- -----------------
<S> <C> <C>
C. H. Erhart, Jr. J. A. Cunningham
N. Gilliatt C. H. Erhart, Jr.
T. C. Hutton W. J. Hoekman
S. E. Laney
</TABLE>
6
<PAGE> 7
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid to the Chief Executive
Officer and the four most highly compensated executive officers of the Company
for the past three years for all services rendered in all capacities to the
Company and its subsidiaries:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------------
Securities
Securities Underlying
Name Roto-Rooter Underlying Service All
and Restricted Roto-Rooter America Other
Principal Stock Stock Stock Compen-
Position Year Salary ($) Bonus ($) Awards ($) (1) Options (#) Options (#) sation ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. R. Griffin 1995 $298,917 $154,000 $115,000 -0- -0- $127,084 (2)
President 1994 276,417 134,000 100,000 10,000 -0- 68,340
and CEO 1993 260,000 121,000 120,000 31,500 10,000 81,784
D. B. Harper 1995 188,180 86,000 60,000 -0- -0- 65,305 (3)
Executive 1994 180,514 75,500 53,000 5,000 -0- 39,284
Vice President 1993 174,737 71,000 50,000 15,000 -0- 47,816
L. J. Gillis 1995 182,833 72,600 80,000 -0- -0- 53,776 (4)
Vice President 1994 172,217 60,500 69,000 5,000 -0- 37,601
1993 164,000 52,500 60,000 17,000 -0- 45,423
P. L. Johnson 1995 162,422 17,800 20,000 -0- -0- 37,097 (5)
Vice President 1994 157,058 27,800 25,000 4,000 -0- 44,168
1993 149,400 48,000 50,000 15,000 13,000 40,554
B. A. Brumm 1995 114,000 47,400 45,000 -0- -0- 41,199 (6)
Vice President, 1994 107,698 41,200 40,000 4,000 -0- 27,754
Treasurer and 1993 102,750 37,200 40,000 14,000 4,000 30,113
Chief Financial
Officer
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The number and value of aggregate restricted stock holdings in Roto-Rooter
Common Stock at December 31, 1995 were as follows:W. R. Griffin--6,707
shares, $219,654; D.B. Harper--3,252 shares, $106,503; L.J. Gillis--4,120
shares, $134,930; P.L. Johnson--2,121 shares, $69,463; and B. A.
Brumm--2,505 shares, $82,039.Dividends are paid to holders of restricted
stock who are entitled to vote these shares, whether or not
vested.Restricted stock awards vest evenly over three-year
periods.Restricted stock awards were granted in February 1994, February
1995 and February 1996, as incentive compensation earned in 1993, 1994 and
1995, respectively.
(2) Includes a $16,767 contribution to the Company's Retirement and Savings
Plan ("Savings Plan"), a $81,900 contribution to the Company's Deferred
Compensation Plan, a $2,339 premium payment under the Company's Executive
Salary Protection Plan ("ESP"), a $2,335 premium payment for term life
insurance, and $23,743, which is the value of premium payments made by the
Company for the benefit of Mr. Griffin under a split dollar life insurance
policy, which provides for the refund of premiums to the Company upon
termination of the policy ("Split Dollar Policy").
(3) Includes a $15,069 contribution to the Savings Plan, a $33,536 contribution
to the Deferred Compensation Plan, a $1,829 premium payment for term life
insurance, and $14,871, which is the value of premium payments for a Split
Dollar Policy.
(4) Includes a $14,396 contribution to the Savings Plan, a $38,038 contribution
to the Deferred Compensation Plan, and a $1,342 premium payment for term
life insurance.
(5) Includes a $3,234 contribution to the Service America Retirement and
Savings Plan, a $24,469 contribution to the Service America Deferred
Compensation Plan, a $430 premium payment for term life insurance, and
$8,964, which is the value of premium payments for a Split Dollar Policy.
(6) Includes a $13,451 contribution to the Savings Plan, a $20,552 contribution
to the Deferred Compensation Plan, a $927 premium payment for term life
insurance, and $6,269, which is the value of premium payments for a Split
Dollar Policy.
</TABLE>
7
<PAGE> 8
The following table summarizes Roto-Rooter stock option exercises during 1995
and the year-end number and value of unexercised stock options held by the
executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Aggregated Roto-Rooter Stock Option Exercises in
1995 and Roto-Rooter Stock Option Values
as of December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Value of
Unexercised
In-the-Money
Shares Number of Unexercised Options
Acquired Options at 12/31/95 (#) at 12/31/95 ($)
On Value ------------------------------------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. R. Griffin 25,500 $391,975 18,250 23,250 $146,200 $174,950
D. B. Harper -0- -0- 39,750 11,250 531,426 84,662
L. J. Gillis 22,125 295,635 -0- 12,250 -0- 92,162
P. L. Johnson 16,300 251,480 10,000 10,500 92,099 80,349
B. A. Brumm 9,700 169,400 8,000 10,000 65,100 76,600
</TABLE>
The table below shows information concerning the year-end number and value of
unexercised Service America stock options held by the executive officers named
in the Summary Compensation Table.
SERVICE AMERICA STOCK OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at 12/31/95 (#) at 12/31/95 ($)
--------------------------------- ---------------------------------
Name (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W. R. Griffin 17,000 8,000 $ -0- $ -0-
D. B. Harper -0- -0- -0- -0-
L. J. Gillis -0- -0- -0- -0-
P. L. Johnson 32,600 10,400 -0- -0-
B.A. Brumm 4,300 3,200 -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) None of the named executive officers exercised Service America stock
options during 1995.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Griffin,
Harper, Gillis, Johnson and Brumm.Mr. Griffin's employment agreement provides
for his continued employment as an executive employee of the Company through
October 31, 2000, subject to earlier termination under certain circumstances, at
a base salary of $310,000 per annum or such higher amounts as the Board of
Directors may determine as well as participation in incentive compensation
plans, stock incentive plans and other employee benefit plans.In the event of
termination without cause or a material reduction in authority or
responsibility, the agreement provides that Mr. Griffin will receive severance
payments equal to 150 percent of his then current base salary plus the amount of
incentive compensation most recently paid or approved in respect of the previous
year, and the fair market value of all stock awards which have vested during the
twelve months prior to termination, for the balance of the term of the
agreement.Messrs. Harper, Gillis, Johnson and Brumm have employment agreements
which provide for their continued employment as executive employees of the
Company through October 31, 2000, November 6, 1998, October 31, 1998 and October
31, 1998, respectively, and are identical in all material respects to that of
Mr. Griffin, except their respective agreements provide for a base salary of
$193,700, $191,000, $165,500 and $118,200 per annum or such higher amounts as
the Board of Directors may determine.
8
<PAGE> 9
CERTAIN ARRANGEMENTS AND TRANSACTIONS
TRANSACTIONS WITH CHEMED
CASH MANAGEMENT AND FINANCING. The Company regularly deposits funds in excess
of its working capital requirements with Chemed for short-term investment and
Chemed, on occasion, may make short-term loans to the Company for working
capital needs.These unsecured deposits and loans bear interest at the rate
determined on the basis of United States Treasury Notes.At January 31, 1996, the
Company had $16,392,000 on deposit with Chemed.During the period January 1, 1995
through January 31, 1996, the largest amount on deposit with Chemed was
$26,266,000.Chemed paid the Company $1,424,000 during 1995 as interest on
amounts deposited by the Company with Chemed.
During 1991, Chemed loaned to the Company $4,200,000 to partially finance the
acquisition of Service America (formerly Convenient Home Services, Inc.).This
loan bears interest at the rate determined on the basis of United States
Treasury Notes.In addition, during 1993, Chemed loaned to the Company $4,224,000
to partially finance the acquisition of Encore Services Systems, Inc., a
subsidiary of Service America.This loan bears interest at the fixed rate of 8.15
percent.At January 31, 1996, the Company had $8,424,000 on loan from Chemed,
which was the largest amount on loan from Chemed at any time during the period
January 1, 1995 through January 31, 1996.The Company paid Chemed $631,000 during
1995 as interest on amounts loaned to the Company from Chemed.
SERVICE AND SUPPLY ARRANGEMENTS. As a subsidiary of Chemed and pursuant to an
agreement with Chemed, the Company has used and will continue to use various
financial, insurance, tax, audit, legal and other services provided by
Chemed.The Company pays fees for these services based on Chemed's costs.During
1995, the Company paid Chemed $305,000 for such services.
In addition, the Company has entered into a sublease agreement with Chemed
pursuant to which the Company leases approximately 23,500 square feet of office
space from Chemed on the 25th and 30th floors of the Chemed Center, Cincinnati,
Ohio, at a rental equal to that paid by Chemed under its lease and for a term
coterminous with Chemed's lease term which expires in 2006.For 1995, the Company
paid Chemed lease payments under the sublease aggregating $491,000.
STATE AND LOCAL INCOME TAXES. Should any state or locality impose, or should
Chemed and the Company elect to pay, an income or franchise tax by combining or
consolidating all or part of the income, losses, properties, payrolls, sales or
other attributes of Chemed and the Company or one or more of their respective
subsidiaries, the Company will reimburse Chemed for the Company's and its
subsidiaries' share of such franchise or income tax.The amount to be reimbursed
is equal to the tax that would have been required to be paid had the Company or
any of its subsidiaries included in such combined or consolidated return filed a
separate return without the inclusion of any income, losses, properties,
payrolls, sales or other attributes of any related parent or subsidiary
corporation.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the firm of Price Waterhouse LLP as
independent accountants for the Company and its consolidated subsidiaries for
the year 1996.This firm has acted as independent accountants for Chemed since
1970 and for the Company and its consolidated subsidiaries since 1980.Although
the submission of this matter to the stockholders is not required by law or by
the By-Laws of the Company, the selection of Price Waterhouse LLP will be
submitted for ratification at the Annual Meeting.The affirmative vote of the
shares represented at the Annual Meeting, with abstentions having the effect of
negative votes and broker non-votes deemed to be absent shares, will be
necessary to ratify the selection of Price Waterhouse LLP as independent
accountants for the Company and its consolidated subsidiaries for the year
1996.If the selection is not ratified at the meeting, the Board of Directors
will reconsider its selection of independent accountants.
14
<PAGE> 1
EXHIBIT 5
ARTICLE IX
Indemnification
Section 9.01. Right to Indemnification. The corporation shall to the fullest
extent permitted by applicable law as then in effect indemnify each person (the
"Indemnitee") who was or is involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
without limitation, any action, suit or proceeding by, or in the right of, the
corporation to procure a judgment in its favor) (a "Proceeding") by reason of
the fact that he is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, an employee benefit plan) against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such Proceeding.
Such indemnification shall be a contract right and shall include the right to
receive payment in advance of any expenses incurred by the Indemnitee in
connection with such Proceeding, consistent with the provisions of applicable
law as then in effect.
Section 9.01. Insurance, Contracts and Funding. The corporation may purchase
and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines and amount paid in settlement as specified in
Section 9.01 of this Article or incurred by any Indemnitee in connection with
any Proceeding referred to in Section 9.01 of this Article, to the fullest
extent permitted by applicable law as then in effect. The corporation may enter
into contracts with any director or officer of the corporation in furtherance
of the provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
Section 9.03. Indemnification; Not Exclusive Right. The right of
indemnification provided in this Article shall not be exclusive of any other
rights to which those seeking indemnification may otherwise be entitled, and
the provisions of this Article shall inure to the benefit of the heirs and
legal representatives of any person entitled to indemnification under this
Article and shall be applicable to Proceedings commenced or continuing after
the adoption of this Article, whether arising from acts or omissions occurring
before or after such adoption.
-1-
<PAGE> 2
Section 9.04. Advancement of Expenses; Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies shall
apply with respect to advancement of expenses and the right to indemnification
under this Article:
(a) Advancement of Expenses. All reasonable expenses incurred by or on behalf
of the Indemnitee in connection with any Proceeding shall be advanced to the
Indemnitee by the corporation within 20 days after the receipt by the
corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an undertaking by or
on behalf of the Indemnitee to repay the amounts advanced if it should
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such expenses pursuant to this Article.
(b) Procedure for Determination of Entitlement to Indemnification. (i) To
obtain indemnification under this Article, an Indemnitee shall submit to the
Secretary of the corporation a written request, including such documentation
and information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The determination of the
Indemnitee's entitlement to indemnification shall be made not later than 60
days after receipt by the corporation of the written request for
indemnification together with the Supporting Documentation. The Secretary of
the corporation shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that the Indemnitee
has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this Article shall
be determined in one of the following ways: (a) by a majority vote of the
Disinterested Directors (as hereinafter defined), if they constitute a quorum
of the Board of Directors; (b) by a written opinion of Independent Counsel (as
hereinafter defined) if (x) a Change in Control (as hereinafter defined) shall
have occurred and the Indemnitee so requests or (y) a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (c) by the
stockholders of the corporation (but only if a majority of the Disinterested
Directors, if they constitute a quorum of the Board of Directors, presents the
issue of entitlement to indemnification to the stockholders for their
determination); or (d) as provided in Section 9.04(c).
(iii) In the event the determination of entitlement to indemnification is to be
made by Independent counsel pursuant to Section 904(b)(ii), a majority of the
Disinterested Directors shall select the Independent counsel, but only an
Independent Counsel to which the Indemnitee does not reasonably object,
provided, however, that if a Change of Control shall have occurred, the
Indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which the Board of Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article, the Indemnitee shall be presumed to be
-2-
<PAGE> 3
entitled to indemnification under this Article upon submission of a request for
indemnification together with the Supporting Documentation in accordance with
Section 9.04(b)(i), and thereafter the corporation shall have the burden of
proof to overcome that presumption in reaching a contrary determination. In any
event, if the person or persons empowered under Section 9.04(b) to determine
entitlement to indemnification shall not have been appointed or shall not have
made a determination within 60 days after receipt by the corporation of the
request therefore together with the Supporting Documentation, the Indemnitee
shall be deemed to be entitled to indemnification and the Indemnitee shall be
entitled to such indemnification unless (a) the Indemnitee misrepresented or
failed to disclose a material fact in making the request for indemnification or
in the Supporting Documentation or (b) such indemnification is prohibited by
law. The termination of any Proceeding described in Section 9.01, or of any
claim, issue or matter therein, by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
adversely affect the right of the Indemnitee to indemnification or create a
presumption that the Indemnitee did not act in good faith and in a manner which
he reasonable believed to be in or not opposed to the best interest of the
corporation or, with respect to any criminal Proceeding, that the Indemnitee
had reasonable cause to believe that his conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is made
pursuant to Section 9.04(b) that the Indemnitee is not entitled to
indemnification under this Article, (a) the Indemnitee shall be entitled to
seek an adjudication of his entitlement to such indemnification either, at the
Indemnitee's sole option, in (x) an appropriate court of the State of Delaware
or any other court of competent jurisdiction or (y) an arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association; (b) any such judicial proceeding or arbitration shall
be de novo and the Indemnitee shall not be prejudiced by reason of such adverse
determination; and (c) in any such judicial proceeding or arbitration the
corporation shall have the burden of proving that the Indemnitee is not
entitled to indemnification under this Article.
(ii) If a determination shall have been made or deemed to have been made,
pursuant to Section 9.04(b) or (c), that the Indemnitee is entitled to
indemnification, the corporation shall be obligated to pay the amounts
constituting such indemnification within five days after such determination has
been made or deemed to have been made and shall be conclusively bound by such
determination unless (a) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the Supporting
Documentation or (b) such indemnification is prohibited by law. In the event
that (c) advancement of expenses is not timely made pursuant to Section 9.04(a)
or (d) payment of indemnification is not made within five days after a
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to Section 9.04(b) or (c), the Indemnitee shall be entitled
to seek judicial enforcement of the corporation's obligation to pay to the
Indemnitee such advancement of expenses or indemnification. Notwithstanding
the foregoing, the corporation may bring an action, in an appropriate court in
the State of Delaware or any other court of competent jurisdiction, contesting
the right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (a) or (b) of this clause (ii)(a
"disqualifying Event"); provided, however, that in any such action the
corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
-3-
<PAGE> 4
(iii) The corporation shall precluded from asserting in any judicial proceeding
or arbitration commenced pursuant to this Section 9.04(d) that the procedures
and presumptions of this Article are not valid, binding and enforceable and
shall stipulate in any such court or before any such arbitrator that the
corporation is bound by all the provisions of this Article.
(iv) In the event that the Indemnitee, pursuant to this Section 9.04(d), seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Article, the Indemnitee shall be
entitled to recover from the corporation, and shall be indemnified by the
corporation against, any expenses actually and reasonably incurred by him if the
Indemnitee prevails in such judicial adjudication or arbitration. If it shall be
determined in such judicial adjudication or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration shall be prorated accordingly.
(e) Definition. For the purposes of this Section 9.04: (i) "Change in Control"
means a change in control of the corporation of a nature that would be required
to be reported in response to Item 6(e) of Section 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the corporation is then subject to such reporting requirement; provided
that, without limitation, such a change in control shall be deemed to have
occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the corporation
representing 5 percent or more of the combined voting power of the
corporation's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such acquisition; (b) the corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (c) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the corporation's stockholders was approved by a
vote of at least a majority of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board of Directors.
(ii) "Disinterested Director" means a director of the corporation who is not or
was not a party to the Proceeding in respect of which indemnification is sought
by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm that
neither presently is, nor in the past five years has been, retained to
represent: (i) the corporation or the Indemnitee in any matter material to
either such party or (ii) any other party to the Proceeding giving rise to a
claim for indemnification under this Article. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing under the law of
the State of Delaware, would have a conflict of interest in representing either
-4-
<PAGE> 5
the corporation or the Indemnitee in an action to determine the Indemnitee's
rights under this Article.
Section 9.05. Severability. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article (including, without limitation, all portions of any
paragraph of this Article containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this Article (including,
without limitation, all portions of any paragraph of this Article containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 9.06. Amendment. No provision of this Article shall be amended
retroactively. In no case shall any amendment of this Article occur without
thirty days' advance written notice to all indemnitees.
-5-
<PAGE> 1
EXHIBIT 6
Indemnification Agreement
AGREEMENT, effective as of ____________________, between Roto-Rooter,
Inc., a Delaware corporation (the "Company"), and _____________________________
("Indemnitee"), a director and or officer of the Company.
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to enhance Indemnitee's continued service to the
Company and Indemnitee's reliance on the provisions of the By-Laws of the
Company requiring indemnification under certain circumstances, and in part to
provide Indemnitee with specific contractual assurance that the protection
promised by such By-Laws will be available, the Company wishes to provide in
this Agreement for the indemnification of, and the advancement of, expenses to
Indemnitee to the fullest extent permitted by law.
NOW WHEREAS, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION 1 Right to Indemnification. The Company shall to the
fullest extent permitted by applicable law as then in effect indemnify the
undersigned person ("Indemnitee") in the event he becomes involved in any
manner (including, without limitation, as a party or a witness) or is
threatened to be made so involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (including without limitation, any action, suit
or proceeding by or in the right of
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<PAGE> 2
the Company to procure a judgment in its favor) (a "Proceeding") by reason of
the fact that he is or was a director and or officer of the Company, or is or
was serving at the request of the Company as a director and/or officer of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit plan) against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such Proceeding.
Such indemnification shall be a contract right and shall include the right to
receive payment in advance of any expenses incurred by the Indemnitee in
connection with such Proceeding, consistent with the provisions of applicable
law as then in effect.
SECTION 2 Indemnification; Not Exclusive Right. The right of
indemnification provided in this Agreement shall not be exclusive of any other
rights to which the Indemnitee may otherwise be entitled, and the provisions of
this Agreement shall inure to the benefit of the heirs and legal
representatives of the Indemnitee and shall be applicable to Proceedings
commenced or continuing after the adoption of this Agreement, whether arising
from acts or omissions occurring before or after its execution.
SECTION 3 Advancement of Expenses; Procedures; Presumptions
and Effect of Certain Proceedings; Remedies. In furtherance, but not in
limitation of the foregoing provisions, the following procedures, presumptions
and remedies shall apply with respect to advancement of expenses and the right
to indemnification under this Agreement:
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(a) Advancement of Expenses. All reasonable expenses
incurred by or on behalf of the Indemnitee in connection with any Proceeding
shall be advanced to the Indemnitee by the Company within 20 days after the
receipt by the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior to or
after final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and, and if
required by law at the time of such advance, shall include or be accompanied by
an undertaking by or on behalf of the Indemnitee to repay the amounts advanced
if it should ultimately be determined that the Indemnitee is not entitled to
be indemnified against such expenses pursuant to this Agreement.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification under this Agreement, the
Indemnitee shall submit to the Secretary of the Company a written request,
including such documentation and information as is reasonably available to the
Indemnitee and reasonably necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting Documentation").
The determination of the Indemnitee's entitlement to indemnification shall be
made not later than 60 days after receipt by the Company of the written request
for indemnification together with the Supporting Documentation. The Secretary
of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that the Indemnitee
has requested indemnification.
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(ii) The Indemnitee's entitlement to
indemnification under this Agreement shall be determined in one of the
following ways: (a) by a majority vote of the Disinterested Directors (as
hereinafter defined), if they constitute a quorum of the Board of Directors;
(b) by a written opinion of Independent Counsel (as hereinafter defined) if (x)
a Change of Control (as hereinafter defined) shall have occurred and the
Indemnitee so requests or (y) a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, a majority of
such Disinterested Directors so directs; (c) by the stockholders of the Company
(but only if a majority of the Disinterested Directors, if they constitute a
quorum of the Board of Directors, presents the issue of entitlement to
indemnification to the stockholders for their determination); or (D) as
provided in Section 3(c).
(iii) In the event the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 3(b)(ii), a majority of the Disinterested Directors shall select the
Independent Counsel, but only an Independent Counsel to which the Indemnitee
does not reasonably object; provided, however, that if a Change of Control
shall have occurred, the Indemnitee shall select such Independent Counsel, but
only an Independent Counsel to which the Board of Directors does not reasonably
object.
(c) Presumptions and Effect of Certain Proceedings.
Except as otherwise expressly provided in this Agreement, the Indemnitee shall
be presumed to be entitled to indemnification under this Agreement upon
submission of a request
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<PAGE> 5
for indemnification together with the Supporting Documentation in accordance
with Section 3(b)(i), and thereafter the Company shall have the burden of proof
to overcome that presumption in reaching a contrary determination. In any
event, if the person or persons empowered under Section 3(b) to determine
entitlement to indemnification shall not have been appointed or shall not have
made a determination within 60 days after receipt by the Company of the request
therefor together with the Supporting Documentation, the Indemnitee shall be
deemed to be entitled to indemnification and shall be entitled to such
indemnification unless (A) the Indemnitee misrepresented or failed to disclose
a material fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The
termination of any Proceeding described in Section 1, or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, adversely affect the
right of the Indemnitee to indemnification or create a presumption that the
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that the Indemnitee had reasonable cause to
believe that his conduct was unlawful.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made
pursuant to Section 3(b) that the Indemnitee is not entitled to indemnification
under this Agreement, (a) the Indemnitee shall be
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<PAGE> 6
entitled to seek an adjudication of his entitlement to such indemnification
either, at the Indemnitee's sole option, in (x) an appropriate court of the
State of Delaware or any other court of competent jurisdiction or (y) an
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association; (b) any such judicial proceeding or
arbitration shall be de novo and the Indemnitee shall not be prejudiced by
reason of such adverse determination; and (c) in any such judicial proceeding
or arbitration the Company shall have the burden of providing that the
Indemnitee is not entitled to indemnification under this Agreement.
(ii) If a determination shall have been made
or deemed to have been made, pursuant to Section 3(b) or (c), that the
Indemnitee is entitled to indemnification, the Company shall be obligated to
pay the amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless (a) the Indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (b) such indemnification
is prohibited by law. In the event that (c) advancement of expenses is not
timely made pursuant to Section 3(a) or (d) payment of indemnification is not
made within five days after a determination of entitlement to indemnification
has been made or deemed to have been made pursuant to Section 4(b) or (c), the
Indemnitee shall be entitled to seek judicial enforcement of the Company's
obligation to pay
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<PAGE> 7
to the Indemnitee such advancement of expenses or indemnification.
Notwithstanding the foregoing, the Company may bring an action, in an
appropriate court in the State of Delaware or any other court of competent
jurisdiction, contesting the right of the Indemnitee to receive indemnification
hereunder due to the occurrence of an event described in subclause (a) or (b)
of this clause (ii) (a "Disqualifying Event"); provided, however, that in any
such action the Company shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Company shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Section 3(d) that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
(iv) In the event that the Indemnitee,
pursuant to this Section 3(d), seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages for breach of,
this Agreement, the Indemnitee shall be entitled to recover from the Company,
and shall be indemnified by the Company against, any expenses actually and
reasonably incurred by him if the Indemnitee prevails in such judicial
adjudication or arbitration. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by the
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<PAGE> 8
Indemnitee in connection with such judicial adjudication or arbitration shall
be prorated accordingly.
(e) Definitions. For the purposes of this Section 3:
(i) "Change in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (A) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20 percent or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board of Directors in office immediately prior
to such acquisition; (B) the Company is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (C) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (including
for this purpose any new director whose election or nomination for election by
the Company's stockholders was approved by a vote of at least a majority of the
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<PAGE> 9
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" means a director of
the Company who is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a
member of a law firm that neither presently is, nor in the past five years has
been, retained to represent: (i) the Company or the Indemnitee in any matter
material to either such party or (ii) any other party to the Proceeding giving
rise to a claim for indemnification under this Agreement. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing under
the law of the State of Delaware, would have a conflict of interest in
representing either the Company or the Indemnitee in an action to determine the
Indemnitee's rights under this Agreement.
SECTION 4 Severability. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceablity of the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be
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<PAGE> 10
affected or impaired thereby; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of
any paragraph of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 5 Cancellation. The Company may cancel the
provisions of this Agreement prospectively only upon thirty (30) days' written
notice to Indemnitee, in order to afford Indemnitee an opportunity to resign
as a director rather than continue to serve absent indemnification.
SECTION 6 Amendments and Waiver. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
SECTION 7 Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
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<PAGE> 11
SECTION 8 No Duplication of Payment. The Company shall not
be liable under this Agreement to make any payment in connection with any claim
made against Indemnitee to the extent Indemnitee has otherwise actually
received payment (under any insurance policy, By-Law or otherwise) of the
amounts otherwise indemnifiable hereunder.
SECTION 9. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such state without
giving effect to the principles of conflicts of laws.
Executed this ____ day of ______.
ROTO-ROOTER, INC.
By:
---------------------------
Name: William R. Griffin
Title: President and Chief
Executive Officer
-------------------------------
(Indemnitee)
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EXHIBIT 7
ARTICLE IX
Indemnification
Section 9.01. Right to Indemnification. The corporation shall to the fullest
extent permitted by applicable law as then in effect indemnify each person (the
"Indemnitee") who was or is involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
without limitation, any action, suit or proceeding by, or in the right of, the
corporation to procure a judgment in its favor) (a "Proceeding") by reason of
the fact that he is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, an employee benefit plan) against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such Proceeding.
Such indemnification shall be a contract right and shall include the right to
receive payment in advance of any expenses incurred by the Indemnitee in
connection with such Proceeding, consistent with the provisions of applicable
law as then in effect.
Section 9.01. Insurance, Contracts and Funding. The corporation may purchase
and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines and amount paid in settlement as specified in
Section 9.01 of this Article or incurred by any Indemnitee in connection with
any Proceeding referred to in Section 9.01 of this Article, to the fullest
extent permitted by applicable law as then in effect. The corporation may enter
into contracts with any director or officer of the corporation in furtherance
of the provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
Section 9.03. Indemnification; Not Exclusive Right. The right of
indemnification provided in this Article shall not be exclusive of any other
rights to which those seeking indemnification may otherwise be entitled, and
the provisions of this Article shall inure to the benefit of the heirs and
legal representatives of any person entitled to indemnification under this
Article and shall be applicable to Proceedings commenced or continuing after
the adoption of this Article, whether arising from acts or omissions occurring
before or after such adoption.
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Section 9.04. Advancement of Expenses; Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies shall
apply with respect to advancement of expenses and the right to indemnification
under this Article:
(a) Advancement of Expenses. All reasonable expenses incurred by or on behalf
of the Indemnitee in connection with any Proceeding shall be advanced to the
Indemnitee by the corporation within 20 days after the receipt by the
corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an undertaking by or
on behalf of the Indemnitee to repay the amounts advanced if it should
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such expenses pursuant to this Article.
(b) Procedure for Determination of Entitlement to Indemnification. (i) To
obtain indemnification under this Article, an Indemnitee shall submit to the
Secretary of the corporation a written request, including such documentation
and information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The determination of the
Indemnitee's entitlement to indemnification shall be made not later than 60
days after receipt by the corporation of the written request for
indemnification together with the Supporting Documentation. The Secretary of
the corporation shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that the Indemnitee
has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this Article shall
be determined in one of the following ways: (a) by a majority vote of the
Disinterested Directors (as hereinafter defined), if they constitute a quorum
of the Board of Directors; (b) by a written opinion of Independent Counsel (as
hereinafter defined) if (x) a Change in Control (as hereinafter defined) shall
have occurred and the Indemnitee so requests or (y) a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (c) by the
stockholders of the corporation (but only if a majority of the Disinterested
Directors, if they constitute a quorum of the Board of Directors, presents the
issue of entitlement to indemnification to the stockholders for their
determination); or (d) as provided in Section 9.04(c).
(iii) In the event the determination of entitlement to indemnification is to be
made by Independent counsel pursuant to Section 904(b)(ii), a majority of the
Disinterested Directors shall select the Independent counsel, but only an
Independent Counsel to which the Indemnitee does not reasonably object,
provided, however, that if a Change of Control shall have occurred, the
Indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which the Board of Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article, the Indemnitee shall be presumed to be
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<PAGE> 3
entitled to indemnification under this Article upon submission of a request for
indemnification together with the Supporting Documentation in accordance with
Section 9.04(b)(i), and thereafter the corporation shall have the burden of
proof to overcome that presumption in reaching a contrary determination. In any
event, if the person or persons empowered under Section 9.04(b) to determine
entitlement to indemnification shall not have been appointed or shall not have
made a determination within 60 days after receipt by the corporation of the
request therefor together with the Supporting Documentation, the Indemnitee
shall be deemed to be entitled to indemnification and the Indemnitee shall be
entitled to such indemnification unless (a) the Indemnitee misrepresented or
failed to disclose a material fact in making the request for indemnification or
in the Supporting Documentation or (b) such indemnification is prohibited by
law. The termination of any Proceeding described in Section 9.01, or of any
claim, issue or matter therein, by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
adversely affect the right of the Indemnitee to indemnification or create a
presumption that the Indemnitee did not act in good faith and in a manner which
he reasonable believed to be in or not opposed to the best interest of the
corporation or, with respect to any criminal Proceeding, that the Indemnitee
had reasonable cause to believe that his conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is made
pursuant to Section 9.04(b) that the Indemnitee is not entitled to
indemnification under this Article, (a) the Indemnitee shall be entitled to
seek an adjudication of his entitlement to such indemnification either, at the
Indemnitee's sole option, in (x) an appropriate court of the State of Delaware
or any other court of competent jurisdiction or (y) an arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association; (b) any such judicial proceeding or arbitration shall
be de novo and the Indemnitee shall not be prejudiced by reason of such adverse
determination; and (c) in any such judicial proceeding or arbitration the
corporation shall have the burden of proving that the Indemnitee is not
entitled to indemnification under this Article.
(ii) If a determination shall have been made or deemed to have been made,
pursuant to Section 9.04(b) or (c), that the Indemnitee is entitled to
indemnification, the corporation shall be obligated to pay the amounts
constituting such indemnification within five days after such determination has
been made or deemed to have been made and shall be conclusively bound by such
determination unless (a) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the Supporting
Documentation or (b) such indemnification is prohibited by law. In the event
that (c) advancement of expenses is not timely made pursuant to Section 9.04(a)
or (d) payment of indemnification is not made within five days after a
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to Section 9.04(b) or (c), the Indemnitee shall be entitled
to seek judicial enforcement of the corporation's obligation to pay to the
Indemnitee such advancement of expenses or indemnification. Notwithstanding
the foregoing, the corporation may bring an action, in an appropriate court in
the State of Delaware or any other court of competent jurisdiction, contesting
the right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (a) or (b) of this clause (ii)(a
"Disqualifying Event"); provided, however, that in any such action the
corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
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(iii) The corporation shall precluded from asserting in any judicial proceeding
or arbitration commenced pursuant to this Section 9.04(d) that the procedures
and presumptions of this Article are not valid, binding and enforceable and
shall stipulate in any such court or before any such arbitrator that the
corporation is bound by all the provisions of this Article.
(iv) In the event that the Indemnitee, pursuant to this Section 9.04(d), seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Article, the Indemnitee shall be
entitled to recover from the corporation, and shall be indemnified by the
corporation against, any expenses actually and reasonably incurred by him if the
Indemnitee prevails in such judicial adjudication or arbitration. If it shall be
determined in such judicial adjudication or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration shall be prorated accordingly.
(e) Definition. For the purposes of this Section 9.04: (i) "Change in Control"
means a change in control of the corporation of a nature that would be required
to be reported in response to Item 6(e) of Section 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the corporation is then subject to such reporting requirement; provided
that, without limitation, such a change in control shall be deemed to have
occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the corporation
representing 5 percent or more of the combined voting power of the
corporation's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such acquisition; (b) the corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (c) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose and new director whose election or
nomination for election by the corporation's stockholders was approved by a
vote of at least a majority of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board of Directors.
(ii) "Disinterested Director" means a director of the corporation who is not or
was not a party to the Proceeding in respect of which indemnification is sought
by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm that
neither presently is, nor in the past five years has been, retained to
represent: (i) the corporation or the Indemnitee in any matter material to
either such party or (ii) any other party to the Proceeding giving rise to a
claim for indemnification under this Article. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing under the law of
the State of Delaware, would have a conflict of interest in representing either
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the corporation or the Indemnitee in an action to determine the Indemnitee's
rights under this Article.
Section 9.05. Severability. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article (including, without limitation, all portions of any
paragraph of this Article containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this Article (including,
without limitation, all portions of any paragraph of this Article containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 9.06. Amendment. No provision of this Article shall be amended
retroactively. In no case shall any amendment of this Article occur without
thirty days' advance written notice to all indemnitees.
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EXHIBIT 8
Indemnification Agreement
AGREEMENT, effective as of ____________________, between Chemed
Corporation, a Delaware corporation (the "Company"), and
_____________________________ ("Indemnitee"), a director and or officer of the
Company.
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to enhance Indemnitee's continued service to the
Company and Indemnitee's reliance on the provisions of the By-Laws of the
Company requiring indemnification under certain circumstances, and in part to
provide Indemnitee with specific contractual assurance that the protection
promised by such By-Laws will be available, the Company wishes to provide in
this Agreement for the indemnification of, and the advancement of, expenses to
Indemnitee to the fullest extent permitted by law.
NOW WHEREAS, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION 1 Right to Indemnification. The Company shall to the
fullest extent permitted by applicable law as then in effect indemnify the
undersigned person ("Indemnitee") in the event he becomes involved in any
manner (including, without limitation, as a party or a witness) or is
threatened to be made so involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (including without limitation, any action, suit
or proceeding by or in the right of
1
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the Company to procure a judgment in its favor) (a "Proceeding") by reason of
the fact that he is or was a director and or officer of the Company, or is or
was serving at the request of the Company as a director and/or officer of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit plan) against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such Proceeding.
Such indemnification shall be a contract right and shall include the right to
receive payment in advance of any expenses incurred by the Indemnitee in
connection with such Proceeding, consistent with the provisions of applicable
law as then in effect.
SECTION 2 Indemnification; Not Exclusive Right. The right of
indemnification provided in this Agreement shall not be exclusive of any other
rights to which the Indemnitee may otherwise be entitled, and the provisions of
this Agreement shall inure to the benefit of the heirs and legal
representatives of the Indemnitee and shall be applicable to Proceedings
commenced or continuing after the adoption of this Agreement, whether arising
from acts or omissions occurring before or after its execution.
SECTION 3 Advancement of Expenses; Procedures; Presumptions
and Effect of Certain Proceedings; Remedies. In furtherance, but not in
limitation of the foregoing provisions, the following procedures, presumptions
and remedies shall apply with respect to advancement of expenses and the right
to indemnification under this Agreement:
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(a) Advancement of Expenses. All reasonable expenses
incurred by or on behalf of the Indemnitee in connection with any Proceeding
shall be advanced to the Indemnitee by the Company within 20 days after the
receipt by the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior to or
after final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and, and if
required by law at the time of such advance, shall include or be accompanied by
an undertaking by or on behalf of the Indemnitee to repay the amounts advanced
if it should ultimately be determined that the Indemnitee is not entitled to
be indemnified against such expenses pursuant to this Agreement.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification under this Agreement, the
Indemnitee shall submit to the Secretary of the Company a written request,
including such documentation and information as is reasonably available to the
Indemnitee and reasonably necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting Documentation").
The determination of the Indemnitee's entitlement to indemnification shall be
made not later than 60 days after receipt by the Company of the written request
for indemnification together with the Supporting Documentation. The Secretary
of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that the Indemnitee
has requested indemnification.
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(ii) The Indemnitee's entitlement to
indemnification under this Agreement shall be determined in one of the
following ways: (a) by a majority vote of the Disinterested Directors (as
hereinafter defined), if they constitute a quorum of the Board of Directors;
(b) by a written opinion of Independent Counsel (as hereinafter defined) if (x)
a Change of Control (as hereinafter defined) shall have occurred and the
Indemnitee so requests or (y) a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, a majority of
such Disinterested Directors so directs; (c) by the stockholders of the Company
(but only if a majority of the Disinterested Directors, if they constitute a
quorum of the Board of Directors, presents the issue of entitlement to
indemnification to the stockholders for their determination); or (D) as
provided in Section 3(c).
(iii) In the event the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 3(b)(ii), a majority of the Disinterested Directors shall select the
Independent Counsel, but only an Independent Counsel to which the Indemnitee
does not reasonably object; provided, however, that if a Change of Control
shall have occurred, the Indemnitee shall select such Independent Counsel, but
only an Independent Counsel to which the Board of Directors does not reasonably
object.
(c) Presumptions and Effect of Certain Proceedings.
Except as otherwise expressly provided in this Agreement, the Indemnitee shall
be presumed to be entitled to indemnification under this Agreement upon
submission of a request
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for indemnification together with the Supporting Documentation in accordance
with Section 3(b)(i), and thereafter the Company shall have the burden of proof
to overcome that presumption in reaching a contrary determination. In any
event, if the person or persons empowered under Section 3(b) to determine
entitlement to indemnification shall not have been appointed or shall not have
made a determination within 60 days after receipt by the Company of the request
therefor together with the Supporting Documentation, the Indemnitee shall be
deemed to be entitled to indemnification and shall be entitled to such
indemnification unless (A) the Indemnitee misrepresented or failed to disclose
a material fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The
termination of any Proceeding described in Section 1, or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, adversely affect the
right of the Indemnitee to indemnification or create a presumption that the
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that the Indemnitee had reasonable cause to
believe that his conduct was unlawful.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made
pursuant to Section 3(b) that the Indemnitee is not entitled to indemnification
under this Agreement, (a) the Indemnitee shall be
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entitled to seek an adjudication of his entitlement to such indemnification
either, at the Indemnitee's sole option, in (x) an appropriate court of the
State of Delaware or any other court of competent jurisdiction or (y) an
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association; (b) any such judicial proceeding or
arbitration shall be de novo and the Indemnitee shall not be prejudiced by
reason of such adverse determination; and (c) in any such judicial proceeding
or arbitration the Company shall have the burden of providing that the
Indemnitee is not entitled to indemnification under this Agreement.
(ii) If a determination shall have been made
or deemed to have been made, pursuant to Section 3(b) or (c), that the
Indemnitee is entitled to indemnification, the Company shall be obligated to
pay the amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless (a) the Indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (b) such indemnification
is prohibited by law. In the event that (c) advancement of expenses is not
timely made pursuant to Section 3(a) or (d) payment of indemnification is not
made within five days after a determination of entitlement to indemnification
has been made or deemed to have been made pursuant to Section 4(b) or (c), the
Indemnitee shall be entitled to seek judicial enforcement of the Company's
obligation to pay
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to the Indemnitee such advancement of expenses or indemnification.
Notwithstanding the foregoing, the Company may bring an action, in an
appropriate court in the State of Delaware or any other court of competent
jurisdiction, contesting the right of the Indemnitee to receive indemnification
hereunder due to the occurrence of an event described in subclause (a) or (b)
of this clause (ii) (a "Disqualifying Event"); provided, however, that in any
such action the Company shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Company shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Section 3(d) that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
(iv) In the event that the Indemnitee,
pursuant to this Section 3(d), seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages for breach of,
this Agreement, the Indemnitee shall be entitled to recover from the Company,
and shall be indemnified by the Company against, any expenses actually and
reasonably incurred by him if the Indemnitee prevails in such judicial
adjudication or arbitration. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by the
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Indemnitee in connection with such judicial adjudication or arbitration shall
be prorated accordingly.
(e) Definitions. For the purposes of this Section 3:
(i) "Change in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (A) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20 percent or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board of Directors in office immediately prior
to such acquisition; (B) the Company is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or (C) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (including
for this purpose any new director whose election or nomination for election by
the Company's stockholders was approved by a vote of at least a majority of the
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directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" means a director of
the Company who is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a
member of a law firm that neither presently is, nor in the past five years has
been, retained to represent: (i) the Company or the Indemnitee in any matter
material to either such party or (ii) any other party to the Proceeding giving
rise to a claim for indemnification under this Agreement. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing under
the law of the State of Delaware, would have a conflict of interest in
representing either the Company or the Indemnitee in an action to determine the
Indemnitee's rights under this Agreement.
SECTION 4 Severability. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceablity of the
remaining provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be
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affected or impaired thereby; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of
any paragraph of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 5 Cancellation. The Company may cancel the
provisions of this Agreement prospectively only upon thirty (30) days' written
notice to Indemnitee, in order to afford Indemnitee an opportunity to resign
as a director rather than continue to serve absent indemnification.
SECTION 6 Amendments and Waiver. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
SECTION 7 Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
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SECTION 8 No Duplication of Payment. The Company shall not
be liable under this Agreement to make any payment in connection with any claim
made against Indemnitee to the extent Indemnitee has otherwise actually
received payment (under any insurance policy, By-Law or otherwise) of the
amounts otherwise indemnifiable hereunder.
SECTION 9. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such state without
giving effect to the principles of conflicts of laws.
Executed this day of .
CHEMED CORPORATION
By:
---------------------------
Name: Kevin J. McNamara
Title: President
-------------------------------
(Indemnitee)
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EXHIBIT 9
[CHEMED LOGO]
CHEMED CORPORATION
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Chemed Corporation (hereinafter called the "Company")
of proxies to be used at the Annual Meeting of Stockholders ("Annual Meeting")
of the Company to be held on May 20, 1996 and any adjournments thereof.The
Company's mailing address is 2600 Chemed Center, 255 East Fifth Street,
Cincinnati, Ohio 45202.The approximate date on which this Proxy Statement and
the enclosed proxy are being sent to stockholders is April 8, 1996.Each valid
proxy received in time will be voted at the meeting and, if a choice is
specified on the proxy, the shares represented thereby will be voted
accordingly.The proxy may be revoked by the stockholder at any time before the
meeting by providing notice to the Secretary.
Only stockholders of record as of the close of business on March 25, 1996
will be entitled to vote at the Annual Meeting or any adjournments thereof.On
such date, the Company had outstanding 9,996,041 shares of capital stock, par
value $1 per share ("Capital Stock"), entitled to one vote per share.
ELECTION OF DIRECTORS
Sixteen directors are to be elected at the Annual Meeting to serve until
the following annual meeting of stockholders and until their successors are duly
elected and qualified.Set forth below are the names of the persons to be
nominated by the Board of Directors, together with a description of each
person's principal occupation during the past five years and other pertinent
information.
Unless authority is withheld or names are stricken, it is intended that the
shares covered by each proxy will be voted for the nominees listed.Votes that
are withheld will be excluded entirely from the vote and will have no effect.The
Company anticipates that all nominees listed in this Proxy Statement will be
candidates when the election is held.However, if for any reason any nominee is
not a candidate at that time, proxies will be voted for any substitute nominee
designated by the Board of Directors (except where a proxy withholds authority
with respect to the election of directors).The affirmative vote of a plurality
of the votes cast will be necessary to elect each of the nominees for director.
NOMINEES
EDWARD L. HUTTON Mr. Hutton is Chairman and Chief Executive
Director since 1970 Officer of the Company and has held these
Age: 76 positions since November 1993. Previously,
from 1970 to November 1993, he served the
Company as President and Chief Executive
Officer.Mr. Hutton is also the Chairman of
Omnicare, Inc., Cincinnati, Ohio (healthcare
products and services), a public corporation
in which the Company holds a 2.8 percent
ownership interest (hereinafter "Omnicare"),
Chairman of Roto-Rooter, Inc., Cincinnati,
Ohio (plumbing and drain cleaning services
and service contracts), a 58 percent-owned
subsidiary of the Company (hereinafter
"Roto-Rooter"), and Chairman of National
Sanitary Supply Company, Cincinnati, Ohio
(sanitary and maintenance supplies
distributor), an 84 percent-owned subsidiary
of the Company (hereinafter "National"). Mr.
Hutton is a director of National, Omnicare
and Roto-Rooter. Mr. Hutton is the father of
Thomas C. Hutton, a Vice President and a
director of the Company.
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KEVIN J. MCNAMARA Mr. McNamara is President of the Company and
Director since 1987 has held this position since August
Age: 42 1994.Previously, he served as Executive Vice
President, Secretary and General Counsel from
November 1993, August 1986 and August 1986,
respectively, to August 1994.From May 1992 to
November 1993, he was a Vice Chairman of the
Company and from August 1986 to May 1992 he
was a Vice President of the Company.He is
also Vice Chairman of Roto-Rooter and
National.He is a director of National,
Omnicare and Roto-Rooter.
JAMES A. CUNNINGHAM Mr. Cunningham is a Senior Chemical Adviser
Director since 1990 with Schroder Wertheim & Co. Incorporated,
Age: 51 New York, New York (an investment banking,
asset management and securities firm), and
has held this position since March
1992.Previously, he was a Managing Director
of Furman Selz Incorporated, New York, New
York (an institutional investment company),
and held this position from October 1990 to
March 1992.Mr. Cunningham is a director of
National and Roto-Rooter.
JAMES H. DEVLIN Mr. Devlin is a Vice President of the Company
Director from May 1991 and Group Executive of the Company's Omnia
to May 1992 and since Group (formerly known as the "Veratex Group")
February 1993 and has held these positions since December
Age: 49 1992. Previously, Mr. Devlin was an Executive
Vice President of Omnicare from May 1989 to
December 1992 and held the same position with
the Veratex Group since May 1987 when it was
owned and operated by Omnicare.
CHARLES H. ERHART, JR. Mr. Erhart retired as President of W.R. Grace
Director since 1970 and Co. (hereinafter "Grace"), Boca Raton,
Age: 70 Florida (international specialty chemicals
and healthcare) in August 1990, having held
that position since July 1989. Previously, he
was Chairman of the Executive Committee of
Grace and held that position from November
1986 to July 1989. He is a director of
National, Omnicare and Roto-Rooter.
JOEL F. GEMUNDER Mr. Gemunder is President of Omnicare and has
Director since 1977 held this position since May 1981.He is also
Age: 56 a director of Omnicare.
PATRICK P. GRACE Mr. Grace is a consultant and investment
Not previously a director adviser. Previously, from February 1991 to
Age: 40 October 1995, he was President of Grace
Logistics Services, Inc., Greenville, South
Carolina (a full service provider of
logistical support), a subsidiary of Grace.
From March 1988 to February 1991, he served
as Chief Financial Officer at Kascho GmbH,
Berlin, Germany (manufacturer of chocolate
products), a subsidiary of Grace.
WILLIAM R. GRIFFIN Mr. Griffin is President and Chief Executive
Director since 1981 Officer and a director of Roto-Rooter and has
Age: 52 held these positions since May 1985. Mr.
Griffin is also an Executive Vice President
of the Company and has held this position
since May 1991. Mr. Griffin is also a
director of Barefoot Inc., and Globe Business
Resources.
THOMAS C. HUTTON Mr. Hutton is a Vice President of the Company
Director since 1985 and has held this position since February
Age: 45 1988. Mr. Hutton is a director of National,
Omnicare and Roto-Rooter.He is a son of
Edward L. Hutton, the Chairman and Chief
Executive Officer and a director of the
Company.
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WALTER L. KREBS Mr. Krebs is Director-Financial Services of
Director from May 1989 Diversey Corporation, Detroit, Michigan
to April 1991 and (specialty chemicals) ("Diversey"), and has
since May 1995 held this position since April
Age: 63 1991.Previously, from January 1990 to April
1991, he was a Senior Vice President and the
Chief Financial Officer of the Company's then
wholly owned subsidiary, DuBois Chemicals,
Inc. ("DuBois").
SANDRA E. LANEY Ms. Laney is Senior Vice President and the
Director since 1986 Chief Administrative Officer of the Company
Age: 52 and has held these positions since November
1993 and May 1991, respectively.Previously,
from May 1984 to November 1993, she was a
Vice President of the Company.Ms. Laney is a
director of National, Omnicare and
Roto-Rooter.
JOHN M. MOUNT Mr. Mount is a Principal of Lynch-Mount
Director from May 1986 Associates, Cincinnati, Ohio (management
to April 1991 and since consulting), and has held this position since
February 1994 November 1993.From April 1991 to November
Age: 54 1993, Mr. Mount was Senior Vice President of
Diversey and President of Diversey's DuBois
Industrial division.Previously, from May 1989
to April 1991, Mr. Mount was an Executive
Vice President of the Company and President
of DuBois.He held the latter position from
September 1986 to April 1991.
TIMOTHY S. O'TOOLE Mr. O'Toole is an Executive Vice President
Director since August 1991 and the Treasurer of the Company and has held
Age: 40 these positions since May 1992.He is also the
Chairman and Chief Executive Officer of
Patient Care, Inc., a 100 percent-owned
subsidiary of the Company.From February 1989
to May 1992, he was a Vice President and
Treasurer of the Company.He is a director of
Vitas Healthcare Corporation, National,
Omnicare and Roto-Rooter.
D. WALTER ROBBINS, JR. Mr. Robbins retired as Vice Chairman of Grace
Director since 1970 in January 1987 and thereafter became a
Age: 76 consultant to Grace until July 1995. He is a
director of National, Omnicare and
Roto-Rooter.
PAUL C. VOET Mr. Voet is an Executive Vice President of
Director since 1980 the Company and has held this position since
Age: 49 May 1991.Previously, from May 1988 to
November 1993, he also served the Company as
a Vice Chairman.Mr. Voet is President and
Chief Executive Officer and a director of
National.
GEORGE J. WALSH III Mr. Walsh is a partner with the law firm of
Director since November 1995 Gould & Wilkie, New York, New York, and has
Age: 50 held this position since January 1978.
DIRECTORS EMERITI
In May 1983, the Board of Directors adopted a policy of conferring the
honorary designation of Director Emeritus upon former directors who have made
valuable contributions to the Company and whose continued advice is believed to
be of value to the Board of Directors.Under this policy, each Director Emeritus
is furnished with a copy of all agendas and other materials furnished to members
of the Board of Directors generally and is invited to attend all meetings of the
Board; however, a Director Emeritus is not entitled to vote on any matters
presented to the Board.In 1985, Dr. Herman B Wells, who served as a director of
the Company from 1970 until 1985, was designated as a Director Emeritus; in
1991, Leon Levy, who served as a director of the Company from 1982 to 1991, was
designated as a Director Emeritus; and in 1994, Neal Gilliatt, who served as a
director of the Company from 1970 to 1994, was designated as a Director
Emeritus.Each Director Emeritus is paid an annual fee of $6,200, and for each
meeting attended, a Director Emeritus is paid $200.
It is anticipated that at the annual meeting of the Board of Directors,
each of Mr. Levy, Mr. Gilliatt and Dr. Wells will again be designated as a
Director Emeritus.
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COMPENSATION OF DIRECTORS
Throughout most of 1995, each member of the Board of Directors who was not
a regular employee of the Company and Messrs. Griffin and Voet who are the
President and Chief Executive Officer of Roto-Rooter and National, respectively,
were paid an annual fee of $3,200, which was increased to $5,000 a year
effective November 1, 1995, and each member of a Committee of the Board (other
than its chairman) was paid an additional annual fee of $1,600.For each meeting
of the Board of Directors attended, a director was paid $800. A Committee member
was paid $800 for each meeting of a Committee he attended unless the Committee
met on the same day as the Board of Directors met, in which event, the Committee
member was paid $400 for his attendance at the Committee meeting.Mr. Mount also
received $9,000 for attending quarterly management meetings.
In addition, in May 1995 each member of the Board of Directors (other than
those serving on the Incentive Committee of either the Company or an affiliated
company) was granted an unrestricted stock award covering 100 shares of the
Company's Capital Stock under the Company's 1986 Stock Incentive Plan.Those
directors who are members of the Incentive Committee of either the Company or an
affiliated company were paid the cash equivalent of the 100 share stock award or
$3,225.
Throughout 1995, the chairman of each Committee of the Board of Directors
was paid an annual fee in addition to the attendance fees referred to above.The
chairman of the Audit Committee was paid at the rate of $5,350 per annum and the
chairman of each of the Incentive Committee and the Compensation Committee was
paid at the rate of $2,568 per annum.In addition, each member of the Board of
Directors and of a Committee was reimbursed for his reasonable travel expenses
incurred in connection with such meetings.
The Company has a deferred compensation plan for non-employee directors
under which certain directors who are non-regular employees of the Company or of
a wholly- or partially-owned subsidiary of the Company participate.Under the
plan, which is not a tax-qualified plan, an account is established for each
participant to which amounts are credited quarterly at the rate of $4,000 per
annum. Amounts credited to these accounts are used to purchase shares of the
Company's Capital Stock and all dividends received on such shares are reinvested
in such Capital Stock.Each participant is entitled to receive the balance in his
account within 90 days following the date he ceases to serve as a director.
COMMITTEES AND MEETINGS OF THE BOARD
The Company has the following Committees of the Board of Directors:Audit
Committee, Compensation Committee and Incentive Committee.It does not have a
nominating committee of the Board of Directors.
The Audit Committee (a) recommends to the Board of Directors a firm of
independent accountants to audit the Company and its consolidated subsidiaries,
(b) reviews and reports to the Board of Directors on the Company's annual
financial statements and the independent accountants' report on such financial
statements and (c) meets with the Company's senior financial officers, internal
auditors and independent accountants to review audit plans and work and other
matters regarding the Company's accounting, financial reporting and internal
control systems.The Audit Committee consists of Messrs. Erhart, Mount and
Robbins.The Audit Committee met on two occasions during 1995.
The Compensation Committee makes recommendations to the Board of Directors
concerning (a) salary and incentive compensation payable to officers and certain
other key employees of the Company, (b) establishment of incentive compensation
plans and programs generally and (c) adoption and administration of certain
employee benefit plans and programs.The Compensation Committee consists of
Messrs. Cunningham, Erhart, Mount and Robbins.During 1995, the Compensation
Committee met on four occasions.
The Incentive Committee administers the Company's four Stock Incentive
Plans and its 1983 Incentive Stock Option Plan.In addition, the Incentive
Committee makes (a) grants of stock options and stock awards to key employees of
the Company and (b) recommendations to the Board of Directors concerning
additional year-end contributions by the Company under the Savings and
Investment Plan.The Incentive Committee consists of Messrs. Cunningham, Erhart
and Robbins.The Incentive Committee met on two occasions during 1995.
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During 1995, there were five meetings of the Board of Directors, and each
director attended at least 75 percent of the aggregate of (a) the total number
of meetings held by the Board of Directors and (b) the total number of meetings
held by all Committees of the Board of Directors on which he served that were
held during the period for which he was a director or member of any such
Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Laney who served on the Compensation Committee for part of 1995 is a
Senior Vice President and the Chief Administrative Officer of the Company. Mr.
Mount who is on the Compensation Committee was formerly an Executive Vice
President of the Company.
EXECUTIVE COMPENSATION
JOINT REPORT OF THE COMPENSATION COMMITTEE AND INCENTIVE COMMITTEE ON EXECUTIVE
COMPENSATION
The Company believes that executive compensation must align executive
officers' interests with those of the Company's stockholders and that such are
served by having compensation directly and materially linked to financial and
operating performance criteria which, when successfully achieved, will enhance
stockholder value.
The Company attempts to achieve this objective with an executive
compensation package for its senior executives which combines base salary,
annual cash incentive compensation, long-term incentive compensation in the form
of stock options and restricted stock awards along with various benefit plans,
including pension plans, savings plans and medical benefits generally available
to the employees of the Company.
The executive compensation program is administered through the coordinated
efforts of the Compensation Committee and the Incentive Committee of the Board
of Directors.The membership of the Incentive Committee is composed of outside
directors (i.e. non-employees of the Company) and the Compensation Committee is
composed of four outside directors.The Compensation Committee is responsible for
the review, approval and recommendation to the Board of Directors of matters
concerning base salary and annual cash incentive compensation for key executives
of the Company.The recommendations of the Compensation Committee on such matters
must be approved by the full Board of Directors.The Incentive Committee
administers the Company's stock incentive plans under which it reviews and
approves grants of stock options and restricted stock awards.
Both the Compensation and Incentive Committees may use their discretion to
set executive compensation where, in their collective judgment, external,
internal or individual circumstances warrant.
Following is a discussion of the components of the executive officer
compensation program.
In determining base salary levels for the Company's executive officers, the
Compensation Committee takes into account the magnitude of responsibility of the
position, individual experience and performance and specific issues particular
to the Company.In general, base salaries are set at levels believed by this
Compensation Committee to be sufficient to attract and retain qualified
executives when considered with the other components of the Company's
compensation structure.
The Compensation Committee believes that a significant portion of total
cash compensation should be linked to annual performance criteria.Consequently,
the purpose of annual incentive compensation for senior executives and key
managers is to provide a direct financial incentive in the form of an annual
cash bonus to these executives to achieve their business unit's and the
Company's annual goals.Operational and financial goals are established at the
beginning of each fiscal year and generally take into account such measures of
performance as sales and earnings growth, profitability, cash flow and return on
investment.Other non-financial measures of performance relate to organizational
development, product or service expansion and strategic positioning of the
Company's assets.
Individual performance is also taken into account in determining individual
bonuses.It is the Company's belief that bonuses as a percentage of a senior
executive's salary should be sufficiently high to provide a major incentive for
achieving annual performance targets.Bonuses for senior executives of the
Company generally range from 25 percent - 100 percent of base salary.
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The stock option and restricted stock program forms the basis of the
Company's incentive plans for executive officers and key managers.The objective
of these plans is to align executive and long-term stockholder interests by
creating a strong and direct link between executive pay and stockholder return.
Stock options and restricted stock awards are granted annually and are
generally regarded as the primary incentive for long-term performance as they
are granted at fair market value and have vesting restrictions which generally
lapse over three- or four-year periods.The Committee considers each grantee's
current option and award holdings in making grants.Both the amounts of
restricted stock awards and proportion of stock options increase as a function
of higher salary and position of responsibility within the Company.
The Compensation Committee and Incentive Committee have considered, and are
continuing to review, the qualifying compensation regulations issued by the
Internal Revenue Service in December 1993.Generally, the Committees structure
compensation arrangements to achieve deductibility under the tax regulations,
except where the benefit of such deductibility is outweighed by the need for
flexibility or the attainment of other corporate objectives.
The base salary of Mr. E. L. Hutton, Chairman and Chief Executive Officer
of the Company, during 1995 was $550,000.His bonus in respect of 1995 services
was $297,600 which represents an increase of $51,600 over 1994 and 54 percent of
his current base salary.In addition, Mr. Hutton received a special bonus of
$235,000 in connection with the Company's 1995 capital gains.Restricted stock
awards having a value of $266,200 were granted to Mr. Hutton in respect of 1995
services and Mr. Hutton was granted 48,000 stock options.Factors considered in
establishing the compensation levels in 1995 for Mr. Hutton were the Company's
sales growth of 8.4 percent and the growth of income from continuing operations
of 21 percent.The Compensation Committee and the Incentive Committee believe
that Mr. Hutton's base salary, the increase in his cash bonus and the restricted
stock awards and stock options granted to Mr. Hutton in respect of 1995 services
are consistent with his performance as measured by these factors and the other
criteria discussed above.
Compensation Committee Incentive Committee
--------------------- -----------------
Charles H. Erhart, Jr., Chairman D. Walter Robbins, Jr., Chairman
James A. Cunningham Charles H. Erhart, Jr.
John M. Mount James A. Cunningham
D. Walter Robbins, Jr.
6
<PAGE> 7
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid to the Chief Executive
Officer and the four most highly compensated executive officers of the Company
for the past three years for all services rendered in all capacities to the
Company and its subsidiaries:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- -------------------- ------------------- ---------------------------------------------------------------------------
SECURITIES
UNDERLYING
CHEMED SECURITIES ROTO-ROOTER SECURITIES NATIONAL SECURITIES SERVICE
RESTRICTED UNDERLYING RESTRICTED UNDERLYING RESTRICTED UNDERLYING AMERICA
NAME AND STOCK CHEMED STOCK ROTO-ROOTER STOCK NATIONAL STOCK ALL OTHER
PRINCIPAL BONUS AWARDS STOCK AWARDS STOCK AWARDS STOCK OPTIONS COMPENSATION
POSITION YEAR SALARY($) ($)(1) ($)(2) OPTIONS(#) ($)(3) OPTIONS(#) ($)(4) OPTIONS(#) (#)(5) ($)
- -------------------- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
E.L. Hutton 1995 $550,000 $532,600 $266,200 48,000 $115,000 -0- $109,982 40,000 -0- $ 635,003(6)
Chairman and 1994 500,000 472,000 220,000 42,000 100,000 10,000 79,625 -0- -0- 175,584
CEO 1993 435,000 224,000 191,000 45,000 120,000 31,500 51,450 -0- 10,000 144,057
K.J. McNamara 1995 246,000 143,250 72,600 30,000 18,000 -0- 17,496 5,000 -0- 183,863(7)
President 1994 146,000 132,750 60,000 17,000 7,000 1,000 12,625 -0- -0- 49,767
1993 135,090 32,500 27,000 16,000 4,500 3,000 7,350 -0- -0- 40,757
P.C. Voet 1995 264,500 141,250 10,000 7,000 -0- -0- 109,982 40,000 -0- 263,211(8)
Executive Vice 1994 244,000 120,000 -0- 5,000 -0- -0- 79,625 -0- -0- 57,278
President 1993 234,956 70,000 -0- 5,000 -0- -0- 55,125 -0- -0- 59,113
T.S. O'Toole 1995 150,000 63,000 66,550 21,000 10,000 -0- 11,503 2,000 -0- 128,830(9)
Executive Vice 1994 105,000 52,300 55,000 19,000 6,000 1,000 9,188 -0- 1,500 23,268
President and 1993 84,186 28,300 27,000 16,000 5,500 3,000 7,350 -0- -0- 34,864
Treasurer
S. E. Laney 1995 148,000 139,000 60,500 21,000 10,000 -0- 11,503 3,000 -0- 167,074(10)
Senior Vice 1994 105,000 129,500 50,000 17,000 5,000 1,000 9,188 -0- 1,500 27,479
President and 1993 84,186 23,500 20,000 16,000 3,500 3,000 7,350 -0- -0- 32,819
Chief
Administrative
Officer
</TABLE>
7
<PAGE> 8
SUMMARY COMPENSATION TABLE (CONTINUED)
(1) Bonuses paid in 1995 include the following amounts which were paid as
special bonuses in connection with the Company's 1995 capital gains:E. L.
Hutton - $235,000; K. J. McNamara - $100,000; P. C. Voet - $35,000; T. S.
O'Toole - $36,000; and S. E. Laney - $100,000.
(2) The number and value of the aggregate restricted shares of Chemed Capital
Stock held by the named executives at December 31, 1995, were as follows:
E. L. Hutton - 12,152 shares, $472,409; K. J. McNamara - 2,368 shares,
$92,056; P. C. Voet - -0-; T. S. O'Toole - 2,416 shares, $93,922; and S. E.
Laney - 2,018 shares, $78,494.Restricted shares vest evenly over a
three-year or five-year period.Recipients receive dividends on the awarded
shares and are entitled to vote them, whether or not vested.
(3) All of the shares of Roto-Rooter Common Stock awarded to Messrs. McNamara
and O'Toole and Ms. Laney with respect to 1993, 1994 and 1995 were
non-restricted.At December 31, 1995, Mr. Hutton held, in the aggregate,
6,707 restricted shares of Roto-Rooter Common Stock having a value of
$219,654.Restricted shares vest evenly over a three-year period.Recipients
receive dividends on the awarded shares and are entitled to vote them,
whether or not vested.
(4) The number and value of the aggregate restricted shares of National Common
Stock held by the named executives at December 31, 1995 were as follows: E.
L. Hutton - 18,662 shares, $219,279; K. J. McNamara - 2,889 shares,
$33,946; P. C. Voet - 18,862 shares, $221,629; T. S. O'Toole - 2,129
shares, $25,016; and S. E. Laney - 2,129 shares, $25,016.Restricted shares
vest evenly over a three-year or four-year period.Recipients receive
dividends on the awarded shares and are entitled to vote them, whether or
not vested.
(5) Service America Systems, Inc. ("Service America"), formerly known as
Convenient Home Services, Inc., is 30 percent owned by the Company and 70
percent owned by Roto-Rooter.
(6) Includes the following amounts: $215,676 allocated to Mr. Hutton's account
under the Company's Employee Stock Ownership Plans ("ESOP") with respect to
1995; $378,221 allocated to Mr. Hutton's account under the ESOP with
respect to an adjustment for prior periods ($169,008 for 1991, $121,075 for
1992, $29,496 for 1993, $46,719 for 1994, $11,923 for $1995), and vesting
over a five-year period beginning September 1995 ("ESOP Adjustment"); a
$38,802 premium payment to purchase term life insurance under the Company's
Executive Salary Protection Plan ("ESP"); and a $2,304 premium payment for
term life insurance.
(7) Includes the following amounts:$83,209 allocated to Mr. McNamara's account
under the ESOP with respect to 1995; $69,260 allocated to Mr. McNamara's
account under the ESOP with respect to the ESOP Adjustment ($33,041 for
1991, $15,329 for 1992, $5,405 for 1993, $13,300 for 1994, $2,185 for
1995); a $351 premium payment to purchase term life insurance under the
ESP; a $1,607 premium payment for term life insurance; $13,735, which is
the value of premium payments made by the Company for the benefit of Mr.
McNamara under a split dollar life insurance policy, which provides for the
refund of premiums to the Company upon termination of the policy ("Split
Dollar Policy"); $8,088 in director fees from Roto-Rooter; and $7,613 in
director fees from National.
(8) Includes the following amounts:$78,331 allocated to Mr. Voet's account
under the ESOP with respect to 1995; $163,568 allocated to Mr. Voet's
account under the ESOP with respect to the ESOP Adjustment ($77,452 for
1991, $51,504 for 1992, $12,715 for 1993, $16,741 for 1994, $5,156 for
1995); a $1,691 premium payment to purchase term life insurance under the
ESP; a $2,264 premium payment for term life insurance; and $17,357, which
is the value of premium payments made by the Company for the benefit of Mr.
Voet under a Split Dollar Policy.
(9) Includes the following amounts:$44,406 allocated to Mr. O'Toole's account
under the ESOP with respect to 1995; $63,810 allocated to Mr. O'Toole's
account under the ESOP with respect to the ESOP Adjustment ($32,404 for
1991, $17,036 for 1992, $4,654 for 1993, $7,704 for 1994, $2,012 for 1995);
a $1,112 premium payment for term life insurance; $6,541, which is the
value of premium payments made by the Company for the benefit of Mr.
O'Toole under a Split Dollar Policy; $6,998 in director fees from
Roto-Rooter; and $5,963 in director fees from National.
(10) Includes the following amounts:$72,055 allocated to Ms. Laney's account
under the ESOP with respect to 1995; $66,670 allocated to Ms. Laney's
account under the ESOP with respect to the ESOP Adjustment ($31,634 for
1991, $16,163 for 1992, $4,437 for 1993, $12,335 for 1994, $2,101 for
1995); a $1,377 premium payment for term life insurance; $10,321, which is
the value of premium payments made by the Company for the benefit of Ms.
Laney under a Split Dollar Policy; $9,188 in director fees from
Roto-Rooter; and $7,463 in director fees from National.
8
